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Economic News Summary January 2011

The recession is over, but it doesn’t feel like we are moving economically.  Looking at the indicators, we can make the mental leap that economically life is improving.  But it simply doesn’t feel right.  Unusually uncertain (or more aptly, “politically uncertain”) accurately describes our economic prospects.  Consumer spending increased over the holiday season; the manufacturing sector experienced a hiring gain-- the first in over ten years, and companies are sitting on lots of cash.  Overall, the glacial pace of economic growth is much better than a decline, and it is safe to say we are poised for economic growth.  Yet overall unemployment remains stubbornly high, and government debt and the threat of higher taxes creates lots of uncertainty.  My overall grade for January: C (December was a C).

Consumer Price Index-Urban (CPI-U)
January 27, 2011

Month to month the consumer price index jumped to an annualized rate of 6% in December, up dramatically from November’s revised, rate of 1.44%.  This is a 317% increase.  Grade: C.

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
January 27, 2011

Personal income is up at an annualized rate of 2.4% in Q3 2010.  The chart below indicates that Q4 2010 will be positive.  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)
January 27, 2011

Personal consumption increased in Q3 2010 in actual dollars by 0.7% over Q2 2010.  The chart above includes a side-by-side comparison of “Real Disposable Income and Real Consumer Spending.” This indicates a coming increase in Q4 2010 PCE.  The chart below reflects PCE at Q3 2010. .  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
January 27, 2011

Unemployment is stuck hard above 9%, dropping slightly in December to 9.4%.  Compare the post-recession unemployment rate with the steep decline after the 1982 recession (the last time the rate exceeded 9%).  The difference is political uncertainty, which cleared up in 1982, leading to a recovery. Compare that with the political uncertainty now, which is entrenched.  We need to find a cure for these “unusually uncertain” times.  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.)

Gross Domestic Product (GDP)
January 27, 2011

The chart below provides a great visual of the recession and its soft recovery.  Gross domestic product (GDP) estimates for Q3 2010 have been revised upward to an annual 2.6% rate.  Increased consumer spending and strong industrial production numbers mean that Q4 2010 will be positive.  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)
January 27, 2011

Industrial production remained turned around in December 2010, moving to an annualized growth rate of 10.6%, from its November 2010 annualized rate of 3.2%.  This is good news.  Grade: B

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)
January 27, 2011

The price of West Texas Crude is moving toward $100 per barrel, reaching $90.30 in January 2011.  While good for Alaska’s oil patch, increased transportation costs will hurt.  The silver lining? Rising transportation costs make imports more expensive and U.S. goods more attractive.  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
January 27, 2011

Money stock reported January 10, 2011 at $1.784 trillion was the same level as the mid December level.  Compared to the same period last year the money supply increased 10.1% due to 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
January 27, 2011

The savings rate as measured by M2 increased to $8.9 trillion in December 2010, from $8.8 trillion in November 2010 or 9.1% and is up 3.5% last year.  This could be interpreted that most of QE2 went to 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.
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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