Feb 19th

Weekly Economic Insight: 15 February to 19 February 2010

Author: Kenn Lamson

Comments: 0

The week ending 19 February saw indicators that provided incremental information on housing, the manufacturing sector, inflation and the overall economy.  On balance the data was solid if not spectacular, suggesting that economic growth will continue to be lead by the industrial sector rather than households and that inflation is not yet problematic for consumers.

RELEASE (leading, coincident or lagging indicator)

 PERIOD ACTUAL EXPECTED (consensus) LAST HIA COMMENT
Housing Starts (leading) January 591K 580K 557K Seasonally-adjusted annualized Starts rose 2.8% from December’s rate (11.5% margin of error). Single family Starts were reported to have risen 1.5% (11.3% MoE) over the month.
Building Permits (leading) January (MoM) 621K 620K 653K Seasonally-adjusted annualized Permits retrenched, declining almost 5% from December. Permits for single family residences rose only 0.4%.
Industrial Production (coincident) January +0.9% +0.8% +0.6% Manufacturing, which accounts for about 12% of the US economy, moved higher in January, with the manufacturing component of the IP index jumping +1.0% after last month’s -0.1% decline.
Capacity Utilization (coincident) January 72.6% 72.6% 72.0% CapU moved upward for the seventh consecutive month but remains well below its average since 1972.
Leading Economic Indicators (leading) January +0.3% +0.5% +1.1% LEI rose for the tenth consecutive month. A sister index, the Coincident Economic Index, has been rising slowly since mid-year 2009.

Consumer Price Index

(lagging)

 January (YoY) +2.6% +2.8% +2.7% The figure softened slightly from December, with a decline in the cost of shelter offsetting continued energy price increases.
Consumer Price Index ex-food & energy (lagging) January (YoY) +1.6% +1.8% +1.8% In contrast to the energy cost-driven volatility of the “headline” Index, the “core” Index has remained quite stable over the past year.

HOUSING STARTS / BUILDING PERMITS

Two leading indicators of the housing market once again diverged in January, with permits falling sharply but starts rising. Unsurprisingly each movement is a reversal of last month’s action.  Starts of structures with 5 or more units rose 17.6% month-over-month.  The divergence between the two indicators highlights the volatility of the housing market in winter, and the lack of follow-through from permit to actual construction.

Housing permits (red) and starts (white), Feb 2000 – Jan 2010 (in thousands)

INDUSTRIAL PRODUCTION

The uptick in January production data supports several months of data suggesting stabilization in the manufacturing sector. The Industrial Production figures rose solidly. January’s gain was supported across industries, most positively by the key manufacturing sector.  These figures seem to have a habit of being revised downward after their initial release, so the economy may not be as strong as what’s been suggested by this report.

CAPACITY UTILIZATION

Factory capacity utilization remains low and is especially weak in the manufacturing sector, which had a utilization rate of only 69.2% in January. A look at the utilization for the different stages of production shows clearly where the weakness lies:

  • Crude stage = 85.9%, 0.6% below the long-term average
  • Primary / semi-finished stage = 69.4%, 12.2% below the long-term average
  • Finished stage = 71.0%, 6.5% below the long-term average

However, the trend for each stage of production has been positive since bottoming in mid-2009.

While a high degree of spare capacity means inflation is unlikely in the near-term, it also suggests that companies’ profit margins have not sustained the degree of pressure they have seen in prior recessions, so corporate earnings are better than in prior recoveries.

