Friday, September 23, 2005

Rita's path

The further east she turns, the more oil platforms in the Gulf are in the direct path of the storm.

Thus I must admit I'm a little surprised that the markets have been reacting to the eastward shift in Rita's path positively. Crude oil on the NYMEX is down to $64.80/barrel at latest. Reaction seems to be driven by confidence that refining capacity won't be damaged due to the storm's weakening to Category 3 status rather than any concerns over post-Rita production capacity.

The only thing that is certain at this point is that folks in Port Arthur had better get out or hunker down.

Wednesday, September 21, 2005

Sturm und Drang

My dystopian sensibilities were definitely piqued by CNN Money today.
Remember when gas spiked to $3-plus a gallon after Hurricane Katrina? By this time next week, that could seem like the good old days.

Weather and energy experts say that as bad as Hurricane Katrina hit the nation's supply of gasoline, Hurricane Rita could be worse.

Katrina damage was focused on offshore oil platforms and ports. Now the greater risk is to oil-refinery capacity, especially if Rita slams into Houston, Galveston and Port Arthur, Texas.

"We could be looking at gasoline lines and $4 gas, maybe even $5 gas, if this thing does the worst it could do," said energy analyst Peter Beutel of Cameron Hanover. "This storm is in the wrong place. And it's absolutely at the wrong time," said Beutel.

. . . "[Rita] could have a significant impact on supply and prices -- this really is a national disaster," Valero Energy (Research) CEO Bill Greehey in an interview with Reuters Tuesday evening.
Or how about Bloomberg's dystopians?
"Rita is developing into our worst-case scenario," said John Kilduff, vice president of risk management at Fimat USA in New York. "This is headed right into our other major refining center just after all the damage done to facilities in Louisiana. From an energy perspective it doesn't get any worse."
The week before Katrina hit, the national retail average for regular gasoline (all reformulations) was $2.612/gal., jumping 17.5% after the hurricane wiped out the Gulf Coast and knocked out 12.5% of national refining capacity. With Rita regular gasoline is already at a higher baseline -- $2.786/gal. -- and could knock out 15-20% of the country's refining capacity. With 5% of the US refining capacity still shut down due to Katrina and a market in which demand is constantly straining against supply, something could really snap this weekend.

I'm glad I filled the tank yesterday while Rita was still a nicely behaved tropical storm.

Friday, September 16, 2005

Now, finally, is the time for fiscal discipline

Or so say the Congressional Republicans.
The drive to pour tens of billions of federal dollars into rebuilding the hurricane-battered Gulf Coast is widening a fissure among Republicans over fiscal policy, with more of them expressing worry about unbridled spending.

On Thursday, even before President Bush promised that "federal funds will cover the great majority of the costs of repairing public infrastructure in the disaster zone," fiscal conservatives from the House and Senate joined budget watchdog groups in demanding that the administration be judicious in asking for taxpayer dollars.

One fiscal conservative, Senator Tom Coburn, Republican of Oklahoma, said Thursday, "I don't believe that everything that should happen in Louisiana should be paid for by the rest of the country. I believe there are certain responsibilities that are due the people of Louisiana."

Senator Jim DeMint, Republican of South Carolina, called for restoring "sanity" to the federal recovery effort. Congress has approved $62 billion, mostly to cover costs already incurred, and the price tag is rising. The House and Senate approved tax relief Thursday at an estimated cost of more than $5 billion on top of $3.5 billion in housing vouchers approved by the Senate on Wednesday.

"We know we need to help, but throwing more and more money without accountability at this is not going to solve the problem," Mr. DeMint said.
Odd how money was never an issue during the first Bush tax cut of 2001. Or the second tax cut of 2002. Or the third tax cut of 2003. Or the Medicare bill. Or the fourth tax cut of 2004. Or the first, second, third, fourth or fifth "emergency" spending bills for Iraq and Afghanistan. But now, NOW, it appears it's time to reign in the runaway train. And DeMint is worried about accountability?!?!? Has the fine Senator ever heard of the Coalition Provisional Authority or the Iraq Reconstruction and Relief Fund?

