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Economic News Summary May 2011

The United States economy is still the largest single-nation economy in the world at $14.62 trillion , as measured by gross domestic product (GDP).  The combined total for the next three largest countries: China at $5.75 trillion, Japan at $5.39 trillion, and Germany at $3.31 trillion has a combined total of $14.44 trillion- still short of the United States.  In spite of our economic issues, we are still the economic powerhouse of the world.  Did you ever stop to think what would happen if we put-the-pedal-to-the-metal economically?  Instead of just limping along, we could set the world on fire economically.  In the words of John F Kennedy, “A rising tide lifts all boats.”  While my grade on the overall economy remains low, clearly political uncertainty continues to hold us back.  Overall grade for May: D- (April was a D+)

Consumer Price Index-Urban (CPI-U)                                                                                              
May 31, 2011

The monthly inflation rate for April was 0.42, or an annual rate of 5.2%, and while this is down from the .55 monthly rate or 6.8% annual rate in March, overall it is still on the upswing.  Actual inflation is twice what it averaged over the previous ten years and is real.  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
May 31, 2011

Personal income (PI), the amount of money you receive each month.  During Q1 2011 it increased at an annual rate of 7.44%, increasing a whopping 119.5% over the 3.39% annual rate in Q4 2010.  The trend in April shows a return to 4% annual-- slightly ahead of inflation (a good thing).  Grade: B

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)
May 31, 2011

Personal consumption, the amount you spend monthly, dropped to an annual rate of 2.17% in Q1 2011, down 46% from an annual rate of 4.02% in Q4 2010.  The difference between the increase in PI and the slower PCE rate means more money going into savings increasing M2.  Consumer spending is not going to drive an economic recovery.  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
May 31, 2011

No matter which rate you use, unemployment and underemployment remain at historically high levels.  The last time rates remained this high for this long was the “Great Depression” of the 1930s.  There is nothing really good to say about these rates.  The chart below combines the Gallup underemployment and unemployment rates with the BLS rate.  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)
May 31, 2011

The “second estimate” of gross domestic product remains at a 1.8% annual rate for Q1 2011, which is down dramatically from the 3.1% annual rate in Q4 2010.  The only good thing about this number is that it is not negative, but it is below the 3.5% - 4% rates needed for healthy economic growth.  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)
May 31, 2011

Industrial production tanked in January and remained unchanged in February, rose slightly in March then really tanked again in April.  Industrial production went from an annual rate of 9.02% in March to an anemic negative .15% in April.  What had been the one bright spot in a sea of bad economic news is now really bad economic news.  An interesting note: “Consumer Confidence” and the business “Optimism Index” both dropped in April.  Grade: F

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)
May 31, 2011

Dropping over $7 a barrel to $101.90 is normally a good indicator.  However, it will be interesting to see if this is simply an abnormality or the start of a downward trend.  My guess is that it is simply a temporary adjustment and not a trend.  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
May 31, 2011

M1 is still on track for a 12% annual increase, with April weighing in at a 0.53% monthly increase.  Last April, M1 was increasing at an annual rate of 5.62%, evidence of the impact the QE2 had on the money supply.  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
May 31, 2011

The savings rate as measured by M2 increased again in April, up 0.37% on a monthly basis.  While increased savings personally is good, economically it is harmful.  There are three components that could pull us out of our economic malaise: government spending, business spending or consumer spending.  An increase in savings means consumers will not lead the way to economic recovery.  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.

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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