By 13 January, 2014
Last week: The weak job growth number in December balances the nearly 250,000 new jobs created in November. Taken together, job growth in the last three months of the year weren't far off from the average monthly gain of about 180,000 for the year as a whole. The more fundamental point is that 2014 starts off with momentum from both the labor and housing markets that could propel overall growth in the first half of the year above the pace set in the second half of 2013. Ending the government budget battles would help, but even without that, the year starts on a positive note. Yes, we have been here before, with hopeful signs of economic progress. What is different now is the improvement in these two crucial markets.
10:00am Employment Trends Index, December (The Conference Board)
This index does for the labor market what the Leading Economic Index does for the general economy. The labor market picked up steam in the second half of 2013. Will this forward indicator show more of the same for the first half of 2014?
5:00am Euro-zone Industrial Production, November (Eurostat)
The ordering rate is still slow, while retail buying remains very soft. These factors could be signaling continued weakness in the industrial core of the Euro economy going into the first half of 2014. The good news, as reflected in this latest report, is that industrial activity is not slowing. However, it is hardly catching fire. And because industrial activity remains soft, there is no reason to believe the overall economy is now or will soon start growing faster than about 0.5 percent.
8:30am Retail Sales, December (Bureau of the Census)
Relatively strong vehicle sales continue to reflect a sharp replacement trend. Nonauto retail spending has been more modest, held down by the lack of stronger growth in spending power, and cautious sentiment. Sharp discounting probably made retail sales look better in December - but at what cost to January sales (on top of the negative impact of inclement weather)? Retailers, stuck with piled up inventory and a consumer waiting for sales, may have little choice but to continue to discount heavily.
8:30am Producer Price Indexes, December (Bureau of Labor Statistics)
Energy prices are moving lower now, but not so for food prices, despite more favorable crop production conditions. "Core" prices (which exclude food and energy) remain modest - rising by no more than 0.2 percent per month. And there is little reason to believe that this narrow range could move up this winter.
8:30am Consumer Price Indexes, December (Bureau of Labor Statistics)
Globally, inflation is slowing. Domestically, it is simply holding steady, albeit at a very slow pace. Energy prices are coming down. Food prices may simply continue to hold steady. "Core" prices (which exclude food and energy) have been rising by no more than 0.2 percent per month for more than a year. There is little reason to expect anything different right through this winter. Medical care inflation has slowed while the cost of housing remains steady. Without much change in either of those two components, retail inflation will not change.
5:00am Euro Area Purchasing Managers' Index, November (Markit)
The Euro-zone emerged from recession in the second quarter and growth remained soft through much of the second half of the year. The service sector has been holding up, but the industrial sector remained very soft. The purchasing managers have not had much forward momentum. Rather, the signal until now has been for not much change. The good news is that there is little sign of falling back into contraction, but neither is there much reason to think economic growth may soon turn more robust. And that is not likely to be the indication from this latest survey.
8:30am Housing Starts and Building Permits, December (Bureau of the Census)
Home building cooled in the summer of 2013 but started to expand again in the autumn months. Demand has held up but supply conditions (finding workers, getting permit and/or credit approval) held down the pace of activity. The supply constraints have eased, allowing home and apartment building to resume, especially in the south. And with foreclosure activity winding down, more demand has to be met by increased construction. That is likely to be what this latest report card on activity will show, with more of the same (steadily higher construction rate) over the next few months.
9:15am Industrial Production, December (Federal Reserve Board)
The ordering rate remains relatively weak and inventory is positively bulging despite some better than expected retail buying. These factors very likely resulted in sustained weakness in industrial output for anything other than vehicles and parts, now right through the early months of 2014.
THE SITUATION ABROAD0.8 percent.
Both the Federal Reserve and the European Central Bank (ECB) set a goal of achieving a sustained 2 percent rate of inflation. And both enter 2014 dealing with significantly slower, some suggest too low, inflation. The problem in the Euro-zone is that inflation is not only low but still falling in a very weak economic environment. It fell from a 0.9 percent rate (year-over-year) in November to 0.8 percent in December. And if food and energy are subtracted, the resultant core rate fell from 0.9 percent to 0.7 percent. Further, given an economy growing by less than 0.5 percent in the first half of the year, there is no guarantee that inflation will fall still further this winter and into the spring.
The inflation rate across advanced economies was only 1.5 percent in November, compared with a year earlier. There is speculation that better economic growth in 2014 will lift demand and result in slightly faster inflation. From a business perspective, price hikes that are so low limit the money to hire, pay higher wages, or invest. And if business is constrained in hiring, wage offering, or investment, how is the economy going to start growing faster this year?
FACT OF THE WEEK3.1 percent
The lingering impact of the Great Recession plus the aging baby-boom generation has helped reduce labor-force participation in the United States. The American Community Survey calculates that the employment population for working age adults (25 to 54 years of age) has declined by 3.1 percent since the end of the Great Recession across the country. Moreover, the declines were more intense in communities hardest hit by the steep and long decline in the housing market - whether the housing decline caused the drop in the employment ratio or vice versa. In short, the Northeast and Midwest are less impacted than the south or west. Right now, job growth and housing improvement are higher in the south and west - precisely where they need to be to fuel and sustain the pickup in economic activity expected for 2014.
TERM OF THE WEEKGraphene
Graphene is a single atom thick layer of carbon. Not only is it the thinnest material, but it is very strong. And it is a better conductor of electric current than copper. Copper prices have come back recently but remain well below the peak achieved prior to the Great Recession. And there is some concern that supply in 2014 may outstrip demand, sending copper prices back to depressed levels. One might think that the potential drop in price might deter implementation of Graphene. Perhaps not.
The superconductivity of graphene offers superior value which could justify its price relative to copper. Actually the bigger threat to graphene comes from still newer materials. Andre Geim and Konstantin Novoselov (University of Manchester) won a Nobel Prize in chemistry for their work on graphene. The pair then set out to test two-dimensional crystals, or metal dichalcogenides. They are neither as thin nor as strong as graphene. But they could be even more efficient at conducting electricity.
Thinness and strength plus conductivity allow for lighter weight electronics like ipads and laptops, as well as manufacturing processes. And the next step could be combining graphene with metal dichalcogenides to make lightweight efficient electronics. Will they make them cheaper or increase their capacity? There is ongoing research to determine which, if not both, can be achieved. And how soon can they be in commercial usage? Graphene is already in use. The combination of these elements may not take long to develop and test.
For further information contact:
Kenneth Goldstein
+1 (212) 339 0331
ken.goldstein@conference-board.org
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