Archive for March, 2012

February Producer Prices

Friday, March 30th, 2012

The Bureau of Labor Statistics (BLS) reported that wholesale prices rose a strong 0.4% in February.  Referred to as the Producer Price Index (PPI), this measure helps provide an early warning of future inflation since producers can be expected to at least try to push their rising costs through to the final consumer.  While this monthly increase is rather hefty, the year-over-year rate of increase fell from January’s 4.1% to 3.3% in February.  Since these numbers are not seasonally adjusted, they give us a truer sense of current prices pressures and despite the monthly decline this level is definitely higher than what the Federal Reserve would like to see.

The primary culprit driving costs higher in February was energy (up 1.3%, offsetting a 0.5% January drop), especially gasoline which climbed 4.3% on the back of a 2.0% jump to begin the year.  Interestingly, food costs actually shaved off just a hair, down 0.1%, adding a bit to the 0.3% January decline.

The BLS also reports a core PPI figure which removes both energy and food costs.  The core rose 0.2% as expected and now is rising 3.0% year-over-year, the same as we saw for January.  Much of the blame here is attributable to pharmaceutical preparations with an additional kick provided by civilian aircraft.   Again, this annualized number is much higher than that level generally seen by economists as the top of the Fed’s desired range.  Should this become a trend, it suggests Bernanke and Company may find reasons to begin raising interest rates well before their recently announced estimate of late 2014.

February’s Consumer Prices

Thursday, March 29th, 2012

The Bureau of Labor Statistics (BLS) said inflation as measured by their Consumer Price Index (CPI) rose 0.4% at the headline level in February.  While this adds to the 0.2% gain seen in January, the year-over-year increase at 2.9% (sans any seasonal adjustments) remains unchanged.  As we recently saw with producer prices, much of this month’s jump is attributable to a higher energy component (up 3.2%), led by gasoline which soared 6.0% on top of January’s 0.9% increase.  Food prices, which began the year with a 0.2% hop, were unchanged in February.

The BLS also releases a core CPI number which deletes food and energy; it rose 0.1%, half of what was expected by consensus, and half the 0.2% rise recorded for January.  The year-over-year core figure fell 0.1% from the prior month but remains a bit elevated at 2.2%, still above what most economists see as the Federal Reserve’s target range of 1.7% to 2.0%.

This report is a bit confusing since it shows an increasing trend at the headline level while the core rate’s numbers softened a touch.  It is the latter which most analysts feel garners the greatest amount of attention from the Fed, so there is comfort in its attenuating rate of increase however temporary that may prove to be.  Given the influence of higher energy prices on the headline rate which may be attributable in large part to increased Mid-East tensions, the Fed believes this increase could be short lived.  We certainly hope so, for many reasons.

February Employment

Wednesday, March 28th, 2012

When it comes to economic indicators, few are watched the way the monthly jobs number is observed.  The February report must have made many people happy as the headline figure from the Bureau of Labor Statistics shows employers added 227,000 to their payrolls.  This follows January’s upwardly revised jump of 284,000.  This is the third month in a row of over 200,000 new hires by the employers surveyed.  The unemployment rate remained steady at 8.3 percent as enough new participants joined or rejoined the labor force to offset the increase in those with jobs.

It is tough to find reasons to be discouraged by this report.  Private payrolls increased by 233,000; this means the country’s various governments have has slowed their monthly release of workers to just 6,000.  Hourly wages managed to increase by $0.03 an hour for the month.  Year-over-year wage gains are now 1.9 percent higher.  Slow wage improvements may be the one piece of the report that is not encouraging since several measures of inflation suggest the cost of living is growing faster than wages.  This will no doubt impact the volume of consumption and will be exacerbated if energy prices continue to move up.

Consumption is what the United States’ economy is all about, and any threat to it cannot be viewed positively.  Atlas recently wrote about the latest broad measures of consumption put out by the Bureau of Economic analysis, Personal Consumption Expenditures.  Adjusted for inflation, it has been flat.  Atlas cannot help but wonder how stagnate consumption will impact the jobs report in the near future.     (by C. Cox)

January Durable Goods Orders

Tuesday, March 27th, 2012

Orders for goods lasting longer than 3 years dropped significantly in January according to the Census Bureau.  Durable Goods Orders (DGO) fell 4 percent after rising in the final three months of 2011.  Part of the blame for January’s drop can be attributed to the end of last year’s 100 percent bonus depreciation for businesses investing in capital goods.  As the end of the year drew near, businesses wanting to take advantage of the temporary provision in the tax code moved purchases forward to meet the deadline.  This left a vacuum in the first month of 2012, and only time will tell how quickly it is filled.

For now the country is stuck with figures like those seen in categories such as computers and machinery.  They were lower by 10.1 percent and 10.4 respectively.  Primary metal orders fell 6.7 percent.  In an attempt to strip out some of the noise in the data, it is helpful to consider the line many call “core capital expenditures.” This looks at business investment excluding spending on defense and aircraft; many use it as a guide to gauge business confidence.  Falling 4.5 percent, this measure was slightly worse than the headline.

