Weekly indicators: summer doldrums edition

  - by New Deal democrat

The monthly data for July released last week was almost all quite positive. Retail sales, industrial production, capactity utilization, and housing permits all rose quite strongly. Consumer sentiment rose slightly. As a result of permits, the Conference Board's Leading Index increased, exactly reversing June's decline. Consumer prices did not rise at all. Producer prices rose +.3. The only significant negative news was that both the Empire State and Philly regional manufacturing indexes both contracted.

I report on high frequency weekly indicators because they are as close as we can reasonably get to observing economic trends in real time.  Turns will show up here before they show up in monthly or quarterly data.  Recently I've been focusing on consumer purchases and the effects of the Oil choke collar as the keys to the economy for the second half of this year.

So let's start once again this week with Same Store Sales and Gallup consumer spending, which were again positive:

The ICSC reported that same store sales for the week ending August 11 fell -0.3% w/w, but rose +3.6% YoY.  Johnson Redbook reported a 2.0% YoY gain.  Shoppertrak did not report.

The 14 day average of Gallup daily consumer spending as of August 16 was at $78, $7 over last year's $70 for this period.  This is the third week of real strength after six weeks in a row of weakness. This is very encouraging but we will still have to see if consumers are regaining their footing.

On the other hand, the energy choke collar has now re-engaged, while there is some enocuraging news agout gasoline usage.

Gasoline prices rose yet again last week, up $.07 from $3.65 to $3.72, and are now higher than a year ago.  Oil prices per barrel also rose for the week, from $92.87 to over $95..  Gasoline usage, at 9308 M gallons vs. 9195 M a year ago, was up for a change, +1.3%  The 4 week average at 8907 M vs. 9163 M one year ago is off -2.8%. August last year is when the precipitous YoY declines in gas usage began to be registered. That we have a positive 1 week YoY comparison is encouraging, but it must continue to not signal further weakness.

Employment related indicators were mixed this week.

The Department of Labor reported that Initial jobless claims rose 5000 to 366,000 from the prior week's unrevised figure.   The four week average fell by 4,500 to 363,750,, only 750 above the lowest 4 week average during the entire recovery.  Needless to say, this number does not appear to be compatible at all with further economic weakness.  -

The Daily Treasury Statement showed that for the first 12 days of August 2012, $85.0 B was collected vs. $85.1 B a year ago.  For the last 20 days ending on Thursday, $131.6 B was collected vs. $126.1 B for the same period in 2011, a gain of +4.3%.

The American Staffing Association Index held steady at 93.  This index was generally flat during the second quarter at 93 +/-1, and has returned to that level after its July 4 seasonal slump. It nevertheless is not rising from that range and so indicates significant weakness.

Bond yields rose while credit spreads shrank:

Weekly BAA commercial bond rates rose another .09% to 4.89%.  These remain close to the lowest yields in over 45 years. Yields on 10 year treasury bonds also rose 0.11% to 1.65%.  The credit spread between the two declined to 3.24%, which is about halfway between its 52 week maximum than minimum, and a significant improvement from one month ago.  Tightening credit spreads are a good sign.

Housing reports remained mixed:

The Mortgage Bankers' Association reported that the seasonally adjusted Purchase Index declined -2.0% from the week prior, and were also down -4.9% YoY, back into the lower to middle part of its two year range. The Refinance Index fell -5.1% but is still near its 3 year high.

The Federal Reserve Bank's weekly H8 report of real estate loans this week rose +0.8% for the week.  The YoY comparison rose to +1.2%.  On a seasonally adjusted basis, these bottomed last September and are also up +1.3%.

YoY weekly median asking house prices from 54 metropolitan areas at Housing Tracker  were up + 2.3% from a year ago.  YoY asking prices have been positive for over 8 months.

Money supply remains generally positive despite now being compared with the inflow tsunami of one year ago:

M1 was off -0.6% last week, and was flat at 0.0% month over month.  Its YoY growth rate fell from +13.9% to +10.7%, as comparisons with last year's tsunami of incoming cash are in full progress. As a result, Real M1 declined to +9.3%. YoY.  M2 fell -0.2% for the week, and was up 0.3% month/month.  Its YoY growth rate fell from 7.4% to +6.5%, so Real M2 grew at +5.1%.  Real money supply indicators are now declining as the tsunami of cash arriving from Europe last summer disappears from the comparisons.

Rail traffic was slightly positive while its diffusion index declined:

The American Association of Railroads  reported a +0.8% increase in total traffic YoY, or +3,800 cars.  Non-intermodal rail carloads declined -1.2% YoY or -3,800, once again entirely due to coal hauling which was off -7,300.  Negative comparisons rose back from 6 to 8 types of carloads.  Intermodal traffic was up 7,400 or +3.2% YoY.

Turning now to high frequency indicators for the global economy:

The TED spread rose from its 52 week low of 0.34 to 0.37. The one month LIBOR declined to 0.237, an 111 month low.. It remains well below its 2010 peak, and has still within its typical background reading of the last 3 years.  Even with the recent scandal surrounding LIBOR, it is probably still useful in terms of whether it is rising or falling.

The Baltic Dry Index fell from 774 to 714, only 44 points above its February 52 week low of 670.  The Harpex Shipping Index fell another 2 points to 398.  It is up only 25 from its February low of 375.

