Archive for November, 2012

Triple Dip

Friday, November 30th, 2012

Baskin-Robbins.  Wow!  What’s your favorite flavor?  I generally go for Chocolate Almond when they have it or Rocky Road when they don’t.  I get it in a cup along with a scoop of Pistachio Almond.  Once in a while a different flavor may call my name and I’ll have a dip of that one added to my trove as well.  Triple dip; nothing like it!

When we’re talking ice cream, a triple dip is good.  When we’re talking about recessions, not so much.  And recession talk is rife today all around the world.  Data just out from Japan suggests those folks are entering their third recession in four years.  England may soon report another quarterly contraction in GDP, leading to their first triple dip in over sixty years.  The European Union is on their well on their way to the same both as a single entity and within many of its individual member states.    Greece has experienced so many consecutive quarters of negative GDP, forget about using a cone.  You would need to order the Hog in a Trough to count them all.

Here in the U.S. we are no longer talking about a double dip recession.  Since our last one supposedly ended about four years ago, the onset of another will now be seen as a standalone event rather than something carried forward.  That may be begging the issue however.  By almost any measure, this so called recovery has been the worst ever seen.  Many of the indicators we follow are still registering at levels below those normally seen in a recession.  Where they should reside this far into a recovery remains well out of reach.  We are heartened by the upward turn being seen in some important data points such as consumer confidence and housing.  We hope they will allow a current smolder to burst into a warmer flame which heats up everything else as well.  Some similar evidence is drifting across the Pacific from China where growth seems to be picking up a head of steam also.  Hopefully this combination will prove strong enough to keep the other global economies from sinking further, rather than seeing them pull us under as well.

October Federal Deficit

Thursday, November 29th, 2012

October is the first month of the Treasury Department’s 2013 fiscal year.  Once again, the department started in the red as October’s contribution to the annual deficit was $120 billion.  This is a reversal from September’s surplus, and the monthly shortfall is greater than the starting month of fiscal year 2012.

A drop in revenue combined with higher government spending was the magic combination that brought on the monthly deficit.  Budget receipts (primarily taxes) grew by 13.0% percent versus the first month of last fiscal year, suggesting that the economy was relatively better off than the previous October.  Of course, the government outlays managed to increase by 16.35% so the deficit was larger.  Costs associated with Social Security, Medicare, national defense, and interest paid on the country’s debt comprised roughly two-thirds of the spending.  In other words, most of the government’s other functions were paid for with additional debt.

America has been running deficits for a long time, so this topic can seem mundane and uneventful.  However, it has become more interesting recently with the looming “fiscal cliff” replacing the election headlines.  Fiscal cliff sounds like it could be a candidate for an Academy Award in the action adventure movie category.  But instead of red carpets, our government seems capable of rolling out only more red ink.  Look out for a blog in the near term that attempts to explain this fiscal mess matter.  How’s that for a cliff hanger?    (by C. Cox)

Petrified

Wednesday, November 28th, 2012

Back in the early 1860s, Virginia City was an interesting place to be.  The discovery of gold, and especially silver, turned it into a boomtown almost overnight.  In turn this attracted an amazing variety of characters who provided the Old West with much of its color.  Not content to allow absurdly true events to stand alone, a young newspaper reporter drifted into town about that time and began penning stories under the byline Mark Twain.  One such fabricated news event dealt with the discovery of a man in an area south of Gravelly Ford who had died some hundred years prior and become petrified by limestone sediment which kept him locked sitting in a position some might describe as off-putting.

Come January of 2013, our nation will see its 113th Congress seated. They will continue to make resolutions and pass legislation, building upon the framework laid down over the past couple of centuries by their predecessors.  But how much of what was put in place by prior members of this august body holds actual sway on actions undertaken today?  We need not go too far back in history to make this question extremely relevant.  The current discussions involve expiring dispensations, sequestration, and mandated limits to our national debt, all of which tend to get bound up in the concept of a fiscal cliff, the result of choices deferred by quite recent congressional wrangling.

