Monday, August 29, 2011

Yay for Earthquakes and Hurricanes

Aren’t earthquakes and hurricanes great (so great that maybe there is no way they can "only get better")?  For one, they are an amazing excuse to not get your work done.  How could you possibly be expected to come into work when you were stuck in an earthquake, hurricane, or other natural disaster.  (Bonus points for being stuck in one of each in the same week).  Natural disasters put “my dog ate my homework” to shame.  Not only do such events get you out of work, but they even can get you the day off – and you get paid to sit home without taking any leave!  Not even Federal holidays are guilt-free stay-at-home-and-do-nothing days.  Almost always someone insists on celebrating something, which usually involves you having to take a shower, get dressed, and talk for an hour with your awkward cousin while trying to watch the game over their shoulder.

Another great thing about earthquakes and hurricanes: they are equivalent to stimulus packages without the need to wait for them to get passed in Congress (nobody can argue with spending and investment resulting from natural weather events).   The businesses responsible for producing the goods and services we rely on are not having as good a summer as we are (they should have invested in beach week).  But these companies are important for our country’s economic well-being (not to mention our wallet’s well-being).  If companies aren’t producing stuff, or making money, then they can’t afford to pay us.  If they can’t pay us, then we can’t buy their stuff, so less is produced and the cycle continues.  In this ugly scenario, our future Christmas and summer getaways could be in jeopardy.  

As mentioned in the previous posting of this blog, manufacturers in the NY and Philly area are not anticipating a good August.  To echo this sentiment around other regions of the country, an index released today indicates Dallas area manufacturers were quite pessimistic about business in August, with a measure of -11.4 compared to -2 in July (anything below “0” indicates business is decreasing).  Last week, a measure of Richmond area business conditions also deteriorated in August, coming in at -10 compared to -1 in July.  Only Kansas reported positive growth in August (at a no-change over July’s “3”).  At least the need for infrastructure improvements and relief supplies resulting from natural disasters can increase demand for U.S. manufacturers (good for business).  

Natural disasters can also boost the economy through “induced” spending (we need water and flashlights, and 100 each thank you).  The spending coming out of natural disasters will help the already big boost you spenders put into the economy in July (didn’t you treat yourself to a nice summer).  Data released today shows consumers like you increased spending by 0.8% in July over June, after seeing a 0.2% decrease in spending in June over May.  But taking a closer look shows “real” disposable income, our spending money after adjusting for price increases, declined by 0.1%.  A decline in available funds may have led to a more modest spending future (and economic growth), but thanks to our earthquake and hurricane, spending may have been induced that would not have been otherwise.  Did you say you only had one pack each of A, AA, AAA, C, and D batteries? Uh-oh.

You may now be thinking that natural “disasters” seems a little harsh to describe these naturally occurring metrological events.  What if we called them natural “stimulators” instead, after the economic bump they provide (that's PR genius, right)?  Okay, surely earthquakes and hurricanes aren’t all rosy.  No other stimulus package can cause such widespread destruction to the stuff we already worked hard to get.  But as with most negative things, at least there is some silver lining, however thin. 

(The Federal Reserve, Bureau of Economic Analysis)

Friday, August 19, 2011

Blame Shifting

Something we are all experts in: blame shifting (don’t deny it).  There are arguments we all have where we can’t understand why the offending party doesn’t stop, take a step back, and finally realize that you did nothing wrong and they are being offensive.  Even if you are obviously at fault (the horror) you try to think of every possibility that would not force you to admit guilt.  Some of us could make a profession out of it (it’s never your fault, how could it be, you’re perfect in every way).   Somehow not one, but TWO of Charlie Sheen’s cars ended up off a cliff into the woods (definitely wasn’t his fault, aliens did it).  Then he’s on drugs and his teeth fall out, goes crazy on twitter, but it’s his boss’s fault he got fired (technically his boss did fire him – but clearly for no good reason).

There is a lot of blame shifting going around the economy these days.  The interesting part is how we can see the shifting down the line in economic statistics and stops with us, the consumer.  Take prices.  Data released yesterday shows consumer prices are up by 3.6% over last year, which eats into how much stuff we can buy (thank goodness clothes with holes in them are actually in style).  Why?  Because producer prices, the prices producers pay to make the stuff we buy, are up.  Data released Wednesday shows producer prices increased by 7.2% over last year in July (and by 2.5% excluding food and energy).  Why?  Because producers use a significant amount of foreign made inputs in their production of said stuff (we don’t know exactly how much but some estimates are around 20%).  And on Tuesday data released showed import prices increased by a staggering 14% over last year.  Given this supply chain, we are at a stopping point: we don’t have much control over the prices other countries charge.  In other words, it’s their fault across the oceans.

