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Consumer Prices

The Consumer Price Index (CPI) for January was 190.7 and showed a slight increase from the previous month. December ’04 produced the second drop in CPI during that year. This is something we don’t see too often so it’s something of a novelty to us. On a year-to-year basis, the rate increased by 3.0 percent from the 185.2 value posted in January 2004. The inflation rate has been fairly steady these past months thanks to the actions of the Federal Reserve Bank under the chairmanship of Mr. Greenspan.

Labor

The unemployment rate for January was reported at 5.2 percent with a continued steady decrease from October’s 5.5 percent and a nice drop from 5.6 percent from the previous January. It’s not been a fast change but rather a very slow one that seems to drop slightly after a few steady months. The Civilian Labor Force figures for January showed 147.9 million employees on the payroll as compared with 146.9 million in the previous January, up 0.7 percent for the year. Unfortunately though, the number dropped slightly from November’s 148.3 high.

Real Earnings should tell us what’s going on with the labor market in more detail. January’s $15.99 per hour is 2.8 percent higher than the January ’04 value of $15.55 and in constant 1982 dollars, the rate dropped 1 cent from $8.33 to 8.32 in that same time period. A bit of difference there in change as the constant dollars decreased by 0.01 percent while the current dollars rose by 2.8 percent.

The quarterly manufacturing employment index is a measure of labor’s cost to the employer, and the numbers for the fourth quarter of the year show that the wage index was 175.2 compared with 168.9 for the previous year’s fourth quarter. Benefits showed up at 197.0 compared with 184.3 the previous year. On a percentage basis you can see that the wages went up 2.8 percent year after year while benefits increased by 6.8 percent in the same 12-month period. What a difference, especially when you consider that much of the benefit increases is in the medical insurance area, and we know that both workers and management have accepted more costs for those benefits. So how much did real take home pay go up if the employees had to shell out more for their health coverage?

Quarterly productivity figures for the last quarter of the year show a 4.3 percent increase in output over the previous year’s fourth quarter and a 2.9 percent increase in output per hour over the same time period. In raw numbers we have the following table:

So the state of the average employee is this: His cost of living rate increased by 3.3 percent, his productivity increased by 2.9 percent, his wages in current dollars went up by 2.1 percent ($0.33), and his wages in constant 1982 dollars increased by 0.1 percent ($0.01).

Mass Layoffs

Layoffs of all types are receiving less national attention now that the economy seems to have settled down. That doesn’t change the fact that the local press understandably makes much of the events as they affect local economies that are already strapped for cash after the bad years we’ve experienced. December 2004 brought 1,614 mass layoff events that directly affected 161,271 employees. For the entire year the numbers really show an improvement. There was a decrease of 6.5 percent in the total number of events and a 14.9 percent drop of almost 287,000 employees affected. Now that’s something to crow about. Better yet, we’re at or below the figures of the year 2000.

As before, a simple table below speaks well for what we’re seeing:

Interest Rates

Interest rates have been on the move with the fed making six interest rate increases during the past year. Starting out at 1.0 percent, the rate moved up in quarter-point increments beginning in June with subsequent changes coming about every two months.

As the Federal Overnight Rate increased, so did the discount rate and the prime interest rate. As you probably know, the discount rate is normally 1 percentage point higher than the overnight rate, and the prime interest rate is 2 percentage points over the discount rate. The February 2005 values are 2.50 for the overnight rate, 3.50 for the discount rate, and 5.50 for the prime rate. Is the increase in interest rates helping us? It sure looks like it. The dollar is weaker on the foreign exchange so our exports are more sought after and the economy seems to be moving along fairly well, nothing fantastic, but a slow steady improvement. Will this help our balance of payments? Yes, it will help some but we’re so far in the hole right now that it will take a lot more than a weak dollar to make much of a difference. Our dependency on foreign oil is what’s really eating us up, and I don’t see that changing in the short term.

Gross Domestic Product

The gross domestic product (GDP) is reported quarterly and the current dollar numbers for the last quarter of the year came in at $11,967 billion as compared with $11,271 for the same quarter on 2003. This represents a year-over-year increase of 6.2 percent. When using chained 2000 dollars, the numbers are 10,976 for the most current quarter and 10,581 for the prior year, or a 3.7 percent increase. Using current dollars, that’s quite a change. I ran this simple table to show how the change in 2004 compares to that of previous years.

The table does a good job of showing that our economy is back on track.

Housing Starts

Housing continues to be a bright spot in our nation’s economy. New home sales moved in January to 1.183 million estimated annual units, up 9 percent from the 1.098 million posted for all of 2004. That’s a number a lot of industries would like to see on their books. Existing home sales were also very high with 6.8 million annualized homes sold, up 13.7 percent from the previous January but down very slightly from the 6.81 million sold in all of 2004. Still, these are good number by anyone’s measure.

New housing starts were excellent with the best numbers being reported in 30 years. There were 2.16 million annualized units started in January compared with the 2.04 for all of 2004 and significantly higher than the 1.54 annualized units started in January 2004.

Here’s another simple table to show where we’ve come from and what the general trend is.

Foreign Competition

I’ve compared the results reported for October with those for December and have shown how our imports of key countries’ cabinets have changed in raw dollars. That trend is that China has steadily increased its shipments from $6.27 million in January to $9.83 million in December. While Italy has about doubled its shipments, China is the real threat that I see.

Could the foreign exchange rate have something to do with the change in position of the countries? Again, a simple table comparing the October and December exchange rates will give us some guidance. It looks to me as though the change in currency strengths might have caused some minor variations but nothing that makes any significant difference.

Domestic Prices