The 800-Pound Gorilla
By:  David W Weatherholt, MBA

Printer Friendly
View as PDF

Economic News Summary November 2011

The U.S economy is not in a recession.  That’s right. It is simply a very weak economic recovery. A weak recovery and a recession have the same look and feel-- these economic indicators tell the story of upward economic movement, i.e. recovery.  The numbers do not tell us how deep our last recession was or the role that high oil prices (peaking at $134 per barrel in June 2008) played in pushing the economy over the edge.  The numbers also skirt the potential tax consequences of out of control federal spending, while the EPA and other federal agencies churn out mountains of new regulations that will inhibit business expansion.  Our own government is the 800-pound Gorilla holding back dynamic economic growth.  Overall grade for November: D (October was a D-)

Gross Domestic Product (GDP)
November 29, 2011

The great recessions of the 1980s were a true double dip and not quite as severe as the dips in 2007-2008, see chart below.  Also notice the steep recoveries during the 1980s.  Now look at our current recovery. Instead of having a sharp peak as in past recoveries, our current recovery has a blunted peak before dropping again.  The “first” estimate for Q3 2011 GDP was a weak 2.5%. The “second” estimate was revised down to an even weaker 2% annual growth.  The next release scheduled for December 22nd will follow this year’s trend of downward revisions.  GDP with 75% of the year reporting will be below an anemic 2%.  What will Q4 2011 look like?  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)
November 29, 2011

The spending brakes were “slammed” in Q2 2011.  In Q3 2011, consumption was a positive 2.31% for the quarter.  Consumers keep tapping the brake gently in Q3 2011 with a positive 2.31% spending rate.  PCE in October remained positive, moving up a mere 0.1%.  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.

Personal Income
November 29, 2011

A quarterly indicator, Personal income (PI) is still trending in a positive direction, but increases are slowing substantially.  The increase for Q3 2011 was 0.62% positive but with a razor thin margin.  It’s not the best argument, but positive growth is better than negative growth.  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.

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

The monthly CPI rate for October 2011 was -.009%, for an annual rate of -1.08%.  Do you really believe that prices are dropping?  Blaming the index is not the answer. It is still accurate.  Negative categories are a counter-weight, producing an aggregate indicator with a negative value.  Deflation in some categories is back.  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
November 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
November 29, 2011

September 2011 showed a 7.6% rate-- a slight drop from the 7.7% rate for July and August. 

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)
November 29, 2011

The 8.49% increase for September is an upward bounce from the negative August number.  This index equaled 100 in 2007, which means the 94.7 rate for October is merely up from the September 94.1 rate.  We are simply climbing back to pre “Great Recession” levels.  Grade: C-

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)
November 29, 2011

WOW!  WTI jumps 12% in a single month.  Gasoline prices are directly related to WTI and are part of CPI.  There are titanic forces working against each other in the CPI, e.g. inflation vs. deflation. Neither are good.  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
November 29, 2011

The money supply grew at an astounding rate, a 20.6% increase between October 2011 and October 2010.  The good news, M1 growth is moderating now at an 18% annual rate.  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
November 29, 2011

The savings rate increased 9.9% from October 2010 to October 2011.  The annualized rate going forward has moderated significantly to 6.5%-- a 34% drop.  This is related to slowing personal income combined with increases in personal consumption.  We are living off of savings.  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.

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

Copyright © 2011 Weatherholt & Associates, LLC all rights reserved worldwide.
Getting Down to Business® is a registered trademark of Weatherholt & Associates, LLC