LEADING ECONOMIC INDICATORS

The Leading Economic Indicators continued their positive trajectory for the tenth consecutive month.  The most heavily weighted component, money supply (specifically M2), has exploded as the government has flooded the economy with fiscal and monetary stimulus. Unfortunately, little of that liquidity is being transmitted into the real economy, as bank lending is contracting – total loans and leases at US commercial banks fell by 7.3%, from $7,191B to $6,664B, from last January to this. It is, of course, actual lending to businesses and consumers that fuels the economy, not simply the existence of the funds on bank balance sheets.  (See our Economic Insight research entitled “Credit Conditions ‘Improving’” dated 16 February 2010 for a discussion of this topic.)  Other LEI components, like the “interest rate spread”, are suspect in their usefulness because this recession, stemming from a banking crisis and fueled by massive consumer deleveraging that has required that short term interest rates be held abnormally low, is quite different than other post-WW2 downturn.  And of course, the US stock market, which is also a component of the LEI, is far from a reliable indicator of the quality of economic growth.  Long story short, we think the LEI is giving a false signal regarding the strength of economic recovery.


Leading Economic Index level (white) and month-over-month change (red) Feb 05 – Jan 10

CONSUMER PRICE INDEX

The year-over-year increase in the CPI remains driven by substantial increases in the price of energy. Perhaps unsurprisingly, the shelter component of the Index posted a -0.1% year-over-year decrease; the food component of the Index showed the second full-year decrease since 1961, the first being last month.

In contrast to December’s broad-based price increases, the January month-over-month change in CPI was driven largely by higher energy costs. A 6.1% increase in the price of fuel oil was the month’s largest; gasoline was up +4.4% and natural gas from utilities rose +3.5%.  However, these increases were somewhat mitigated by a decline in the index for shelter, which comprises about 40% of the total Index, which fell -0.5% during the month.

While the trend for the “headline” CPI has been higher in recent months, consumer level inflation has yet to become a concern, with the “core” rate remaining stable at a historically moderate level.

Jan 15th

Rental Vacancies Suppressing Inflation

Author: Kenn Lamson

Comments: 0

As noted in today’s Economic Insight, consumer-level inflation isn’t a problem. One reason why: About 40% of the “core” CPI weight is in the “Housing” component, of which about 75% is rent or mortgage payments.  The charts below, courtesy of Haver Analytics and Gluskin Sheff, highlight the extraordinary number of vacant rental units — 4.6 million — and the 11% apartment vacancy rate.    The latest spike in these measures, by the way, are probably thanks to taxpayer-funded “first-time homebuyer” programs and the like.

rentals

Jan 15th

Weekly Economic Insight: 11 January – 15 January

Author: Kenn Lamson

Comments: 0

RELEASE PERIOD ACTUAL EXPECTED (consensus) LAST HIA COMMENT
(leading, coincident, or lagging indicator)
Trade Balance (lagging) November -$36.4B -$35.0B -$32.9B The trade gap ballooned on higher petroleum imports. Positively, though, the uptrend in exports continued.
Advance Retail Sales (leading) December -0.3% 0.4% 1.3% Sales unexpectedly fell, somewhat offsetting November’s spike.
Industrial Production (coincident) December 0.6% 0.6% 0.8% Manufacturing, which accounts for about 12% of the US economy, paused in its rebound in December, with the manufacturing component of the IP index declining 0.1%. In the latest month, utilities output rose 5.9% due to unseasonably cold weather.
Capacity Utilization (coincident) December 72.0% 71.9% 71.3% CapU moved upward for the sixth consecutive month but remains near record lows.
Consumer Price Index (lagging) December (YoY) 2.7% 2.8% 1.8% The figure continued on its uptrend, driven mostly by higher energy prices, especially gasoline.
Consumer Price Index ex- food & energy (lagging) December (YoY) 1.8% 1.8% 1.7% The index for shelter (which comprises about 40% of the total index weight) is essentially flat year-over-year, but most other categories are now showing slight gains.

TRADE BALANCE

The more-negative trade deficit will provide a numerical drag to 4Q09 GDP growth. A surge in the price of petroleum imports accounted for most of the decline; the trade-weighted US Dollar strengthening 4.4% during the month was a headwind to US exporters, but the US$ is still well below its recent high in March. The key takeaway here is a slow resurgence in the strength of the US export sector. Also, the an increase in exports and imports is welcome after a recession that saw a sharp slowdown in world trade.

