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Economic News Summary March 2011

How do you feel about the economic outlook?  If you feel confused, uncertain, and just plain less confident, then you are not alone.  In fact, “Gallup’s Economic Confidence Index” for the week ending March 27, 2011 was down sharply to a -33-- a 22% drop from the same period in 2010.   In a single month, the grade on the economy dropped a whole point, going from a C+ in February to a D+ in March.  The number and size of the chaotic local and world events, i.e. state and federal budget problems, unrest in the Middle East, Japan’s earthquake, tsunami and nuclear reactor problems, lead to rising consumer prices and an overall economic downturn.  While we are not technically in an economic downturn, we are teetering on the brink again.  Overall grade for March: D+ (February was a C+)

Consumer Price Index-Urban (CPI-U)
March 30, 2011

Inflation is back. While not news to anyone purchasing gasoline or food, in a single month from January to February, inflation went from an annualized rate of 4.9%, restated number, to 6.8%. A 39% increase in a month is huge.  We have gone from an annualized rate .55% a year ago to 6.8%-- a 1,100% increase.  Grade: D-

Full Title:  All Urban Consumers - (CPI-U): U.S. city average: All items: 1982-84=100
Definition: Monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services.
Goods & Services Covered by CPI:  The CPI represents all goods and services purchased for consumption by the reference population i.e. Urban, BLS has classified all expenditure items into more than 200 categories, arranged into eight major groups.  Major groups and examples of categories in each are as follows:

Personal Income
March 30, 2011

January’s annual rate rocketed to a 14.4% annual rate then dropped to a 3.6% annual rate in February.  In mid April, the 1Q 2011 total will be out, and based on the first two months, personal income will be up for the quarter.  While personal income may be up for the quarter, February’s annual rate is below CPI, not a good sign.  Grade: C Full Title: Personal income: Personal Income and Its Disposition: Billions of dollars; seasonally adjusted at annual rates (quarterly)

Definition: Personal income. Income received by persons from all sources.  It includes income received from participation in production as well as from government and business transfer payments.  It is the sum of compensation of employees (received), supplements to wages and salaries, proprietors' income with inventory valuation adjustment  and capital consumption adjustment, rental income of persons with CCAdj, personal income receipts on assets, and personal current transfer receipts, less contributions for government social insurance.

Personal Consumption Expenditures (PCE)
March 30, 2011

Personal consumption expenditures was up at an annual rate of 3.6% in January, jumping to 8.4% annual rate in February.  PCE is another quarterly indicator and will be up for 1Q 2011.  While consumption is being driven by CPI, it exceeds personal income, which cannot continue, and it will not have a significant impact on GDP.  Consumer spending power is being diluted by inflation and blunting its economic impact.  Grade: C Full Title: 1) Personal consumption expenditures: Real Personal Consumption Expenditures by Major Type of Product, Chained Dollars: Billions of chained 2005 dollars; seasonally adjusted at annual rates (quarterly.  2) Personal consumption expenditures: Percent Change from Preceding Period in Real Personal Consumption Expenditures by Major Type of Product: Percent; seasonally adjusted at annual rates (quarterly)

Definition : Personal consumption expenditures (PCE).  The goods and services purchased by persons.

Civilian Unemployment Rate
March 30, 2011

Civilian unemployment continues to drop but not because of job creation.  The underemployment rate measured by Gallup is more reflective of job creation, or lack of it.  Gallup’s rate of 10% for March exceeds the Bureau of Labor Statists (BLS) rate of 8.9%.  This drop is not because of new job creation but is a reflection of expiring benefit eligibility.  The underemployment rate, see below, may be a better indicator.  Grade: D-

Definition :  Civilian unemployment rate comes from a survey designed so that person age 16 and over that are neither in an institution nor on active duty in the Armed Forces is counted and classified in only one group. The sum of the employed and the unemployed constitutes the civilian labor force.  Persons not in the labor force combined with those in the civilian labor force constitute the civilian noninstitutional population 16 years and over. (There is no upper age limit.)

Underemployment Rate
March 30, 2011

Definition – American workers are classified as underemployed it they are either unemployed or working part-time but wanting full-time work.  These findings reflect more that 18,000 phone interviews with U.S. adults aged 18 and lover in the workforce, collected over a 30-day period.

