Durable Goods in May Decreased 2.2%

Reporting generally weak numbers feels like a case for Dragnet. “Just the facts ma’am-just the facts.”  After a long night of watching numbers after the Brexit, last thing we want to see are numbers showing durable goods down 2.2% after two consecutive monthly increases which showed a 3.3% increase last April.

New orders for manufactured durable goods in May decreased $5.3 billion or 2.2% to $230.7 billion.  Excluding transportation, new orders decreased 0.3%. Excluding defense, new orders decreased 0.9%.

Nondefense new orders for capital goods in May decreased $0.6 billion or 0.8% to 73.8 billion.  Shipments increased $0.8 billion or 1.2% to $72.8 billion.  Unfilled orders increased $1.1 billion or 0.2% to $708.6 billion.  Inventories decreased 0.3% to $171.3 billion.

Defense new orders for capital goods in May decreased 28.0% to $9.5 billion.  Shipments increased 2.1% to $9.8 billion.  Unfilled orders decreased 0.2% to $140.3 billion.  Inventories decreased 0.3% to $20.8 billion.

(U.S. Census Bureau News released June 24, 2016)

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Lawrence Yun, National Association of Realtors chief economist, stated “ This spring’s sustained period of ultra-low mortgage rates has certainly been a worthy incentive to buy a home, but primary driver in the increases in sales is more homers realizing the equity they’ve accumulated in recent years and finally deciding to trade-up or downsize, “ he elaborated “With first-time buyers still struggling to enter the market, repeat buyers using the proceeds from the sale of their previous home as their down payment are making up the bulk of home purchases right now.”

According to the U.S. Census Bureau, privately-owned housing units authorized by building permits in May were at a seasonally adjusted annual rate of 1,138,000, a 0.7% increase from April’s revised rate of 1,130,000 units. We are still well below the May 2015 estimate of 1,266,000.

Privately-owned housing starts in May 2016 were 1,164,000, 9.5% above the May 2015 rate of 1,063,000.  Single-family housing starts in May 2016 were at a rate of 764,000, a 0.3% above the revised April 2016 figure of 762,000.

Information found on the National Association of Realtors web page, existing home sales, which are completed transactions that include single-family homes, condominiums, co-ops and townhouses for May 2016, grew 5,530,000 units compared to April sales of 5,430,000 units, a 1.8% growth. Last year’s May sales were an adjusted seasonally rate 5,290,000.

Inventory of existing home sales in May 2016, 2,150,000 are -5.7% lower than May 2015 inventory.

According to the Zillow Mortgage Rate Ticker, the 30-year fixed mortgage rate on Zillow® Mortgages is currently 3.41 percent, up two basis points from this time last week. The 30-year fixed mortgage hovered around 3.38 percent for most of the week before rising to the current rate.

The median sale price for existing homes May 2016 last value is $239,700 compared to April 2016 $230,900. (YCharts home page)  Value of existing homes one year ago $228,900, a 4.72% increase.

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The retail sales report for May was a nice surprise. Retail sales rose a solid 0.5 percent.  Auto sales did give a boost to the total, but taking auto sales out of the equation, 0.4 percent is still a solid rise.  Gasoline’s higher prices also gave a boost to the sales report, but excluding auto and gas, sales still come in plus 0.3 percent.

Building materials were weak, down 1.8 percent for the third straight monthly decline. General merchandise was also down in the month, also sales at department stores.

The median forecast of 81 economists surveyed by Bloomberg projected 0.3 percent advance in sales.

The USD rose to 94.79 on the news of the May retail sales. The strong May sales report indicates that consumer spending will help boost economic growth in the second quarter.

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Kinder Morgan ($KMI $17.99) subsidiaries Elba Liquefaction Company (ELC) and Southern LNG Company (SLNG), have received approval from the Federal Energy Regulatory Commission(FERC) to add liquefaction and export capability to its Elba Island LNG Terminal, which is near Savannah, Georgia.

