Archive for April, 2015

March 2015 Employment Situation

Friday, April 10th, 2015

Payroll growth decelerated substantially in March 2015 according to the Bureau of Labor Statistics.  During the final month of the first quarter, firms added 126,000 new employees.  For comparison, February’s total, even after a downward revision, was 264,000 (originally 295,000).  The unemployment rate was unchanged at 5.5 percent.

Details within the report were mixed after the headline figure disappointed.  Average hourly earnings for private nonfarm payrolls improved 0.3 percent and have gained 2.1 percent in the last year.  However, the average workweek declined 0.1 hour to 34.5 hours.  Fortunately, the underemployed figure improved to 10.9 percent from 11.0 percent a month earlier; this statistic also includes those working part-time even though they prefer a full-time job, as well as those who want to work but have stopped looking within the last twelve months.  Unfortunately, labor participation dropped back down to 62.7 percent; for the first time ever, the number of people not in the labor force was over 93 million!

March’s payroll tally is a dramatic break from the recent trend; in the twelve months ending in February, the economy added an average of 269,000 new jobs a month.  Undoubtedly, there are many contributing factors to the recent disconnect from this trajectory (e.g. weather and strengthening dollar), but Atlas cannot help but wonder if the trend in employment suffers from a lack of sustainability; there have only been four times in the current century when the economy’s 12-month average for new jobs was greater than in February, and they all occurred in 2000.  Our economy is hardly running at a red hot level, so the labor market may need some time to cool off in order to fall in line with recent output.  This does not mean payrolls need to decline, but further deceleration could be in order, further fueling our doubt that the Fed will be raising interest rates anytime soon.  (by C. Cox)

February 2015 Personal Income and Outlays

Thursday, April 9th, 2015

Personal income and outlays were mixed in February 2015 according to the Bureau of Economic Analysis.  Americans took home more pay in the period but were reluctant to spend the additional remuneration.  Personal income increased 0.4 percent ($58.6 billion) in the period while spending managed to grow by just 0.1 percent ($11.8billion).

Income components were mixed in the period.  Wages and salaries grew $23.9 billion in February, compared to an increase of $47.3 billion in January.  Proprietor’s income fell $7.0 billion after declining $11.7 billion in the prior month.  Rental income managed to rise $3.9 billion, an improvement over the $1.8 billion increase to start the year.  Personal income on assets jumped $19.7 billion after adding just $4.1 billion a month earlier.  Of course, taxes must be paid on most of this increasing income, leaving disposable personal income (DPI).  DPI is what is left to spend in the economy, and it improved 0.4 percent ($54.2 billion) after the government took in an additional $4.4 billion for the period.

Fortunately, some of the added compensation was spent, but savings was the real beneficiary to the added income.  While outlays increased $11.8 billion in February after decreasing $25.4 billion in January, the rest went into savings.  Americans put away $39.9 billion more in the period than in January, for a total of $768.6 billion.

An important measure of inflation is also tucked into this report, including a subset without food and energy that the Federal Reserve considers the most significant measure of cost movements.  The price index for personal consumption expenditures (PCE) increased 0.2 percent in the period after falling 0.4 percent to start the year.  On a year-over-year basis, it has, moved 0.3 percent higher.  Excluding food and energy, prices increased by just 0.2 percent in February.  From a year ago, this core measure of inflation has grown by 1.3 percent, remaining well below the Fed’s target of a sustained 2.0 percent but higher than the 1.2 percent tally a month earlier.

In all, this indicator suggests Americans are reluctant to spend the added income they are receiving each month and that inflation remains tepid.  Economic output is growing but falling short of its potential based on income growth.  If Americans are putting more money away, it is good for their individual balance sheets, but it comes at a cost to the overall economy.  Lack of consumption growth will help to keep inflation at bay and will likely cause serious consideration by Janet Yellen and her cohorts as they decide what to do with overnight interest rates.         (by C. Cox)

February 2015 Balance of Trade

Wednesday, April 8th, 2015

America’s trade balance narrowed in February according to the Census Bureau.  After January’s revised shortfall of $42.7 billion (originally $41.8 billion), the chasm shrank to $35.4 billion.  Year-over-year, the average goods and services deficit increased $1.9 billion from the three months ending in February 2014.

Both components of trade, imports and exports, fell for the second month in a row.  Imports dropped 1.6 percent to $186.25 billion.  Exports fell even further, declining 4.4 percent to $221.69 billion.  Petroleum is a good that has been influencing this indicator with its recent volatility, so it is useful to consider the nonpetroleum goods portion to see what is happening in other areas of the global economy; this trade deficit shrank as well, falling to minus $46.0 billion from minus $50.8 billion a month earlier. In other words, even with a strengthening currency and a relatively healthy economy, nonpetroleum exports fell (as largely expected), but these imports dropped as well, declining 4.2 percent in the period.  As is normal, America ran a service surplus in February, but even it declined 0.5 percent.

