Archive for October, 2013

September Institute for Supply Management

Tuesday, October 22nd, 2013

Both sides of the economy appear to have continued growing in September according to information provided by the Institute for Supply Management (ISM). The manufacturing portion of the economy picked up the pace of output with a reading of 56.2, up 0.5 from August. Nonmanufacturing grew, but at a slower rate; its reading moved to 54.4 from 58.6 in the prior period.

September’s manufacturing reading was the highest of the year, and the monthly average output in the third quarter was the best of 2013 as well. After slowing to 50.2 in the second quarter from 52.9 in the first three months of the year, the ISM manufacturing index averaged 55.8 from July through September. This bodes well third quarter GDP statistics.

The nonmanufacturing segment of the economy expanded for the 45th consecutive month in September. Business activity continued to expand but did so at a slower pace. A slower rate of change was also the case in new orders and employment. Supplier deliveries were unchanged for the period. Despite the slower expansion in September, the nonmanufacturing ISM tally for the quarter was also the best of the year. Its expansion improved over the second quarter with the help of strong readings in July and August.

Using the ISM data alone, it appears the third quarter was stronger than the second quarter’s 2.5 percent GDP growth. Of course there is always noise in statistics, so Atlas will wait until the Bureau of Economic Analysis releases its findings, but ISM data is suggesting the third quarter will be better than the first two of 2013. (by C. Cox)

September National Association for Business Economics

Monday, October 21st, 2013

The most recent report from the National Association for Business Economics (NABE) has some fairly encouraging perspectives in it. This professional organization has been in existence since 1959 and is comprised of business economists and others who use economics in their line of work. The most recent outlook from the group suggests the gradually improving American economy will continue to expand.

NABE’s current panel of economists is expecting the pace of our nation’s third quarter expansion to be 2.3 percent on an inflation adjusted annualized basis. This forecast is a slight contraction from the second quarter’s 2.5 percent rate, but the group thinks things will improve further in 2014. Their forecast for next year includes several quarters of 3 percent annualized growth. To put this optimism into perspective, in the four and one-half plus years since the end of the last recession, America’s economy has only managed consecutive quarters of growth exceeding 3 percent (inflation adjusted annualized basis) just once.

Atlas is anxiously waiting to see the economy unfold as enthusiastically as NABE is suggesting, but we continue to have reservations. One topic not discussed in the latest NABE release was the recent stalemate in the beltway. It is reasonable to expect the temporary shutdown will have some impact on the nation’s output. Whatever the final resolution brings in the weeks ahead could impact government spending in 2014 and these expenditures are part of the nation’s output for better or worse. (by C. Cox)

Final Revisions to Second Quarter GDP

Friday, October 18th, 2013

There was no change to the second quarter’s 2.5 percent growth rate after the Bureau of Economic Analysis made their “final” revisions to the data set. The quotations were used because sometime in the future more revisions will likely be made but for now we will consider this most recent attempt to quantify the nation’s output as the last. While the headline figure remained the same, the internals shifted.

Global consumption of American goods and services was resilient to end the first half of the year. Final sales of domestic products were revised higher to 2.1 percent from 1.9 percent. This measure of consumption does not separate foreign demand from the domestic, but it tells us that American firms sold more than initially thought.

Other revisions were mixed. Firms’ inventories were smaller than earlier counts suggested; there was a $6.0 billion subtraction in this revision. Companies invested in capital at a 4.7 percent annualized rate during the three month period. Also, the pace of residential investment was revised up to 14.2 percent from 12.9 percent.

The measures of inflation included in the BEA’s release parallel other gauges of price pressure. The headline total was revised down to 0.6 percent from the second estimate of 0.8 percent on an annualized basis. Excluding food and energy, the annualized rate fell to 0.9 percent from the earlier report. In short, prices remain tame across the many measures that Atlas follows. Soft inflation along with a weak labor economy will, at the very least, allow the Federal Reserve to take its time withdrawing from the unconventional monetary policies. (by C. Cox)

Augmented Reality

Thursday, October 17th, 2013

I recently came across a description of a free mobile phone application from Nokia called Internship Lens. While the details of this add-on were impressive, what caught my attention was the use of something called “augmented reality” to improve its performance. Now there’s a concept! Tired of reality? Just augment it. I don’t claim to understand exactly what that means, but I am sure our hard-at-work federal government representatives do. In fact, I would argue, they have been using a version of it for years.

Please allow me to provide an example of augmented reality D.C. style to you. Take the idea that our government may not have enough money on hand to service the nation’s daily debt as it comes due. Accounting 101 would define that as defaulting. Thankfully, no one in Washington seems to understand basic accounting, allowing for the reality of a default to be augmented. We’re told not to call it an “actual” default but a “technical” default instead. Big difference. An actual default means we don’t have the money to pay our bills; a technical default is being defined as an ability to pay but we just don’t wanna.

