FOMC Announcement (Late, I Know)

What with all the excitement about Japan, I completely overlooked this yesterday.

First of all, the Federal Open Market Committee voted to maintain the target range for the federal funds rate at 0 to 1/4 percent. No surprise, there. They believe that "the economic recovery is on a firmer footing, and overall conditions in the labor market appear to be improving gradually", but have some concerns because "investment in nonresidential structures is still week, and the housing sector continues to be depressed." They do believe that "longer-term inflation expectations have remained stable, and measures of underlying inflation have been subdued."

They also voted to purchase an additional $600 billion worth of longer-term Treasuries by the end of Q2 2011.

Treasury International Capital Data for January

Treasury International Capital Data for January

WASHINGTON – The U.S. Department of the Treasury today released Treasury International Capital (TIC) data for January 2011. The next release, which will report on data for February 2011, is scheduled for April 15, 2011.

Net foreign purchases of long-term securities were $51.5 billion.

• Net foreign purchases of long-term U.S. securities were $74.3 billion. Of this, net purchases by private foreign investors were $46.2 billion, and net purchases by foreign official institutions were $28.1 billion.
• U.S. residents purchased a net $22.8 billion of long-term foreign securities.

Net foreign acquisition of long-term securities, taking into account adjustments, is estimated to have been $32.1 billion.

Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other custody liabilities decreased $21.4 billion. Foreign holdings of Treasury bills decreased $31.3 billion.

Banks’ own net dollar-denominated liabilities to foreign residents increased $21.9 billion.

Monthly net TIC flows were $32.5 billion. Of this, net foreign private flows were $47.2 billion, and net foreign official flows were negative $14.7 billion.

Complete data are available on the Treasury website at:

