Archive for January, 2013

November Durable Goods

Thursday, January 10th, 2013

Orders for durable goods improved in November for the sixth time in the last seven months according to the Census Bureau.  The $1.6 billion dollar increase is 0.7 percent better than October’s figure.  Year-over-year, this indicator is up 0.8 percent.

Businesses are showing some signs of confidence as the “core” capital expenditures were up for the second month in a row.  This sub-category strips out defense and aircraft orders and provides a glimpse at whether or not companies are increasing their orders for capital goods.  Businesses tend to purchase equipment if there is a good chance that the additional investment will add to their profitability.  The 2.7 percent increase follows October’s 3.2 percent jump.  However, it should be noted that the strength in core capital expenditures is a recent phenomenon.  Year to date, core capital expenditures are only up 0.1 percent, and the increase is not adjusted for inflation.

Despite its recent strength, durable goods are another reminder of how weak our recovery is.  It has been 3.5 years since the end of the Great Recession, and the orders have not yet matched the prior peak.  In fact, core capital expenditures are still shy of the readings from June 2000!  Even with all of the fiscal and monetary tinkering, companies do not seem confident enough to invest at those same levels seen over a decade ago.      (by C. Cox)

November Industrial Production

Wednesday, January 9th, 2013

Industrial Production reversed its course in November according to the Federal Reserve.  America’s physical output grew by 1.1 percent based on the preliminary data.  This is after the downwardly revised fall in October of -0.7 percent (originally -0.4 percent).  The year-over-year figure improved as well with a 2.5 percent improvement over the last 12 months versus October’s increase of 1.6 percent over the same period.

The Federal Reserve attributes much of the improvement to the revival of output from industries that were hurt by Hurricane Sandy.  Manufacturing had been the hardest hit industry, falling 1.0 percent in October, but it rebounded 1.1 percent in November.  Utilities improved 1.0 percent after being virtually flat the month before and utilities grew by 0.8 percent after an increase of just 0.3 percent in October.

Capacity utilization ticked up to 78.4 percent from 77.7 percent in the prior period.  This measures the amount of resources being utilized versus the economy’s available means of physical production.  The improvement is welcome, but it is still shy of the level seen at the recent peak of July 2012.  Also, the economy is still not strong enough to require the long-term average utilization of 80.3 percent.

This indicator is still influenced by Hurricane Sandy, and it may take additional periods to work through the storm related distortions.  Causing some concern here at Atlas is the fact that even before the storm became an issue, a slowing trend in this indicator was emerging.  Industrial production’s peak in July has yet to be bested.  This portion of the economy is sensitive to the business cycle, so additional improvement in physical output will make Atlas a little less skittish with regards to the economy.    (by C. Cox)

November Consumer Prices

Tuesday, January 8th, 2013

Consumer prices fell in November according to the headline Consumer Price Index put out by the Bureau of Labor Statistics.  The index fell 0.3 percent after a modest increase of 0.1 percent in October.  Dropping 4.1 percent, energy led the index lower.  The “core” reading, which excludes food and energy, was up 0.1 percent following the 0.2 percent uptick in the prior month.

The month-over-month core reading was not the only figure with declining increases (otherwise known as disinflation).  It also occurred in the year-over-year measures of headline and core prices for November.   Headline inflation fell to 1.8 percent in the last twelve months from 2.2 percent in October, and the core measure went to 1.9 percent from 2.0 percent in the same period.

Inflation readings remain calm.  Still, one cannot help but wonder if this price tranquility will last.  The economy has been subjected to many mechanisms from both governments and central banks that may result in price distortions.  The U.S.’s fiscal imbalances may be near their peak, but the Federal Reserve has committed itself to additional monetary easing for the foreseeable future.  This commitment amounts to new money being added to the money supply at a pace of about $40 billion a month.  If these new dollars begin to be spent in a material way, prices may rise.  Of course, arguing against this possibility is the demographics in the country.  As baby boomers retire, their participation in the nation’s consumption is expected to wane thus muting price appreciation because of the boomers’ relatively large size.  Atlas will monitor market behaviors and make adjustments as needed.     (by C. Cox)

November Retail Sales

Monday, January 7th, 2013

Consumers returned to the stores in November according to the latest retails sales figure from the Census Bureau.  After falling 0.3 percent in October, November sales improved by 0.3 percent.  Total sales improved 4.3 percent from September through November 2012 versus the same period a year ago.

The details in the report were primarily positive.  Auto and other motor vehicle dealers made back some of the ground they lost in October but have not fully recovered to the level of sales seen in September.  Electronics stores made back all of the loss from October and are now seeing higher sales than those recorded in September.  Since Thanksgiving occurs in November, it was surprising to see sales at food and beverage stores decline for the month, but when the seasonal adjustment is removed, more money was spent on food in November than the month before.  Gasoline prices have been falling and impacted the receipts at gas stations.  Seasonally adjusted, gasoline sales fell 4 percent for the month.

