With the majority of reports already out, December is shaping up as a month that firmly re-establishes the upward trend in the Good News Index (GNI). Seventy-eight percent of the news released so far this month has been good and the 3-month average of the GNI has regained its upward momentum. A very small uptick in real weekly earnings joins the slight dip in the unemployment rate to hold out the hope that recovery is even spreading, however slowly, to the labor markets.
U.S. retail sales for November increased 1.3 percent from the previous month. A second good month in a row.
Total business sales for October 2009 were $1,004.0 billion, up 1.1 percent from September. Returns business sales to the good news column.
The U.S. Import Price Index advanced 1.7 percent in November, led by a 7.3 percent rise in fuel prices. Nonfuel import prices rose 0.4 percent. Export prices advanced 0.8 percent. Mixed news, and relies on the nonfuel imports to get that good.
Industrial production increased 0.8 percent in November after having been unchanged in October. Manufacturing production advanced 1.1 percent, with broad-based gains among both durables and nondurables. Good, especially the part about “broad based”.
Manufacturing corporations' seasonally adjusted after-tax profits averaged 6.8 cents per dollar of sales for the third quarter of 2009, up 2.7 cents from 4.2 cents in the second quarter of 2009. Good news foreshadowing better, as profits data tend to do.
The Producer Price Index for Finished Goods rose 1.8 percent, seasonally adjusted, in November. The index for finished goods less foods and energy rose 0.5 percent in November. This is on the very cusp of being too much pricing power; my judgment on the overall report is that it is, taken somewhat optimistically based on core index movements, neutral.
CPI-U increased 0.4 percent in November after rising 0.3 percent in October. The index for all items less food and energy was unchanged in November. Good, stable.
Real average hourly earnings fell 0.5 percent from October to November 2009. Real weekly earnings, however, rose 0.1 percent over the month. The decline in real average hourly earnings was more than offset by a 0.6 percent increase in the average work week. Mixed; a “positive zero”.
Housing starts in November 2009 were at an annual rate is 8.9 percent above the rate in October. Good news that doesn’t quite retrace the decline last month.
Wednesday, December 16, 2009
Thursday, December 10, 2009
December starts well
December’s economic reporting is off to a very strong start. More than 70 percent of the news released thus far has been good. The calendar of releases (http://www.whitehouse.gov/omb/assets/omb/inforeg/pei_calendar2009.pdf) is busy through next Friday, with many of the reports referencing the transitional third quarter. It should make for an interesting week, as statistics watching goes.
In October, consumer credit decreased at an annual rate of 1.7 percent. Consumer credit had decreased at an annual rate of 3.3 percent in the third quarter of 2009. Revolving credit (largely credit cards) had decreased at an annual rate of 7.3 percent and nonrevolving credit at an annual rate of 0.9 percent in the third quarter. Still a bad sign for overall consumer demand.
October 2009 sales of merchant wholesalers were up 1.2 percent from September. End-of-October inventories were up 0.3 percent over the month. Good, especially as the “positive zero” on inventories can be interpreted as the beginning of a build up to regular levels.
October exports of $136.8 billion and imports of $169.8 billion resulted in a goods and services deficit of $32.9 billion, down from $35.7 billion in September. Pretty good news, especially as both elements grew a bit.
In October, consumer credit decreased at an annual rate of 1.7 percent. Consumer credit had decreased at an annual rate of 3.3 percent in the third quarter of 2009. Revolving credit (largely credit cards) had decreased at an annual rate of 7.3 percent and nonrevolving credit at an annual rate of 0.9 percent in the third quarter. Still a bad sign for overall consumer demand.
October 2009 sales of merchant wholesalers were up 1.2 percent from September. End-of-October inventories were up 0.3 percent over the month. Good, especially as the “positive zero” on inventories can be interpreted as the beginning of a build up to regular levels.
October exports of $136.8 billion and imports of $169.8 billion resulted in a goods and services deficit of $32.9 billion, down from $35.7 billion in September. Pretty good news, especially as both elements grew a bit.
Friday, December 4, 2009
The end of recovery's beginning?
The unemployment rate edged down to 10.0 percent in November, and nonfarm payroll employment was essentially unchanged. Mixed news on the surface and neutral when examined more closely.
