Archive for January, 2013

December Producer Prices

Thursday, January 31st, 2013

Prices paid by producers fell in December according to the latest data from the Bureau of Labor Statistics.  The decrease is the third in a row for the headline figure.  Excluding food and energy, the “core” measure ticked up 0.1 percent after a similar increase in November.  Year-over-year, the price measure has increased 1.3 percent.

Falling food and energy prices kept the headline number below zero.  Food prices decreased by 0.9 percent, and energy fell 0.3 percent.  Leading the food price fall was the beef and veal index which fell 4.8 percent.  Fresh and dried vegetables also helped to lower prices as did the index for cheese.  Gasoline expenses dropped 1.7 percent, leading the energy goods category lower.  Energy has fallen for three straight months.

Contrary to finished goods, prices in the earlier stages of production may be pointing to upward cost movement in the future.  Intermediate goods (think flour) ticked up 0.3 percent.  Intermediate energy goods rose 0.9 percent.  Even excluding food and energy, intermediate goods rose 0.2 percent.  Crude goods (think wheat) jumped 2.5 percent and put in its sixth monthly increase in as many months.  With an advance of 7.2 percent, energy led the increase in this stage of production as well.  Even without food and energy, the crude stage of production experienced a 1.1 percent uptick.

With the demographic, savings, and debt characteristics of America, Atlas does not consider inflation to be an ongoing concern.  This does not preclude the possibility of periods of upward price pressures.  If the earlier stages of production are an early indication of the direction of prices, the economy may be approaching a period of higher costs.  It is just that Atlas does not think it will be either an excessive or persistent phenomenon.  (by C. Cox)

December Treasury Budget

Wednesday, January 30th, 2013

America’s budget balance improved substantially in December according to the Treasury Department.  The deficit was only $300 million for the month versus $20 billion in November.  Compared to the same month a year earlier, the deficit improved as well; the short fall was $86 billion a year earlier.

The debt limit takes up a lot of headline space these days as Congress tries to negotiate various tactics to deal with the nation’s borrowing issues.  Contained in the release is a line that counts the country’s total debt.  As of December 31st, it was closing in on the limit $16.394 trillion.  In fact, the exact count is $16,391,973,000,000.  On the last day of 2012, the Treasury Secretary, Timothy Geithner, wrote a letter to Congress notifying them of the imminent debt limit breach.  In a previous letter that was carbon copied to all members of the 112th Congress dated December 26th 2012, details of possible “extraordinary measures” were noted in an appendix.  The Treasury Department feels it can keep the government going until sometime between mid-February and early March using these tactics.  Treasury expects to be able to come up with roughly $200 billion in headroom using its manipulations.

It will be interesting to watch whether the Treasury Department is able to extend the federal operations for as long as it anticipates.  Since 2010, January’s deficit has averaged $39.946 billion.  In each of the last three years, February’s deficit has been greater than $200 billion, and March has averaged a deficit of $150.566 billion in the same period.  The economy continues to improve, but its pace is not fast enough for tax receipts alone to slow the deficit, and with Congress still negotiating their spending plans, the headroom is not likely to last long enough to suit our creditors.   (by C. Cox)

December Institute for Supply Management

Tuesday, January 29th, 2013

Each of the indices produced by the Institute for Supply Management improved in the final month of 2012.  The production side of the economy swung from a slight contraction in November to a marginal expansion in December.  The service sector gained strength in December for the second month in a row and is now at the best level since February 2012.

The cutoff line between growth and contraction in this type of index (it’s called a diffusion index) is 50, so the 50.7 reading for manufacturing does not suggest much growth.  Nonetheless, it is still an improvement over the 49.5, a small contraction, in November.  The forward looking new orders component remained even for the month at 50.3.  New orders are important since they lead to output in the future.  Unfortunately, this important subcategory remains in a downtrend that started after May 2010 when the reading peaked at 66.1. Orders are not contracting, but the pace of growth is rather stagnant.

The non-manufacturing side of the economy looked much more encouraging.  The index improved to 56.1 from 54.7. The business activity stayed above 60 for a second month in a row, suggesting strong output from service providers.  New orders fell shy of the 60 barrier, but the 59.3 reading points to added commerce in the near future.  The service employment category regained all of November’s 4.6 point loss and then some by jumping six full points to 56.3.

Both portions of the economy expanded in the final month of 2012.  The pace of the manufacturing side was rather slow, so some acceleration in this area would make Atlas more comfortable since this segment of the economy is relatively sensitive to the business cycle.  On the other hand, the strength of the service side of the economy is quite positive.  (by C. Cox)

December Employment Report

Monday, January 28th, 2013

America’s employment situation continued to improve in December according to the latest release from the Bureau of Labor Statistics.  The number of jobs gained in the final month of the year was 155,000.  This follows an upwardly revised November which saw 161,000 jobs added to the economy; the original estimate was 146,000.

Private industry continued to be the source of improvement in the final month of 2012.  There were 168,000 new workers added to non-government payrolls.  Construction, manufacturing, healthcare & social assistance, and leisure & hospitality led the gains; each of these four industries contributed over 20,000 new jobs.  The average workweek for private employees improved six minutes to 34.5 hours from 34.4 hours in November; these same employees’ average hourly earnings ticked up 0.3 percent to $23.73 from $23.66 a month earlier.