Atlas tries to take the indicators as they are, but January’s DGO was likely impacted by an outside influence.  It is difficult to estimate how much of the lower reading is caused by the expiration of an incentive. At the same time, one cannot ignore the fact that the largest economic region, the Eurozone, is having a difficult time, so some of the slowdown in orders may also be due to fewer foreign buyers.  If this proves to be part of the problem, it will impact the GDP here in the U.S. as net exports figure into the estimation of domestic output.    (by C. Cox)

January Trade Balance

Monday, March 26th, 2012

The first international trade figures of 2012 show an increase to our trade imbalance according to Department of Commerce.  The report is rather mixed.  It shows economic activity continues to expand around the world as the pace of the growth picked up month-over-month for both imports and exports.  At the same time, the year-over-year figures for each component of the trade balance are slowing and have been trending lower for several months.  America exported $180.8 billion and imported $233.4 billion worth of goods and services for a total deficit of $52.4 billion in January.

Petroleum led the gap higher.  The difference was $2.5 billion higher than in December and is larger than the overall monthly imbalance’s change.  The chasm between nonpetroleum goods grew by only $0.2 billion.  Meanwhile, America’s leadership in services continued as the trade surplus in the non-manufactured component improved by $0.3 billion.

Since the trade balance is part of the GDP equation, the larger deficit is going to subtract from first quarter’s measure of output.  Combined with the flat level of consumption seen so far this year, it is hard to imagine that government spending and business investment are going to grow fast enough to take up the slack.  The first quarter of 2012 does not seem to have a favorable pace to it.  We will know more at the end of April when official GDP data comes out and even more in May when the all of the first quarter’s trade balance figures (which are subject to a minimum of two revisions) have been reviewed at least once.   (by C. Cox)

January Personal Income and Outlays

Friday, March 23rd, 2012

According to the Bureau of Economic Analysis, our nation’s income continued to increase in January as did consumption.  However, the pace of income growth slowed from 0.5 percent in December to 0.3 percent to kick off 2012.  Consumption is the most important component in the country’s Gross Domestic Product (GDP), so the slow pace is less than desirable.  The Federal Reserve’s favorite measure of inflation is also contained in this release, and it remained relatively tame but was high enough to hurt important measures within the report.

Disposable Personal Income (DPI), the most important part of the income measure, grew slightly as it was helped by the largest contributor to the nation’s income, wages & salaries.  DPI takes out tax payments and illustrates the growth of what consumers have left to spend.  January’s increase was 0.1 percent.  Here is where even light inflation begins to impact the indicator.  When adjusted for price increases, the DPI contracted 0.1 percent.  So America lost “real” income even as the recent employment backdrop appears to be improving.

If it is not saved, Americans spend their income on one of three categories that make up Personal Consumption Expenditures (PCE).  The first category is on durable goods, and spending in this category picked up nicely in January with a 0.9 percent uptick after inflation. The other two did not fare as well for the month after price adjustments.  Nondurable consumption increased less than 0.1 percent and spending on services, the largest of the three categories, fell 0.1 percent.  Overall, inflation adjusted PCE saw virtually no change in the month-over-month totals for the third month in a row!

The weakness represented in this report is important because of the amount of influence PCE has on our country’s GDP.  If consumption is not growing, the other three measures within GDP need to pick up the slack. Unfortunately, consumption makes up about two-thirds or our economy, so the other one-third will need to do some heavy lifting to counter this weakness. Of the other three, government spending has been declining.  This leaves business investment and net exports.  With other countries experiencing slower growth and in some cases outright contraction, it is hard to imagine being able to export enough to make up the difference.  The solution must be for businesses to invest more.  The only issue here is the amount of capital investment that was pulled forward by the expiration of 2011’s bonus depreciation.  It has left the new orders for capital expenditures in contraction according to the Census Bureau’s latest Durable Goods Orders.  To summarize, the headwinds in our economy continue. (by C. Cox)

Revised 4th Quarter 2011GDP

Thursday, March 22nd, 2012

Real output in America was better in the final quarter of 2011 than the Bureau of Economic Analysis initially thought.  Their revised calculation shows the economy grew by an annualized rate of 3.0 percent.  The preliminary reading was 2.8 percent.  This revision will be looked at again over the next month before a “final” number is tabulated.  To put it into perspective, the third quarter of 2011 grew by 1.8 percent.

Quarter-over-quarter growth was found in a variety of the economy’s components.  Business investment was revised slightly higher as companies increased purchases of computers and software.  As we mentioned in our most recent posting for durable goods orders, this may have been influenced by expiring tax incentives that companies wanted to take advantage of.  Home builders helped the growth by building more single-family and multi-family dwellings at an annualized 11.5 percent clip.  Personal consumption was revised higher, but the figure is lackluster overall. This is the economy’s bread and butter; it only managed a 2.1 percent annualized improvement. This is the weakest quarterly gain since the first three months of 2010.  The primary growth driver last quarter remains inventory builds.  Companies saw the stock of goods on their shelves increase.  Interpreting the inventory surge can cut two ways; companies are either expecting a bump in demand around the corner or they miscalculated the demand for the fourth quarter.  Atlas hopes for the former but fears the latter.

The economy is not on firm footing. It looks as if the U.S. expanded at 1.7 percent in all of 2011.  That compares to 3.0 percent in 2010.  The post-recession economy continues to be weak relative to other recoveries.  The weakness continues to leave the economy susceptible to outside shocks like high energy prices, geo-political conflicts, or a slowing global economy.  (by C. Cox)