Archive for February, 2014

January Industrial Production

Friday, February 28th, 2014

Industrial Production fell in January. The Federal Reserve’s measure of physically made goods dropped by 0.3 percent and erased all of December’s improvement. The downtick was led by the largest components of the indicator, but a substantial surge from utilities offset some of the weakness. The nation used a smaller proportion of its capacity to start the year as well.

Manufacturing and mining fell in the period. These are the two largest components of the indicator and they dropped 0.8 percent and 0.9 percent respectively. Industrial production would have suffered a greater loss if utilities had not jumped 4.1 percent. The uptick it utilities is probably explained by the weather as more heating was needed during the bitterly cold January; The polar vortex must have made some impact on the other two categories as well. Overall, the nation’s physical output suffered in January.

Capacity utilization fell to start the year. This is not surprising given the fact that output declined. The ratio of use to potential fell to 78.5 percent, dropping from 78.9 percent in December. The long-run average for utilization is 80.1 percent, so there is plenty of room for additional output before an increase in our nation’s productive capital would become imperative.

Industrial Production is providing another indication that 2014 is off to a slow start. It is just one month’s worth of data, but other indicators, like retail sales and the Institute for Supply Management are, along with industrial production, suggesting the first quarter will likely grow at a reduced pace compared to the final three months of 2013. (by C. Cox)

Fourth Quarter 2013 Productivity and Costs

Thursday, February 27th, 2014

The Bureau of Labor Statistics’ measure of U.S. productivity continued to improve as 2013 came to a close. The annualized statistic grew by 3.2 percent; this follows the third quarter improvement of 3.0 percent. Hourly compensation increased by 1.5 percent, but unit labor costs fell on an annualized basis during the final three months of the year.

Productivity measures the amount of output in goods and services the American economy creates per hour of labor. During the quarter, output increased by an annualized 4.9 percent, and it only took 1.7 percent more hours to create the additional production. For all of 2013, the productivity increased by 1.7 percent as output and hours worked grew by 3.3 percent and 1.6 percent respectively. Unit labor costs in nonfarm businesses dropped by 1.6 percent. In aggregate, it is costing firms less to produce a unit of output than in the prior quarter. This occurred because at 1.5 percent, hourly compensation grew slower than productivity. In all of 2013, unit labor costs fell by 1.3 percent.

This is a very encouraging indicator. It suggests the economy was firmly growing as the year ended and that inflation, barring an exogenous shock to raw materials, should remain tame. Firms are producing units of their wares for less because of increasing productivity all while wages see some improvement. This indicator makes Atlas feel like some economic weight has been lifted. (by C.Cox)

January Employment

Wednesday, February 26th, 2014

While the total number of jobs created in the first month of 2014 was greater than the final month of 2013, the figure was largely seen as disappointing because of higher expectations. The Bureau of Labor Statistics reported 113,000 people were added to payrolls to start the year. A consensus compiled by Bloomberg was looking for 181,000. Nonetheless, it was still an improvement over the dismal tally of 75,000 in December (upwardly revised from 74,000). Also included in the report was an upward revision of 33,000 to November’s tally. The unemployment rate dropped to 6.6 percent from 6.7 percent in the prior period.

Other components of the report were mixed. The average workweek stagnated and is currently 34.4 hours. Average hourly earnings were 0.2 percent higher, but that was after December’s tally was revised down to zero from up 0.1 percent. The long-term unemployed (those jobless for 27 weeks or more) still represent 35.8 percent of the total unemployed; this group has fallen by 1.1 million in the last year, but it is not known if they found work or dropped out of the labor force.

The two most recent nonfarm payroll numbers have combined to be the worst two month total since December 2010 and January 2011. There has been a lot of talk about the weather and how it may be impacting this and other economic statistics. If the recent weakness has been largely caused by the polar vortex, the indicators and thus the economy may see a surge as winter thaws. If it is not caused by the hydrologic cycle, perhaps the climate of the economic cycle is changing. (by C. Cox)

January Institute for Supply Management

Tuesday, February 25th, 2014

Figures for the manufacturing side of the economy signaled a fairly sharp slowdown in January while the service sector accelerated according to the Institute for Supply Management (ISM). Their manufacturing index fell to 51.3 from December’s downwardly revised tally of 56.5 (originally 57.0). Non-manufacturing output ticked up to 54.0 from 53.0 a month earlier.

The slowdown in manufacturing was led by new orders. Atlas finds this particularly concerning because new orders are a leading indicator of output to come. The figure collapsed from 64.4 in December to 51.2 in January. Manufacturing tends to be more cyclically sensitive, so seeing the slowdown in this portion of the economy adds to the caution. One month does not make a trend, so there are no alarms going off at Atlas, but the falloff was dramatic, so next month’s ISM manufacturing tally is highly anticipated.

