Archive for December, 2013

November Consumer Prices

Tuesday, December 31st, 2013

Inflation as measured by the Consumer Price Index (CPI) was unchanged in November according to the Bureau of Labor Statistics. Despite being flat for the month, following a 0.1% October decline, the year-over-year change gained 0.3% to register a 1.2% increase at the headline level. Once again a decline (1.0%) in the energy component of this indicator (it was off 1.7% the month prior) pulled that total down. Food prices, up 0.1%, the same rate of increase we saw in October, helped pull it back up to zero.

To get the core CPI, we remove the effect of changes in energy and food prices. For November the core rose 0.2%, yet its Y/Y rate of change held steady at a 1.7% increase.

Our Federal Reserve has consistently suggested they would like to see inflation a tad higher, around the 2% level. In their most recent statement they allowed for it to surpass that figure, encroaching on 2.5% or more for a bit, before they will begin to raise their base interest rates which now reside practically at zero. November’s increase in the CPI is probably seen by them in a favorable light, but their concern that it could begin to decline again will likely keep their rate policy right where it is for some time to come. (by J R)

November Producer Price Index

Monday, December 30th, 2013

Prices paid by producers and wholesalers fell in November according to the Bureau of Labor Statistics’ Producer Price Index (PPI). As the economy has progressed, mentions of deflation have largely fallen by the wayside, but this measure of inflation has dropped in each of the last three months. Prices at the producer level have only managed to tick up by 0.7 percent total in the last 12 months.

Energy was the primary culprit of the monthly downtick, but the price pressure is rather weak even after it is removed. Energy costs dropped 0.4 percent in the period and are now down 0.7 percent from a year ago. Food price increases were flat for the period and are only 0.7 percent higher in the last twelve months. While these two components were volatile on a monthly basis over the last year, they are relatively unchanged from a year earlier. If these fickle components are removed, the core PPI managed to tick up just 0.1 percent in November and is up 1.5 percent year-over-year.

The earlier stages of output continued to see price declines in November. The crude stage (think wheat) fell 2.6 percent; energy at this stage collapsed 6.6 percent. Over the three months ending in November, the prices in the earliest stage of production have dropped 3.0 percent. The intermediate stage (think flour) was 0.5 percent lower. Once again, energy led the drop as energy goods fell 1.5 percent in this stage of output.

Inflation continues to be benign in the recovering economy according to the PPI data. The earlier stages suggest continued relief in energy prices. Unfortunately, you cannot bank on this suggestion because energy is volatile and susceptible to geopolitics, but if all else remains the same, the lower energy costs should help propel the rest of the economy. (by C. Cox)

Positively Cynical

Friday, December 27th, 2013

If I had been there, I could have told the original Cynics that their ideas would never be popular. Looking for an honest man. Really? Giving away your excess to the greater community. Come on! Who did they think they were? Saints? No wonder the term cynic has morphed over the centuries to indicate negativity rather than renunciation.

The notion that one might endeavor to make do with less is old as dirt, and just about as popular. Buddha taught it ages ago in India, and you will be hard pressed to find a Buddhist from there today. Five or six hundred years later Jesus preached the same message and we all know how that ended up. While there are some who now adhere to a similar philosophy, they tend to be labeled as tree-hugging crackpots and given short shrift. Instead, global banking, with some success, seems to press a more popular message, one suggesting too much is not quite enough.

So it is that today, the primary ideas put forward to rein in the big banks, to reduce the risk they represent to us simple folks, are met with strong resistance by these same institutions and the enormous sums their lobbies can bring to bear. The Volker Rule works its way through committee after committee, constantly having its fundamental authority chipped away. It is amazing that even the shadow of its original self appears almost ready to be enforced. More astounding is hearing the Vatican’s Pope deliver a similar and lengthy admonishment in his most recent encyclical against those most eager to protect their lucrative franchises. He seems willing to even take on the Vatican’s own central bank, an agency that, like our own, seems somehow separate from sufficient internal supervision. I hope this doesn’t sound too cynical, but let us pray he is aware of the danger such a position presents. Caesar, more often than not, gets his due in this world while those of a more idealistic bent end up being crucified. (by J R)

October Personal Incomes and Outlays

Thursday, December 26th, 2013

Consumers spending increased in October despite a slowdown in personal income and the government shutdown according to the Bureau of Economic Analysis. The outlay increase of 0.3 percent improved over September’s tally of 0.2 percent. Income was challenged in the period as it fell by 0.1 percent. Finally, the inflation gauge imbedded in this report barely budged.

The fourth quarter started with a slight uptick in consumption. Firms may have been correct to stock up on their wares, helping to calm any concerns about the inventory build seen in the third quarter. Durable goods (items expected to last longer than three years) sales improved more than both nondurable and service transactions. Automobile sales led the uptick.

