Archive for May, 2014

March Personal Income and Expenditures

Tuesday, May 20th, 2014

Nothing helps an economy dependent on consumers like growing income and spending.  Both measures improved in March according to the Bureau of Economic Analysis.  Earnings increased 0.5 percent to end the third quarter, and outlays grew by 0.9 percent.  The inflation measure included in the release remained within recent norms, moving up 0.2 percent in the period.  Because spending grew faster than income, savings dipped.

Nearly all components of income grew by more in  March than a month earlier.  Wages and salaries, the largest segment of Americans’ income, more than doubled the improvement recorded in February, up $42.3 billion versus $17.4 billion a month earlier.  Proprietors’ income grew by $9.3 billion after being up $4.6 billion in the prior period.  Rental income was higher, but personal income receipts on assets (interest and dividends) slipped by about $100 million to $6.9 billion.  Overall, income increased by $78.4 billion.

Americans reacted to the additional income by spending all of it and then some.  Personal consumption expanded by $107.2 billion.  The uptick of 0.7 percent capped the first quarter’s tally that equaled an inflation adjusted annualized pace of 3.0 percent; services alone were up 4.4 percent annualized in the first three months.  In total, March’s annualized growth rate is below the year-over-year total of 4.04 percent, so there is some sort of headwind keeping Americans from spending as quickly as their recent trend.

Inflation was tame in the period but did rise from a month earlier.  All of the price pressure came from services.  Both durable and nondurable goods were lower in the period, but services were 0.4 percent higher in March causing the overall price level to be 0.2 percent higher.  Subtracting volatile food and energy prices from the price index still leaves the “core” price index 0.2 percent higher for the month.  Finally, the market-based price indices (one with food and energy and one without the fickle components) both also increased by 0.2 percent in the period.

In all, this iteration of income and outlays was rather milquetoast.  Income and spending tallies advanced but did not do so in an abnormal way.  Also, inflation gauges were on the high end of recent measures, but one month’s worth of data is not enough to cause any concern about incipient rapid inflation here at Atlas.           (by C. Cox)

March New Home Sales

Monday, May 19th, 2014

Housing market headlines have been dour in the recent period, and the Census Bureau’s New Home Sales tally for March was no exception.  The decline in the period was very sharp.  After the upwardly revised number (all such numbers are both seasonally adjusted and annualized) of 449,000 units  in February (originally 440,000), there were only 384,000 new homes sold to end this year’s first quarter.

March’s downtick was well below the recent trend.  Year-over-year the number of sales was 429,000.  Because of the poor performance in March, the 12-month trend has dipped below the levels seen in both January and February.  The monthly count was the worst since July 2013.  New home sales could have been impacted by the weather, but more time is needed to know if there is something more serious happening.  Regionally, the only portion of the nation to show an improvement for the month was the Northeast.  It also happens to be the smallest portion of the country.  Sales in the rest of the county, the West, Midwest, and South, all declined in the period

Prices are another possible impediment to the volume of transactions, especially given that the single area of strength (the Northeast) was hardly balmy during this period.  Despite the dramatic monthly slowdown in transactions, the median price of new homes hit a record high.  Shooting up by 11.2 percent in March alone to $290,000, the median price for a new home is up 12.6 percent year-over-year.  The average value of a new home sold in March was $334,000, or 11.3 percent higher than a year ago.  Unfortunately, a look back at the sales volume data versus the same month a year ago yields a decline of 13.3 percent.

A number of indicators have been weak lately, and new home sales are not an exception.  The economy needs these transactions to occur because other consumption follows the sale of a home.  If this foundational component is slipping, it will likely have knock-on effects in other segments of output.  (by C. Cox)

April 2014 Consumer Attitudes

Friday, May 16th, 2014

April 2014 Consumer Attitudes

The two major surveys of Americans’ feelings about the economy gave mixed results in April.  The University of Michigan’s Consumer Sentiment improved to a reading that is just 1.0 point below the recovery high of July 2013 and is tied for the third best reading since the end of the recession in 2009.  However, the Conference Board’s Consumer Confidence reading fell in the period after March’s tally was upwardly revised.

The contradictions do not stop at the headline figures.  Consumers reported that their current situation improved to a recovery high reading within the Consumer Sentiment Survey.  At 98.7, the reading jumped 3.0 points during the month and might lead one to expect improving consumption by more exuberant consumers.  Unfortunately, Consumer Confidence has a present situation component that fell in March.  The labor market held this measure down as there was a 1.1 percent point uptick in the number of Americans describing jobs as hard-to-get while fewer described jobs as plentiful.

Fortunately, Americans indicated better expectations in both surveys.  The Consumer Sentiment Survey posted a significant jump in the forward looking component.  It now has the highest reading since July of 2013 but is still below the recovery high put in during October 2012.  In the Consumer Confidence Survey, Americans indicated that they expected more jobs openings in the months ahead, and a larger percentage see their incomes increasing.  Nevertheless, there was also an uptick in those expecting their income to fall in the near future.

Monthly consistency is not expected from these two surveys.  Atlas looks for their trends to be similar, but they have different questions and methodologies as well as the normal noise that is innately imbedded in statistics.  At this time, there does not appear to be any major divergence from their slightly upward directions.    (by C. Cox)

March Orders for Durable Goods

Thursday, May 15th, 2014

New orders for manufactured goods expected to last longer than three years jumped 2.6 percent in March according to the Census Bureau.  The uptick of $234.8 billion is the second consecutive monthly increase, following on February’s 2.1 percent improvement.  Unlike the previous month’s data, there seems to be more substance beneath the headline tally.