Odd how the US Representative for most of the New Orleans conurbation is a Democrat. And how the US Representative for southeast Louisiana is a Democrat. And how the US Representative for the Mississippi Gulf coast is a Democrat. I think I'm seeing a pattern here.

Thursday, September 15, 2005

Another tepid inflation report

I know. It's hard to not look at those gasoline signs while you drive to and fro. But if you can ignore them, you'll see that consumer inflation in the United States is quite simply not a problem.
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5 percent in August, before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The August level of 196.4 (1982-84=100) was 3.6 percent higher than in August 2004.
Yes, let's admit it. A one month leap of 0.5% and a 3.6% annual rate sounds scary. First, put things into perspective. Any inflation under 5% is low. Say it with me all together. Under 5% equals low. If you insist on fretting, I'll tell you that 3.6% is the highest annual CPI inflation rate in five years (since July 2000) and over the last six months the US is on a more worrisome 4.8% annualized inflation trajectory.

But hear me out.

The annual CPI inflation rate on all items less energy is a tame 2.2%. In fact, non-energy inflation has been amazingly stable since April 2004, fluctuating in a 2.0-2.4% band. Over the first half of 2005 non-energy consumer inflation is running at 2.3%, only slightly higher than the second half of 2004 (2.2%) and at the same annual rate of 2002.

Back in the bad ol' early 1980s, super-high energy prices drove very high general inflation. That's just not the story today as the below chart of annual non-energy consumer inflation by month shows.

If the Fed wants to reign in housing and energy inflation, by all means go to it. But raising interest rates on everybody and everything is hardly the best way of going about it.

Wednesday, September 14, 2005

Binge and bunk

It is not unusual in my house and the houses of my relatives for the male members of the family eat tremendous amounts of food at the Thanksgiving table, and then saunter off to the couch to watch football and in quick succession fall asleep. The American consumer seems to be exhibiting the same "binge and bunk" behavior.
The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for August, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $350.1 billion, a decrease of 2.1 percent (±0.7%) from the previous month
The end of the auto buying spree has clearly wreaked its revenge in the data. Motor vehicle and parts dealers saw a stunning -12.0% (SA) change in but a single month. Eliminating the "noise" from this sector shows overall retail and food service sales actually increasing 1.0%. But again, much of this is due to rising gas costs. Gasoline station sales were up 4.4% on the month. Total retail and food sales minus autos and minus gasoline (I'll call it TMAMG) were up just 0.53%.

Now believe it or not, this rate in TMAMG is better than in July when it was 0.0% or in May when it was 0.01% or March when it was 0.05%. But compare 2005 thus far to 2004 and you see the slowdown. In 2004 there were 5 months when seasonally adjusted TMAMG growth was below 0.6%. So far in 2005 we've had 5 and it's only August.

When one looks at a July personal savings rate of -0.6% or a personal savings rate over the last four months (April-July) of 0.0%, we shouldn't be too surprised to see American consumers beginning ever so slightly and ever so reluctantly to move over to the couch after the big binge. We'll continue to buy our gasoline to put in our new cars, but we're not going to be spending on much of anything else.

In short, this retail data -- not just for August but for the whole year -- suggests we are hitting the wall. Katrina may be slapping us up against it for the next month or two, but it's not primarily her fault. That big fat share (70%) of US GDP which is consumption expenditures just can't contribute that 2-3% of overall real GDP growth any more without big new influxes of debt or income. Looking out onto the American consumer horizon, all I can see is government-debt-supported post-Katrina consumption. But how much?

Check out Calculated Risk

If you read the Globblog, you're probably reading Calculated Risk as well. I feel compelled, however, to praise quite publicly his recent data culling on gasoline consumption (which is falling) and the NSA trade deficit broken down into petroleum imports, China imports and other imports (the first two are rising rapidly). If you haven't seen the latest CR charts yet, you are doing yourself a disservice.