RETAIL SALES

Excluding autos, gasoline and building materials retail sales broke a four month string of increases. The  largest categories of retailers showed significant declines, including motor vehicle & parts dealers (-0.8%), food & beverage stores (-0.8%), general merchandise (-0.8%), and restaurants (-0.6%).  Electronics stores (-2.6%) were particularly hard-hit, a telling sign in a holiday season where consumer electronics were the gift of choice. The biggest gainers during December were gasoline stations (+1.0%, no surprise given higher gas prices alluded to elsewhere in this report) and sporting goods, hobby, book & music stores (+1.6%). Interestingly, sales at non-store(ie, online) retailers rose +1.4% from November and +10.3% year-over-year.

INDUSTRIAL PRODUCTION

The apparent stabilization in the manufacturing sector, while its unclear that it’s created jobs, is a tick in the positive column for the US economy. The Industrial Production figures rose moderately, while November’s reading was revised downward from +1.1% to +0.6%. December’s gain was largely due to an 5.9% increase in output of the nation’s utilities; the key manufacturing segment posted a -0.1% decline after a +0.9% jump last month.

CAPACITY UTILIZATION

Factory capacity utilization remains extremely low and is especially weak in the manufacturing sector, which had a utilization rate of only 68.6% in December. A look at the utilization for the different stages of production shows clearly where the weakness lies:

  • Crude stage = 86.1%, 0.5% below the long-term average
  • Primary / semi-finished stage = 68.9%, 13.1% below the long-term average
  • Finished stage = 70.2%, 7.5% below the long-term average

However, the trend for each stage of production has been positive since bottoming in mid-2009.

While a high degree of spare capacity means inflation is unlikely in the near-term, it also suggests that companies’ profit margins have not sustained the degree of pressure they have seen in prior recessions, so corporate earnings are better than in prior recoveries.

CONSUMER PRICE INDEX

The year-over-year increase in the CPI remains driven by substantial increases in the price of energy. Perhaps unsurprisingly, the 0.3% year-over-year increase in the shelter component of the Index was the smallest annual increase since 1953; the food component of the Index showed the first full-year decrease since 1961.  The month-over-month change in CPI was caused by broad-based price increases. A 2.5% increase in the price of used vehicles was the month’s largest; most other categories saw modest growth.  While the trend for both “headline” and core CPI has been higher in recent months, consumer level inflation has yet to become a concern, with the “core” rate remaining at a historically moderate level.

Dec 17th

Weekly Economic Insight: 14 Dec – 18 Dec

Author: Kenn Lamson

Comments: 0

RELEASE

PERIOD

ACTUAL

EXPECTED (consensus)

LAST

HIA COMMENT

(leading, coincident, or lagging indicator)
Industrial Production (coincident)

November

0.8%

0.6%

0.1%

Manufacturing, which accounts for about 12% of the US economy, increased the pace of its rebound in November. The manufacturing component of the IP index spiked 1.1%, following a revised flat reading in October.
Capacity Utilization (coincident)

November

71.3%

71.2%

70.7%

CapU moved upward for the fifth consecutive month but remains near record lows and 9.6% below its long term average.
Consumer Price Index (lagging)

November (YoY)

1.8%

1.8%

-0.2%

The figure jumped to show positive growth largely due to higher energy prices.
Consumer Price Index ex- food & energy (lagging)

November (YoY)

1.7%

1.8%

1.7%

The indices for shelter (which comprises about 40% of the total index weight) has posted a slight decline year-over-year, but several other categories are now showing marginal gains.
Housing Starts (leading)

November

574K

575K

529K

 Seasonally-adjusted annualized Starts rebounded from October’s -10.6% decline to rise 8.9% month-over-month (10.2% margin of error). Single family Starts were reported to have risen 2.1% (9.2% MoE) over the month. Further, without the seasonal adjustment, year-to-date Starts fell -38.5% in comparison to 2008.
Building Permits (leading)

November

584K

570K

552K

 Seasonally-adjusted annualized Permits rebounded from October’s -4.0% decline, rising 6.0% month-over-month; permits for single family residences rose 5.3%.
Leading Economic Indicators (leading)

November

0.9%

0.7%

0.3%

 LEI rose for the eighth consecutive month. A sister index, the Coincident Economic Index, has been rising slowly since mid-year.

