Archive for April, 2014

February Chicago Fed National Activity Index

Monday, April 21st, 2014

Economic growth was positive in February according to the Federal Reserve Bank of Chicago’s National Activity Index. The monthly reading was not much above zero, but after two months of negative tallies, the 0.14 uptick was welcome. January’s count was revised lower to -0.45 from the initial estimate of -0.39.

Production related components contributed positively to the indicator in February. This follows the negative impact the segment made in January. Manufacturing improved by 0.8 percent after declining in the prior period. Sales, orders, and inventories also added to the positive production tally.

Employment and consumption were not as kind to the indicator. Jobs related data subtracted from the indicator after adding to it in January. The higher unemployment rate was partially to blame for this weakness. While consumption was less negative than a month earlier, this portion of the economy also subtracted from the monthly total. Housing figures were mixed as permits rose during the short month but starts declined.

Unfortunately, the three-month moving average of the overall indicator fell below zero to -0.18. This suggests the economy is currently growing below its trend. This statistic is below zero for the first time in six months. Since the economy seems to be slowing from an already tepid rate, the threat of inflation is becoming even less likely. This should provide some comfort to those concerned that the central bank will raise interest rates immediately after the end of quantitative easing. (by C. Cox)

February New Home Sales

Thursday, April 17th, 2014

New home sales fell in February according to the Census Bureau. At a seasonally adjusted rate of 440,000 units, the pace is 3.3 percent slower than a month earlier. Year-over-year, the pace has slowed by 1.1 percent; the same measure was also below zero in January. This is the first time since April 2011 that the year-over-year change was negative for two consecutive months.

Price levels were relatively stable in the period. The average price increased roughly 1.5 percent to $317,500 from $312,900 a month earlier. The median cost of a new home was nearly unchanged with an uptick of $1,000 to $261,800, but like the year-over-year pace of sales, this price measure was lower than last February.

Inventories moved higher in the period. There are currently 189,000 new homes for sale in the U.S. At the current pace of sales, this stock would be depleted in 5.2 months. The slower pace of sales allowed the measure of supply to increase from 5.0 months in the prior period.

It appears that the housing market has entered a bit of a slowdown in growth lately. Neither new nor existing home sales are experiencing strong numbers. Some of this may be explained by the weather, as the most recent data available was collected during a particularly difficult winter for a large portion of the country. If there are other causes of the weakness, it should be seen in the months ahead when the weather effect is less. (by C. Cox)

February Existing Home Sales

Tuesday, April 15th, 2014

Existing home sales suffered a slight set back in February according to the National Association of Realtors. The pace of sales dropped 0.4 percent in the period; the annualized pace of sales fell by 20,000 to 4.6 million units. The supply of homes ticked up in the period as did the price statistic.

There are currently 2.00 million existing homes for sale in America. This is an uptick of 6.4 percent from the prior period. At the current pace of transactions, it would take 5.2 months to deplete the inventory of homes. This is up from 4.9 months in January. The added supply may be developing because home owners have seen how quickly their neighbors’ homes are selling. The median time on the market stands at 62 days. This compares to 67 days in January and 74 days in February 2013. Just over a third of the transactions took less than a month to complete.

Interest rates did their part to support the marketplace. According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed rate mortgage fell to 4.3 percent from 4.43 in January. A year ago, the rate was 3.53 percent. Of course, not all buyers required financing; all cash transactions comprised 35 percent of the transactions in February, up from 33 percent in the prior period.

Weather may have been an issue for this indicator. In the areas experiencing harsh winter conditions, sales fell dramatically while warmer parts of the nation witnessed transaction growth. The Northeast and Midwest saw declines of 11.3 percent and 3.8 percent respectively. Sales in the South ticked up 1.5 percent, and transactions in the West increased by 5.9 percent.

On the surface, the housing market still appears calm. The challenging weather makes it difficult to discern if something more serious is happening in the data’s details. More will be discovered as the year wears on, and the weather shifts into a range that is more suitable for home shopping. (by C. Cox)

March Employment

Monday, April 14th, 2014

March’s labor market improvement was a continuation along the recent trend according to data from the Bureau of Labor Statistics. Employers added 192,000 jobs in the period which is slightly less than the 197,000 in February. Revisions to the prior two months added another 37,000 jobs that were previously undiscovered. The unemployment rate held steady at 6.7 percent.

The monthly uptick in new jobs is slightly better than the recent mean. Over the last year, firms have averaged 187,000 new hires; the six-month average is slightly better at 188,000 new employees. On a year-over-year basis, this pace of hiring has been enough to cause the unemployment rate to fall by 0.8 percentage points from 7.5 percent. Of course, Atlas believes this drop is being helped by the demographics of the country and cannot be fully explained by a healing labor market.