KMI purchase of the remaining 49 percent of shares in the project from Shell for $630 million a year ago brought the total investment in the liquefaction and terminal facilities at Elba Island to approximately $2.1 billion. The first of 10 liquefaction units is expected to be placed in service in the second quarter of 2018, with the remaining nine units going on line at the end of 2018.  Shell has a 20-year contract to buy the LNG from the terminal.

The liquefaction project is expected to provide approximately 2.5 million metric tons per year of LNG export, or about 350 million cubic feet per day.

KMI also announced Elba Express Company (EEC) and Southern Natural Gas Company (SNG) received from FERC Certificates of Public Convenience and Necessity for the EEC Modification Project and SNG Zone 3 Expansion Project. Together these projects total $306 million that will supply additional gas to industrials and utilities to Georgia and Florida and to Elba Island liquefaction.

It should be noted that KMI promised to create 100 permanent jobs and earn the government more than 10 million in extra tax revenue annually during its campaign for approval for the plan.

This news follows the announcement on Friday that KMI is eliminating about 120 jobs, 37 job cuts will be Houston positions. KMI spokesman, Richard Wheatley, said the difficult decision to eliminate was made because of the company’s reduced activity levels during the downturn.  He said terminated employees may be redeployed in some cases.  They’re also receiving severance packages.

KMI’s project backlog has decreased since mid-2015 to about $14 billion from $22 billion. Its stock was trading at more than $42 a share one year ago.  The company cut its dividend by 75 percent in December to free up more cash.

Let’s hope the news for the Elba Liquefaction Project moves KMI in a more positive direction.

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“I am putting myself to the fullest possible use, which is all I think that any conscious entity can ever hope to do” HAL

Admittedly, I do not have a wealth of knowledge about artificial intelligence. So after hearing the possibilities of driverless cars, online medical diagnoses, and robots taking the place of fast food servers, I thought it was time I learned more about what our future may hold using AI applications.

Artificial Intelligence (AI) is usually defined as the science of making computers do things that require intelligence when done by humans. AI has had some success in limited, or simplified, domains.

Intelligence involves mechanisms, and AI research has discovered how to make computers carry out some of them and not others. If doing a task requires only mechanisms that are well understood today, computer programs can give very impressive performances on these tasks. Such programs should be considered “somewhat intelligent”.

Is AI about simulating human intelligence? The answer is sometimes but not always or even usually.  On the one hand, we can learn something about how to make machines solve problems by observing other people or just by observing our own methods. On the other hand, most work in AI involves studying the problems the world presents to intelligence rather than studying people or animals. AI researchers are free to use methods that are not observed in people or that involve much more computing than people can do. 

After WWII, a number of people independently started to work on intelligent machines. The English mathematician Alan Turing may have been the first. He gave a lecture on it in 1947. He also may have been the first to decide that AI was best researched by programming computers rather than by building machines. By the late 1950s, there were many researchers on AI, and most of them were basing their work on programming computers. (John McCarthy 2007-11-12)

I find it interesting, that common sense knowledge is one of the main reasons we do not have a HAL 9000. An example would be, some tasks like mathematics, or playing a computer game might be difficult for humans are easy for computers.  Yet things we find easy, like navigating through a crowded room, a computer would find hard to do.

Strategies within the AI research community in response to the problem of common sense knowledge are building systems which are used only to operate in specific domains.

Researcher Doug Lenat and his colleagues are working on a system known as CYC. The goal of CYC is to develop computational databases and search tools which enable AI systems to access all the knowledge which makes up common sense.

Another system being developed by RI researches is Artificial Neural Networks. Many of the Artificial Neural Networks have a brain-like property, which allows these systems to learn.  Some of the advantages of the machine learning strategy are to solve the problem of common sense knowledge.

