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Mix-Ansicht- Return To Growth! / auch diesmal werden die bären geschlachtet!!!! - leibovitz, 28.02.2002, 18:37
Return To Growth! / auch diesmal werden die bären geschlachtet!!!!
Nearly all of the economic data released today portrayed an economy returning to growth.
Regional surveys showed marked improvement in economic activity around the nation in February, with activity in most regions returning to growth. Price pressures also remain contained across the country. This bodes well for a stronger-than-expected reading on the national ISM Index to be released Friday.
The Chicago Purchasing Managers' survey indicated growth in economic activity for the first time in 19 months, with its PMI rising eight points to 53.1, moving our indicator into the neutral zone for bonds for the first time since October 2000 (B616). Production, new orders, and order backlogs all improved, returning to expansion mode (E222). The new orders index rose to 59.5 from 48.7, the largest increase since October 1999. Inventory reductions continued in the month, although at a slower pace (E223). Employment rebounded sharply from its record low, rising a record 13 points to 36.3. Supplier deliveries were faster. Prices remained contained, although the prices paid index indicated a slight uptick, increasing 10.5 points to 51.2 (B731). It was the largest point gain in the index since October 1980.
The New York economy is also back on the growth path. The business diffusion index rose 6.6 points to 250.2 in February. The current conditions index nearly doubled to 63.1, led by a 32.3 point rebound in the non-manufacturing sector. Manufacturing conditions also improved, rising 14.7 points in the month to 72.3.
The Cincinnati region recorded an expansion in activity for the first time since November 2000, led by a 31 point jump in the new orders index (E226). The production index showed similar improvement, rising 32 points, while dollars spent by purchasing rose 21 points. Employment rose 34 points to 0, and inventory reductions continued. Price pressures remained nonexistent, with all three price indexes remaining in negative territory. The service prices index fell 12 points to -18, the fastest rate of decline since the survey began in 1982 (E227).
Activity in the Milwaukee area improved significantly in February. The seasonally adjusted business index rose 10 points to 56, indicating expansion in business activity for the first time since September (E228). Most components improved, led by a 13 point increase in the new orders index to 63, the fastest rate of expansion in new orders since April 2000. Production also expanded, with that index rising 11 points to 57. Order backlogs rose slightly. Price pressures remained contained. Prices paid were unchanged, as the index rose two points to 50.
The Dallas/Fort Worth area's economy also significantly improved this month, fueling what appears to be the start of economic expansion in the region. The Metroplex PMI rose 12.8 points to 49.7 in February, just shy of the 50 reading that indicates expansion, and the highest reading since November 2000 (E224). Production and new orders led the improvement, with both indexes nearly doubling and moving into expansion mode. Order backlogs also increased. Firms continued to reduce inventories at a faster rate, and supplier deliveries were faster (E225). Price pressures in the region were nonexistent, as the prices paid index declined 1.1 points to 35.7. -- KH
GDP Revised Up To 1.4%
Q4 GDP was revised up to a 1.4% annual rate, above expectations of 1.0% and well above the advance reading of 0.2% (E50). Similarly, real final sales were revised up to 3.6% from 2.5%. Upward revisions to consumer and government spending and a downward revision to imports accounted for the improvement. PCE rose at a strong 6.0% rate up from 5.4% (E51), as all components were revised higher, particularly nondurables (E125). Government spending was revised up to 10.1% from 9.2% (primarily federal nondefense purchases) and likely accounted for the shortfall in analyst estimates. Imports were revised to -6.9% from -3.4% (E415). Because of the downward revision to imports, real gross domestic purchases were revised up by a smaller 0.7 percentage points to 1.7% (E56). Residential investment declined less than previously estimated, rising to -5.0% from -6.5% (E262). Inventories and nonresidential fixed investment were little changed. On an annual basis, GDP rose 1.2%. From Q4 to Q4, GDP rose 0.4%, up from the advance reading of 0.1% (B601).
