Numbers for Fourth Quarter Mixed

The final number for fourth-quarter (Q4) gross domestic product is not going to send people into wild celebration, but it is nice to know that things were not quite as bad as we originally thought and even better that improvement came from additional consumer activity, which had not been adequately computed earlier. The third and essentially final version of the numbers shows the economy growing at 1.4%. This is not stunning growth, but it is better than the 0.8% that had been originally reported. Now if that upward trend continues into the first quarter of this year, we may have some legitimate reasons to celebrate.

Corporate profits remain weak, however. The last of the Q4 numbers aren’t all that great. There was a 3.6% decline as compared with quarter-on-quarter a year ago, but for the year, profits went up by 3.3%. This is paltry compared with the rise that took place in 2012, when there was an 18% increase. On the other hand, the 3.3% increase is better than what was scored in the last couple of years—0.1% in 2014 and 0.6% in 2013. The corporate rates have been varied as well with very low numbers in the oil sector and higher ones in finance and real estate.

A Look Ahead This Week

Headlines Friday will focus on the manufacturing Purchasing Managers’ Index (PMI), but pay attention to those sub-indices as well. Next week the service sector PMI will be released, and that merits attention as well.

NACM’s Credit Managers’ Index also comes out this week. It is modeled on the PMI with the same diffusion index and values—above 50 is good and below 50 is bad. The analysis for it has just started, but the first pass suggests that this was a pretty good month. That is meaningful as the CMI often predicts the PMI.

Latest reports from the automakers suggest February was a good month and on pace with the sales data from last year, which recorded a record number of 17.5 million vehicles sold. Most people expected this level of demand to have cooled by now, but that is not the case thus far or so it seems. The fact is that the U.S. fleet is still old as compared with previous years, and it is still easy enough to get a car financed, so the buyer is still in the market. One cautionary note is that there have been more cars repossessed than in previous years, so it may be that the number of reliable borrowers has started to wane. Later in the week, there will be further reports from both the Conference Board and the University of Michigan that will allow some insights into the status of the consumer, and the expectation is that they will both be better than they have been.

This also will be a week for examining inflation trends as well. The Consumer Price Index (CPI) moved up more dramatically than has been the case in four years—hitting 2.3%. This is not the measure the Fed prefers to use when looking at inflation, however, and this week we will get the data from the personal consumption expenditures (PCE) survey. The PCE is seen as a better test of inflationary spending as it tracks the actual outlay as opposed to the CPI, which looks at the prices of an average set of purchases. Right now, the Fed has been warning that it still doesn’t see a lot of evidence as far as inflation is concerned.

- Chris Kuehl, Ph.D., NACM economist and co-founder of Armada Corporate Intelligence

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