We see Artificial Intelligence uses every day from our programmable coffee pot, to our bank notifying us of an unauthorized use of our debit or credit card. An abundance of cutting edge AI application has become so commonplace that we no longer label it as AI.

Some examples would be the use of AI in computer science. Time sharing, interactive interpreters, graphical user interfaces and the computer mouse, rapid development environments, the linked list data structure, automatic storage management, etc., have been adopted by mainstream computer science and are no longer considered a part of AI. (Russell & Norvig 2003)

In hospitals, AI is used for clinical decision support systems for medical diagnosis such as medical imaging and digital scans.

Robots have become common in many industries for jobs that are considered dangerous to humans, or which are repetitive in nature. (Would you like to upgrade to a large combo with that cheeseburger?  Ha! )  In 2014, Japan had the highest density of industrial robots in the world: 1,414 per 10,000 employees.  (“World Robotics 2015 Industrial Robots”)

AI is implemented in the automated online assistants. Not too long ago, I called my bank to check on an account, quite expecting to get the automated service.  When a human answered, I asked if their automated service was “down”.  He answered, “It must be, as I answered the phone.”  I was so shocked to be talking to a human; I replied “I’ll call back when your system is back up” and ended the call.

AI is used in aviation for combat and training simulators, mission management aids, and support systems for tactical decision making.

Programs such as IPhone’s Siri, Facebook’s messenger service M, and IBM’s Watson, are becoming more than a gimmick. Facebook has established a dedicated division, FAIR (Facebook Artificial Intelligence Research), to accelerate the development of its facial, image, and speech recognition capabilities.  There is also Amazon’s cloud-based storage and Amazon ML.  Amazon ML (Machine Learning) platform gathers data from services like S3 online storage, Redshift data warehousing, and its Relationship Database Service to “predict” future business trends for customers.  Microsoft’s Azure ML is still winning over plenty of enterprise customers.  In the last two years, Google bought five different companies having to do with technologies like image recognition, natural language processing, and neural networks.

Salesforce (NYSE: CRM), the Customer Success Platform and the world’s #1 CRM company, and Demandware (NYSE: DWRE), the industry-leading provider of enterprise cloud commerce solutions, today announced that they have entered into a definitive agreement under which Salesforce will acquire Demandware. The Salesforce Commerce Cloud will be an integral part of Salesforce’s Customer Success Platform, creating opportunities for companies to connect with their customers in entirely new ways. Salesforce customers will have access to the industry’s leading enterprise cloud commerce platform, and Demandware’s customers will be able to leverage Salesforce’s leading sales, service, marketing, communities, analytics, IT and platform solutions to deliver a more comprehensive, personalized consumer experience. www.prnewswire.com/news-releases/salesforce-signs-definitive-agreement-to-acquire-demandware I think we can expect to see more companies combining their AI programs in the future.

There are several companies that sell AI components into cars for scenarios like helping drivers park: Nidec, MobileEye, Nippon Ceramic, and Pacific Industrial.

Other various tools of AI being widely used are in homeland security, speech and text recognition, data mining, and email spam filtering.

To help prepare the coming generations for human and computer interactions, students should be proficient in science, technology, engineering, and mathematics (STEM). In short, regardless of how artificial intelligence develops in the years ahead, the world will forever change as a result of advances in AI.

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Remember the “Five-and-Dimes” stores? F.W. Woolworth Company was one of the first stores to feature low-priced selection of merchandise.  Mr. Frank Winfield Woolworth saw the value in putting a price tag on the merchandise so customers could pick up an item and look at it without the assistance of the clerk.  In 1911, the F.W. Woolworth Company was incorporated with 586 stores.  (As a footnote, the original chain of Woolworth stores went out of business in 1997. But in 2001 the company adopted a sporting goods brand, Foot Looker, Inc.)