Some analysts were advising cautious interpretation of the employment situation. With the proviso that it be cautious optimism, we agree; this is more an end to the beginning of recovery than a beginning of a transition into growth, but it is a beginning of recovery.
The mixed message of a drop in the unemployment rate and a very, very small negative number on the employment side was confirmed by our proprietary index of labor market conditions. The labor market index was unchanged in November as two indicators improved, two deteriorated, and the fifth was unchanged.
Now let’s do a bit of speculative technical analysis of some of our numbers. As mentioned in the May 8, 2009, post, the difference between this index and its 6-month moving average (6MA) often has been at its greatest negative value on or about the NBER-designated business cycle trough. In three of the six troughs it has spanned, the index-minus-6MA has troughed in the same month, in two others index-minus-6MA troughed a month before the business cycle, and in 1971 it lead by 6 months.
Index-minus-6MA it seems very likely troughed in March 2009. That would indicate a possible recession trough in March or April. Moreover, our good news diffusion index (GNDI) edged over 50 in June 2009. That the releases analyzed to compile that index generally had reference months of April or May gives additional impetus to the trough-in-April speculation. Finally, the summary of the business cycle chronology posted here on December 5, 2008, suggested that the recession may then have had “4-6 months left to run.” That would imply a trough in April, May, or June 2009.
April, it seems, is the common theme of all three of these strictly technical analyses. (Understand “strictly technical” to denote analyses of movements in a series without reference to the fundamental meaning, if any, of that series.) So, if next year at about Christmastime, the NBER business cycle dating committee announces that April 2009 was the recession trough, you heard it here first. If they pick some other date, you never heard of us.
In other news, new orders for manufactured goods, up six of the last seven months, increased 0.6 percent in October. Shipments, up four of the last five months, increased 0.8 percent. Good report, especially as the unfilled orders-to-shipments ratio edged up and the inventory ratio edged down.
Nonfarm business sector labor productivity increased at an 8.1 percent annual rate during the third quarter of 2009. This was a revision down from data released last month and reflected a downward revision to output and an upward revision to hours. Good, albeit less good than we thought before.
Some analysts were advising cautious interpretation of the employment situation. With the proviso that it be cautious optimism, we agree; this is more an end to the beginning of recovery than a beginning of a transition into growth, but it is a beginning of recovery.
The mixed message of a drop in the unemployment rate and a very, very small negative number on the employment side was confirmed by our proprietary index of labor market conditions. The labor market index was unchanged in November as two indicators improved, two deteriorated, and the fifth was unchanged.
Now let’s do a bit of speculative technical analysis of some of our numbers. As mentioned in the May 8, 2009, post, the difference between this index and its 6-month moving average (6MA) often has been at its greatest negative value on or about the NBER-designated business cycle trough. In three of the six troughs it has spanned, the index-minus-6MA has troughed in the same month, in two others index-minus-6MA troughed a month before the business cycle, and in 1971 it lead by 6 months.
Index-minus-6MA it seems very likely troughed in March 2009. That would indicate a possible recession trough in March or April. Moreover, our good news diffusion index (GNDI) edged over 50 in June 2009. That the releases analyzed to compile that index generally had reference months of April or May gives additional impetus to the trough-in-April speculation. Finally, the summary of the business cycle chronology posted here on December 5, 2008, suggested that the recession may then have had “4-6 months left to run.” That would imply a trough in April, May, or June 2009.
April, it seems, is the common theme of all three of these strictly technical analyses. (Understand “strictly technical” to denote analyses of movements in a series without reference to the fundamental meaning, if any, of that series.) So, if next year at about Christmastime, the NBER business cycle dating committee announces that April 2009 was the recession trough, you heard it here first. If they pick some other date, you never heard of us.
In other news, new orders for manufactured goods, up six of the last seven months, increased 0.6 percent in October. Shipments, up four of the last five months, increased 0.8 percent. Good report, especially as the unfilled orders-to-shipments ratio edged up and the inventory ratio edged down.
Nonfarm business sector labor productivity increased at an 8.1 percent annual rate during the third quarter of 2009. This was a revision down from data released last month and reflected a downward revision to output and an upward revision to hours. Good, albeit less good than we thought before.
