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Archive for February, 2015
 
Economic Advisor: February 25, 2015
February 25, 2015


 

Last week’s economic headlines were a mixed bag, with producer prices and new home construction falling, while layoffs declined further than analysts had expected.

Producer Price Index

Producer prices witnessed their biggest decline since 2009, as cheap oil dragged the producer price index for final demand — the prices that businesses get for their goods and services — down by 0.8 percent in January, according to last week’s report from the Bureau of Labor Statistics.

The decline in final demand prices was led by the index for gasoline, which fell a whopping 24 percent, the Bureau reported. Prices for diesel fuel, jet fuel, basic organic chemicals, and home heating oil also fell.

January’s drop marked the third-straight monthly drop in PPI for final demand. Should the drop lend any credibility to jitters over possible deflation? Not according to Ian Shepherdson, chief economist for Pantheon Macroeconomics.

“It’s absolutely not going to happen,” Shepherdson told the Wall Street Journal. “You need to have a broad decline in prices, and at the moment we absolutely do not have that by any stretch of the imagination.”

Housing Starts

New home construction fell in January, with starts on construction of homes of all types dropping 2 percent to an annual rate of 1,065,000, the Census Bureau reported last week. Starts on single-family homes fell a sizable 6.7 percent to an annual rate of 678,000.

Building permits issued for construction of private housing also declined, dipping 0.7 percent to an annual rate of 1,053,000. Permits for single-family homes dropped 3.1 percent to an annual rate of 654,000.

A key contributor to the attenuation in new home construction would be factors preventing first-time buyers from entering the market, such as student debt and rising prices. That said, increased employment — and hopefully future improvement in wages — will improve new home construction.

“We’re getting there, though gradually,” First Trust Portfolios LP deputy chief economist Robert Stein told Bloomberg. “We see the housing recovery continuing this year. It’ll be choppy, but we’ll see consistent improvement over the previous year.”

Initial Jobless Claims

First-time claims for unemployment benefits filed by the newly unemployed fell below expectations, after lay-offs saw an equally unexpected rise the week before.

Initial jobless claims filed during the week ending Feb. 14 fell to 283,000 claims, a drop of 21,000 claims from the preceding week’s level of 304,000, the Employment and Training Administration reported last week. Last week’s jobless activity outperformed analysts’ expectations of a smaller drop to 295,000 claims.

The four-week moving average, considering a more stable gauge of lay-off activity, dropped to 283,250 claims, a decline of 6,500 from the preceding week’s average of 289,750.

“It appears that once we come out of the Veterans Day to Presidents Day fog bank, when the individual readings tend to be prone to gyrations, we may settle at a pace of layoffs consistent with where we were before mid-November,” Amherst Pierpont Securities chief economist Stephen Stanley wrote in a public statement.

This week, we can expect:

  • Monday — Existing home sales for January from the National Association of Realtors.
  • Tuesday — Consumer confidence scores for February from The Conference Board.
  • Wednesday — New Home sales for January from the Census Bureau.
  • Thursday — Initial jobless claims for last week from the Employment and Training Administration; January consumer price index from the Bureau of Labor Statistics; durable goods orders for January from the Census Bureau.
  • Friday — The Bureau of Economic Analysis’ second GDP estimate for the fourth quarter of 2014; consumer sentiment for January from the University of Michigan and Thomson-Reuters Survey of Consumers.

Posted in Economic Advisor



Economic Advisor: February 18, 2015
February 18, 2015


 

Retail sales took a tumble, while low petroleum prices tempered wholesale inventory growth, and initial jobless claims experienced a significant bump.

Retail Sales

The big news last week was that retail sales fell 0.8 percent in January, the second month in a row in which retail transactions dipped, according to numbers released by the Census Bureau last month. Retail and food services transactions for January totaled $439.8 billion, which while down from December, was still 3.3 percent higher than January 2014.

Looking at notable retail sectors, incredibly low prices at the pump saw gasoline sales fall a whopping 9.3 percent; sporting goods, hobby and book sales dropped 2.6 percent; and motor vehicle dealers took a 1 percent hit. Meanwhile, sales for food and drink services grew 0.8 percent and building material and garden supplies were up 0.6 percent.

Despite cheap gas prices and December’s gains in personal incomes, consumers simply weren’t spending as much, which led many economists to suggest that Americans might be using their cash to pay down debts or save more (personal savings did grow in December). At present, two months’ contraction doesn’t constitute a solid trend.

“Should we be worried about the weakness of underlying sales over the past two months? Possibly,” Capital Economics U.S. economist Paul Ashworth told Reuters. “But all the conditions are in place for a period of very strong consumption growth. We still expect to see that strength come through in the retail sales data soon.”