Why has Walmart $WMT, $70.79 performed so well? In the United States, there are 3,465 Walmart Super Centers, 442 Discount Stores, 667 Neighborhood Markets, and 655 Sam’s Clubs, with a grand total of 5,229 stores. Walmart’s market cap is 222.5B, EPS (TTM) 4.52 and a P/E ratio of 15.6. The YTD return is 17.34%. The Company offers an assortment of merchandise and services at everyday low prices!

Let’s look at other Discount Stores:

Dollar Tree: Dollar Tree, Inc. $DLTR, $88.70 is an American chain of discount variety stores that sells items for $1 or less. A Fortune 500 company, Dollar Tree is headquartered in Chesapeake, Virginia and operates 13,600 stores. Dollar Tree market cap is 18.46B, with an EPS of 1.26 and P/E 69.66.  The YTD return is 15.23%.  The stock price is up 13.45% today.

Dollar General Corporation $DG, $88.41 is an American chain of variety stores headquartered in Goodlettsville, Tennessee. As of January 2016, Dollar General operated over 12,400 stores in 43 U.S. states. Dollar General has a market cap of 24.12B, with an EPS of 3.95 and P/E of 22.27. The YTD return is 23.52%.  The stock price today is up 5.09% today.

Why are these Discount Stores outpacing “mall” stores? Prices!!

The Federal minimum wage is $7.25 an hour. July 24, 2009 was the latest increase, $6.55 to $7.25 an hour. Granted, in some States and areas, basic minimum wage laws are different than the Federal law.  The highest earners are in District of Columbia $10.50 an hour and the lowest is Wyoming $5.15 an hour; which makes the average minimum hourly wage $7.74; year 2015.

The website Career Trends breaks down the cost of living using childcare, food, healthcare, housing, taxes, transportation, and other necessities. Their findings are:

The average monthly cost of living in the United States for a single adult with no children is $2,372. This adds up to an average annual cost of living of $28,474. The average monthly cost of living in the United States for a single adult with one child is $3,946. This adds up to an average annual cost of living of $47,356. The average monthly cost of living in the United States for a single adult with two children is $4,820. This adds up to an average annual cost of living of $57,851.

The average monthly cost of living in the United States for a married couple with no children is $3,305. This adds up to an average annual cost of living of $39,670. The average monthly cost of living in the United States for a married couple with one child is $4,683. This adds up to an average annual cost of living of $56,203. The average monthly cost of living in the United States for a married couple with two children is $5,468. This adds up to an average annual cost of living of $65,623.

For a given week, at the federal minimum wage of $7.25 and assuming a 1.5 times increase in hourly wage after 40 hours for overtime, a single adult with no children would need to work 64 hours in a week to be above the United States’ cost of living threshold of $548 per week. A single adult with two children would need to work 116 hours in a week to be above the United States’ cost of living threshold of $1,113 per week.

For a given week, at the federal minimum wage of $7.25 and assuming a 1.5 times increase in hourly wage after 40 hours for overtime, a married couple with no children would need to work 84 hours in a week to be above the United States’ cost of living threshold of $763 per week. A married couple with one child would need to work 113 hours in a week to be above the United States’ cost of living threshold of $1,081 per week.  A married couple with two children would need to work 130 hours in a week to be above the United States’ cost of living threshold of $1,262 per week.

Annual household incomes:

Approximately 25.2% of the United States’s population lives in a upper middle class household, or a household with an annual income between $75,000 and $150,000. The second most common household income level is lower middle class with approximately 23.7% of Americans living in a household earning an annual income between $25,000 and $50,000.

My Pop’s always said “it’s not what you make, it’s what you save”.  For almost 50% of the households in the United States, saving every penny on necessities is crucial to combat the cost of living today.

 

Sources:

The Economic Policy Institute, The Bureau of Labor Statistics, BLS: Local Area Unemployment Statistics, American Community Survey, and United States Department of Labor.

