Daily Economic Commentary US March 1, 2000
--------------------------------------------------------------------------------
January Construction Spending Stronger-Than-Expected
Total construction spending, after adjusting for inflation, climbed 2.4% in January. This is the largest monthly increase since June 1998. Residential construction spending increased 2.2%, after a 1.0% increase in the previous month. The 2.7% increase in non-residential construction spending is a sharp increase, after posting declines in nine out of 12 months in 1999. Public construction spending increased 3.7%, inclusive of the third successive monthly increase in expenditures on highways and streets. Along with other recently available data, these exceptionally strong construction numbers have led to an upward revision of our earlier GDP forecast of the first quarter from 3-3/4% to the 4-3/4% to 5% range.
NAPM Price Index Highest Since April 1995
The Purchasing Managers' Index for February rose to 56.9 from 56.3 in the prior month. This is indicative of a growing manufacturing sector. New orders, backlogs, exports, production, price, and employment indexes posted gains in February. The supplier delivery index was virtually unchanged at 55.0 compared with a 55.2 reading in the prior month. The decline in the inventory index suggests unwinding after a Y2K related build up.
The price index is the highest since April 1995.
The head of the Purchasing Managers Association indicated that "most manufacturers are still having price increases, but they are not making their way into prices of finished goods." The implication is that margins are suffering as firms absorb higher costs. The big question is how long is it before we see these costs translating into eye-popping inflation data?
The February NAPM manufacturing report points to a narrowing in the merchandise trade deficit. A synthetic net exports index can be calculated by subtracting the import orders index from that of export orders. This synthetic net exports index is plotted in the chart below. As can be seen, NAPM net exports moved up sharply in March to a reading of +5. This is the highest level of this index since March 1997 - several months before the Asian implosion. As if Greenspan did not have enough to fret about with domestic demand on fire, now, as he soaks in his bath each morning, he has to worry about foreign demand, too, which is starting to smoke. Maybe Alan ought to ask his Treasury pal, Larry Summers, to quit badgering the Japanese to crank up their economy. We are booming without them.
Why Are Gasoline Prices Rising? New Cars Don't Run on Air Alone
Today, as the April NYMEX gasoline futures contract closed in on a buck a gallon, we got some inkling as to why pump prices are soaring. Well, yes, production cuts by oil-producing nations had something to do with it. But, like all prices, the price of gasoline is determined by the interaction of supply and demand. And it seems as though Americans are determined to demand more and more new cars, which, of course, implies the demand for more and more gasoline. Although all "precincts" have yet to report, we at The Northern Trust are prepared to declare February the winner for the most new cars sold in a month this business expansion, topping by a wide margin last month's winning total of 17.7 million units. Alan's not going to like this.
ntrs.com
|
