Around here, and everywhere else that politics is the main talk, all eyes were on the Senate today, of course. Enough said about that, in this diary anyway. In the real world, meanwhile, most everybody’s attention focused on two news stories, more horrible than usual, from Iraq, along with Al Zawahiri’s demonstration that even hardened terrorists can act like fifth-grade bullies when suitably provoked. But you knew all that.
So who could blame anybody for not noticing today’s economic data? They were really all over the place, painting a pretty confusing picture. Let’s take a look.
What was there? Well, ExxonMobil reported record-breaking profits. ExxonMobil’s profit didn’t just break the record for the company; at more than $36 billion for the year, ExxonMobil made more than any US company has ever made. Gee, I wonder why?
The company said its average sale price for crude oil in the U.S. during the quarter was $52.23 a barrel, compared with $38.85 a year earlier. It sold natural gas in the U.S., on average, for $11.34 per 1,000 cubic feet, compared with $6.61 during the same period a year ago.
Democratic lawmakers were not amused:
Sen. Barbara Boxer, a California Democrat who sharply criticized oil executives appearing before Congress in November, on Friday called on the Bush administration and the Federal Trade Commission to “put an end to gouging.” She then suggested that FTC stood for “Friend to Chevron.”
Sen. Chuck Schumer, a New York Democrat who proposed an extra tax on oil company profits in November, said Monday that “the federal government has a responsibility to make sure that these companies continue to innovate instead of just profiting from the status quo.”
The Commerce Department released its December report on Personal Income and Outlays (This is a pdf). This is the report that tells us how much we all made, and where we spent it. Good news first, disposable personal income increased by +0.4% over November. Trouble is, personal consumption expenditures increased by +0.9% over November. November already had a negative savings rate (expenditures greater than income), so in December, it was worse. In fact, for all of 2005 the personal savings rate was -0.5%, the first time personal savings has been negative for a full year since the Great Depression.
Now, call me a cynic if you must, but ExxonMobil’s report and the Commerce Department report seem like they might be related somehow. The very sharp rise in the prices of oil and natural gas were likely a factor in both.
A number of economic observers have also noted that at least part of the bulge in consumer spending has to do with the housing market:
One major reason that consumers felt confident in spending all of their disposable incomes and dipping into savings last year was that a booming housing market made them feel more wealthy. As their home prices surged at double-digit rates, that created what economists call a “wealth effect” that supported greater spending.
The concern, however, is that the housing boom of the past five years is beginning to quiet down with the rise in mortgage rates. Analysts are closing watching to see whether consumer spending, which accounts for two-thirds of total economic activity, falters in 2006 as Americans, already carrying heavy debt loads, don’t feel as wealthy as the price appreciation of their homes would seem to indicate.
The housing numbers out last week weren’t exactly reassuring. Sales of existing homes fell 5.7% in December (another pdf), and inventories stretched out to 5.1 months’ supply. At the same time, new home sales rose by 2.9%. Pure conjecture on my part, but it may be that homebuilders are starting to dump inventory in some markets, crowding out sellers of existing homes. We’ll see.
On Friday, the government reported that Gross Domestic Product, the aggregate value of all the goods and services we produce, grew at only a 1.1% annual rate in the fourth quarter of 2005, the slowest rate in three years. The usual suspects attributed the slowdown to a big drop in spending on new cars — apparently we had bought all the new cars we needed over the summer, when the automakers offered those big incentives.
Given the contradictory economic data, plus the fact that the Fed Open Market Committee is due to close out the Greenspan era by announcing its decision on interest rates Tuesday at 2pm Eastern, financial markets basically froze in place on Monday. Major stock market averages changed very little, interest rates crept up a tiny bit, and the dollar pretty much stayed put relative to other major currencies.
Taken all together, the picture is tepid at best. The low (well, negative, actually) savings rate may have to do with the start of a wave of retirements — some of those born in 1945 and 1946 are beginning to retire now. If so, that low savings rate may be with us for quite a while. It may also have to do with softness in housing, which may in turn lead to softness in consumer spending, which may in turn lead to economic softness. If so, let’s at least hope it all happens in time to be an issue this November.