Gross Domestic Product (GDP)
March 30, 2011

Gross domestic product for 4Q 2010 has been revised downward slightly from 3.2% to 3.1%.  PCE contributed significantly to this 4Q 2010 GDP and will contribute to the 1Q 2011, which will be up slightly.  Grade: C

Full title: 1) Gross domestic product: Real Gross Domestic Product, Chained Dollars: Billions of chained 2005 dollars seasonally adjusted at annual rates (quarterly).  2) Quarterly Growth in real GDP at annual rates, as a percentage change
Definition : Gross domestic product (GDP) price index. Measures the prices paid for goods and services produced by the U.S. economy and is derived from the prices of personal consumption expenditures (PCE), gross private domestic investment, net exports of goods and services, and government consumption expenditures and gross investment.

Industrial Production (IP)
March 30, 2011

Industrial production tanked in January and remained unchanged in February.  While personal consumption increased moderately, when combined with flat industrial production and with significant inflation, economic growth measured by GDP, while it will still be positive, begins a downward trend.  Grade: D-

Full Title: Industrial Production Index: Index 2002=100: SA
Definition : Industrial production (IP) includes output, capacity, and capacity utilization in the U.S. industrial sector, which is defined by the Federal Reserve to comprise manufacturing, mining, and electric and gas utilities.

West Texas Intermediate (WTI)
March 30, 2011

OUCH!  Breaking the $100 per barrel rate at $102.40 in March-- WTI is up over 14% in a single month.  The chaos in the Middle East assures that prices will continue to go up before they drop.  This will dampen our fragile economic recovery.  Grade: D-

Full Title: Price of West Texas Intermediate Crude; Monthly NSA, Dollars per Barrel
Definition : West Texas Intermediate (WTI) crude oil is of very high quality and is excellent for refining a larger portion of gasoline.  WTI is the major benchmark of crude oil in the Americas.  WTI is generally priced at about a $5 to $6 per-barrel premium to the OPEC Basket price and about $1 to $2 per-barrel premium to Brent, although on a daily basis the pricing relationships between these can vary greatly.

M1 Money Supply
March 30, 2011

Increased 1% in both January and February and is on track for a 12% annual increase.  In 2010, the money supply increase at a monthly average of .8% or 10% annually.  Closely watch this indicator combined with CPI for inflationary trends.  Grade: C

Full Title:  M1 Money Stock: Billions of Dollars: Not Seasonally Adjusted (NSA)
Definition :  M1 consists of (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) traveler's checks of nonbank issuers; (3) demand deposits at commercial banks (excluding those amounts held by depository institutions, the U.S. government, and foreign banks and official institutions) less cash items in the process of collection and Federal Reserve float; and (4) other checkable deposits (OCDs), consisting of negotiable order of withdrawal (NOW) and automatic transfer service (ATS) accounts at depository institutions, credit union share draft accounts, and demand deposits at thrift institutions. Seasonally adjusted M1 is constructed by summing currency, traveler's checks, demand deposits, and OCDs, each seasonally adjusted separately.

M2 Money Supply
March 30, 2011

The savings rate as measured by M2 increased by .5% between January and February or an annual rate of 6%.  With inflation running at 6.8% and personal consumption up, savings will remain at lower levels in 2011.  Grade: C-

Full Title:  M2 Money Stock: Billions of Dollars: Not Seasonally Adjusted (NSA)
Definition :  M2 consists of M1 plus (1) savings deposits (including money market deposit accounts); (2) small-denomination time deposits (time deposits in amounts of less than $100,000), less individual retirement account (IRA) and Keogh balances at depository institutions; and (3) balances in retail money market mutual funds, less IRA and Keogh balances at money market mutual funds. Seasonally adjusted M2 is constructed by summing savings deposits, small-denomination time deposits, and retail money funds, each seasonally adjusted separately, and adding this result to seasonally adjusted M1.

ECONOMIC NEWS SUMMARY - NOTES:

1. This summary contains some quarterly indicators such as personal income, real personal consumption, and gross domestic product and may not have changed from the last issue of B/N&V®.
2. Pink Band:  Indicates recessionary period.
3. Grading:  Assigned to each indicator, A-F just like in school. 

Let me know if you have any comments, questions, or suggestions.
Write David W. Weatherholt at david@bnewsviews.com

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Gallup Economic Confidence Index by Week, 2010 and 2011