Archive for March, 2013

Revised Fourth Quarter GDP

Wednesday, March 20th, 2013

After further investigation, the number crunchers at the Bureau of Economic Analysis have determined that Gross Domestic Product (GDP) actually grew to end 2012 after initially concluding that output shrank to end the year.  Admittedly, the 0.1 percent inflation adjusted annualized growth number is not impressive, but it is better than the 0.1 percent slowdown initially tallied by the group.

The primary revisions came from exports, imports, nonresidential fixed investment and inventories.  America exported more goods and services than initially calculated.  Also helping to boost the figure, imports fell; Americans and businesses purchased fewer goods and service from foreign providers.  Companies increased their spending on infrastructure faster than initially calculated (helping the tally) but simultaneously depleted their inventories more quickly than first expected (subtracting from the total).

Swinging from negative to positive output is rather mundane when the results are measured in one-tenth of a percent.  The revised GDP numbers are not indicative of a healthy economy, but this report is already relatively old information when released.  Since the end of the year, a number of indicators that we follow have continued to improve and may be indicating better growth in the current quarter.  Of course we will not have first quarter GDP data until a month after the final revision of the last quarter in 2012 which comes later in March.     (by C. Cox)

January Durable Goods Orders

Tuesday, March 19th, 2013

Orders for goods expected to last three years or longer (Durable Goods) fell 5.2 percent to start 2013 according to the Census Bureau.  The decrease follows four consecutive increases, including December’s 3.7 percent uptick.  Excluding transportation, the orders for new business increased 1.9 percent and excluding defense they managed a 0.4 percent gain.

The report suggests businesses are looking past numerous policy uncertainties and are continuing to invest in equipment.  This is quantified by the increase in “core” capital expenditures.  This subtracts business orders associated with transportation and defense, leaving the type of equipment companies need to carry out their ordinary business.  It increased 6.3 percent for the month.  Machinery led the increase with a 13.5 percent increase month-over-month.  This may indicate growing strength in the industrial output of the country.

On the other hand, computers & related products and communication equipment new orders fell 15.5 percent and 7.9 percent respectively.  This may be pointing to relative weakness in the service sector; this is even more evident when the shipments of such orders are considered.  Deliveries have been down in three of the last four months even though their orders were positive in each month of the fourth quarter.  These shipments are part of the Gross Domestic Product (GDP) calculation since they represent actual output, so they are worth noting even though it is output that has already occurred.

The headline number of this indicator was rather discouraging, but there was a silver lining in the details.  Transportation is volatile so its decline may very well reverse itself in the months ahead.  With Washington D.C. still in conflict over the budget, the outlook for defense spending is not favorable, so this is likely to weigh down the country’s output as shipments of defense goods slow.  Despite all of the Washington wrangling, private companies excluding transportation were willing to order more equipment to further their operations.  Unless there is a wave of cancellations in the near future, these new orders are likely to translate into additional output from an economy that could use the boost.    (by C. Cox)

February Consumer Confidence

Monday, March 18th, 2013

Americans’ attitudes improved substantially in February according to the Conference Board’s measure of Consumer Confidence.   After a slight downward revision to January’s tally (58.4 versus the original 58.6) the indicator shot up 11.2 points in February.  The increase came as consumers expressed that both their present situation and expectations improved.

The present situation index increased from 56.2 to start the year to 63.6 in February.  Those claiming business conditions are good increased to 18.1 percent from 16.1 percent, while those stating these conditions are bad decreased to 27.8 percent from 28.4 in January.  The current employment assessment was mixed.  Those saying jobs are plentiful increased to 10.5 percent from 8.5 percent, but those claiming jobs are hard to get ticked up to 37.0 percent from 36.6 percent the month before.

The six month outlook was more ebullient as well. Expectations for improved business conditions increased to 18.9 percent from 15.6 percent.  The number of people with a less cheerful outlook on business conditions over the next half of a year fell to 16.5 percent from 20.4 percent in the prior period.  Consumers also anticipate a better labor market in the coming six months.  Those expecting more jobs in the period ahead went from 14.4 percent to 16.7 percent, while consumers foreseeing fewer jobs in the coming months fell to 21.5 percent from January’s 26.7 percent reading.  Also, more consumers expect pay to improve in the short term than did in the first month of the year.

Consumer confidence is often viewed as having a link to consumption, so this indicator’s improvement may help the economy if the better outlook translates to more dollars spent.  The level of this indicator is not impressive (in fact it is at readings normally associated with recessions), but the directional change is heartening.  The surge in economic faith occurred despite the cantankerous debate happening in the beltway over how to manage the country’s fiscal shortcomings.  Perhaps, if D.C. remains all balled up, the leaders of the nation won’t be able to mess with the recovery after all.    (by C. Cox)

January Existing Home Sales

Friday, March 15th, 2013

Sales of existing homes increased in January according to the National Association of Realtors.  The 0.4 percent pickup was made possible by the downward revision to December’s total.  Initially counted as 4.94 million units annually, the number of units sold in the final month of the year was actually 4.90 million annually.  This made January’s annualized tally of 4.92 million an increase for the month.

