[T]he idea of core inflation. Why do we need such a concept, and how should it be measured?
So: core inflation is usually measured by taking food and energy out of the price index; but there are alternative measures, like trimmed-mean and median inflation, which are getting increasing attention.
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And people who say things like “That’s a stupid concept — people have to spend money on food and gas, so they should be in your inflation measures” are missing the point. Core inflation isn’t supposed to measure the cost of living, it’s supposed to measure something else: inflation inertia.
Think about it this way. Some prices in the economy fluctuate all the time in the face of supply and demand; food and fuel are the obvious examples. Many prices, however, don’t fluctuate this way — they’re set by oligopolistic firms, or negotiated in long-term contracts, so they’re only revised at intervals ranging from months to years. Many wages are set the same way.
The key thing about these less flexible prices — the insight that got Ned Phelps his Nobel — is that because they aren’t revised very often, they’re set with future inflation in mind. Suppose that I’m setting my price for the next year, and that I expect the overall level of prices — including things like the average price of competing goods — to rise 10 percent over the course of the year. Then I’m probably going to set my price about 5 percent higher than I would if I were only taking current conditions into account.
And that’s not the whole story: because temporarily fixed prices are only revised at intervals, their resets often involve catchup. ...
The standard measure tries to do this by excluding the obviously non-inertial prices: food and energy. But are they the whole story? Of course not ... Hence the growing preference among many economists for measures like medians and trimmed means, which exclude prices that move by a lot in any given month, presumably therefore isolating the prices that move sluggishly, which is what we want.
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The Federal Reserve Bank of Kansas City released the February Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that Tenth District manufacturing activity rose just slightly from the previous month, but producers expected activity to pick up moderately in the months ahead.
“We saw a further slowing in growth this month, driven in part by weaker factory activity in our energy states”, said Wilkerson. “The raw materials prices index also fell for the first time in over five years.”
The month-over-month composite index was 1 in February, down from 3 in January and 8 in December. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. The overall slower growth was mostly attributable to large declines in primary metals and computer and electronics production. Looking across District states, the weakest activity was in Colorado, Oklahoma, and New Mexico. In contrast, production activity in the fabricated metals and machinery industries both increased moderately. ... the new orders index inched lower from 5 to 3, and the employment index fell for the second straight month.
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American Trucking Associations’ advanced seasonally adjusted For-Hire Truck Tonnage Index increased 1.2% in January, following a revised gain of 0.1% during the previous month. In January, the index equaled 135.7 (2000=100), an all-time high.
Compared with January 2014, the SA index increased 6.6%, which was the largest year-over-year gain in over a year.
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ATA recently revised the seasonally adjusted index back five years as part of its annual revision. For all of 2014, tonnage was up 3.7%, slightly better than the 3.4% originally reported. In 2013, the index increased 5.5%.
“Truck tonnage continued to improve in January, marking the fourth straight gain totaling 3.5%,” said ATA Chief Economist Bob Costello. “Last year was slightly better for truck tonnage than we originally thought and I am expecting that momentum to continue in 2015.”
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Fed Chair Yellen will be presenting her semi-annual monetary policy testimony—sometimes called the "Humphrey-Hawkins" testimony—on Tuesday and Wednesday of this week (February 24 and 25). We expect Yellen not to stray far from the message of the January FOMC statement and meeting minutes, and we do not think she will preempt the Committee by sending a strong signal on whether "patience" will be removed from the statement at the March meeting.
The testimony will probably not be a major market mover. Indeed, the average absolute yield change around the Fed Chair's semi-annual testimony has declined over time and is considerably lower than the average absolute change around post-FOMC press conferences. Nonetheless, to the extent there are risks to our "don't rock the boat" expectation, we think they are skewed toward a slightly more dovish tilt.
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The Fed will also release its semi-annual Monetary Policy Report at 10:00AM on Tuesday February 24, which is a roughly fifty-page document that provides additional background, charts, etc. supporting the Chair's testimony. Typically, this document generates very little interest. However, the July statement that "valuation metrics in some sectors do appear substantially stretched—particularly those for smaller firms in the social media and biotechnology industries," received considerable attention.
