Archive for December, 2013

September Durable Goods Orders

Tuesday, December 10th, 2013

Durable Goods Orders (DGO) fell considerably in September according to the U.S. Census Bureau. The headline tally of orders for wares expected to last longer than three years slipped 2.0 percent. This drop did not reverse all of September’s gains, which were revised up to 4.1 percent from 3.7 percent. Unfortunately, businesses did not show signs of confidence during the month in which the government shut down; non-defense capital goods orders excluding aircraft (core DGO) fell for the second month in a row.

The year-over-year figures remained positive, so perhaps the recent slowdown is transitory and will be reversed in the next few releases. In the past year, the headline count has grown by 4.9 percent on a non-seasonally adjusted basis. The year-to-date figure is 4.8 percent higher. The core measure (a proxy for business confidence) is up 4.1 percent year-to-date.

Shipments of durable goods increased by 0.2 percent. This follows September’s improvement of 0.5 percent and is the third consecutive monthly increase in the amount of durable goods being sent to buyers. Growth in shipments bode well for fourth quarter Gross Domestic Product which will be released in January.

Unfilled orders increased in the period as well. This means factories are finding it more challenging to complete fulfillment and may need to bring on additional labor in the short-run. This statistic has been up in eight of the last nine months. Oddly, inventories have been rising as well, which suggests some firms are manufacturing more than they are selling.

Overall, this indicator was mixed in September. The new orders portion may have been influenced by the government shutdown. Too bad the next possible closure is already on the horizon. If the beltway is not careful, they may stall the manufacturing segment of our economy by chasing away additional new orders. (by C. Cox)

October Producer Price Index

Monday, December 9th, 2013

Prices paid by producers and wholesalers were lower at the headline level according to the Bureau of Labor Statistics. Falling for the second month in a row, the Producer Price Index (PPI) dropped 0.2 percent in October. Year-over-year prices have only increased by 0.3 percent.

Energy played a large part in the decline. It was off 1.5 percent in the period. Year-over-year, energy is 3.2 percent lower. Core PPI, which excludes energy and food, was 0.2 percent higher. In the last twelve months core PPI has managed a gain of just 1.6 percent.

Signs of inflation were absent in the earlier stages of production. Prices for intermediate goods (think flour) fell 0.4 percent. The price decline was even more pronounced in the earliest stage of output. These crude goods (think wheat) were 0.9 percent lower than a month earlier. Stripping out food and energy from these earlier stages does not reveal signs inflation either. Core intermediate goods dropped 0.1 percent and core crude items declined 0.5 percent. Year-over-year, intermediate and crude prices have fallen 0.9 percent and 0.4 percent respectively.

There are many who are concerned with the possible consequences of the Federal Reserve’s experimental monetary policies. Inflation is at the center of their worry. As more dollars are created out of thin air, it stands to reason that the additional money will begin to chase the limited number of goods and services in the economy. This phenomenon may very well manifest, but the PPI report is not showing signs of its development at this time. (by C. Cox)

November Consumer Confidence

Friday, December 6th, 2013

The Conference Board released their November report on U.S. Consumer Confidence, and it does little to bolster our internal Atlas confidence index in things yet to come. As usual, there was a slight revision to the October reading, bringing it up to 72.4 from the original 71.2 calculation. At 70.4, the current November reading has fallen two points lower during the month and now resides well below the 80.2 point tally posted in September.

There are two components making up this report. The first, Expectations, fell to 69.3 from 72.2 in October, a pronounced drop from the 84.7 level seen in September. Income prospects and the employment outlook both suffered in this most recent report, helping to pull the total lower. Expectations that future inflation may not be as severe as assumed just a few weeks ago may be a current reflection of lower prices at the pump. Little was made of the reopening early next year of the circus some call Congress when budgets and ceilings will again likely provide substantial fodder for the press.

Interestingly, the second component of this report, Current Conditions, was a bit less negative. Off just 0.6 from October, the November reading currently resides at 72.0, which is actually an improvement from the 70.9 level established just three months ago in August. Thus, maybe folks will be more willing to spend over the holidays, boosting some of our other indicators. The current improvement in retail sales, for instance, suggests this is quite possible. (by J R)

October Consumer Prices

Thursday, December 5th, 2013

Prices paid by consumers fell in October according to the headline tally of the Consumer Price Index (CPI) per the Bureau of Labor Statistics. The 0.1 percent dip follows September’s uptick of 0.2 percent. In the past year, overall consumer costs have grown by 0.9 percent. The core CPI, which excludes the volatile food and energy components, yielded a slightly higher monthly and annual increase up, 0.1 percent and 1.7 percent respectively.

Energy was the big driver of the lower headline tally. This subcomponent dropped 1.7 percent for the period after a 0.8 percent increase in September. Most notable was the drop in gasoline prices, falling 2.9 percent for the month. Gasoline’s price drop should help consumers as the holiday season approaches. Food, the other fickle component, has been rather tame over the last couple of months. Edibles edged up by just 0.1 percent in October after being flat in the prior period.

