Archive for October, 2012

September’s Leading Economic Indicators

Wednesday, October 31st, 2012

The Conference Board’s Leading Economic Index improved in September.  The 0.6 percent increase was just enough to make back all of August’s downwardly revised loss of 0.4 percent; the original tally was for a 0.1 percent contraction.

Contributions from building permits and the financial components added to the indicator.  Permits have been rather fickle lately as they have been alternating monthly between positively and negatively impacting the index since April.  After three months of subtracting from the index, common stock prices have added to the index in the last three.  The LEI seems to be able to count on the yield curve to help keep it moving up since the spread between the 10-year treasury and the federal funds rate has added to the index in each of the last 6 months.

New orders were mixed in the report, but new unemployment claims and consumer expectations weighed the index down.  The new order category itself has three components.  Of these, the one that negatively impacted the indicator was the only sub-index actually using collected data.  The other two, while having a positive impact on the overall total, were estimated from statistical models since the actual information is not yet available.  In addition, new unemployment claims took away from the LEI for the second consecutive month and have done so in 4 out of the last 6 months.  Finally, consumer expectations for business conditions continued to be a drag on the indicator, but the pull was not as significant as it was in the prior 3 months.

The LEI improvement has been slowing over the last 6 month. During that time, the increase in the index has been 0.3 percent.  To put that pace into perspective, the previous 6 month growth rate was 2.6 percent.  If a conclusion were to be drawn from this report, it would be that the LEI points to underwhelming growth in the near future.    (by C. Cox)

September Existing Home Sales

Tuesday, October 30th, 2012

After improving for two months, existing home sales declined in September according to the National Association of Realtors.   The 1.7 percent slip brought the seasonally adjusted annualized rate of sales to 4.75 million after August’s upwardly revised sales rate of 4.83 million units.  Year-over-year, the figure has improved by 11 percent.

Interest rates continued to be accommodative for the housing market by helping buyers afford more home than was possible this time last year.  The national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to another record low.  The 3.47 percent rate compares to 4.11 percent a year ago.  The median price is up 11.3 percent from a year ago even though the month-over-month price ticked down.

The total housing inventory is slightly tighter than in August.  There are roughly 2.32 million existing homes for sale.  At the current sales pace, it will take 5.9 months to sell all of them. August’s inventory was 6.0 months worth of transactions.   Last September’s stock of homes represented 8.1 months of sales. The lack of supply is probably contributing to the firmer prices seen around the nation.

Housing appears to be genuinely improving.  There have been months of increasing prices and transactions.  This is one area the Federal Reserve is hoping to bolster in order to stimulate demand in other parts of the economy.  The thought is that if consumers feel wealthier because of increasing home prices, Americans will spend more.  A decline in inflation adjusted after-tax income is countering this “wealth effect.”   Disposable income fell in August after months of slowing.  Consumers will need income growth in order to consume because the days of spending the equity in one’s home on everyday items have passed, and it is not irrational to think banks are years away from endorsing that behavior again.  This wealth effect is appreciated by the economy, but it can hardly be called a panacea.    (by C. Cox)

September Retail Sales

Monday, October 29th, 2012

Consumers increased their retail spending by 1.1 percent in September per the Census Bureau.  Not only was the spending faster than consensus expectations, but August’s data was revised higher from 0.9 percent to 1.2 percent.  Even after extracting the 2.5 percent increase of dollars spent on gasoline, retail receipts climbed.

One of the criticisms of August’s figure was that the sharp increase in gas prices was the primary driver of the added spending.  September’s number is much more broadly based.  For instance, motor vehicle sales improved 1.3 percent.  Furthermore, the total retail sales figure less gasoline and autos still managed to increase by 0.9 percent versus this subcategory’s upwardly revised print of 0.3 percent in August.  Electronics & appliance stores experienced a 4.5 percent monthly surge in sales.  It is likely that a certain company’s updated cell phone release impacted this number substantially.  To put this subcategory’s monthly improvement in perspective, the electronic & appliance month-over-month improvement was better than its year-over-year increase of 3.6 percent.  Building materials ticked up 1.1 percent and consumers spent 1.2 percent more at food and beverage stores.

