 | The Consumer Price Index (CPI) increased 0.3% in March |
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| Posted Under: CPI • Data Watch |
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Implications: Consumer inflation came in exactly as the consensus expected in March, up 0.3% overall and 0.2% if you exclude food and energy. Energy prices led the way as prices at the pump continued to move higher. In the past three months, energy prices have risen at an 18.3% annual rate while overall consumer prices are up at a 3.7% annual rate. However, prices for both energy and the overall CPI were up even faster in the same three months in 2011. As a result, year-ago price comparisons have actually been decelerating. Back in October, consumer prices were up 3.6% from a year ago; now prices are up 2.7% from a year ago. This deceleration may continue for another month or so, which means prices will still be rising, but not as quickly as they were the same time a year ago. However, do not expect the respite from higher inflation to last. “Core” inflation, which excludes food and energy, has continued to trend upward. Back in October, core prices were up 2.1% from a year ago; now they’re up 2.3%, which is above the Federal Reserve’s target of 2%. Meanwhile, monetary policy is very loose and housing costs (which are measured by rents, not asset values) are rising. Owners’ equivalent rent was up 0.2% in March and is up 2% versus a year ago. The ongoing shift from home ownership toward rental occupancy should boost this inflation measure even more in the year ahead. With loose monetary policy and housing costs accelerating, it’s hard to see core inflation getting back down to the Fed’s 2% target anytime soon. On the earnings front, “real” (inflation-adjusted) wages per hour were down 0.1% in March. Although these earnings are down 0.6% from a year ago, the number of hours worked is up 2.5%, giving consumers more purchasing power. No justification here for a third round of quantitative easing.
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| | The trade deficit in goods and services came in at $46.0 billion in February |
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| Posted Under: Data Watch • Trade |
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Implications: The trade deficit in February was much smaller than the consensus expected. As a result, there is now significant upside risk to our forecast that real GDP grew at a 2.5% annual rate in Q1. Exports hit a new record high in February while imports fell sharply. The drop in imports in February offset a surge in January and was largely due to consumer goods from China, with recent volatility apparently caused by the timing of holidays in that country. However, the drop in imports in February was also due to less imported oil. Measured in barrels, crude oil imports are now the lowest since 1997. (Thank you, North Dakota!) In the next few years, the trend of lower oil imports should continue. In addition, the large depreciation in the exchange value of the dollar in the past decade means the US is a much more attractive place from which to export. That’s why Japanese automakers are increasingly using the US as an export hub. Meanwhile, companies like Caterpillar, Siemens, and Electrolux are noticing that unit labor costs are very low in the US (because productivity is high), so they’re bringing activity here that was previously done abroad. Nonetheless, reviving US consumers still like imported goods, which will hold up import volumes. On net, while trade may help real GDP in Q1, trade should be a neutral for real GDP growth in 2012. In other news today, new claims for unemployment insurance increased 13,000 last week to 380,000. The rise may have been due to difficulties the government has in seasonally adjusting data around Easter. Meanwhile, continuing claims for regular state benefits fell 99,000 to 3.25 million, the lowest since July 2008.
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| | The Producer Price Index (PPI) was unchanged in March |
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| Posted Under: Data Watch • PPI |
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Implications: Due to falling energy prices, overall producer prices were unchanged in March, coming in much lower than the consensus expected. That’s good news, but no justification for another round of quantitative easing. “Core” prices, which exclude food and energy, and which the Federal Reserve claims are more important than the overall number, were up 0.3% in March, led by price increases for light trucks. Core prices are now up 2.9% from last year, faster than the overall PPI. In the past three months, the core PPI is up at a 3.6% annual rate while overall prices are up at a 1.9% rate. In other recent inflation news, import prices were up 1.3% in March. The gain was due to higher costs for imported oil. Excluding petroleum, import prices increased 0.3%, the most in ten months. In the past year, overall import prices are up 3.4% while ex-petroleum prices are up only 1.4%. Export prices increased 0.8% in March and are up 0.9% in the past year. Excluding agriculture, export prices were up 0.5% in March and are up 1.7% in the past year. Due to rapidly accelerating inflation early last year, year-ago comparisons for the overall PPI and trade prices show low inflation right now. We don’t expect that to last. Due to loose monetary policy, these inflation measures will head higher later this year.
