Archive for September, 2013

August 2013 Employment

Monday, September 30th, 2013

The labor market continued to improve slowly in August according to the Bureau of Labor Statistics (BLS). The unemployment rate fell to 7.3 percent from 7.4 percent in July. The economy generated 169,000 jobs in the period. The average work week ticked up by six minutes and average hourly earnings increased by 0.2 percent.

To suggest the labor market remains weak despite the positive figures in headlines is not letting the cat out of the bag. Most folks Atlas encounters are not impressed by the improving statistics. Seeing figures like the 169,000 new jobs and a falling unemployment number on the front page of your favorite newspaper or website appears encouraging, but digging further into the labor situation better illustrates the state of the jobs market in America. The tallies of new positions created in the prior two periods were revised down by a combined 81,000. The biggest contributor to the fall in the unemployment rate continues to be the falling participation rate. Americans are leaving the workforce, and if a person is out of the marketplace, she is no longer counted in the jobless tally. The unemployment rate is at its lowest figure since December 2008, but it took 312,000 Americans leaving the working ranks in August for the headline number to look so favorable. The unemployment rate may be the lowest in years, but the labor participation rate is the lowest in decades; it was August 1978 when the percentage of Americans participating in the labor market (63.2 percent) was this low.

Unfortunately, the BLS does not expect the participation rate to improve over the next seven years! In fact, it projects the 2020 rate to fall down to just 62.5 percent. The only group expected to increase their working percentage before the beginning of the next decade according to this agency’s website is workers 55 and over. It will be interesting to see how the younger cohorts spend their time when not punching a clock. (by. C. Cox)

Relay Relativity

Friday, September 27th, 2013

In February of this year the Camperdown Classic was held in Kingston with some of the world’s best track and field contestants gathering for the test. Usain Bolt, considered by some to be the fastest man alive and a national hero there in Jamaica, made a rare appearance in the 400 meter race, winning his heat by crossing the finish line in just 46.72 seconds.

Bolt also appeared in the 4×100 meter relay race which covers the same distance. His team took first place, with a winning time of 38.62 seconds. Given that each of its four members were required to hand off or receive a baton while running full tilt makes this feat seem even more impressive.

How do we explain the fact that the team, despite having to concentrate on the baton’s transfer between two racers, one of whom is just ending his race while the second is just beginning, was still able to cover the 400 meter distance faster than Bolt could by himself? They employ a certain strategy. In this type of race, each of the runners is arranged in a specific order based on their individual strengths.

Here at Atlas we see this as a stellar example of relative strength. For our part, we choose the investments which get placed in our portfolios based on somewhat similar criteria: each component has a particular skill set which is demonstrating superior relative strength when introduced to the mix. As it tires, we replace it with a new asset class, a fresh runner. Naturally we hope to take home the gold when the race is done. (by J R)

August Institute for Supply Management

Friday, September 27th, 2013

Both sides of the economy appear to have gained in August according the latest data from the Institute for Supply Management (ISM). Manufacturing improved slightly to 55.7 from July’s 55.4. The real pickup in output came from the service sector which moved from 56.0 to 58.6.

New orders stood out for both manufacturing and the non-manufacturing sectors. These are arguably the most important portion of the surveys because they are forward looking, and they currently suggest additional output in the near future. Manufacturing’s new orders jumped 4.9 points to 63.2. It has been nearly 2.5 years since this component had a reading above 60. New orders for services increased to 60.5 versus the July tally of 57.7. New orders may help lead to a strong finish for the third quarter and help the fourth quarter get off to a good start as the orders turn into output.

Manufacturing’s overall uptick followed July’s strong showing. Within the total, production remained strong; the reading of 62.4 is a slight downgrade from July’s 65.0 surge but is still a robust figure for this indicator. These two consecutive readings above 60 for the output portion of the indicator bode well for manufacturing’s contribution to the third quarter’s gross domestic product figure.

Service companies continued to demonstrate strength. The business activity tally remained above 60 at 62.2. Non-manufacturing companies are also delivering services more slowly which is also indicative of rising activity. Service employment was 3.8 points higher at 57.0. This is consistent with the gains seen in the monthly jobs report as private service-providing firms continue to be the strongest hirers.

August’s ISM figures are encouraging partly because they counter the consumer attitude surveys Atlas follows. Consumers have been relatively pessimistic in their assessment of the current situation which should impede spending, but August’s ISM suggests the slowdown is not occurring. (by C. Cox)

August Consumer Sentiment

Wednesday, September 25th, 2013

Some of the enthusiasm in consumers’ attitudes evaporated in the August sun. After a reading of 85.1 to end July, August’s tally was 82.1. This setback puts indicator at its lowest level since April. However, Americans feel much better year-over-year, last August’s tally was 74.3.

Both components of the survey deteriorated. Consumers feel slightly worse about their present circumstances. The reading on current situation fell to 95.2 from 98.6 in July. Simultaneously, Americans appear to be less sanguine about the future. Consumer expectations dropped to 73.7 after the reading of 76.5 in the prior period.