Price increases don’t just make our pockets lighter.  They may also be to blame for another (lately downward) economic statistic: U.S. production.  As a driver of our economic growth, and an important sign of a healthy economy, recent indicators are not very favorable.   Growth in U.S. production has been weak all year, and a larger uptick in July (the sector expanded by 0.9%) looked promising.  However, August is not looking good.  According to indicators released this week, in August New York manufacturers saw a continued deterioration in their business outlook (the indicator went from a - 3.76 in July to -7.72 in August) while Philadelphia manufacturers felt an even bigger deterioration in business conditions (the indicator went from a slightly positive 3.2 in July to -30.7 in August).  Why?  Certainly it can’t be the factories’ fault (that’s nonsense).  U.S. producers need U.S. consumers to buy their stuff (increasing exports is for another day).  So, it is a spiral: if consumer prices go up, the amount of stuff we buy goes down.  If we are buying less, producers will produce less.  

Of course it’s not just price’s fault (that’s not fair to blame everything on prices).  There is much more at work here.  If we are earning less, or are out of work (stupid high unemployment), we simply don’t have as much spending money.  Can those who are unemployed be the ones to blame?  Is it their fault they are unemployed?  Perhaps we should remember that if producers weren’t so reliant on U.S. consumers, they wouldn’t be so dependent on how much money we have.  If they made more stuff for people overseas many there would be more jobs for the currently unemployed.  The blame cycle continues.

Being an expert blame shifter yourself, perhaps you could offer a few words of advice for the U.S. manufacturing sector.   What would you suggest?   Maybe setting up kiosks in malls overseas or offshoring less where financially viable?  You are so smart, how could anyone possibly think you are ever to blame for anything!  Then sit back and watch the economy jump back to life and wonder how they could ever thank you.

(Bureau of Labor Statistics, Federal Reserve, Bureau of Economic Analysis)

Friday, August 12, 2011

Mixed Signals

The art of human behavior is still a mystery to many of us.  During some point in our lives we come across an unfortunate situation: do they like me?  No matter how you slice it, you can’t tell.  All we get are mixed signals, like crossed wires.  One day things are great and the next you might as well live on opposite sides of the country.  You wonder why they haven’t messaged you back, or if they’ll call (do you need to provide a subtle reminder what your number is?).  You realize the offender is changing tactics more times than P. Diddy changes his name (is that his most recent name?).  This is a problem.

That is the story of financial markets this week.  We started off with a sovereign credit downgrade (very bad) by S&P and the U.S. stock market reacted by dropping by 634 points, to the largest one day drop since the financial crisis began in 2008.  Then on Tuesday the market jumps back up by about 400 points, Wednesday loses the entire gain (and then some), and Thursday the market (Dow Jones Industrial Average) comes back yet again to recover most of Wednesday’s losses.   Who knows where Friday will take us?  Hopefully at least back to where we were last week – or right back to where we started.

What does this all mean?  We had an active week but not a productive one: we just went in a big circle (or enjoyed 2 periods on an oscillating curve for you smart people).  There is nothing worse than trying to move forward only to end up where we began.  It all comes down to wealth (money, what a surprise).  If the stock markets are “down” then the value of the companies being traded are generally worth less.  If companies are worth less, then they have less money to grow and invest, and (more importantly) potentially have less money to pay us employees with.

For those of us risk seekers, we could be directly losing wealth if the market tanks and we own stocks, bonds, mutual funds, or whatever else is out there.  Ultimately, the effects of a stock market crash are far reaching and multiply out to all ends of the economy.  We felt the crash of 2008 even if we didn’t own stocks (the market dropped by almost 4,500 points, or 40% in 6 months of which 1,500 were lost in one week).  We heard over and over how Wall Street hurt Main Street.  Enter stimulus package and bank bailouts to stop the bleeding.

If the U.S. markets keep oscillating, people around the world will become less confident and less willing to invest in markets that are still not on solid ground from the last crisis in confidence.  To cure the symptoms we need to address the root of the problem: the U.S. economy as a whole is giving mixed signals.  This latest bout started with a month long debate on whether or not the U.S. would default on our debt (think what would happen if everyone stopped paying their mortgage).  This week we find out new jobless claims are down (good, fewer people lost their jobs this week than last week and the 4-week moving average is down for the sixth straight week), yet on the same day (yesterday) data shows our trade deficit jumped to $53.1bn in June, the highest since October 2008.  To make matters worse, the oil deficit actually shrank – the increase in this new debt we owe to people abroad is led by non-petroleum goods and by a 2.3% drop in exports (not good, making money from people abroad is an important source of revenue).  Oil debt is something that is hard to fix, but manufactured goods is something we should be able to work on. 

In other words, we should keep the roller coaster rides to amusement parks (they even do coasters in themes).  This might require some shifts in the way we do business.  Otherwise buckle up: we may be in for a wild ride ahead.

