Archive for June, 2015

May 2015 Producer Prices

Thursday, June 18th, 2015

Prices paid by producers and wholesalers climbed in May 2015 according to the Bureau of Laor Statistics.  Represented by the Producer Price Index, these prices increased 0.5 percent in the period after falling 0.4 percent in April.  Notably, from a year ago this measure of inflation has declined 1.1 percent, the fourth straight 12-month decline.

Goods led the headline figure higher.  Final demand goods increased 1.3 percent.  Energy was the primary driver in the period, accounting for eighty percent of the overall advance.  Foods moved up 0.8 percent in the month.  Removing food and energy gives us the core measure of goods which was up just 0.2 percent in the period and up only 0.6 percent in the past year.  Final demand services were unchanged in the period after inching down 0.1 percent in April.

Prices in earlier stages of production also increased in the period, also pushed higher because of energy.  Processed goods for intermediated demand were 1.0 percent higher in the period.  In this stage, energy jumped 5.8 percent.  Foods increased 0.5 percent, and the core measure of this stage of goods production fell 0.2 percent, underlining energy’s influence.  The earliest stage of goods output looked very similar; unprocessed goods for intermediate demand were 3.3 percent higher than in April.  Here, energy material exploded 7.7 percent!  Food and feeds increased 1.4 percent.  Stripping food and energy from this earliest stage leaves a slight downtick of 0.1 percent.  Services for intermediate demand dropped 0.5 percent and are just 1.3 percent higher than a year ago.

Inflation is still not pronounced in this price gauge.  By itself, this indicator argues against our central bank increasing interest rates because inflation is not approaching the Federal Reserve’s explicit target of 2.0 percent.  However, other areas of the economy, especially the labor market, are improving.  If the central bank chooses to be proactive instead of reactive, this indicator may not reach lofty levels before the bank begins to increase the overnight interest rate.  (by C. Cox)

May 2015 Retail Sales

Wednesday, June 17th, 2015

Consumers opened their wallets wider in May according Retail Sales data from the Census Bureau.  Sales totaled $444.9 billion in the period, up 1.2 percent from a month earlier.  For comparison, this indicator has grown just 2.7 percent from a year ago, so spending in May 2015 really accelerated relative to the trend.

Receipts were strong across many parts of the report.  Auto sales continue to be a leader, jumping 2.1 percent in the period.  Building material & garden equipment retailers also experienced a 2.1 percent increase in May.  Petrol prices continued moving away from their recent lows which helped gasoline station revenues increase 3.7 percent from a month earlier, but this segment is 18.6 percent lower than a year earlier.  Another standout category in May was the 1.4 percent rise for nonstore retailers; this category is 7.8 percent higher from the same period a year ago.  Finally, Atlas pays close attention to the food services portion of the report because it represents a very discretionary segment of the economy.  While its growth pace slowed, it still managed to improve 0.1 percent in the period and is one of the top performing categories year-over-year, up 8.2 percent.

Consumers appear to be supporting the economy in the second quarter.  This will likely further influence the Federal Reserve toward increasing the overnight interest rate since the economy is growing even after their program of Quantitative Easing (money printing) was diminished.  Moving the overnight interest rate from virtually zero to barely above zero does not seem like a big step to Atlas, but many are holding their breath as the world waits to experience the American economy with the Fed using smaller training wheels.            (by C. Cox)

May 2015 Supply Manager’s Report

Tuesday, June 16th, 2015

Domestic output continued to increase in May 2015 according to the Institute for Supply Management (ISM).  Manufacturing production accelerated for the first time since October 2014.  Nonmanufacturing decelerated in the period but remains well above the 50.0 mark, a level which would indicate stagnation.

Manufacturing’s reading improved to 52.8 from 51.5 in April.  New orders were a highlight in the report; this forward looking component accelerated, increasing 2.3 points to 55.8.  In the months and quarters ahead, this faster pace of orders should transition into faster output.  With relatively weaker trading partners and a strengthening dollar, it is no surprise that exports were unchanged in the period.

