And, On The Heels Of That, More Domestic Economic Data Than You Can Shake A Stick At!

The United States, not to be outdone by its European relatives, has a massive stack of economic data coming out today as well.  CPI, Retail Sales, Industrial Production, and Consumer Sentiment.

 

Starting with the CP, the Street is expecting to see a 0.4% increase for December (up 30 bps), with the "core"[1] unchanged.  According to the Bureau of Labor Statistics report, CPI is actually up a seasonally-adjusted 0.5% for the month (and a unadjusted 1.5% for the year).  Food prices were up only 0.1% for the month (1.5% for the year) and energy prices were up 4.6% for the month (7.7% for the year) but, since they don't really count[2], you'll be gratified to know that "core" CPI only increased 0.1%.  So, even though an average 24.6% of your budget saw a 7.7% increase in costs, you'll be gratified to know that you didn't really see all that much change in your living expenses[3].

 

So, on to Retail Sales, where the Street - feeling optimistic on the preliminary good news about the holiday season - is expecting to see a 0.8% increase in sales for December (with a 0.7% increase even taking out auto sales).  The results?  Well, according to the US Census Bureau, they really weren't as good as hoped for.  Seasonally adjusted, retail sales were up only 0.6%[4] for December (6.6% for the year).  Ex-auto, sales were up only 0.5% for the year.

 

So far, not so good.  Maybe Industrial Production will be better.  The Street is looking for a 0.5% increase for December, with a capacity utilization rate of 75.6% (a mildly optimistic 40 bps improvement).  The actual data comes to courtesy of the Federal Reserve, where we learn that we have a 0.8% increase, handily beating expectations.  For the year, industrial production is up 5.9%.  And capacity utilization?  That's at a level of 76%, also handily beating expectations.

 

That was a nice bright spot.  Let's see if Consumer Sentiment continues the trend.  December 2010 consumer sentiment was at 74.5%, and the street is looking for a 50 bps improvement to 75.0%,  The actual data is out (but not yet up on the web site), showing that consumer sentiment shrank to 72.7%.  Ouch.

 

[1]  Again, don't get me started.

[2]  Volatility, don't y'know.  Skews the results, don't y'know.  Can't be trusted, dashed blighters.

[3]  I got started, didn't I?

[4]  With a margin of error of +/-0.4%, so that could actually be anywhere from 0.2% to 1.0%.

International Metrics!

Let's start the cavalcade of international data off with Japan, where their Corporate Goods Price Index (think PPI, here) was up 30 bps to close out at a 0.4% increase for the month of December.  This means that, even though analysts were expecting to see 2010 CGPI to finish with a 0.8% increase, Japan has actually experienced a 1.2% increase for the year.  On average.  Petroleum & coal products were up 7.8% for the year and nonferrous metals were up 10.9% for the year, while information and communications equipment were down 5.8% for the year and electronics components & devices were down 3.7% for the year.

 

Hopping across the Sea of Japan to China, we find not so much economic data as economic news.  Chinese fund managers are gearing up for a series of sweeping regulatory reforms that will simplify the approval process for launching new funds, and will allow employees of fund firms to own stakes in their own companies (which is seen as giving fund managers extra incentive to perform, since their money is at stake as well).  They also plan to crack down harder on insider trading.  Despite this latter reform, international firms are nearly as excited about the changes as Chinese firms, as it will most likely allow increased international competition in China.

 

Bypassing the wastelands of Central Asia and the Middle East, we turn our attentions now to Europe.  Germany has released CPI figures for December and the end of the year, and they're right in line with expectations.  December saw a 1.0% monthly increase, with a 1.7% increase for the year - exactly what analysts were expecting to see and utterly unchanged from November.

 

Italy has joined it's one-time ally in releasing CPI data, and is "me tooing" the German "right in line with expectations" results.  For December CPI was up 0.4%, up 1.9% for the year - again, exactly what analysts were expecting to see and utterly unchanged from November.

 

Even the European Union is climbing on the CPI bandwagon, with HICP (Harmonized Index of Consumer Prices) coming in at 0.6% for December and 2.2% for the year.  This is exactly what analysts were expecting to see but, in a dramatic change of pace after Italy and Germany, December HICP was up 50 bps.

 

Ah, but CPI is not the only thing Europe has on its collective mind this morning.  Swiss PPI jumped 50 bps in December to close at a 0.3% increase (missing expectations by 10 bps), with PPI for 2010 also wrapping up with a 0.3% increase - not too shabby in terms of actual inflation, but still missing expectations for the year by 10 bps.