www.treasury.gov/resource-center/data-chart-center/tic/Pages/index.aspx

Press Notice For Download

			TIC Monthly Reports on Cross-Border Financial Flows
			(Billions of dollars, not seasonally adjusted)
								12 Months Through
						2009	2010	Jan-10	Jan-11	Oct-10	Nov-10	Dec-10	Jan-11
		Foreigners' Acquisitions of Long-term Securities
1			Gross Purchases of Domestic U.S. Securities			20479.7	24981.2	20851.3	25463.9	2044.3	2517.1	2126.4	2191.7
2			Gross Sales of Domestic U.S. Securities			19840.9	24054.2	20166.7	24499.0	1990.0	2425.0	2053.0	2117.4
3			Domestic Securities Purchased, net (line 1 less line 2) /1			638.9	927.0	684.5	964.9	54.2	92.1	73.4	74.3
4				Private, net /2		511.0	804.7	552.3	810.3	61.7	80.1	62.9	46.2
5					Treasury Bonds & Notes, net	377.0	541.1	425.1	509.6	24.5	50.6	42.8	29.5
6					Gov't Agency Bonds, net	31.4	156.2	37.9	159.1	19.5	12.8	10.0	1.6
7					Corporate Bonds, net	-38.4	-4.9	-55.7	21.2	0.6	2.1	3.4	1.2
8					Equities, net	141.1	112.2	145.0	120.3	17.2	14.6	6.7	13.8
9				Official, net /3		127.9	122.3	132.2	154.6	-7.5	12.0	10.5	28.1
10					Treasury Bonds & Notes, net	161.4	165.5	163.9	181.8	-1.0	11.1	11.9	16.9
11					Gov't Agency Bonds, net	-42.9	-41.2	-38.8	-27.7	-5.3	1.4	-0.7	9.6
12					Corporate Bonds, net	-2.3	0.5	-2.4	-0.3	-0.2	0.7	-0.8	-0.5
13					Equities, net	11.7	-2.5	9.5	0.7	-1.0	-1.3	0.1	2.1
14			Gross Purchases of Foreign Securities from U.S. Residents			5121.4	7326.8	5360.5	7332.3	610.8	604.4	551.8	595.2
15			Gross Sales of Foreign Securities to U.S. Residents			5308.3	7471.9	5544.9	7478.9	637.3	611.3	562.7	618.0
16			Foreign Securities Purchased, net (line 14 less line 15) /4			-186.8	-145.1	-184.4	-146.6	-26.4	-7.0	-10.9	-22.8
17					Foreign Bonds Purchased, net	-127.5	-84.3	-116.6	-72.9	-16.5	2.0	-2.5	-4.7
18					Foreign Equities Purchased, net	-59.4	-60.9	-67.8	-73.7	-10.0	-9.0	-8.4	-18.2
19			Net Long-term Securities Transactions (line 3 plus line 16):			452.0	781.8	500.2	818.3	27.8	85.2	62.5	51.5
20			Other Acquisitions of Long-term Securities, net /5			-204.5	-233.8	-203.8	-237.4	-20.4	-20.5	-24.2	-19.4
21		Net Foreign Acquisition of Long-term Securities
					(lines 19 and 20):	247.6	548.0	296.4	580.9	7.4	64.6	38.4	32.1
22		Increase in Foreign Holdings of Dollar-denominated Short-term
					U.S. Securities and Other Custody Liabilities: /6	-166.8	-70.4	-228.5	-60.3	31.0	-41.2	-47.2	-21.4
23			U.S. Treasury Bills			-7.6	-20.5	-35.7	-7.3	25.5	-22.3	-28.9	-31.3
24				Private, net		-77.8	45.3	-50.7	55.7	-10.4	9.8	8.0	-8.0
25				Official, net		70.2	-65.8	15.1	-63.0	35.9	-32.1	-36.9	-23.4
26			Other Negotiable Instruments
					and Selected Other Liabilities: /7	-159.2	-49.9	-192.9	-53.0	5.5	-18.9	-18.3	9.9
27				Private, net		-121.2	-51.5	-150.3	-58.1	8.0	-15.1	-14.3	7.7
28				Official, net		-38.0	1.6	-42.6	5.1	-2.5	-3.8	-4.0	2.3
29		Change in Banks' Own Net Dollar-denominated Liabilities				-395.1	-197.3	-250.9	-184.8	-22.4	11.2	58.5	21.9
30	Monthly Net TIC Flows (lines 21,22,29) /8					-314.3	280.3	-183.1	335.8	16.0	34.6	49.7	32.5
		of which
31			Private, net			-340.5	360.0	-155.9	392.4	-8.9	75.4	94.8	47.2
32			Official, net			26.2	-79.6	-27.1	-56.6	24.9	-40.8	-45.1	-14.7
/1			Net foreign purchases of U.S. securities (+)
/2			Includes international and regional organizations
/3			The reported division of net purchases of long-term securities between net purchases by foreign official institutions and net purchases
				of other foreign investors is subject to a "transaction bias" described in Frequently Asked Questions 7 and 10.a.4 on the TIC website.
/4			Net transactions in foreign securities by U.S. residents. Foreign purchases of foreign securities = U.S. sales of foreign securities to foreigners.
				Thus negative entries indicate net U.S. purchases of foreign securities, or an outflow of capital from the United States; positive entries
				indicate net U.S. sales of foreign securities.
/5			Minus estimated unrecorded principal repayments to foreigners on domestic corporate and agency asset-backed securities +
				estimated foreign acquisitions of U.S. equity through stock swaps -
				estimated U.S. acquisitions of foreign equity through stock swaps +
				increase in nonmarketable Treasury Bonds and Notes Issued to Official Institutions and Other Residents of Foreign Countries.
/6			These are primarily data on monthly changes in banks' and broker/dealers' custody liabilities. Data on custody claims are collected
				quarterly and published in the Treasury Bulletin and the TIC website.
/7			"Selected Other Liabilities" are primarily the foreign liabilities of U.S. customers that are managed by U.S. banks or broker/dealers.
/8			TIC data cover most components of international financial flows, but do not include data on direct investment flows, which are collected
				and published by the Department of Commerce's Bureau of Economic Analysis. In addition to the monthly data summarized here, the
				TIC collects quarterly data on some banking and nonbanking assets and liabilities. Frequently Asked Question 1 on the TIC website
				describes the scope of TIC data collection.

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Questions? Contact Us

The Potential Economic Impact of Japan

 

The current series of disasters in Japan make it easy to grasp, intuitively, why the markets are so concerned about what has happened.  However, it is not just the human cost that is driving market concerns.  Japan wields considerable economic might and, if it is crippled, the impact will be felt around the globe.  Here are some facts, to help put that impact in perspective:

• Japan has the fourth largest economy on Earth, with GDP in terms of purchasing power parity[1] is  $4.338 trillion.  The United States, by way of comparison, is number two (GDP is $14.83 trillion, using the same calculations).
• Public debt[2] is at 225.8% of GDP.  The US, for all our concerns about public debt, is currently at 58.9% of GDP.
• Japan owns, as of January 2011, $885.9 billion in US Treasury Securities, meaning they hold about 10% of the US public debt.
• Growth rate of industrial production was at 15.5%, giving them the third fastest growth rate in the world.
• They imported $636.8 billion in 2010, making them the fifth largest importer in the world.  10.96% of their imports come from the United States.  Most of those exports are transportation equipment, motor vehicles, semiconductors, electrical machinery, and chemicals.
• They exported $765.2 billion in 2010, making them the fifth largest exporter in the world.  16.42% of their exports go to the United States.
• Their population is about 126.5 million people, making them the tenth most populous nation on Earth.

