Archive for September, 2014

August Industrial Production

Friday, September 19th, 2014

Industrial Production, the measure of all physically made goods, declined in August according to the Federal Reserve.  Output was 0.1 percent less than in July, and this slowdown is after July’s tally was downwardly revised to 0.2 percent growth from a 0.4 percent uptick.  This headline decline is the first since January 2014.

Blame for the downturn can be placed squarely on motor vehicle output.  Auto production dropped 7.6 percent in the period.  Of course, this follows July’s surge of 9.0 percent in vehicle output.  Based on the strength of auto transactions in the Census Bureau’s retail sales report, August’s decline is likely nothing more than an adjustment to the unusually large increase in the prior month.  Excluding motor vehicles and parts, manufacturing rose 0.1 percent in both August and July.  The other two industry groups, mining and utilities, both improved during the month with upticks of 0.5 percent and 1.0 percent respectively.  Total industrial production is 4.1 percent higher than a year earlier.

Capacity utilization slipped in August.  Firms used 78.8 percent of their limit in the period versus 79.1 percent in July.  Some of this downtick may be attributed to increased capacity.  Over the last twelve months, firms have added 2.8 percent to their capacity versus 2.7 percent a month earlier. Capacity utilization is now 1.3 percentage points below the long-run average of 80.1 percent.  This level implies firms could increase their output without stoking inflation.

Despite the negative headline count, this indicator does not appear to be challenged based on August data.  Excluding autos, the largest component of the report, manufacturing, continued to grow.  Since manufacturing is considered sensitive to the vagaries of the business cycle, its ongoing expansion is encouraging. (by C. Cox)

August Federal Deficit

Thursday, September 18th, 2014

America’s Federal Deficit accelerated in August according to the U.S. Treasury.  After spending $94.6 billion more than its receipts in July, the beltway loosened its waistband even more in the eleventh month of fiscal year 2014, spending $128.7 billion more than it took in.  Nonetheless, the 2014 shortfall has improved by 22.0 percent versus a year earlier, currently at $589.5 billion compared to $755.3 billion this time last year.

Better receipts are the primary driver of this indicator’s improvement over 2013 totals.  Federal revenues (mostly taxes) are 7.7 percent higher than a year earlier.  Corporate tax receipts and individual tax payments have improved by 14.3 percent and 4.9 percent respectively.  Before August, federal spending was just over 1.2 percent higher than the year before.  Even after a monthly spending surge of $322.956 billion in the most recent period, it is now just 0.8 percent higher than a year earlier.  August tends to be one of the Treasury’s most expensive months of the year.

Relative to the size of the economy, this indicator has improved in each of the last four full fiscal years.  Barring an unusual September, 2014 will be the 5th year in a row that the deficit as a percentage of gross domestic product (GDP) has fallen.   If the final month of this fiscal year has a surplus like it did in the previous two years, the shortfall will be significantly below 3.0 percent of GDP, which has been the average annual deficiency since 1929.  Unfortunately, the Congressional Budget Office only projects one more fiscal year of falling deficits.  Then its projection calls for increasing shortfalls for as long as this nonpartisan group is willing to project, including $1.0 trillion yearly deficits from 2022 through its final forecast of 2024.   (by C. Cox)

August Retail Sales

Wednesday, September 17th, 2014

After the weakening labor market report in August, there was some concern that consumers may become hesitant to part with their money.  Retail sales figure from the same month do not suggest Americans’ appetite for consumption has been satiated.  According to the Census Bureau, retail spending grew by 0.6 percent in the period; this followed the upwardly revised July tally of 0.3 percent. The initial count suggested near stagnation in the first month of the third quarter.

August’s uptick was largely driven by auto sales as they shifted into a higher gear with an increase of 1.5 percent, more than doubling July’s acceleration.  On a year-over-year basis, auto sales have increased by 9.5 percent, an improvement over July’s annual increase of 8.0 percent.  Fortunately for those taking on a new monthly payment, it is costing less to fill the gas tank.  According to data from the U.S. Department of Energy, the average price of a gallon of regular conventional gas in August was about 2.5 percent less than a year earlier and roughly 3.2 percent cheaper than in July.  Lower prices account for some portion of the slowdown in gas station receipts over the last year and month.

One area Atlas pays attention to as sort of a canary in the coal mine for retail sales is the money Americans spend on food away from home.  If consumers begin tightening their purse strings, this would likely be one of the first segments of the economy to feel the pinch since it can be easily replaced by food at home.  However, there do not appear to be any signs of slowing for this retail group.  Food services & drinking places’ receipts grew by 0.6 percent in August and have grown by 7.1 percent in the last year.  Both of these are accelerations over their respective July tallies.

Retail sales were encouraging in August.  This important indicator points to a continued expansion as memories of the Great Recession fade.  This growing strength causes one to wonder about the economy’s response to tighter monetary policies should they manifest in the near future.  If economic indicators continue to improve and the labor market heals, the central bank could begin to rein in their experimental tactics hoping the economy can stand on its own.  Only then will the economy’s true strength become evident.  (by C. Cox)

Revised Second Quarter Productivity and Unit Labor Costs

Tuesday, September 16th, 2014

Revised data from the Bureau of Economic Analysis illustrate America’s productivity growth was slower than initially thought.  At first glance, the estimate showed productivity grew by 2.5 percent from April through June, but more complete information puts the improvement at just 2.3 percent in the period.  Also, the quarter’s change in unit labor costs were revised significantly lower to minus 0.1 percent from the positive 0.6 percent count in the first estimate.