The non-manufacturing ISM tally made back all of the ground it lost in December but has not recovered to the lofty tallies seen in the summer and fall of 2013. The leadership in this portion of the economy was in business activity. This should bode well for first quarter GDP because it is actual output, and services are the largest segment of the economy. New orders slowed in the period to a level nearing stagnation, possibly signaling some slower output in this portion of the economy in the near future.

New orders are the standout segment in each of the January ISM figures. Slower new orders may result in slower output. Some of this may be blamed on the polar vortex. As the harsh weather has blanketed large portions of the nation, production has slowed on both sides of the economy, so there may be trepidation by companies about when the weather and economy warm back up. Fortunately, we know winter does not last forever, so if this is largely a weather issue things should improve as the season changes. (by C. Cox)

December Personal Income

Monday, February 24th, 2014

Personal income was flat during the final month of 2013 according to the Bureau of Economic Analysis. The stagnation followed an uptick of 0.2 percent in November. Spending rose by 0.4 percent despite income not growing. Also included in the BEA’s release in an important measure of inflation, and it was slightly higher as the year came to a close.

The various types of income were mixed in the period. Wages and salaries, the largest component of the indicator, ticked up by just $0.7 billion compared to November’s improvement of $35 billion. Wages within the goods producing industries and government wages were higher. Service producing industries’ payrolls fell $3.6 billion. Farmers experienced a second consecutive monthly decline of $14.3 billion. Rental income improved in the period. Disposable income (after-tax pay) declined in the period. This matters because this is what makes its way into the economy. When disposable income falls but spending increases, as it did to end 2013, the saving rate falls; the rate was 3.9 percent in the period versus 4.3 percent in November. Periods of lower savings tend to have a limited duration. If consumers’ incomes do not increase, Americans are likely to revert back to a higher savings rate which means less spending.

Inflation remains tame. The Personal Consumption Expenditure (PCE) price index ticked up 0.2 percent. This is higher than the uptick of less than 0.1 percent in November. To get the Federal Reserve’s favorite inflation measure, food and energy are removed. This leaves the core PCE price index, and it was up just 0.1 percent, the same increase as November. On an annualized basis, the fourth quarter’s inflation rate was just 1.1 percent. Considering all of the stimulating the central bank has done, this is still quite low. With a new person at the helm of the Federal Open Market Committee, it will be interesting to see how the group reacts since the employment situation has been improving but price increases have been below the growth rate typically understood to be acceptable by that organization. (by C. Cox)

December Balance of Trade

Friday, February 21st, 2014

There was a slight deterioration in the balance of trade as 2013 came to a close according to the Bureau of Economic Analysis. The trade deficit grew to $38.7 billion after the revised shortfall of $34.6 billion (originally tallied at $34.3 billion). Both components worsened in the period; imports grew by $600 million and exports fell by $3.5 billion.

The worsening trade balance was led by falling exports of goods. Foreign buyers purchased $1.1 billion less in industrial supplies and materials. Non U.S. firms also invested $1.1 billion less in capital goods. On the other side of the balance sheet, America imported more consumer goods and industrial supplies. Both service imports and export rose in the period, but service exports grew faster than imports, so it was marginally helpful to the total.

Despite the overall setback, December was not a bad month, and the final quarter of the year was the best since the fourth quarter of 2009. The trade deficit remained below $40.0 billion in each period of the final quarter, and the total trade shortfall was $112.332 billion in the last three months of the year. The annual shortfall is also the best since 2009. At $471.5 billion, the trade deficit improved by nearly 12 percent in 2013 over 2012 final count. (by C. Cox)

January Consumer Sentiment

Thursday, February 20th, 2014

The University of Michigan’s Consumer Sentiment index shows Americans are giving mixed messages. The measure of consumer attitudes fell in the first month of 2014. Conversely, the Conference Board’s Consumer Confidence index (upon which we reported earlier) improved to start the year, so it is difficult to fully understand how consumers are feeling.

The sentiment index fell to 80.4 from 81.2 at the end of December. The indicator has improved since the November reading, but it has not yet returned to the recovery high levels seen in July. Both current conditions and expectations fell short of the previous period’s readings. Consumers expect inflation to pick up to 3.1 percent over the next year. Interestingly, longer-term they anticipate the next five years of inflation to grow by a slightly slower 2.9 percent a year.

As we mentioned in the consumer confidence posting, there is thought to be some connection between consumer attitudes and their willingness to spend money. The mixed messages coming from these two primary measures of consumer feelings does not provide a clear picture of what Americans will do with their money. In addition, according to the Bureau of Economic Analysis, real disposable income has fallen recently. When combined with the mixed tones of consumer attitudes, the first few months of 2014 may be challenged by consumers’ ability and willingness to spend. This could negatively impact gross domestic product (GDP) in the first quarter. (by C. Cox)