Today, the Data and Analytics division of Black Knight Financial Services released its latest Home Price Index (HPI) report, based on December 2014 residential real estate transactions. The Black Knight HPI combines the company’s extensive property and loan-level databases to produce a repeat sales analysis of home prices as of their transaction dates every month for each of more than 18,500 U.S. ZIP codes. The Black Knight HPI represents the price of non-distressed sales by taking into account price discounts for REO and short sales.
| Month | YoY House Price Increase |
|---|---|
| Jan-13 | 6.7% |
| Feb-13 | 7.3% |
| Mar-13 | 7.6% |
| Apr-13 | 8.1% |
| May-13 | 7.9% |
| Jun-13 | 8.4% |
| Jul-13 | 8.7% |
| Aug-13 | 9.0% |
| Sep-13 | 9.0% |
| Oct-13 | 8.8% |
| Nov-13 | 8.5% |
| Dec-13 | 8.4% |
| Jan-14 | 8.0% |
| Feb-14 | 7.6% |
| Mar-14 | 7.0% |
| Apr-14 | 6.4% |
| May-14 | 5.9% |
| June-14 | 5.5% |
| July-14 | 5.1% |
| Aug-14 | 4.9% |
| Sep-14 | 4.6% |
| Oct-14 | 4.5% |
| Nov-14 | 4.5% |
| Dec-14 | 4.5% |
The best industrial training simulators can combine the instant feedback of e-learning with immersive exercises designed to train muscle memory, eliminating the costs of real practice.
Whilst researching supplier capabilities at this year’s Learning Technologies Exhibition, I got the chance to try out one of the virtual welding simulators developed by Totem Learning. Although I knew that simulators were regularly used to train soldiers and pilots, testing one for myself made me realise that the technology could reduce costs in a much wider range of industries.
Vicky Rose, the company’s head of communications, helpfully talked me through how to hold the game’s controller—a plastic replica of a standard welding electrode—at the right distance from the plastic parts to be ‘welded’ together. The position of the controller is tracked by a computer, allowing its movements to be shown onscreen as interacting with a virtual welding station. When the trigger is pulled, the virtual welding begins, with the challenge being to move the tool steadily along the simulated metal.
One of the major advantages of this kind of training is that it offers continuous feedback; coloured bars appeared to let me know when I was moving the tool too quickly or too slowly, or was holding it too close or too far from the joint. Detailed graphs and scores on completion (as well as a realistic picture of my slightly wobbly welding results) showed me how I’d done and, encouragingly, that I had improved throughout the exercise.
Unlike real welding training, the game incorporated difficulty settings, allowing a complete novice like me to build my muscle memory gradually before trying for greater technical proficiency.
Another advantage of simulations is that they are safe, easy and free to repeat. By the end, I immediately wanted to try again to increase my score and could do so by pressing a button. In real life, I would have to reset the workstation and use additional energy and expensive welding consumables to practise again. Traditionally, a great deal of this slow and costly trial and error was required before an employee could achieve consistent welding results.
As well as training welding staff more efficiently, simulators can be a valuable recruitment tool, serving as a good way of testing natural aptitude at job fairs and increasing candidates’ interest in a range of skilled trades.
They can also be used to reduce the cost of the employee selection process, by, for instance, helping HR staff to identify candidates who have overstated their welding expertise. Weeding out those who would not pass before they reach the real-life testing stage reduces the amount of materials and employee time spent on testing unsuccessful applicants.
Totem Learning is just one of the many companies developing bespoke simulators for corporate clients. More complex simulators incorporate virtual reality headsets, realistic safety gear and reactive, motorised tools to create an even more immersive experience.
Procurement staff, particularly in the manufacturing industry, would do well to consider whether investing in simulators could reduce their overall training costs.