The apparent stabilization in the manufacturing sector, while its unclear that it’s created jobs, is a tick in the positive column for the US economy. The Industrial Production figures reversed directions in November from their October readings.  The overall IP reading, which slowed in October to 0.0%, rose substantially. Likewise, the reading on mining output jumped after a negative reading last month, while utilities output showed  a sharp decline after rising in October. While expansion was broad-based, November’s gain was largely due to an 2.1% increase in output of the nation’s mines.

Factory capacity utilization remains extremely low and is especially weak in the manufacturing sector, which had a utilization rate of only 68.4% in November. A look at the utilization for the different stages of production shows clearly where the weakness lies:

  • Crude stage = 85.2%, 1.4% below the long-term average
  • Primary / semifinished stage = 67.4%, 14.2% below the long-term average
  • Finished stage = 70.0%, 7.7% below the long-term average

While a high degree of spare capacity means inflation is unlikely in the near-term, it also suggests that companies’ profit margins have not sustained the degree of pressure they have seen in prior recessions.

The renewal of the $8000 first-time homebuyer tax credit probably contributed to the rebound in single family housing starts and permits.  Also, multifamily construction swung back to an increase after last month’s plummet.

The month-over-month change in CPI was once again largely driven by energy costs; according to the Bureau of Labor Statistics the 4.1% rise in the energy component of the index, the largest since August, accounted for most of the “headline” index increase. While the “core” CPI has crept up from its probable cycle low of 1.4% in August, full-blown inflation has yet to appear. The “core” rate remains at a historically moderate level and there are few signs of pricing power at the retail level.

The Leading Economic Indicators continued their positive trajectory for the eighth consecutive month.  We’ll surely welcome any legitimate good economic news.  However, the most heavily weighted component, money supply (specifically M2), has exploded as the government has flooded the economy with fiscal and monetary stimulus. Unfortunately, little of that liquidity is being transmitted into the real economy, as bank lending is contracting – total loans and leases at US commercial banks fell by 6.4%, from $7,238B to $6,777B, from last November to this. It is, of course, actual lending to businesses and consumers that fuels the economy, not simply the existence of the funds on bank balance sheets.  Other LEI components, like the “interest rate spread”, are suspect in their usefulness because this recession, stemming from a banking crisis and fueled by massive consumer deleveraging that has required that short term interest rates be held abnormally low,  is quite different than other post-WW2 downturn.  Long story short, we think the LEI is giving a false signal of the strength of economic recovery.

Nov 19th

Weekly Economic Insight, 16 November – 20 November

Author: Kenn Lamson

Comments: 0

RELEASE

PERIOD

ACTUAL

EXPECTED (consensus)

LAST

HIA COMMENT

(leading, coincident, or lagging indicator)

Advance Retail Sales (leading)

October

1.4%

0.9%

-2.3%

Excluding auto sales, retail sales rose 0.2%. Gasoline sales were surprisingly flat. On the positive side, the biggest gainers were food services & drinking places, up 1.2%; nonstore retailers; and miscellaneous store retailers, up 0.9%. Two of the biggest losers were those still suffering from the slump in housing. Building materials & garden equipment dropped 2.4% while furniture & home furnishings slipped 0.8%.

Industrial Production (coincident)

October

0.1%

0.4%

0.6%

Manufacturing, which accounts for about 12% of the US economy, slowed the pace of its climb in October. The manufacturing component of the IP index declined -0.1 percent, following a revised 0.8 percent jump in September. In the latest month, utilities output rebounded 1.6% while mining output dipped -0.2%.

Capacity Utilization (coincident)

October

70.7%

70.7%

70.5%

CapU moved upward for the fourth consecutive month but remains near record lows.

