The Labor Department reported today that the Consumer Price Index (CPI) for urban consumers rose 0.4 percent during January. Excluding the volatile food and energy sectors, the index rose by 0.3 percent. For the past three months the annualized growth rate was 2.6 percent. For the 12-month period ending in January the CPI grew 2.7% - the same rate experienced in 1993 and 1994. January is the 61st consecutive month with a low, essentially constant, rate of CPI growth.
Also today, the Commerce Department's Census Bureau released its report on Manufacturing and Trade Inventories and Sales for the month of December. Manufacturing and trade sales rose by 1.0 percent during December. For all of 1995, sales rose by 4.5 percent. This compares with growth rates of 4.24 percent in 1992, 5.66 percent in 1993, and 7.87 percent in 1994. Manufacturing and trade sales has been determined to be a reliable gauge of current economic conditions. It is one of four indicators that the Department of Commerce uses to generate its Composite Index of Coincident Economic Indicators. In October, the year-to-year sales growth rate was only 2.84 percent. In December it was 4.5 percent. Is this indicator signalling an economic recovery? Let's keep an eye on it in coming months and see what happens.
Manufacturers' and trade inventories dropped by 0.5 percent in December; but, for all of 1995, rose by 6.2 percent. This is 1.1 percent lower than last month's year-over-year inventory growth figure. So, perhaps businesses are having some success in working down excess stocks of goods.
The pickup in sales and liquidation of inventories during December brought the inventories-to-sales ratio down to 1.39 from a November reading of 1.42.
In other news the Commerce Department announced today that imports exceeded exports by $6.78 billion during December. This follows a downwardly-revised deficit of $6.71 billion during November. For all of 1995 the cumulated deficit was $111.04 billion - the highest yearly total since 1988.
In my report on international trade during November I noted that the monthly deficit level seemed to drop off last August. From January to August of 1995 the average monthly deficit was $10.50 billion. But, since then, the monthly average has been $7.63 billion. If this rate were to continue through 1996, the deficit would be $91.56 billion. Thus, from 1995 to 1996, the negative contribution to GDP from the international trade deficit would be reduced by approximately $20 billion.
The Labor Department's Bureau of Labor Statistics reported today that real average weekly earnings fell by 1.7 percent from December to January after seasonal adjustment. This decline stemmed from a 1.7 percent drop in average weekly hours, which was partly due to unusually severe weather in the eastern part of the country, along with a 0.4 percent rise in the Consumer Price Index. The decrease was partially offset by an increase of 0.5 percent in average hourly earnings.
Data on average weekly earnings are collected from the payroll reports of private nonfarm establishments. Earnings of both full-time and part-time workers holding production or nonsupervisory jobs are included. Real average weekly earnings are calculated by adjusting earnings in current dollars for changes in the CPI.
Average weekly earnings rose by 0.4 percent between January of 1995 and 1996 as a result of a 3.4 percent increase in average hourly earnings which was largely offset by a 2.9 percent decline in average weekly hours. After adjustment for a 2.6 percent gain in the CPI over the same period, real average weekly earnings fell by 2.2 percent. So, during the past twelve months, workers earnings have fallen 2.2 percent behind the rise in the cost of living. In the face of data like this, it's hard to imagine that consumer spending will be leading the way out of the current economic slump.
Finally, today the National Association of Realtors reported that the seasonally adjusted annualized sales rate for existing homes had dropped by 4.1 percent from December to January. This followed drops of 1.9 percent in October, 1.7 percent in November, and 3.2 percent in December. Total sales of previously-owned homes for 1995 lagged behind 1994 by 3.6 percent. All of this occurred despite a year-to-year drop of 2.12 percent in the 30-year, fixed-rate, conventional mortgage interest rate. It appears that fewer and fewer families perceive that their flow of funds is large enough and sufficiently stable to warrant a major change in their living arrangements.
Byline: Lafferty (MF Merlin)