January home sales dropped sharply month over month, which is normal for the season, and dipped year over year to the lowest level for a January in seven years. ... A total of 4,439 new and resale houses and condos sold in the nine-county Bay Area in January 2015. That was down month over month by 40.5 percent from 7,456 sales in December 2014 and down year over year by 5.5 percent from 4,696 sales in January 2014, according to CoreLogic DataQuick data.
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“January isn’t really a bellwether month when it comes to housing trends. For that we’ll have to wait until spring,” said Andrew LePage,” CoreLogic DataQuick data analyst. “But the latest data do indicate the market continues to struggle with challenges that many in the industry hoped would be resolved last year – challenges such as inactive groups of buyers and sellers and a mortgage market that remains difficult for many. More job and income growth, coupled with low mortgage rates, could fuel demand this year in a market still running short on supply and struggling with affordability constraints. It will be interesting to see whether recent home price appreciation will trigger a more pronounced ‘supply response’ – an increase in the number of homes listed for sale.”
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Foreclosure resales accounted for 4.5 percent of all resales in January, up from a revised 3.6 percent in December 2014 and down from 5.2 percent in January 2014. Foreclosure resales in the Bay Area peaked at 52.0 percent in February 2009, while the monthly average over the past 17 years is about 10 percent. Foreclosure resales are purchased homes that have been previously foreclosed upon in the prior 12 months.
Short sales made up an estimated 4.0 percent of Bay Area resales in January, the same as in December 2014 and down from 8.5 percent in January 2014. Short sales are transactions in which the sale price fell short of what was owed on the property.
emphasis added
Home sales in January fell sharply from December, as they normally do, and dipped modestly from a year earlier, marking the 14th month in the last 16 to post a year-over-year sales decline. ... A total of 13,560 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in January 2015. That was down month over month 29.4 percent from 19,205 sales in December 2014, and down year over year 6.3 percent from 14,471 sales in January 2014, according to CoreLogic DataQuick data.
"The January and February statistics are always interesting, and sometimes a bit strange, but they're not necessarily a good indication of what's to come," said Andrew LePage, data analyst for CoreLogic DataQuick. "That's largely because many traditional buyers and sellers drop out of the housing market during the holidays and mid winter, and therefore don’t close deals during those months. In recent years that's led to somewhat higher concentrations of investor activity for January and February, and we saw that again last month. Heading into spring it will be interesting to see whether price appreciation and other factors will finally release a lot of the pent-up supply of homes out there. More owners have gained enough equity to sell and buy another home and more will be satisfied with how much their homes can fetch. At the same time, recent gains in job and income growth, coupled with low mortgage rates, could stoke demand and put significant pressure on prices unless we see a meaningful jump in inventory.”
...
Foreclosure resales represented 5.7 percent of the resale market in January. That was up from a revised 5.3 percent in December 2014 and down from 6.6 percent in January 2014. In recent months the foreclosure resale rate has been the lowest since early 2007. In the current cycle, foreclosure resales hit a high of 56.7 percent in February 2009. Foreclosure resales are purchased homes that have been previously foreclosed upon in the prior 12 months.
Short sales made up an estimated 6.5 percent of resales in January, up from a revised 6.2 in December 2014 and down from 10.7 percent in January 2014. Short sales are transactions in which the sale price fell short of what was owed on the property.
emphasis added
Builder confidence in the market for newly built, single-family homes in February fell two points to a level of 55 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today.
Overall, builder sentiment remains fairly solid, with this slight downturn largely attributable to the unusually high snow levels across much of the nation,” said NAHB Chairman Tom Woods, a home builder from Blue Springs, Mo.
“For the past eight months, confidence levels have held in the mid- to upper 50s range, which is consistent with a modest, ongoing recovery,” said NAHB Chief Economist David Crowe. “Solid job growth, affordable home prices and historically low mortgage rates should help unleash growing pent-up demand and keep the housing market moving forward in the year ahead.”
