Thanks OJ-- I was working on last week first union read on economics-- LBJ use to say all politics is local in same context for markets I say all markets are fundamental economy and the gist of read I got from the first union site is as the following--Trade balance,Import prices , Industrial production,Retail sales and Productivity and Unit labour cost show a good trend...the talk will be very soon in a quarter shifting to inflation.
Trade Balance (September)
Monthly deficit shrinks substantially. November 18, 1998
Besides playing havoc with world financial markets, the Asian economic crisis has had its most measurable impact on U.S. trade. But the worst news might possibly be behind us in terms of horrific monthly trade reports. If the September trade data are any indication, the trade deficit may have stopped hemorrhaging. The September trade balance for goods and services contracted by $1.9 billion to $14.0 billion from $15.9 billion in August. Over the month, total exports rose 2.3% and total imports fell 0.2%. Stronger overseas shipments of aircraft, electrical machinery and motor vehicles led to the gains in export activity. Import growth was constrained by a decline in petroleum products and iron and steel mill products. But lest anyone be worried about the holiday retailing season, adequate inventories of popular and traditional gift merchandise are being stocked. In September, despite the overall moderation in imports, jewelry surged 33.7%, toys, games and sporting equipment jumped 10.7%, photo equipment rose 5.6% and televisions and VCR's also increased 5.6%. It is also encouraging to note that the goods trade balance, measured by the Census Bureau on an inflation adjusted basis, receded sharply over the month to $23.2 billion from $25.3 billion in August. This is used in the calculation of the source data for GDP and the monthly trend suggests that the May deficit of $27.2 billion may be the trough for the Asian induced trade problems. This is not to say that export activity is expected to surge any time soon. It is not. But the deterioration in export activity to the Pacific Rim countries may be stabilizing. The monthly trade imbalance with the Pacific Rim held steady at $-15.6 billion compared to $-15.7 billion in August. Exports to the Newly Industrialized Countries showed renewed signs of life, rising 6.3%, but goods shipped to Japan fell 3.3% over the month. As encouraging as the recent data is concerning the Pacific Rim, U.S. manufacturers are not yet out of the woods. In the fourth quarter and next year, we expect export growth to Central and South America to decelerate as Brazil implements austerity measures to deal with its financial problems.
Import Prices (October)
Have prices stopped falling? November 18, 1998
For those worried about deflation, import prices have stopped falling. For those worried about inflation, import costs are still far below last year's levels and non-petroleum import prices are unchanged. It would appear that prices are not much of an issue at the present time. %. The recent petroleum price spike appears to have been partially the result of fears that rising U.S.-Iraq tensions would lead to a disruption in oil supplies. The tensions have dissipated and petroleum costs have since fallen. Retail commodity prices measured in the CPI are unchanged over the year, and until Asian import prices start moving up, there is little danger of a reacceleration in inflationary pressure in the U.S.
Industrial Production (October)
Output in the nation's factories slipped 0.1% in October, the fourth time in five months that production levels receded. Though total manufacturing output rose 0.3%, imports are clearly playing havoc with a number of industries. The flood of steel and clothing imports is sapping domestic production as iron and steel was down 1.3% while apparel output was off 1.8%. But the biggest decline was in utilities as an exceptionally mild month constrained energy usage. Mother Nature's kindness should not be misconstrued as economic weakness. November 16, 1998
In contrast to the import-savaged sectors, areas dependent upon consumer demand are still doing okay. Consumer goods production, net of utilities, was up a solid 0.4%. Automotive output gained 1.3%, as sharp gains in truck production overwhelmed easing auto output. Appliances and electronics increased 1.4% and carpeting and furniture production rose 1.1% as the housing boom continues ripples through the economy. Production in business equipment was up as computers offset declines in energy drilling. Lower energy prices may be limiting the rig count, but it also putting more money in consumer hands. As long as spending stays up, output will not tank.
There is little doubt that the nation's manufacturers are suffering from the Asian and Latin American problems. Indeed, the operating rate, 80.6%, is the lowest in six years. But selected, consumer related sectors are holding their own pointing out a simple fact: As household spending goes, so goes the economy.
