Archive for March, 2014

March Consumer Confidence

Monday, March 31st, 2014

The Conference Board reported a jump in consumer confidence for the month of March. Their index hit 82.3 versus the February 78.3 reading, which itself was a slight upwardly revision from the 78.1 level originally published.

Internally the report contained a good news-bad news mix. The current conditions survey fell a bit from 81 to 80.4 in March. Offsetting this contraction was the expectations component which hit 83.5, a jump of seven full points in the month. Those consumers who took part in the pole had a somewhat more optimistic view of both future job prospects and business conditions, believing they could be accelerating somewhat going forward. On the flip side, while more job opportunities may come available, the general feeling was that incomes won’t match the pace.

Absent any future negative revisions, this indicator ends the first quarter on a high for the year. While at this new level, the report itself continues a theme we have seen developing recently, namely that things aren’t so hot right now but just might be getting better. And we must remember that despite the current situation sector contracting a touch, February’s reading was higher than any seen since April of 2008. All said, Atlas construes this report as positive, hoping it will lead to a jump in consumption as a view toward better days ahead helps pry wallets open. (by J R)

Revised Fourth Quarter Productivity and Unit Labor Costs

Friday, March 28th, 2014

As more data becomes available, the final quarter of 2013 appears to have been weaker than initially thought. The Bureau of Labor Statistics’ productivity and unit labor costs received some significant revisions. Productivity growth was reduced to 1.8 percent on an annualized basis from 3.2 percent in the initial tally. Hourly compensation was revised higher, negatively impacting unit labor costs.

Productivity is a combined measure of the goods and services America produces each quarter (annualized) versus total hours worked to do so. Thus the downward revision to productivity was caused by a slower rate of growth than originally thought in the output statistic while hours worked were barely changed. The initial tally had showed output growing on an annualized basis by 4.9 percent, but after more data was collected, it appears output grew by only 3.4 percent. Simultaneously, it took 1.6 percent more labor hours to generate this additional production versus the initial estimate of 1.7 percent.

Unit labor cost still fell, but the drop was not as pronounced as initially thought. Hourly compensation growth was revised higher to 1.7 percent, and as mentioned earlier, productivity was revised lower to 1.8 percent; this yields a unit labor cost decrease of just 0.1 percent versus a decrease of 1.6 percent in the initial estimate.

The revisions to this indicator were large. It creates a different narrative for the final three months of the year than was initially described. Output growth was much slower than first thought, which is likely to show up in tomorrow’s GDP report. Unit labor costs are not falling as quickly because wages are increasing at a faster pace, and productivity growth was about 44 percent slower than the first estimates were showing. The unit labor costs is something that Atlas will be watching because if they begin to accelerate faster than productivity, cost push inflation may begin to creep into the economy and could influence the central bank’s policies as the Federal Reserve tries to keep price pressures from growing too quickly. (by C. Cox)

February Institute for Supply Management

Friday, March 28th, 2014

Both sides of the economy expanded in the second month of the year according to data from the Institute for Supply Management (ISM). Manufacturing output expanded for the ninth month in a row, and accelerated to 53.2 from 51.3 in January. Non-manufacturing’s decelerated to 51.6 from 54.0 but has expanded for 55 consecutive months.

There may be signs of renewed acceleration in the months ahead as the winter’s impact on the economy fades. New manufacturing orders rose 3.3 percentage points to 54.5 over January’s reading. This leading indicator is encouraging because it suggests the economy’s recent sluggishness may be temporary. For instance, February’s production index fell to 48.2 suggesting a contraction in the period. This falling output will likely result in a weak first quarter GDP statistic, but the growing new orders may halt the slide.

Slower service side output will likely keep first quarter GDP growth subdued; however, February’s non-manufacturing deceleration may prove to be short-lived. New orders accelerated and will likely lead to additional output in the near future. Since services are the largest part of the economy, growing orders could cause the economy to reaccelerate in the months ahead.

Considering the ISM data, it appears the economy has been in a bit of a rut recently. Some of this slower output is attributable to the harsh winter that a large portion of the nation experienced. Exactly how much of the blame can be put on the season is not knowable, but as the country warms up, it seems reasonable to expect at least a mild lift from a calmer season known for its green shoots. (by C. Cox)

February Chicago Fed’s National Activity Index

Thursday, March 27th, 2014

The Chicago branch of our Federal Reserve reported that their National Activity Index (CFNAI) swung back into positive territory in February, registering a 0.14 post versus the -0.45 January reading (originally reported to be -0.39). While this positive total is welcome news, it could not compensate for the recent negative numbers which have moved the three-month average down to -0.18 and back into negative territory for the first time in six months; it sat at 0.02 (also revised from 0.10 in the original report) in January.

Here at Atlas we like this indicator because it combines 85 separate data points into a single reading. Obviously this makes it much more comprehensive than any other single marker we follow. As has been the case for the past few months, this bounce is getting some attribution from the weather, especially as it negatively impacted manufacturing in prior months. Specifically we see the production component moving up strongly from -0.38 in January to a positive 0.26 for February. Sales/orders/inventories gained a bit to 0.06 while consumption and housing was slightly less negative at -0.16; employment fell into the minus column to -0.02 from 0.11 in January.