The components of the core measure of this index were mixed. Shelter increased by 0.1 percent, the smallest monthly increase since December 2012. Falling 3.1 percent, lodging away from home largely influenced shelter in the period. Airline fares took off, increasing 3.6 percent. Medical care costs were unchanged in the period, after rising in each of the four prior months.

Inflation continues to be tame. If other measures of prices prove to be similarly mild, the Federal Reserve may feel it is necessary to take additional action or at least leave its current strategy in place longer than it has implied. It has been trying to stoke inflation as a method to encourage consumption, but the central bank’s efforts have yet to move the inflation needle substantially. It may be fighting a process that is too strong to overcome. There are major adjustments occurring in the country’s demographics and technology. These changes may be diminishing the demand while increasing productivity and output. (by C. Cox)

October Retail Sales

Wednesday, December 4th, 2013

Consumers came back in October from their September hiatus. After the upwardly revised tally to zero (initially counted as -0.1 percent), October’s retail sales improved by 0.4 percent. Year-over-year, they have grown by 3.9 percent.

After being in reverse a month earlier, auto transactions drove the indicator higher in the period. Vehicle sales improved 1.3 percent after dropping 1.2 percent in September. However, gasoline sales did not add fuel to the fire. Petrol station sales slipped 0.6 percent after adding 0.2 percent in the prior period. This may be due to changes in price and not the number of gallons sold. Retail sales are not adjusted for prices, and gasoline costs have been trending lower since July.

There were more categories that improved in the period than deteriorated. Hardy upticks occurred in electronics & appliance stores; sporting goods; furniture; clothing; and food services & drinking places. Only two categories fell, building & garden materials as well as miscellaneous stores were lower.

Consumers have been willing to spend more money even as they self-report feeling worse in the various consumer attitude indicators Atlas follows. Coupled with the manufacturing strength seen in the industrial production report, this economy looks far from faltering even if the pace is relatively slow. To make things even better, inflation has remained tame. The rate of growth in the economy has been tepid, but this may just be the way things play out in America for now until secular changes like demographics run their course. (by C. Cox)

October Existing Home Sales

Tuesday, December 3rd, 2013

Existing home sales fell for the second consecutive month in October according to the National Association of Realtors (NAR). The number of transactions declined 3.2 percent to a seasonally adjusted annual rate of 5.12 million units. September’s decrease was 1.9 percent and August showed no growth. The last three months have not been robust for this market.

While the monthly change was negative, year-over-year statistics still look favorable. October’s pace of sales is 6 percent higher than 12 months earlier, and October is the 28th consecutive in which the year-ago levels grew. Also, the percentage of transactions that were on distressed homes has fallen considerably over the last year. Compared to 25 percent a year ago, only 14 percent of the homes sold were foreclosures or short sales.

The supply of existing homes is still tight. There are 2.13 million units for sale, a decline of 1.8 percent from September but 0.9 percent higher than this time last year. At the current pace of sales, it would take 5.0 months to deplete this inventory. The median time it took to sell a home was 54 days, up by four days from the prior period.

The slower market did not keep the price statistic from increasing. The median existing single-family home was 0.5 percent higher than in September at $199,500. This is a 12.8 percent rise over the October 2012 level and the 11th consecutive month of double digit year-over-year price improvements.

Interest rates remained soft and were lower than a month earlier. According to Freddie Mac, the national average commitment rate for a 30-year conventional, fixed rate mortgage fell to 4.19 percent from 4.46 percent in September. However, this is higher than the cost to borrow a year earlier which was 3.38 percent.

In all, the housing market seems to have lost some steam in the last three months. This market has had an impressive run over the past few years and may need a breather. Atlas will continue to watch this development because it could impact consumption. If homes are not selling as quickly, furniture and appliance sales may suffer. Also, if home appreciation begins to taper, households may not spend as quickly on other items because the pace of their wealth growth has slowed. (by C. Cox)

October Industrial Production

Monday, December 2nd, 2013

Industrial Production slipped in October according to the Federal Reserve. The output of physically made goods fell 0.1 percent to start the fourth quarter after growing by an upwardly revised 0.7 percent (originally 0.6 percent) in September. Year-over-year, the production of physical goods has increased by 3.2 percent.

Like many indicators, the headline figure does not always tell the entire story. The largest and most important component of the indicator, manufacturing, increased by 0.3 percent. This is the third consecutive monthly improvement, and this subcomponent is now up 3.3 percent in the last twelve months. After a strong September for mining and utilities, each fell in the period. Mining dropped by 1.6 percent, giving back all of its gains from a month earlier. The slowdown was partially caused by temporary shutdowns of oil and gas rigs in the Gulf of Mexico as Tropical Storm Karen approached. Utilities were off by 1.1 percent, but that is after surging 4.5 percent to end the third quarter.

Slightly less capacity was used in the period. The economy used 78.1 percent of its potential, after engaging 78.3 percent a month earlier. In the last year, America has added 1.8 percent to its industrial capacity. This rate of growth is identical to the year-over-year change in capacity for every month since May 2013.

In all, this was not a terrible industrial production release even though the headline tally was negative. The largest component grew and weather related issues held back mining. The tropical storm impact will likely be reversed in the next release, so the headline could easily be above zero in the next report. (by C. Cox)