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Back in February 14, 2016, Steven Scheer reported for Reuters that Israel’s Prime Minister Benjamin Netanyahu was testifying before Israel’s Supreme Court to defend a gas deal to develop a Leviathan field off Israel’s Mediterranean coast.

Critics had argued that the planned control of the country’s gas reserves by one consortium would limit competition and keep prices high.

Under the deal, Nobel Energy Inc. based in Houston, Texas and Israel’s Delek Group, which discovered Leviathan in 2010, would retain control of the field. In July, 2010, Noble Energy announced that seismic studies indicated there was a 50% chance of the Leviathan field containing natural gas.  After the initial exploration and drilling, the discovery was announced in December, 2010.  The second stage drilling estimates the reserves to be 622 billion cubic meters.

Orr Hirschauge and Rory Jones reported on May 22, 2016 in the Wall Street Journal that Netanyahu approved an amended deal to develop the Leviathan fields. This gives Nobel Energy Inc. and Delek Group the green light to develop the fields and export the natural gas to markets such as Jordan, Turkey, and Egypt.  In total, Israel sits on fields containing more than 32 trillion cubic feet of gas.

Nobel Energy Inc., NBL $35.62 has a market cap of 15.12B, with average volume of 4.27M. Revenue in 2015 was 3.13B and total assets in 2015 were 24.2B. It’s EPS is -6.35.

Israel’s Delek Group, DGRLY $17.26 has a market cap of 2B with 119.84M shares outstanding. It’s DIV yield is 7.5%.

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When you take a Sunday drive in the Midwest Illinois during the summer, you will find the landscape dotted with fields of corn, soybeans, and windmills. I am not a farmer, but I take pride in our farming industry.  In tonight’s paper, an article caught my eye.  It was about the soybean supply set to decline in 2016/2017.

Soybeans are the fourth leading crop produced globally, by volume. More than 85 percent of the crop is processed through crushing the soybean into soybean meal and oil.  Soybean meal is used for animal feed for its protein content.  Soybean oil is used for food consumption and more recently, for biodiesel.  According to the USDA Agricultural Projections to 2025, world trade is projected to increase in soybeans by 22 percent, in soybean meal by 20 percent, and in soybean oil by 30 percent.

Total soybean demand is forecast to grow in 2016/17, eclipsing global production, and leading to a decline in soybean ending stocks and global oilseed stocks in general. The rise in demand for protein meal is mainly driven by China.  Global forecast for vegetable oil consumption as food is forecast to increase 3 percent in 2016/17, due to population and GDP growth.

For the 2016/17 projected production of soybeans, the United States leads production with 112.92 million metric tons; followed by Brazil with 105.78 million metric tons and Argentina with 61.33 million metric tons. It should be noted that the soybean market is continuing to weigh the extent of crop losses in Argentina after recent flooding.  The rain-delayed harvest has helped shift some exports toward U.S. soybeans.  As of May 16, 2016, U.S. Farmers have 36% of the soybean crop planted.

The three leaders of soybean imports are China with 91.08 million metric tons, EU with 16.03 million metric tons and Mexico with 5.80 million metric tons.

The three biggest leaders of soybean exports are Brazil with 60.40 million metric tons, U.S. with 52.35 million metric tons and Canada with 12.53 million metric tons.

World soybeans and products supply and distribution for oilseed projection for 2016-17 are beginning stock 74.25 million metric tons (This is 2015/16 ending stock), production 324.20 million metric tons, imports 136.01 metric tons, total supply, 534.47 million metric tons. Exports 138.31 million metric tons crush 288.39 million metric tons, domestic consumption 327.96 million metric tons, leaves and ending stock of 68.21 million metric tons. (I’m not sure why the crush 288.39 figure is not subtracted from the total supply.)  The 2014/15 ending stock was 78.08, 2015/16 ending stock was 74.25, and the 2016/17 projected ending stock is 68.21.