Retail sales make up roughly one-third of the money spent by U.S. consumers, so the broad based improvement is encouraging.  Of course this indicator does not include adjustments for inflation, so some of the increase in spending will have come from price increases.  The latest figures on inflation have not been alarmingly high, so there is real improvement in economic activity being expressed by this month’s retail sales report.  Americans are buying more widgets.    (by C. Cox)

Drifting North

Friday, October 26th, 2012

You know the scene.  Curly drifts into Oklahoma and sings about all the corn being “as high as an elephant’s eye.”  I always was puzzled by that.  Elephants are sparse in Oklahoma, and I’m guessing an itinerant cowboy probably didn’t know head up about pachyderms.  Turns out he likely wouldn’t have found very much corn there either, especially if he moseyed that way today.

Head north however and you’ll find corn a’plenty.  Look to Iowa, Nebraska, and Illinois, but not much further south.  Drought conditions in the mid-west over the last couple of years have caused production of that crop to migrate.  Kansas seems to be switching to wheat and sorghum.  Manitoba is beginning to do the opposite, reducing acreage devoted to wheat and adding to corn.

How come?  Water.  Corn is thirstier than wheat.  Areas that can depend on rain and warmer, longer growing seasons may opt for corn with its myriad of uses in animal feed, ethanol production for fuel, and for popping.  If you do your grocery shopping in any part of the store besides its edges, you’ll probably be buying something using corn.  High-fructose corn syrup gets added to just about everything prepared for us eat.

Just a little bit of observation suggests some sort of warming trend is taking place globally.  An ice-free North Pole in summer is leading to geopolitical tensions uncommon in human history.  Vineyards being planted in Missouri suggest such a change.  The U.S. National Climate Data Center just reported that September was the 331st month in a row with global temperatures exceeding the previous century’s average!  The U.S.D.A. recently revised its plant hardiness breakdown of growing zones for the first time in over twenty years, shifting many regions of the country into areas that run some five degrees warmer.

Does any of this really matter?  Sure.  In many ways our country developed around convenience.  Feed lots were more profitable when built close to sources of silage.  Construction of everything from barns and silos to food processing plants is best placed close to the crops they are designed to handle.  Track was laid to central areas where such capital expenditures (plus the cost of rail cars running over it) would yield the quickest return.  Will a huge agribusiness conglomerate like Cargill located in Minnesota have some eventual advantage over another firm like Archer Daniels Midland located further south in Illinois?  It’s too early for clear answers to all questions, but there is certainty about one fact.  Money goes where it is treated best.  Will Curly soon wax poetic about corn as high as a Mountie’s eye?

September’s Consumer Price Index

Thursday, October 25th, 2012

Consumers continued to experience higher prices in September according to the Bureau of Labor Statistics.  The Consumer Price Index (CPI) rose 0.6 percent for the month after an identical increase in August.  The core statistic, which removes food and energy because their price movements can be volatile, increased 0.1 percent for the third consecutive month.  Over the past year, the all items tally has increased by 2.0 percent, and the core CPI is up the same amount.

Energy continued to dominate the headline statistic in September.  After jumping 5.6 percent in August, it increased an additional 4.5 percent in September.   Most of energy’s surge came from the costs of the underlying commodities as energy services were only up a fraction of the amount by which materials increased.

Contrary to the concerns about food costs related to the weather, eating has not experienced much price pressure.  Over the last seven months, it has not had a monthly price increase of over 0.2 percent, and it only ticked up by 0.1 percent in September.  Food inflation has been up 1.6 percent over the last year, which is less than the total CPI increase of 2.0 percent in the same period.

