The Economy: January 2013

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A Gallup Poll conducted on January 7 – 10, just after Washington narrowly avoided the fiscal cliff knocked unemployment off the top of Gallup’s “most important problem” list for the first time since 2009. Federal budget deficit and government dysfunction took over the top spots.

The Congressional Budget Office reported that the federal government incurred a budget deficit of $293 billion for the first three months of the fiscal year 2013 (that is, October through December 2012), $29 billion less than the shortfall recorded in the first quarter of last fiscal year. The US Treasury Department reported that on January 27, 2013 the federal debt was $16.44 trillion. It was $5.7 trillion in 2001.

The White House has informed House Budget Committee Chairman Paul Ryan that it will miss the legal deadline of February 4 for sending a budget to Congress. The Senate last passed a budget resolution in 2009.

The $787 billion economic stimulus legislation mandated quarterly status reports. Fourteen should have been released by now; eight have been issued, the last one covering the period ending in June 2011. The last report stated that for every $317,000 spent, one job was created or saved.

The US government debt held by foreign entities is a record $5.5 trillion, with China holding $1.17 trillion of it, or slightly more than 21% of all the debt owned by foreign entities. In January 2009 the US government owed $3.07 trillion to foreign entities. China remains the top creditor, although Chinese holdings are down 6.7% year over year. Japan is a close second, holding $1.13 billion.

The Bureau of Economic Analysis advance estimate of the fourth quarter 2012 Gross Domestic Product showed a decrease of 0.1% at an annual rate that is from the third quarter to the fourth quarter. In the third quarter, real GDP increased 3.1%. In the second quarter, real GDP increased 1.3%. Current-dollar GDP, the market value of the nation’s output of goods and services, increased at a rate of .05% or $18 billion in the fourth quarter to a level of $15,829 .0 billion. In the third quarter current dollar GDP increased 5.9% or $225.4 billion.

The Conference Board’s Leading Economic Index rose 0.5% in December to 93.9 (2004=100) following no change in November and a 0.3% increase in October.

The Conference Board Consumer Confidence Index which had decreased slightly in November, contrary to earlier estimates of improvement, posted another decrease in December. It stands at 65.1 (1985=100) down from an adjusted 71.5 in November.

The Institute for Supply Management’s Manufacturing Index increased 1.2% to 50.7% in December after contracting in November following two months of modest growth. A reading above 50% indicates that the manufacturing economy is generally expanding. The Non-Manufacturing Report for December was 56.1%, 1.45% higher than the 54.7% registered in November and still indicating continued growth.

In December, retail and food services sales adjusted for seasonal variations were $415.7 billion, an increase of 0.5% from November and 4.7% above November 2011. Total sales for the twelve months of 2012 were up 5.2% from 2011. October through December 2012 sales were up 4.2% from the same period a year ago.
The 2012 US holiday season may have been the worst for retailers since 2008, with sales growth far below expectations. One bright spot was online sales, which continue to grow rapidly.

Privately owned housing starts in December of 954,000 were 12.1% above the revised November estimate of 851,000 and were 36.9% above the December 2011 rate of 697,000. Single family housing starts in December were at a rate of 616,000 or 8.1% above the revised November figure of 570,000. New home sales declined 7.3% in December, to a seasonally adjusted annual rate of 369,000, while November’s sales pace was revised to 398,000. This was 8.8% above the December 2011 estimate of 339,000.

The National Association of Realtors reported that sales of existing homes in 2012 rose to the highest level in five years as prices also gained. Sales of existing homes declined 1% in December to a seasonally adjusted annual rate of 4.94 million but were up 9.2% from 2011. The national median existing home prices rose in December, up 11.5% from a year earlier. The average rate for a thirty year fixed mortgage fell to 3.38% in the week ending January 17. The association has reported that non-American buyers accounted for $82 billion in home sales last year. More than $7 billion of that is by the Chinese, who are the second largest foreign home buyers after Canadians. The Chinese purchase high-end multimillion dollar homes and pay cash.
New orders for manufactured durable goods in December, up seven of the last eight months, increased $10.0 billion or 4.6% to $230.7 billion. This followed a 0.7% November increase.

December unfilled orders for manufactured durable goods, up six of the last seven months, increased $8.2 billion or 0.8% to $992.0 billion. This followed a slight November increase.

Consumer Price Index for all urban consumers was unchanged in December on a seasonally adjusted basis. The US Bureau of Labor Statistics reported that over the last twelve months the all items index increased 1.7 % before seasonal adjustments. The gasoline index fell 2.3% in December, but other indices such as food and shelter increased, resulting in the all items index being unchanged.

The Producer Price Index for finished goods declined 0.2% in December, seasonally adjusted, following a decrease of 0.8% in November and 0.2% in October. On an unadjusted basis, prices for finished goods increased 1.3 % in 2012, compared with a 4.7% increase in 2011.

Interest rate: Prime at 3.25%, unchanged since 12/16/08.

Inflation: Inflation rate in December reported at 1.7%. The November rate was 1.8%. The October rate was 2.2%, September rate was 2.0% and the August rate was 1.7%. Average rate of 2.0% is projected for 2012. It is expected to rise slightly in 2013 to approximately 2.3%.

Industrial production increased 0.3% in December, after having risen 1.0% in November, declined 0.7% in October, increased 0.2% in September, and fallen 1.4% in August. The gain in November is estimated by the Federal Reserve to have largely resulted as recovery from Hurricane Sandy. At 98.1% of its 2007 average, total industrial production in December was 2.2% above its year-earlier level. Capacity utilization for total industry increased 0.1% to 78.8%, a rate1.8% below its 1972 – 2011 average.

Unemployment: The December 2012 rate edged back up to 7.7% as reported by the Bureau of Labor Statistics. This has basically been the same level since September. The number of unemployed persons changed little at 12.2 million. The BLS stated that the long-term unemployed, i.e., jobless for 27 weeks and over was essentially unchanged at 4.8 million. Those individuals accounted for 39.1% of the unemployed. North Dakota continued to lead the nation with the lowest state unemployment rate in December of 3.2%; Nevada and Rhode Island were both reported highest at 10.8%. The Federal Reserve announced on December 20 that it would hold interest rates near zero until it hit the target of 6.5% unemployment. As of January 17, The President’s Council on Jobs and Competitiveness had not held a meeting for a year.

The decline in union membership continued in 2012. The BLS reported that the total number of union members fell by 400,000 to 14.3 million, although the nation’s overall employment rose by 2.4 million. The percentage of workers in unions fell to 11.3%, down from 11.8% in 2011.

Trade Deficit: For November 2012 the goods and services deficit increased to $48.7 billion from the October figure of $42.1 billion as imports increased more than exports.

Crude Oil: Present WTI spot price ~$95/bbl and holding, compared to ~$90+/bbl a year earlier. OPEC has reported that world oil demand is expected to decline in 2013 and has reduced production.

Natural Gas: Henry Hub spot price closed on January 22 at $3.53/MMBTU. February 2013 contract reported at $3.55/MMBTU. Working natural gas in storage is greater than last year and remains above the five year average

The US dollar trading at 91.0 Japanese yen; $1.35 = euro. The British pound sterling = $1.58. Canadian dollar trading at US$1.006

Current US gold price quoted at $1657.00/ounce compared to the record price of $1920/ounce in September, 2011.

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