there has been no obvious movement towards a resolution of the sequestered budget cuts which are set to go into effect March 1st and which would meat-ax between 5% & 8% from every government program and department except for social security and a few of the safety net programs, and which by the CBO’s reckoning would reduce GDP by 0.6 percent and cost 750,000 jobs by year end…& with congress out for a week long recess, it appears that it will go down to the wire…the House republicans still want to save the Pentagon and eliminate other government programs to replace those planned cuts, while the House Democrat plan includes raising taxes and cutting farm subsidies to replace the sequestered cuts…another plan emerging from the joint armed services committees saves the pentagon by reducing the federal workforce and freezing congressional salaries, and the Senate Democrat’s new $110 billion deal which would include a new minimum millionaires tax and further defense spending cuts was called “a total waste of time,” by Senate minority leader Mitch McConnell…so the sequester, which was originally passed so as to be so unpalatable that congress would have to devise a better plan, is still the only alternative on the table with the force of law behind it…

probably the most important economic release of this past week should have been the Advance January Retail Sales Report from the census bureau (pdf), because that should have given us the first indication of how the year end expiration of the 2% payroll tax cuts, which after income taxes reduced the January take-home pay of most US workers by more than 2%, would affect consumer demand…however, with the large margin of error (±0.5%) in this months report, likely coupled with the difficult december to january seasonal adjustment for this data, it’s generally inconclusive; the footnote informs us that census does not have sufficient statistical evidence to conclude that the actual change is different than zero…with that caveat, we’ll cover the data this report presents…the estimate of January’s seasonally adjusted retail and food services sales was at $416.6 billion, which was an increase of 0.1% (±0.5%)* from December and 4.4% (±0.7%) more than a year ago…the actual retail sales for January were estimated to be $382.9 billion, down from the $469.1 billion sales estimate of December…the business types with the largest seasonally adjusted percentage gains in January were general merchandise stores, who saw sales rise 1.1% to a seasonally adjusted $52.6 billion, non-store retailers (online & catalog) who saw sales rise 0.9% to a seasonally adjusted $39.4 billion, sporting, hobby, book & music stores, who saw sales rise 0.6% to an adjusted $20.3 billion, and food and beverage stores, who also saw sales rise 0.6% to an adjusted $53.5 billion…retail sectors that reported a seasonally adjusted decrease in sales included drug & health stores, where sales declined 1.0% to $22.8 billion, clothing stores, where sales declined a seasonal adjusted 0.3% to $20.3 billion, furniture stores, where sales declined 0.2% to $ 8.1 billion, and auto dealers, who saw sales decline 0.1% to a seasonally adjusted $77.7 billion…and so-called core retail sales, which exclude autos, gasoline & building materials, still show a 0.2% gain for the month.. the bar graphs below are from the Census report and show on the left the month over month percentage change in total sales in black, the percentage change in auto sales in light gray, the monthly change in general merchandise stores in dark gray, and total sales change ex autos in white; with the same color coding, the bar graph on the right shows the year change for each of those sales categories…