October Retail Sales
Strong Auto Sales Help Lift Retail Sales 1.0% In October, Sale Rose 0.5% Ex. Autos
november 13, 1998
Retail sales rose solidly in October, suggesting that consumers have not been frightened off by last summer's stock market volatility. Sales rose a full percentage point in October, thanks to a 2.7% jump in sales of motor vehicles. Consumers also opened up their wallets for just about everything else, as spending rose in virtually every major category tracked by the Commerce Department.
October's rebound reverses a four-month slowdown in retail sales, which saw spending slow to just a 0.7% pace. Most of that slowdown resulted from the GM strike. With inventories back to normal, buyers returned to the showrooms, pushing sales up at 16.7 million unit annual pace.
Productivity & Unit Labor Costs (3rd Qtr.)
Another Report That Affords The Fed Room To Ease Again.. November 10, 1998
The initial report on 3Q Non-Farm Productivity – up at a 2.3% annual rate with Unit Labor Costs up only 1.7% - is clearly in the Fed's comfort zone. They derive the Productivity figure by taking the estimate of total Output and subtracting the estimate of Hours Worked. The Unit Labor Cost estimate then takes the increase in Compensation and subtracts that gain in Productivity.
So, Output, up 3.5%, minus Hours Worked, up only 1.2%, equals 2.3% Productivity Improvement. Then Compensation, up 4.0%, minus Productivity, up 2.3%, equals an increase in Unit Labor Costs of 1.7%. (All of those figures are annual rates comparing 3Q with 2Q.)
The Manufacturing sector had a larger 3.7% annual rate of increase in Productivity, but got there the wrong way. Output dropped 0.6% in the 3Q vs 2Q, the first decline since the 1Q of 1991 (which was the final quarter of the 1990-91 recession). But Hours Worked dropped by a huge 4.1%, thus "boosting" productivity (output per hour). Undoubtedly, the GM strike played the major role in the outright declines in both output and hours. The 4Q should see a return to positive output gains, but manufacturing hours will likely decline again (they had declined by 1.4% in the 2Q – prior to the GM strike).
Since the quarterly annual rates can be quite erratic, the charts show the yr/yr changes in productivity and unit labor costs. The top chart shows the total non-farm sector, which skews down productivity and skews up unit labor costs due to the inability to correctly measure the service & financial sectors. The middle chart shows the manufacturing sector.
The bottom chart is the series that Mr. Greenspan most often cites – corporate, non-financial. It is reported with a lag, so the 3Q will not be available until next month. But the 2Q annual rate was revised to a 3.1% productivity increase from 2.7%, which put the yr/yr gain at 2.9%, as shown on the chart. This series shows Unit Labor Costs up by less than 1% yr/yr, clearly indicating that corporations have been able to offset rising wages.
Along with the sharp drop in New Orders in NAPM, the soft Employment report, and increased layoffs, this report raises the odds for a Fed ease on Nov. 17
Car and truck dealers did not account for all of October's spending rise. Retail sales, excluding autos, rose 0.5%, or at better than a 6% annual rate. Gains were extremely widespread. Sales at clothing shops rose 1.9% in October. Spending rose more modestly at furniture and department stores, which each posted gains of 0.2%. Purchases of other durable goods, such as home electronics and household appliances, climbed 0.5%.
October's sales figures bode extremely well for the holiday shopping season. With income up 4.7% over the past year, the stock market bouncing back and goods prices up just 0.8%, consumers have the wherewithal to spend. The only question was would they continue to do so in the face of all the global economic uncertainty. The answer to that question appears to be yes. We expect the holiday shopping season to be fairly strong, with sales climbing 5.5% above last year's solid gains.
The Fed is not likely to be influenced much by the strength in retail sales. They know the initial impacts from the Asian economic crisis have actually been beneficial to consumers, cutting gasoline prices and helping push interest rates sharply lower. Consumer spending is not where the Fed is looking for signs of weakness. They are more concerned about the squeeze in profit margins and rise in credit spreads, which is beginning to lead to layoffs and cutbacks in capital spending. Consumer spending will probably be the last area to succumb to international economic pressures. That still leaves the door open for a rate cut next week.
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