"Economists are pessimists: they've predicted 8 of the last 3 depressions."
--Barry Asmus

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Friday, February 18, 2011

Morning Metrics

There aren't any today. At least not on the Econoday economic calendar.
So, uhm. Yeah.
Oh, wait. Federal Reserve Chairman Ben Bernanke has delivered remarks at the Banque de France Financial Stability Review Launch Event. You can read the text of the speech on the website of the Board of Governors of the Federal Reserve System. The title of the speech is "Global Imbalances: Links to Economic and Financial Stability", and - from my quick reading of the text - it is on the problems that can arise if some nations have a tight monetary policy and others have a loose monetary policy. He reflects on the breakdown in the US financial system, the way that breakdown was partially caused by an influx of capital from emerging markets (which in turn caused the financial breakdown to spread to those emerging markets). He then states that "...our collective challenge is to reshape the international monetary system to foster strong, sustainable growth and improve economic outcomes for all nations. Working together, we need to clarify and strengthen the rules of the game, with an eye toward creating an international system that more effectively supports the simultaneous pursuit of internal and external balance. To achieve a more balanced international system over time, countries with excessive and unsustainable trade surpluses will need to allow their exchange rates to better reflect market fundamentals and increase their efforts to substitute domestic demand for exports. At the same time, countries with large, persistent trade deficits must find ways to increase national saving, including putting fiscal policies on a more sustainable trajectory. In addition, to bolster our individual and collective ability to manage and productively invest capital inflows, we must continue to increase the efficiency, transparency, and resiliency of our national financial systems and to strengthen financial regulation and oversight."
I'm not certain that I agree with his conclusions - I'm much more Austrian school in my attitudes towards economic theory. I don't think that Chairman Bernanke is all that concerned with my lack of agreement, though. Particularly since I'm not an economist So rather than present my own opinions, I'll let John Maynard Keynes and F. A. Hayek battle out the pros and cons of their competing economic theories. Enjoy.

Thursday, February 17, 2011

Philadelphia Fed Survey

"As goes Philadelphia, so goes the nation."
Yeah, that's a misquote, but the quote has been misquoted so frequently that I don't actually know what the original quote was. Maybe it was Sumerian: "As goes Ur, so goes the Fertile Crescent," or something of that nature.
But I digress. The statement "as goes Philadelphia, so goes the nation" is the theory behind why the Philadelphia fed survey is such an important economic measure. It is, technically, just a survey of manufacturing conditions within the Philadelphia Federal Reserve district, but it is also considered an indicator of manufacturing conditions across the nation.
Now, last month we had a General Business Conditions Index level of 19.3, which missed expectations but still ranked as a fourth consecutive month of positive readings, meaning improvements in new orders, demand for manufactured goods, and shipments. And the Street loves improvements in those categories, because they have positive indications for GDP.
This month, the Econoday-surveyed analysts are feeling optimistic. They're looking for the index to rise to 22.0. Are they right? Let's have a look.
Well, yes and no. Looking at the report, they were certainly right to be optimistic. They just weren't optimistic enough. The General Business Conditions Index increased to a level of 35.9, beating expectatons by an overwhelming amount and coming in at the highest level since January of 2004. here's some other highlights:
  • The new orders index is virtually unchanged, but the shipments index increased 22 points.
  • The employment index increased 6 points. Better yet, this is the 6th consecutive month that more firms reported an increase in employment than a decrease in employment.
  • The majority of surveyed firms remain optimistic about future growth and activity.
So, yeah. That's good news.

Consumer Price Index News Release

The latest Consumer Price Index news release (http://www.bls.gov/news.release/pdf/cpi.pdf) was issued today by the Bureau of Labor Statistics. Highlights are below.

On a seasonally adjusted basis, the CPI-U increased 0.4 percent in January, the same increase as in December. The index for all items less food and energy rose 0.2 percent in January after rising 0.1 percent in December.

