by Calculated Risk on 2/28/2011 11:31:00 AM

From the Dallas Fed: Texas Manufacturing Activity Picks Up

Texas factory activity increased in February, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose to 10 following a reading near zero in January.
...
Labor market indicators continued to reflect more hiring, a longer workweek and rising labor costs. The employment index came in at a reading of 11, up from 9 last month. The hours worked index was unchanged at 4, while the wages and benefits index fell from 15 to 9.
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Prices continued to climb in February. The raw materials price index edged up from 62 to 63, with 64 percent of firms noting an increase in input costs compared with only 1 percent noting a decrease.

This is the last of the regional Fed surveys for February. The regional surveys provide a hint about the ISM manufacturing index, as the following graph shows.

Click on graph for larger image in graph gallery.

The New York and Philly Fed surveys are averaged together (dashed green, through February), and averaged five Fed surveys (blue, through February) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through January (right axis).

The ISM index for February will released tomorrow, Mar 1st. The consensus is for a slight decrease to 60.5 from the strong 60.8 in January.

The regional surveys suggest the ISM manufacturing index will be around 60 (strong expansion). The 60.8 reading in January was the highest level since May 2004, and any reading above 61.4 would be the highest since 1983.

by Calculated Risk on 2/28/2011 10:00:00 AM

• From the Chicago Business Barometer™ Grew: The overall index increased to 71.2 from 68.8 in January. This was above consensus expectations of 68.0. Note: any number above 50 shows expansion.

"EMPLOYMENT continued to show expansion;". The employment index decreased to a still strong 59.8 from 64.1.

"NEW ORDERS nudged upward, still at the highest level since December 1983;". The new orders index increased to 75.9 from 75.7.

This was another strong report.

• From the NAR: Pending Home Sales Decline in January

The Pending Home Sales Index,* a forward-looking indicator, declined 2.8 percent to 88.9 based on contracts signed in January from a downwardly revised 91.5 in December [revised down sharply from 93.7]. The index is 1.5 percent below the 90.3 level in January 2010 when a tax credit stimulus was in place. The data reflects contracts and not closings, which normally occur with a lag time of one or two months.

This suggests existing home sales in February and March will be somewhat lower than in January.

by Calculated Risk on 2/28/2011 08:30:00 AM

The BEA released the Personal Income and Outlays report for January:

Personal income increased $133.2 billion, or 1.0 percent ... Personal consumption expenditures (PCE) increased $23.7 billion, or 0.2 percent.
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Real PCE -- PCE adjusted to remove price changes -- decreased 0.1 percent in January, in contrast to an increase of 0.3 percent in December.
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The January change in disposable personal income (DPI) was affected by two large special factors. Reduced employee contributions for government social insurance ... boosted personal income in January by reducing the employee social security contribution rates ... The January change in DPI was affected by the expiration of the Making Work Pay provisions of the American Recovery and Reinvestment Act of 2009, which boosted personal current taxes and reduced DPI ... Excluding these two special factors ... DPI increased $11.4 billion, or 0.1 percent, in January

The following graph shows real Personal Consumption Expenditures (PCE) through January (2005 dollars). Note that the y-axis doesn't start at zero to better show the change.

Click on graph for larger image in graph gallery.

Real PCE declined in January after increasing sharply in Q4. Note: The quarterly change in PCE is based on the change from the average in one quarter, compared to the average of the preceding quarter - so this still shows growth over Q4.

Also personal income less transfer payments increased again in January. This increased to $9,427 billion (SAAR, 2005 dollars) from $9,325 billion in December.

This graph shows real personal income less transfer payments as a percent of the previous peak. This has been slow to recover, but has improved recently - and is still 3.2% below the previous peak.

The personal saving rate increased to 5.8% in January.

Personal saving as a percentage of disposable personal income was 5.8 percent in January, compared with 5.4 percent in December.

This graph shows the saving rate starting in 1959 (using a three month trailing average for smoothing) through the January Personal Income report.

When the recession began, I expected the saving rate to rise to 8% or more. With a rising saving rate, consumption growth would be below income growth. But that 8% rate was just a guess. It is possible the saving rate has peaked, or it might rise a little further, but either way most of the adjustment has already happened.

The 1.0% increase in personal income was well above expectations of 0.4%, although spending only increased 0.2% (compared to expectations of 0.4%). The core price index for PCE increased 0.1 percent in January - slightly below expectations.

Overall this is a decent report. Even with the decline in real PCE, the 1.0% increase in income, the increase in the saving rate - and sharp increase in personal income less transfer payments - all were good news.

Weekend on U.S. economy:
• Schedule for Week of February 27th
• Summary for Week ending February 25th

by Calculated Risk on 2/27/2011 08:24:00 PM

Earlier on U.S. economy:
• Schedule for Week of February 27th
• Summary for Week ending February 25th

• From the Telegraph: Enda Kenny to call for bail-out to be renegotiated

Ireland's new leader [Enda Kenny] travels to Helsinki on Friday for a meeting ... with the German chancellor and French president over the EU and International Monetary Fund austerity programme.

He will plead with the EU for reduced interest rates .... [and] will also ask that investors, often other European financial institutions, take on some of an £85 billion debt burden of Irish banks, currently carried by taxpayers.

Watch the yield on Ireland's Ten Year bond today.

• After the Friday meeting in Helsinki on March 4th, there will be a special eurozone debt crisis summit on March 11th.

• Here are the Ten Year yields for Portugal, Spain, Greece, and Belgium (ht Nemo)

by Calculated Risk on 2/27/2011 03:38:00 PM

As a reminder, the weak payroll report for January was blamed on the snow. Usually I don't buy the weather excuses, but it did appear weather played a role this time. When the report was released, I wrote:

The 36,000 payroll jobs added was far below expectations of 150,000 jobs, however this was probably impacted by bad weather during the survey reference period. If so, there should be a strong bounce back in the February report.

That is a key reason the consensus is so high for February. Bloomberg has the consensus at 180,000, MarketWatch has 200,000, Goldman's forecast is 200,000, and I heard ISI is at 230,000).

It will be useful to average the two months to estimate the current pace of payroll growth - especially if weather played a role in January and there is a strong bounce back in February.

And we have to remember the numbers are grim:
• There are 7.7 million fewer payroll jobs now than before the recession started in December 2007.
• Almost 14 million Americans are unemployed.
• Of those unemployed, 6.2 million have been unemployed for six months or more.
• Another 8.4 million are working part time for economic reasons,
• About 4 million more have left the labor force since the start of the recession (we can see this in the dramatic drop in the labor force participation rate),
• of those who have left the labor force, about 1 million are available for work, but are discouraged and have given up.

A simple calculation: If the economy is adding 125,000 jobs per month (average over two months), it would take over 5 years to add back the 7.7 million lost payroll jobs - and that doesn't even include population growth. Grim is an understatement.

Earlier:
• Schedule for Week of February 27th
• Summary for Week ending February 25th