Archive for August, 2015

July 2015 Retail Sales

Monday, August 24th, 2015

Consumers opened their wallets a little wider in July 2015 according to the Retail Sales report from the Census Bureau.  Versus a month earlier, this indicator increased 0.6 percent; these sales are 0.7 percent higher compared to a year ago.  Not only was July  strong, but June’s tally was revised upward to unchanged after the initial report of a 0.3 percent decline.

Auto sales led the indicator higher, but there was also strength in other areas of the economy.  Motor vehicle and parts dealers took in 1.4 percent more revenue in July which nearly offsets June’s entire 1.5 percent decline; you might recall that auto sales were up 5.9 percent in May, so July’s tally is still relatively strong.  Furniture sale were up 0.8 percent, and home & garden supplies rose 0.7 percent.  Nonstore retailers were up 1.5 percent.  Atlas’ favorite category, food services & drinking places, climbed 0.7 percent in July and have jumped 9.0 percent since the same period last year.  This gets extra attention because this type of spending is discretionary and can be substituted easily; for now, Americans seem content eating away from home.

May’s retail spending worried Atlas because of its decline, but it appears the contraction was really a deceleration, and now we know that was short-lived.  America thrives on consumption, so this indicator provides an important glimpse into the condition of our economy.  For now, output appears to have clean bill of health.      (by C. Cox)

Producer Prices July 2015

Saturday, August 22nd, 2015

Prices paid by wholesalers and producers increased 0.2 percent in July according to the Bureau of Labor Statistics.  This uptick in the Producer Price Index for final demand (PPI) follows June’s increase of 0.4 percent.  Year-over-year, prices at this level deflated 0.8 percent, a steeper decline than a month earlier when the tally fell 0.7 percent.  Stripping out food and energy leaves the core measure of PPI, and this less volatile version was up 0.3 percent in the period and just 0.6 percent versus a year earlier.
Prices paid for services accelerated while goods deflated in the period.  Final stage services jumped 0.4 percent in the period (the largest monthly increase since October 2014) and accounted for all of the headline increase.  Their counterparts, goods, deflated 0.1 percent in the period.  Price changes for goods and services versus a year ago live on the opposite sides of zero as well.  Final demand services are only 0.6 percent more expensive versus July of 2014 and goods are 3.7 percent cheaper than in the same period.
Earlier stage pricing resonates with the final demand narrative; prices for goods are falling while services cost a bit more.  Processed goods for intermediate demand fell 0.2 percent, due entirely to energy.  Unprocessed goods dropped 2.9 percent in the period; once again, energy played a significant role in the decline, falling 6.2 percent.  The early stage of services moved up 0.2 percent during July and is up just 1.1 percent from a year ago.
For all the chatter about the Federal Reserve raising the interest rate banks charge one another for overnight loans, the PPI data is not suggesting the move is imperative.  This indicator is not showing signs of worrisome inflation pressures.  Of course, there are other measures of prices, but they are not demonstrating a substantial increase in costs either.  (by C. Cox)

July 2015 Treasury Deficit

Saturday, August 22nd, 2015

America’s budget deficit increased in July according to the Treasury Department.  During the period, the nation’s outlays outpaced income to the tune of $149.0 billion.  This follows June’s shortfall of $51.0 billion.  On a year-to-date basis, the 2015 deficit is slightly worse than this time last year (-$465.5 billion vs. -460.5 billion in 2014).

Budget receipts fell versus a month ago but were higher on a year-to-date basis comparted to the same period a year earlier.  Total receipts dropped $117.4 billion to $225.5 billion in July.  Over one-third of the drop in receipts was due to a slowdown in the amount of individual taxes collected.  Over half of the change was due to a large decrease in corporate taxes paid ($10.6 billion in July vs $72.8 billion in June).   Nevertheless, year-to-date, receipts are up 11.6 percent to $1.28 trillion.

Outlays jumped 28.7 percent during the month; however, the calendar made a substantial impact on the total.  Military active and retirement payments along with Veteran’s benefits, Supplemental Security Income, and Medicare payments to HMO’s and prescription drug plans were accelerated into July since August 1, 2015, the normal payment date, fell on a non-business day.  This will help the August tally when it is released next month.

This indicator is improving but unless the beltway gets into gear, it will not continue getting better.  After 2018, less than2.5 years from now, the deficit is projected to accelerate according to the Congressional Budget Office.  Our economy has been slow growing since the end of the last recession, and will need some action from the nation’s capital to prevent the debt-to-GDP ratio from accelerating to an untenable level.              (by C. Cox)

Small Business Optimism 2015

Tuesday, August 18th, 2015

Firms with fewer than 500 employees are characterized as small businesses by the Small Business Administration.  According to the National Federation of Independent Business (NFIB), these companies are 99.5 percent of all employer firms.  The NFIB likes to survey companies that have staffs considerably smaller than 500 people in order to gauge the firms’ attitude about the economy.  According to their chief economist Bill Dunkelberg, 90 percent of all employer firms employ 20 or fewer people, and this is the cohort on which the NFIB concentrates when trying to determine the optimism of small businesses.

