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Economic News Summary February 2011

The economic recovery continues, limping toward recovery. We are finally shaking-off the dazed state that resulted from the jarring, vertical economic drop.  Economic indicators were mixed over the past year. They grudgingly moved to higher levels, indicating a solid economic recovery.  Economic growth is good, even when that growth is anemic creating what may be called the “New Normal.”  My overall grade for February: C+ (January was a C).

Consumer Price Index-Urban (CPI-U)
February 24, 2011

January CPI was a 4.1% annualized rate, down 7% from the December 2010 annual rate of 5.16%.  Consumer prices are going up 186% as measured against January 2010.  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
February 24, 2011

While prices increase, so did Personal Income. It was at an annual rate of 4.1% in 4Q 2010, a 69% increase over Q3 2010. 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)
February 24, 2011

Personal consumption expenditures increased at an annualized rate of 4.4% in 4Q 2010, up 83% over 3Q 2101.  The year-over-year increase was an astounding 370%.  Consumers are doing their part to buoy the economy. Grade: B+

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
February 24, 2011

The civilian unemployment rate dropped to 9% in January -- down 4% from December.  Unemployment as measured by the Bureau of Labor Statists (BLS) is dropping.  This drop is not because of new job creation but is a reflection of expiring benefit eligibility.  The underemployment rate, see below, may be a better indicator.   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.)

Underemployment Rate
February 24, 2011

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)
February 24, 2011

Gross domestic product is one of the mixed indicators mentioned above.  GDP for 4Q 2010 was at an annual rate of 3.2%, up 24% over 3Q 2010.  However, GDP is down 37% from last year’s annualized 5% rate.  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.

Industrial Production (IP)
February 24, 2011

Industrial production tanked in January, dropping to an annual rate of -8.1%, down -95% in a single month.  Steady stable economic growth will return if we can get all of our economic divers synchronized, such as consumer spending and 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)
February 24, 2011

As of this early February, West Texas Crude prices dropped to $87.30 per barrel, down from January’s price of $89.40.  The regime change in Egypt, political unrest in Libya, and general instability throughout the Middle East is producing political instability, uncertainty and higher oil prices.  While the ultimate political outcome is not predictable, the resulting increase in oil futures is the likely outcome.  One alternative to depending on this unstable source for oil, the U.S. aggressively begins domestic resource exploration.   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
February 24, 2011

M1 Money Supply increased a modest 1% in January 2011and is on track for a 12% annual rate, up from the 10% increase over January 2010.  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
February 24, 2011

The savings rate as measured by M2 increased 2.3% in January 2011 over December 2010 and increased 4% over January 2010.  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.
3. 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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