Lackluster. That’s the word that sums up today’s indicators.
The Department of Labor’s jobless claims number looked great on the surface when it was released today. The report showed initial claims dropped by 23,000 for the week of October 16th. However, the DOL revised the numbers for the week before, increasing claims by 13,000, reducing the significance of this week’s drop. Still, the 4-week moving average decreased 4,250 from the previous week’s revised average of 462,250, and the numbers out today are free of holiday distortions.
Industrial production numbers for September were disappointing following the uptick in August. The indexes both for manufacturing and for manufacturing excluding motor vehicles and parts moved down 0.2 percent in September. Factory output gained 3.6 percent in the third quarter.
Oil inventory rose 0.7 million barrels during the week of October 15. Gasoline stocks rose 1.2 million barrels with distillate stocks down 2.2 million.
Natural gas inventory increased 93 billion cubic feet in the October 15 week.
The Philadelphia Federal Reserve October 2010 Business Outlook Survey was less than spectacular, with the new orders index negative for the fourth consecutive month. However, the future general activity index increased 15 points to a reading of 41.0, its highest reading in six months. “The future new orders and shipments indexes also showed improvement, increasing 22 and 13 points, respectively. More firms expect to increase employment over the next six months (32 percent) than expect to decrease employment (11 percent). The future employment index increased 11 points to its highest reading in five months. Indicators for growth, although improving from last month, remained at levels that suggest slight growth, at best. Firms maintained nearly steady employment levels this month, but average work hours fell, as in the previous month. Firms continued to expect growth in their manufacturing business over the next six months, and the degree of confidence improved notably from the surveys conducted during the summer months.”
International Business Machine
Sources: IBM, Lilly, Abbott, J&J, Fifth Third, BHP, Halliburton, Phillip-Morris, Coca-Cola, AT&T, Illinois Tool, Danaher, GE, Boeing, UPS, UTC, DOL, Phili Fed, EIA, and Federal Reserve websites.
Jobless claims rose, but may be inaccurate due to the Columbus Day holiday. Of more interest is the rise in PPI which signals inflation at the producer level.
The Producer Price Index for Finished Goods increased 0.4 percent in September matching a 0.4 percent rise in August. Food prices jumped 1.2 percent, while energy rose a modest 0.5 percent. The rise in energy prices is due to an increase in the cost of liquefied petroleum gas (up 6.1 percent). Gasoline actually dropped in price (by 1.8 percent). Food prices increased because of a rise in the price of fruits, vegetables and chickens.
In the week ending Oct. 9, jobless claims increased by 13,000 to 462,000. However, the Labor Department used estimates for five states which were unable to report due to the Columbus Day holiday. The 4-week moving average was 459,000, an increase of 2,250 from the previous week’s revised average of 456,750. There were 508,659 initial claims in the comparable week in 2009.
Natural gas in storage rose 91 billion cubic feet in the latest week.
The U.S. average retail price for a gallon of gasoline shot up 9 cents from last week to $2.82 per gallon and was $0.33 per gallon higher than last year at this time. East Coast prices saw the biggest increase, gaining a dime, but remaining below the national average price at $2.77 per gallon. Retail diesel prices were also up across the country this week, with the national average gaining 7 cents to reach $3.07 per gallon, $0.47 higher than last year. The Energy Information Administration projects average household expenditures for space-heating fuels will total $986 this winter (October 1 to March 31), an increase of $24, or 2.5 percent, from last winter. EIA projects higher expenditures in all fuels except electricity, where expenditures decline by 2 percent. According to the National Oceanic and Atmospheric Administration’s most recent projection of heating degree-days, the lower-48 states are forecast to be 3 percent warmer during the October through March winter heating season compared with last winter and 1 percent warmer than the 30-year average (1971-2000). However, the Northeast, the principal market for heating oil, is projected to be about 5 percent colder than last winter.
Sources: Roche, Diageo, EIA, NOAA, DOL and BLS websites.
We are seeing signs of revitalized business activity in a rise in employment, increased advertising volume, and increased business travel.
Total nonfarm payroll employment fell significantly (down 95,000) in September, because of a drop in government payrolls, specifically temporary Census 2010 workers (down 77,000), and local government employment (down 76,000). Private employment actually rose significantly (by 64,000) with the most gain in food services and drinking places (up by 34,000), health care employment (up by 24,000) and temporary employment (up 28,000). The construction industry lost 21,000 jobs over the month, offsetting an employment gain in August. The average workweek for all employees was unchanged at 34.2 hours. Average hourly earnings of all employees on private nonfarm payrolls increased by 1 cent to $22.67 in September.