News releases archives: http://www.bls.gov/schedule/archives/all_nr.htm
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CPI and Jobless Claims

We've got a few major indicators coming out today. Right now we have CPI and First Time Jobless Claims, and then we'll be getting the Philadelphia Fed Survey at 10 AM.
CPI for December was ever so mildly disappointing. For the month it was up 0.5% (missing expectations by 10 bps), and core CPI was up 0.1% (missing expectations by 10 bps as well). The analysts - or, at least, the analysts surveyed by Econoday - are feeling optimistic about January. They're looking for growth in CPI to slow to only 0.3%, and for growth in core CPI to remain steady at 0.1%.
Turning to first time jobless claims, we had pretty good results for the week ending 2/5. Analysts were looking for 412,000 new claims and we actually came in at 383,000 claims. Even looking at the unadjusted numbers for first time claims (438,548), and at the insured unemployment level (3,888,000 seasonally adjusted, 4,579,513 unadjusted), things were pretty good. For the week ending 2/12 the Econoday-surveyed analysts aren't as optimistic. They're anticipating an upswing in seasonally-adjusted claims, rising to 410,000.
Are they right? Let's have a look.
As always, we turn to the US Bureau of Labor Statistics for Consumer Price Index data. The report shows the CPI-U (the Consumer Price Index for All Urban Consumers, aka the CPI everyone talks about) rising a seasonally-adjusted 0.4% in January. Stripping away food and energy, and just looking at the core CPI-U, we're still up 0.2%. So both missed expectations. Not by a huge amount in absolute numbers (10 bps in both cases), but enough that the Street might not be happy. A few other interesting points:
  • Energy was up 2.1% in January, less than December but still pretty noticeable. Most of that was driven by fuel oil, which was up 6.8% on the month.
  • On the other hand, energy services prices as a whole were down 0.6%. Just speculating, it may be that people are trying to conserve more because of increased energy costs. But the report doesn't really say one way or the other.
  • Clothing costs were up 1.0%.
First time jobless claims data comes from the US Department of Labor. Their press release tells us first that 2/5's initial jobless claims were revised upwards to 385,000, an increase of 2000. Not great - it really isn't good any time this number goes up - but that's a drop in the bucket sort of increase. For 2/12, the advance seasonally adjusted claims are 410,000. That's right in line with expectations, so that's not bad at all. The insured unemployment rate remained level at 3.1%, with the seasonally adjusted insured unemployment level rising from last week's revised 3,910,000[1] to a new level of 3,911,000.
Looking at the unadjusted numbers, first time claims came in at 421,713, while the insured unemployment level came in at 4,544,310. That looks pretty good, although we'll need to see the Employment Situation report (due out later this month) before we can tell if that decline is from people getting back to work, or if it is due to people running out of benefits.[2]
So there you go. I'll be back at ten with the Philadelphia Fed Survey.
[1] Yes. That was revised upwards as well.
[2] Here's hoping it's due to people getting back to work.

Wednesday, February 16, 2011

Industrial secrets! Major fines! Depressing Fed Commentary! Bankruptcy! Mergers and acquisitions! Global currency!

Let's start things off right. Industrial secrets! Major fines! Depressing Fed commentary! Bankruptcy! Mergers and acquisitions! Global currency!
A normal day in the market, in other words.
To begin with, there 's a rather breathless report on Gizmodo that the secret recipe of Coca-Cola has been revealed to the world. Given that this isn't really all that much of a secret these days (Google for "OpenCola" some time, compare the recipe, and be underwhelmed by the report), this isn't really all that much of a threat to the soda giant. Unless everyone in the nation suddenly takes up making homemade soda as a hobby[1], and then manages to get legal access to fluid extract of coca.
In slightly more serious big corporation headache news, Chevron has been fined $8.6 billion (and required to pay an additional $860 million in reparations) by a court in Ecuador. Why? Well, it seems they were accused of, and found guilty of, dumping 18 billion[2] gallons of toxic materials into unlined pits near the Amazon, and into the Amazon itself, over the course of 20 years. Both sides plan to appeal. The plaintiffs want to appeal because they feel that "the damages awarded are not enough considering the environmental damage caused by Chevron here in Ecuador." The defendant is planning to appeal because "the Ecuadorian court's judgment in illegitimate and unenforceable. It is the product of fraud and is contrary to the legitimate scientific evidence." They have also filed a RICO civil lawsuit against the trial lawyers representing the plaintiffs in the class action lawsuit.
I don't pretend to know all of the details. However, given the overall record of Chevron[3], I suspect that the appeal and the counter-suit are the attempts of a massive multinational corporation to buy their way out of justice. But that is purely my opinion.
The Federal Reserve Bank of San Francisco, in an economic letter titled "What Is the New Normal Unemployment Rate?", has put forward the idea that the new "normal" rate of unemployment for the nation should be considered to be between 5.2% and 6.7%.
Christine Lagarde, the French Minister of the Economy, has proposed that the international community move away from reliance on the dollar and begin using one or more "international currencies". These international currencies would be regulated by the International Monetary Fund. Now, I know some of you are saying "so why should we care what France thinks on the subject?[4]" Well, since France is the current head of the G20, they have a little influence. Maybe the "Amero" is the next step[5].
Borders has filed for bankruptcy today, and plans to close roughly one store in three. Sales have declined by double digit percentages for three years running, liabilities substantially outweigh assets, and nobody's been willing to extend them any credit. Bad news for investors, possibly good news for people who like buying books on the cheap.
And finally, Sanofi-Aventis SA is going to be buying Genzyme for about $20.1 billion in cash, with extra payments based on how well their experimental multiple sclerosis drug does. The deal is expected to close early in Q2..
[1] Everyone else, anyway. I make a spectacular mint-lemon soda and a pretty good grape soda myself.
[2] Yes, billion. With a "b".
[3] Including criminal conspiracy, 30 years of tax evasion, the illegal bypass of required waste water treatments (giving them liability for some 95 Superfund sites), violations of the Clean Air Act, and using Nigerian soldiers to suppress (and by "suppress I mean "shoot") protesters. Oh, and spilling enough oil in African oil wells to prompt Angola to fine the nation.
[4] "They're talking about money, after all. Not surrendering. So what makes them experts?" some of you may add, and you know who you are.
[5] You're welcome, Meeks.

