Producer Price Index October 2009

18 11 2009

Yesterday’s Bureau of Labor Statistics (BLS) release of the Produce Price Index (PPI) saw prices moving north again, this time a .3% gain compared to last months .6% loss.  The numbers seem to be stabilizing (one month a little up, on month a little down).  Looking into a little more depth we see that Energy and Food are the primary drivers.

If you are looking for more information relevant to your industry – check out www.bls.gov/ppi/.  They break out the information a number of different ways.

 

 





Employment Situation Oct 2009

6 11 2009

The employment situation continues to demonstrate the frailty of the current economic climate.  In Sept the unemployment rate was 9.8%, Friday it was announced that Oct witnessed this number increase to 10.2%.  “This is the highest rate since April 1983.”  We are also at the second highest point (and growing) in the history of tracking the data – 1948.

(Here is the link to the commissioner’s report to Congress and the original report)

Employment Situation Oct 2009

If we look at a visual of the informtion, a number of things jump out at least to me:

1.  The Good, it looks like (at least to me) the higher the number, or the swifter the increase, the quicker the the unemployment rate drops.  There appears to be a natural slope (green line – A) to the decline in the the unemployment rate after a spike, which then is followed by a less gradual slope that marks a return to a healthy market (red line – B).  In roughly 1975 and again in 1983 we saw two spikes which then followed the green line’s slope – except in the case of 1983, we actually saw that trend bear out over the longer term, yet moved faster during the initial recovery period (reb box).

2. The Bad – if this follows the trend pattern of 1983 we may be looking at another 7-8 year recovery process to return the unemployment rate to around 6% which roughly appears to be natural healthy level.

3. The Ugly – We have yet to see the peak of this trend.  And even if this does turn around in the next month or two, we are so bad a shape across so many other sectors it may take far longer for us to return to a 6% unemployment rate.  If we continue to see credit tighten up at the rate it is going, we will see continued pressure on unemployment.





Price of Oil

27 10 2009

One of the biggest impacts to the US economy is the cost of oil.  We are still the leading consumers, though our lead is being taken over by China.  It is no surprise that the price of oil/gas can either fuel US economic growth, or bring it to a crawl.  I remember (somewhat fuzzy) as a kid waiting in line for gas, and I sold my Ford Expedition in fear that gas was going to see $5/gallon last year. While perhaps I sold the car a little prematurely, the basic fundamental truth about the control of the price of oil is well beyond me. And in someways beyond any of us.

OPEC mostly gets away with what it wants in terms of prices, and China is clearly working to leverage its relations with OPEC countries to improve its position.  While this isn’t necessarily bad for the US, we do lose some of our bargaining power.  And as China continues to increase demand, it drives up market prices.

I am going to try to add the Price of Oil to the Baumohl Indicator series on a bi-weekly basis.  My goal is to continue to explore some of the indicators of US Economic Performance and how they impact business cycles.





Mass Layoffs Sept 2009

22 10 2009

The Bureau of Labor Statistics today announced the Mass Layoffs from September.  The number of events (more than 50 people laid off) is down a little from August, but we are still seeing much larger levels than normal.  The September number of 2,561 layoff events is roughly 2x the normal average.

This is a slight sign the economy may be bottoming out.  What is still disturbing here is the consistency of the level of mass layoffs.  For the last 12 months (see blue box in chart) we have had over 2,000 events per month compared to a normal level of 1,250.  We are still adding too many people to the unemployed – and a system that is built to run on full employment.  Over the last 20 years we have only seen two other spikes, yet in both of those periods we only saw a brief period of spike.  And again in neither of those cases did we ever reach 2,500 events.  Over the last 12 months we have seen 5 months in excess of 2,500 events.  Not good news on any front.

Quite soon, we need to see a substantial drop in Mass Layoffs to give us a positive  indicator that the economy is turning around.  We see a good number of positive signs, but this one is still a big red flag.  Again, if we look at the post 9/11 trend you can tell this trend tapers back to normal.  Mass Layoff Events Sept 2009





Producer Price Index Sept 09

20 10 2009

This morning the Bureau of Labor Statistics released the September 2009 Producer Price Index report.  The PPI dropped a little this month mostly due to cost of gas declines (0.6% decline).  In August we saw a significant increase at 1.7% raises a little alarm in that the fluctuations are evident.  The fact that most of this is based on energy prices swinging is both a little calming and potential for more signs that oil prices are moving too much.

“Wholesale prices in the U.S. unexpectedly fell in September on lower fuel costs, a sign inflation remains muted and the Federal Reserve has leeway to keep borrowing costs low as the economy recovers.”  Bloomberg

What does this mean to me: we will probably not see much increase in prices over the coming months (keep watching the price of oil/gas).  This is also a sign that while some of the recent indicators have been good, we might see a lull in the recovery process.

As a part of this series, I am also going to add the price of oil.  It was not one of the Baumohl Indicators, but I think that might have been because it comes out of the financial markets.





The Dow (DJIA) hits 10,000

16 10 2009

On Wednesday this week (October 14, 2009) the Dow Jones Industrial Average topped 10,000.  Although it struggled out of the gate this morning, I am curious why we did not take the time to celebrate re-reaching this milestone.  Clearly, this is a sign that the economy is chugging forward again.

If we look back to September 19th, 2008, the DJIA closed at 11,388 and only days away from near free fall.  Over the next couple of days, panic would set in and the markets were paralleled to “The Great Depression.”  The DJIA at 10k represents we have recovered 70% of what we lost since September 19th, 2008.  We still have a way to go, but a little celebration might just be what we need right now.  Not much, we can’t afford the hangover, but perhaps a little toast to reaching 10k again and may we keep doing a little better every day.

Looking back…Between Oct 24th, 2007 and September 19th, 2008, the DJIA shed about 20% of its value (14,093 to 11,388).  It would then lose an additional 34.4% by March 9th 2009 when the market reached its lowest level in 12 years at 6,547.  If we start the clock at Oct 24th, in two years we have recovered about 45% of the losses we incurred during the recession of 2008 and 2009.  Perhaps not as happy a picture, but consistent progress in the right direction.  This still represents ~50% recovery in 6 months, what we lost over two years.  If the trend holds, perhaps we are back to 2007 levels within another 6-8 months, and then can continue to recover on the lost time.

DJIA Recovery

The other item worth noting is the declining variation in the closing gains.  Over the last three months, the variability has diminished to levels not seen during the recession.  This is another great sign indicator of stability and overall economic health.  The market likes gains, but it loves consistency.

DJIA Recovery Variation





Consumer Price Index Sept 2009

15 10 2009

The CPI for September was released today.  Nothing all that surprising – it looks like the rebound last month towards a positive trend (perhaps not for everyone), or an upward trend continued for a second month.  It appears as if the trend may be resetting with a 1.3% drop from where we were in Sept 2008.

CPI History 1997

How to use this information:  Have your internal statistician look at CPI (and PPI) and see if they give you any early warning signs against some of your variable costs – raw materials, finished goods, average selling price, etc.

  • Does CPI move with your Cost of Goods Sold (COGS), or your margins?
  • Could it give you a one month warning to tighten the belts a little bit?
  • What is the impact on your average selling price?
  • Do your customers move faster than you?

Historical Trends

If we look at this from a historical perspective, we can tell there has been a stead upward trend since the mid 60’s.  The variability was pretty consistent from the mid 60’s through 2004, then in 2005 it looks like the variability began to increase.  These charts don’t provide us much actionable information, but show us the trend has been consistent, and that there was a disruption with the recent economic conditions.  This disruption is what is highlighted in the earlier part of this blog.

CPI History 1913