 

Great Britain overachieves on reporting PPI, looking at actual changes in input costs[1] as well as the change in output prices.  For December and for the year, output prices were up 10 bps.  The December output price increase was 0.5% (missing expectations by 10 bps), and for 2010 output prices were up 4.2% (missing expectations by 20 bps).  Input price changes were far more brutal for producers.  December input prices jumped 250 bps to finish up at 3.4% (missing expectations by 190 bps), while for the year input prices jumped 320 bps to wrap up at a 12.5% increase (missing expectations by 230 bps).  I have really only two things to say about that:

1. Ouch.  And,
2. Look for British output prices to work upwards in the next few months, as British producers look to keep profit margins from shrinking.

Finally, let's talk about European trade deficits.  Italy's trade deficit widened by E300 million to finish at E2.95 billion for November 2010.  The European Union as a whole saw their trade surplus shrink by E5.4 billion which, given that they only had a E3.5 billion surplus, means that they ended up with a E1.9 billion trade deficit.  This beat expectations, but only in the sense that a group of football hooligans and lager louts mobbed expectations and ended the experience screaming at the expectations to "bite the curb!" before stomping on the back of the expectation's head[3].

 

[1]  That is, the change in the cost of the raw materials and fuel used by the producer - although, given the current fetish for "core" figures, I'm surprised they actually use fuel and energy costs in calculating this.

[2]  This, on the other hand, measures the change in the prices asked for the goods the producer produces.

[3]  A colorful and roundabout way of saying that analysts were expecting to see the trade surplus shrink, but remain a E1.9 billion surplus.

National "Pat Robertson Should Shut Up" Day

A year ago yesterday, a magnitude 7.0 earthquake devastated the nation of Haiti. A massive outpouring of international aid was the result.

A year ago today, a massive gusher of racism and hatred struck the nation of Haiti.


Mr. Robertson, on behalf of the portion of the world that isn't a collection of small-minded bigots that profit on misery and hatred, let me just say (and encourage everyone else to join me in saying):

"Shut up. We're sick of you and your ilk."

Where is George Takai when you need him?

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 1.1 percent in December 2010, seasonally adjusted. This advance followed increases of 0.8 percent in November and 0.4 percent in October. The index for finished goods less foods and energy moved up 0.2 percent.

-------------------------------------------------------------------------
News releases archives: http://www.bls.gov/schedule/archives/all_nr.htm
To subscribe or unsubscribe to BLS news releases please visit http://www.bls.gov/bls/list.htm
For help, email news_service@bls.gov
-------------------------------------------------------------------------

What's Happening At Home?

The short answer is:  we're unemployed, business costs are up, and we're running a significant (but mildly improved) trade deficit.  Hooray?

 

First off, the US International Trade Balance.  In October, we had a revised trade deficit of $38.4 billion.  There is no real optimism on the Street that this will improve - the consensus is that the trade gap will grow to $41.0 billion.  And the results?  According to the US Bureau of Economic Analysis the trade deficit actually shrank to only $38.3 billion, a $100 million improvement that also beats expectations by a substantial amount[1].  Drilling down a little, we see that:

• The goods deficit increased $100 million
• The services surplus increased $200 million
• The not-SA advanced technology deficit was $11.2 billion,(a $1.6 billion increase)
• We have a trade surplus with Hong Kong, Australia, Singapore, and Egypt.
• We have a trade deficit with China, the EU, OPEC, Japan, Mexico, Germany, Ireland, Canada, Nigeria, Venezuela, Korea, and Taiwan.

Moving on to the Producer Price Increase, there is little optimism there either.  The Street is looking for a 10 bps increase for December (to a 0.9% increase), with "core"[2] PPI decreasing 10 bps to a level of 0.2%.  The Bureau of Labor Statistics has covered for this one, reporting that the PPI actually increased 30 bps to 1.1% (ouch), with "core" CPI decreasing to the expected 0.2%.  Here's the highlights;

• Food production costs increased 0.8% for the month.
• Energy production costs increased 3.7% for the month.
• For the year, the cost to produce finished goods increased 4.0%
• Production costs for intermediate goods and components increased 1.0%.
• Production costs for crude goods and raw materials increased 4.0% for the month.[3]

And then, just when you thought things couldn't get any worse, we have the First Time Jobless Claims report.  If you recall, the week ending 1/1 had surprisingly good news - only 409,000 people (SA) filed for unemployment.  The Street is feeling optimistic on that news, and is calling for a further decline to only 405,000 new first time claims.  Unfortunately, the US Department of Labor is a dash of cold water to the face of that optimism.  We've got a seasonally adjusted 445,000[4] first time claims for the week ending 1/8, up 35,000 from the revised 1/1 figure of 410k first time claims.  And the details?

• Not seasonally adjusted, 9,193,838 people were receiving unemployment insurance benefits as of the week ending 12/25/2010, up 422,523 from the previous week.[5]
• Only two states saw UI claims decrease by more than 1000, while 14 saw UI claims increase by more than 1000.

 

[1]  $2.7 billion, to be precise.  A hit!  A palpable hit!

