The week ending 19 March 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) | February | 575K | 565K | 591K | Seasonally-adjusted annualized Starts fell -5.9%% from January’s rate (10.0% margin of error). Single family Starts were reported to have declined -0.6% (10.6% MoE) over the month. |
| Industrial Production (coincident) | February
(MoM) |
+0.1% | 0.0% | +0.9% | Industrial Production rose in February largely due to the inclement weather-related production from utilities. |
| Capacity Utilization (coincident) | February | 72.7% | 72.4% | 72.6% | CapU moved upward for the eighth consecutive month but remains well below its average since 1972. |
| Leading Economic Indicators (leading) | February
(MoM) |
+0.1% | +0.2% | +0.3% | LEI rose for the eleventh consecutive month. A sister index, the Coincident Economic Index, has been rising slowly since mid-year 2009. |
| Consumer Price Index
(lagging) |
February (YoY) | +2.1% | +2.3% | +2.6% | The figure softened again due to a decline in the cost of shelter offsetting continued energy price increases. |
| Consumer Price Index ex-food & energy (lagging) | February (YoY) | +1.3% | +1.4% | +1.6% | 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
The drop from January was limited to the Northeast (-9.6%) and South (-15.5%), with the Midwest and West showing a monthly increase in starts. For the US as a whole starts of structures with 5 or more units plummeted -43.1% month-over-month (20.5% margin of error). As noted in prior months the variability of this series highlights the volatility of the housing market in winter, and the lack of follow-through from permit to actual construction. It seems clear, though, that housing remains far from a sustainable rebound.
INDUSTRIAL PRODUCTION
The uptick in February production data supports our thesis of stabilization in the industrial sector. The Industrial Production figures rose modestly, mostly due to weather-related production at utilities. The key manufacturing sector, which represents about 12% of the US economy, took a breather in February, falling back -0.2% after January’s +0.9% spike. 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 69.0% in February. A look at the utilization for the different stages of production shows clearly where the weakness lies:
- Crude stage = 86.2%, 0.3% below the long-term average
- Primary / semi-finished stage = 69.6%, 12.0% below the long-term average
- Finished stage = 70.8%, 6.7% 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
We’ve complained strenuously over the past couple of years that the Leading Economic Indicators Index has lost its efficacy due to questionable readings from several of its most heavily weighted components:
- 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.
- The “interest rate spread” is suspect in its 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.
- Another substantial component of the LEI, the US stock market, is also far from a reliable indicator of the quality of economic growth.
To replace the LEI as a reliable indicator of overall economic activity we’ll be watching two lesser-known series: the Weekly Leading Indicators Index (WLI), published by the Economic Cycle Research Institute, and the Chicago Fed National Activity Index (CFNAI). Like the LEI both of these Indices combine multiple pieces of economic data to create a single Index meant to evaluate the overall health of the US economy. As its name suggests, the WLI intends to act as a leading indicator, whereas the CFNAI is a coincident one. The chart below, tracking the WLI (blue) and CFNAI (yellow) against GDP (white), demonstrates the potential usefulness of these indicators in understanding one’s position in the economic cycle.
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 -0.4% year-over-year decrease; the food component of the Index showed the third full-year decrease since 1961. The year-over-year “core” rate was reported at the lowest level since February 2004.
February’s month-over-month change in CPI was driven largely by softness in energy costs. A -2.4% decrease in the price of fuel oil was the month’s largest decline, a partial reversal of January’s +6.1% spike. Gasoline was down -1.4% after January’s +4.4% increase; however, natural gas from utilities rose +3.9%. However, these increases were somewhat mitigated by an unchanged reading in the index for shelter, which comprises about 40% of the total Index.
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. This data supports the Fed’s assertion that inflation is not currently a concern, and our belief that the FOMC will leave the Fed Funds rate unchanged for some time to come.
Year-over-year change in Consumer Price Index: all items (white) and ex- food & energy (red) Jan 00 – Feb 10
Dec 03th
Harmonic Helps Make BRED
Author: Kenn Lamson
Comments: 0
I’m working with Dr. Brian Greber and his graduate assistant Steve Holden to create a “leading economic indicator” statistic for Idaho. The Idaho Business Review recently previewed the indicator in the context of the program Brian’s developing.
Brian Greber, director for the Business Research and Economic Development Center, sees cost-of-living calculator as a tool to bring new business to Boise. (photo by Anne Wallace Allen)
Whether it’s tennis balls, a T-bone steak, or a place to live, chances are you’ll find it for less in Idaho.
A new cost-of-living calculator assembled by economists at Boise State University makes it simple to calculate the financial costs and benefits of living and working in Boise, Idaho Falls or Twin Falls.
A pound of Parmesan cheese sets you back $5.50 in Seattle and just $3.94 in Boise. Tennis balls: $3.82 in Seattle vs. $2.38 in Boise. Housing in Boise is 41 percent less expensive, and groceries are 16 percent less. And that T-bone steak is $9.95 in Seattle and just $8.51 in Boise.
The calculator was created by the Business Research and Economic Development Center, or BRED, part of the university’s College of Business and Economics. BRED was created to help local businesses thrive and attract new business.
The cost-of-living calculator is just one small piece of BRED. Ultimately Director Brian Greber hopes the center will be the first place prospective companies look when they want to analyze how Idaho would help their business.
Next up: an economic indicator for the state to show academics, business leaders and the general public where the state’s economy is likely to be four to six months in the future. BRED will use original research for the indicator and also data from state government.
“This has the potential of being an extremely valuable tool for people,” said Kenn Lamson, a principal at the Boise-based Harmonic Investment Advisors who works with Greber on the economic indicator.
Other Idaho groups produce economic outlook forecasts, but there’s not another tool that boils economic growth in the state down to one specific number that is easily accessible, publicly available, and easily understandable, Lamson said.
Eventually BRED will provide economic analysis and research white papers. Greber would like BRED to be the place where the business community looks first for independent economic analysis.
Research is a niche that hasn’t been addressed, said Bill Connors, the president and CEO of the Boise Metro Chamber of Commerce, which also provides technical assistance to businesses. More research would help groups like the Chamber’s Boise Valley Economic Partnership learn how to better attract business, expand existing business, and study what makes business successful in the Treasure Valley, he said.
Idaho has many organizations that provide business advice. Some, such as the Idaho Small Business Development Center, are at Boise State, and BRED steers new and existing businesses toward those resources.
“This initiative is meant to get the resources of the college involved with all the businesses in the valley,” Greber said.
Cost of living lower; wages too
Boise State University’s new Business Research and Economic Development Center, or BRED, is a great place to find out how the cost of living in Idaho measures up against costs in similar-sized cities like Little Rock, Ark. (where prices are similar, though a doctor’s visit will cost 10 percent more in Boise) or Spokane (where most prices match up, though utilities will set you back 13 percent more in Boise).
It’s well known wages are lower in Idaho than in other states. According to 2009 data from the U.S. Bureau of Labor Statistics, Idaho has a mean hourly wage of $18.83 (about $38,000 annually), almost the same as in Little Rock. But while Spokane’s cost of living is similar to Boise’s, pay in Spokane is higher, with a mean hourly wage of $19.72 and a mean annual wage of $41,010.
Business leaders have long said education is a big reason for the wage difference.
“We need to continue to find ways to diversify and improve the labor force to make it attractive to larger-scale industries,” said BRED Director Brian Greber. Institutions like College of Western Idaho, which opened in 2009, help a lot, he said.
“I was shocked when I moved here at the lack of technical education in the state,” Greber said.