Consumer confidence high but factory orders down
August 30, 2005
Consumer confidence in the United States rose again in August, according to Conference Board figures released on Tuesday, with index numbers up to 105.6, after July’s confidence level of 103.6. This increase came even though energy prices were up again, probably due to strong jobs growth.
Analysts were unsure, however, how much longer this high confidence can continue is questionable. Some said that the time was coming, sooner rather than later, when the economy could weaken due to the energy situation.
In a separate report, the US Commerce Department released data showing that factory orders decreased by their biggest percentage in 15 months in July. Orders were down by 1.5 percent. The decline in orders was led by the transportation sector, which fell 8.8 percent as orders for both commercial and military aircraft were down, even though orders for new cars and trucks actually grew by 3.7 percent. Orders for durable goods were down by 4.9 percent, confirming preliminary numbers released last week, while orders for non-durable goods - things like gasoline, food, and clothing - were up by 1.7 percent, largely due to higher prices for petroleum products.
While analysts said that economic growth in the US had enough energy behind it that the economy should be able to stay out of recession through the end of the year, but that the fall in factory orders were an indication that businesses are more concerned than they have been about continuing demand in the face of rising energy prices.
Greenspan warns on deficits
August 26, 2005
Outgoing Federal Reserve Chairman Alan Greenspan said in a speech to a
conference in Jackson, Wyoming on Friday that large budget deficits and growing trade protectionism pose risks to the health of the United States economy.
He said that these limit economic flexibility, which he characterized as an important characteristic for maintaining a healthy economy. He said that it is important that people not count on paper wealth created by rising stock prices and prices on homes which make consumers feel wealthier than they actually are but can evaporate quickly when bad economic times hit.
The Fed chairman said that stock and house prices must be increasingly taken into consideration when the Fed sets its interest-rate policies.
Mr. Greenspan also warned monetary policy makers that they should not focus exclusively on any one economic model, because those models are invariably a simplification of the real world, at odds with a complicated and intricate real world.
Commerce department sends mixed messages
August 24, 2005
Two reports issued by the US Commerce Department on Wednesday sent mixed
messages about the health of the US economy.
The first report provided data showing that new-home sales were up 6.5 percent in July over June’s sales, to a seasonally adjusted annual rate of 1.41 million units, a new record high for new home sales.
Sales were up in the West and the Northeast, but fell in the South and the Midwest. The median price of a new home was $203,800 in July, less than the $212,400 of a year ago.
The second report, however, showed that new factory orders for durable goods, large items expected to last for a minimum of three years, were down by 4.9 percent in July from the previous month’s figures.
The decline was the first since March, and the largest since a decline in orders of 5.7 percent in January of 2004.
When orders for transportation equipment, which are traditionally variable, the orders decline for July was 3.2 percent, compared to a gain of 3.6 percent in June.
July’s drop in orders was substantially more than the 1.2 percent drop that had been expected.
Some analysts said that at least a part of the decline could be explained by caution in the business community due to increased costs brought on by rising oil prices.
Economic indicators good on Conference Board
August 18, 2005
The Conference Board released its monthly index of leading economic indicators on Thursday, showing the index up to 138.3 in July. That was the highest level since the index was introduced in 1959.
While there were declines in some components of the index, six of the ten areas examined by the index were up on the month.
Manufacturers new orders of non-defense capital goods were up 0.01 percent, and jobless claims, building permits , stock prices, consumer expectations, and the interest-rate spread between 10-year Treasury bonds and the federal funds rate were on the positive side in July.
However, manufacturers’ new orders for consumer goods and materials fell by 0.01 percent, vendor performance was down 0.09 percent, and the real money supply was also down by 0.09 percent.
According to the Board, the index of leading economic indicators has gone up at an annual rate of 2.2 percent for the past six months, while they were rising at an annual rate of 10 percent at the end of 2003.