The Publishers Information Bureau reported magazine advertising revenue increased 5.3 percent against the same July – September period in 2009. This is the second quarter in a row that magazines have registered PIB growth in 2010. Ad revenue gains were seen in Automotive (up 46.6 percent) and Technology (up 29.2 percent), Toiletries & Cosmetics (up 4.5 percent), Food & Food Products (up 4.5 percent), Apparel & Accessories (up 10.0 percent), Retail (up 13.1 percent), and Media & Advertising (up 5.6 percent). In the third quarter, 136 magazines saw an increase in ad pages, compared to 25 magazines during the same period in 2009. http://www.magazine.org/advertising/revenue/by_mag_title_ytd/pib-3q-2010.aspx
Heathrow airport, which caters to the business traveler, recorded its busiest August ever, and second busiest month on record, with 2.5 percent more people (6.5m) passing through the airport. According to the BAA, “the main driver of growth at Heathrow is European scheduled traffic, which was up by 10.4% on the back of an 8.3% increase in seat capacity compared with August 2009. The BAA also reported that, in total, UK airports handled 13.7 percent more cargo tonnage, with Heathrow up by 14.3percent. Cargo tonnage at BAA’s UK airports is now 2.8 percent above its pre-recession peak, reflecting the strength of recovery in the air cargo market.
It is interesting to compare August’s Federal Open Market Committee minutes with the speech given today by Thomas Hoenig, the Kansas City Fed President and lone dissenter on the FOMC board. The minutes show a consensus among members that: “Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to remain subdued for some time before rising to levels the Committee considers consistent with its mandate.”
Thomas Hoenig, on the other hand, feels that “the economy and banking system are awash in liquidity with trillions of dollars lying idle or searching for places to be deployed or, perhaps more recently, going into inflation hedges. Dumping another trillion dollars into the system now will most likely mean they will follow the same path into excess reserves, or government securities, or “safe” asset purchases. The effect on equity prices is likely to be minor as well. There simply is no strong evidence the additional liquidity would be particularly effective in spurring new investment, accelerating consumption, or cushioning or accelerating the deleveraging that is hopefully winding down.” He continues, “I believe the economy would be better served by beginning to normalize monetary policy….by discontinuing the policy of reinvesting principal payments from agency debt and mortgage-backed securities into Treasury securities…and taking the first early steps to normalize interest rate policy.” And, “It is important to note, that business contacts continue to tell me that interest rates are not the pressing issue. Rather, they are concerned with uncertainties around our tax structure; they are desperate to see this matter settled. They need time to work through the recent healthcare changes; and they are quite uncertain about how our unsustainable fiscal policy will be addressed. They are insistent that as these matters are addressed, they will once again invest and hire. QE2 cannot offset the fundamental factors that continue to impede our progress.”
The ICSC-Goldman Sachs chain store sales index for the week ending October 9 rose by 0.8 percent. On a year-over-year basis, sales rose by a 2.6 percent–consistent with its prior-week and prior-month pace.
Pepsi 3Q earnings presentation:
Intel 3Q earnings presentation:
Sources: Kansas Fed, Federal Reserve, ICSC, BAA, PIB, and BLS websites.
Today’s economic indicators show the effects of a sluggish economy. Unemployment numbers remain high, prompting consumers to trim credit card debt and reduce spending. This in turn slows manufacturing, pushing inventories, including the petroleum inventory, higher.
According to ADP, private-sector employment decreased by 39,000 in the month of September.
The DOL’s weekly claims report shows employment improving, though still at low levels, as the initial unemployment claims decreased by 11,000 for the week ending Oct. 2. The 4-week moving average was 455,750, a decrease of 3,000 from the previous week’s average and a 25,000 decrease from a month ago.
Consumer credit declined 1.7 percent as a $5 billion reduction in revolving credit (mostly credit cards) was partially offset by a $1.6 billion increase in nonrevolving credit (such as car loans). This seems to indicate that consumers are leery of adding to their credit balances given the uncertain employment outlook.
Petroleum prices show evidence of a sluggish economy as demand is slow and inventories are rising. Since oil is such an important part of the economy, it’s price can help determine the direction of inflation. We can expect consumer prices to fall when oil prices fall, but conversely, consumer prices increase when oil prices rise. The price of gasoline rose to $2.732 per gallon (including taxes) for the week ending October 4th which is up $0.260 from a year ago. Refineries operated at 83.1 percent of their operable capacity. Crude oil inventories increased by 3.1 million barrels from the previous week, and at 360.9 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year. Total motor gasoline inventories decreased by 2.6 million barrels. Over the last four weeks, motor gasoline demand has averaged 9.1 million barrels per day, up by 0.1 percent from the same period last year. Distillate fuel demand has averaged 3.8 million barrels per day over the last four weeks, up by 11.5 percent from the same period last year. Jet fuel demand is 1.6 percent higher over the last four weeks compared to the same four-week period last year. Natural gas inventories rose 85 billion cubic feet in the Oct. 1 week.
