Archive for February, 2014

January Consumer Confidence

Wednesday, February 19th, 2014

American attitudes seem to be warming up despite the polar vortex. The Conference Board’s consumer confidence tally improved to start off 2013. The reading stands at 80.7, an increase over the downwardly revised December figure of 77.5 (the original reading was 78.1), but even the downwardly revised figure was an improvement over November.

So what has Americans so cheerful? Well, they are feeling better about their current status and the future. The present situation index ticked up to 79.1 from 75.3 a month earlier. A larger percentage of those surveyed feel business conditions are good, while fewer feel conditions are bad. Additionally, more people expressed that jobs are plentiful and the percentage of those saying work is hard to get ticked down some. This is really a marginal improvement because 12.7 percent feel they are plentiful while 32.6 percent consider them hard to get, but it is a move in the right direction for both questions.

Expectations improved sharply in the final survey of the year and managed another increase in January. Those expecting business conditions to improve over the next six months remained unchanged at 17.4 percent. Fortunately, the number of Americans expecting these conditions to worsen appears to have fallen as a smaller percentage of those polled were worried about the state of commerce deteriorating.

It is thought that there is some connection between consumer attitudes and spending. If this relationship exists, we may begin to see additional improvements over the next few months in indicators like retail sales and personal consumption. Let’s hope the fierce winter weather does not extinguish any flickers of consumer optimism. (by C. Cox)

December Durable Goods Orders

Tuesday, February 18th, 2014

Orders for goods expected to last longer than three years fell in the final month of 2013 according to the Census Bureau. Durable goods orders slipped 4.3 percent, and the November number was downwardly revised to 2.6 percent (originally 3.5 percent). Even businesses seemed reluctant to increase their capital goods during the month.

Transportation orders led the indicator lower. This component is quite volatile and may very well bounce back in the next release. That being said, transportation was 9.5 percent lower in the period. All of the transportation subcomponents fell, including steep declines in nondefense aircraft orders (off 17.5 percent) as well as defense aircraft orders (down 12.9 percent).

Aircraft orders are very fickle, so it is constructive to look at other capital spending in order to assess the strength of firms’ desires to increase their capital stock. Companies spent less in the final month of the year than in November. This important category known as nondefense capital goods excluding aircraft (aka core capital expenditures) dropped 1.3 percent in the period. Something caused firms to reduce their outlays.

Durable goods orders are seen as a leading indicator because they will turn to output as the orders are filled. To see orders from companies decline is disheartening, but it is too early to suggest there is a downward trend in place as the nondefense capital goods orders have grown by 4.3 percent year-over-year. The Census Bureau also includes figures on shipments. This helps understand actual output within the economy. It is worth noting that the shipments of durable goods fell in December, and this may cause the revised tally for Gross Domestic Product (GDP) to be lower than the initial early estimates. We will know more in the weeks ahead. (by C. Cox)

December New Home Sales

Monday, February 17th, 2014

New home sales appear to be losing steam. The pace fell for the second month in a row as 2013 ended according to the Census Bureau. On a seasonally adjusted annualized rate, the pace fell to 414,000 from the downwardly revised pace of 445,000 (initially 464,000).

There are endless reasons one can point to in order to explain the recent drop in sales, but the actual cause of the slowdown is not really knowable. It may have been prices reduced attractiveness. The median price rose to $270,000. This puts the year-over-year price gain at 4.6 percent. Perhaps interest rates climbed too high and are impacting the payment affordability. Of course, it may also be explained by the weather. Decembers are notorious for inclement conditions but how many times can you remember the term polar vortex being used in years gone by? All of that aside, the Census Bureau estimates that 428,000 were sold in 2013 which is an increase of 16.4 percent over 2012’s 368,000 units.

The inventory of homes remains snug. At the current pace of sales, the nation would be out of new homes to sell in five months if no additional units were added. This is up from 4.7 months in November. The estimate for actual new homes on the market is 171,000. This is lower than the count from a month earlier, but because the pace of sales slowed so dramatically, the smaller stock of housing would last longer than a month earlier if December’s sales rate remained constant.

