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Personal Income and Outlays in August 2017

The latest Personal Income and Outlays report from the U.S. Department of Commerce spelled out some bad news for third quarter GDP estimates as, while the impact of the recent storm Hurricane Harvey could not be qualified in the report, it’s impact was clearly significant.

According to the report, personal income increased by an expected 0.2 percent in the month of August 2017, with upward boosts from proprietor income, transfer receipts, and rent. Wages and salaries, meanwhile, were unchanged based on a decline in hours.

Disposable personal income (DPI) however, increased at a mere 0.1 percent. A likely result of the destruction caused by Hurricane Harvey, coupled with a decline in auto sales, spending on durables experienced the steepest decline, falling by 1.1 percent compared with a 0.3 percent increase in spending on nondurables and a 0.3 percent increase in spending on services.

Excluding food and energy, the PCE price index increased by only 0.1 percent, with the year-on-year rate falling to 1.3 percent, the weakest reading since November of 2015.

 

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Unemployment Falls While Wage Squeeze Tightens in the U.K.

According to the latest data from the UK’s Office of National Statistics, unemployment in the country has hit a record low, however the squeeze on real wages continues.

In the period spanning May to July 2017, unemployment fell to 4.3%, down from 4.9% a year earlier and the lowest rate on record since 1975.

Wage growth, however, stalled. It was estimated that average weekly earnings for employees in Great Britain in real terms fell by 0.4% compared with a year earlier showing that the increase in consumer prices is outpacing wage growth.

The report follows a government announcement that it would relax a 1% cap on wage increases for workers in the public sector. However, inflation was also measured at record high levels for the month of August, which will intensify the squeeze on household incomes.

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US Industrial Production Under Expected Growth Level

Data from the latest US Federal Reserve industrial production report puts an end to the recent run of strong economic data and calls into question the upward trend previously seen in the factory sector.

Industrial production rose by just 0.2 percent, less than the 0.3 percent economists had anticipated. Manufacturing output contracted by 0.1 percent while capacity utilization was recorded at 76.6%, in line with expectations. 

Manufacturing output was dragged down by a continuous decline in motor vehicles, falling by 3.6 percent in the month of July. 

Business equipment fell by 0.5 percent and construction supplies fell by o.4 percent. These decreases were partially offset by gains in consumer goods,

 

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Mangum Economics in Modern Restaurant Management

Modern Restaurant Management picked up on our analysis of FDA's menu labeling rule. 

Lyle Beckwith, NACS senior vice president for government relations, stated, “This comprehensive study confirms what NACS and our members have asserted all along:  the final FDA menu labeling rule will hit the industry, including small businesses, with huge costs, and in the end they will still have to pay fines because they just won’t be able to comply.”
 
Continued Mr. Beckwith, “We appreciate the action taken by the FDA to delay and re-evaluate the rule.  We hope that these new findings will prove useful to the FDA in guiding the agency re-write the rule to recognize the practical problems that businesses face.”

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National Association of Convenience Stores Releases Our Regulatory Analysis

The National Association of Convenience Stores (NACS) has released our analysis of the cost of FDA’s menu labeling rule. From Convenience Store News

“The way the FDA rule is written makes it virtually impossible for businesses to comply with the regulations even though they will spend billions over the next several years trying to do so,” said economist David Zorn of Mangum Economics, who developed the analysis for NACS. While the FDA rules for calorie disclosures on packaged foods recognize that actual calorie counts vary unavoidably from one package to another, the menu labeling rule makes "no allowance for normal variation from one serving of food to the next in the number of calories and nutrition content." Because of this, enforcement costs of the final rule, which include fines, legal fees and negative publicity, are likely to vastly exceed the $84.5 million total cost that the FDA estimated for all covered industries, NACS said.

FDA allows only a 5-calorie deviation (for foods with over 50 calories) for unit-to-unit variability of the same product. That means that a slice of cheese pizza declared at 270 calories is violative if it has less than 265 calories or more than 274 calories. So, a difference of just 0.07 ounces of cheese on a typical slice of pizza makes it illegal.

Our analysis was part of NACS’ public comment in response to FDA’s interest in reducing the regulatory burden of the rule or increasing compliance flexibility.

