Free Markets, Free People

Economy

Economic Statistics for 3 Nov 11

Today’s economic calendar is fairly full, so let’s get cracking:

Initial jobless claims continue to drop slowly, with this week’s claims tallying 397,000, finally getting us below the awful 400,000 mark. Once again, though, last week’s number was revised upward to 406,000. These upward revisions have become quite commonplace.

Retail sales growth for October is mixed at best, trending at about 3% for same-store sales and about 5% for total sales.

Nonfarm business productivity jumped an annualized 3.1% in the 3rd quarter, much better than expected. Compensation growth, on the other hand, was restrained, rising an annualized 0.6%. Overasll, unit labor costs fell -2.4%.

Bloomberg reports that their consumer confidence index dropped to its lowest level since the 1st quarter of 2009, to -53.2.

Strong sales for non-durable goods and an upward revision to durable goods resulted in a better-than-expected 0.3% jump in September factory orders.

The ISM Non-Manufacturing index continues to point to steady, if slow, growth in the service sector, with the index at 52.9, just one tick below last month’s 53.

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Dale Franks
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Economic Statistics for 2 Nov 11

Today’s economic statistical releases:

ADP estimates that October private payrolls rose 110,000, little changed from September’s revised 116,000.

Challenger’s layoff report shows that layoff announcements eased in October to 42,759.

The Mortgage Bankers’ Association reports that mortgage purchase applications rose by 0.2% last week. Mortgage rates for 30-year conforming loans fell 2 basis points to 4.31%.

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Dale Franks
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Obama takes ownership of Keystone XL pipeline decision

A day after the White House said that the State Department would make the call, President Obama has decided he’ll make the ultimate decision on the Keystone XL pipeline which would bring petroleum product from the tar sands of Canada to the US.

This has become a cause the “climate change” crowd has embraced and have tried to paint as one which would supposedly increase “global warming”.  Of course the actual science of “global warming” doesn’t support the contention that the earth is warming, however that is a part of the science that these folks have decided to ignore.

The fact that Obama has chosen to make the decision himself may confuse some – why not let the State Department, who makes decisions such as this when a foreign nation is involved?  Well that’s what makes me uneasy.   There’s an election coming and his environmental base has been very disappointed in him.  Read between the lines of the statement he made and the answer he provided to a question:

“We need to encourage domestic oil and natural gas production,” Obama added. “We need to make sure that we have energy security and aren’t just relying on Middle East sources. But there’s a way of doing that and still making sure that the health and safety of the American people and folks in Nebraska are protected, and that’s how I’ll be measuring these recommendations when they come to me.”

The “but” is rather pregnant isn’t it?

Then the question concerning jobs and the promise of thousands of jobs if the pipeline is approved.   Will that have an effect on his decision?

“It does, but I think folks in Nebraska like all across the country aren’t going to say to themselves, ‘We’ll take a few thousand jobs if it means that our kids are potentially drinking water that would damage their health or rich land that’s so important to agriculture in Nebraska are being adversely affected,’” Obama said, adding, “because those create jobs, and you know when somebody gets sick that’s a cost that the society has to bear as well. So these are all things that you have to take a look at when you make these decisions.”

For your information, petroleum pipelines crisscross this country.  In fact, more than 168,000 miles of petroleum pipelines have been in operation, safely, for decades. 85% of all petroleum product is moved by pipeline.

usMap

So this isn’t about “safety” – the product has been moved in safety for years.  It’s much like the fracking argument.  It is unfounded and based in fear of something that isn’t true.  And like the fracking argument, the opposition likes to try to frame the procedure as something new and dangerous.   Well it isn’t new.   Fracking has been in use since 1948 very safely and over a million wells have been developed using it.

The argument used by opponents of the Keystone XL pipeline is that the petroleum shipped in that pipeline is more corrosive and dangerous than regular petroleum product.   The Association of Oil Pipelines answers that question:

Opponents have also wrongly suggested that crude from the Canadian oil sands is somehow more corrosive than other heavy crudes, which have been moved safely for decades.  It is not.  The oil sands may be produced differently, but the product readied for pipeline transportation will be behave like any other heavy crude oil. There is simply no evidence pipelines carrying diluted bitumen behave any differently than a pipeline carrying conventional crude oil, or that diluted bitumen is more corrosive than other crude oils. Pipeline operators don’t build multi-billion dollar assets to then destroy them with a corrosive product.

So Obama gets to decide between jobs and increased energy security and politics.  We currently get 400,000 barrels a day from the oil sands in Alberta.  This pipeline promises to add another 700,000 barrels a day from a secure source.   Or will Canada be forced to build a pipeline to the west coast and ship it to China?

This should be a no brainer.   Jobs along with safe transportation of a vital commodity which powers our economy is a winner for the nation.  But this is a president in political trouble and desperately trying to shore up his eroding base.