Two of the three HMI components posted losses in February. The component gauging current sales conditions edged one point lower to 61 while the component measuring buyer traffic fell five points to 39. The gauge charting sales expectations in the next six months held steady at 60.
emphasis added
Click on graph for larger image. 
Nationwide, asking prices on for-sale homes climbed 0.5% month-over-month in January, seasonally adjusted — the smallest monthly gain since August. Year-over-year, asking prices rose 7.5%, down from the 9.3% year-over-year increase in January 2014. Asking prices increased year-over-year in 94 of the 100 largest U.S. metros.
The biggest home price increases are not necessarily in markets that had more severe housing busts. But the metros where home prices are now rising fastest are, almost without exception, the ones with faster job growth. Why? A growing economy fuels housing demand. Among the 10 metros with the biggest year-over-year price increases, nine had at least 2% year-over-year job growth. ...
Nationwide, rents rose 6.5% year-over-year in January. The three large rental markets with the steepest rent increases – Denver, Oakland, and San Francisco – all have had job growth of 2% or more. In general, metros with faster job growth have larger rent increases, though some Sunbelt markets like Riverside-San Bernardino, Houston, and San Diego have had impressive job growth with more limited rent increases.
emphasis added
The Small Business Optimism Index fell 2.5 points to 97.9, giving back the December gain that took the Index over 100. Still, the Index indicates that the small business sector is operating in a somewhat “normal” zone.
The percent of owners reporting job creation fell 4 percentage points to a net 5 percent of owners, still a solid number. ... Twenty-six percent of all owners reported job openings they could not fill in the current period, up 1 point and a very solid reading. ...
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Labor costs continue to put pressure on the bottom line but energy prices are down a lot. Two percent reported reduced worker compensation and 25 percent reported raising compensation, yielding a seasonally adjusted net 25 percent reporting higher compensation, unchanged from December.
emphasis added
Click on graph for larger image. Hoping to defuse a standoff that has set Europe and financial markets on edge, Greek officials intend to propose a detailed compromise plan at an emergency meeting with creditors on Wednesday in Brussels, a finance ministry official here said on Monday.
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Greece still plans to reject some of the harshest austerity conditions attached to Greece’s bailout loans, but will propose retaining about 70 percent of the terms, according to the official.
Athens will propose replacing the remaining 30 percent of the austerity conditions with new reforms that the Greek government will devise together with the Organization for Economic Cooperation and Development.
Employers and the International Longshore and Warehouse Union have been locked in bitter talks for a new West Coast dockworkers contract for nearly nine months -- a period that has seen debilitating congestion up and down the West Coast.
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The line of ships anchored off the Long Beach and Los Angeles coast waiting for berths grew over the weekend, from 28 Friday afternoon to 31 Sunday morning, according to the Marine Exchange of Southern California.
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The two sides are expected to meet again this afternoon.
Retailers' anxiety levels are rising as gridlock grinds on with contract negotiations between West Coast dockworkers and port terminal operators.
It has been a long nine months for those dealing directly, or indirectly, with the lack of a West Coast port contract, and after a temporary shutdown over the weekend, retail lobby groups and consultants are assigning potential costs to the issue.
According to a Kurt Salmon analysis, congestion at West Coast ports could cost retailers as much as $7 billion this year. That congestion cost comes from a combination of the higher price of carrying goods and missed sales due to below optimal inventory levels.
What makes for a highly capable individual, at least in procurement, in these times? I regularly ask that question of CPOs and others I talk with, and occasionally report what they say.
Last week on this website, David Rae posted an interesting blog entitled “The Bold Horizon of Talent Management.” It contained some intriguing ideas he culled from an interview he read in The Financial Times, including the potential for the future use of advanced robotics, drones and artificial intelligence in the supply chain. He also noted that even visionaries still see a role for highly capable individuals.
