U.S. Economic Highlights
09 Dec. 2013
Last week: ”May we live in interesting times.” There are some surprising numbers on the economy. After growing by a 3.6 percent annualized pace in the third quarter, the U.S. economy could be headed to sustained high growth if one believes the numbers on job growth, from the stock market, or the survey of purchasing managers, or The Conference Board’s Leading Economic Index.
But retailers are worried about how weak holiday spending may be this month. Consumer confidence is down for two straight months. Business sentiment is also stuck in cautious mode. And the Federal Reserve keeps telling us the economy is not strong enough yet to stop tapering their buying of bonds, in order to stimulate the economy.
Which is it? More growth ahead or more muddling through? Bigger issue is what to watch to determine the economy ahead. There may be no better measure wage growth. It could be driven higher because more people are working and earning a paycheck. It could be driven higher by a pay raise. Or it could be driven higher because inflation weakens further, stretching earned dollars more. Obviously, any combination of the above would give consumer confidence a lift and allow households to spend less cautiously. And that fulfill the promise embedded in purchasing managers or other economic indicators. If not?
Monday, December 9
10:00am Employment Trends Index, November (The Conference Board)
This index does for the labor market what the Leading Economic Index (LEI) does for the general economy. The labor market, on revision, looks better over past two months. Will this forward indicator show more of the same is on the horizon?
Thursday, December 12
5:00am Euro-zone Industrial Production, October (Eurostat)
The ordering rate is still slow but the purchasing manager surveys over the past few months reflect optimism. And there has been some improvement in retail buying, though it remains at very low levels. These factors could be signaling an uptick in the industrial core of the Euro economy even as the nonfinancial portion of the service sector regains more solid footing. None of this suggests the Euro zone is about to start to grow faster than about 0.5 percent in the first half of 214. What it does suggest is low but steady growth is in place.
8:30am Retail Sales November (Bureau of the Census)
Relatively strong vehicle sales continue to reflect a sharp replacement trend. Nonauto retail spending has been more modest, held down by the lack of stronger growth in spending power, falling confidence, and by the lack of discounting. This is recipe for little growth in nonauto related spending right through the holiday season. Retailers, stuck with piled up inventory and a consumer waiting for sales, may have little choice but to discount.
Friday, December 13
8:30am Producer Price Indexes, November (Bureau of Labor Statistics)
Energy prices are low but could start to move a little higher. Food price increases have been helped by improved crop production this year. “Core” prices (which exclude food and energy) remain modest - rising by no more than 0.2 percent per month. And there is little reason to think that narrow range could move up this winter.
THE SITUATION ABROAD
Purchasing managers across the globe are generally in optimistic mode. Results from recent surveys show a pickup in North America, Europe, Asia/Pacific, even part of the Latin American economy. There are exceptions. For example, the measure for China edged a little lower in the latest survey month, which is consistent with the IMF’s downgrade of its latest forecast. Conversely, the numbers for Japan moved up to a level not seen in the past seven years. The irony in all this is that the Japanese economy is partly dependent on what it makes and ships to China.
The larger issue is what these purchasing manager surveys suggest about industrial activity across the globe. The service sector of the global economy (especially the nonfinancial service sector) has been moving forward. The drag has been from the industrial sector, in turn holding back global trade, and thereby acting as a drag of sorts on the financial sector. So if the purchasing managers are on to something here, industrial activity could be a little better going into 2014, improving trade prospects, which would allow financial services to improve as well. In short, things could be in better shape going into 2014 than was the case going into 2013.
FACT OF THE WEEK
After decades of slowly falling, the U.S. is on pace to produce 6.5 million barrels of crude oil per day, a 21 percent jump from the level of 2009. The earlier declines resulted from oil fields beginning to play out after decades of exploitation. Clearly the new rising trend results from new fields and from old fields being exploited with new technology. The new areas of production center chiefly in Wyoming, North Dakota, Texas, and Pennsylvania (with spill over into some of the neighboring states in all four areas). How much more production can be achieved? Peak production is still off in the future but may not be that much higher than current levels. The larger issue is how long can these fields remain in production. The answer is they can easily remain productive for a decade or two or longer. And finally, what impact will this have on gasoline prices? The days of $1.50/gallon are not coming back. But likewise, the era of $4-to-$5/gallon has been pushed off into the future.
QUESTION OF THE WEEK
Will technology evolve to make homes more energy efficient? If so, will it be more energy-saving motors in devices or some other technological device?
Today’s home is more energy efficient and tomorrow’s will use less energy still (have a smaller carbon footprint). For example, today’s refrigerator or washing machine has a much more efficient motor. Flat screen High Definition televisions on the other hand use more energy than old analog televisions of yesteryear. Add the monitor of that computer or Ipad or Nook and the energy usage goes up. It has to do with the resolution of that high definition, more densely packed pixels. But technology may in time even reduce the carbon footprint of monitors.
And yet for all that, energy conservation in the home rests not so much on technological breakthrough. No, it really rests on an old fashioned idea. Turning lights off in unoccupied rooms, keeping the thermostat down in winter or up in summer, recycling refuse, these are factors that have a bigger influence on household sustainability today and very likely will continue to have an impact tomorrow.