Will he put the well being and energy security of America and Americans first? 

Or will he play the politics card?

Unfortunately, the latter is much more probable than the former, given how political Obama is.  Don’t be surprised if he turns down jobs and energy security for the promise of increased political support from his base.

~McQ

Twitter: @McQandO

Economic statistics for 1 Nov 11

Today’s economic statistical releases:

Weekly retail sales: ICSC Goldman reports a 0.7% weekly rise in same-store sales and 3% year-on-year, while Redbook reports a year-on-year rate of 5.2%.

Despite some positive indicators, the ISM Manufacturing Index fell to a weaker than expected 50.8 from 51.6 last month. On the positive side, the key sub-index of new orders, which have been contracting for the last 3 months, show expansion in this report. The prices paid index also dropped substantially as prices for manufacturing inputs fell.

Construction spending in September gained 0.2% over the pervious month, which is still positive, but far slower than last month’s 1.4%. On a year over year basis, spending fell -1.3%.

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Dale Franks
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Can you solve the debt crisis by creating more debt?

Most intuitively know you can’t borrow your way out of debt, so it seems like a silly question on its face.  But the theory is that government spending creates a simulative effect that gets the economy going and pays back the deficit spending in increased tax revenues.  $14 trillion of debt argues strongly that the second part of that equation has never worked.

The current administration and any number of economists still believe that’s the answer to the debt crisis now and argue that deficit spending will indeed get us out of the economic doldrums we’re in.  William Gross at PIMCO tells you why that’s not going to work:

Structural growth problems in developed economies cannot be solved by a magic penny or a magic trillion dollar bill, for that matter. If (1) globalization is precluding the hiring of domestic labor due to cheaper alternatives in developing countries, then rock-bottom yields can do little to change the minds of corporate decision makers. If (2) technological innovation is destroying retail book and record stores, as well as theaters and retail shopping centers nationwide due to online retailers, then what do low cap rates matter to Macy’s or Walmart in terms of future store expansion? If (3) U.S. and Euroland boomers are beginning to retire or at least plan more seriously for retirement, why will lower interest rates cause them to spend more? As a matter of fact, savers will have to save more just to replicate their expected retirement income from bank CDs or Treasuries that used to yield 5% and now offer something close to nothing.

My original question – “Can you solve a debt crisis by creating more debt?” – must continue to be answered in the negative, because that debt – low yielding as it is – is not creating growth. Instead, we are seeing: minimal job creation, historically low investment, consumption turning into savings and GDP growth at less than New Normal levels.

Not good news, but certainly the reality of the situation.  Deficit spending has been the panacea that has been attempted by government whenever there has been an economic downturn.  Some will argue it has been effective in the past and some will argue otherwise.   But if you read through the 3 points Gross makes, even if you are a believer in deficit spending in times of economic downturn, you have to realize that there are other reasons – important reasons – that argue such intervention will be both expensive and basically useless.

We are in the middle of a global economy resetting itself.  Technology is one of the major drivers and its expansion is tearing apart traditional institutions in the favor of new ones that unfortunately don’t depend as heavily on workers.

Much of the public assumes we’ll return to the Old Normal.  But one has to wonder, as Gross points out, whether we’re not going to stay at the New Normal for quite some time as economies adjust.   And while it will be a short term negative, the Boomer retirements will actually end up being a good thing in the upcoming decades as there will be fewer workers competing for fewer jobs.

But what should be clear to all, without serious adjustments and changes, the welfare state, as we know it today, is over.  Economies can’t support it anymore.   That’s what you see going on in Europe today – its death throes.   And it isn’t a pretty picture.

So?  So increased government spending isn’t the answer.  And the answer to Gross’s question, as he says, is “no”. 

The next question is how do we get that across to the administration (and party) which seems to remain convinced that spending like a drunken sailor on shore leave in Hong Kong is the key to turning the economy around and to electoral salvation?

~McQ

Twitter: @McQandO

Economic statistics for 28 Oct 11

Today’s economic statistical releases:

Personal income increased by 0.1% last month, while spending increased by 0.6%. Year-over-year income rose 4.4% while spending rose 5.3%. The core PCE price index was unchanged last month, and up 1.6% on a year-over-year basis.

Thanks to a slowdown in the growth of benefit costs, the Employment Cost Index rose far less than expected, 0.3%. ECI is up 2% on a year-over-year basis.

A little optimism is leaking into Consumer Sentiment, as it rose to 60.9 in the latest tally.

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Dale Franks
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Economic Statistics for 27 Oct 11

Today’s economic statistical releases:

The big number today is obviously the advance estimate for 3rd quarter GDP. The BEA reported that GDP increased at an annualized 2.5% rate. The top three contributors to GDP growth were personal consumption expenditures, nonresidential fixed investment, and exports. So despite a bit of gloom as the economy slipped during the 2nd quarter, GDP, along with several other series of statistics, are showing a rebound.

