Economic News Summary:
Fear of the Future
By:  David W. Weatherholt, MBA

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Economic News Summary June 2012

Businesses create, grow and thrive when left to their own devices.  Businesses that operate in an abusive, unrestricted manner face immediate feedback, and face reward or retribution directly from their customers.  The road to business destruction is quite direct and not that long.  Will there be abuses of the process?  The short answer is yes.  The market has proven over and over that it is best suited to judge and punish.  Will government intervention curb abuses?  The short answer is no.  Customers, not government, are in the best position to determine which company should succeed or fail. 

The best recent example: Apple, Inc., where customers voted with their dollars in favor of the company’s products compared to Research In Motion, which is struggling with that negative customer vote.  Our government did not pick a winner between these two companies but now resides in the middle of the process.  Producing a wrath of new regulations combined with the specter of record-setting tax increases.  Businesses both large and small are frozen with “fear of the future” and the resulting uncertainty driven by the government, not the market.  Overall grade for June: D (May was a C)

Gross Domestic Product (GDP)
June 29, 2012

The final GDP release for Q1 2012 remained at 1.9%, well below the once optimistic 2.8% projection for the quarter.  Current estimates put GDP at a 2.4% for Q2 2012.  My question is-- What has changed in Q2 2012 to support that estimate?  In less than a month, July 27th, the “Advance” estimate for Q2 2012 will be released.  It will not top Q1 2012 and may be a little lower.  The economy is not improving.  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)
June 29, 2012

Personal consumption expenditures (PCE) finished up with more spending in Q1 2012.  April increased 0.3% over March.  The increase in March was 0.2%, down 78% from February.  The trend is slowing poised for a drop. See chart below.  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
June 29, 2012

Personal income (PI) increased in Q1 2012 but has turned down, with a monthly increase going from 0.4% in March, dropping 50% to 0.2 in April.  The trend is downward.  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)
June 29, 2012

In May, CPI dropped dramatically, ending at -3.35% annual rates. Falling prices in certain sectors has put us into a deflationary cycle.  Look for the Fed to take steps to change this.  Their feeling is that slight inflation is much better than deflation.  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
June 29, 2012

Unemployment and underemployment are both creeping upward. Both Gallup and the U.S. DOL are tied at 8.2%.  The trend: moving downward is in line with our other indicators, painting the picture of a slowing economy.  Grade: C-

Unemployment Rate for Alaska
June 29, 2012

Alaska’s overall unemployment rate ticked up slightly to 7% in May. 

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)
June 29, 2012

While Industrial Production tanked in March and rebounded in April, it tanked again in May.  Going from an annual growth of 12.2% in April, IP sank to -1.13% in May.  This is another indicator trending downward, indicating lower GDP for Q2 2012.  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)
June 29, 2012

The price of Oil on May 14, 2012 was $97.30 per barrel, indicated on the chart below.  The price continued to drop on June 26, 2012, ending at $80.21 per barrel.  The spot price for West Coast Alaskan North Slope Crude (ANS) on June 28, 2012 dropped to $93.19 a barrel.  While our prices are still up, the trend is down.  If you have an Alaskan-based business, the future is not looking very good.  Oil is still over 30% of our economy.  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
June 29, 2012

The money supply actually dropped -0.93% in May.  The drop in money supply combined with deflation and the slowing economic outlook? Expect the Federal Reserve to infuse more money.  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
June 29, 2012

The money supply when savings is included, i.e. M2, also dropped in May.  Down -0.65%, reflecting an actual decrease in savings.  Grade: D

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@waconsult.com

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