Economic News: Shackled
By:  David W. Weatherholt, MBA

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Economic News Summary September 2011

Why is an economic powerhouse “Shackled?”  Maybe it’s just that I live in one of the most beautiful and resource-blessed states that makes me keenly aware of the impact of twisted environmental regulations.  Our economic resources are caught between federal regulators and rouge environmental groups, hobbling our resource development.  There is something completely dysfunctional about a system where a company can literarily spend millions of dollars studying an issue, placing facts on the table which can simply be blown away by environmental groups who make baseless, unsupportable claims and have no skin in the game.  The mistaken belief that economic development comes at the expense of the environment severely “shackles” our economy and inhibits growth.  Instead of limping along economically, the U.S. economy could ignite the world.  Overall grade for October: D- (September was also D-)

Gross Domestic Product (GDP)
October 27, 2011

The “first” estimate of GDP for Q3 2011 beat all expectations coming in at 2.5%.  Even a severely “shackled” economy can squeeze out some growth.  Projected growth had been 1.8%, which I thought was a real stretch based on weak consumer spending and industrial production numbers.  I’ll remain cautiously optimistic until the second and third estimates come out.  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.

Personal Consumption Expenditures (PCE)
October 27, 2011

PCE is a quarterly indicator, so the most current data is from July and August, released September 30th.  With two thirds of the quarter in the can, i.e. 0.7% in July and 0.2% in August is tracking downward.  My estimate for September is an increase of only 0.1% making PCE for Q3 2011 a meager 0.1% increase.  When you factor in a reduction in Personal Income and a rising CPI, it means that consumers have resorted to credit or savings to pay for an increased PCE.  With tight credit and consumer fears, consumption will not lead to an economic recovery.  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
October 27, 2011

A quarterly indicator, Personal income (PI) is now trending in a negative direction.  Reviewing two thirds of the quarter, July had a meager 0.1% increase while August dropped to -0.1%-- completely flat.  My projection is that September will continue down, with Q3 2011 finishing down -0.1%.  If slow growth was the best that could be said, what can be said about no growth?  Grade: F

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)
October 27, 2011

While CPI remains relatively low, even a 3.7% rate combined with dropping Personal Income makes it seem much higher.  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
October 27, 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.”  Release the “shackles,” and employment increases.  Grade: D-

Unemployment Rate for Alaska
October 27, 2011

The Alaska rate remained at 6.7% again in September.

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)
October 27, 2011

Industrial Production bounced back to an annual growth rate of 2.3%, up from the August annual rate of 0.5%.  This may be a little known fact, but the U.S. is still an Industrial powerhouse.  Even “shackled,” our economy still produced an increased Industrial production.  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)
October 27, 2011

Still a bright spot for consumers is the price of oil, which dropped slightly to $83.80 per barrel.  Stability in oil prices also reflects low economic growth and depressed usage.  A “shackled” economy inhibits oil production, keeping high paying jobs on the sidelines.  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
October 27, 2011

The steep vertical growth of M1 finally stopped with a -0.31% drop in the month of September.  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
October 27, 2011

The positive side of a “shackled” economy is that the savings rate continues to go up.  Going up 2.13% in August, savings increased a modest 0.4% in September.  This ever-growing pool of cash means the potential exists for strong economic growth.  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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