The Kansas City Fed manufacturing index rose to 6 in September, up from 3 last month. The increase was mainly concentrated in durable goods.

Sadly, the rest of today’s numbers are a bit less cheerful.

Initial claims for unemployment held basically steady, though still unpleasantly high, at 402,000. The 4-week moving average dropped to 403,000 from 405,500 last week.

The Bloomberg Consumer Comfort Index fell to -51.1 last week, from -48.4 the previous week. This week’s reading is the lowest in the past month.

Contract signings are very weak for existing home sales, which shows ongoing trouble for housing and construction. Pending sales fell -4.6% in September, with weakness in all geographic areas. Weak consumer confidence combined with tight credit conditions are weighing down the market.

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Dale Franks
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Economic Statistics for 26 Oct 11

Today’s economic statistical releases:

The Mortgage Bankers’ Association reports that mortgage applications bounced back from the short Columbus Day week, rising 4.9%.

Durable Goods Orders look sluggish, with a headline report of a -0.8% drop, but ex-transportation, orders rose   1.7%.

New home sales jumped 5.7% in September to a 313k annual rate, but the increase comes at the expense of a 3.1% drop in prices.

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Dale Franks
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Economic statistics for 25 Oct 11

Today’s economic statistical releases:

In retail sales, ICSC-Goldman Store Sales fell to a 2.4% year on year rate, while Redbook reports 4.1%. Both are slightly below trend.

Case-Shiller data show no change in housing prices for the month, a sign that home prices may finally be bottoming out. The previous three months have see drops of -0.1%. Prices are still down -3.8% from last year. Conversely, according to the FHFA, house prices fell -0.1% in August, ending a string of four monthly gains in a row, after rising 0.1% last month.

The consumer confidence index fell 6.6 points in October to 39.8 on declines in consumer assessments of both current and future conditions.

Manufacturing is contracting for the fourth month in a row in the Richmond Fed district where the manufacturing index is unchanged at -6.

State Street’s confidence index for institutional investors rose 7points in October to 96.7, but remains below 100, still showing a bias towards a demand for safety.

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Dale Franks
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America in decline?

That’s the consensus in an interesting poll just published:

More than two-thirds of voters say the United States is declining, and a clear majority think the next generation will be worse off than this one, according to the results of a new poll commissioned by The Hill.

A resounding 69 percent of respondents said the country is “in decline,” the survey found, while 57 percent predict today’s kids won’t live better lives than their parents. Additionally, 83 percent of voters indicated they’re either very or somewhat worried about the future of the nation, with 49 percent saying they’re “very worried.”

The results suggest that Americans don’t view the country’s current economic and political troubles as temporary, but instead see them continuing for many years.

My father used to tell me “you live between your ears” meaning attitude and outlook are yours to control and play a critical part in life.

Attitude and outlook are also critical in any sort of economic recovery.  If the attitude is pessimistic and the outlook deemed as dismal, it sometimes becomes a self-fulfilling prophecy.

I remember back in the days of the Jimmy Carter presidency, the “malaise” that settled in on the country.  People felt everything was out of control.  Interest rates were through the roof, we were seen as a paper tiger in the world and whatever else Jimmy Carter might be, he wasn’t much of a leader.   Everyone then thought America was in decline then too.

But then Ronald Reagan came along, took charge, changed the attitude and outlook of Americans and, well, the rest is literally history.

One of the key jobs of a President of the United States is to address the country’s outlook and attitude.  It is a very important aspect of leadership.  It is also critical to recovery from economic problems, unemployment and other ills that are besetting our country.  It is about setting up the proper climate to make attitudes swing to the positive side and the outlook appear rosier.

One of the things I’ve said consistently since Barack Obama has taken office is he’s not (nor has he ever been) a leader.   That’s actually no surprise to me because I understand what leadership requires.   In a word, development.   The great leaders of today, with very few exceptions, worked their way up to their ultimate leadership job through a series of lesser leadership jobs. 

I use military examples because they’re familiar to me, but no division commander ever took that job that hadn’t first been a platoon leader, then company commander, battalion commander and brigade commander.

And even then, some division commanders are better than others.   But regardless, their leadership skills have been developed and honed by successive leadership positions of increased size and responsibility.  And the weak leaders have been cast aside in that process.

We’ve elected a man who hasn’t even had a platoon, if you get my drift.  And now we’re asking him to lead (well, in reality, we ask him to lead 3 years ago) in a very difficult time.

This poll indicates how well he’s doing.

In any school in the land, his grade in leadership would be “F”.

Is America in decline?  Under this president the answer is “yes”.  Does it have to remain in decline?  No.  But to change that, the first step is voting the present occupant of the White House out of office.  The good news is we all know what happened to Jimmy Carter.

~McQ

Twitter: @McQandO