Chief Executive Officer Newsletter
June 2013
Welcome to the CEO's monthly economic newsletter. The newsletter provides a basic narrative overview of recently published economic indicators for your reading pleasure. You should not rely on this information when making investment decisions, but rather seek professional advice from qualified investment advisors.
According to the Federal Reserve’s recent Beige Book report, the overall economy in the US is progressing at a “modest to moderate” pace and, in fact, used those two words 110 times within the 47-page report. Clearly some regions are doing better than others. People in North Dakota, by example, wouldn’t know there was an economic downturn if they didn’t hear about it on the news. Oil extraction over there is a huge benefit to their economic situation. Other parts of the country are struggling to recover.
Employment numbers came in as ‘mixed’ for May. The unemployment rate increased from 7.5% to 7.6% last month due largely to more people re-entering the labor force. The good news is that continuing jobless claims declined to less than 3 million for the first time in more than four years. Private Non-Farm Payrolls added 178,000 jobs and April numbers were revised downward by 19,000 jobs. The four-week rolling average for weekly first-time jobless claims was right at 350,000 claims. These are all numbers that fit into the category of “modest to moderate” improvement relative to employment statistics. The Bureau of Labor & Statistics models an adjustment to the labor markets referenced as the Birth/Death model. Last month that accounted for an additional 205,000 people. In other words we needed to increase Non-Farm Payrolls by that amount just to stay even, therefore the 178,000 jobs added fell short.
We saw a few changes within the housing markets. Existing home sales remained at nearly 5 million annualized units sold for April and the Case-Shiller year-over-year home price index was up nearly 11%. New home sales were up slightly at 454,000 annualized units, while housing starts declined in April by nearly 170,000 units. In contrast building permits increased by almost 130,000 units, which is not uncommon for the summer season.
The Institute for Supply Management (ISM) manufacturing index fell from 50.7 to 49.0. Whenever the index falls below ‘50’, it is a signal for economic contraction; however, one month is insufficient to formulate a conclusion. The bigger contributor to the economy is the ISM Service Index which actually improved in May from 53.1 to 53.7, supporting the notion for expansion on the service side.
Recently there has been a fair amount of speculation around when the Federal Open Market Committee (FOMC) will begin to taper its purchasing of government securities. Presently they are purchasing around $85 billion per month. Just the talk about this speculative discussion has caused both the bond markets and the stock markets to waffle. Until the FOMC stops using words like “modest & moderate” in their definition of “recovery”, it is unlikely we will see any tapering of their security purchases. They have been fairly clear about their desire to have the recovery be sustainable and, pulling their support too soon would quickly unwind a slow but improving economy. They have also gone on record as saying they want to see unemployment at 6.5% before seriously cutting back on their purchases. That’s a far cry from the 7.6% today.
Meanwhile inflation rates remain very modest and have been running between 1.5% and 2.0%, again well below the FOMC target rate for inflation.
Dennis A. Long
Chief Executive Officer
Click Here for archived newsletters.
