Over­all, the U.S. Econ­o­my con­tin­ues to sur­vive a pas­sage through a seem­ing­ly unend­ing series of self-inflict­ed cri­sis; specif­i­cal­ly, pres­i­den­tial elec­tions, the fis­cal cliff, seques­tra­tion, and now Europe (Cyprus to be exact).   While the polit­i­cal back­drop con­tin­ues, there are clear signs the U.S. econ­o­my is con­tin­u­ing to expand.  Most key met­rics are show­ing con­tin­ued improve­ment in month-over-month lev­els from one year ago.  Hous­ing Starts con­tin­ue to climb, Light Vehi­cle Retail Sales show strength, and New Orders for Durable Goods, until recent­ly one of the few areas of con­cern, have shown improvement. 

The eco­nom­ic recov­ery that start­ed last year is expect­ed to con­tin­ue through 2013, pos­si­bly into ear­ly 2014.  Here is a sum­ma­ry of some impor­tant eco­nom­ic indi­ca­tors, show­ing his­tor­i­cal infor­ma­tion and areas of poten­tial risk that could threat­en the eco­nom­ic recov­ery in the U.S.A.  

Mostly SunnyRetail Sales – Sun­ny with a chance of clouds.  Thank good­ness for the con­sumer.  Con­sumer spend­ing has, until recent­ly, been increas­ing month-over-month (adjust­ed for infla­tion) since mid-2012.  The Decem­ber-to-Jan­u­ary was the sec­ond best on record while February’s read­ing was down.  Maybe the con­sumer was tak­ing a breather from the pri­or months splurge so February’s dip may be noise.  Impor­tant­ly, sales of big-tick­et items, such as auto­mo­biles, boats, and oth­er vehi­cles, has increased.

Hav­ing said that, this trend is expect­ed to mod­er­ate because the consumer’s appetite to spend may be damp­ened for sev­er­al reasons: 

(1)   The 2% income and pay­roll tax hike that took place ear­ly in the year increased tax­es on most, if not all, consumer’s and pos­si­bly con­tributed to a fall in the Decem­ber-to-Jan­u­ary Dis­pos­able Per­son­al Income read­ing result­ing in less mon­ey in the consumer’s pockets

(2)   The aver­age hourly wages for the total pri­vate work­force is up a scant 2.1% which bare­ly keeps up with the 2% infla­tion rate and if the con­sumer is going to con­tin­ue to spend, their income needs to increase at a rate greater than inflation

(3)   The uncer­tain­ty sur­round­ing the gov­ern­men­tal bud­get bat­tles (that are now expect­ed to con­tin­ue through 3Q 2013) which in turn may cause the con­sumer to become risk averse

(4)   The Per­son­al Sav­ings rate dropped in Jan­u­ary to its low­est lev­el in five years which may indi­cate con­sumers are pulling from sav­ings to sup­port their spend­ing habits and this can only be sus­tained for so long.

While the growth In Retail Sales has been good for the past sev­er­al months (exclud­ing February’s read­ing), expect it to lev­el off through the end of the year. 

SunnyWhole­sale TradeLet in the Sun­shine!!  Whole­sale Trade has been trend­ing up since at least Octo­ber 2012.  Both durable and non­durable goods are climb­ing and are now near record high levels. 

Durable Goods is expect­ed to con­tin­ue to rise through 2013 and into 2014 due to eco­nom­ic expan­sion and a con­tin­ued recov­ery in the hous­ing mar­ket.  In fact, Whole­sale Trade of Lum­ber and & Oth­er Con­struc­tion Mate­ri­als is ris­ing at the fastest pace in over sev­en years!

Non­durable Goods is also expect­ed to see growth through 2013, mod­er­at­ing as we enter 2014.  Of note, it is expect­ed oil prices will rise in 2013 on the back of glob­al recov­ery and ten­sions in the Mid­dle East.  The good news is the U.S. is now a net exporter of petro­le­um and, as oil prices rise, domes­tic whole­salers will profit. 

SunnyMan­u­fac­tur­ing -  Let in the Sun­shine!!  Like Whole­sale Trade, Man­u­fac­tur­ing con­tin­ues to show strength and has been trend­ing up since at least 2012’s third quar­ter.  U.S. Indus­tri­al Pro­duc­tion was up 3.7% in 2012 when com­pared to 2011.  It is also show­ing con­tin­ued, pos­i­tive growth through this past Feb­ru­ary, up 3.5% from this time last year.  This trend is expect­ed to con­tin­ue through 2013 before mod­er­at­ing in 2014.

Potential RainInter­est RatesPoten­tial for rain.  Are we final­ly see­ing rates begin to rise?  The yield on the U.S. 10-Year Trea­sury climbed to 2% in Jan­u­ary and cur­rent­ly stands at 1.94% in mid-March.  We expect it to vac­il­late tight­ly around the 2% mark through 2013 as the Fed con­tin­ues to employ their accom­mo­dat­ing mon­ey policy. 

