Thursday, February 02, 2012
On Thin Ice, But....
No matter how you look at it, we started 2012 weaker than we started 2011. And not just marginally weaker. GDP wasn't good, Chicago PMI showed some relative weakness at 54.9 with an outright contraction in order backlogs, NACM started the year about 2 points lower than it did last year, with payment related weakness, petroleum consumption is exceedingly weak, with net imports down over 15% YoY (YTD), and:
Total products supplied over the last four-week period have averaged just under 18.2 million barrels per day, down by 4.3 percent compared to the similar period last year. Over the last four weeks, motor gasoline product supplied has averaged about 8.1 million barrels per day, down by 7.3 percent from the same period last year. Distillate fuel product supplied has averaged 3.6 million barrels per day over the last four weeks, down by 1.7 percent from the same period last year. Jet fuel product supplied is 4.1 percent lower over the last four weeks compared to the same four-week period last year.The consumer side is not very strong. At all. Even factoring in retirements, it's hard to account for this three month move into the dark. It does match well with utility figures, which have been poor.
Weather does not account at all for the striking decline in gas consumption, and fleet replacement cannot account for it either. Weather ought to have stimulated gas consumption. So should theoretical employment figures.
There is light stocking in many stores. Rail figures are not a bright spot so far, with YTD carloads only up 1.1% and intermodal (trailers/containers) only up 0.4% YoY.
Jobs figures have generally been good, but Treasury Hospital Insurance receipts for December were really very poor. They only increased 2% YoY, and that means that real wages in the US, in aggregate, declined from December to December. This explains a lot of what we are seeing. I have stared and stared and stared at the Treasury figures. They do not change. Every once in a while Treasury will correct them, but not this time. HI-self was at 170, same as December 2010. HI wages (charged on all wages and salaries) was at 17,135 compared to December 2010's 16,788. CPI-U in December was at 3%, CPI-W was at 3.2%, and food at home for those unfortunates was still up 6.1% YoY. The lower the income, the higher the real inflation rate for consumers, and it is not hard to understand why food and gas consumption is falling.
On the bright side, a milder winter should be putting some money back into consumers' pockets in the form of lower heating costs, initial claims are subdued, continuing unemployment claims are following a steady to downward trajectory, and a milder winter should really help construction, which is one of the US bright spots.
Now the petroleum consumption thang is not just a feature of the US. European brent is being exported to Asia, since Libyan production is back up. There is a notable downward global shift in the background economy.
At this point, my forecast for no outright US recession in 2012 is in peril. The only thing that will save it is if inflation drops. Inflation has been very segmented to the lower end of consumption, so we have an odd situation in which real incomes for higher earners have risen while real incomes for lower earners have plummeted. This is not stable.
Remember, last year we had high inflation, but a lot of consumers were helped earlier in the year by the 2% FICA cut, which we have maintained, but cannot increase.
CBO's deficit prediction for 2012 is 1.1 trillion, which is a 10% increase from last summer's estimate. Federal Debt Held By The Public is rocketing up - it is now at 10.5 trillion. That takes us to about 78.7% Debt/Real GDP. We are crossing the first danger line (> 80%) very decisively this year. To put this in perspective, from Q4 2010 to Q4 2011 real GDP grew by 206 billion dollars. We are not going to do much better this year under the best estimate, unless inflation drops hard, so we are looking at adding 300 billion MAYBE to real GDP and a trillion to the debt? This now becomes daunting - the markets are going to start flinching when we get close to 85%, and my best case scenario is be at about 84% Floated Debt/Real GDP in a year.
Inflation doesn't help us at all, because of per capita real income. See Table 2.1 in the National Accounts. Per capita real income reached its height in this cycle (emergence from recession) in Q1 2011, largely because of the FICA tax cut. It reached a high of 33,826 in 2008, fell to a low of 31,806 in Q4 of 2009, rose again to 32,724 in Q1 of 2011, and since has declined to 32,407 in Q3/Q4. The figure for Q4 is of course quite preliminary, but based on tax receipts it can't be much better.
Uncertainty factors for business remain very high, therefore. Businesses cannot possibly know what the tax environment will be next year. There is space to raise taxes marginally on higher income earners. Not a whole lot, and tax increases are already passed in law to some extent, so you have to watch it.
Well, I'll go over the CBO predictions and so forth in the next installment of the gold bond series, but it is going to be hard for businesses to invest a whole lot of money in expansion in the current circs. The BS reports about consumer credit increasing a whole lot have indeed turned out to be BS. Take a good look at H.8, and scroll down to the weekly. Consumer loans are about where they were in October. There is an increase in other consumer loans (includes cars) and a decrease in CC/Revolving. Deposits are gaining, but slowly. C&I lending is up, but we have to wait for a bit to see the real trend.
Therefore we don't have help from the credit cycle. We cannot have a lot of help from incomes in the short term. We aren't going to get a big surge in business investment, except for energy. We cannot look for a lot of federal handouts, because that will prove counterproductive.
Energy is an assist. Housing is recovering some places, with new home builders in some areas seeing a pick-up. Some positives, some negatives, very little net growth impetus.
I'm guessing that we are retiring well-paid jobs and replacing those with lower-paid jobs. Tomorrow's employment report will be interesting indeed.
For laughs. Indiana's "Think".