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| | Non-farm payrolls increased 120,000 in March |
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| Posted Under: Data Watch • Employment |
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Implications: Payroll jobs fell short of consensus expectations for March, growing 120,000. As a result, equities have temporarily slumped and Treasury securities have rallied. Investor expectations of another round of quantitative easing have increased. We think all these movements are way overdone. The context and details of Friday’s report suggest nothing to worry about. The modest gain in payrolls in March follows three months where payroll gains averaged 246,000, in part due to unusually good winter weather. As a result, some payback was inevitable. The unemployment rate dipped to 8.2% in March (versus 8.9% a year ago). Although the drop in March was in part due to a slip in the size of the labor force, that same labor force is up 1.1 million in the past twelve months. In other words, the trend decline in the jobless rate in the past year is definitely not due to fewer people looking for work. The typical duration of unemployment fell to 19.9 weeks in March, tying the shortest length since 2009. Meanwhile, the share of unemployed who voluntarily quit their prior job leaped up to 8.7%, the highest since 2008. Those workers, plus new entrants to the labor force, now make up almost 20% of the unemployed, very close to the norm in 2005-07, before the recession. This shows rising confidence in the strength of the labor market; those without jobs think they will soon get one. Total hours worked slipped 0.2% in March, but for the first quarter as a whole were up at a 3.7% annual rate, the fastest pace for any quarter since the recession. That, combined, with continued increases in wages per hour, means total wages were up at a 5.6% annual rate in Q1, more than enough to outstrip inflation, even with food and energy included. In other recent news on the job market, initial claims for unemployment insurance declined 6,000 to 357,000, the lowest since April 2008. Continuing claims for regular state benefits declined 16,000 to 3.34 million, the lowest since August 2008.
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| | "On Your Own" Economics |
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| Posted Under: Monday Morning Outlook |
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A new baby girl was born in the United Kingdom last week. The mother checked into the hospital at 8:30 pm, had the baby at 10:30 pm, and was discharged at 3:00 am….270 minutes later. This gives new meaning to the term “drive-through delivery.” No one there thought it was unusual even though maternity stays in the hospital of less than 2 days are considered aggressive in the US.
For centuries – millennia really – women gave birth without hospitals at all. There was no going home because the mother never left home in the first place.
The 20th Century brought major change. One of those changes was to provide a safer environment for giving birth. Mothers are watched longer and newborns are run through a battery of tests. The result has been fewer deaths in childbirth and healthier children. It’s one of the reasons that in the past 100 years or so, life expectancy for women has increased more than for men.
But, when medicine is socialized and budgets become constrained, costs are cut anywhere and everywhere. As a result, mothers and babies are sent home quickly to save money for the state. By doing so, hospitals in the UK are taking health risks. To put it bluntly, these hospitals are very quick to tell moms and their newborns that they are “on their own.”
In truth, no matter what anyone tells you, in the end we are all on our own, whether we are expectant mothers or not. There are limited resources and deep down we all realize this. We all make choices about how to deal with it: how to find help. It’s why we join with larger groups – for defense, for support, or so that we can accomplish larger more complicated things.
The choice we ultimately have is where we get the major part of this help. Do we turn to government? Or, do we turn to private relationships; family, friends, private business, and charity.
The trouble with the government as helper is that the assistance must be taken (taxed) from someone else, who then has an incentive to object. Moreover, people end up competing (and advertising) to see who has the greatest “need” or is the worst “victim.” And with limited resources, there are fights about who gets them and before you know it, government provides “drive through delivery” services so that it can use more resources elsewhere. And when government tries to do too much, it “crowds out” private assistance, weakening those other institutions through taxation and regulation.
That’s why we find it so remarkable to see free market capitalism derided as a system that supposedly tells people you are “on your own.”
The genius of capitalism is that it harnesses self-interest to get people to cooperate in incredible ways. Most observers, including us, describe capitalism as a system of competition.
But on a day-in, day-out basis, this competition is not direct hand-to-hand combat to find a victor; it’s a race to see who can provide the best products at the best price. It’s about service to others, not finding ways to force others to bow to our will. More importantly, we work in cooperative effort with others (our co-workers, family members, and friends) to accomplish these tasks.
Government has a role, but economic growth is always strongest where it governs least.
Given a choice, people have always flocked to those countries where they could take care of each other with less government help, not more. Not because they don’t think of themselves as their brothers’ keepers, but because they do.
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These posts were prepared by First Trust Advisors L. P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
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