Slowing down and catching up

While the diffusion of good news did not stay above 60 percent in September, the 3-month moving average of our little index continued to advance and is now at 56.4. This all indicates that the tenor of news coming out of the Principal Federal Economic Indicators system has swung decisively from far more bad news than good in the first quarter of the year to more good than bad in the third quarter.

As far as the catching up goes, heres the scoreboard since I last had an opportunity to update:

Nonfarm payroll employment continued to decline in August, and the unemployment rate rose to 9.7 percent. (Bad news)

The U.S. Import Price Index increased 2.0 percent in August. Prices for imports excluding fuel increased 0.4 percent and followed a 0.2 percent decline the previous month. Prices for U.S. exports rose 0.7 percent. (A mixed report; the moderation in non-fuel imports was counterbalanced by a uncomfortable rise in non-food exports.)

The Producer Price Index for Finished Goods advanced 1.7 percent in August; prices for finished goods less foods and energy rose 0.2 percent in August after edging down 0.1 percent a month earlier. (At core, some good news)

The Consumer Price Index for all Urban Consumers (CPI-U) rose 0.4 percent in August; the index for all items less food and energy rose 0.1 percent. (Very good)

Real average hourly earnings fell 0.2 percent from July to August. (Bad news)

Total compensation costs for civilian workers increased 0.4 percent, seasonally adjusted, from March to June 2009. For the year ended June 2009, compensation costs rose 1.8 percent with both components of compensation--wages and salaries and benefits--each rising 1.8 percent. (Good as cost restraint, not good as a real pay increase. Mixed.)

The Nation's international deficit in goods and services increased to $32.0 billion in July, as imports increased more than exports. (Bad, but for encouraging reasons)
July 2009 sales of merchant wholesalers rose 0.5 percent (+/-0.5%) from last month. End-of-month inventories were down 1.4 percent. (Good news.)

Manufacturing corporations' after-tax profits averaged 4.3 cents per dollar of sales for the second quarter of 2009, up 1.6 cents from the first quarter of 2009. (Good news.)
U.S. retail and food service sales for August reached $351.4 billion, an increase of 2.7 percent from the previous month. (Good news.)

U.S. total business sales for July were $978.4 billion, up 0.1 percent from the previous month. Month-end inventories were $1,332.5 billion, down 1.0 percent. (Good news, albeit muted.)
After-tax profits for retailers were 2.7 cents per dollar of sales for the second quarter, up 1.2 cents from the first quarter. (Good news.)

Privately-owned housing starts in August 2009 were at a seasonally adjusted annual rate of 598,000 and 1.5 percent above July 2009. (Good news.)
New orders for manufactured durable goods in August decreased $4.0 billion or 2.4 percent to $164.4 billion. (Bad news.)

Sales of new one-family houses in August 2009 were at a seasonally adjusted annual rate of 429,000. This is 0.7% above the revised July 2009 estimate of 426,000. (Good news.)
Industrial output rose 0.8 percent in August, following an upwardly revised increase of 1.0 percent in July. (Good news.)

Real gross domestic product—the output of goods and services produced by labor and property located in the United States –decreased at an annual rate of 0.7 percent in the second quarter of 2009. (Bad news, even if much less bad than the previous quarter.)

Good news prevails in August

The good news diffusion index (GDI)—a proprietary measure of the qualitative nature of the month’s big reports from the Principal Federal Economic Indicators—rose to 62.5 in August. This indicates that good reports outnumbered bad by about three to two.

At the end of August, releases from BEA, BLS, and Census indicated that GDP fell 1.0 percent in the second quarter (bad), personal income was virtually unchanged (neutral), producer prices were down 0.9 percent overall and 0.1 percent for goods other than food and energy (neutral), durable goods orders were up 4.9 percent (good), and new home sales were up 9.6 percent (good).

Thus far in September, construction spending edged down (bad), while the full report on manufacturing was mixed or neutral. Orders were up and inventories down (good), but shipments and unfilled orders were both down (bad).

NOTE: My policy on evaluating price reports has changed to put more weight on “core” indexes, such as the PPI excluding food and energy. This is to allow for the often non-economic volatility of food, energy, and agricultural prices.