It is too early to say housing is going through a growth recession, but the last few months have slowed enough to warrant some eyebrows to be raised. The economy is not as dependent on new home construction as it was during the housing boom, but it is still an important segment of the economy because it is labor intensive and leads to ancillary purchases as homes are furnished. Atlas’ brows are raised and we will keep our eyes on this indicator in the months ahead. (by C. Cox)

But, Baby, It’s Cold Outside

Friday, February 14th, 2014

Stand by for an important announcement! An incredible shift in the global weather pattern has moved the Polar Vortex down to Kalamazoo. Santa Claus declares he will be forced to move all production and warehousing to Michigan. Tax incentives will reportedly be provided by the state to facilitate this transition. Amazon, Fed Ex, and UPS are said to be considering establishing a major mid-western hub nearby in Chicago, Detroit, or Indianapolis.

There is no denying the continuous barrage of severe winter storms are taking a serious toll on a large swath of America’s economy. It affects everything from groceries to home sales to vehicles to manufacturing. The ultimate cost is already estimated to be in the billions and more storm clouds are gathering. As of early March, meteorologists who name the more severe cold fronts alphabetically have now reached Nika. So, will all of this affect your portfolio, and if so, how?

An auto body shop owner in Austin made the local T.V. news recently when he explained what was causing a rash of collisions there: “The problem is that ice is slippery.” The same may be said about statistics, especially when they are applied to short-term phenomena. No doubt we will see some reduction in the overall pace of economic activity, but such interruptions have a way of reverting to the mean once the clouds part. Factory orders may come in weaker than expected; retail sales may get hit. But these will be seen in time as blips in the overall trend.

It is important to place these things in a larger context. While this protracted spate of bad weather is currently bringing pain to millions of people and thousands of businesses, sunnier weather is inevitable. The Commerce Department just announced our nation’s GDP for the final quarter of 2013 grew 3.2%, following a 4.1% Q3 surge. Healthy numbers, back to back, suggesting momentum continues to build. Bloomberg is reporting that the largest American companies are on track to see their Q4 earnings rise by 8.3%, a strong increase. More positive evidence things are improving. The Congressional Budget Office just reduced the country’s projected budget deficit for this year by $46 billion. This should all add up to a brighter forecast just ahead. (by J R)

December Leading Economic Indicators

Thursday, February 13th, 2014

After a strong reading in November, the Conference Board’s Leading Economic Index (LEI) finished the year with a small uptick. December’s 0.1 percent increase followed a one percent jump in the prior period. The slower growth rate is not surprising given the issues with the weather at the end of 2013, but January was not very temperate either, and some of the strongest portions of the LEI struggled during the start of 2014.

Five of the ten elements in this indicator made positive contributions. The largest influences on the monthly tally came from the financial components. The interest rate spread between the interest banks pay each other to borrow overnight and the ten-year treasury yield provided the largest lift to the LEI. Strong new orders from each of the manufacturing surveys also boosted the tally. A proprietary proxy for credit, along with stock market gains as the year came to a close, round out the positive contributors.

The next release of this indicator will likely be restrained by the difficult start to 2014. Several of the components that helped the LEI as 2013 ended did not have the same ebullience to start 2014. The stock markets lost value in the period and the interest rate spread fell during the month as well. Perhaps other components will improve, but Atlas expects a weak release when the January iteration is revealed. (by C. Cox)

A Zoo Story

Wednesday, February 12th, 2014

Monkeys stand for honesty, giraffes are insincere,
elephants are kindly but they’re dumb.
Orangutans are skeptical of changes in their cages,
and the zookeeper is very fond of rum.
Zebras are reactionaries, antelopes are missionaries,
pigeons plot in secrecy, hamsters turn on frequently.
What a gas!
-Simon and Garfunkel

And what a song! When these guys turned a variety of critters into caricatures of people, it made me want to do more of the same. Ultimately I concluded that America its own zoo of sorts, harboring all manner of life styles and diverse opinions. That makes it a great place to visit, and, in fact, I’m really glad to be living here. I just have to understand that our constitution allows bars to be erected which keep various constituencies apart. After all, some would really like to eradicate others to the detriment of diversity, the very element that makes a zoo both fun and creative.