Seeing either the monthly reading or the three-month moving average fall into negative territory is neither unusual nor alarming. What we do not want to see is the latter move below -0.7 since this is felt to suggest the likelihood that a recession has begun according to contemporary thought. We will need to see several future reports before being able to clearly separate weather-induced static from any underlying trend which might point to a slowdown in the economy which we suggested was a growing possibility in our prior CFNAI report. (by J R)

January Personal Income & Expenses

Tuesday, March 25th, 2014

The Bureau of Economic Analysis (BEA) reported personal income rose in January by 0.3%, following a flat December reading. Wages and salaries by themselves gained 0.2%, helping reverse the 0.1% dip in December. Also for the month, the BEA said spending jumped 0.4%, with hikes mostly in the services category, while December was revised down to show a slight 0.1% increase.

Your brain trust here at Atlas is not all that willing to ascribe much value to this particular report since it contains several elements which may eventually be seen as one-hit wonders. For instance, incomes rose in part because several provisions within the Affordable Care Act (Obamacare) boosted the total by some $28 billion in the government’s social benefit payments. Cost-of-Living adjustments made by the government in January to transfers such as Social Security also caused the total to rise, as did pay raises for military personnel. At the same time the end of some long-term unemployment benefits pulled the total down. Adding to the confusion is the latest excuse for most things foul, namely the rotten weather which likely had an unquantifiable but adverse effect on wages. Still, while we wait for time to bring more clarity, the general tone of the January report does suggest an overall increase in income which offsets the drop we saw in December.

Prices as measured by the headline personal consumption expenditures (PCE) barely rose, up just 0.1%, while the core PCE, which excludes food and energy, was also up by that same amount. Year-over-year we see this measure of inflation up 1.2% at headline and 1.1% core.

Interestingly, the BEA also publishes a statistic called the “market-based PCE price index” which they define as “a measure of the prices paid by persons for domestic purchases of goods and services…based on market transactions for which there are corresponding price measures.” Golly, that sounds like something useful, actual unadjusted raw data. According to an analysis by MarketWatch, it rose just 0.8% annualized in the fourth quarter of last year, suggesting a rather modest rise in prices for those goods you and I regularly consume. Good news, indeed. Now, if only the BEA would tell my wallet! (by J R)

February Consumer Sentiment

Monday, March 24th, 2014

Americans are not letting the rough winter sour their attitudes. The February reading of the University of Michigan’s Consumer Sentiment Index managed to tick up 0.4 to 81.6 from January’s tally of 81.2. The index has been virtually frozen the last 3 months with little change between the periods.

It is generally thought that consumer attitudes impact Americans’ spending habits, so the resilience in consumer temperament during the challenging winter months may lead to better economic outcomes as the nation thaws. The most recent survey suggests a slight deterioration in consumers’ feelings about the present situation as this measure fell slightly to 95.4 from 96.8. The outlook is even brighter as expectations rose to 72.7 from 71.2 in January. Perhaps the thought of more sun is coloring consumers’ perspective.

Expectations for inflation are also included in the survey. Americans are looking for inflation to grow by 3.2 percent in the coming 12 months. To provide some context, in September 2012, consumers in the survey were expecting prices to rise by 3.3 percent in the year ahead. Price pressures of this magnitude never materialized. Various measures of inflation have not grown that quickly since the September 2012 forecast, and Atlas does not see any immediate reasons to anticipate near term prices rising as fast as consumers have guessed they will rise in the latest Consumer Sentiment Survey.

This indicator, along with other measures of consumer attitudes, has not lost too much traction during the winter. With any luck, the economy will not have slipped either during the first quarter. Price expectations are elevated, but consumers have overestimated inflation in the recent past. Atlas is hoping for a continued recovery with mild inflation; you know, kind of like the wishes of Janet Yellen and her cohorts. (by C. Cox)

February Consumer Confidence

Friday, March 21st, 2014

Consumer confidence appeared weaker in the latest survey from the Conference Board. February’s monthly tally dropped 1.3 points to 78.1. This weakness is in addition to the downward revision to January’s data to 79.4 from the original count of 80.7. It may not be as bad as the monthly dip appears because the internals of the survey were split.

The contraction was concentrated in the expectations portion of the inquiry. The present situation actually improved in the period. The 4.4 point uptick puts the current situation portion of the report at its highest reading of the recovery. There has been an upward bias to the present situation lately. A greater number of people surveyed feel jobs are plentiful with an uptick of 1.4 percent to 13.9 percent and fewer feel they are hard to get. Unfortunately, the short-term outlook soured. Fewer people feel business conditions will improve than a month earlier, and Americans anticipate a tougher jobs market in the near term. With the current situation hitting the best reading since April of 2008 and the short-term outlook falling, the country seems to feel the economy is better over all but is having a tough time believing it will improve in the near-term.

The mixed nature of this indicator may suggest Americans are expecting more of the same economically. Currently, things seem OK, but there is a nagging sense that even small negative external disturbances may be all that is needed to lower the trajectory of the economy’s glide path. Of course, if their upbeat feelings about the present continue to drive the economy higher, this may change the outlook. (by C. Cox)