Monday, August 8, 2011

Hawaii 5-0

Thursday was a special day.  No, Kim K did not get married.  It was President Obama’s 50th birthday. This is a big number, considering 50 years is half a century.  What did you do to celebrate the momentous occasion?  The media acknowledged the big day by making his gray hair transformation a news story (with a lovely accompanying photo montage).  Certainly this was a very nice way to mark the occasion.  Hi, you're old and gray.  Welcome to "over the hill".  Heartwarming.

50 seems to be a good age to assess how you're doing in life.  Are you on the path you thought you would be?  Did you accomplish all you wanted and dreamed for?  It is around this age people either seem to become wholly satisfied with their contribution to society or have a mid-life crisis (this is a boon for dealerships selling small luxury convertibles with seats designed to just fit middle-age men, although certainly the auto industry appreciates any boost in demand).  In the grand scheme of things, we might guess President Obama fits in the former over the latter category.

Besides possibly the most famous job in the world, President Obama has quite a resume.  He's worn several career hats in his 50 years, most notably "lawyer" and "community activist" (if he got paid for it, it is a job).  In fact, he is not alone.  Most people wear multiple career hats throughout their working years (and contrary to popular belief, there is no average number on how many).  Our career movements adjust with our preferences and the supply/demand dynamics of the labor market.

Of late, the labor market in the U.S. has not been overly cooperative.  Jobs have been hard to come by.  But on Friday one economic indicator gave President Obama a nice birthday gift: some thawing in recent months of labor market freeze.  On Friday, data shows payroll jobs increased by 117,000 in July, with private jobs increasing by 154,000.  Revised figures for June and May also show gains were higher than originally reported, with the economy actually adding 100,000 more jobs over those months.  The thawing comes from the fact that job gains were seen across manufacturing and services (even construction added a few jobs).  Government was the only major job loser in July.

The lack of a full out Hawaii heat wave, however, stems from the fact that there is still not enough job gains to help the unemployment rate.   One still chilly spot in the jobs report was the increase in "discouraged" workers (up by 137,000 people, or 14%) who were no longer counted in the labor force (they gave up on looking for work).  Hopefully they were just on beach week and will bring some heat back with them in the coming months.

We can only hope that by the time we're 50 years old we fall in same "life satisfaction" category as President Obama.  We also hope we get better birthday presents. 

(Bureau of Labor Statistics)

Wednesday, August 3, 2011

Party Pooper

Every party has one (you know who you are).  It’s that guy who has way too much to drink, or that girl who is so easy she makes pressing “The Easy Button” look hard (Campus PD also falls in the “party pooper” category).  What’s wrong with wanting to have some fun?  It is the middle of summer after all.  Why not live a little?  

One reason: money.  It’s always about the Benjamins and apparently they aren’t free (nor do they grow on trees).  Not even banks are giving them out anymore.   Does this mean we will be stuck to our couches (literally) for the rest of the summer, forced to watch reruns of NCIS and The Office?  

Hopefully not.  According to data on income and spending released yesterday, there may just be beach weeks for everyone this summer (even you, if you haven’t left already).  In June, the amount of spending money we had after taxes and after adjusting for price increases (“real personal disposable income”) increased by 0.3% over May.  This is the largest monthly gain so far this year, due largely to the summer break gas prices also appear to have taken.  And our recent spending restraint gives us some wiggle room to take that beach week if we so choose:  “real” spending (after adjusting for prices) was flat in June, and May and April saw 0.1% declines.  Given the hiatus in gas prices that has given us more in our wallets may end as quickly as the summer sun, we might want to get on that plane/train/automobile before it leaves the station.
As if we needed more motivation to take that last minute summer trip, economic data released last week shows consumer confidence is up slightly in July (to 59.5 from 58.5 in June – anything above “50” is positive, although “80” is the threshold for strong optimism), thanks again to the summer vacation taken by gas prices and people seeing the money available for summer spending on the rise (jobs are another story).  In other words, what are we waiting for?  Even if you’ve already taken that summer vacation, go ahead and take that sick day and head to the beach!

While you’re at the beach, getting your suntan on, we can also be productive, responsible citizens.  Data released Monday shows the economy needs our help, even while we are away from our desks.   A monthly measure of how the manufacturing sector is doing (“ISM Manufacturing Index”) came in at a 2 year low in July (at 50.9 the sector is barely growing), well below expectations and the lowest since the economic recovery began.  New orders and backlog orders actually decreased in July over June, not a good sign for the economy for future months.  Perhaps we can make sandcastles, and sell them to unknowing foreign tourists, would that help?  Maybe.  We could also set up more beach vendors to sell US made beach stuff (or not even beach stuff, like cigars or “I Love USA” goodies).  If other countries can do this on their beaches, why can’t we?  Our wallets will thank us later, just in time for next year’s beach week!  No party poopers left behind.

(Bureau of Economic Analysis, The Conference Board, Institute for Supply Management)