The International Monetary Fund released its prediction for global growth in its “World Economic Outlook”. Olivier Blanchard, Economic Counsellor and Director of the Research Department, predicted low growth for advanced countries. “The relevant numbers are 2.7 percent for 2010 and 2.2 percent for 2011. With such low growth, we forecast that the unemployment rate will remain very high. The numbers here again are 9.6 percent for the US in 2010 and 10 percent for the euro also in 2011. By contrast, in many emerging economies where excesses were limited and the scars of the crisis are few, consumption investments are contributing to strong growth. In many of these countries, output is nearly back or already at potential. Our forecasts for emerging and developing countries as a whole are for 7.1 percent for 2010 and 6.4 percent for 2011. If you turn to emerging Asia, we forecast growth in emerging Asia to reach 9.4 percent this year and 8.4 percent next year.”
The IMF also called for “fiscal consolidation” instead of more stimulus, saying, “… private demand must now become strong enough to take the lead and sustain growth while fiscal stimulus gives way to fiscal consolidation. This is internal rebalancing. It has to be done in each country.”
Johnson & Johnson, agreed to purchase all the outstanding equity of Crucell that it does not already own for approximately euro 1.75 billion. Johnson & Johnson currently owns 17.9% of Crucell’s outstanding shares. Crucell is a global biopharmaceutical company focused on the research & development, production and marketing of vaccines and antibodies against infectious disease. In September 2009 Johnson & Johnson entered into an agreement with Crucell to develop a universal influenza monoclonal antibody and a universal flu vaccine for the treatment and prevention of influenza.
Sources: J&J IMF, DOL, EIA, and ADP websites.
NAR’s Pending Home Sales Index and ISM’s Non-manufacturing Index indicate slow growth as we move toward the year’s end.
According to the National Association of Realtors, pending home sales (contracts signed in August) rose 4.3 percent from July, which had risen 4.5 percent from the month before. Lawrence Yun, NAR chief economist, explained, “Current low consumer price inflation has helped keep mortgage interest rates very attractive this year. However, recent rising trends in producer prices at the intermediate and early stages of production, along with very high commodity prices, are raising concerns about future inflation and future mortgage interest rates. Higher inflation would mean higher mortgage interest rates. In the meantime, housing affordability is hovering near record highs.”
The ISM Report on Business showed the non-manufacturing sector composite rising 1.7 percent in September to 53.2 percent. The New Orders Index increased 2.5 percentage points to 54.9 percent, hinting at growth for the second half of this year. The Employment Index increased 2 percentage points to 50.2 percent which may indicate favorable employment numbers from the government in the DOL release this Friday.
In his address at the Annual Meeting of the Rhode Island Public Expenditure Council in Providence, Ben Bernanke, Fed Reserve Chair, cautioned that the current level of debt is unsustainable. He quotes Herbert Stein, an economist, as saying, “If something cannot go on forever, it will stop.” Bernanke goes on to say, “Failing to address our unsustainable fiscal situation exposes our country to serious economic costs and risks. In the short run, as I have noted, concerns and uncertainty about exploding future deficits could make households, businesses, and investors more cautious about spending, capital investment, and hiring. In the longer term, a rising level of government debt relative to national income is likely to put upward pressure on interest rates and thus inhibit capital formation, productivity, and economic growth. Larger government deficits increase our reliance on foreign lenders, all else being equal, implying that the share of U.S. national income devoted to paying interest to foreign investors will increase over time. Income paid to foreign investors is not available for domestic consumption or investment. And an increasingly large cost of servicing a growing national debt means that the adjustments, when they come, could be sharp and disruptive. For example, large tax increases that might be imposed to cover the rising interest on the debt would slow potential growth by reducing incentives to work, save, hire, and invest. Finally, a large federal debt decreases the flexibility of policymakers to temporarily increase spending as needed to address future emergencies, such as recessions, wars, or natural disasters.”
Supposedly, bad weather is to blame for the decline of the ICSC-Goldman Sachs chain store sales index for the week ending October 2, which dropped 0.8 percent but is up 2.4 percent year-over-year.
Philip Morris received good news yesterday when a Duval County jury returned a verdict in favor of Philip Morris USA in an Engle case (Warrick). The first trial in this case resulted in a mistrial in August.
Danaher Corporation will purchase Keithley Instruments for an enterprise value of approximately $300 million net of cash to be assumed. The acquisition has been unanimously approved by the Keithley Board of Directors. Keithley designs, develops, manufactures, and markets complex electronic instruments and systems geared to the specialized needs of engineers at electronics manufacturers and academic institutions for research, product development, high-performance production testing and process monitoring.
Léo Apotheker was elected Chief Executive Officer and President of HP. The Board also elected Ray Lane, Managing Partner at Kleiner Perkins Caufield & Byers, as a new member of the Board and designated him as non-executive Chairman. Mr. Apotheker spent 20 years at SAP, making it the largest business software applications company in the world.
Verizon announced it will be using Johnson Controls as its real estate services provider.
Johnson Controls Global WorkPlace Solutions, the world’s largest real estate and facilities management business unit, will provide integrated facility management, project management, energy implementation, lease administration and transaction management services at over 7,000 of Verizon’s U.S. properties.
Sources: Johnson Controls, HP, Danaher, Altria, ISM, NAR, ICSC and Federal Reserve websites.