Economic News Summary:
The "Saturday Night Fever" Economy
By: David W. Weatherholt, MBA

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Economic News Summary August 2012

The 1970s were economically tough times, punctuated by economic stagnation combined with high inflation-- forming a new economic condition called “stagflation.”  Tony Manero lived with his parents, worked a dead-end job and spent his weekends as the king of dance at a local discotheque.  John Travolta brought Tony to life in the 1977 movie Saturday Night Fever.  We watched as he danced, both audience and actor escaping the cold economic reality of the 1970s.  Inflation during the 1970s averaged 7.4%, while gross domestic product averaged 3.5%. 

Compare that to our last 10 years gross domestic product, averaged 1.7% annual growth, while inflation only averaged 2.4% (although it is based on different factors now).  Our economy is stagnating at less than half the 1970’s rate.  This reality check, courtesy of a nostalgic look at the 1970s, confirms that my consistently low economic grades are indeed accurate and not an overly tough grading system.  Overall grade for August:  D-  (July was a D+)

Gross Domestic Product (GDP)
August 31, 2012

The “Advance Estimate” of Q2 2012 came in at 1.54%, while the “Preliminary Estimate” just released increased slightly to 1.7%.  This minor restatement doesn’t change a thing.  We are stuck economically, i.e. stagnating.  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)
August 31, 2012

Personal consumption expenditures (PCE) declined in Q2 2012 by 1.48%, dropping 43% from Q1 2011.  Lower consumption or spending means consumers will not be able to change the downward economic trend.  Spending is still running ahead of inflation.  Grade: D

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
August 31, 2012

Personal income (PI) dropped to 4.32% in Q2 2012, down 31% from the previous quarter.  With less money, increasing prices and credit restricted, future spending will continue to decline.  Grade: D

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)
August 31, 2012

CPI in July moved slightly higher, to an annual rate of 0.53%.  The return of inflation, while slight, is a sharp departure from the previous deflationary rate.  While PCE and PI remain above CPI, this could change as many commodity price futures 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:

Civilian Unemployment Rate
August 31, 2012

Movement is slight and insignificant in respect to the flatling unemployment numbers.  Economic stagnation is boring to watch and report, however it is really starting to become harmful.  Things need to change.  Grade: D

Unemployment Rate for Alaska
August 31, 2012

Alaska’s overall unemployment rate remained steady at 7.7% for July.  Not seasonally adjusted (NSA) rate, which had been used, was discontinued in July. Our Economic Summary will be using the seasonally adjusted (SA) rate now.  Alaska’s rate is much lower now than the historical highs reached during the 1980s, but look at its near vertical upward trajectory.  Stalled resource development is not good and shows a troubling trend.  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.

Industrial Production (IP)
August 31, 2012

Industrial Production was up again in July. It rebounded to an annual growth rate of 5.2%.  This index tanked in March, rebounded in April, tanked again in May and bounced back again in June and July.  Each successive rebound is getting weaker.  The whiplash effect is not good for stable economic growth.  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.

Alaskan North Slope Crude (ANS) West Coast
August 31, 2012

The price for Alaskan North Slope Crude averaged $103.75 for July, down 9% from last year.  The price is headed in an upward direction.  The strong price is good news. However, volume hit an all-time low of 323,235 barrels per day, down from last July’s 453,469 barrels per day or 29%.  Supply and demand appear to be supporting the higher prices.  Grade: B

Alaskan North Slope Crude, Dollars Per Barrel

Full Title: Alaskan North Slope Crude Oil; Monthly West Coast Average Spot Price, Dollars per Barrel
Definition :  Alaskan North Slope (ANS) crude price calculated on the average spot price for ANS at the US West Coast during a month is to be calculated for purposes of determining prevailing value.  The State of Alaska Department of Revenue Tax Division calculates the average spot price each month. The Division does not guarantee the accuracy of these calculations.

M1 Money Supply
August 31, 2012

The money supply jumped to 1.8% in July, an annual rate of 21.6%.  In the previous year the money supply increased 15%.  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
August 31, 2012

The money supply when savings are included, i.e. M2, increased 0.41% in July for annual rate of 4.95%.  Saving is running much lower the past year’s 8% rate.  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.

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

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