Current Statistics (10-03-2003)
The Employment Picture
The October Unemployment Rate came in at 6.0%. According to the Bureau of Labor Statistics unemployment dropped from 6.4% in June to 6.0% (Seasonal adjusted measure) of the labor force in October, constituting a significant and continued brightening in the employment picture. The data becomes even clearer when using the Not Seasonally adjusted numbers: June 2003 >> 6.5%, and October 2003>> 5.6%!
While characterized in the media as a jobless recovery, this is clearly no longer the case. The argument also goes that the jobs being created are at the lower end of the spectrum. In reading literature from previous recoveries, the lower end jobs have always picked up first… Perhaps the thing that most puzzles the pundits is that they are waiting for inflation to spike upward, a sign of increased economic activity. You’ll note below in the CPI/PPI figures that this is simply not occurring (not to any significant degree at this point) – witness the New Economic Paradigm, where competitive pressures inhibit price increases and productivity gains work to offset increases in compensation costs. Furthermore, the economy has created 286,000 jobs in the last three months.
…If nothing else, it appears that the last three months of job creation, and the stabilization and fall-off in Unemployment should put an end to concerns over a jobless recovery.
Jobless Claims (4-wk rolling avg: 390,000 Oct-11, to 391,000 Oct-18,
to 386,000 Oct-25, to 380,000 Nov-1, to 375,250 Nov-8)
The new Jobless Claims data came in at a 366,000 for the week ending November 8, 2003 an increase in claims of 15,000 jobs from the previous weeks 353,000. Coupled with the preceding week’s drop of nearly ten-percent in this bell-weather indicator (391,000 to 353,000), the crucial four-week average dropped to 375,250 for week the week ending November 8. Department of Labor data indicate that there have now been six consecutive weeks of claims below the 400,000 mark, generally viewed as the level required for economic expansion.
GDP (3rd Quarter 2003 Real GDP: 7.2% - Advance)
The third quarter of 2003 showed continued positive growth in real GDP… a major understatement. The Commerce Dept. reported a 7.2% growth rate for the 3rd Quarter 2003 (on an annualized basis), more than double the very respectable 2nd Quarter figure of 3.3%. It marked the 8th consecutive quarter of economic expansion, completely dismissing any notion that this recovery was a flash in the pan. The 3rd Quarter 7.2% rate is the fastest the country has expanded in twenty years (9.0% in 1st Quarter 1984) - so much for the analysts who had forecasted a significant fall-off in GDP for the remainder of the year. Those same analysts are also saying that the 4th Quarter will come in very low, citing that the growth in the 3rd Quarter was primarily attributable to the affect of the tax cuts. Curiously, the GDP growth was spread across the board, and is most markedly reflected in durable goods purchases rising some 26.9% and exports rising 9.3%. 4th Quarter GDP numbers will be released in January 2004.
Again, the initial comments are that this level of economic activity is clearly unsustainable – these folks have not read “The New Paradigm in Economics.”
Leading Indicators (5.0%+ annual rate October 20, 2003)
According to figures released by the Conference Board on October 20, “The leading index declined by 0.2% in September, led by a large negative contribution from the money supply. The leading index increased for four consecutive months before September’s decline, and is still up 2.3% from its recent low in March. The upturns in both the leading and coincident indices since earlier this year have been widespread.”
The most recent data shows continued strong levels of construction put in place. The September figures show an increase of 1.3% above the August numbers. Additionally, the September data is 6.5% above that of September 2002. This amounts to an annualized rate of $910 Billion. This sector continues to perform strongly through the current expansion.
The most recent data available shows continued near record levels of new housing starts. The September figures are running at a seasonally adjusted annual rate of nearly 1.9 million units, 3.4 percent higher than the 1.8 million unit rate reported in August. This sector continues to perform strongly through the current expansion.
(Extra: Late add – early October figures indicate that annualized rate is now at 1.96 millions units, 2.9% higher than the September figure. Housing Starts are at their highest level in seventeen years.)