Producer Price Index shows jump in inflation
August 17, 2005
The Labor Department reported on Wednesday that the Producer Price Index was up by 1 percent in July, representing the biggest jump in wholesale price inflation since last October. The core rate, which excludes energy and food prices, was also up, by 0.4 percent, its biggest increase since January, and well above the retail core rate rise of 0.1 percent in July.
Energy price increases were a driving force in the higher inflation in July. Energy prices as a whole on the wholesale level were up 4.4 percent in July, after having risen only 2 percent in June. Gasoline prices rose 10.9 percent, the biggest gain since they increased by 12.8 percent last October. While analysts said that consumers should look for another rise in gasoline prices in August, they still believe that rising oil prices will not send the United States into a recession as they did in the 1970s and 1980s because circumstances are different now than they were in the past.
Their reasoning is that the price rises now are coming at a time when inflation in other sectors is well in control, so that the Federal Reserve will not feel the need to raise interest rates sharply as they did then. For example, the Producer Price Index showed that wholesale food prices were down for the fourth month in a row in July, a drop of 0.3 percent coming on decreases in the prices of beef, fruits, and fresh vegetables.
Inflation held in check on manufacturing figures
August 16, 2005
Inflation seemed to be relatively in check in the US in July, with the exception of energy prices, while US industrial production was down more than expected on the month. The Federal Reserve reported on Tuesday that US industrial production was up only 0.1 percent overall in July.
Output increases from factories and utilities were slower than in June, and mining output fell. Factory output was up 0.1 percent in July after an increase of 0.4 percent in June, while utilities output was 0.7 percent higher in July. That was much less than June’s output growth of 4.6 percent. Output from mines was down for the second time in three months at 1.3 percent lower.
The overall increase in output was smaller than had been expected, but analysts still expect increases in output for the rest of the year.
Meanwhile, the Labor Department said that the Consumer Price Index was up 0.5 percent in July, mostly due to hikes in energy prices. Still, prices remained relatively stable outside of energy and food, so that the core inflation rate was up only 0.1 percent on the month. July energy costs were up 3.8 percent, with gasoline prices up 6.1 percent.
Food costs as a whole gained 0.2 percent, while fruit prices gained 2.8 percent. Conversely, new car prices fell 1 percent in July, due to discounting by manufacturers. So far, the annual rate of inflation is 3.5 percent, and the core inflation rate is up at a 2.2 percent annual rate so far.
Economists predict increased growth for US economy
August 15, 2005
According to a survey released on Monday by the Bank of Philadelphia, private sector economists have raised their estimate of how much the US economy will grow in 2005 from their predictions of three months ago.
Previously the economists surveyed felt that the gross domestic product would grow by 3.4 percent this year, but the new survey has them predicting GDP growth of 3.7 percent for the year.
In addition the economists surveyed believe that the GDP will grow by 3.4 percent in 2006; three months ago they said they thought the 2006 GDP would grow by 3.3 percent. The predictions for employment were better in this quarter’s Survey of Professional Forecasters as well, while the economists believe that inflation will be higher for the year than they thought it would be three months ago.
When asked about employment, the economists thought three months ago that the unemployment rate would be 5.2 percent for the year, while in the new survey they said it would be at 5.1 percent. However, those economists surveyed now feel that consumer price inflation will come in at 2.9 percent for 2005, while three months ago they thought inflation would stop at 2.6 percent on the year.
Oil prices push trade deficit up
August 12, 2005
Higher oil prices sent the US trade deficit higher in June and have depressed consumer sentiment at August begins.
They also pushed US import prices up by 1.1 percent, according to government figures.
The trade deficit grew by 6.1 percent in June, the Commerce Department said, to $58.8 billion, from May’s figure of $55.4 billion, when exports were at about the same level but purchases of petroleum took imports to a new high level. Analysts had only expected the trade deficit to grow to $57.3 billion in June.
Petroleum exports were a record $19.9 billion. With oil prices up and expected to go even higher, analysts have said that the trade deficit will probably grow more as well, possibly enough to have a negative impact on the gross domestic product in the third quarter.
Meanwhile, in a separate report, the University of Michigan’s preliminary consumer confidence index for August showed consumer sentiment down to 92.7, from 96.5 in July, when it had only been predicted to fall to 96 this month.