Which got me to thinking. What makes for a highly capable individual, at least in procurement, in these times? I regularly ask that question of CPOs and others I talk with, and occasionally report what they say. And so, I posed the question again this week to Boston area procurement consultant Thomas Murphy, who previously led procurement in more than a few companies before hanging out his consultant’s shingle. Like others, he alluded to some fundamentals: great organizational skills, comfort with data, and an ability and willingness to collaborate. But as with everything, the devil is in the details. Here are some of the details he cited:
On organization, he recalls one company that nearly tripled sales over a 10-15-year period, but simultaneously reduced procurement staff. Those who survived had to be super organized, he says. “Otherwise, they would have drown.”
What helped them was their use of data. “You have to be a data geek,” he says. Data will help identify future problems, facilitate negotiations with suppliers, and show you where you should be spending your time.
An ability to listen is important in any job. In procurement, it’s critical. But who do you listen to? Everyone in the firm you deal with, of course, but also one other constituency: suppliers. Certainly, you want to hear about new technology they might have and what’s happening in their marketplaces. But, Murphy says, it’s also important to listen to what suppliers are saying about you. How they view the ease of doing business with you can determine how willing they are to bring you their best ideas.
Listening also facilitates communication internally. It helps gain the respect of others, and their trust. Once you have that respect and trust, you can make recommendations for alternatives they might not have thought of. “(In manufacturing), engineering controls the specifications you buy to,” he says. “They could specify something you can’t source, at least for the price the company wants to pay.” Likewise, production usually wants to use parts they already have on hand to make it easier to meet schedules. You have to be aware of their concerns too. In both cases, listening, combined with an appreciation, however elementary, of technical issues both groups face, makes problem solving easier.
All good thoughts. Add your own ideas on fundamentals to the list and you’ll have the beginnings of a profile of a highly capable procurement professional.
Editor’s Note: An interesting post from Andy Akrouche’s Relational Contracting Intelligence Blog.
In his recent post titled Who Are Procurement’s New Leaders, Jon Hansen referenced a reader comment that “business strategy and traditional procurement strategy are often misaligned.” As a result, “necessary leadership talent must synthesize the best . . . and discard the obsolete to create something new.”
In my experience the “new” to which the reader referred must be centered more on mindset or rather organizational culture, and the related change in approach it can bring about in terms of strategic relationships.
Let’s look at the purported transition to a strategic procurement practice.
Being strategic has taken on an added new dimension of importance. However, most people who have made or are making the transition to “strategic procurement,” have done so within the framework of the very same adversarial models that have undermined supplier relationships in the past. So, just because there is a new awareness of importance, does not…
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Shipping companies and terminal operators for 29 U.S. West Coast ports appeared to have hit a snag on Wednesday in protracted labor negotiations with the dockworkers' union, calling a news conference to publicly address the status of the talks.
The negotiations, joined in recent weeks by a federal mediator, have coincided with chronic cargo backups hampering freight traffic through waterfronts handling nearly half of U.S. maritime trade and more than 70 percent of imports from Asia.
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The congestion has been most pronounced at Los Angeles and Long Beach, the nation's two busiest shipping hubs. During the past two days, port authorities there reported more than 20 freighters left idled at anchor, waiting for berths to open.
[M]y point is that recent data are perfectly consistent with the view that full employment requires an unemployment rate below 5 percent; the most recent data would suggest an even lower rate. This might or might not be right; I don’t know. But the Fed doesn’t know either.
And in the face of that uncertainty, the crucial question is what happens if you’re wrong. And the risks still seem hugely asymmetric.
On inflation, I've been looking at this from a demographics perspective. If we look at the annual change in the prime working age population, there is one other period similar to the current situation - the early-to-mid 60s.
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In the 1960s, inflation didn't pickup until the unemployment rate had fallen close to 4%. There could be several demographics reasons for the low inflation (in addition to policy reasons). As an example, maybe older workers were being replaced by younger workers who made less (just like today), and maybe the slow increase in the prime working age population put less pressure on resources.
Ignoring for the moment monetary and fiscal policy differences between the periods ... maybe the unemployment rate will have to fall below 5% before inflation picks up.