A technical default suggests banking could proceed in an almost normal fashion, hopefully avoiding all the nasty consequences that might result from an actual default. Knowing we could pay the bills by printing more funny money if we really wanted to, even without explicit permission by Congress, should be enough to placate the folks waiting for a check. And what’s the big deal? Without federal augmentation, would anyone believe the U.S. dollar is still real?

September Consumer Sentiment

Wednesday, October 16th, 2013

Consumer attitudes diminished significantly in September according to the University of Michigan’s Consumer Sentiment Survey. The index fell to the lowest reading since April, falling from 82.1 to 77.5. This puts the overall tally just one point above the level from a year ago and well below its recent high of 85.1 seen in July.

Consumers are less sanguine about both current conditions and their expectations. In the eyes of Americans, economic conditions deteriorated; the level of this subcomponent slipped from 95.2 to 92.6. Expectations fell at an even faster rate, dropping from 73.7 to 67.8. Perhaps all of the headlines about the possible shutdown in Washington D.C. have started to impact consumer’s outlook. It will be interesting to see this data point for October now that the closure has occurred.

If there is any good news in the data, it is that the index improved slightly from a mid-month tally that Atlas pays little attention to. Our takeaway is that month-over-month downward move was rather drastic. There is a lot of uncertainty in the country and it may continue to take a toll on the attitudes of Americans. If this is the case, Atlas would not be surprised to see weakness in other hard economic indicators like retail sales and personal consumption. (by C. Cox)

August Personal Income and Outlays

Tuesday, October 15th, 2013

Income was up in the month of August, and consumers translated the additional earnings into added expenditures. Data from the Bureau of Economic Analysis shows income growing by 0.4 percent after July’s tally was revised higher to 0.2 percent from 0.1 percent. Consumption grew by 0.3 percent adding to the revised uptick of 0.2 percent (originally 0.1 percent) a month earlier.

Most measures of income were higher. Wages and salaries (the largest income component) were 0.4 percent higher after falling 0.3 percent the month before. Rental income grew by 1.3 percent and proprietors earned 1.3 percent more in the period. Transfer receipts rose 0.4 percent. These strengthening components were slightly offset by lower interest and dividend income.

The additional income likely helped boost expenditures. Components of the added consumption were mixed. Americans purchased 0.5 percent more durable goods following no growth in July. This go around, nondurable spending was flat after 0.9 percent growth in the prior period. Services grew 0.4 percent after July’s dip of 0.1 percent. The pace of spending did allow the monthly savings rate to grow to 4.6 percent, but this still remains a relatively slow pace of putting money away for a later date.

Prices remained tame in the period. The price index was a mere 0.1 percent higher after being up the same in July. Year-over-year, it has only grown by 1.2 percent. The Federal Reserve’s favorite inflation gauge, core personal consumption expenditures, rose 0.2 percent and is also up 1.2 percent year-over-year, well below their assumed 2%+ target.

Overall, this indicator had a good showing in August. The largest component of the economy, consumption, grew and prices remained tame. There is still one more month’s worth of data before a complete picture of third quarter consumption is known, but even a 0.1 percent uptick in spending will mean the third quarter improvement was better than the second quarter’s growth. (by C. Cox)

Augusts Durable Goods Orders

Monday, October 14th, 2013

Durable Goods improved on paper in August according to the Census Bureau. The monthly uptick was 0.1 percent, but it followed July’s revised fall of 8.1 percent; the initial tally had it shedding 7.3 percent, so August’s uptick cannot even make up for the revision to July’s data.

Transportation led the indicator higher. However, the 0.7 percent increase pales in comparison to the 21.9 percent collapse in July. Motor vehicles were the strongest part of the subcategory, gaining 2.4 percent in the month. If transportation is removed, the remaining components fell 0.1 percent after July’s slide of 0.5 percent in the ex-transportation measure.

Core durable goods orders improved. This measure of capital expenditures excluding defense spending and aircraft increased by 1.5 percent, but this uptick followed July’s fall of 3.3 percent, so orders are still at a level below June’s measure. Weakness in core capital expenditures suggests there may be growing uncertainty within the business community which is causing them to invest less.

The recent weakness in this indicator has Atlas’ attention. These orders turn into economic output in the future, so the current slowdown does not bode favorably for the end of the third quarter or the beginning of the final three months of 2013. Right now the core measure is running below the pace seen in May of this year. If this trend persists it may spillover into other indicators and add to our concerns about the sustainability of this weak recovery. (by C. Cox)