America’s shrinking trade deficit cuts two ways.  Since net exports (currently a negative number) are added to the nation’s Gross Domestic Product, February’s smaller chasm should help the first quarter’s output tally.  However, the deceleration in imports of nonpetroleum items causes some concern at Atlas.  More will be revealed in the months ahead, but imports should have the wind in their sails, aided by America’s economic and currency strength.  If businesses and consumers are less willing to buy less expensive imported goods, it seems unlikely they will be buying a domestic substitute.  This indicator suggests to Atlas that the economy is later in the business cycle than others have demonstrated.  No conclusions are being drawn, but the observation warrants further attention in the months ahead.           (by C. Cox)

March 2015 Consumer Attitudes

Monday, April 6th, 2015

Atlas follows two primary measures in order to gauge the attitudes of Americana consumers, and the most recent releases of both are giving mixed signals.  Encouraging news was found in the Conference Board’s Consumer Confidence report which climbed to the second highest reading of the current recovery; only January of this year was better than the 101.3 reading in March.  However, Consumer Sentiment tallied by the University of Michigan, dropped to 93.0 from 95.4 a month earlier.

Consumers polled by the Conference Board are expecting a future that is brighter than what they are currently experiencing.  March’s overall gain is a reflection of the expectations component of the indicator that jumped 6.0 points to its highest reading since February 2011.  Unfortunately, the gain in expectations was offset in part by a drop in the present situation component.  Americans felt jobs were harder to get and more people described current business conditions as bad in March relative to a month earlier.

Consumer sentiment also has two sections and both deteriorated in the period.  Current conditions dropped to 105.5 from 106.9 and the index for consumer expectations slid to 85.3 after reading 88.8 at the end of February.  Income levels were mixed in the university’s tally.  Those whose budgets were most impacted by higher utility costs reported lower confidence, but households with incomes in top two-thirds of the distribution recorded gains in confidence within the March survey.

Many believe that Americans become more willing to spend money when their emotions improve.  The possible relationship between attitudes and other indicators may partially explain why categories like retail sales or personal consumption expenditures have been weakening lately.  However, consumer attitudes are soft indicators because they consist of self-reported measures about feelings which are not universally quantifiable, so the relationship cannot always be consistent.  Nonetheless, if Americans begin feeling more dour as the year wears on, other indicators are likely to suffer.  (by C. Cox)

Final Revision for 4th Quarter 2014 Gross Domestic Product

Thursday, April 2nd, 2015

After one last revision to the data for the fourth quarter of 2014, the year is officially in the books.  Well, sort of.  There will be revisions in the future but not for a while.  After more complete data was analyzed, there were no changes to the rate of economic growth during the final three months of last year.  Output grew by 2.2 percent on an annualized basis from October through December, slower than the 5.0 percent increase in the third quarter.

Even though the overall quarterly figure remained the same, there were several internal revisions.  Exports were revised higher; much of the uptick was due to services, most notably travel.  Consumer spending was also greater than earlier estimates, domestic services led this revision.  More money was spent on healthcare than first thought, but this was offset by a downward revision to financial services.  Business inventories were less than the previous tally suggested; mining, information, and wholesale trade firms had less on their shelves than in the previous estimate.

America’s economy softened as 2014 came to a close, but it is still expanding.  Unfortunately, since the beginning of the year, many indicators Atlas follows have been pointing to even further weakness in the first quarter of 2015.  However, this does not presume the next recession is right around the corner.  Business cycles are not required to follow a perfect sine curve, and with any luck the current expansion will reaccelerate as the remainder of the year approaches.  Our initial look at first quarter data will come at the end of this month.             (by C. Cox)

February 2015 Durable Goods Orders

Wednesday, April 1st, 2015

Orders for wares expected to last three years or longer continued to decline in February according to the Census Bureau.  Falling 1.4 percent, this forward looking indicator has retracted in five out of the last seven months.  However, the most recent setback was not enough to completely offset January’s revised 2.0 percent increase (originally 2.8 percent), so this indicator is up slightly on a year-to-date basis.

Businesses do not seem enthusiastic about adding to their capital stock.  Excluding volatile aircraft, orders for nondefense capital goods (aka core durable goods orders) declined 1.4 percent, matching the headline tally.  Atlas views this portion of the report as a proxy for business confidence because firms are more willing to invest in the capital portion of theie means of production when they have a positive outlook.  Lately, the mood seems to be quite dour as this core measure of orders has declined for six consecutive months.

Another segment of the Census Bureau’s release looks at shipments.  This tends to act as more of a coincident indicator because it quantifies recently finished output that has been sold and sent to the various buyers.  This measure dropped 0.2 percent and is down in four of the last five months.  However, shipments of core goods managed to increase 0.4 percent as previous orders were completed.

Recently, many of the indicators Atlas writes about have been decelerating.  One possible cause for this change of pace could be the challenging winter large portions of the country experienced.  Unfortunately, the deceleration in the indicator has not been just a winter phenomenon since the slowdown began even before the autumnal equinox.  Manufacturing appears to be in a soft period, and for now, the forward looking new orders for durable goods are not indicating a reacceleration is about to begin.             (by C. Cox)