Archive for April, 2012

March Federal Spending

Thursday, April 19th, 2012

The Treasury Department said our nation’s spending in March exceeded what we took in by $198.2 billion.  Depending on how you look at it, that might be seen as a significant improvement.  The February deficit was, after all, substantially higher at $231.7 billion.  Thank goodness it was a short month!  I must say however, the fact that we overspent in January by a mere $27.4 billion does make it harder to claim any sort of victory over runaway spending is occurring at the present.

Our government runs its operations on a schedule which starts with October; thus this report marks the halfway point for 2012.  Year-to-date we are digging a $779 billion hole destined, no doubt, to surpass the trillion dollar mark once again.  Ironically, this too is an improvement over the $829.4 billion shortfall we had this same time last year.  Small comfort.  It’s not like we pay everything off and start afresh each year.  These massive deficits are compounding on top of each other.  When interest rates finally begin to climb back toward a more normal level, we will likely be faced with some serious difficulties and unpalatable solutions much like those confronting the nations of Europe today.

Details within the report show the government has benefitted from a big jump in tax receipts courtesy of corporate America even as individual taxes paid barely inched up.  The latter category, by the way, accounts for a much bigger slice of our nation’s income than does corporate taxes so the current mix obviously isn’t anywhere close enough to offset spending.  We did, however, see some cut in outlays which helped reduce the deficit relative to February.  Of note were drops in spending for education, the environment, and health care.  Good thing it didn’t hit important things like rebuilding Afghanistan’s poppy fields.

March Employment

Wednesday, April 18th, 2012

The Bureau of Labor Statistics’ (BLS) employment report for March was a mixed bag.  The headline showed a 120,000 increase in payrolls, well below the 201,000 expected. This result was exactly half the 240,000 revised gain posted for February which received an upward bump of 13,000 jobs.  Unfortunately, January was revised downward by a partially offsetting 9,000 from the original 284,000 estimated gain.  Adding it all up, you can see a definite weakening trend.  Despite this conclusion, the unemployment rate fell 0.1% to an 8.2% total.

Those industries producing goods increased payrolls by 31,000 as manufacturing jobs more than made up for a slight decline in construction.  Private payrolls overall accounted for all of the gains while those in the public sectors actually shed a scant 1,000 positions.  Employment amongst retailers declined, suggesting management’s views for upcoming retail sales may be somewhat pessimistic.

Average hourly earnings grew 0.2% on top of the healthy 0.3% rise in February.  However, the average workweek’s duration slipped one-tenth of an hour to 34.5 hours.  Since this latter point suggests America’s output may be declining, a rapid increase in wages (as is suggested by the rise in hourly earnings) makes for a compelling argument that a slowdown in hiring may be just around the next bend.  As further evidence of this, even the temporary staffing companies said they have been laying off workers over the past quarter.

If all this makes you wonder how the unemployment rate could have declined, check out the labor participation rate, where we actually saw a drop of 164,000 souls.  It’s generally not a good thing when lots of folks give up looking for work.   And if you include people who have settled for a position which offers less than desired, our sense of unease here at Atlas increases.  This data can be partially captured by the BLS underemployment rate which rose to 16.2% from last month’s 15.6%, a substantial and unwelcome jump.

March Institute for Supply Management

Tuesday, April 17th, 2012

According to the latest data put out by the Institute for Supply Management(ISM), the economy continued to grow in March on both the manufacturing and the service side of American output.  The larger service portion of the economy grew at a slower rate but the manufacturing area of the economy saw an increase in the pace of output for the month.
The production from industry improved from 52.4 to 53.4.  Unfortunately, inventory growth was a significant contributor to the increase.  This is significant because it suggests that while industry continued to produce goods, they were not able to sell them as quickly as anticipated in March.  The inventories are now at the highest levels since September 2011.  While shelves are losing space, new orders increased at a slower rate for the month as purchasing managers adjust to demand.  Exports contributed to the waning demand as our trading partners deal with their own economic troubles. 
On the larger service side of the economy, the growth slowed, but is should be noted that the 56.0 reading is still a healthy rate of expansion after February’s figure came in at 57.3.  It is worth noting that new orders slipped considerably but also from a pretty lofty level of 61.2 to 58.9.  Imported services grew faster than exported services.  This will negatively impact gross domestic product as it contributes to our international trade imbalance. 

The two halves of the economy are growing, but each show signs of recent weakening.  The interesting thing about both of the data points is that they are seasonally adjusted and come during a particularly mild late winter/early spring.  Since there may not have been a weather related slowdown this year, the seasonal adjustment to the raw data could turn out to be too strong.  The ISM does not revise data monthly and only recalibrates seasonal adjustments in January.  We may not know the real story behind these two data points until next year.  If the winter is a more normalized season next year, March 2013 ISM will have a tough year-over-year comparison.

March Consumer Sentiment

Monday, April 16th, 2012

The University of Michigan’s monthly survey of consumer sentiment continued to show improvement in March.  Rising to 76.2, up 0.9 points from February and thereby defying the consensus call for a slight decline, this measure of consumer attitudes is back into terrain last seen some four years ago.