Thursday, December 3, 2009
The labor market and the business cycle: relationship issues?
The labor market is in the uncomfortable position of being a leading indicator going into recession and a lagging indicator coming out. When our proprietary index of labor market conditions was developed in the late 1980s, the goal was to develop an antidote to the excessive attention analysts gave to single indicators—payroll employment, unemployment rate, unemployment rate including discouraged workers, long-term unemployment rate, or whatever—and develop a disciplined, consistent approach to multi-indicator analysis.
After finding that the average lead or lag of the comprehensive employment and comprehensive unemployment measures published in the Bureau of Economic Analysis Handbook of Cyclical Indicators (ca. 1982) was about a quarter’s lead at the peak and about the same lag at the trough, the trick was to select a few indicators that had the same averages and create a composite index from them.
As it turned out, the following five indicators met that condition:
• Goods-producing employment
• Aggregate hours index
• Unemployed 15 weeks or more as a percent of the labor force
• Unemployment rate
• Employment-to-population ratio
The composite index created from these five by using the methodology outlined in the Handbook led the business cycle by 3.5 months at the peaks designated by the National Bureau of Economic Research and lagged the trough by 3.75 months—at least in the four cycles the index spanned at its inception. Since then, there seems to have been a radical change in the relationship of the labor market to the general business cycle.
There have been three business cycle peaks since 1990; the labor market has led them by an average of 13 months. There have been two troughs; the labor market has lagged them by 15 and 20 months. These figures and the tables below can’t tell us why this is so. In fact, they might not be conclusive evidence in themselves that the labor market and the business cycle are having relationship issues. But they are suggestive, and make tomorrow’s Employment Situation and those to follow it even more interesting.
NBER Peak/ Labor Market Peak/ Lead (-)/Lag (+)
December 1969/ June 1969/ -6
November 1973/ December 1973/ +1
January 1980/ July 1979/ -6
July 1981/ April 1981/ -3
July 1990/ March 1989/ -16
March 2001/ April 2000/ -11
December 2007/ December 2006/ -12
NBER Trough/ Labor Market Trough/ Lead (-)/Lag (+)
November 1970/ August 1971/ +9
March 1975/ June 1975/ +3
July 1980/ July 1980/ 0
November 1982/ February/ 1983 +3
March 1991/ June 1992/ +15
November 2001/ July 2003/ +20
December opened with a report of unchanged construction activity. The pace of activity isn’t inspiring, but the lack of movement in either directions gets coded as neutral and comes into the Good News Diffusion Index (GNDI) as a 0.5. Profits rose in the most recent quarter. I have not yet incorporated this part of the GDP report into the GNDI, but profitability is a leading indicator of the business cycle, and the increase in “profits from current production” is thus good news.
Total construction activity for October 2009 was nearly the same as the revised September 2009. Neutral. (Neutral and closely mixed reports are scored as 0.5 in the GNDI.)
Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) increased $130.0 billion in the third quarter, compared with an increase of $43.8 billion in the second quarter.
After finding that the average lead or lag of the comprehensive employment and comprehensive unemployment measures published in the Bureau of Economic Analysis Handbook of Cyclical Indicators (ca. 1982) was about a quarter’s lead at the peak and about the same lag at the trough, the trick was to select a few indicators that had the same averages and create a composite index from them.
As it turned out, the following five indicators met that condition:
• Goods-producing employment
• Aggregate hours index
• Unemployed 15 weeks or more as a percent of the labor force
• Unemployment rate
• Employment-to-population ratio
The composite index created from these five by using the methodology outlined in the Handbook led the business cycle by 3.5 months at the peaks designated by the National Bureau of Economic Research and lagged the trough by 3.75 months—at least in the four cycles the index spanned at its inception. Since then, there seems to have been a radical change in the relationship of the labor market to the general business cycle.
There have been three business cycle peaks since 1990; the labor market has led them by an average of 13 months. There have been two troughs; the labor market has lagged them by 15 and 20 months. These figures and the tables below can’t tell us why this is so. In fact, they might not be conclusive evidence in themselves that the labor market and the business cycle are having relationship issues. But they are suggestive, and make tomorrow’s Employment Situation and those to follow it even more interesting.