New Residential Sales
According to the Census Bureau, sales of new homes dropped slightly from August’s numbers of 1.15 million units, to 1.145 million units (on a seasonally adjusted annualized basis) in September, representing a fall-off of 0.2%. This rate exceeds the September 2002 figures by 8.3%.
The most recent report from the Commerce Department shows that New Orders for Manufactured durable goods increased 0.8% in September, excluding defense, new orders increased 2.6%. Shipments also increased at a 2.5% rate reversing the 2.6% (adjusted) drop in August. Unfilled orders increased 0.1% with computers and electronics products leading the way at 1.3%. Meanwhile, Inventories dropped 0.7% while August numbers showed a 0.8% drop. Offsetting a significant fall-off in Capital Goods in defense, Nondefense orders increased by 3.4%; shipments increased by 2.4%; unfilled orders decreased by 0.4%; and inventories fell by 0.3%. Again, the numbers in durable goods spending, especially in light of the fall-off in defense spending, are all pointing toward a continued and strengthening recovery.
Current Account Balance (Trade Balance)
The Current Account Balance consists of the Trade Balance (Net Exports (Exports less Imports) of Goods and Services), the Income Balance (Income Receipts and Income Payments), and net Unilateral Current Transfers. The Department of Commerce publishes the Current Account Balance data on quarterly basis.
As reported by the Commerce Department on November 13, 2003, the trade deficit in September 2003 stood at $41.3 billion, growing by 4.4% from the $39.5 billion reported for the August 2003. Exports were at $86.2 billion, up 2.8%, and imports were at $127.4 billion, up 3.3% from the August numbers.
Despite continued productivity and unit labor cost improvements (see below), the Trade Deficit, buoyed by an overvalued Dollar and an increase in economic activity, continues to worsen. Evidence of intervention in capital markets by the Japanese government can be seen in its selling 4 Trillion Yen (buying roughly $38-39 billion) in the month of September (late August – end of September). In a report by Reuters, November 6, 2003, “Japan's Ministry of Finance had publicly confirmed interventions after the fact, including the MOF's announcement that it sold 4.4573 trillion yen between Aug. 28 and Sept. 26, representing a record monthly intervention, the report said.”
At the current rate, it is likely that the Trade Deficit will likely approach $500 billion for the year.
CPI (0.3%+ ) / PPI (0.8%+) (Seasonally adjusted)
CPI – On a seasonally adjusted basis, the CPI rose 0.3 percent in September, according to the Bureau of Labor Statistics. The core CPI rate (Core rate: excluding food and energy) rose at a 0.1 percent rate, the same level as in August (for both the total CPI and the core rate). The unadjusted 12-month figure for inflation weighed in at a whopping 2.3 percent and at 1.2 percent excluding food and energy.
PPI – On a seasonally adjusted basis, the PPI (finished goods) rose 0.8 percent in October 2003, according to the Bureau of Labor Statistics preliminary data released November 14, 2003. These numbers, in spite of the fact that the September had increased by only at 0.3%, are rather modest. Contributing factors were food (with beef and veal leading the way at 18%) and autos (associated with new model launch and pricing…1.6% for cars and 3.4% for trucks/SUVs).
Productivity, Unit Labor Cost and Compensation (Seasonally Adjusted)
According to a Department of Labor report, published on November 6, 2003, Productivity gains amounted to 8.1 percent for the third quarter 2003, adding to the 7 percent gain from the second quarter. Unit Labor Cost dropped 4.6 percent, versus a 3.2 percent drop in the second quarter. Lastly, Compensation gained 3.1 in the third quarter, down from 3.6 in the second quarter.
In keeping with the New Paradigm, rising compensation costs are increasingly offset by rising productivity, the result of competitive pressures.
10-year U.S. Government Bond Rate
The 10-year Maturity U.S. Government Security continues to remain trading at a relatively low rate. At midday, November 15, 2003 the yield stood at 4.25 percent. In the absence of inflation, and coupled with the quality of U.S. Government debt, there is no reason for it to rise to a higher rate in the near future.
The reason these rates are (and will likely continue to remain) so low is because of the absence of inflation!
(Opinions expressed on this web page are those of a faculty member or employee and do not necessarily reflect the position of University of Detroit Mercy)