The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.

Authors for macroblog are Dave Altig, John Robertson, and other Atlanta Fed economists and researchers.

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January 03, 2007

Mixed Bag

That's what Bizzy Blog had to say about the combination of a relatively positive report on December manufacturing activity...

Manufacturing in the U.S. unexpectedly expanded and construction spending fell less than forecast, signaling the worst of the economic slowdown is over.

The Institute for Supply Management's manufacturing index rose to 51.4 in December from 49.5 in November...

... nice news on the construction front...

From the Census Bureau: November 2006 Construction at $1,184.1 Billion Annual Rate

There is some good news in this report - nonresidential construction increased in November.

Nonresidential construction was at a seasonally adjusted annual rate of $316.5 billion in November, 1.4 percent above the revised October estimate of $312.0 billion.

Residential construction spending peaked in December 2005, and the typical pattern is for nonresidential construction to peak 3 to 5 quarters after residential construction. Last month I asked if nonresidential construction had peaked in August 2006 - the answer is: no.

but more woes in the domestic auto sector...

Auto sales data released today look just great, as long as your name is Toyota...

Sales of domestically manufactured cars were down 0.6% from December 2005. That's enough to give 2006 the worst fourth-quarter performance for domestic car sales of the last four years.

... ho-hum retail sales (hat tip, Mr. Naybob):

Sales at U.S. retailers in December may have risen at the slowest pace in four years as warm weather, falling home prices and rising energy costs discouraged holiday shoppers.

Sales probably increased 2.5 percent, the International Council of Shopping Centers and UBS Securities LLC said today in a statement. The ICSC had previously expected an increase at the low end of 2.5 percent to 3.5 percent. The council will issue a final December figure tomorrow.

... and a nasty looking signal on December employment:

U.S. private-sector employment fell by 40,000 in December, the first decline in nearly four years, according to the ADP employment report released Wednesday. "These findings suggest an abrupt slowing of employment," following relatively strong job growth averaging 121,1000 over the past three years," said Joel Prakken, chairman of Macroeconomics Advisers, the economic firm that computes the ADP index from anonymous payroll data provided by Automatic Data Processing Inc.

Although that ADP report prompted a "Gulp!" from Daniel Gross, you might heed BB's warning that "ADP’s correlation with the official Bureau of Labor Statistics report, which comes out Friday morning, has been looser than you would expect." Add to that Barry Ritholtz's admonition that the ADP data has "in the past has been none too reliable," and this picture (updated from last month's macroblog):




But as long as we are discounting data, I'll throw in this, from the Bloomberg post story on the ISM report linked above:

"All the key numbers are looking slightly better,'' said Peter Kretzmer, a senior economist at Banc of America Securities LLC in New York. "I just would not necessarily count on this being the beginning of a strong upswing. The manufacturing sector is growing very slowly.''

In fact, it looks like, as a whole, 2006 in manufacturing looked an awful like 2006 2005:




To be sure, the beginning of the year was stronger than the end, though the most glaring difference in the December report is fall-off in prices.  That is bad news if the reason is weakness in the sector (and hence relative prices), good news if it is indicative of lower overall price-level trends.  I gather from the other news of the day -- the release of the minutes of the December 12 FOMC meeting -- that the markets think the Fed thinks that it is not the latter.  Again from Bloomberg:

The dollar rallied and stocks initially advanced before erasing most of their gains after minutes of the Federal Reserve's meeting last month showed central bankers were still concerned about inflation...

Fed officials saw the risk of inflation remaining too high as their "predominant concern'' while predicting economic growth may be "somewhat uneven'' in the coming quarters, according to the minutes of the Dec. 12 meeting released today.

Professor Roubini sums it all up this way:

So you can see the half full glass or the half empty one; but to me the majority of news today looks like on the empty side...

OK -- I'll take the full side.

On the side:  The Skeptical Speculator covers the globe and concludes that the "Manufacturing slowdown spreads."

January 3, 2007 in Data Releases , Labor Markets | Permalink


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I don't know about Mr. Naybob's analysis. Just yesterday he proposed the Eagles (less the points!) will beat the Giants this weekend. Yet, it's as clear to me as a summer day in SoCal the Giants will not only cover the spread, they'll win the game.
I quote a favorite of Mr. Naybob, H.L. Mencken, for my reasoning. "I hate all sports as rabidly as a person who likes sports hates common sense."
I wish you a Happy New Year & I sincerely hope we'll all check our arguments to the influence of reason and principle.

Posted by: bailey | January 04, 2007 at 01:12 PM

If you look at the real personal consumption data in the monthly income report you see that it was up 0.5% in Oct. & Nov.. Moreover, on a SAAR auto sales were up sharply in December from Nov. suggesting the Dec real pce data will also be strong. These data and the strength in the real trade data implies that 4th Q real gdp growth will be significantly stronger then generally expected.

It looks more and more like the higher oil prices and rates caused housing weakness and a slowing of consumer spending in the spring and summer and that this pause is now over as housing is trying to bottom and real income is now growing sharply.

On the positive side with 4th Q hours worked up about 2% this implies that productivity will also rebound in the 4th Q so we
can still see good profits growth without sharply rising unit labor cost.

Posted by: spencer | January 05, 2007 at 12:23 PM

Spencer, Your statement, that "It looks more and more like the higher oil prices and rates caused housing weakness and a slowing of consumer spending in the spring and summer and that this pause is now over..." is inexplicable to me.
40% of the country's housing area falls within Krugman's Bubble zones. Orange County, CA house prices are TRIPLE their '97 prices. How much has median family income increased in this time? Don't be fooled by short-term leveling-off of prices. Only 22 states have signed on to CSBS AARM guidelines but the rest (incl. bubble states) are expected to follow. If the homes sold in '06 were financed with more funny loans (& I expect they were), all we did was postpone the calamity we face.
Like housing, oil prices deserve to be examined in a longer term context.

Posted by: bailey | January 05, 2007 at 12:53 PM

We'll see what happens in housing.

But there are some significant signs of bottoming although I'll be the first to admit they are very tentative.

The real point is that the housing weakness clearly has not spread to other sectors. Supposedly the death of consumers using their home wealth as an ATM would lead to a crash in consumer spending. But people have quit drawing on their home equity to finance consumption and it has not had a major negative impact.

Posted by: spencer | January 05, 2007 at 01:02 PM

Tough to argue with that. But, isn't our growth solely due to huge liquidity & easy credit? I'm still getting five & more credit card mailings a week offering 0% int. on xfers & purchases into '08, how about you?
I don't believe the FED's helping us by signaling it will act quickly to protect us from the horror of two successive quarters of negative growth. (I thought business cycles helped cleanse us of ill-advised risk-taking.) My bigger gripe is why the FED hasn't been banging down the doors of Congress to ask for single body regulatary control over a geometrically expanding financial sector that was largely deregulated by the total recall of Glass-Steagall? Is the FED now an arm of the Executive Branch (Treasury)?
If we've learned anything in the last six years, I'd hope it's that without effective checks & balances we're doomed.
Sorry to vent soliloquy #2007-1 on you. Happy New Year.

Posted by: bailey | January 05, 2007 at 05:02 PM

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