Friday, February 26, 2010

University of Michigan Consumer Sentiment Index Down 0.8 Point

In February, the University of Michigan Consumer Sentiment Index fell slightly by 0.8 point to 73.6. Despite the decline, this was still the second highest month since recover began. The index has now topped its recent high in September. The decline was entirely due to the future expectations component, which fell 1.7 points. The current conditions component rose 0.7 point.

Inflation expectations fells lightly. Looking forward one year, expectations fell to 2.7 percent from 2.8 percent in January. The five-year outlook fell to 2.7 percent, down from 2.9 percent in January.

1966 = 100 Feb Jan Dec Nov Oct Sep
Headline Index 73.6 74.4 72.5 67.4 70.6 73.5
Current Conditions 81.8 81.1 78.0 68.8 73.7 73.4
Future Expectations 68.4 70.1 68.9 66.5 68.6 73.5

10.02.26 (Source: University of Michigan)

GDP Growth Revised Upward To 5.9 Percent – Growth Still Primarily Due to Inventory Accumulation

Growth in GDP for the fourth quarter was revised up slightly to 5.9 percent at an annualized rate compared to 5.7 percent first reported. The revision was due to increases in exports, inventories and business investment. This offset an upward revision to imports and a downward revision to consumption. Growth was strong in the fourth quarter; however, the bulk of the expansion was still due to inventory accumulation by businesses, which added 3.9 percent to growth. Though this adds to output, it is largely temporary in nature as final demand for goods and services have not grown as greatly. Real final sales, which excludes inventories, and therefore measures demand for US output grew by a lesser 2.0 percent annualized. Until this number grows higher, recovery will remain modest.

annualized % change Q4 2009 Q3 2009 Q2 2009 Q1 2009 Q4 2008 Q3 2008
Real GDP 5.9 2.2 -0.7 -6.4 -5.4 -2.7
% contribution to real GDP

    Consumption 1.2 2.0 -0.6 0.4 -2.2 -2.5
    Fixed Investment 0.8 -0.2 -1.7 -6.6 -3.3 -1.3
        Residential 0.1 0.4 -0.7 -1.3 -0.8 -0.6
        Non-Residential 0.6 -0.6 -1.0 -5.3 -2.5 -0.7
    Inventories 3.9 0.7 -1.4 -2.4 -0.6 0.3
    Government -0.2 0.6 1.3 -0.5 0.2 1.0
    Net Exports 0.3 -0.8 1.7 2.6 0.5 -0.1

10.02.26 (Source: Bureau of Economic Analysis)

Existing Home Sales Fall 7.2 Percent; Median Sales Price Down 3.4 Percent

In January, existing homes sales slid back 7.2 percent to an annualized pace of 5.05 million units. This was the second consecutive large drop and now places the sales pace at the lowest its been since last June. Sales had grown quickly over the summer months, greatly aided by the home buyer tax credit. However, as the effects of the credit wore off, sales fell back down. It would appear at this point a good amount of the new sales generated over the summer were simply a temporal shift, increasing demand then at the expense of sales currently. The percent of purchases that were done by first time buyers fell to 40 percent, the lowest since last summer. Still from a year prior, sales were up 7.0 percent.

With this drop in the pace of sales, the supply of inventory rose to 7.8 months from 7.2 months. The supply of inventory will have to continue to decline before prices can be certain to have bottomed out. Over the month the median sales price fell 3.4 percent to $164,700. From a year prior, prices were down 4.7 percent.

Sales (mil. annualized)5.05 5.44 6.49 5.98 5.60 5.10
    M/M % Change-7.2-
Median Price (‘000s)$164.7$170.5$170.0$172.0$175.9$177.2
    M/M % Change-3.40.3-1.2-2.2-0.7-2.3
Months Supply7.

10.02.26 (Source: National Association of Realtors)

Wednesday, February 24, 2010

New Home Sales Plunge 11.2 Percent; Prices Down 7.5 Percent

In January, new home sales fell 11.2 percent to an annualized pace of 310,000 units. This was the fifth decline out of the past six months. This followed a general upward trend that peaked last summer. The sales pace in January was the lowest on record (past 47 years) surpassing the recent low of last January. The drop-off over the month was likely due in part to the continuing declining effect of the homebuyer tax credit coupled with greater competition from foreclosures and fire sales. Sales were also likely driven down due to the worse than normal weather through much of the country. From a year prior, sales were down 6.0 percent.

The median sales price fell 7.5 percent, following a smaller decline of 0.5 percent in December. However, even with this large monthly decline, prices were up 4.5 percent from a year prior.

At the current sales pace, the months supply of inventory of homes for sale rose to 9.1 from 8.0. The ratio had been falling steadily through October; however this has moderated over the past three months as sales have declined. Before new home prices solidly form a bottom, it is likely that the inventory ratio will have to approach the historical average of around 4.5 months.

