| 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.
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)
Consumer Price Index
(lagging)
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:
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.