Not to belabor the data, but consider the impact of a substantial cut in Japanese exports or imports (or both).  Or of Japan defaulting on some of their public debt.  Or of Japan being unable or unwilling to purchase additional US debt.  Now, given their position as the fourth largest economy on the planet, and as the fifth largest importer and exporter on the planet, imagine how many other nations are considering similar problems.

 

That, in a nutshell, is why the markets are terrified about the potential impact of these natural disasters on Japan.

 

All data was drawn from either the CIA World Factbook:  Japan or from Major Foreign Holders of Treasury Securities.

 

[1]  GDP in terms of purchasing power parity is a nation's GDP calculated using prices prevailing in the United States.  Economists like this method because it is an attempt to do apples to apples comparison.

[2]  Public debt is government debt owned by non-government domestic institutions plus government debt owned by foreign entities minus government debt repayments . 

Import and Export Prices

So, what do we have here?  This is a report, prepared by the US Bureau of Labor Statistics, showing the change in prices paid for imported goods and prices received for exported goods, on both a monthly and year-over-year basis[1].  It's not a huge market mover, but traders do like looking at it.  If nothing else, it can help gauge the direction that the US trade balance will move and the growth of GDP.

 

January saw a 1.2% monthly increase in export prices and a 1.5% monthly increase in import prices.  Year over year, we saw export prices increase 6.8% and import prices increase 5.3%.  The fact that export prices were rising faster than import prices implies a strengthening dollar, increasing exports, decreasing imports, or any combination thereof.  Regardless of which factor or set of factors are the cause, however, it indicates that GDP may be strengthening[2] and/or our trade deficit may be shrinking.

 

Anyway though, enough with the soapbox explanations.  Let's get to the data.  The Bureau of Labor Statistics is reporting that, for February, import prices rose 1.4% for the month while exports rose 1.2% for the month.  This puts us at an overall 6.9% year-over-year increase in import costs, while export revenue increased 8.6%.  On the down side, fuel import costs increased 4.0% for the month (up from January's 3.5%), with a 18.6% year-over-year increase.

 

Still, what with Egypt and Libya (and Bahrain, and Saudi Arabia, and so on and so forth), nobody is particularly surprised by that fuel import jump.

 

[1]  Yes, this is a case in which the name of the report really does tell you what to expect.

[2]  We have to produce our exports, after all.

U.S. Import and Export Price Indexes News Release

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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.
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U.S. import prices rose 1.4 percent in February, following a similar 1.3 percent advance in January. The price index for U.S. exports increased 1.2 percent in February, after rising 1.3 percent the previous month. Higher agricultural and nonagricultural export prices each contributed to the overall advance in February.

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Empire State Manufacturing Survey

The is is the New York Fed's monthly survey of business conditions for manufacturers in New York State.  The Empire State Manufacturing Survey isn't seen as being as important as the Philadelphia Fed Survey, mostly because it is more tightly focused than the Philadelphia Fed Survey, but it is still an important indicator of manufacturing trends.

 

For February, the level of the General Business Conditions Index was 15.43, a 3.5 point increase from January.  The Econoday-surveyed analysts are expecting to see a further increase, with the level rising to 16.0.  And how did we actually do?  Well, the New York Fed is reporting that the general business conditions beat expectations, rising to a level of 17.5.  The New Orders index fell 5.99 points to 5.81, however, and the shipments index fell 9.69 points to 1.62.

 

Turning to the expectations index, which surveys what businesses think will be happening six months from now, the general business conditions index fell 0.05 points to a level of 49.35 (which is a hardly noticeable change).

ICSC-Goldman Store Sales

We're starting the morning off with a quick look at retail sales figures for major chain stores.  Last week, the week ending 3/5, the figures were mixed.  Weekly sales had improved substantially (up 2.3%), but the year-over-year sales were only up 2.6% (a decline from the previous week).

 

Moving into the week ending 3/12, Econoday is reporting another week of mixed results.  Week-over-week sales were up a paltry 0.1%, while year-over-year sales are up a robust 3.1%.  They also say that the report shows an increase in drug store and discount store sales, while sales declined at clothing and department stores.