Consumer Price Index (lagging)

October (YoY)

-0.2%

-1.3%

The food and energy indices have fallen over the past 12 months, by -0.6% and -14.0% respectively.

Consumer Price Index ex- food & energy (lagging)

October (YoY)

1.7%

1.5%

The indices for shelter (which comprises about 40% of the total index weight), new and used vehicles, medical care and services have risen YoY.

Housing Starts (leading)

October

529K

600K

590K

Seasonally-adjusted annualized Starts fell -10.6% from September (8.7% margin of error). Single family Starts were reported to have fallen -6.8% (7.5% MoE) over the month. Further, without the seasonal adjustment, year-to-date Starts fell -40.5% in comparison to 2008.

Building Permits (leading)

October

552K

NA

573K

Seasonally-adjusted annualized Permits fell -4.0%; permits for single family residences declined only -0.2%.

Leading Economic Indicators (leading)

October

0.3%

0.4%

1.0%

LEI rose for the seventh consecutive month, albeit at a slower pace. A sister index, the Coincident Economic Index, has been flat since mid-year.

As suggested above, most of the jump in the retail sales figure came from autos, which showed more carry-through than expected after the expiration of “Cash-for-Clunkers”. Discretionary spending moved higher in October, with industries like apparel and general merchandise seeing welcome gains that suggest consumer purse-strings may be loosening somewhat.  However, as noted in the table industries related to housing continue to suffer. The revision downward in Sept retail sales (-1.5% to -2.3%) suggests that the initial 3.5% print on 3Q09 GDP will be revised downward.

We’ve now seen three months of reasonably healthy retail sales. We’re pleased to see firming consumer spending, declining consumer debt and increased savings, but the three indicators would seem to be at odds with one another. Given the consumer’s central role in the recession we’ll continue to watch these and other data points closely for signs of divergence.

The apparent stabilization in the manufacturing sector, while it has yet to create jobs, is a tick in the positive column for the US economy. October’s gain was largely due to an 1.6% increase in output of the nation’s utilities. Factory capacity utilization remains extremely low and is especially weak in the manufacturing sector, which had a utilization rate of only 67.6% in October. While a high degree of spare capacity means inflation is unlikely in the near-term, it also suggests that companies’ profit margins have not sustained the degree of pressure they have seen in prior recessions.

The month-over-month change in CPI was largely driven by auto and energy costs; according to the Bureau of Labor Statistics the increase in the indices for cars and trucks accounted for 90%+ of the core index increase.  Given the weakness in household balance sheets, that increase is unlikely to be “sticky”. The concentration of price rises in energy and autos also suggests that full-blown inflation has yet to appear. In short, there are few signs of pricing power at the retail level.

A 35% drop in apartment construction (to a record low) dragged down housing starts. Uncertainty about the $8000 first-time homebuyer tax credit probably contributed to the drop in construction. As discussed in previous missives, a low construction rate offers the silver lining of limiting growth of the housing supply, thereby underpinning prices.

The Leading Economic Indicators continued their positive trajectory for the seventh consecutive month.  We’ll surely welcome the glimmer of good news.  The heaviest weighted component, money supply (specifically M2), has exploded as the government has flooded the economy with fiscal and monetary stimulus. Unfortunately, little of that liquidity is being transmitted into the real economy, as bank lending is contracting – total loans and leases at US commercial banks fell from $7,299B to $6,717B from last October to this. It is, of course, actual lending to businesses and consumers that fuels the economy, not simply the existence of the funds on bank balance sheets.  Other LEI components, like the “new orders from manufacturers”, are suspect in their usefulness because this recession, stemming from a banking crisis and fueled by massive consumer deleveraging,  is quite different than other post-WW2 downturn.  Long story short, we think the LEI is giving a false signal of the strength of economic recovery.

Oct 16th

Weekly Economic Insight, 12 October — 16 October

Author: Kenn Lamson

Comments: 0

We saw little market-moving economic data this week, but there were data points from both the consumer and industrial sides of the economy.