NBER Peak/ Labor Market Peak/ Lead (-)/Lag (+)
December 1969/ June 1969/ -6
November 1973/ December 1973/ +1
January 1980/ July 1979/ -6
July 1981/ April 1981/ -3
July 1990/ March 1989/ -16
March 2001/ April 2000/ -11
December 2007/ December 2006/ -12
NBER Trough/ Labor Market Trough/ Lead (-)/Lag (+)
November 1970/ August 1971/ +9
March 1975/ June 1975/ +3
July 1980/ July 1980/ 0
November 1982/ February/ 1983 +3
March 1991/ June 1992/ +15
November 2001/ July 2003/ +20
December opened with a report of unchanged construction activity. The pace of activity isn’t inspiring, but the lack of movement in either directions gets coded as neutral and comes into the Good News Diffusion Index (GNDI) as a 0.5. Profits rose in the most recent quarter. I have not yet incorporated this part of the GDP report into the GNDI, but profitability is a leading indicator of the business cycle, and the increase in “profits from current production” is thus good news.
Total construction activity for October 2009 was nearly the same as the revised September 2009. Neutral. (Neutral and closely mixed reports are scored as 0.5 in the GNDI.)
Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) increased $130.0 billion in the third quarter, compared with an increase of $43.8 billion in the second quarter.
Monday, November 30, 2009
Better than half full, but no new wine
The good news diffusion index was unchanged at 60.5 in November. Reports on factory orders, retail sales, new home sales, and personal income were positive in November where they had been negative the month before. Conversely, the reports on foreign trade, business sales, housing starts, and durable goods orders were negative where they had been good news in October. The 3-month moving average of the GNDI slipped a bit to 60.4.
November closed out with the following reports:
New orders for manufactured durable goods decreased 0.6 percent in October. Bad news, especially considered with drops in shipments and unfilled orders.
Sales of new one-family houses in October 2009 were at an annual rate 6.2% above September 2009. Good news for a struggling sector.
Personal income increased 0.2 percent and disposable personal income increased 0.4 percent in October. Personal consumption expenditures increased $68.3 billion, or 0.7 percent. Quite good news all around.
November closed out with the following reports:
New orders for manufactured durable goods decreased 0.6 percent in October. Bad news, especially considered with drops in shipments and unfilled orders.
Sales of new one-family houses in October 2009 were at an annual rate 6.2% above September 2009. Good news for a struggling sector.
Personal income increased 0.2 percent and disposable personal income increased 0.4 percent in October. Personal consumption expenditures increased $68.3 billion, or 0.7 percent. Quite good news all around.
Tuesday, November 24, 2009
Off the pace?
Both the monthly good news diffusion index and its 3-month moving average are going into the last week of November lower than they were at the end of October. It will take a very strong finish—3 points out of a possible 4—to keep momentum up.
The Nation's international trade deficit in goods and services increased in September, as imports increased more than exports. Bad, but, as a switch, for better reasons—faster increases, rather than slower declines.
U.S. total business sales for September 2009 were down 0.3 percent from August. Bad.
U.S. retail sales increased 1.4 percent in October. Good.
Privately-owned housing starts in October 2009 were at a seasonally adjusted annual rate of 529,000, more than 10 percent below September. Bad, shockingly bad.
The U.S. Import Price Index rose 0.7 percent in October, led by a 1.8 percent increase in fuel prices. U.S. export prices advanced 0.3 percent in October. Only the disproportionate impact of fuel prices kept this from being too bad. Rated neutral.
The Producer Price Index for Finished Goods advanced 0.3 percent in October; the index for finished goods less foods and energy moved down 0.6 percent. The decline in core prices pushes the envelope a bit, but on balance, this was a good news report.
The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.3 percent in October. The index for all items less food and energy rose 0.2 percent in October, the same increase as in September. Good.
Real average weekly earnings fell 0.1 percent over the month, as a result of a decline in real average hourly earnings and an unchanged average work week. Since reaching a recent high point in December 2008, real average weekly earnings have fallen by 1.9 percent. Bad. Not horrible, but bad.
Industrial production increased 0.1 percent in October after having averaged monthly gains of about 0.9 percent over the previous three months. Capacity utilization for total industry moved up 0.2 percentage point to 70.7 percent. Good. Not spectacular, but good.
Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.8 percent in the third quarter of 2009. The second estimate of the third-quarter increase in real GDP is 0.7 percentage point lower than the advance estimate issued last month. Less good than we thought, but still in the right direction.
The Nation's international trade deficit in goods and services increased in September, as imports increased more than exports. Bad, but, as a switch, for better reasons—faster increases, rather than slower declines.
U.S. total business sales for September 2009 were down 0.3 percent from August. Bad.
U.S. retail sales increased 1.4 percent in October. Good.
Privately-owned housing starts in October 2009 were at a seasonally adjusted annual rate of 529,000, more than 10 percent below September. Bad, shockingly bad.
The U.S. Import Price Index rose 0.7 percent in October, led by a 1.8 percent increase in fuel prices. U.S. export prices advanced 0.3 percent in October. Only the disproportionate impact of fuel prices kept this from being too bad. Rated neutral.
The Producer Price Index for Finished Goods advanced 0.3 percent in October; the index for finished goods less foods and energy moved down 0.6 percent. The decline in core prices pushes the envelope a bit, but on balance, this was a good news report.
The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.3 percent in October. The index for all items less food and energy rose 0.2 percent in October, the same increase as in September. Good.
Real average weekly earnings fell 0.1 percent over the month, as a result of a decline in real average hourly earnings and an unchanged average work week. Since reaching a recent high point in December 2008, real average weekly earnings have fallen by 1.9 percent. Bad. Not horrible, but bad.
Industrial production increased 0.1 percent in October after having averaged monthly gains of about 0.9 percent over the previous three months. Capacity utilization for total industry moved up 0.2 percentage point to 70.7 percent. Good. Not spectacular, but good.
Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.8 percent in the third quarter of 2009. The second estimate of the third-quarter increase in real GDP is 0.7 percentage point lower than the advance estimate issued last month. Less good than we thought, but still in the right direction.
Tuesday, November 10, 2009
Striding into November
November leads from strength. In the early going, good news came out twice as often as bad news. One must be concerned, however, that all the bad news seemed to fall on the shoulders of the economy’s workers and consumers—the continued decline in revolving credit and the still grim state of the labor market.
Our proprietary index of labor market conditions dropped 1.7 percent to 67.4 (2007=100). This marks the second straight month the index has failed to gain ground relative to its 6-month moving average. Such pauses have been the mark of recoveries that have been termed “jobless” in the past.
Total construction activity for September 2009 was 0.8 percent above August. Good news in a battered sector.
New orders for manufactured goods increased 0.9 percent in September. Good.
Sales of merchant wholesalers were up 0.7 in September. End-of-month inventories were down 0.9 percent. Good.
Productivity increased 9.5 percent in the nonfarm business sector during the third quarter of 2009, and unit labor costs fell 5.2 percent. Good, especially as a significant portion of it was an increase in output.
In October, the unemployment rate rose to 10.2 percent, the highest since April 1983, and nonfarm payroll employment continued to decline. Bad, just plain bad.
Consumer credit decreased at an annual rate of 6 percent in the third quarter of 2009 and at an annual rate of 7.2 percent in September. Bad, increasingly bad at the end.
Our proprietary index of labor market conditions dropped 1.7 percent to 67.4 (2007=100). This marks the second straight month the index has failed to gain ground relative to its 6-month moving average. Such pauses have been the mark of recoveries that have been termed “jobless” in the past.
Total construction activity for September 2009 was 0.8 percent above August. Good news in a battered sector.
New orders for manufactured goods increased 0.9 percent in September. Good.
Sales of merchant wholesalers were up 0.7 in September. End-of-month inventories were down 0.9 percent. Good.
Productivity increased 9.5 percent in the nonfarm business sector during the third quarter of 2009, and unit labor costs fell 5.2 percent. Good, especially as a significant portion of it was an increase in output.
In October, the unemployment rate rose to 10.2 percent, the highest since April 1983, and nonfarm payroll employment continued to decline. Bad, just plain bad.
Consumer credit decreased at an annual rate of 6 percent in the third quarter of 2009 and at an annual rate of 7.2 percent in September. Bad, increasingly bad at the end.
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