Economic Notes: Numerous Numbers
4/17/2009
The Federal Reserve’s Beige Book (see links below) reports that the national economy remained weak, but five of its 12 districts “noted a moderation in the pace of decline, and several saw signs that activity in some sectors was stabilizing at a low level.”
This is a reminder (1) that the U.S. economy is an amalgam of regions and sectors; (2) whose economic performance will vary, perhaps significantly, over the course of the business cycle; and (3) that those performance differentials tend to become more evident as a cycle matures.
Regional differences can be seen in the labor market statistics published by the Bureau of Labor Statistics. In March, the Pacific region1 had the highest unemployment rate (10.8%) and the West South Central region2 the lowest (6.5%). The Northeast’s3 rate was 7.9%.
Sectoral differences are most obvious in the persistent growth in healthcare employment during the downturn. That sector added more than 400,000 jobs even as total national employment dropped by 5.1 million.
As the economy’s descent begins to slow, which it is, the data (i.e., different measures of different activities using different techniques) will become more mixed, sometimes even blatantly inconsistent.
But if we are to gain any insight into the probable depth and duration of this recession, which next month becomes the longest downturn since the end of the 1930s, we will have to draw inferences from those numbers.
For the first two months of 2009, retail sales figures implied that consumers had quit their Rip Van Winkle impersonation. In actuality, the Van Winkles had just been sleepwalking. March’s retail sales were down 1.1% from February (m/m) and were 9.4% off 2008’s level (y/y).
Notwithstanding the noise in these data (e.g., the collapse in new car sales is skewing y/y comparisons), the Conference Board reports that consumersentiment hovers at the near-record low, which suggests that a sustained pickup in retail sales is not yet on the horizon.
The Census Bureau reported that manufacturers’ inventories continued to decline in February and are now down 14.8% y/y. (Chart 1) Although consumer spending remains weak, manufacturers have curtailed output to the point where inventories are aligning with sales – a prerequisite to recovery.
Homebuilding continued to emulate The Incredible Shrinking Woman. Housing starts dropped 10.8% m/m in March and were down 48.4% y/y, according to the Census Bureau. (Chart 2) With foreclosures rising and housing prices declining, builders also reduced their planned future activity, drawing 9.0% fewer permits m/m (-45% y/y). As in manufacturing, this means that inventories are shrinking, a positive for the future.
Consumer prices declined y/y for the first time since Dwight D. Eisenhower was in the White House, according to the Bureau of Labor Statistics. Although some may take that as evidence of deflation, the y/y drop reflected a sharp (-23%) decline in energy prices. The popping of the gasoline bubble (Chart 3) is hardly cause for deflationary concerns, although if the recent rise continues consumers will reduce their spending on other goods and services.
Beige Book Links:
[1] Consisting of Alaska, California, Hawaii, Oregon and Washington.
[2] Consisting of Arkansas, Louisiana, Oklahoma and Texas.
[3] Consisting of New England and the Middle Atlantic states. ***
The statements, opinions, and conclusions contained herein are based solely upon the author’s own studies, research, and personal experience. Neither J.H. Cohn LLP nor the author makes any representation or warranty as to the accuracy or completeness of this information. J.H. Cohn LLP and the author expressly disclaim any liability for any loss or damage which may be incurred, of any kind whatsoever, as a result of or arising from the use of any of the information contained herein or reliance on the accuracy or completeness of it.
For more information, contact Patrick O’Keefe, director of economic research at J.H. Cohn, at pokeefe@jhcohn.com or 973-364-7724.