Nonmanufacturing was strong even though it decelerated in the period.  The composite figure slowed to 55.7 from 57.8 a month earlier.  Three out of its four components decelerated while the other remained unchanged.  Business activity moved to 59.5 from 61.6; this is still a respectable reading and bodes well for second quarter GDP.  Although it fell some, employment remained relatively strong and corroborates May’s healthy employment report.  New orders, a leading indicator, slowed and could portend a similar outcome to production in future quarters.  Delivery times were faster, suggesting companies are not having as difficult a time keeping up with orders.

Both sides of the economy continue to grow.  America’s expansion pushes on, and this iteration of the ISM data does not imply growth is nearing a turning point.  However, there is not sufficient evidence to suggest the pace of expansion is picking up velocity.  For now, we will all have to settle for an economy behaving like the cruise control is on, and the driver’s foot is off the accelerator.        (by C. Cox)

Revised First Quarter 2015 Productivity

Tuesday, June 16th, 2015

Productivity figures for the first quarter of 2015 were given a big revision after more complete data were collected by the Bureau of Labor Statistics.  Not only was productivity worse than expected, labor expenses grew faster than the earlier estimate, so unit labor costs increased by even more than first tallied.  Falling output with growing expenses is not a good combination.

Productivity dropped 3.1 percent in the period.  This is a major downward revision from the initial estimate of a -1.9 percent.  The revised figure now indicates the nation’s productivity is contracting at a faster rate (down 3.1 percent) than in the fourth quarter of 2014 when it declined 2.1 percent.  Output contracted in the first three months of the year by 1.6 percent while hours work climbed 1.6 percent.  Additionally, unit labor costs jumped more than initially estimated, up 6.7 percent versus 5.0 percent in the earlier count as compensation per hour rose 3.3 percent in combination with the 3.1 percent decrease in productivity.  Before it all begins to look too gloomy, it is worth noting that unit labor costs are only up 1.8 percent in the past year, these figures can be very lumpy, so this longer look adds some perspective.

The revisions in this indicator were expected to be bad since gross domestic product was revised lower and employment figures continued to improve.  Two quarters of declining productivity raises eyebrows here at Atlas because of the likely consequence of lower profitability to firms or building inflationary pressures.  For now, companies seem willing to act as if the falling productivity is a short-term phenomenon, but if it continues, businesses may need to react by getting rid of the least productive employees and possibly substitute workers with machines.  A change in the strong trend of hiring could be one of the first places this shows up.  Stay tuned.    (by C. Cox)

Good News: June 2015

Friday, June 12th, 2015

Perhaps it is time once again to talk of green shoots emerging into the sunshine of positive economic progress.  While few would call me a raging bull or cock-eyed optimist, there were a few data points scattered amongst our indicators which caused me to polish up my rose-tinted glasses, at least for a minute.  Allow me to set a table for two.

First, the Department of Labor released a surprisingly strong U.S. employment report for May 2015 last week.  Showing a gain in nonfarm payrolls of 280,000 for the month it blew past the consensus expectation for 220,000.  Significantly, private payrolls jumped by 262,000, suggesting expanding demand in a broad swath of job categories sans government hires.  Further, average hourly wages ticked up a bit more than expected, bringing the annualized rate of increase to 2.3%, a high point seen only twice before since the recovery began some six years ago.  With consumers representing the lion’s share of our economy’s growth, such an increase will hopefully give production an added boost.

Despite this positive news, the employment report did show unemployment rising a touch, up 0.1% to 5.5%.  Interestingly, even this seems to be the result of a positive factor.  While unexpected, the slight rise appears to stem from an increase in the labor pool which indicates more people who had given up on finding a job have seen some reasons to begin looking for one again.  This can often indicate a labor market on the mend.  Additionally, younger workers accounted for roughly three out of every four hires, a positive vector for this group that has experienced a disproportionate amount of accumulated labor market stress over the past several years, with young women taking approximately half the new positions.  This is a positive development which can have repercussions lasting for decades.