Industrial Production and Capacity

The last major metric moving the morning[1] is industrial production and capacity, a look at how much our[2] factories are producing and how many of our factories are involved in that production. The market likes this because, let's face it, a nation depends on production of actual goods to be competitive and useful in the world. For December, industrial production was up 0.8% and the capacity utilization rate hit a level of 76.0%. The analysts are feeling guardedly optimistic for January, predicting a 0.5% increase in production and the capacity utilization rate rising to 76.3%.
The Federal Reserve, in their report, has chosen to rain on the analyst's parade. On the up side, they revised December industrial production upwards to 1.2%. On the down side, January industrial production actually fell 0.1% while the capacity utilization rate slipped 20 bps to a level of 76.1%. So no real joy there.
[1] Whee! Alliteration!
[2] And by "our" I mean "US".

Producer Price Index News Release

The latest Producer Price Index news release (http://www.bls.gov/news.release/pdf/ppi.pdf) was issued today by the Bureau of Labor Statistics. Highlights are below.

The Producer Price Index for finished goods rose 0.8 percent in January, seasonally adjusted. This advance followed increases of 0.9 percent in December and 0.7 percent in November. The index for finished goods less foods and energy moved up 0.5 percent.

News releases archives: http://www.bls.gov/schedule/archives/all_nr.htm
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Morning Economic Data With 100% Less Showtunes

Let's start off with the Mortgage Bankers' Association Weekly Application Survey which, if you remember, wasn't all that great last week. The composite index fell 5.5%, the purchase index fell 1.4%, and the refinance index fell 7.7%. Now, this index isn't an eagerly awaited one - at best, it is a leading indicator for new home sales and existing home sales - so we have no particular analyst expectations for it. So I won't even attempt to keep you in suspense. The figures for the week ending February 11 were even worse. The composite index fell a seasonally adjusted 9.5%, the purchase index fell a seasonally adjusted 5.9%, and the refinance index fell a seasonally adjusted 11.4%. On the other hand, the average interest rate for 30-year fixed-rate mortgages fell. Granted, it fell a whopping 1 basis point to 5.12%, but you take your wins where you can.
Nevertheless, based on the results of this survey, we look to be on track for a decrease in new and existing home sales for February. And nobody likes that.
On the subject of home sales, let's turn to the US Census Bureau and the US Department of Housing and Urban Development, for New Residential Construction figures. December had a revised 520,000 housing starts (down from the original estimate of 529,000 starts), and the analysts are looking for 540,000 new homes to begin construction in January. And the survey says? Well, the survey says that January had a seasonally adjusted 596,000 new homes begin construction. Of that, 413,000 were single-family homes and 171,000 were buildings with five or more units. Additionally, 562,000 residential building permits were issued and 512,000 residential buildings were completed.
Next on the agenda? The Producer Price Index.December saw it increase 1.1% (or only 0.2% if you restrain yourself to the core PPI). For January, analysts are expecting a 0.7% increase (with the core holding firm at a 0.2% increase). Turning to the Bureau of Labor Statistics, we learn the following from the latest report:
  1. December PPI was adjusted downward to 0.9%
  2. January PPI for finished goods rose 0.8%, missing expectations but not by an enormous amount.
  3. January core PPI for finished goods rose 0.3%, also missing expectation.
  4. January PPI for intermediate goods rose 1.7%.
  5. January PPI for crude goods rose 8.8%.
And what does this tell us? This tells us that the finished goods PPI will most likely be increasing substantially over the next few months. You can't have the cost to produce crude goods increase heavily without those costs getting passed along the production chain. Also, it implies that CPI will be increasing in the next few months. So while the Street may not be too concerned about the figures today, they will be looking towards future figures with concern.
Unless I'm missing something important, which is possible.