Analysts said that consumer sentiment seemed to have an inverse relation to the price of oil; as the price of oil rises, consumer sentiment falls.
Commerce Department shows retail sales pushed by autos
August 11, 2005
According to a report released on Thursday by the US Commerce Department shows that retail sales in the US was up by 1.8 percent in July.
Nearly all of the advance came in the auto sector, where sales grew by 6.7 percent, the largest increase in that sector since October of 2001 when automobile manufacturers introduced incentive programs to keep demand up after the September 2001 terrorist attacks.
When auto sales are excluded from the data, retails sales were up only 0.3 percent on the month, just half of what analysts had expected. Outside the auto sector, sales gains were made in electronics and appliances, where sales were up by 1 percent, and at the gasoline pump, where sales increased by 2.4 percent, largely on higher prices rather than on increased volume.
Other increases were seen in music stores, sporting goods retailers, and health care stores. Declines were seen in department stores, which saw sales fall by 1 percent in July after a 1.4 percent rise in June, and in furniture stores, which saw a 1.3 percent decline in sales. L
esser declines were seen in grocery stores, hardware stores, specialty clothing stores, and in sales over the Internet.
Fed takes interest rates to 3.5 percent
August 9, 2005
As had been expected, the US Federal Reserve Open Market Committee has raised its benchmark interest rate to 3.5 percent as it said it would continue to raise rates at “a measured pace.”
Most analysts take that phrase to mean three more increases before the end of the year, which they expect to take the rate to 4.25 percent.
The Fed is raising interest rates in an attempt to keep inflation in check. It is expected that banks will soon follow the Fed by raising their prime rate, for consumer and business loans, by the same quarter of a percentage point to 6.5 percent.
That would raise the prime rate to its highest point in four years. In its statement that came along with the rate hike, the Fed said that while core inflation has remained relatively low in recent months and expectations for long-term inflation remains contained, pressures toward inflation also persist.
It also said that spending has risen despite high oil prices and that the labor market appears to be improving. Tuesday’s increase in the internet rate is the tenth since last summer, and it returns the rate to its position just before the New York and Washington terrorist attacks of September 11, 2001. The Fed next meets on September 20.
Labor Department reports productivity increased in Q2
August 9, 2005
The US Labor Department reported on Tuesday that productivity, the output per hour of work, was up at an annual rate of 2.2 percent in the second quarter.
That was below the first quarter’s rise of 3.2 percent, but analysts said that it was still enough to ensure that the standard of living will continue to increase.
Higher productivity means that employers can afford to pay their workers more without raising the prices on what they make or the service they provide.
Meanwhile, unit labor costs only grew at an annual rate of 1.3 percent in the second quarter, well below increases in the last nine months that had analysts worried about higher labor costs leading to higher prices, which in turn could lead to inflation.
Productivity has been up since the recession of 2001, when employers started to lay off many workers in order to keep costs down. Even though those productivity numbers are beginning to decline, analysts believe that productivity will remain high enough to keep inflation from getting out of control.
The decline in productivity signals that things have reached the point where employers must hire more workers to keep up with demand. The second quarter rise in productivity is the smallest increase since the third quarter of 2004, and the increase in unit labor costs is the lowest gain since spring of last year.
RBC CASH Index shows fall in consumer confidence
August 5, 2005
Consumer confidence fell again in early August in the US, according to the RBC CASH Index. It was the second monthly decline in a row. The Index, based on a poll by Ipsos, fell to 72.6, down from 73.9 in July. A year ago the figure was a much higher 104.8.
Confidence was at its lowest since early March 2003, just before the beginning of the Iraq war. The biggest drop was in consumers’ confidence about conditions where they live and work and about their own financial circumstances over the next six months, with an August figure of 32.2, down from 34.4 last month and much lower than last year’s figure of 98.2.