A second positive that dove-tails with increasing consumption was the recent consumer credit report from the Federal Reserve that showed an annualized 7.3% gain in April, a $20.5 billion jump.  While Atlas is no fan of borrowing to maintain an otherwise unaffordable lifestyle, the fact that student loans weren’t one of the primary drives this time pleases us no end.  Further, car loans didn’t play a major role either.  Both of these were replaced by credit card debt, a trend long missing from overall consumption.  To us it indicates improving retail sales and a positive shift  in expectations, both factors for an acceleration in overall economic health.  We certainly hope the trend, provided optimism remains at healthy levels somewhere below imprudent euphoria, can continue.    (by J R)

May 2015 Labor Report

Thursday, June 11th, 2015

Strong is an adjective that accurately describes May 2015 employment data.  According to the Bureau of Labor Statistics, America’s economy added 280,000 net new jobs versus the downwardly revised count of 221,000 in April (originally 223,000).  It is looking more and more like March’s weak tally of 119,000 new jobs (which is a substantial upward revision in this report from 85,000) was an anomaly rather than a break in the trend.  In the last twelve months, our economy has averaged 255,000 new hires a month.

Not only was the headline count strong, but other features in the report also reflected an improving labor market.  For instance, the unemployment rate moved higher; it now stands at 5.5 percent versus 5.4 percent in April.  Atlas finds this encouraging because it reflects improving attitudes toward employment.  This important rate increased because the labor force grew faster than the number of net new jobs; feeling more confident about the prospects of being hired, 397,000 people entered or reentered the working ranks.  Fancy math aside, another straight forward measure, hourly wages, improved.  Rising $0.08 to $24.96, average hourly earnings for all employees on private payrolls increased 0.30 percent in the period and is up 2.3 percent from a year earlier.

Employment is a bright spot in our economy and should help increase the trajectory of GDP in the months and quarters ahead.  It seems likely that new workers will consume more than they did earlier this year when unemployed.  Also, even if the cohort of already employed Americans continues to spend the same proportion of their pay, the increased average hourly wage should add to the nation’s output since our economy is so dependent on consumption.  If the employment data continues to be this strong, the Federal Reserve is more likely to begin hiking the overnight interest rate later this year even if Christine Lagarde and the IMF do not think it is a good idea.  (by C. Cox)

April 2015 Balance of Trade

Wednesday, June 10th, 2015

America’s trade balance improved in April according to the Bureau of Economic Analysis.  It was widely expecting to be better than in March because of the externalities impacting the report at the end of the first quarter.  A labor strike at West Coast ports kept imports off our shores during the first couple of months of the year, so when the standoff was over, imports flooded into our nation, hurting trade numbers.  With the dispute behind us, imports normalized in April.

For the period, the trade deficit improved to $40.9 billion from $50.6 billion (upwardly revised from $51.4 billion) in March.  Both components improved.  Imports slumped 3.3 percent to $230.8 billion.  Fewer cell phones were imported in the period and less apparel and furniture was brought in as well.  Also, U. S. firms slowed imports of foreign made capital goods.  On the other side, exports increased 1.0 percent to $189.9 billion.  Unfortunately, civilian aircraft made up a large portion of the increase, and these purchases tend to be lumpy, so the next tally might not benefit from this segment of the economy.

In broad terms, our economy is measured using four categories, and for decades the net exports component has subtracted from total GDP quarter after quarter.  Since the end of the Great Recession, our trading shortfall has been less on average than before the contraction but remains negative nonetheless.  Worries about the recently rising dollar and slower growing trading partners have been on the mind of many forecasters, but the deficit’s 12 month average has been relatively steady and in line with the post-recession mean.  If our domestic economy continues growing while the net exports remain stable, our trade relations will have a diminishingly negative impact on the GDP statistic.  (by C. Cox)