Capacity Destruction?
Posted on Wednesday, December 16, 2009
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Upon further review of capacity utilization...The chart below shows the year over year change in industrial production, capacity utilization, and the difference between the two. In a world in which productivity is booming (it is), that means people are making more... with less. Thus, productivity "should" be rising more than capacity utilization all else equal. However, as the chart below shows... it is not.
Why? Well, here's my theory... capacity utilization is utilized capacity / total capacity. This means that the change in capacity utilization may not only be due to a change in the numerator (utilized capacity), but in the denominator as well (overall capacity). And my guess is overall capacity is actually decreasing for the first time since the telecom overbuild collapse in the early 00's.
Thoughts?
Source: Federal Reserve
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Source: http://econompicdata.blogspot.com/2009/12/capacity-destruction.html
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Consumer Price Index... Up, but (Seemingly) Contained
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Bloomberg details: The cost of living in the U.S. accelerated in November from a month earlier, led by higher prices for energy and medical care.
The 0.4 percent increase in the consumer-price index followed a 0.3 percent gain in October, figures from the Labor Department showed today in Washington. The so-called core index that excludes food and energy was unexpectedly unchanged, the first month without an increase since December 2008 and restrained by a drop in shelter costs and cheaper clothing.
Energy costs have retreated so far this month, and comments from companies such as Best Buy Co. indicate unemployment close to a 26-year high is prompting retailers to discount their merchandise. Federal Reserve policy makers have said they expect "subdued" inflation in coming months, allowing them to keep interest rates low.
The report "gives them some more room to see how the recovery unfolds," said Harm Bandholz, a U.S. economist at UniCredit Global Research in New York who correctly forecast the core rate. "The drivers are the vast underutilization of capacity, notably the high unemployment rate."
Source: BLS
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Source: http://econompicdata.blogspot.com/2009/12/consumer-price-index-up-but-seemingly.html
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Treasury Debt to Receipts over the LONG Term
Posted on Tuesday, December 15, 2009
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In response to my post on Treasury Debt to Receipts Spiking an anonymous reader asked for data going back further than the early 1980's. Using data from USGovernmentRevenue.com, the chart below shows debt to receipts going back to the mid 1800's.So how does the recent spike compare?
Click for Ginormous Chart
The good: Debt levels have been higher relative to receipts
The bad: Since 1950, those levels were only higher after the Civil War and Great Depression
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Source: http://econompicdata.blogspot.com/2009/12/treasury-debt-to-receipts-over-long.html
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Capacity Utilization and Production on the Rise
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Reuters reports: U.S. industrial output rose firmly in November as the manufacturing sector extended a recovery that economists hope will help turn around the ailing labor market.
Production climbed 0.8 percent, the Federal Reserve said on Tuesday, well above forecasts for a 0.5 percent gain. The strides were powered in part by the automotive sector, and came despite a sharp drop in utility output. Capacity utilization, the amount of the nation's industrial capacity being put to use, rose to 71.3 percent in November from a revised 70.6 in October, its highest level since last December but still well below the long-range average.
Source: Federal Reserve
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Source: http://econompicdata.blogspot.com/2009/12/capacity-utilization-and-production-on.html
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PPI Jumps from Energy Prices in November
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Marketwatch reports: Wholesale prices rose a larger-than-expected 1.8% in November after seasonable adjustments, with energy prices accounting for about three-fourths of the increase, the Labor Department reported Tuesday. The producer price index has risen 2.4% in the past year, the government said. This is the first rise since November 2008. The core PPI - which excludes food and energy prices - rose 0.5% in November, more than expected. Leading the advance were higher truck and cigarette prices. Core prices are up 1.2% in the past year. Economists surveyed by MarketWatch expected a 1.0% rise in the November headline PPI and a 0.3% gain in the core rate. The PPI had risen 0.3% in October, while the core rate was down 0.6%.
Expect this to reverse course in December as energy prices have collapsed.