This CPI report was particularly important to recipients of Social Security Benefits.  Since September is the final month of the third quarter, it is the month in which the cost-of-living –adjustment (COLA) is determined.  The Social Security Administration uses the difference between the average levels of a CPI sub-index in the two most recent third quarters to calculate the annual increase.  This year the COLA will be 1.7 percent and starts at the beginning of 2013.  The average Social Security recipient will see their benefit increase $21.00, going from $1240 to $1261 a month.  With over 56 million Americans getting a monthly check or deposit, that will amount to greater than $11 billion in additional payments.  Before you spend it though, reportedly the Medicare insurance premium is increasing by roughly the same amount.  Let’s hope we at least break even.   (by C. Cox)

September Federal Deficit

Wednesday, October 24th, 2012

According to the Department of Treasury, America’s 2012 deficit has hit a wall.  Actually, it ran out of time to grow any more as the fiscal year 2012 is now complete, having ended with September.  The final deficit for the year is $1,089 billion.  That is how it is written on the front page of the Final Monthly Treasury Statement.  Maybe they think it seems less daunting when counted in billions instead of using the dreaded “t” word.  Oh look! Over there.  It’s a silver lining.  This year’s deficit was less than 2011’s $1.3 trillion shortfall!

The month of September ended on a high note, recording a $75 billion surplus, something of a silver lining with which to end the year.  This is the largest monthly surplus since April 2008.  There was a 34 percent increase in receipts of corporate taxes, and the larger component of individual taxes managed to increase 3.7 percent.   According to the Congressional Budget Office, our deficit to Gross Domestic Product (GDP) ratio is now 7.3 percent which, in another silver lining, is about three-quarters as large as the deficit to GDP ratio was in 2009.  But it is still worse than any year from 1947 to 2008.

Next year’s federal budget has lots of questions surrounding it since it is unclear whether or not the sequestration scheduled to start on the first of January will be implemented, forcing government spending cuts.  The alternative is some sort of congressional solution that would perhaps postpone the automatic reduction in federal government outlays from happening right away.  Congress’s ability to implement fiscal-sequestration has been around since the passage of Gramm-Rudman-Hollings Deficit Reduction Act of 1985.  Thus far, Congress has found it easier to just increase the debt ceiling via a budget resolution, thereby increasing the amount of money they have granted themselves to spend, than to implement the types of cuts required in the sequestration process.  Even with the national divide being as large as it is with regards to fiscal policy, Atlas expects some temporary resolution in the coming months so that Congress does not get blamed for ruining our New Year’s Day celebrations.    (by C. Cox)

September Producer Price Index

Tuesday, October 23rd, 2012

The Producers Price Index (PPI) was mixed in the month of September according to the Bureau of Labor Statistics.  The headline figure rose by 1.1 percent for the month.  The less volatile core number was left virtually unchanged.  The headline’s increase was dominated by a surge in energy and a more modest uptick in food prices, both of which are not part of the core figure.

After being negative for nine out of ten months, energy has come back strongly in August and September.  Producers paid 4.7 percent more for energy in September after the 6.4 percent hike in August.  Gasoline pushed the sub-index higher with a jump of 9.8 percent itself.  There were also slight price increases seen in diesel fuel and residential natural gas.

Purveyors of things to eat saw food costs rise by 0.2 percent.  This follows consecutive gains in the prior three months.  Vegans will be happy to hear that a large part of September’s food increase came from a 2.8 percent increase in the dairy products they do not eat.  These conscientious eaters will be less happy to hear about the 11.2 percent surge in the costs of fruits and melons.

There seems to be many reasons to fear inflation these days and an equal number of compelling arguments against significantly higher overall prices manifesting.  One side points to things like higher food and energy costs as well as the government’s fiscal approach or the central bank’s monetary policies.  The other side feels America’s demographics will keep prices from growing too quickly or that the gap between potential output and actual output is large enough to allow additional economic growth without stoking the flames of higher prices.  The latest PPI reading does not help resolve the debate with its mixed headlines, but it will get a chance to try to prove one side or the other of the argument next month.     (by C. Cox)