Hours worked and wage figures were mixed. Gaining 12 minutes, the average work week for all private employees now stands at 34.5 hours. This offsets the decline in the prior 3 months. Unfortunately, average hourly earnings gave back some of the prior month’s $0.09 gain, losing $0.01.

In all, the employment situation is improving. There are many reasons to believe the employment situation is not healthy, but it is continuing to progress. Americans have a high propensity to spend, so each new job adds heft to the consumers’ influence on the economy, and additional jobs should follow the added consumption. (by C. Cox)

Shades of Green

Friday, April 11th, 2014

Recently the subject of socially responsible investing was brought to our attention. One of our correspondents said, “We both know that there are ethically oriented funds focused on sustainable practices, not on Big Oil, Big Pharma, Big Military.” His request that Atlas look to see how feasible constructing such a portfolio might be definitely deserves an answer. You might want to refer to this column by Bill Moyers for a deeper discussion of the issue.

Investments described as socially responsible, ethically oriented, or based on sustainability involve many value judgments. It turns out these concepts aren’t so much either black or white but rather shades of green. How are they to be defined? Determining the role of Big Oil in various forms of pollution and environmental degradation may not be too difficult, but should Big Pharma be tarred with the same brush? I think most Americans would agree that we need a strong military so just why should it be black-listed? Maybe we should look instead to those companies which produce things like land mines, but what about jets, guns, and bullets? And should Big Banking be left off the list? What other industries could we add?

Looking further into the details surrounding such definitions, turn your thoughts to fixed income. Should corporate bonds which finance Exxon’s explorations be verboten? How about U.S. government bonds? We could argue some portion of them, indistinguishable from the whole, are used to underwrite conflicts around the world via military supplies and even troops. Can a line be clearly drawn?

There is a reasonable number of firms who tout themselves as falling into this category. The individual investor must try to decide if she’s light green or deep green. For our part we will rise to the challenge and assemble the pieces that would make up such a portfolio, then run them through the Atlas process to determine if an investor could expect a reasonable return when so deploying their cash. We’ll let you know the outcome of this investigation once the final product is available. Meanwhile, let us know your thoughts about how such an approach should be undertaken and if you would have an interest in employing it. (by J R)

January Trade Deficit

Thursday, April 10th, 2014

America’s trade deficit was little changed in January according to the Bureau of Economic Analysis. The shortfall of $39.1 billion is only slightly higher than December’s upwardly revised deficit of $39.0 billion (originally $38.7 billion). From the perspective of this indicator, the global economy continued to grow as the year got started.

The trade balance was only slightly worse than a month earlier because exports and imports increased by nearly the same amount to start 2014. Exports grew by $1.2 billion in January while imports ticked up $1.3 billion.

Despite the monthly setback, the underlying trend of this indicator has been doing better over that last couple of years. The trade balance’s three-month moving average has been moving toward equilibrium since January 2012 and has been better than the current level just once since January 2010. It currently stands at $37.7 billion and was only lower in August 2013 at $37.5 billion .

This indicator’s improving trend points to a more balanced trading relationship between America and the rest of the world. It is even more encouraging when one considers that each side of the trade balance, imports and exports, are growing. The components of the trade deficit suggests the world economy continues to heal and that the distribution of the growth is more balanced than it has been for many years. (by Christopher Cox)

February Industrial Production

Wednesday, April 9th, 2014

Industrial production improved in February according to the Federal Reserve. The uptick of 0.6 percent follows an upwardly revised January tally. Although the first month of the year was still negative, its count was less negative than first estimated as it fell by 0.2 percent instead of 0.3 percent. Over the last twelve months, America’s physical output has grown by 2.9 percent.

Two out of the three components improved in the period. Manufacturing grew by 0.8 percent; however, it was not enough to recover all of the loss this category suffered in January. Mining continued to improved, increasing by 0.3 percent in the period. Utilities were the one category that fell in the period, but the 0.2 percent downtick followed January’s surge of 3.9 percent.

Capacity utilization improved for the month. At 78.8, up from 78.5, the level of usage is not near levels associated with over exertion and is not likely to be the cause of inflationary pressures. For some perspective, the long-run average is 80.1; during the periods of high utilization, the level can be above 85. Increasing the level of capacity via investment in plants and equipment helps keep the higher end of the ranges from being reached; over the last twelve months, capacity grew by 1.9 percent.

By the looks of this indicator, America’s physical production capabilities are in a cozy spot. Industrial production has been trending higher since its trough in June 2009. The pace of output is not running at levels that indicate stress in the nation’s ability to produce physical wares, and firms continue to increase their capital spending in order to increase their capacity. This continues to be an encouraging indicator. (by C. Cox)