For 2016/17 the U.S. season-average farm price for soybeans is projected at $9.10 per bushel. On the Chicago Board of Trade this morning, the most-active soybean contract was trading up 0.7 percent at $10.78 bushel.

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First, note the real average weekly earnings. Earnings for the year would be under $18,000.

The Federal Poverty Level for 2016:

• $11,880 for individuals
• $16,020 for a family of 2
• $20,160 for a family of 3
• $24,300 for a family of 4

www.healthcare.gov

The U.S. Bureau of Labor Statistics preliminary report for current and real (constant 1982-1984 dollars) earnings for all employees on private non-farm payrolls, seasonally adjusted for April 2016 are:

Real average hourly earnings $10.69

Real average weekly earnings $368.70

Average hourly earnings $25.53

Average weekly hours 34.5

Average weekly earnings $880.79

Consumer Price Index for All Urban Consumers 238.89. On a seasonally adjusted basis, the CPI for all Urban Consumers increased 0.4% in April after rising 0.1% in March.  www.bls.gov/

Where is the consumer spending their earnings? When economic growth slows, non-cyclical industries tend to outperform cyclical industries.  Non-cyclical are goods and services we need: food, household non-durable goods, power, water, and gas.  Cyclical industries are manufacturing, travel, construction, new and used vehicles, fine dining, and apparel; sectors that can be cut when money is tight.

The U.S. Bureau of Labor Statistics noted the food index rose 0.2% in April after falling 0.2% in March. The food at home index increased 0.1% after declining 0.5% in March. The index for dairy and related products rose 0.4% in April.  The indexes for cereals and bakery products and for nonalcoholic beverages both increased 0.3%.  It is interesting to note that the indexes for fruits, vegetables, meats, poultry, fish, and eggs all fell in April.

The energy index rose 3.4% in April, which was its largest increase since February 2013. The gasoline index rose 8.1% in April.  The fuel oil index increased 1.9% and natural gas rose 0.6%. The electricity index declined 0.3% in April.  Despite the monthly increase, the energy index has declined 8.9% over the past year. The gasoline index has decreased 13.8% over the past year.

The indexes for rent and for owner’s equivalent rent both increased 0.3% in April, while the index for lodging away from home declined for the second straight month, falling 0.4%.

The medical care index rose 0.3% in April with prescription drugs rising 0.7% and the hospital services index advancing 0.3%. The physician’s services index declined 0.1%.

The recreation index rose 0.3% in April, as did the index for education, and the indexes for alcoholic beverages, tobacco, and personal care all posted slight increases.

In contrast, the index for household furnishings and operations declined 0.4% in April, its largest decline since April 2010.  The indexes for apparel, for new vehicles, and for used cars and trucks each declined 0.3% in April.  The index for communication declined 0.2%.

The consumer price index for May 2016 is scheduled to be released on June, 16, 2016. www.data.bls.gov

 

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These numbers from the Federal Reserve point to an increase of industrial production. How can that be a bad thing?  We want our country to grow in manufacturing.  Jobs!  Yes, the fear will be the Feds will jump on the inflation worries of 2% growth towards the end of this year.  If the Fed can hold off till the numbers actually come in, that would be great.

 

Federal Reserve Release Date: May 17, 2016

Industrial production increased 0.7 percent in April after decreasing in the previous two months. Manufacturing output rose 0.3 percent after declining the same amount in March. The index for utilities jumped 5.8 percent in April, as the demand for electricity and natural gas returned to a more normal level after being suppressed by warmer-than-usual weather in March. Mining production fell 2.3 percent in April, and it has decreased more than 1 1/2 percent per month, on average, over the past eight months. At 104.1 percent of its 2012 average, total industrial production in April was 1.1 percent below its year-earlier level. Capacity utilization for the industrial sector increased 0.5 percentage point in April to 75.4 percent, a rate that is 4.6 percentage points below its long-run (1972–2015) average.

 

Granted, these are not Great numbers, yet they are better than March.

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