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Economic News Summary September 2011

“Its déjà vu all over again!”  The last real “double-dip” recession happened in the 1980’s when GDP dropped to negative 7.5% annual growth and then zipped back to a positive 7.5% growth rate, only to drop sharply again.  During 2008, the drop in GDP was much further. The tepid recovery turned stagnant, with no real sign the economy is improving. 

Consumer spending went into a 79.04% noise-dive in Q2 2011. While a single quarter of reduced consumer spending (consumer spending is a critical component for economic recovery) is not in itself bad, this decline (combined with other indicators) leads me to believe we are headed into another recession, i.e. Déjà vu.  That’s the bad news. 

The good news? There is enough capital to fund a robust recovery, but it sits on the sideline waiting for the right moment.  That right moment occurs when the hands of businesses are freed from the political uncertainty and allowed to create wealth as before.  Getting capital back into the game is a significant challenge-- the key to every recovery.  Overall grade for September: D- (August was also D-)

Gross Domestic Product (GDP)
September 29, 2011

The “third” estimate of GDP for Q2 2011 returned to a stagnant 1.3%. At least it did not drop.  The four main components making up GDP are: 1) Personal consumption expenditures (PCE), 2) Exports of goods & services, 3) Government spending, 4) Fixed investment. These continued to decline in the second quarter.  Some estimates project Q3 2011 growing at an annual rate of 1.8%; however, weak consumer spending and industrial production make that an optimistic estimate.  Grade: D-

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.

Personal Consumption Expenditures (PCE)
September 29, 2011

The spending brakes were “slammed” in Q2 2011, and nothing indicates this has changed.  Consumer confidence and actual spending remains low, indicating the economy is in a controlled skid.  We need to avoid an out-of-control skid.  Grade: D-

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.

Personal Income
September 29, 2011

A quarterly indicator, Personal income (PI) is still trending in a positive direction, but increases are slowing substantially.  Growth in PI went from a 1.96% annual rate in Q1 2011, dropping to 1.02% in Q2 2011.  Lower income (PI) combined with inflation (CPI-U) is never a good combination.  When the best that can be said is that an increase is always better then a decrease, your argument is weak.  Grade: D

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.

Consumer Price Index-Urban (CPI-U)                                                                                              
September 29, 2011

CPI in July reached an annual rate of 6.22%, a sharp increase in prices.  This increase, combined with moderating personal income, explains the drop in personal consumption as consumers pull-back on unnecessary spending.  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:

Civilian Unemployment Rate
September 29, 2011

Unemployment continues at historically high levels.  When it was last at this level (9.2%, 1983), it was headed down, not stuck.  It bears repeating, “Unemployment has not been this high for this long since the Great Depression of the 1930s.”  Reduce uncertainty to increase employment.  Grade: D-

Unemployment Rate for Alaska
September 29, 2011

August 2011, 6.7% down from earlier in the year.

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.)
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.

Industrial Production (IP)
September 29, 2011

While many believe that we are not an Industrial powerhouse, we still out-produce any other country in the world.  Industrial production dropped dramatically from July to August.  This production slowdown is in anticipation of a weak Christmas season, pushing gross domestic product lower and advancing toward recession.  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)
September 29, 2011

Good news for the consumer-- WTI increases slightly to $88.40 per barrel.  Stability in oil prices helps the overall economy.  However, moderating oil prices will not improve gross domestic product unless we tap more domestic sources.  Environmental regulation restricts domestic production, reducing overall employment, producing higher prices and adding a thick layer of political uncertainty.  Grade: C+

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
September 29, 2011

The steep vertical growth of M1 accelerated in July 2011 and again in August, increasing another 5.2%.  We have increased the supply of money with not much in the way of economic growth.  Grade: D-

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
September 29, 2011

A large portion of the new money pumped into the economy remains on the sideline.  In the month of August, M2 Money Supply increased 2.13%.  Creating an ever growing pool of cash, the potential exists for strong economic growth (and if not, moderated inflation).  Remove the uncertainty and look out.  Grade: B

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.

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Write David W. Weatherholt at david@bnewsviews.com

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