In the latest survey of small business optimism, the index, now at 95.4, gained 1.3 points.  Unfortunately, this does not make up for the 4.0 points it lost in June, and the tally remains below its 42-year average of 98.0 and is 5 points lower than its December 2014 reading.  Not much has changed from a year earlier as the same four troublesome issues in July 2014 are bothering those polled today.  Taxes top the list, and government red tape/regulations are a close second.  Issues three and four, quality of labor and poor sales respectively, swapped positions versus a year earlier.

Years into the current expansion and small businesses are feeling below average.  This cohort is especially worried about taxes and regulations, much more according to the polls than issues three (labor quality) and four (sales).  Atlas is troubled that the primary concerns are not economic, but originate in the beltway.  Can this change any time soon?  Fortunately for America, the 2016 campaigning process is off to an early start.  By this time next year, the direction of the Federal Government will have become much more certain, right?  We certainly hope so but aren’t holding our breath.    (by C. Cox)

Second Quarter 2015 Productivity

Monday, August 17th, 2015

Nonfarm business labor productivity increased 1.3 percent during the second quarter of 2015 according to the Bureau of Labor Statistics.  By their measure, output increased by 2.8 percent in the period, but it only took a 1.5 percent increase in the number of hours worked to generate the faster production.  Year-over-year, productivity was less robust, growing just 0.3 percent; in the 12 months ending in June, output grew just 2.8 percent, and hours worked increased 2.6 percent.

Also included in this release is the unit labor cost (ULC), a measure of inflation.  Compensation per hour rose 1.8 percent in the second quarter.  When productivity is subtracted from compensation, the result is an uptick of 0.5 percent for unit labor costs.  From a year ago, ULC is up 2.1 percent.

Productivity growth was weak from April through June.  The year-over-year tally is declining from a position that was already low by historical standards.  Here is another indicator demonstrating the frail nature of America’s economy during this recovery.  Year-over-year productivity has remained under 1.9 percent in every quarter since the fourth quarter of 2010; since then, annual productivity has increased by less than 1.0 percent in 12 of the last 19 quarters.  Recent surveys of businesses have been pointing to a lack of clarity from our federal government which is, in turn, constraining investment and confidence, two necessary components for any increase in productivity.      (by C. Cox)

For the Byrds

Friday, August 14th, 2015

Cycles are all around us.  Our solar system travels around our galaxy.  At the same time Earth circles the sun, and this cycle causes our seasons.  And the seasons can impact the business cycle.  While the calendar does not start or stop recessions, it does dictate, along with the EPA, the type of fuel we burn in our vehicles.  As you might have guessed, America is currently burning our summer blend.

The last couple of days have been very warm here in Southern California, triple digits in parts of this drought burden portion of the country, and these hot temperatures are keeping gas prices elevated here and around the country.  When the mercury rises, it becomes easier for gasoline to evaporate, so producers must create a more expensive summer blend less susceptible to vaporizing.  On the flipside, winter blends have a lower evaporation point, so engines in the cold parts of the country can function properly on a less costly mix.

America is about a month away from the next gasoline season.  This change could impact your wallet.  First, petrol purveyors cannot sell summer blend after September 15th, so they will need to make sure their inventory is depleted before that time.   If their stock of summer blend is too high, they may need to cut the price to get rid of it.  But even after that change has occurred, they will begin selling the winter blend which is less expensive to produce.  However, there is a caveat for those of us in California; one of our large refineries in the South Bay was destroyed in a fire earlier this year, so the impact may not be as great since our state received a supply shock when Torrance was rocked by the explosion.

Summerlike heat may last well beyond the autumnal equinox, but there is a mandated season for gasoline that is about to turn, turn, turn.  As we head into the long Labor Day weekend, we could be getting closer to a time you may embrace lower prices at the pump.              (by C. Cox)

June 2015 Trade Deficit

Thursday, August 13th, 2015

America’s trade imbalance worsened as the second quarter of 2015 came to a close according to the Bureau of Economic Analysis.  The total shortfall in June was $43.8 billion, up $2.9 billion versus the previous month.  Year-to-date, the deficit increased $1.6 billion or 0.6 percent from the same period in 2014.

Two components make up this indicator and both worsened from May.  America imported $232.4 billion in June, $2.8 billion more than a month earlier.  Exports deteriorated; foreign countries bought $188.6 billion for American made goods and services, $100 million less that in the prior period.  America’s goods deficit increased $2.9 billion to $63.5 billion while our services surplus decreased nearly $100 million.

By country, the outcomes were mixed.  America’s trade shortfall with China increased by $1.0 billion.  The chasm with Europe widened by $2.0 billion, but it narrowed with Japan.  Our gap with Mexico expanded $1.5 billion.  Unfortunately, America’s trade surplus with Canada in May was short lived as the balance fell back into the red with a deficit of $2.5 billion.

This indicator seems to reflect the state of the global economy.  America is the largest and one of the quickest growing economies in the world, and this is being reflected in our nation’s growing trade imbalance.  However, Atlas worries about America’s ability to keep the rest of the world’s economies afloat.  Our growth rate is slow relative to other expansions.  Only time will tell how much longer our economy can continue to shoulder the largest share of the burden.  (by C. Cox)