The PCE Price Index was revised down to 0.7% from 0.8% but the purchases index remained at 0.4%. -- JK
Labor Market Steadying
Although initial unemployment insurance claims rose by 17,000 last week to 378,000, the prior week was revised down by 22,000 bo 361,000. Combining the two most recent weeks produced a net decline of 5,000, close to expectations of -8,000. As a result, the 4-week average fell to 373,250, the lowest in six months (E104). Similarly, there was a 66,000 rise in continuing claims for the week ending February 16, but the week before that was revised down by 75,000, keeping the overall total slightly below 3.5 million. The insured jobless rate remained at 2.7%.
Separately, the help-wanted index remained at 47 in January but December was revised up a point (E106). Both of these indicators suggest the labor markets are bottoming. -- JK
Bond Mutual Funds Reverse Course and Post A Rise In Net Inflows
Investors pumped $10.6 billion of new money into domestic bond funds in January, reversing a small outflow in December. All categories reported higher net inflows, with strategic income posting a near-record $4 billion take (B0312). Junk bond funds received $1.9 billion in net inflows (B0307). Also notice that the 1999-2001 32.4% price decline is similar to the 1987-1990 37.7% price decline using the Fidelity Capital & Income fund as our price proxy. Bond fund managers didn't spend all the new cash, however, leaving $1 billion in their coffers (B0315). As a result, the cash/assets ratio improved to 3.3% from a downwardly revised 2.7% (B0300). -- JK
Chicago National Activity Index Continues to Climb
The Chicago Fed National Activity Index rose to -0.51 in January from a revised -0.82 in December, providing more evidence the economy is moving towards expansion. The three month moving average on the index rose to -0.86, its highest level since July 2001 (E40). Of the 85 indicators, 56 improved relative to December, though 57 still displayed below average growth. The index does not indicate inflationary pressures at this time (E757). -- SW
DJ-BTM Business Barometer Posts Solid Advance
The Business Barometer rose a solid 1.2% in the week ending February 16, breaking the downtrend line (E85). The index has not declined this year. The smoothed version rose for the third straight week, up 0.4%. The y/y changes of both the raw and smoothed versions are now both above zero.
Separately, our own Leading Index recently flashed an expansion signal for the economy, reversing its January 2001 contraction signal (E80). -- JK
Foreign Purchases Cool
Foreign investor purchases of U.S. stocks and bonds eased slightly in December to $46.7 billion (B0324). Foreign bond purchases fell to $33.4 billion, while U.S. stock acquisitions by foreigners was almost unchanged from the prior month at $13.3 billion. Meanwhile, U.S. investors bought $945 million of foreign debt, only the second month of foreign bond purchases in the past nine months (B323). U.S. investors also purchased a strong $8.9 billion of foreign stocks in December. As a result, the net capital inflow to U.S. bonds retreated to $32.5 billion (B324). The net capital inflow to U.S. stocks also pulled back, dropping to $4.4 billion in December.
Foreign purchases of U.S. Treasurys were down for the second month to just under $10.5 billion in December (B322), but it was still the third best month for Treasury sales abroad since August 1999. As a result, the 12-month total of foreign purchases turned positive at $18.5 billion, ending 18 consecutive months of U.S. Treasury selling by foreigners (B0321). Foreign purchases of corporate bonds and agencies each dropped for the second month. Among major foreign holders of Treasury securities, Japanese investors increased their Treasury holdings by $2.8 billion, while British investors added $3.4 billion in December (BMS_30.RPT). -- SW
2-Year Note Auction Fair
Wednesday afternoon, the Treasury auctioned $25 billion in 2-year notes at a rate of 3.059%, above expectations and two bp higher than January's auction. The tail shrank to 4.5 bp from a record 5.9 bp but remained long by historical standards (B0022). Similarly, the bid/cover ratio rose to 1.81 from 1.54, but remained well below the 12-month average of 2.24. Noncomps were also a little better, rising to $1.32 billion from $1.072 billion. -- JK
Last Updated: 11:25 EST
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Joseph F. Kalish
Senior Bond and Economic Strategist
Kathy Hartley
Research Analyst
Seth Williams
Research Analyst
Ned Davis Research, Inc.
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