 

RELEASE

PERIOD

ACTUAL

EXPECTED (consensus)

LAST

HIA COMMENT

(leading, coincident, or lagging indicator)

Advance Retail Sales (leading)

September

-1.5%

-2.1%

2.7%

Excluding auto sales, retail sales rose 0.5%. Gasoline sales rose, as did sales at furniture & home furnishings, general merchandise, and health & personal care. Declines were seen in building material & garden shops and miscellaneous stores.

Consumer Price Index (lagging)

September (YoY)

-1.3%

-1.4%

-1.5%

Both the food and energy indices have fallen over the past 12 months, by -0.2% and -21.6% respectively.  The food index saw its first YoY drop since 1967.

Consumer Price Index ex- food & energy (lagging)

September (YoY)

1.5%

1.4%

1.4%

The indices for shelter (which comprises about 40% of the total index weight), new vehicles, medical care and tobacco have risen YoY, while the index for used autos has dropped.

Industrial Production (coincident)

September

0.7%

0.2%

0.8%

Manufacturing, which accounts for about 12% of the US economy, climbed at the fastest rate in 4 years during 3Q09. Production at factories and mines rose, while production at utilities declined during the month.

Capacity Utilization (coincident)

September

70.5%

69.8%

69.6%

CapU moved upward for the third consecutive month but remains near record lows.

 

We’ve now seen two months of unexpectedly healthy retail sales. As we pondered in last week’s communiqué, we’re pleased to see firming consumer spending, declining consumer debt and increased savings, but the three indicators would seem to be at odds with one another. Given the consumer’s central role in the recession we’ll continue to watch these and other data points closely for signs of divergence.

 

Consumer inflation remains subdued. We continue to believe that the easing pressure on families’ budgets allowed by dropping food and energy prices, two of the least discretionary expense categories, will contribute positively to economic stabilization.

 

The apparent stabilization in the manufacturing sector, while it has yet to create jobs, is a tick in the positive column for the US economy. Production in September was lead by the consumer sector, which was unsurprisingly supported by a spike in activity for autos.  However, a look at the utilization for the different stages of production shows clearly where the weakness lies:

  • Crude stage = 82.5%, 4% below the long-term average
  • Primary / semifinished stage = 67.3%, 14.7% below the long-term average
  • Finished stage = 69.3%, 8.3% below the long-term average

 

 

Sep 17th

Weekly Economic Insight, 14 September — 18 September

Author: Kenn Lamson

Comments: 0

RELEASE PERIOD ACTUAL EXPECTED (consensus) LAST HIA COMMENT
(leading, coincident, or lagging indicator)
Advance Retail Sales (leading) August 2.7% 1.9% -0.1% US consumers pulled out their wallets more freely than expected in August, even after normalizing these results for the effects of “cash-for-clunkers.”  Unadjusted for seasonal variations, retail sales rose 2.2%; sales in sporting good, department stores, clothing and electronics stores were particularly strong in August.
Consumer Price Index (lagging) August (YoY) -1.5% -1.7% -2.1% The monthly CPI reading rose 0.4%, largely driven by a 9% increase in gasoline prices. There remains no evidence of inflation at the consumer level.
Consumer Price Index ex- food & energy (lagging) August (YoY) 1.4% 1.4% 1.5% Month-over-month “core” CPI rose 0.1%.
Industrial Production (coincident) August 0.8% 0.6% 1.0% Auto production rebounded at a solid pace in July and August.  Even excluding autos, however, manufacturing activity was robust as firms rebuilt inventories. Production was boosted by output from utilities, as warmer than usual weather increased electricity demand. 
Capacity Utilization (coincident) August 69.6% 69.0% 68.5% CapU moved upward for the second consecutive month but remains near record lows. 
Housing Starts (leading) August 598K 598K 581K The 7.9% margin of error on the seasonally-adjusted annualized Starts rate calls into question the reported 1.5% increase from July. Single family Starts were reported to have declined 3.0%. Further, without the seasonal adjustment, year-to-date Starts fell 44%, to 380K, in comparison to 2008.
Building Permits (leading) August 579K 583K 564K Seasonally-adjusted annualized Permits rose 2.7%, but this growth was largely led by multi-unit properties; permits for single family residences declined 0.2%. 