Tuesday, February 15, 2011

U.S. Import and Export Price Indexes News Release

The latest U. S. Import and Export Price Indexes news release (http://www.bls.gov/news.release/pdf/ximpim.pdf) was issued today by the Bureau of Labor Statistics. Highlights are below.

The price index for U.S. imports increased 1.5 percent in January, as higher prices for fuel and nonfuel imports each contributed to the advance. U.S. export prices rose 1.2 percent in January, following increases of 1.5 percent in November and 0.6 percent in December.

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Something For Everyone...

Something familiar,
Something peculiar,
Something for everyone:
We've got some store sales,
We've got retail sales,
Something for everyone:
A comedy tonight!
Let's start off with the ICSC-Goldman Store Sales, in which we reflect on last week's major retail chain store sales. The week ending 2/5 saw sales increase 2.2% for the week. And this week - well, the week ending 2/12 - they're fallen 1.4% for the week. But nobody really pays too much attention to this particular metric, except as an indicator for overall retail sales figures, so that's not likely to drive the market around. Not on its own, anyway.
Ah, but retail sales? Now retail sales are huge. If you remember the December figures, they were up 0.6%, or "only" 0.5% ex-auto. The analysts are feeling optimistic, and calling for 0.5% growth in January (with growth still sitting at 0.5% if you strip out auto sales). So that's the analysts. And what does the US Census Bureau think? Well, for the first time in a while, the US Census Bureau is saying that the analysts were a trifle optimistic. The January advance estimate has total (seasonally adjusted) US retail and food service sales for January up 0.3%, while the ex-auto sales were also up 0.3%. Not great, but not terrible either.
Nothing with kings, nothing with crowns;
Bring on the lovers, liars and clowns!
Empire State Survey,
The Redbook measures,
Nothing portentous or polite;
Tragedy tomorrow,
Comedy tonight!
Let's start with the big dog of the pair: the New York Fed's Empire State Manufacturing Survey. This isn't the biggest and most important of these surveys - that honor goes to the Philadelphia Fed's survey - but this is nothing to sneer at. The general business conditions index was at 11.92 for January, and the analysts are expecting that to go up to 15. The survey results beat that handily, rising to 15.4.
The Redbook report, as you may remember, is yet another measure of sales. It pales before the might of the Retail Sales figures we just discussed up above, but it's still something of a leading indicator. And the indications are pretty good. Last week they were largely in agreement with the ICSC-Goldman Store Sales. This week, they deviate - Redbook store sales are up 2.2% (this is a year-over-year figure, though).
Something imported,
Something exported
Something for everyone:
A comedy tonight!
Something in stock,
Something that's not,
Something for everyone:
A comedy tonight!
As a lovely companion to the trade balance figures from last week, we now have the Bureau of Labor Statistics' US Import and Export Price Indexes. Back in December, export prices were up 0.7% for the month and import prices were up 1.1% for the month. Analysts never actually seem to weigh in on this one, so let's skip straight to the January results. The US import price index was up 1.5% for January, while the export price index rose only 1.2%. The import costs were driven by a 3.9% increase in fuel prices. What gains we had in export prices primarily came from agricultural exports, which were up 3.2%.
And business inventories? Well, in November they were up 0.2%. For December (and yes, there is a two month lag on this), the analysts are expecting a 0.7% increase in inventories. Now, before we go on to what actually happened, let's talk briefly about why anyone would care about business inventories. Why do we care? Well, they are serve as an indicator of future production and sales. No company - producer, wholesaler, or retailer - builds up massive inventory supplies without immediate plans to put them to work. So, if inventories are up, the companies with the increased inventories are likely expecting things to improve.
So, back to the US Census Bureau for the December 2010 Manufacturing and Trade Inventories and Sales report. And business inventories are overall up 0.8% from November.
Nothing with gods, nothing with fate;
Weighty affairs will just have to wait!
Nothing that's formal,
Nothing that's normal,
No recitations to recite;
Open up the curtain:
Comedy Tonight!