Our key findings were:

  • Actual costs of compliance and enforcement of the FDA Final Rule for all covered industries are estimated to be more than 3.6 times FDA’s estimates and for the convenience store industry 7 times FDA’s estimates;
  • Annual costs of compliance and enforcement of the FDA Final Rule are estimated to exceed $306 million;
  • Actual costs of compliance and enforcement of the FDA Final Rule to the convenience store industry alone are almost equal to the total cost that FDA estimated for all covered industries;
  • Because the Final Rule makes no allowances for normal calorie and nutrition variations in foods, more than 93% of foods subject to the rule are likely to be in violation of the Final Rule no matter how much businesses spend attempting to comply; and
  • Enforcement costs (including fines, legal fees, and negative publicity) alone of the Final Rule are likely to vastly exceed FDA’s total estimate of the compliance costs of the Final Rule.

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U.S. Jobless Claims Rise Slightly Despite Continued Tightening of the Labor Market

The number of Americans filing jobless claims rose by a seasonally adjusted 3,000 to 244,000 for the week ending on August 5 according to a report by the US Labor Department.

The 4 week average was measured at 241,000 , dropping slightly in comparison to the previous month.

Continuing claims for the week ending in July 29 fell by 16,000 to 1.951 million, leaving both  the 4 week average and the unemployment rate for insured workers unchanged at 1.965 million and 1.4 percent respectively.

Despite the slight rise in jobless claims, the underlying trend points to the continued tightening of the labor market with employers holding tightly to their existing staff.

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In Virginia, Continued Gradual Warming - Second Quarter Economic Update

"Virginia experienced an acceleration in Total Nonfarm Employment growth in the latter part of the 2nd quarter of 2017. Although the state continued to trail the national average for year-over-year employment growth in the first two months of the quarter, in June it pulled even with the national trend for the first time since May 2016. Much of that uptick was driven by Virginia’s above average performance in Education and Health Services; Financial Activities; Leisure and Hospitality; Transportation and Utilities; and Wholesale Trade. In addition, yearover-year employment growth in Virginia’s largest employment sector – Professional and Business Services – pulled even with the national trend in May 2017 for the first time since May 2016. However, below average performance in four sectors – Construction; Information; Retail Trade; and Total Government – is placing downward pressure on Virginia’s overall employment trajectory." See our second quarter report for the Virginia Chamber of Commerce.

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Stable Reading With Underlying Increase Expected for Euro Area Inflation in July 2017

According to a flash estimate from Eurostat, annual inflation in the euro area is expected to remain stable at 1.3% in July 2017.

Underlying inflation however is expected to increase for the second consecutive month. Excluding energy, food, alcohol and tobacco from the readings, inflation is expected to creep up to 1.2%, a 0.1% increase from 1.1% in June and potentially the strongest reading so far in 2017.

Energy is expected to experience the highest inflation (an estimated 2.2% in July up from 1.9% in June) while inflation in the services sector is expected to drop slightly to 1.5% (compared with 1.6% in June). Food, alcohol and tobacco are expected to remain stable at 1.4% and the inflation rate for non-energy industrial goods is anticipated to rise slightly to 0.5% (up from 0.4% in June).

  Source: Eurostat

Source: Eurostat

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Record Increase in Euro Area Industrial Production

According to the latest report from Eurostat, the industrial sector in the euro area gained momentum in May with production increasing by 1.3% from the previous month. This reading marked the third increase in three months, the best performance since November 2016.

Annual growth rose from 1.2 percent to 4.0 percent, marking the strongest growth since August 2011.

 

The increase was attributed to a 2.3 percent growth in capital goods, the driving force behind May’s impressive numbers. Durable consumer goods and non-durable consumer goods also increased at 1.8 and 1.2 percent while intermediates grew at a slight 0.3 percent.

Broken down by country, the big four (France, Germany, Italy, and Spain) all enjoyed an increase in output. France experienced the strongest industrial sector growth with a 1.9 percent increase. Spain experienced the second highest growth with an increase of 1.6 percent, followed by Germany (1.4 percent increase) and Italy (0.7 percent increase).

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