Jan Dec Nov Oct Sep Aug
Sales (millions SAAR) 0.31 0.35 0.36 0.4 0.39 0.41
% change -11.2 -3.9 -9.5 2.3 -4.2 -2.6
Median Price (‘000s) $203.40 $219.90 $220.90 $214.70 $217.30 $210.20
% change -7.5 -0.5 2.9 -1.2 3.4 -0.9
Months Supply 9.1 8 7.8 7.3 7.7 7.7

10.02.24 (Source: Census Bureau)

Friday, February 19, 2010

CPI: Headline Up 0.2 Percent; Core Prices Fall 0.1 Percent

In January, the Consumer Price Index rose 0.2 percent. The rise was almost entirely driven by increases in energy prices, which rose 2.8 percent over the month. The core CPI, which excludes prices of food and energy, fell 0.1 percent. The decline was primarily due to a drop in rent prices and airline tickets. This was the first decline in the core index since 1982. From a year prior, the CPI was 2.7 percent higher. This was down from a 2.8 percent rise in December, however up from negative year-over-year changes as recently as October. The core CPI was up by a lesser 1.5 percent from a year prior.

Month/ Month % Ch.JanDecNovOctSepAug
    Core CPI-
Year/ Year % Ch.

    Core CPI1.

10.02.19 (Source: Bureau of Labor Statistics)

Thursday, February 18, 2010

Federal Reserve Raised Discount Borrowing Rate to 75 Basis Points

In a late afternoon announcement, the Fed increased the discount window borrowing rate from 0.5 percent to 0.75 percent. Traditionally the discount window is 50 bps above the Fed Funds rate, so this move restores the spread back to its traditional size.

In addition, the Board announced that, effective on March 18, the typical maximum maturity for primary credit loans will be shortened to overnight.

Finally, the Board announced that it had raised the minimum bid rate for the Term Auction Facility (TAF) by 0.25 percentage point to 0.5 percent. The final TAF auction will be on March 8, 2010.

This move suggests the Fed is returning to a non-crisis operating mentality stating, “these changes are intended as a further normalization of the Federal Reserve’s lending facilities.” The full Fed statement can be read at the source link.

10.02.18 (Source: Federal Reserve)

Philly Fed Survey Up 2.4 Points to 17.6 – New Orders Surge

In February, the Philadelphia Federal Reserve's General Business Conditions Index for manufacturing activity in its district rose 2.4 points to 17.6 The improvement in the index followed a fallback in January. Still this was the sixth consecutive month where the index was positive indicating activity expansion. Employment improved by 1.3 points and was positive for the third consecutive month. Also notable was that the new orders component jumped 19.5 points to 22.7 a new cyclical high, indicating that stronger output growth is likely in coming months.

Feb Jan Dec Nov Oct Sep
Activity Index 17.6 15.2 22.5 18.8 11.8 10.5
Employment 7.4 6.1 4.5 -2.2 -9.5 -15.7
New Orders 22.7 3.2 8.3 13.1 7.1 1.9
Unfilled Orders -7.5 3.6 1.7 -4.3 -2.4 -9.7
Inventories 3.2 -1.6 -5.7 -17.4 -31.9 -19

10.02.18 (Source: Federal Reserve Bank of Philadelphia)

PPI: Headline Up 1.4 Percent; Core Prices Up 0.3 Percent

In January, the Producer Price Index for finished goods jumped upwards 1.4 percent, following an increase of 0.4 percent in December. The PPI has increased quickly in recent months and has been very volatile largely due to swings in energy prices. From a year prior, producer prices were 5.0 percent higher, a sharp acceleration from a year-over year decline as recently as October. The core index, which excludes prices of food and energy products, rose by a lesser 0.3 percent over the month. From a year prior, it was 1.0 percent higher.

At earlier stages of production, core intermediate goods prices rose 0.5 percent and was 1.1 percent higher than a year prior. At even earlier stages of production, the commodity heavy crude core goods index rose 6.6 percent and was up 35.1 percent from a year prior.

Jan Dec Nov Oct Sep Aug
Headline Index
    M/M % Change 1.4 0.4 1.5 0.4 -0.5 1.5
    Y/Y % Change 5 4.7 2.5 -1.9 -4.8 -4.3
Core Prices
    M/M % Change 0.3 0 0.5 -0.5 -0.1 0.3
    Y/Y % Change 1 0.9 1.1 0.7 1.8 2.3

Friday, February 12, 2010

University of Michigan Consumer Sentiment Index Down 0.7 Point

In February, the University of Michigan Consumer Sentiment Index fell back slightly, falling 0.7 point to 73.7. Despite the decline, this was still the second highest level in over a year. The drop was entirely due to the future expectations component, which fell 3.2 points. In contrast, the current conditions component improved by 3.0 points.

