Wednesday, January 25, 2012

US Economic Indicators

The regional business surveys conducted by the Federal Reserve Banks of New York, Richmond, and Philadelphia are available through January now. The overall indexes were upbeat, but they are seasonally adjusted. A few economists have recently argued that seasonal factors may be exaggerating the strength of the economy because they were distorted by the severity of the economic downturn in late 2008 and early 2009. The weather has also been unusually mild this winter. However, the details of the latest business surveys suggest that the fundamentals really are improving:
(1) New York Fed finds lots of strength in latest survey. The Empire State Manufacturing Survey indicates that manufacturing activity expanded in New York State in January. The general business conditions index climbed five points to 13.5, the best reading since April 2011, just before the soft patch. The new orders index rose eight points to 13.7, the highest since May 2011.

The six-month outlook continued to gain momentum in January. The future general business conditions index rose nine points to 54.9, its highest level since January 2011. This index has risen over 40 points since October.

On a series of supplementary survey questions, 51% of respondents indicated that they expect their workforces to increase over the next 6-12 months, while just 9% predicted declines in the total number of workers--results noticeably more positive than in the June 2011 survey. High expected sales growth was widely deemed to be the most important factor among those who planned to add workers.

(2) Richmond’s Fed survey was on the positive side. Manufacturing activity in the central Atlantic region advanced somewhat faster in January after firming in December. All broad indicators--shipments, new orders, and employment--landed in positive territory, with manufacturers noting their first increase in worker numbers since September. The manufacturing index rose to 12--up from 3 in December and 0 in November. Most other indicators were also positive, including capacity utilization.

Looking forward, assessments of business prospects for the next six months were more optimistic in January. The index of expected shipments increased nine points to 36, expected orders gained 11 points to finish at 32, and backlogs added eight points to 14.

(3) Philadelphia Fed survey also mostly upbeat. The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, edged up slightly from a revised reading of 6.8 in December to 7.3 in January. The new orders index remained positive for the fourth consecutive month but declined from a revised reading of 10.7 in December to 6.9 this month.

The future general activity index increased from a revised reading of 40 in December to 49 this month. The index has increased for five consecutive months and is now at its highest reading in 10 months. The current employment index has now been positive for five consecutive months, though it was virtually unchanged in January from last month’s reading. The percentage of firms reporting an increase in employment (21%) was higher than the percentage reporting a decline (10%). Among firms planning to increase employment over the next six to 12 months, the most frequently cited reason influencing this decision was the expectation of high sales growth.

So what worries me? I am concerned about the recent weakness in petroleum usage and electricity output in the US. The former fell during the week of January 13 to 18.98 million barrels a day (using the 52-week moving average to smooth out this volatile series). That’s down from a recent peak of 19.31mbd during the week of April 29, and the lowest usage since the week of July 11, 2010. Electricity output (also based on its 52-week average) was remarkably flat over the past year, but then dropped sharply during the first two weeks of this year. Maybe it’s just the weather. (More for subscribers.)

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