Wholesale Inventories

Total inventories of merchant wholesalers grew .01 percent to hit $547.6 billion in December, the Census Bureau reported last week. While the data takes longer to produce and might seem a little dusty, wholesale inventories are a key economic data point because they indicate whether or not the supply-side of the economy is anticipating growth. Compared to the previous year, wholesale inventories were up 6.7 percent from December 2013.

While inventories were up, the growth was lower than projections, and the key reason for that came down to one word: oil. Low crude oil prices reduced the value of petroleum stocks, which in turn reduced the inventories. The Bureau reported that January’s inventories of petroleum and petroleum products were down 6.2 percent from previous month.

Meanwhile, sales for merchant wholesalers dropped 0.4 percent in January, falling to $449.8 billion. Once again, oil was a key component with sales of petroleum and petroleum products falling 13.7 percent. This put December’s wholesale inventories-to-sales ratio at 1.22, compared to December 2013’s ratio of 1.16.

Initial Jobless Claims

First-time claims for unemployment benefits filed during the week ending Feb. 7 grew to 304,000, an unexpected and sizable gain of 25,000 claims from the previous week’s revised level of 279,000 claims, the Employment and Training Administration reported last week. Job market watchers had expected claims to grow to only 285,000.

The Administration did not note any special factors related to the increase, but some analysts said cold weather could be a contributor and warned not to regard a single week’s activity as a trend.

“Initial unemployment insurance claims are often volatile in the winter due to bad weather and holidays,” PNC Financial Services Group economist Gus Faucher told the Wall Street Journal. Faucher added that in reviewing past weekly lay-off activity, the claims totals were “consistent with job growth of better than 200,000 per month.”

Bearing that in mind, the four-week moving average — considered a more stable measure of lay-offs — dropped to 289,750 new claims, a decline of 3,250 claims from the previous week’s revised average of 293,000. This kept average claims activity comfortably below the 300,000-claim mark.

This week, we can expect:

  • Wednesday — Housing starts and building permits for January from the Census Bureau; January producer price index from the Bureau of Labor Statistics; industrial production and capacity utilization for January from the Federal Reserve.
  • Thursday — Initial jobless claims for last week from the Employment and Training Administration; leading economic indicators for January from The Conference Board.

Posted in Economic Advisor



Economic Advisor: February 11, 2015
February 11, 2015


 

Last week’s voluminous economic headlines featured a mixed bag of gains in personal incomes and consumer credit, while consumer spending dipped, the unemployment rate saw a slight increase, and layoffs increased as well.

Unemployment

Let’s start with the unemployment news: The economy added 257,000 jobs in January, while unemployment rate for January ticked up by a tenth of a percent to 5.7 percent for the month, according to last week’s Bureau of Labor Statistics report. Also, hourly earnings went up 12 cents to an average of $24.75 for the month.

So why did the unemployment rate go up while the economy actually added jobs? The answer is that more employable people were joining the job market. The Bureau’s civilian non-institutional population, which is a fancy way of saying, “all employable Americans”, grew by 696,000 people to hit 249,723,000.

Moreover, the labor force participation rate, which describes the number of employable Americans either with a job or looking for one, increased by 0.2 percent to 62.9 percent, while the number of discouraged workers (out-of-work Americans who have given up on hunting for a job) dropped to 682,000, which was down 155,000 people from the same period a year ago.

The net-net is that employment is on good enough an upswing and more workers want in on an economy that has added 1 million jobs since November.

“These are pretty amazing numbers,” IHS Inc. Chief Economist Nariman Behravesh told Bloomberg. “The January number is strong, but then you’ve got sizzling November and December numbers too. And then you’ve got the wage gains.”

Initial Jobless Claims

First-time claims for unemployment benefits filed by the newly unemployed saw a moderate gain after a massive plummet from two weeks ago. Initial jobless claims for week ending Jan. 31 grew to 278,000, a gain of 11,000 claims from the preceding week’s total of 267,000, the Employment and Training Administration reported last week.

The four-week moving average, considered a more reliable measure of lay-off activity, dipped to 292,750, a decline of 6,500 claim from the prior week’s revised average of 299,250.

Incomes and Spending

Personal incomes grew by 0.3 percent to hit $41.3 billion, as did disposable personal income (DPI; income after taxes), which increased 0.3 percent $35.8 billion, according to last week’s report from the Bureau of Economic Analysis. Meanwhile, personal consumption expenditures (PCE; consumer spending) dropped $40.0 billion, or 0.3 percent.