Inflation expectations fell slightly. Looking forward one year, expectations dropped to 2.7 percent, from 2.8 percent in January. The five-year outlook fell to 2.8 percent, down from 2.9 percent in January.

1966 = 100FebJanDecNovOctSep
Headline Index73.774.472.567.470.673.5
    Current Conditions84.
    Future Expectations66.970.168.966.568.673.5

10.02.12 (Source: University of Michigan)

Retail Sales Rise 0.5 Percent; Core Sales Up 0.6 Percent

In January, retail sales rose 0.5 percent, following a decline of 0.1 percent in December. Prior months retail sales had been volatile as large gains had been driven by auto sales associated with the cash for clunkers program followed by the falloff after the program and then the eventual leveling off.

Sales growth in January was generally broad based. Retail sales not including the volatile autos and gasoline components rose 0.6 percent over the month. From a year prior, sales were up 4.7 percent. This is a slower pace than December’s year-over-year gain of 5.5 percent; however, this is still a strong improvement from the negative annual rate see as recently as last October. Core sales, followed a similar patter, rising 2.0 percent from a year prior, down from a 2.3 percent gain in December.

Mo./ Mo. % ChangeJanDecNovOctSepAug
Total Sales0.5-
    Ex Autos and Gas0.6-
Year/ Year % Change

Total Sales4.75.52.7-2.0-6.1-5.5
    Ex Autos and Gas2.02.30.9-0.9-1.7-3.2

10.02.12 (Source: Census Bureau)

Friday, February 5, 2010

Payroll Employment Down 20,000; Unemployment Rate Down to 9.7 Percent

In January, payroll employment fell by 20,000. This followed a downwardly revised decline of 150,000 in December (previously -85,000). This downward revision however, was mostly counteracted by an upwardly revised gain of 64,000 in November (previously 4,000) Though job losses are continuing, the rate of loss is clearly slowing down and modest increases in payrolls are likely to begin in coming months.

The decline in payrolls was primarily due to a loss of construction jobs, which shed 75,000 over the month. Service sector jobs rose by 40,000 driven by the private sector. Public sector payrolls declined by 8,000.

Despite continued job losses, the unemployment rate which is measured by a different survey, fell 0.3 point to 9.7 percent. Due to the smaller sample size of the unemployment survey, it tends to be more volatile and single month changes often are less meaningful than a multiple month trend. The labor force participation rate, which had fallen sharply for months hitting a 24 year low as more workers likely became discouraged, rose slightly by 0.1 point.

Also of note is that, in this survey, annual revisions were included for the year ending in March 2009. Total payrolls were revised downward by 986,000 for the period. Total job losses therefore total 8.4 million since the beginning of the recession.

Jan Dec Nov Oct Sep Aug
Payroll Change (000s) -20 -150 64 -224 -225 -211
Goods Producing -60 -54 -33 -131 -121 -130
Services 40 -96 97 -93 -104 -81
Unemployment Rate 9.7 10.0 10.0 10.1 9.8 9.7
Labor Force Participation R. 64.7 64.6 64.9 65.0 65.1 65.4

10.02.05 (Source: Bureau of Labor Statistics)

Thursday, February 4, 2010

Factory Orders Up 1.0 Percent; Shipments Up 2.9 Percent

New factory orders rose for the fourth consecutive month, increasing 1.0 percent. The increase was evenly due to a rise in both non-durable goods orders and durable goods orders. Both components increased 1.0 percent. Durable goods orders were held back by declines in defense and aircraft orders. Core orders, which exclude these two categories rose 2.2 percent, led by increases in software and equipment.

Shipments rose over the month by 2.9 percent, also the fourth consecutive increase and the largest over the period. Non-durable goods shipments led the increase, rising 1.6 percent. However, durable goods also increased 1.5 percent. Core durable goods, which exclude aircraft and defense shipments, rose 2.1 percent.

m/m % changeDecNovOctSepAugJul
    Non Durable1.
New Orders1.
    Non Durable1.

10.02.04 (Source: Census Bureau)

Wednesday, February 3, 2010

Banks Continue to Build Capital

FDIC-insured banks have continued to build their capital buffers through the financial crisis. Increased capital and reserves ensure stability despite increased loan delinquencies, a result of high unemployment. Equity capital – the core financial support banks use to back loans – rose to over $1.46 trillion at the end of the third quarter 2009. Additionally, banks had reserved over $220 billion to cushion against loan losses. Added together, capital and reserves made for a buffer of $1.68 trillion, pushing capital ratios to their highest levels in 19 years.