Speak­ing of the Fed, it has com­mit­ted to buy­ing $45 bil­lion a month in long-term trea­suries and mort­gage bonds until the unem­ploy­ment rates falls below 6.5% (now at 7.7%) or core infla­tion ris­es above 2.5% (now at 2.0%).  The employ­ment rate is not expect­ed to reach 6.5% until some­time in 2015 and the infla­tion rate shows lit­tle sign of mov­ing from its cur­rent levels. 

Mostly SunnyCap­i­tal Goods New Orders — Cloudy with a chance of Rain … or Sun!  In the last half of 2012, Cap­i­tal Goods New Orders, a key in indi­ca­tor of busi­ness-to-busi­ness growth, was one of the few indi­ca­tors that was flash­ing a warn­ing sign.  Through most of the sec­ond half, new orders declined any­where from 3.0% to almost 8% from 2011 levels. 

How­ev­er, new orders in sev­er­al man­u­fac­tur­ing areas (e.g. Indus­tri­al, Met­al­work­ing, & Con­struc­tion Machin­ery, Mate­r­i­al Han­dling Equip­ment and the Pur­chas­ing Man­agers Index) show improve­ment and this is ten­ta­tive­ly expect­ed to con­tin­ue through 2013.  The only areas see­ing flat to declin­ing growth are Elec­tri­cal Equip­ment, Com­put­ers and Elec­tron­ics and Defense Cap­i­tal Goods New Orders

While the slight uptick in new orders is a pos­i­tive and may sig­nal a bot­tom, it does not rep­re­sent a trend.  Addi­tion­al infor­ma­tion to be report­ed in the next cou­ple of months will pro­vide more mean­ing­ful insight into whether or not to expect sus­tained recov­ery in this area. 

Mostly SunnyCon­struc­tion - Most­ly sun­ny with a chance of clouds.  Con­struc­tion is on the mend show­ing slow but steady growth.  Nation­al hous­ing starts are steadi­ly climb­ing upwards to the tune of 27.7% above year ago lev­els; Both sin­gle-fam­i­ly and mul­ti-fam­i­ly units increased as well.  The Mid­west was espe­cial­ly strong.  Final­ly, home improve­ment con­struc­tion spend­ing is also on the rise.  As con­struc­tion is a lead­ing indi­ca­tor, by six to eight months, expect U.S. Indus­tri­al expan­sion to con­tin­ue to rise in 2013. 

One caveat to the trend is that the Nation­al Asso­ci­a­tion of Home Builders (NAHB) Hous­ing Mar­ket Index (HMI), a gauge of home­builder sen­ti­ment fell from 46 in Feb­ru­ary to a 44 in March.  Econ­o­mists sur­veyed by Bloomberg were call­ing for an increase to 47.  For con­text, a read­ing below 50 sug­gests more home­builders con­sid­er the hous­ing mar­ket poor.  The NAHB cites builder’s  “enthu­si­asm is begin tem­pered by frus­trat­ing bot­tle­necks in the sup­ply chain for devel­oped lots along with ris­ing costs for build­ing mate­ri­als and labor.”   It is too ear­ly to tell whether this is a tem­po­rary blip or a sig­nal of trou­bles to come. 

FoggyInter­na­tion­alFog, Heavy at times.  What were they think­ing when they wrote the Cyprus bail-out deal?  Once again, Euro­pean issues con­tin­ue to ham­per their recov­ery and poten­tial­ly threat­en the Unit­ed States recov­ery.  While the Cyprus issue could cause the U.S. prob­lems, it is high­ly improb­a­ble they actu­al­ly will.  It is more a media side-show that demon­strates there are still threats to the Euro­pean recovery. 

One of the bright spots is Ire­land.  Their aus­ter­i­ty mea­sures appear to be pay­ing off.  It is antic­i­pat­ed they will be able to pay their way out of their bail-out by the end of the year.  Anoth­er is Poland.  It is expect­ed to grow its econ­o­my through 2014. 

On the neg­a­tive side, Indus­tri­al Pro­duc­tion for the core Euro­pean coun­tries, Ger­many, the U.K., and France, may remain flat through 2013 at which time, it is expect­ed, they may fall back into reces­sion. Indus­tri­al Pro­duc­tion, Con­struc­tion and Vehi­cle Pro­duc­tion met­rics were all show­ing weak­ness.  The recov­ery of the Ger­man econ­o­my will dic­tate the over­all strength of the Euro­pean recov­ery.  If Ger­many can grad­u­al­ly recov­er through the end of 2013, then there is the chance for accel­er­at­ed glob­al growth. 

If Ger­many falls into reces­sion, this could lead to … Thunderstorm

…a glob­al fore­cast change from Fog to Chance of Thun­der­storms, heavy at times.


A spe­cial thanks to ITR Eco­nom­ics for pro­vid­ing most of the eco­nom­ic infor­ma­tion and analy­sis con­tained in this newslet­ter.  Since 1948, ITR Eco­nom­ics has giv­en busi­ness lead­ers the eco­nom­ic infor­ma­tion, insight, analy­sis and proac­tive strate­gies they need to take advan­tage of oppor­tu­ni­ties, max­i­mize prof­its, and avoid risks.  To sub­scribe to an ITR Eco­nom­ics newslet­ter, go to their web­site at www.itreconomics.com.