Both components of productivity were revised lower.  Output grew by 5.0 percent in the quarter, not 5.2 percent as the initial estimate suggested.  Hours worked were downwardly revised to 2.6 percent growth versus the earlier estimate of 2.7 percent.  In the four quarters ending in June, productivity has grown by just 1.1 percent, below the current recovery’s average of 1.6 percent; and this recovery’s trend has lagged behind the 2.1 percent average of the 21st century.  Also, year-over-year unit labor costs were revised lower to 1.7 percent from 1.9 percent in the earlier estimate.

Economic activity accelerated in the second quarter, and that is the biggest takeaway from this indicator.  The acceleration was not as dramatic as first thought, but output moved in the right direction nonetheless.  Also, those nervous about inflation can find some comfort in the unit labor cost portion of the revision.  In the initial estimate, unit labor costs were nearing the threshold set out by the central bank as an appropriate level of inflation.  Since labor is a large portion of our nation’s means of production, a sustained uptick in this component could lead to faster growing price hikes.  However, the downward revision should give the central bank some breathing room as it tries to navigate the difficult task of unwinding all of the experimental monetary policies in which it has been engaged.  If unit labor costs accelerate too quickly, it may help to hasten the Federal Reserve’s removal of supportive monetary policies, and Atlas gets the sense that the central bank would prefer to leave the overnight interest rate near zero for several more quarters.         (by C. Cox)

July 2014 Trade Balance

Monday, September 15th, 2014

America’s trade balance was marginally lower in July than in June according to the Bureau of Economic Analysis.  Our nation’s trade gap fell to $40.546 billion, a decline of $264 million after June’s tally was revised down from the initial count of $41.5 billion. July is the third consecutive month in which the trade chasm has narrowed.

Fortunately, economic activity did not suffer as the trade deficit fell; both components, imports and exports, increased during the month.  Purchases of American made goods and services by foreign buyers were $1.82 billion greater than in June.  Our country consumed $1.56 billion more in foreign derived goods and services than in June.  Most of the import and export upticks were led by automotive vehicles, parts, and engines ($1.4 billion for imports and $1.7 billion on the export side of the ledger).

International trade has improved in the last 12 months on a year-to-date basis.  Between January and July of 2013, imports totaled $1.60 trillion.  The 2014 tally is currently at $1.65 trillion.  Year-to-date exports are also higher, improving from $1.32 trillion last year to $1.36 trillion at the end of July.  Global trade is increasing despite all of the geopolitical turmoil.  More specifically, exports to the European Union are 8.0 percent higher thus far in 2014 than a year earlier.  However, economic reports from the major nations within the union have not been pleasant recently, so this trend may change soon.  If America’s economy continues to climb, the trade balance may worsen in the months ahead.             (by C. Cox)

August 2014 Institute for Supply Management Report

Friday, September 12th, 2014

Economic growth appears to have quickened in August according to data from the Institute for Supply Management (ISM).  Manufacturing’s pace increased as its reading was higher than a month earlier, 59.0 versus 57.1.  Services accelerated from 58.7 to 59.6 in August, the best reading since August 2005!  Evidence is mounting in favor of the argument that our economy’s expansion will continue.

Manufacturing output was robust for the month and will likely continue to grow in the near future.  Production’s reading accelerated to 64.5 versus 61.2 and should bode well for gross domestic product (GDP) when the third quarter tally is released at the end of October. The leading component of the index (new orders) added to its already exceptional number, jumping to 66.7 from 63.4 in July.  Also, customer inventories remained below 50.0 suggesting firms feel they have too little on their shelves and will need to order more goods to sell.

Non-manufacturing grew for the 55th consecutive month.  Business activity grew faster than a month earlier with a reading of 65.0 versus 62.4.  New orders grew at a slower pace but were still high with a reading of 63.8 against July’s tally of 64.9.  Firms continued to hire in the period as well, putting in the sixth consecutive month above the 50.0 breakeven mark.  This is the largest segment of employers in our economy, so staying above 50 is important to jobs growth.

ISM data look constructive on both sides of the economy.  There is virtually no evidence in the indicators Atlas follows to suggest the current expansion is coming to a close.  New orders on both sides of the economy remain strong and will most likely become output in the near future as these requests transform into production.  From the current vantage point, America’s economy appears to be strengthening.     (by C. Cox)

August 2014 Employment Report

Thursday, September 11th, 2014

Labor market gains slowed in August according to the Bureau of Labor Statistics.  Employers added 142,000 employees to their ranks, the slowest pace of monthly hiring since December 2013.  Net revisions to the prior two months pulled their total down by 28,000 hires, adding to the disappointment.  Despite slower growth in jobs, the unemployment rate dropped 0.1 percentage point to 6.1 percent.

Private payroll gains dropped considerably.  After posting an uptick of 213,000 in July, companies only took on 134,000 new employees in August.  Professional and business services made the largest contribution (47,000), followed by health care (34,000).  There was no gain in manufacturing employment.  Government jobs increased by 8,000 in the period; state and local jobs were up by 5,000, and there are now 3,000 more federal workers than in July.

Wages and hours worked were mixed.  Average hourly earnings rose 0.2 percent in the period, an increase of $0.06 to $24.53 in August.  In the past year, hourly earnings for all employees on private payrolls have increased by 2.1 percent.  Private-sector production and nonsupervisory employees earn an average of $20.68, also up $0.06 for the month.  From a year ago, this average is 2.53 percent higher; the best annual gain on a percentage basis since May 2010.  The average workweek for all employees matched July’s figure of 34.5 hours.

This indicator has been a real highlight in 2014. Through July, employment gains were greater than 200,000 for six consecutive months.  That was the longest monthly streak of over 200,000 new jobs since the one that ran from January through July of 1997.  After a break in August 1997, the economy went on to notch another five consecutive months of over 200,000 new jobs.  Perhaps last month was the pause that refreshes the labor market.              (by C. Cox)