Tuesday, September 13, 2005

Reporting the July trade report

Well surprise, surprise. Depsite steadily rising oil prices in July -- WTI spot prices averaged $59/barrel, up 4.7% over June and the price of imported petroleum and petroleum products jumped 6.2% in July -- the US trade deficit for July actually shrank.
The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that total July exports of $106.2 billion and imports of $164.2 billion resulted in a goods and services deficit of $57.9 billion, $1.6 billion less than the $59.5 billion in June, revised. July exports were $0.4 billion more than June exports of $105.8 billion. July imports were $1.1 billion less than June imports of $165.3 billion.
A $57.9bn trade deficit puts July in fifth place all-time. While it is some comfort that the US hasn't set a new monthly record since February, so far this year the deficit is running 18% larger than 2004 and 40% larger than 2003.

Fears of a slowing global economy may be coming to fruition. While US exports are up a healthy 11% over last year's pace, the monthly total has been mostly stagnant since April, leveled out around a relatively high $106bn a month. Both goods ($74-75bn) and services ($31bn) are stationary. Certainly 2005Q3 is not going to show the impressive growth of 2005Q2.

While US exports have reached a plateau, US imports have not. June 2005 set a record, and July was just 0.7% lower and came in at #2 all-time. While total exports are up 10.9% this year, imports are up 13.4%. This is clearly not a formula for a shrinking deficit.

The good news -- if one is inclined to see it that way -- is that the big import surge this year is mostly due to oil. The US's imported petroleum bill is up a whopping 36.9% this year. At the same time, non-petroleum goods imports fell to their second lowest monthly total of the year in July, down to "just" $116.6bn.

That being said, on the year non-petroleum goods imports are up 11.0% and total non-petroleum imports are up 10.9% -- the very same rate as total exports. Considering total non-petroleum imports are 37.2% larger than total exports, even an equal growth rate between these two components of US trade is only going to make matters worse.

Less petroleum imports, less total imports. It's the only way. July was a good start on the non-petroleum import front. Let's see if it continues.

Friday, September 09, 2005

Worried about inflation -- or profits?

Are the big fat paychecks of American workers threatening a new round of destruction inflation? Economists seem to be sounding the alarm bell. On Wednesday the BLS released its revised second quarter productivity and costs data which showed, according to Reuters,
lower labor productivity and rising wage costs renewed concerns about inflation and the outlook for interest rates. . . . "Today's report on productivity may signal an uptick in inflation," said Ed Yardeni, chief investment strategist at Oak Associates Ltd., in Akron, Ohio.
The Dow promptly fell 14 points on the news.

Everybody is looking at the quarterly change in non-farm business unit labor costs, which rose at an annualized 2.5% rate. That's the fastest since 2004Q4. Bloomberg fretted that "U.S. labor costs increased by the most since 2000", but that is a year-over-year measure which is partly the result of unusual falling unit labor costs in 2004Q2.

But let's look at things from the point of view of labor instead of capital, however. Real hourly compensation in the second quarter rose an annualized 0.2%, the slowest pace in a year. The year-over-year figures are a relatively high (for recent times) 3.5%, but that again is built on real hourly compensation declines in 2004Q1 and 2004Q2.

According to BEA statistics, real employee compensation in 2005Q2 rose an annualized 2.7%. Benefits (including social security payments) rose a real annualized 3.5% while real wages and salaries were up a much tamer annualized 2.5%. From the BLS we know that hours in Q2 rose an annualized 2.2% -- and thus we're back to that extremely small real wage/salary gain in April-June of this year.

The real "concern" in these reports is not inflation. It is that capital's profit margin is beginning to shrink. Well after the years and years of record profit gains under Bush, let me cry you a river.

Thursday, September 01, 2005


Just resurfacing for a brief moment to say: I told you so.
The combination of a surge in spending and slower income growth sent the personal savings falling to a minus 0.6 percent, the lowest level since the government began keeping these [monthly] records in 1959.
In 1933 the personal savings rate in the US was -1.5% -- the lowest ever. Over the first 7 months of 2005 it stands at +0.2%. We're trying to break the record. Honest, we're trying.