The current situation downtick in sentiment resonates with the similar component within the Conference Board’s Consumer Confidence measure. This negative movement in Americans’ attitudes may not bode well for August’s consumption numbers. Atlas will look to the upcoming retail sales figures for signs of temperament tempering outlays. Combining August’s weak attitudes with the paltry growth in consumption seen in the recent income and outlays report points to slower growth in the third quarter of 2013 versus the second. (by C. Cox)

July Trade Balance

Tuesday, September 24th, 2013

America’s trade deficit widened slightly in July according to the Bureau of Economic Analysis. The trading shortfall totaled $39.1 billion which follows June’s revised gap of $34.5 billion (initially tallied as $34.2 billion). Exports fell 0.6 percent in the period while imports increased 1.6 percent; both of these components had moved in the opposite direction respectively in June.

America’s goods deficit widened while its services surplus closed. The nonpetroleum goods deficit expanded to $38.7 billion in July from June’s tally of $35.0 billion; this was the largest contributor to the increased trade gap. Petroleum’s deficit ticked up $1.2 billion to $18.7 billion. Services’ surplus was somewhat smaller than in June, falling to $19.4 billion from $19.5 billion a month earlier.

The trade deficit’s trend has been improving since January 2012 when it was $51.4 billion. This month’s slight deterioration is not alarming but may illustrate some of the difficulties the global economy is experiencing; on both sides of the ledger, firms were less willing to spend money on capital goods. Domestic firms spent $300 million less on foreign made capital expenditures; foreign firms cut their spending on American made wares by $1.6 billion. This may point to a diminishing outlook by companies worldwide. (by C. Cox)

August Consumer Confidence

Monday, September 23rd, 2013

Consumers appeared to feel slightly better in August according to the Conference Board’s Consumer Confidence report. The tally moved from an upwardly revised 81 (originally 80.3) to 81.5. Americans’ attitude seems to be improving about the future while they are becoming more concerned about the present.

The expectations index hit a 2.5 year high in August. The outlook for the next six months improved as 20.1 percent expect business conditions to improve, an uptick of 0.2 percentage points. There was a decline in the number of folks anticipating conditions to worsen, moving to 11.1 percent from 11.3 percent in July.

The current situation is the portion of the survey about which Americans are least optimistic. There was a 2.4 percentage point decline, to 18.4 percent, in the number of people describing current conditions as “good.” The percentage of those surveyed who feel jobs are plentiful declined to 11.4 percent from 12.3 percent, but those suggesting they are “hard to get” fell from 35.2 percent to 33.0 percent, so not all news about the current labor market was bad.

The outlook for jobs in the next six months is still improving. Those expecting more job availability in the period increased from 16.7 percent to 17.6 percent. A smaller percentage of those surveyed anticipate fewer openings in the next half of a year, falling to 17.3 percent from 17.7 percent in July.

The overall tally picked up, but the weakness in the current conditions portion of the survey does not set August data points up very nicely. If consumers did indeed feel slightly worse about the present, it may have caused them to decrease the pace of their spending growth. Retail sales for August will give Atlas some clue as to whether or not the attitudes of consumers are impacting their spending habits. (by C. Cox)

When the Worm Turns

Friday, September 20th, 2013

When the red, red robin goes bob-bob-bobbing along, it turns out he’s hungry. You may see one hop across the lawn, stop and cock his head sideways. Turns out the little fellow has ears underneath all that fluff and he’s listening for earthworms. How weird is that? It’s not like worms carry on conversations, they just chomp their way through dirt and the bird picks up on the noise that makes. Obviously never listened to much Led Zeppelin in his youth.

Anyway, the worm is also looking for a meal—constantly I’m guessing. Do they ever sleep? They eat the dirt in front of them and ambulate along (what do you call worm walking?), probably following the path of least resistance, preferring to munch soft soil rather than large chunks of granite. I doubt worms can really look to see where they are going or devise any particular strategy over a cup of morning joe. I’m not sure the worm even knows or cares where it’s going exactly, it’s just looking for the most rewarding path.

The world of investing is rife with similar critters. We generally call them bond vigilantes. Controlling immense quantities of money, they hop hither and yon, hoping to find financial succor wherever it might be. They crawl incessantly through the markets looking for opportunities to profit from trends or imbalances, especially in the currency and fixed income arenas. Given the perpetual attempts by the world’s central banks to manipulate both of these markets by changes in monetary policy, such opportunities often present themselves. It is then when the invisible hand takes a more substantive shape and the presence of these bond vigilantes can be felt.

Are we nearing such an episode? Quite possibly. The recent persistent rise in interest rates despite unified efforts globally to keep them depressed is a subtle sign something may be at work. When a central banker’s comments seem to be spurring most asset classes to move in unison rather than evidencing their more normal non-correlation, we here at Atlas take notice. This can be a signal that disruptive financial events might soon follow for better or worse. If they do develop, we are prepared to act accordingly. (by J R)