Economic News Summary July 2011
With economic confidence at an all time low and business pessimism growing, the U.S. economy is on the ropes. At the root of our prolonged (even epic) economic struggle? The U.S. Government. While we wrestle with our own budgets, making the tough choices to adjust expenses to match income, frustration grows with the political elite who believe the best solution to economic stagnation is to raise taxes. Do you, like me, wonder why reducing spending at the Federal level is so controversial? This natural first step is a no-brainer; reduce spending to match revenues, and break the economic log-jam to begin to restore a level of certainty in our economy.
Unusual uncertainty, the overriding economic condition created by the Federal government, is produced by over spending and overregulation. It’s not rocket science; reducing the amount of money given to federal agencies, like the EPA, will limit their ability to regulate. An iceberg comes to mind. Federal spending is the tip above the water. Overregulation is the base under the water line. A little cut can produce big results, allowing the private sector to move forward.
Overall grade for July: D (June was a D+)
Consumer Price Index-Urban (CPI-U)
July 28, 2011
Inflation measured by the Consumer Price Index actually declined in the month of June. The rate went from a 2% annual rate in May to a -2.64% in June. A natural dip in inflation is great. However, in June we witnessed political intervention, i.e. withdrawal from the Strategic Petroleum Reserve to reduce gas prices. 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:
FOOD AND BEVERAGES (breakfast cereal, milk, coffee, chicken, wine, full service meals, snacks)
HOUSING (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture)
APPAREL (men's shirts and sweaters, women's dresses, jewelry)
TRANSPORTATION (new vehicles, airline fares, gasoline, motor vehicle insurance)
MEDICAL CARE (prescription drugs and medical supplies, physicians' services, eyeglasses and eye care, hospital services) |
RECREATION (televisions, toys, pets and pet products, sports equipment, admissions);
EDUCATION AND COMMUNICATION (college tuition, postage, telephone services, computer software and accessories);
OTHER GOODS AND SERVICES (tobacco and smoking products, haircuts and other personal services, funeral expenses). |
Personal Income
July 28, 2011
A quarterly indicator, Personal income (PI) increased $234.2 billion in Q1 2011 over Q4 2010. Personal income should increase $130.4 in Q2 2011. While this increase is good, it is it is almost half the rate of the previous two quarters. 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)
July 28, 2011
Personal consumption expenditures (PCE), another quarterly indicator, increased $50.4 billion between Q4 2010 and Q1 2011. While Q2 2011 through May increased slightly by $11.3 billion, the overall Q2 2011 should end with a slight $5.3 billion rate. Consumers will not power an economic recovery now but armed with strong savings, will be in a better position in the future. Reduced uncertainty will increase consumer confidence and “expenditures.” 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
July 28, 2011
Even looking at both indicators, Gallup vs. US DOL, unemployment is not improving. The best we can say is that it isn’t getting any worse. Unemployment has not been this high for this long since the Great Depression of the 1930’s. Reduce uncertainty to increase employment. 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.)
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)
July 28, 2011
The real news with Gross Domestic Product was how quickly it dropped-- a whole point from 2.9% in Q4 2010 to 1.91% in Q1 2011. Q2 2011, which will be released 7/29/2011, is projected to be 1.5%. While growth is good, this is anemic. 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.
Industrial Production (IP)
July 28, 2011
Industrial production recovered slightly in June, going from a negative .91% annual rate in May to a positive 2.35% annual rate. June is still below the March rate. 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)
July 28, 2011
The price of oil, as measured by the WTI, increased slightly in July to $96.80 per barrel. To keep this in perspective, last July the price of oil was $76.40 per barrel-- up 28% in 12 months. 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
July 28, 2011
M1 increased at a slower rate of .83% in June 2011 over May, growing at an annual rate of 13%. In the chart below, note the sharp, almost vertical trajectory of M1 Money Supply since 2009. The sharp climb is the result of TARP, Bailouts, Stimulus, QE1 and QE2. 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
July 28, 2011
The M2 Money Supply, the savings rate, grew at an annual rate of 12.2% in June 2011. Consumers are a powerful economic force capable of driving up GDP. The increased savings means the potential for solid growth in the future. 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:
- 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®.
- Pink Band: Indicates recessionary period.
- Grading: Assigned to each indicator, A-F just like in school.
Definition from the Bureau of Economic Analysis (BEA)
Definition from the Bureau of Labor Statistics (BLS)
Definition from the Bureau of Economic Analysis (BEA)
Definition from the Bureau of Economic Analysis (BEA)
Definition from the U.S. Energy Information Administration
Board of Governors Federal Reserve System
Board of Governors Federal Reserve System
Let me know if you have any comments, questions, or suggestions.
Write David W. Weatherholt at david@bnewsviews.com
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