Is history just as frozen as Twain’s literary creation?  Do decisions made by a previous Congress have any binding power on the current one or is all such legislation dead and turned to stone?  We are about to find out.  The entire reason some of the restrictions put in place by the departing Congress and its predecessor exist is to force a needed change on that future which is rapidly becoming the present.  Unable to compromise in their own time, these prior bodies put in place legislation which would become effective should no solution be found to such complex issues as our nation debt and runaway spending.  Will the incoming Congress keep that bargain?  The petrified man may be holding his breath, but I’m not.  Congress has faced this issue before, by some counts around 100 times before.  Engraved on the stone pages of history is a record of never failing to raise the debt ceiling yet again regardless of the consequences ultimately to fall on the future.

Surprise!

Tuesday, November 27th, 2012

Toilet paper isn’t really made to last.  It is flimsy, tears easily, practically dissolves when wet.  It’s nowhere near as durable as a car.  For instance, you rarely use it, lock it in the garage, then expect to reemploy it the next morning.  You can do that with a car.  Not with toilet paper though.  That’s why economists call it a consumer non-durable.

Since consumer durables are built to last for a few years, they are generally made of hardier stuff than is toilet paper.  In turn this tends to drive their price up.  Unlike TP, one does not usually buy a car every month or so.  Catsup, light bulbs, the aforementioned bathroom convenience, and a myriad of other items tend to be bought with regularity because, for various reasons, they just don’t keep.  Economists are interested in how often and how much you purchase (retail sales) of both the durable and non-durable consumer products made both here and abroad.  It gives them some insight into the general health of our overall economy.

When we here at Atlas send our commentary to you each day, it usually dwells on a single facet of the overall economy such as retail sales.  Over time we hope you will begin to integrate all of these separate data points into a somewhat intuitive whole which gives you a sense, a feeling, about the general direction in which things are headed.  Some of the indicators we describe (like the Chicago Fed National Activity Index) are quite comprehensive.  Most are not.

One indicator we rarely discuss which also encompasses a broad range of data is produced by the folks at Citigroup.  It is called the Surprise Index and measures whether the various data points we report (plus many more) came in as expected, exceeded consensus estimates, or fell short.  It had scored a negative 65.3 in July, just a few months ago, but has now soared to a positive 57.  If you have been a diligent reader of our daily missives, you may have already developed a sense that things seemed to be improving despite some of the more dire headlines our media delights in presenting.  If you haven’t, then surprise!  A tidy little bundle of hope awaits you just in time for the holidays.

October Producer Price Index

Monday, November 26th, 2012

Prices at the producer level fell in the month of October according to the Bureau of Labor Statistics’ (BLS) Producer Price Index (PPI).  The 0.2 percent decline came after four consecutive months of price increases.  The volatile components of food and energy were mixed, increasing by 0.4 percent and falling -0.5 percent respectively.  The core prices (removing food and energy) fell 0.2 percent after being flat in September.  This is the first decline in the core measure since November 2010.

Light motor trucks and passenger cars led the deterioration as their prices fell 1.5 and 1.6 percent respectively.  If you visit your local dealership, you are not likely to find the lower prices this indicator is suggesting.  You see, October is the month in which most new-model-year passenger cars and light trucks are included in the PPI.  The BLS then makes adjustments based on the perceived changes to the quality of the vehicles relative to the price increases.  The BLS is suggesting that the quality improvements made on cars and light trucks are, in aggregate, worth more than the price increases charged by manufacturers.  If all statistical adjustments are removed, light trucks and passenger cars are 3.9 percent and 1.4 percent more expensive respectively.

Peering further down the production line, there is not much to cause concern for inflation at this time.  Prices for intermediate goods (like flour) and crude goods (wheat) have remained relatively tame with crude goods demonstrating a downward bias over the last two months.  This should help keep prices for finished goods (bread) from rising too quickly when wholesalers and retailers purchase them for their shelves.