Contrary to the pace of spending, personal income fell to start the fourth quarter. An anomaly in the prior month partially caused the decrease. There was a $10 billion class-action settlement in September between the U.S. Department of Agriculture and a group of farmers that boosted the category of farm proprietors’ income for one month. Other areas of earnings improved including the biggest component, salaries and wages.

Price growth remained tepid in October. The monthly change in the price index included in this report fell less than 0.1 percent after being up 0.1 percent in the prior period. The personal consumption expenditures index excluding food and energy (core PCE), the Federal Reserve’s favorite inflation indicator, was also up less than 0.1 percent; year-over-year, this important price measure has only increased 1.1 percent.

When everything in this indicator is considered, the fourth quarter appears to have started off on the right foot. The consumer represents over two-thirds of the economy, so seeing the outlays portion of this indicator grow is encouraging. Also, inflation does not appear to be an issue at the moment and will help the central bank justify its continued attempts to goose the economy. (by C. Cox)

November’s Leading Economic Indicators

Tuesday, December 24th, 2013

According to the Conference Board, their Leading Economic Indicators (LEI) index rose by 0.8 in November, its fifth consecutive gain. At 98.3, this indicator is now at a five year high. Its base level of 100 was established in 2004, so the trend seems very positive. The soft 0.2 jump we saw in October has been revised down by half to a scant 0.1 nudge, but September’s 0.9 reading was the beneficiary of this change, moving up to show a full 1.0 positive move.

Of the ten components which comprise this index, we saw weakness in consumer’s outlook continue exerting some negative pull on the total, just as it had done in the prior month. Also pulling in a southerly direction was a drop in housing permits. Offsetting strength came especially from improving labor conditions, new manufacturing orders, and some better financial sub-indices.

Also included in this monthly release are two other measures used to confirm trends that seem to be developing. The Coincident Economic Index rose 0.4 percentage points to 107.2, while the Lagging Economic Index is at 119.9, remaining unchanged in November. Like the LEI, both of these began life in 2004 at 100. All of this suggests an economy which continues to improve, even if slowly. (by J R)

Revised Third Quarter GDP

Monday, December 23rd, 2013

Output in the United States was better than first thought according to the revised information from the Bureau of Labor Statistics on Gross Domestic Product (GDP). The economy grew at an annualized rate of 3.6 percent between July and September, revised up from the initial estimate of 2.8 percent. For some perspective, the second quarter grew at just 2.5 percent.

The higher figure was largely influenced by inventories. As firms produce or purchase goods, if they do not sell the wares, the items become part of a company’s inventory. This stockpiling, whether intentional or not, counts toward the nation’s output. It appears these inventories made up roughly 47 percent of the quarter’s growth. This may present a problem to an economy that is primarily driven by consumption. Firms’ shelves became crowded because consumption waned, and companies did not adjust adequately for the downtick.

If inventory adjustments are excluded, final sales are what remain. This measures actual demand for American made goods. Final sales slowed from 2.1 percent growth in the second quarter to 1.9 percent during the third quarter. While the downtick may seem rather modest, this is the third quarter in a row where final sales growth was slower than GDP. If this continues, inventories will approach levels that cause firms to reduce output.

Overall, GDP suggests the economy continues to expand. The difference between domestic output and sales may cause firms to slow down output in order to reduce their stockpiles, but if purchases of American made good increase around the globe, even that adjustment may not be necessary. The pace of growth in the third quarter is in line with other periods of the current recovery. It may be a tepid economy, but it is the only one we have. (by C. Cox)

October Trade Balance

Friday, December 20th, 2013

The Census Bureau reported our trade deficit shrank a bit in October, narrowing to $40.6 billion from the revised September shortfall of $43 billion (originally shown as -$41.8 billion).

Seeing any improvement in our trade balance is good, and October’s results were the result of favorable factors. Exports from the U.S. rose 1.8% after slipping 0.1% in September. An improvement in services provided a big assist to this growth. On the other side of the ledger, imports rose a scant 0.4%, well below the 1.6% jump seen in the prior month. Further, it was a drop in non-petroleum goods which led this last factor.

As with most of our indicators, results don’t tend to be either unequivocally good or bad, colored instead by which crayon you choose to pull from the box. Rising exports argue for a recovery in other economies since their demand for our products appears to be increasing. In fact, deficits improved within a wide spectrum of our trading partners from China to the European Union; outright surpluses occurred with Hong Kong, Brazil, and Australia. On the other hand, slipping imports may be pointing to a slower pace of economic growth domestically, although that is by no means definitive or forecast.

For now, we will see the drop in our deficit as a positive, one which still points to an improving trend which began to develop almost two years ago. Another positive comes from the fact that such a change should help our nation’s GDP report when the ultimate tally for this year’s final quarter is released. (by J R)