The unemployment rate was unchanged at 7.8 percent from November’s revised 7.8 percent tally which was originally thought to be 7.7 percent.  This stagnation may be a positive because the labor force added 192,000 members for the month, but enough jobs were created to keep the new workers from making a material impact on the unemployment rate.   Part of this labor force growth is a result of new participants entering the workforce, but some of it is caused by reentrants to the jobs market.  As workers who have prematurely left the labor force begin to feel more confident about the prospects of finding employment, they rejoin the search for work.  Ironically, if the employment situation continues to improve, it will not surprise Atlas to see accelerating reentry into the labor pool thus putting upward pressure on the unemployment rate.

To say the 2012 employment situation ended strongly may be an overstatement, but it did cap a year of general improvement in the labor market.  The unemployment rate fell from 8.5 percent a year earlier.  An additional 1.835 million net new jobs were added to nonfarm payrolls in the year as government employment fell and private firms increased staffing by 1.903 million.  The impact of the great recession is still being felt in the labor market, but progress is being made.  (by C. Cox)

Pick-Up Sticks

Friday, January 25th, 2013

Remember Pick-up Sticks?  The old style, wooden ones with colored pointy ends?  Not today’s “child-friendly” blunt plastic wanna-be’s.  You would hold them upright in a loose bundle, release them all at once, then try to tease the pile apart one at a time without moving any of the others.  Points were counted depending on the color retrieved but what you wanted to do was free the specially colored “Major” which could be used to flip others off the pile.  What fun.

Don’t despair.  A new version of Jackstraws (or Spillikins, other names by which the game is known) is about to be played out by our fresh-faced representatives in Washington D.C.  In fact, the previous Congress laid out all the issues in a heap just before they left town last month.  Now that the festivities are over, everyone needs to find their seats and get down to some serious gamesmanship.  How will they untangle that mess without disturbing all the other sticks?

If you heard the President outline his agenda in his recent acceptance speech, you hear him attach labels to many of the elements in the pile.  Everything from gay rights to gun control.  But in the middle, seemingly touching all the others, are three very important sticks–planks really–which are set to dominate the upcoming round.  Next month our debt ceiling will kick off this sequence, followed closely by the delayed discussion determining a sequester of certain spending, and on its heels a debate about the Federal budget which currently doesn’t apparently even exist.

All three issues are coming to a head almost simultaneously and all factions within the government will howl whenever they think too many sticks are being moved in the wrong direction.  It will be interesting to see how everything plays out.  I’ve never seen a game where all the sticks lined up in any fashion we might consider orderly.

December Consumer Sentiment

Thursday, January 24th, 2013

Consumers were not as ebullient in December as in November according to the University of Michigan’s Consumer Sentiment Survey.  The reading fell to 72.9 from 82.7.  Consumers reported being more concerned about their current situation, but their expectations of the future did the most damage to the indicator, falling from 77.6 to 63.8.

Personal finance expectations fell to a level not seen in a year.  Only 25 percent of the households surveyed anticipate financial gains, and very few expect an increase in income.  Despite a low inflation outlook, consumers are concerned their incomes will not keep up with the modest price increases they are expecting.

The outlook for jobs deteriorated lately also.  As recently as October, only 19 percent of households expected higher unemployment.  In December, that figure jumped to 35 percent, the highest count since the summer of 2011 during Congress’ debt ceiling face-off.

Consumers expressed worry about the fiscal cliff facing the nation at the first of the year.  Of course, the beltway managed to cobble together a last minute agreement after this survey was taken.  It will be interesting to see how the deal impacts the attitudes of consumers when the details of the next survey are revealed.    (by C. Cox)

December Consumer Confidence

Wednesday, January 23rd, 2013

Consumer Confidence turned down in December according to the Conference Board.  The index fell 6.4 point to 65.1 after November’s tally was downwardly revised to 71.5 from 73.7.  Consumers seemed to feel better about the present but became increasingly worried about the future.

Those polled indicated that the current situation was better than the month before.  The present situation index jumped to 62.8 from 57.4 in November.  Those stating business conditions were good rose to 17.1 percent from 14.6 percent in the previous survey.  Decreasing from 31.2 percent to 27.2 percent, fewer Americans interpreted the current conditions as bad.  The labor market outlook was mixed.  Fewer felt jobs were plentiful, but the percent of Americans who saw work as hard to get also fell.

The future is worrying more consumers.  The expectations index shed 14.4 points to 66.5 from 80.9.  With a decline from 21.3 percent to 17.6 percent, fewer Americans anticipate business conditions will improve over the next six months.  Those expecting the conditions to worsen grew to 21.5 percent from 15.8 percent in November.

This survey was taken weeks before the arrival of the so-called “fiscal cliff.”  It will be interesting to see how Americans respond to Congress’ partial solution of our country’s fiscal issues in the next consumer confidence survey.  During the debt ceiling debate in the summer of 2011, this indicator suffered greatly.  Since Congress’ most recent solution neglected to resolve the current debt ceiling issue, it would not be surprising if consumer attitudes continue to decline until a broader solution is agreed upon.  (by C. Cox)