Firms were more inclined to invest as the first quarter came to a close.  Capital goods orders, excluding defense spending and aircraft, increased by 2.2 percent in March.  The same proxy for business confidence fell 1.1 percent in February.  Atlas watches this “core” measure of durable goods orders because it is not impacted by government appropriations or large private aircraft orders that may mask the real sentiment of the business community.  As firms feel better about their situation, they become more likely to order additional equipment to fill anticipated business.

Because defense spending is not dependent on the business cycle, it is not something Atlas spends too much time considering when analyzing this indicator, but its recent strength is worth noting.  In each of the last three months, the percent change in the new orders for defense durable goods has been significantly greater than the 12-month average.  Ending in March, the year-over-year change was 3.2 percent, but since the beginning of 2014, the monthly upticks have been 17.7 percent, 9.0 percent, and 21.6 percent in January through March respectively.

Overall, this indicator moved in a positive direction in March.  It may actually demonstrate that the slowdown in the first three months of 2014 was largely weather related.  Even though the economy ground to a halt during the period, firms remained confident enough to order new capital stock in the middle of the directionless quarter.  This indicator suggests the economy’s canary is still singing.           (by C. Cox)

March Existing Home Sales

Wednesday, May 14th, 2014

For the seventh time in eight months, existing home sales were weaker than in the prior period.  March’s seasonally adjusted annualized rate of home sales was 4.59 million after February’s tally of 4.6 million units according to the National Association of Realtors.  Tracking the number of sales in a year-over-year fashion does not look favorable either as existing home sales fell 7.5 percent from 12 months earlier.

Despite the slower number of transactions, home prices firmed in the period.  The median existing-home price jumped 5.4 percent in just one month to $198,000.  This compares to the 7.9 percent increase over the past twelve months.  In what seems counterintuitive within a slowing sales environment, the median time a home was on the market decreased.  This figure fell to 55 days from 62 days in February.  Total housing inventory increased by 4.7 percent in the period to 19.9 million units.  At the most recent sales pace, it would take 5.2 months to deplete the stock of homes, up from 5.0 months a period earlier.

Interest rates may have played some part in the lower number of sales.  According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed rate mortgage rose to 4.34 percent in March from 4.3 percent in February.  This impacts the affordability of the home and may have caused monthly payments to become too expensive for marginally qualified borrowers.

Existing residential real estate began moving steadily higher in August 2010, and its upward trend lasted through July 2013.   After that recent peak of less than a year ago, the sales pace has slowed to levels similar to July 2012 when the tally was 4.6 million units.  This portion of the economy is important because of the ancillary spending (new drapes, furniture, landscaping, underwriting, etc.) that tends to comes along with a home purchase.  Unlike other recently weak indicators, this downward trajectory cannot be simply explained away by the weather.  A new trend may have taken hold, and if one has begun, its impact on the economy will likely be negative.             (by C. Cox)

March Leading Economic Indicators

Tuesday, May 13th, 2014

Faster economic expansion in the U.S. is expected according to the latest release of the Conference Board’s Leading Economic Index (LEI).  March’s sharp acceleration of 0.8 percent after February’s increase of 0.5 percent is the third consecutive monthly improvement.  Upticks are thought to suggest the economy will gain momentum during the next six months or so.  The LEI is up 7.0 percent in the last twelve months which is the best annual change since September 2010.

There was an improvement in the number of positive contributors to the March reading.  This indicator is comprised of ten components, and half of the constituents had negatively impacted the tally in February.  Only three of them subtracted from March’s count.  Labor market data added to the LEI after being below zero in February.  Unfortunately, building permits reversed their sign, and new orders as well as consumer expectations remained negative.

Let’s face it, the economy could be doing better.  It has been rather unremarkable in the last two quarters, so this indicator’s improvement is encouraging.  Harsh winter weather seems to have put a damper on output, but the LEI could be pointing to fresh air that may allow the embers to heat back up and burn whatever fuel is left in the current expansion at a faster rate.              (by C. Cox)

March Chicago Fed National Activity Index

Monday, May 12th, 2014

Economic output is growing in line with the recent trend according the  March figures for the Chicago Fed National Activity Index (CFNAI).  After February’s upwardly revised tally of 0.53 (originally 0.14), the indicator ended the first quarter with a reading of 0.20.  Getting rid of December’s tally, upwardly revising February’s count, and adding in March’s figure put the three-month moving average at exactly zero.

Confused?  The way this indicator works gives an unchanged trend a zero reading when looking at the three-month moving average.  A positive reading indicates our economy is moving upward faster than the recent trend, although anything above 0.7 sounds a warning that sustained inflation is becoming more probable.  Anything below zero does somewhat the opposite, suggesting our economy’s growth trend is actually beginning to contract.  Again, a reading under -0.7 sound a warning, but this time that a recession is on its way.

So what should we make of the current three-month average flat-lining?  The optimists will see this as an encouraging sign since the gradual uptrend persists.  Pessimists will note that this is the third consecutive nonpositive value.  According to the economists at the Chicago Fed, inflation pressure should be limited at the indicator’s current reading.

Internal components were mixed but skewed slightly negative.  Of the 85 components, 51 were positive for the indicator.  Unfortunately, only 33 segments improved in March, and 51 deteriorated in the period, leaving one unchanged.  Production components added to the indicator as did the employment segment.  Consumption and housing elements were still negative, but they were less negative than a month earlier.  Firms contributed negatively to the CFNAI as the sales, orders, and inventories portion of the index fell below zero after being positive in February.

This comprehensive look at the economy is telling a familiar narrative.  America’s growth is tepid.  Pinpointing the cause of the malaise is not an easy task.  Some argue the echoes of the financial crisis continue to reverberate through the economy while others lean toward demography being the issue.  Atlas believes both are contributing in part to this slow expansion and that other impediments, like the Beltway, are also to blame.           (by C. Cox)