Retail sales are an important part of the U.S. economy, and the trend has not been favorable from a year-over-year perspective.  This measure of growth peaked in June and July 2011 and has been falling since.  The current trend is growing by 3.7 percent, and it does not account for price adjustments.  Even though inflation has been benign, it is enough to put this indicator at just 2.1 percent real growth based on the most recent reading of 1.6 percent inflation according to the Bureau of Economic Analysis’ Personal Consumption Expenditure Price Index.  The economy continues to have minimal room for error at this juncture.     (by C. Cox)

New Year’s Resolution

Friday, January 4th, 2013

I saw a placard recently that read “Separate Church & Hate.”  Catchy phrase.  It rhymes and makes for a good chant.  It may provoke a thoughtful response.  Naturally it was being carried by a person attending a demonstration.  Ironic.  Reminds me of that Bob Dylan lyric, “Fearing not that I’d become my enemy in the instant that I preach.”

Duality appears to be a fact of life.  Isaiah claims God created light and darkness, peace and evil.  In the Gita, Krishna says much the same, calling this world “My ocean of suffering and misery.”  Given such options, each of us apparently has the freedom to choose between one or the other.

As we here in the Western world turn our calendars to a New Year, we can consider the choices laid before us.  We can bring light to darkness, exchange love for hate, replace mercy for intolerance, compassion for indifference, hope for despair, wisdom for ignorance, joy for suffering, and manifest peacefulness in the midst of life’s storms.  These positive virtues, and more, perhaps define our true humanity.

In one of his poems Percy Bysshe Shelly sees a new year as being full of potential that a great age can begin anew.  But he cautions it is a slippery slope demanding changes:

Oh cease! must hate and death return?
Cease! must men kill and die?
Cease! drain not to its dregs the urn
Of bitter prophecy.
The world is weary of the past,
Oh, might it die or rest at last!

This year we hope to strengthen within ourselves the attributes listed above, to discover how creating value is a viable answer to surrounding nihilism.  This will be our true “consummation devoutly to be wished,” a positive path away from any burdensome despair.  We also intend to strengthen our understanding and application of the processes needed to preserve and grow your material wealth and truly appreciate all the support you have shown us in the past.

Thank you and here’s to a Happy New Year!

November Producer Prices

Thursday, January 3rd, 2013

Inflation signs continue to weaken at the producer level according to the Bureau of Labor Statics’ November Producer Price Index (PPI).  Prices fell 0.8 percent after falling 0.2 percent in October.  After excluding food and energy, core prices were 0.1 percent higher but did not make back the previous month’s entire 0.2 percent decline.  Year-over-year, the PPI has increased by 1.5 percent while the core reading is up 2.2 percent in the same period.

The headline number in the PP measures price movements for finished goods like a sweater that your favorite retailer may purchase for its stores to sell.  In the earlier stages of production, pricing was mixed but biased to the downside.  The crude goods costs, think wool, gained 0.1 percent after being up 0.9 percent in October and as high as 5.5 percent in August.  This declining trend shows more clearly when we see year-over-year expenses for unrefined wares now down 1.8 percent.  Intermediate goods prices, think yarn, fell 1.2 percent for the month and are down 0.3 percent in the last 12 months.

This indicator continues to argue in favor of Atlas’ belief that inflation is not a phenomenon the U.S. economy is going to be threatened by in a meaningful way in the near future.  Despite years of stimulus from the beltway and monetary easing from the central bank, demand remains too weak for inflation to develop at this time.  If the pool of money created by all of the stimuli is still around when demand materially picks up, our outlook may change.    (by C. Cox)

October International Trade

Wednesday, January 2nd, 2013

America’s trade balance worsened in October according to the Bureau of Economic Analysis.  The deficit of $42.2 billion is less favorable than September’s revised $40.3 billion (originally estimated at $41.5 billion).  This indicator has been improving most of the year but also has been in a bit of a range most recently.  The shortfall has been between $40.3 billion and $42.5 billion in the last 5 readings but still falls $3.5 billion less than in the same period last year.

The data beneath the initial value of the report illustrates the global economy’s soft position.  Both imports and exports slowed in the first month of the fourth quarter.  Our country imported $4.9 billion less than in September.  The rest of the world reduced their purchases of America’s goods and services by $6.8 billion.  The weakness is most pronounced in the industrial supplies subcomponent which fell $2.9 billion.

This is the first look at trade’s impact on the final quarter of 2012.  Thus far it is not encouraging because a widening trade gap subtracts more from our country’s gross domestic production measure than one which is shrinking.  In addition, the weakening demand for manufacturing both here and abroad is concerning because of the cyclical nature of physical output; manufacturing tends to ebb and flow with the economy. This indicator’s impact on fourth quarter GDP will not be fully understood until February 2013 when December’s trade numbers are released, but the start of the quarter has left something to be desired.    (by C. Cox)