Currently, Atlas is not worried about inflation. That is not to suggest it will never occur, but any consistent signs of increasing costs in any of the price indicators Atlas follows are not evident at the moment.  Demand is apparently weak enough to counter the traditionally inflationary actions taken by central bankers and governments around the world.  Despite their increasing the money supply, keeping interest rates very low, and growing national deficits and debts, slow consumption appears to be countering the normal price expectations associated with such actions.  (by C. Cox)

Bombs Bursting

Friday, November 23rd, 2012

I still remember the anxious excitement which built within me as 007 tried to disarm Dr. No’s nuclear bomb in the first James Bond film.  What a squeaker!  Fortunately he did it with just seconds remaining.  I was equally fortunate not to have heard the words of Dr. Robert Millikan, winner of the Nobel Prize in Physics some years prior, before catching the flick.  They could have seriously reduced the drama and sense of pending doom I was experiencing at that moment.   “There is no likelihood man can ever tap the power of the atom.”

As the final pages of this year’s calendar get turned, headlines are turning from election projections to discussions concerning two economic weapons of mass destruction.  Garnering most of the coverage is the so-called fiscal cliff.  Remaining in the wings for now is the upside limit on our nation’s borrowing, aka the debt ceiling.  You may recall this was a hot topic of conversation mid-2011 when it seemed the U.S. government might become both broke and closed.  Averting such a disaster, Congress ultimately raised the total amount our government could borrow to an all-time high of $16.394 trillion. This amount becomes even more amazing when you look back to the end of Bush’s presidency in 2008 when, according to the Treasury Department, it stood at $10.7 trillion!

Presently the Treasury Department figures the level of our borrowing has reached roughly $16.261 trillion, leaving us just a tad shy of the next cap.  Estimates vary but we should spend (read: borrow) that amount within the next month or two.  There’s even a good chance we’ll come up against the current debt ceiling before year’s end.  After all, how hard can it be to burn through a measly $133 billion?

What happens if a new Congress, where members are still trying to find their seats, has difficulty addressing this issue?  That’s when we could see debt bombs begin bursting in air.  Is that likely to happen?  How could it?  Everyone in the government is well aware of the problem and the consequences of doing nothing to resolve it.  All the experts know the U.S. debt bomb continues rapidly adding to its mega-tonnage and they will certainly defuse it in short order.  Remember what Admiral William Leahy told Truman about the A-Bomb: “The bomb will never go off, and I speak as an expert in explosives.”

Smaller Shovel

Wednesday, November 21st, 2012

As I may have mentioned before, the folks who run our country from Washington, D.C. don’t generally do things the way the rest of us might.  For one thing, they have already celebrated New Year’s Eve.  This was done well over one month ago, on September 30th in fact.  Thus our nation’s newest (and current) fiscal year began October 1st.  Nothing like a fresh start to get things back on track.

The Treasury Department reports our deficit for the first month of this new year was $120 billion.  While this may suggest that if we are actually back on track, it is only to facilitate the pending train wreck, but such is not necessarily the case.  Optimists point out that certain peculiarities of the calendar caused the shortfall to be exaggerated and that in truth we only fell behind by an extra one billion when adjusting this October to the prior one.  They assure us that in just a few months time we will see a trend toward an increase in income at the federal level even as expenses decline.  We’ll see.

There may still be a light, however dim, beginning to shine at the end of this dark tunnel we call our national debt.  When we examine the speed at which our shortfall, now set by the Treasury Department at roughly $16.1 trillion, has been increasing, we see signs of a possible decline.  Interestingly, their data shows it grew by 18.8% in 2009, 13.9% in 2010, 9.1% in 2011, and a mere 8.6% over the whole of 2012.  In other words, the rate at which our debt has grown actually declined each year over the past four.  We have all heard the old saw, “When you find yourself in a hole, stop digging.”  While Congress continues to allow the excavations to take place, perhaps they are using a smaller shovel.