[2]  Just... just don't get me started.

[3]  Expect to see January and/or February PPI increase on that bit of news.

[4]  The number of actual claims filed was 770,413.  So both the trend and the actual situation are terrible.

[5]  I guess they got to keep Christmas by losing their situations?

What's Happening Abroad?

Everything.  Everything is happening abroad.

 

Let's start with the antipodes, where Australia has released it's Labor Force Survey.  This is, in essence, the Australian equivalent of the US Employment Situation, and it's mixed.  Employment only increased by 2300[1] (missing expectations by 27,700), but the unemployment rate dropped 20 bps to 5.0$ (also beating expectations by 20 bps).  On the down side, the indications seem to be that this decline in the unemployment rate was mostly due to people falling into the "marginally attached" category, so it's not really a cause for celebration.

 

Spinning westward to Europe, we find that France released its December CPI at 1:30 AM EST, and the news is not good there either.  CPI increased 40 bps for the month to end up 0.5% (missing expectations by 10 bps), with 2010 CPI finishing at 1.8% (missing expectations by 10 bps).

 

Escaping from Dunkirk and coming ashore on the British Isles, where even though large tracts of Europe and many old and famous States have fallen or may fall into the grip of the economic downturn, they shall not flag or fail.  Specifically, Great Britain has released Industrial Production figures for November and the Bank of England has decided what they will do with the official interest rates and their quantitative easing ceiling.  The industrial production figures are a respectable, if slightly disappointing 60 bps increase to close at 0.4% (which still missed expectations by 30 bps).  Manufacturing output remained stable at 0.6% growth, beating expectations by 10 bps.  Meanwhile, the BOE has decided (to nobody's surprise) to leave their official interest rate unchanged at 0.5% (with the QE ceiling at £200 billion).

 

Crossing back across the English Channel to push across France, we arrive in Frankfurt, Germany, where the European Central Bank has, to nobody's great surprise, also left their benchmark rate unchanged at 1.0%.

 

[1]  That's 1700 full time jobs and 600 part time jobs.

The Beige Book, Honey Laundering, And Fiduciary Standards

The Fed's Beige Book is out for January, providing an insight into some of the economic data that will drive Fed decisions about interest rates and other stimulus activities at the next FOMC meeting.  And right now, that insight seems to point towards more of the same.  Here's some highlights from the summary:

• Economic activity expanded moderately from 11/2010 through 12/2010.
• Conditions were better for manufacturers, retailers, and nonfinancial service than it was for financial services or real estate.
• Manufacturers selling into the construction sector remained weak in the Boston, Atlanta, and Dallas districts.
• Retailers did extremely well, thanks to the holiday season.
• Retailers and manufacturers indicate that costs are rising, but competitive pressures are minimizing cost pass-through into final prices.
• Most businesses are cautiously optimistic about the future, and businesses in the St. Louis, Minneapolis, Kansas City, and San Francisco Districts plan to increase hiring. The Philadelphia District, on the other hand, sees conditions improving but not strong growth for 2011.
• Production levels are high and/or increasing, although Philadelphia District manufacturers describe the flow of new orders as "erratic".
• The Boston, Cleveland, and San Francisco Districts are concerned about rising input prices.
• Automobile sales were up in eight districts, and tourism was strong in six districts.
• Residential real estate and new home construction was weak across all Districts, mostly on concerns about the pace of economic recovery (particularly employment).  the Philadelphia, Atlanta, and Chicago Districts also cited trouble in obtaining credit as a constraint on demand.
• Loan demand was down in three Districts, with an increase in only one District.  Credit quality is reported as improving across all Districts.
• Agricultural production was weak, mostly on the fact that it's winter out there, and output prices were up.
• Labor markets are firming, but with no real upward pressure on wages.  Three Districts (Cleveland, Richmond, and Atlanta) reported plans to increase work hours instead of hiring.

In non-market news, the US government has essentially subpoeaned 600,000 people in regards to WikiLeaks.

 

Rising food prices are driving a new crime with a vaguely familiar name:  honey laundering.

 

The European Union is in talks with the International Monetary Fund to put together a package to solve Europe's debt crisis.  No specific word on what the package would be, but it seems to include an increase in the lending ability of the bailout fund (which can only lend E250 billion).

 

The SEC is getting ready to release a study on the regulation of investment advisers, looking at the possibility that they should be overseen by a self-regulatory group such as FINRA (this could be out on Friday), and a second (due January 21) that explores the imposition of a uniform fiduciary standard for brokers and investment advisers offering advice to retail customers.  Both have potential for significant industry impact, but the second will - if implemented - have the most significant impact.  It would eliminate the lower suitability standard that non-advisor brokers have, that only requires them to offer "suitable" products.  Advisors, held to a fiduciary standard, must actually act in the best interests of the client.  Look for excitement in this regard in the next few months.