 

 

 

 

 

While it’s encouraging from a macroeconomic view to see American consumers begin to emerge from their bunker, the August retail sales data is difficult to square with unemployment at 9.7% (and likely to rise higher for some months) and recently reported substantial reductions in consumer credit. Our best guess is that spending in August was somewhat positively influenced by the psychological effects of “cash-for-clunkers” and a rising stock market.

 

While consumer prices remain stagnant or falling, it seems clear that the stimulus that’s flooded the economy has been, in part, reflected by higher asset prices (ie, stocks).

 

Capacity utilization, which declined sharply during this cycle, will likely remain subdued as consumers continue to deleverage and demand increases remain modest. This measure has averaged 81% over the past 36 years. This, in turn, suggests lower productivity and inflation going forward.

 

As stated above the month-over-month housing related statistics are best taken with a grain of salt. Nonetheless they’ve historically been good leading indicators of overall economic growth.  Also, given the substantial overhang of unsold homes and the potential wave of foreclosed properties that may hit the market, it’s arguably a positive that Starts and Permits remain near historically low levels.

 

Jul 15th

Consumer Price Index – June 2009

Author: Kenn Lamson

Comments: 0

The U.S. Bureau of Labor Statistics reported this morning that the consumer price index (CPI) fell -1.4% from June 2008.  Today’s reading is the largest 12-month decline since January 1950. “Core” CPI, which excludes food and energy costs, climbed by 1.7% over the past year. The data indicates that while overall prices have fallen, when volatile food and energy costs are excluded the rate is comfortably within the range the Federal Reserve apparently prefers.  This fact reinforces the idea that the ongoing fiscal and monetary stimulus hasn’t yet ignited inflation.  It also suggests that severe deflation appears unlikely.

Month-over-month, the seasonally-adjusted “headline” CPI rose 0.7% in June and the monthly “core” rate of consumer inflation also rose 0.2%.  

As has frequently been the case in recent periods, the price of fuel was the primary cause of index fluctuation, with gasoline rising 17.3% during the month.  Housing costs, which comprise 40% of the Index, were unchanged in June.  Food and beverage costs rose by 0.1%, led higher by fruits and vegetables (+1.1%).  The costs of personal computers continued to decline during June (-1.1%).   

Harmonic Investment Advisors sees significant benefits resulting from the decline in consumer prices.  As suggested by the difference in “headline” and “core” inflation statistics, the overall decline in prices has primarily been due to falling energy and food costs, two of the least discretionary purchases that consumers make.  Reduced pressure on consumers’ budgets supports Harmonic’s stance that while the economy will remain sluggish over the coming months, the strengthening consumer balance sheet, in the form of higher savings, is key to stabilization in the economy and stock markets.

In its Large-cap Core, Smid-cap Core and All-cap Core US stock strategies, Harmonic stands at “neutral” in comparison to benchmarks with regard to the weight of stocks in the consumer discretionary sector.  HIA remains overweight energy stocks on the belief that the rising price of commodities will spur exploration for natural resources as economic weakness moderates.

 

Month-over-month (red) and year-over-year (white) “core” CPI

Month-over-month (red) and year-over-year (white) “core” CPI

 

 

 

Jun 17th

Consumer Price Index – May 2009

Author: Kenn Lamson

Comments: 0

The U.S. Bureau of Labor Statistics reported this morning that the consumer price index (CPI) fell -1.3% from May 2008. Today’s reading is the largest 12-month decline since April 1950. “Core” CPI, which excludes food and energy costs, climbed by 1.8% over the past year. The data indicates that while overall prices have fallen, when volatile food and energy costs are excluded the rate is comfortably within the range the Federal Reserve apparently prefers. This fact reinforces the idea that the ongoing fiscal and monetary stimulus hasn’t yet ignited inflation. It also suggests that severe deflation appears unlikely.