Analysts gave a number of reasons for the decline in confidence, including fears of terrorism following recent attacks in London, the situation in Iraq, high energy prices, worries about security in retirement, and the housing bubble. Still, analysts pointed out that the overall economy is in good shape, with consumers still spending money, especially on big-ticket items such as cars, no matter how they feel about the economy.
US Treasury announces new debt sale
August 3, 2005
The US Treasury announced on Wednesday that it would resume auctions of 30-year government bonds early next year. It had stopped issuing the 30-year paper in 2001, a time of budget surpluses.
Treasury said it was resuming issuance of the longer-dated bonds in order to give the government more options in its borrowing, made necessary by the government’s current deficit.
Dealers have asked for the return of 30-year bonds. The Chicago Board of Trade reacted to the announcement by saying that the bonds would be a benefit to investors by providing a secure long-term investment alternative.
In announcing the upcoming issuance of the new bonds, Treasury Secretary John Snow said from Brazil that they would be auctioned twice a year and that the auctions would be of modest size. Assistant Secretary Timothy Bitsberger said that $20 billion to $30 billion of the bonds would be sold each year, and that the first auction would come some time in the first three months of 2006.
The first of the new bonds to be sold will mature in February 2036. In another announcement related to government bonds, the Treasury Department said that it would sell only $44 billion in 3-year, 5-year, and 10-year bonds next week, below the $46 billion it had expected to sell due to a better short-term deficit outlook.
Labor market sees low week average
August 3, 2005
The number of people filing first-time unemployment claims in the United States was down by 1,000 last week, according to Labor Department statistics.
First-time jobless claims fell to 312,000 in the week that ended July 30. 315,000 new claims had been expected. Meanwhile, the four-week average for first-time claims fell to 316,750, down from an average of 319,000 the previous week.
It was the lowest four-week average since February. Analysis by the Labor Department laid the decrease to a decline in the number of layoffs in the automotive sector, in sectors related to the auto industry, and in other categories of manufacturing.
In another positive sign for the labor market, individuals staying on the unemployment rolls after having received one week’s benefits was down 18,000 to 2.58 million in the week ending July 23, the most recent week’s figures that are available.
The Labor Department will release it’s July report on employment on Friday. That report is expected to show that the unemployment rate has stayed steady at 5 percent.
Housing affordability index drops in Q2
August 3, 2005
According to the National Association of Realtors, housing affordability in the United States dropped in the second quarter.
The industry group’s housing affordability index dropped to 120.8 in the second quarter, down from 133.2 in the first quarter and sharply down from the second quarter of last year when the index stood at 132.3. The index measures the ability of a family of median income to purchase a median-priced home.
Additionally, the first-time buyer index stood at 70.1 percent in the second quarter, down from 76.8 percent in the first quarter and from 77.1 in the second quarter last year. This lower purchasing power, however, did not seem to dissuade people from buying homes.
Last week the NAR said that sales of existing homes was at a seasonally adjusted pace of 7.33 million in June even while prices jumped by 14.7 percent, the largest price rise since 1980.
Additionally, the US Department of Commerce said that new home purchases were up 4 percent in June, an annual pace of 1.374 million.
Manufacturing shows no slowdown
August 1, 2005
A report from the Institute of Supply Management shows that manufacturing in the United States grew more quickly than had been expected in July. The ISM’s index of national factory activity went up from 53.8 in June to 56.6 in July, while the July level had been predicted to be at 54.5.
The increase helped curb concerns that an industrial sector slowdown earlier in the year could be extending into the third quarter. Further, the ISM’s prices paid index fell fro 50.5 in June to 48.5 in July, the first time in 40 months that this indicator had decreased. The decrease in prices came in spite of higher gasoline and oil prices.
Also up were the employment index and the new orders index. The employment index rose from 49.9 in June to 53.2 in July, possibly foreshadowing higher non-farm payrolls. The new orders index, which is a measure of future growth, was up from 57.2 in June to 60. 6 in July. Analysts said that July’s numbers are very good indicators that the economy continues to be strong, and that they give further impetus to expectations of more interest rate hikes by the Federal Reserve this month and in the months to come.
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