another important economic release this week was on Industrial production and Capacity Utilization for January from the Fed; with a 0.2 % increase in output expected, the headline print that industrial production had slipped 0.1% was disappointing; however since the November and December production indexes combined were revised upwards 0.6% to 98.7, the January industrial production index at 98.6 now stands 0.5% higher than December’s was originally reported; nonetheless, this report will depress 1st quarter GDP, while the revisions will result in another upward revision to 4th quarter 2012 GDP…underlying the January production revisions were major changes to the earlier reported results on manufacturing, which you might recall were impacted by Sandy; manufacturing gains for November and December had been originally reported at 1.3% and 0.8%; they were revised with this report to show a 1.7% increase in November and a 1.1% increase in December, which thus left January’s manufacturing output 0.4% lower than December’s revision…however, US temperatures close to normal in January compared to a warmer than normal December resulted in a seasonally adjusted 3.5% increase in gas & electric utility production , and mining output declined 1.0% for the month, as oil & gas well drilling showed a seasonally adjusted 0.4% decline…the FRED graph we have included here shows the industrial production index in black, the manufacturing production index in blue, the utility index in green, and the mining index in red since Jan 2006′; the grey shade area circa 2008-2009 marks the official dates of the recession….at 98.6 percent of the 2007 average (on which the index is based), total industrial production in January was 2.1% higher than that of a year ago; manufacturing was up 1.7% year over year, mining showed a 1.8% annual gain, and output of utilities was 5.9% higher than last January…within manufacturing, the production of consumer goods declined 0.2% in January, with the index for consumer durables falling 2.0% while the index for non-durables rose 0.4%…durable goods production was dragged down by a decline of 3.9% in the production of automotive products, partially offset by a gain of 2.0% in the production of appliances, furniture, and carpeting…with industrial production down for the month and our industrial capabilities increasing slightly, the capacity utilization rate for total industry decreased in January 0.2% to 79.1%; capacity utilization for manufacturing was at 77.6% of possible output, utilities were being used at 74.8% of capacity, and 90.8% of US mining equipment, which includes drilling rigs was in use in January…the production capacity of US manufacturing has increased 1.6% since last year, while capacity growth for both utilities and mining sector was at 2.3% YoY…

we also want to make note of an interesting development in the arctic during January…below we have 3 images of methane concentrations above the Arctic Ocean from 3 ten day periods in january (January 1-10, January 11-20, and January 21-31) from Russian physicist Dr. Leonid Yurganov…the methane concentration scale, with darker reds being the highest, can be viewed by clicking on the image to enlarge it; quite obviously there’s been a sudden increase in atmospheric methane in an area of the arctic ocean north of eastern europe and western asia…as shown in a post at Arctic News, that area where the methane concentrations are highest coincides with the area of the arctic ocean that is still relatively ice-free…this dramatic increase in atmospheric methane seems to be similar to an arctic event that we covered a little over a year ago that occurred in November 2011; at that time Russian scientists had observed vast plumes of methane bubbling to the surface of the arctic ocean off the coast of eastern siberia, which they described as “powerful and impressive seeping structures more than 1,000 metres in diameter”; at the time we figured that since that east siberian area was one of the shallowest areas of the arctic, it had warmed enough that fall to thaw the vast quantities of frozen methane hydrates known to be locked up by high pressure and cold temperatures on the ocean floor, and they were melting and rising to the surface…in this case it appears that a branch of the warm gulf stream current is causing enough warming to destabilize the frozen methane on the ocean floor in the areas between Norway and Svalbard and points east, a scenario that was warned about in a study in the journal Nature in October…what happens next is anyone’s guess, but Dr Yurganov’s records indicate that higher levels of arctic methane emissions have been increasing over time (US scientists must now rely on Canadian & European monitoring of greenhouse gas emissions because NOAA’s monitoring of Arctic methane and CO2 was halted last week by budget cuts)….we’ve pointed out before that atmospheric methane hit a new high of about 1813 parts per billion (ppb) in 2011, which was at 259% of the pre-industrial level, that 40% of the increase was coming from natural sources such as this and that methane is 25 times as potent a heat-trapping gas as CO2 over a 100 year time horizon, but 72 times as potent over 20 years, and that methane’s heat trapping effect is now roughly one-third that of CO2…further thoughts on the potential impact of large abrupt release of methane in the Arctic are here; suffice it to say that if all the ancient carbon were to be released from the arctic it would be enough to raise global temperatures 3C on top of the 4C temperature rise from human activities predicted by the recent World Bank study…our awareness of this comes the same week that the European Space Agency’s CryoSat-2 probe has confirmed the conclusion of the Pan-Arctic Ice Ocean Modeling and Assimilation System (PIOMAS) at the University of Washington’s Polar Science Center that not only is the extent of the arctic ice receding, but it’s thickness has diminished considerably as well; the combined result has been a collapse in total arctic ice volume to one fifth the minimum ice volume of as recently as 1980…

(the above is my weekly commentary that accompanied my sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion, and also includes other links of interest…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me…)