This is not the first recession banks have successfully navigated. More than 62 percent of the industry has been in business for more than 50 years, and over 30 percent for more than a century. Of the over 8,000 FDIC-insured banks in the US, 96 percent, holding over 98 percent of the industry’s assets, were classified as “well capitalized” in the third quarter, the highest regulatory designation. Banks are not only prepared, but also experienced in weathering downturns and leading recoveries.

Tuesday, February 2, 2010

GDP Growth Surges – Primarily Driven By Inventory Accumulation

Growth in GDP for the fourth quarter reached 5.7 percent at an annualized rate. This followed expansion of 2.2 percent in the third quarter and was the fastest rate of growth since 2003. Growth was generally widespread across different output components. Personal consumption grew 2.0 percent annualized compared to 2.8 percent in Q3 and business investment grew 2.9 percent annualized, the first improvement in over a year.

Despite these gains however, the jump was primarily due to a large improvement in business inventory accumulation. This was likely due to firms correcting over draw downs from prior quarters. Therefore this acts as a temporary effect, and the large gain in Q4 could act as a drag on growth in coming quarters as much of the inventory adjustment will have passed. Real final sales, which measures total consumption of output over the quarter grew at a lesser 2.3 percent. This is solid growth; however, it remains modest when in comparison to recoveries following past deep recessions where there usually occurs a fast “snap back.” It is yet to be seen what will occur in upcoming quarters; however, if real final sales do not continue to accelerate to a higher growth pace, then output expansion will remain at a level that will only modestly push down unemployment.

Monday, February 1, 2010

Personal Income Up 0.4 Percent; Consumption Up 0.2 Percent; PCE Deflator Up 0.1 Percent

In December, personal income rose 0.4 percent. However, wages and salaries rose by a much lesser 0.1 percent, likely held back by continuing weak labor markets. Still, from a year prior, incomes were up 0.5 percent, which was the first year-over year rise since May 2009. Most of this increase over the past year though has been due to a 14.9 percent rise in transfer payments. Wages and salaries were still down 2.0 percent from a year prior.

Personal consumption rose 0.2 percent over the month, the third consecutive increase, though the smallest of them. From a year prior, consumption was up 4.0 percent. Consumers are again starting to increase their consumption at slower rates than their incomes. Therefore the savings rate increased in December to 4.8 percent from 4.5 percent in November. This is down from a recent high of 5.9 percent last May but this resumes a general trend upward over the past year and half.

Inflation as measured by the PCE deflator rose 0.1 percent over the month.
Therefore, real incomes rose by 0.3 percent and real consumption rose 0.1 percent. From a year prior, the PCE deflator rose 2.1 percent. As recently as September, the year-over-year change had been negative. Therefore, from a year prior, real income was down 1.7 percent while real consumption was 1.9 percent higher. The core PCE deflator, which excludes energy and food prices, rose 0.1 percent, and was 1.5 percent higher from a year prior.

m/m % changeDecNovOctSepAugJul
Personal Consumption0.20.70.6-
Personal Income0.
PCE Deflator0.
Core PCE Deflator0.
Savings Rate (level)4.8 4.5 4.6 4.8 3.9 4.8

10.02.01 (Source: Bureau of Economic Analysis)

Construction Spending Falls 1.2 Percent, Driven By Drop in Residential Spending

In December, new construction spending fell 1.2 percent for the second consecutive month. The decline was driven by a 2.8 percent drop in private residential spending. Residential spending had fallen significantly over the past two months after surging upward in October by 11.8 percent. From a year prior, total construction spending was down 9.9 percent and residential spending was down 10.9 percent.

Private non-residential spending rose 0.2 percent, the first increase since March 2009. Still, non-residential spending was down 17.7 percent from a year prior. Public spending also fell over the month, declining 1.2 percent but was up 1.3 percent from a year prior.

m/m % changeDecNovOctSepAugJul
    Private Residential-2.8-1.411.8-
    Private Non-Residential0.2-0.9-3.6-3.7-2.9-3.0

10.02.01 (Source: Census Bureau)

ISM Manufacturing Index Up; Employment Expands

In December, the Institute for Supply Management's Manufacturing Index rose 3.5 points to 58.4. The increase put the index at a new cyclical high and was at a level not seen since 2003. This was the sixth consecutive month where the index was above 50, indicating manufacturing activity expansion. The recovery of manufacturing is continuing. The gain was lead by the production component which jumped 6.5 points to 66.2. New orders also came in strong at 65.9 indicating likely future expansions in output. Firms are also beginning to increase payrolls at a modest pace with the employment component improving 3.1 points to 53.3, which is a significant amount above the expansionary threshold. This suggests that payroll data may soon show employment gains in manufacturing.

>50 = expansionJanDecNovOctSepAug
   Activity Index58.454.953.755.252.452.8
   New Orders65.964.861.558.560.864.9
     New Export Orders58.554.55655.55555.5
   Backlogged Orders56505253.553.552.5