Source: BLS
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Source: http://econompicdata.blogspot.com/2009/12/ppi-jumps-from-energy-prices-in.html
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On the Timing / Importance of Stock Buybacks
Posted on Monday, December 14, 2009
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WSJ reports:During the third-quarter, stock buybacks moved off the record low levels seen during the March-through-June period. But the total level companies spent buying back their own shares remained at depressed levels, S&P analysts reported.So... are corporations bad market timers buying at highs and issuing more shares at lows? Sure seems that way looking at the chart below which compares the market cap of the S&P 500 against the level of stock buybacks.
Preliminary results showed that S&P 500 companies spent $34.8 billion on stock buybacks during the third quarter of 2009. That represents a 61.2% decline from the $89.7 billion spent during the third quarter of 2008, and a 79.7% decline from the record $172.0 billion spent on stock buybacks during the third quarter of 2007.
Still, stock buybacks for the third quarter of 2009 bounced back 44% to $34.8 billion from the $24.2 billion spent during the second quarter of 2009, when the expenditures hit their lowest level since the first quarter of 1998. (That's when S&P first started collecting data on buybacks.)
While buy-backs might be showing signs of recovery, ongoing corporate timidity reflects, in part, on the shut down of the borrowing markets last year during the financial crisis. Companies — those that survived — remember those days with trepidation and don't want to get caught short if a similar credit freeze strikes again.
Or... is this just a chicken or the egg issue in that buybacks were an important CAUSE of the equity rally? The chart below does show the size of the stock buybacks relative to the market cap of the S&P 500 (i.e. they were LARGE).
How large? Buybacks accounted for 4.6% of the 6.5% (i.e. 70%) of the S&P 500's total yield (as measured by dividends AND buybacks as a percent of the year end market cap) in 2007.
And now? Just 1.2% of the 3.2% total yield off of a base (the S&P 500 market cap) that is 24% below year end 2007 levels as of yesterday's close.
The key question for equity investors... will buybacks bounce back or were those levels of purchases made from 2005-2008 an extreme outlier caused by the excess liquidity?
Source: S&P / Index Arb
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Source: http://econompicdata.blogspot.com/2009/12/on-timing-importance-of-stock-buybacks.html
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On the Timing / Importance of Stock Buybacks
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WSJ reports:During the third-quarter, stock buybacks moved off the record low levels seen during the March-through-June period. But the total level companies spent buying back their own shares remained at depressed levels, S&P analysts reported.While I understand there are multiple considerations for stock buybacks (i.e. a way to lever the business / earnings, prevent takeovers, etc...) corporations have not exactly been the best market timers. This can be seen in the chart below which compares the market cap of the S&P 500 against the level of stock buybacks. Just as important, the chart shows the size of the stock buybacks relative to the market cap of the S&P 500 (i.e. they were LARGE).
Preliminary results showed that S&P 500 companies spent $34.8 billion on stock buybacks during the third quarter of 2009. That represents a 61.2% decline from the $89.7 billion spent during the third quarter of 2008, and a 79.7% decline from the record $172.0 billion spent on stock buybacks during the third quarter of 2007.
Still, stock buybacks for the third quarter of 2009 bounced back 44% to $34.8 billion from the $24.2 billion spent during the second quarter of 2009, when the expenditures hit their lowest level since the first quarter of 1998. (That's when S&P first started collecting data on buybacks.)
While buy-backs might be showing signs of recovery, ongoing corporate timidity reflects, in part, on the shut down of the borrowing markets last year during the financial crisis. Companies — those that survived — remember those days with trepidation and don't want to get caught short if a similar credit freeze strikes again.
How large? Buybacks accounted for 4.6% of the 6.5% total yield of the S&P 500 (as measured by dividends AND buybacks as a percent of the year end market cap) in 2007.
And now? Just 1.2% of the 3.2% total yield off of an S&P 500 market cap that is 24% below year end 2007 levels as of yesterday's close.
The key question for equity investors... will buybacks bounce back or were those levels of purchases made from 2005-2008 outliers?
Source: S&P / Index Arb
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Source: http://econompicdata.blogspot.com/2009/12/on-timing-importance-of-stock-buybacks.html
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