There are two general sections to this report.  The first, labeled current conditions, rose three full points in March to hit 86 even.  Contributing to this sense of wellbeing were, in particular, the stock market’s recent rise and a perceived improvement in our nation’s employment picture.  The second section, expectations, was a bit less confident, slipping from the 2-1/2 year high of 70.3 seen in February to 69.8; nevertheless still a decent reading.

In our summary of this report last month we pointed out that consumer attitudes were on the upswing despite higher gasoline prices, ongoing uncertainty in Europe, and a confusing mix here at home of politics and debate about deficits and stimulus spending.  None of these issues have gone away; in fact, they continue to simmer (at the very least) and more complications like a slowing Chinese economy and exceptionally destructive weather extremes have been tossed into the stew.  Here at Atlas we would love to see the growing positive attitude of consumers express itself with a strong increase in retail sales.  But please, don’t use your credit card unless you plan to pay off the balance at month’s end!

March Consumer Confidence

Friday, April 13th, 2012

Consumer confidence took a small step back in March according to the latest release from the Conference Board.  After a large jump last month, February’s upwardly revised reading of 71.6 represents the latest peak in this measure of consumer attitude as March was slightly lower with a reading of 70.2.
The month’s reading may have slipped, but the trend for confidence continues to be higher after finding its most recent bottom in the final quarter of last year.  Within the sub-categories, those polled feel the best about their current situation since September 2008. Those feeling business conditions are presently good represent 14.3 percent of the population with 32.7 percent indicating the conditions are bad.  At the peak of the recession, over 50 percent described the current conditions as bad, so while the recovery has been slow, it has been quick enough to make people feel better to be here now.
Interestingly, February’s peak is near the recovery’s apex seen in the second month of last year when it tallied 72.0 before falling for the next 8 months.  During that time the pace of the economy slowed, and we are seeing signs of a similar pattern emerging now.  Many components of gross domestic product (GDP) are suggesting the first quarter of 2012 will not have grown as quickly as the last quarter of 2011.  Of course, the first glimpse of GDP will not come until later this month, so we will have to wait to see if such a slowdown has occurred.  If America is slowing, it is tough for Atlas to imagine confidence will continue grinding higher in the short run.

Final Fourth Quarter GDP

Thursday, April 12th, 2012

The Commerce Department released its final reading for 2011’s fourth quarter Gross Domestic Product (GDP), keeping the headline at a positive 3.0% jump as seen in the initial revision and up a bit from the 2.8% preliminary reading they issued last January.  This is a strong and welcome figure, comparing quite favorably against the lackadaisical 1.8% increase recorded in last year’s third quarter.

Overall the changes made to this final report over last month’s were minor.  Perhaps the only one of note was a .2% increase in final sales to domestic purchasers.  This measure of demand gives our domestic economic situation a slight favorable nudge.  Overall final sales of domestic product (which includes exports) maintained its 1.1% increase reported in last month’s revision.  While desirable, both of these measures were significantly slower than what we saw in the otherwise weaker third quarter.  Further changes included a slight downward shift in inventory investment and a slight upward bump to personal consumption expenditures on goods.  All said, nobody will really kick up their heels over these results.

On a year-over-year basis our nation’s GDP gained by a slight 1.6%, increasing by the slimmest of margins (+0.1%) over what the third quarter’s annualized gain had posted. General consensus holds this to be horribly weak, well below potential, and hardly substantial enough to spur any further overall economic recovery here at home.  We need reading around 2.5% or higher to seal that deal.  Fortunately the GDP price index came in unrevised up 0.9%, well off the third quarter’s 2.6% pop, meaning inflation figures in general showed a trend toward slower growth.  While this may be good news to you and me when we are asked to pull out our wallets, the Federal Reserve is worried it may be too slow, possibly signaling an incipient recession, although their most recent statements suggest they will maintain a wait and see stance for now.

Feb Personal Consumption Expenditures

Wednesday, April 11th, 2012

The Commerce Department’s February report on income and outlays was somewhat mixed.  This report measures the largest component of our country’s gross domestic product (GDP), personal consumption expenditures, as well as household income.   People here managed to make $28.2 billion more than in January and, in typical American fashion, spent $86.0 billion more than in the first month of the year.

Like so many of the indicators we follow, the actual narrative is located below the headlines.  This indicator’s “real” story is found in the inflation adjusted figures.   After price movements, Americans still managed to spend more in the second month of the year, but they did not see an uptick in their inflation adjusted after-tax income otherwise known as Real Disposable Personal Income (Real DPI).  In other words, take home pay is not growing as quickly as the costs of goods and services are increasing.  After falling 0.2 percent in January, real DPI fell 0.1 percent in February and is now down 3 out of the last 4 months.  This pattern is something Atlas is keenly aware of and continuing to monitor.

If the gap between the growth rate of income and the costs of things Americans spend their money on continues to get larger, fewer goods and services will be consumed.  If the consumption rate wanes, and a case can be made that we are already seeing signs of this development, employers will not have room for additional workers as revenue falls with consumption.  This pernicious cycle may turn into our next recession.  Adding to the pressure, our economy is not getting much support from other parts of the world as they deal with their own unfavorable business cycle issues.  (by C. Cox)