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A wealth of fair-to-great data on year-end 2011 and early 2012

0 2637 Market Intelligence

In the past couple of days, there has been a welter of data released on the U.S. and Canadian economies.

In the past couple of days, there has been a welter of data released on the U.S. and Canadian economies.

Most of it has been mediocre to slightly positive, although one news item did stand out from the crowd.

Therefore, let’s lead with the best and it is a bit of a humdinger.

U.S. initial jobless claims for the latest week, ending January 14, were only 352,000.

That’s the lowest number since the bankruptcy of Lehman Brothers and the stock market crash in the fall of 2008.

The last time the number was better was for the week ending September 6, 2008, at 336,000.

Some perspective might help. The number of first-time unemployment seekers rose as high as 656,000 during the third week of March 2009. That was when the recession was at its worst.  

Not only is the latest reading of 352,000 a low level, but the week-to-week change (-52,000) is eye-popping.

It helps to debunk some of the negative sentiment still attached to the improvement in the jobs market. Doubts about the actual strength of the gain have been raised on one specific count.

The initial jobless claims number began its most significant improvement in the month and a half leading up to the gift-giving that is associated with Christmas.

While the number is seasonally adjusted – in other words, it takes into account unusually strong hiring by retailers to help with extra demand - a number of analysts have speculated that the more favorable data has been due a factor that might not have been entirely captured in the statistical analysis.

Specifically, there was a surge in temporary hiring by parcel delivery companies in December. The worry has been that once that effect was over, the jobless claims number would shoot back up again.

On that score, the -50,000 figure in the second week of January is outstanding news.

There are a couple of benchmark levels for the initial jobless claims figure. When it sits at 500,000 or higher, there are more people being newly let go than hired.

Below 400,000, the monthly jobs change reported by the Bureau of Labor Statistics is likely to be at least +100,000 and the unemployment rate will trend down towards its long-term average.

Moving on to other data releases, December inflation rates were reported north and south of the border, by Statistics Canada and the Bureau of Labor Statistics respectively.

In both cases, the rate of general price advance declined on a year-over-year basis.

In Canada, the all-items Consumer Price Index (CPI) eased back to +2.3% year over year from +2.9% the month before.

The U.S. inflation rate also slowed, from +3.4% in November to +3.0% in December.

Even better, the core rate in Canada decelerated to +1.9% from +2.1%. In the U.S., it stayed the same at +2.2%.

The rate of inflation usually plays a big role in setting interest rate policy. At the present time, however, central bankers have already made up their minds about interest rates. They will stay at or near record lows well into 2013.

To help firms and individuals with their financial planning, this sends a clear and stable message about the monetary environment. It will remain stimulatory for the foreseeable future. 

Falling inflation rates are both the icing on the cake and confirmation that keeping rates low is the thing to do. Inflation has moderated because the weakening world outlook – centered in Europe and China - has lowered commodity prices.

On that score, it is important to keep a close eye on energy prices. The energy price index in Canada has fallen to +6.0% after being as high as +17.1% last spring.

In the U.S., the energy price sub-index change has dropped down into single digits (+6.6%) for the first time since January of last year. It reached as high as +21.5% in May 2010.

Energy prices took off in the second quarter of last year. The Arab spring in the MENA (Middle East and North Africa) nations, combined with the popular uprising in Libya, resulted in both uncertainty and actual supply disruptions.

The price of gasoline in the U.S. at the halfway point of 2011 was one-third higher than at the same time in 2010.

For most people, it’s necessary to fill up at the pump in order to drive to work. At outrageous prices, money is being siphoned off from spending in other areas and on discretionary consumer goods.

The December 2011 year-over-year increase in gasoline prices was a much more livable +9.9% in the U.S. and +7.6% in Canada.

Nevertheless, the concern about world oil prices continues to be a flash point. One factor that could put the brakes on recent U.S. economic expansion would be a spike in gasoline prices.

Unfortunately, that’s all too possible given the degree of unrest that continues to exist in the Middle East.

Finally, another key statistic released in the past couple of days has been U.S. housing starts.

The hope is that home starts will gradually improve throughout 2012. In December of last year, at 657,000 units seasonally adjusted and annualized, they continued to disappoint.

On a month-to-month basis, they were -4.1% compared with November, according to a joint press release from the Census Bureau and the Department of Housing and Urban Development.

On the other hand, maybe the word “disappoint” is too strong. December 2011’s level of housing starts was +24.9% versus December 2010.

Also, they remained within the 600,000 to 700,000 range rather than the 500,000 to 600,000 band that has prevailed for most of the past three years.

Furthermore, single-family starts in the latest month finally moved in the right direction.

While they hold a much bigger share of the total market than multiples, they’ve been languishing while new condo work has been first out of the gate.

In December, single-family starts, at 470,000 units, were at their highest level since April 2010.

At that time, a special tax incentive for first-time homebuyers was artificially inflating demand.

by Alex Carrick

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