Month-over-month, the seasonally-adjusted “headline” CPI rose 0.1% in May and the monthly “core” rate of consumer inflation also rose 0.1%.

Housing costs, which comprise 40% of the Index, were down -0.1% for the third consecutive month. Food and beverage costs fell by -0.2%, led downward by fruits and vegetables (-1.0%) and meats, poultry, fish and eggs (-0.9%). Also falling substantially during May were the costs of infant and toddler apparel (-1.6%) and personal computers (-1.6%). Gasoline rose 3.1% during the month.

Harmonic Investment Advisors sees significant benefits resulting from the decline in consumer prices. As suggested by the difference in “headline” and “core” inflation statistics, the overall decline in prices has primarily been due to falling energy and food costs, two of the least discretionary purchases that consumers make. Reduced pressure on consumers’ budgets supports Harmonic’s stance that while the economy will remain sluggish over the coming months, the strengthening consumer balance sheet, in the form of higher savings, provides a key to stabilization in the economy and stock markets.

In its Large-cap Core, Smid-cap Core and All-cap Core US stock strategies, Harmonic continues to look for opportunities to raise the weight of stocks in the consumer discretionary sector in anticipation of improvement in consumer balance sheets and to take advantage of the attractive valuations of selected high quality stocks in that sector.  For similar reasons, HIA remains overweight energy stocks on the belief that the rising price of commodities will spur exploration for natural resources as economic weakness moderates.

Month-over-month (red) and year-over-year (white) “core” CPI (May 2004 – May 2009)

Month-over-month (red) and year-over-year (white) “core” CPI (May 2004 – May 2009)

May 15th

Consumer Price Index – April 2009

Author: Kenn Lamson

Comments: 0

The U.S. Bureau of Labor Statistics reported this morning that the consumer price index (CPI) fell -0.7% from April 2008. Today’s reading is the largest 12-month decline since June 1955. “Core” CPI, which excludes food and energy costs, climbed by 1.9% over the past year. The data indicates that while overall prices have actually fallen, when volatile food and energy costs are excluded the rate falls comfortably within the range the Federal Reserve apparently prefers. This fact reinforces the idea that the ongoing fiscal and monetary stimulus hasn’t ignited inflation. It also suggests that deflation appears unlikely.

Month-over-month, the seasonally-adjusted “headline” CPI was unchanged in April and the monthly “core” rate of consumer inflation rose 0.3%. A 9.3% rise in the cost of tobacco products accounted for almost half of the core index’s increase.

As in earlier months, energy costs remained a dominant driver of consumer prices, with the energy index down 2.4% during April. Housing costs, which comprise 40% of the Index, were down -0.1% during the month.

Harmonic Investment Advisors sees significant benefits resulting from the decline in consumer prices. As suggested by the difference in “headline” and “core” inflation statistics, the decline in prices has primarily been due to declines in energy and food, two of the least discretionary purchases that consumers make. Indeed, as mentioned above the primary contributor to the decline in consumer prices is the dramatic decline in energy prices since oil’s mid-2008 peak. Reduced pressure on consumers supports Harmonic’s stance that while the economy will remain sluggish over the coming months, the strengthening consumer balance sheet, in the form of higher savings, provides a key to stabilization in the economy and stock markets.

Harmonic recently marginally decreased its underweighting to stocks in the consumer discretionary sector in anticipation of improvement in consumer balance sheets, and to take advantage of the attractive valuations of selected high quality stocks in that sector.  For similar reasons, HIA remains overweight stocks in the Integrated Oil sector on the belief that the price of oil is below its fair value and will rise as economic weakness moderates.

Month-over-month (red) and year-over-year (white) “core” CPI (April 2004 – April 2009)

Month-over-month (red) and year-over-year (white) “core” CPI (April 2004 – April 2009)

Previous
Next