Now, the devil is in the details, and some would take exception to this opinion, arguing (as my father taught) that anyone who says, “It takes all kinds,” is flat wrong. Dad agreed we had them (i.e. all kinds), but he certainly didn’t think we needed them all. We might say he spoke with a more conservative voice than I. But that’s life.

Recognizing the desire for individuals to speak their minds, in 2011 the Obama Whitehouse launched the We the People System which compels our government to address any petition posted to the site which can garner 100,000 signatures in support. So, for instance, the Deport Justin Bieber and revoke his green card petition is now up on the site with well over 223,000 votes; congressmen with younger daughters are facing a divisive issue which could tear their family apart. On the other hand, a petition to declare the Muslim Brotherhood organization as a terrorist group has garnered over 200,000 supporters. Other causes which are currently popular: Pardon Edward Snowden (150,000+ signers), allow Tesla cars to be sold in all 50 states (126,000+), and free Yulia Tymoshenko (136,000+). In the words of that ubiquitous TV pitchman, “But wait, there’s more,” check out all the burning issues at the forefront of America’s psyche for yourself by clicking here.

Perhaps you noticed that the anti-Bieber movement has captured the heart and soul of more voters than any other burning issue. It has been active for one week as of this writing; by contrast, the anti-Muslim Brotherhood issue has been afoot for seven months. Meanwhile, I didn’t see any popular posts regarding unemployment, wage disparity, the unbridled creation of money by our Federal Reserve, or other such issues that actually affect the lives of people here in general. When you visit a zoo, the various hoots, roars, tweets, and barks add to the ambiance. That helps make a visit there fun. I hope to maintain a similar viewpoint toward all the crosscurrents of opinions here in the Land of the Free, a promise which still covers freedom of thought. If you don’t find it fun, surely you can see it all as interesting, and that’s a kind of fun in its own right. (by J R)

December 2013 Existing Home Sales

Tuesday, February 11th, 2014

The pace of home sales improved for the first time in five months according to the National Association of Realtors. The seasonally adjusted annualized rate moved up 1.0 percent to 487,000 units from 482,000 in November. Before the most recent data, this indicator was stagnant or declining in every month since August. Despite the monthly uptick, the year-over-year tally was lower for the second consecutive month, down 0.6 percent.

It is worth noting that 2013 was the best year for existing home sales since 2006. There were 5.09 million sales in the year, which is 9.1 percent greater than the 2012 tally. The gap between 2006 and 2013 is still quite substantial however. Last year’s figure was 1.39 million units shy of the 2006 total and nearly 2 million units short of the 2005 peak.

Prices firmed in December. The median existing home price rose to $198,000 from $196,300 in November. While this is below October’s tally of $199,500, it is 9.9 percent higher than a year earlier. For all of 2013, the median price was $197,100 versus the 2012 median of $176,800. Interest rates rose in the final month of the year; according to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 4.46 percent versus 4.26 percent in November.

Inventories remain tight, and the median time all homes were on the market increased sharply. There are currently 1.86 million existing homes for sale which is a 4.6 month supply at the current sales pace. The median time on the market was 72 days, up from 56 in November; harsh weather east of the great divide may be impacting this figure.

The existing home market has lost some of its momentum recently. It has been challenged by interest rates rising from their levels a year ago as well as inclement weather over large portions of the country. The polar vortex will subside as the year matures, but the interest rate environment is anybody’s guess. To be sure, this segment of the economy will contribute to our output but does not seem primed to lead the nation’s growth. (by C. Cox)