The supply of existing homes on the market is low.  After falling 4.9 percent, there are currently 1.74 million existing homes for sale. This is the lowest number of existing homes for sale since December 1999. At the current pace of purchases, it would take 4.2 months to deplete the inventory assuming no other homes were put on the market. This is the lowest housing supply measured in months since April 2005 when it was also at 4.2 months.

A small supply of homes might logically lead one to believe home prices should have increased. However, the median house price slipped 3.9 percent.  December’s median price was $180,800 while January’s price was $173,600. The year-over-year increase did improve going from 11.5 percent to end the year to 12.3 percent to start 2013.  January is the 11th consecutive monthly year-over-year gain.

Interest rates continue to be accommodative to the housing market.  Freddie Mac reports that the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 3.41 percent.  This is a slight uptick from the record low 3.35 percent in December but is still lower than a year ago when the same rate was 3.92 percent.

The housing market is continuing to heal, and the tailwinds providing it a push do not seem likely to diminish much.  In other words, unless there is a large influx of homes for sale, the inventory will remain tight and make it easier to match buyers to sellers.  Secondly, the Federal Reserve does not seem likely to change its accommodative interest rate policies, so purchasers in need of financing will find payments more affordable than in nearly all other times.  The existing homes market should benefit for as long as this combination exists.   (by C. Cox)

January’s Index of Leading Economic Indicators

Thursday, March 14th, 2013

The Conference Board’s Index of Leading Economic Indicators (LEI) continued to point to economic growth in its January reading.  The tally improved 0.2 percent after climbing 0.5 percent in December.  The slowing improvement suggests the economy’s growth trend will moderate in the near future.

A majority of the subcomponents of the LEI improved in January.  Interest rates continue to be helpful due to the assistance of the central bank’s extra ordinary monetary policy; the cost to borrow money is not restraining economic activity.  The stock market also helped the indicator in the first month of the year.  New unemployment claims fell during the month.  Building permits grew and new orders for consumer goods and materials also improved in the period. The negative contributors included consumer expectations for business conditions, average weekly manufacturing hours fell, and new orders for business wares fell.

This indicator is suggesting that the economic environment is not changing dramatically in the near-term.  Atlas is not impressed with the state of the economy but recognizes (as does the LEI) that America’s recovery is likely to continue with the help of the central bank.  One of our forward looking concerns is about the economy’s reaction to the removal of support from the Federal Reserve.  It may be years away, but we anticipate withdrawals when it comes.  Since the current type of central bank action is unprecedented, the symptoms this peaked economy will present after the support is taken away are unknown.    (by C. Cox)

New Home Sales

Wednesday, March 13th, 2013

The pace of new home purchases continued to grow in January according to the Census Bureau.  The seasonally adjusted annualized rate of sales was 437,000 units.  This is a 15.6 percent surge over December’s upwardly revised 378,000 count that was originally thought to be 369,000.

Like its existing home sales counterpart, the new home market has a relatively small inventory.  The number of new homes for sale at the end of January is estimated to be 150,000.  This is a 1,000 unit increase from a year ago.  To put the stock of homes into perspective, the average units for sale since 1963 has been 318,000.  At the current transaction pace, it will take 4.1 months to completely deplete the inventory.  Averaging 6.2 months going back to 1963, this measure of inventory is also low.

Prices paralleled what we saw in the existing home market.  Even as supply is shrinking, the price measures slipped.  The median price, $226,400, was 9.3 percent lower than in December.  The average price of the new homes sold to start the year was $286,300, a 5.0 percent slip from the month before.

New homes sold faster than at any other point in the housing recovery to start the year, so this area of the economy is healing.  The point from which this market has come back was so low that even after several quarters of upward trending sales, the level of transactions is still in a range associated with most of the recessions after the mid-1960s.  Like much of what Atlas sees in the economy, housing has room for improvement.    (by C. Cox)

January Chicago Fed National Activity Index

Tuesday, March 12th, 2013

The economy’s expansion was slower than trend in January according to the Chicago Federal Reserve Bank’s National Activity Index.  This follows December’s above trend growth rate.  The final month’s data was revised to +0.25 from +0.02, and any reading above zero is considered to be better than the trend.  The new end of the year tally puts the three-month moving average (3-MMA) above trend as well. Before the revised data, the 3-MMA was negative to end the year.  Even with January’s reading of -0.32, the moving average now remains above zero (+0.30) and suggests growth has been above trend since November.

Three of the indicator’s four categories deteriorated for the month.  The consumption and housing segment fell to -0.20 from -0.13 in December.  This was led by a decline in housing starts.  Production related indicators swung from positive territory at the end of 2012 to a negative reading in January; this was caused by a fall in manufacturing and lower capacity utilization.  The third segment, employment, was positive but less so than in December.  This is because the unemployment rate was up in the period and the number of new jobs added to the economy was lower than in the prior month.  Finally, the sales, orders, and inventories category managed to help the index going from -0.07 to +0.03.

This is a volatile indicator, so the three month moving average is probably the most constructive way to view it.  From this vantage point the economy is still growing faster than its recent trend.  January’s set back will be part of the 3-MMA for the next two iterations of this indicator, and November’s +0.96 reading will be falling off next month, so February’s tally will need to be better than +0.07 in order for the economy to have grown faster than its trend.  January’s reading will make it more challenging for the economy to perform above trend on average in the first quarter of 2013.    (by C. Cox)