Meanwhile, personal saving — DPI less PCE, personal interest payments, and personal current transfer payments — grew to $643.2 billion in December from $568.2 billion in November. Similarly, the personal saving rate — personal saving as a percentage of DPI — grew 4.9 percent in December, compared with 4.3 percent in November.

“Consumers appear to be saving most of their recent windfall from lower gasoline prices,” PNC Financial Services Group senior economist told Morningstar. “However, consumer spending growth will be solid in 2015 thanks to more jobs, higher wages, and lower energy costs. Households will be able to both spend more and save more this year.”

Consumer Credit

Last but not least, consumer credit grew by 5.4 percent in December to hit a total of $3.3 trillion, a $14.7 billion gain, the Federal Reserve reported last week.

Encouragingly, the big gain was in revolving debt, such as credit cards, which grew 7.9 percent to $887.9 billion. This showed an increased willingness on the part of Americans to use credit cards for their spending. Meanwhile, non-revolving debt, such as student and car loans, showed a healthy 4.5 percent increase to reach $2.4 trillion for the month.

This week, we can expect:

  • Tuesday — Wholesale inventories for December from the Census Bureau.
  • Wednesday — January budget from the Treasury Department.
  • Thursday — Initial jobless claims for last week from the Employment and Training Administration; retail sales for January and business inventories for December from the Census Bureau.
  • Friday — January important and export prices from the Census Bureau and the Bureau of Economic Analysis.

Posted in Economic Advisor



Economic Advisor: February 04, 2015
February 4, 2015


 

New home sales enjoyed a solid surge in December, lay-offs plummeted to a 15-year low, and consumers are feeling upbeat.

New Home Sales 

New home sales jumped to a six-year high in December with sales of new single-family homes hitting an annual rate of 481,000, according to last week’s report from the Census Bureau and the Department of Housing and Urban Development. This marked an 11.6 percent gain over November’s revised rate of 431,000 and an 8.8 percent increase from December 2013’s estimate of 442,000.

Looking at price, the median sales price of new homes sold in December was $298,100; the average sales price was $377,800. In terms of inventory, the estimated number of new homes for sale at the end of December was 219,000, constituting a 5.5-month supply at the December’s sales rate.

Looking at year-end performance, an estimated 435,000 new homes were sold in 2014, which was 1.2 higher than 2013’s total of 429,000.

“On the whole, the combination of lower mortgage rates and solid labor market activity appear to have ignited a meaningful pick-up in sales activity,” Millan Mulraine, deputy head of U.S. research and strategy at TD Securities, wrote in a public statement. 

Initial Jobless Claims

After a couple weeks of increases, initial jobless claims plummeted to a 15-year low. First-time claims for unemployment benefits filed by the newly unemployed during the week ending Jan. 24, plunged to 265,000, a decline of 43,000 claims from the preceding week’s revised level of 308,000, the Employment and Training Administration reported last week. This is the lowest level for initial jobless claims since April 15, 2000 when it was 259,000.

The four-week moving average, considered a more stable measure of lay-offs, dropped to 298,500, a decline of 8,250 claims from the prior week’s revised average of 306,750.

“The labor market’s in good shape going into 2015 and looks like it will be in good shape for the rest of the year,” RBS Securities Inc. economist Guy Berger told Bloomberg.

Consumer Confidence 

With good news in housing and employment, consumer opinions on the economy were looking more optimistic. The Conference Board’s Consumer Confidence Index shot up to 102.9 January from December’s already encouraging 93.1 (a baseline of 100 was set in1985).

“Consumer confidence rose sharply in January, and is now at its highest level since August 2007 (Index, 105.6),” said Lynn Franco, director of economic indicators for The Conference Board. “A more positive assessment of current business and labor market conditions contributed to the improvement in consumers’ view of the present situation.”

The Present Situation Index, which describes how consumers feel about current economic conditions grew to 112.6 in January from 99.9 December. The Expectations Index, which describes how consumers feel the economy will fare in the near future, increased to 96.4 from 88.5.

This week, we can expect:

  • Monday — Personal incomes and spending for December from the Bureau of Economic Analysis; construction spending for December from the Census Bureau.
  • Tuesday — December factory orders from the census Bureau; car and truck sales for January from the auto manufacturers.
  • Thursday — Initial jobless claims for last week from the Employment and Training Administration; the December balance of trade from the Census Bureau; preliminary fourth quarter labor productivity scores from the Bureau of Labor Statistics.
  • Friday — December consumer credit from the Federal Reserve; January unemployment rate, payrolls, earnings and workweek from the Bureau of Labor Statistics.

Posted in Economic Advisor



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