Finally, the JoC ECRI industrial commodities index fell from 119.10 to 117.89. This is still near its recent 52 week low.  YoY comparisons for this number will shortly improve (or get less worse) as its August 2011 swoon will leave the comparison period.  Nevertheless, its decline remains a strong sign  that the globe taken as a whole has been slipping back into recession.

Like the positive monthly indicators for July, most of the weekly indicators were at least slightly positive this week, including sales, the 4 week average of jobless claims, the 20 day sum of withholding taxes paid, credit indicators, housing prices and real estate loans, and money supply. The most significant negative is gasoline prices which have risen back into the choke collar zone. Mortgage applications declined. Staffing services were weak.

Global indicators of shipping and industrial metals prices continue to indicate a downturn. By continuing to expand moderately, the US remains the world's least worst economy.

Have a nice weekend!

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Not good enough

- by New Deal democrat

Three years ago I was arguing with Doomers on Daily Kos who thought that, as awful as things were, they were only going to get worse and worse as we fell into the bottomless abyss, quoting Zero Hedge and The Automatic Earth as gospel scripture that we were going to 25% unemployment and 1000 on the Dow Jones Indsutrial Average.

Since then, I've countered the double-, triple-, and quadruple-dippers who have mistaken every spring slowdown for vindication. Over the last 9 months or so, I seem to have become the poster child for disagreeing with the very prominent forecasting firm ECRI, who thought we might already be in a recession, or one was "right in front of us," almost 1 full year ago.

I stand by all of those calls, because that's what the data showed me.

But pointing out that the economy isn't actually contracting is a far different opinion than believing the economy is in anything remotely close to good condition. It isn't. It's in terrible condition, and all its advances grow more and more precarious as time goes on.

In a liberal democracy like the US, the desiderata of the economy ought to approximate the greatest good for the greatest number. Instead, for possibly as long as the last 40 years, but certainly since 2000, a majority of Americans have almost certainly fallen behind, a condition that looks ever more chronic as wage growth declines to 0% YoY. A defaltionary wage and debt spiral becomes a greater and greater possibility, even if its timing is not yet known.

It is simply not good enough that the economy is growing. Real income growth is paltry. Job growth is mediocre at best. The plutocrats and the banksters -- generally, the creditor class -- have been made whole or at least kept afloat via bailouts. Debtors have been left to fend for themselves. That is a recipe for not just months or years of malaise, but possibly decades. Supply does not create its own demand. Yes, efficient new goods will find markets. But otherwise we need growing demand to justify expansion of supply.

Unless and until the well-being of the shriveling American middle class is placed front and center, there will be no full recovery. While the Doomers have been wrong at every turn for the last three years, there should be no mistaking the fact that simple growth in the economy is simply not good enough.

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Stagnating wages are hurting the economy RIGHT NOW

- by New Deal democrat




The global economic weakness that has intensified as this year has progressed has greatly tamped down inflation. If wages were growing at a reasonable rate, this would help jump-start demand.




But wage growth has been declining for years, and is considerably worse than even during the Great Recession. As a result, even though inflation Is now only running at 1.4%, wage growth at only 1.3% is still not quite keeping up, as shown in the graph below:









Thus, while real wages have improved slightly in the last few months, they still are below the average levels of the last four years:









If we can avoid another inflationary spike in the next few months due to gas prices - by no means a sure thing - inflation should be less than 1%YoY in a couple of months:









Per my past postings, if inflation bottoms out at that point, that should mark the low point of the recent weakness. But we are getting ever closer to the point where wage stagnation rolls over into actual wage deflation.

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Morning Market Analysis

The entire treasury curve continues its move lower.  All sectors have broken upward sloping tend lines and have bearish MACD formations.  Money is flowing out of the markets and volatility is increasing.  The next logical target is the 200 day EMA on the TLTs.

The SPYs have moved to a six month high.  Momentum is rising, the EMA picture is bullish and money is moving into the market.

The QQQs are approaching a 6 month high.

The IWMs are still weak, but yesterday's price action eases the negative reading.  The EMAs are moving higher and momentum is positive.  But the CMF is still negative.  Ideally, we'd like to see a stronger move in this market to confirm the rally.

Oil has broken out from its consolidation.  The price target is 100 (lows that were established in early April).

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Finland Preparing For Eurozone Breakup

Erkki Tuomioja, Finland's Foreign Minister, has stated that Finland is preparing for the breakup of the Eurozone. He is quoted in the Telegraph:

"Our officials, like everybody else and like every general staff, have some sort of operational plan for any eventuality."

He wisely and honestly notes that the end of the Eurozone does not mean the end of the EU. Other politicians in the Eurozone would have us believe that the end of the Euro will sound the death knell for the EU, this is of course scaremongering nonsense.

Kudos to Mr Tuomioja for speaking the truth and for shooting the fox of the lying Europhiles!

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Bonddad Linkfest

1. The ugly presidential campaign (WaPo)
2. US industrial production increases (FRB)
3. Malaysian growth picks up (BB)
4. FDI declines in 8 of the last nine months in China (BB)
5. Brazilian unemployment still low despite slowing economy (FT)
6. Despite evidence, farmers think warming temps are act of God (FT)
7. Grain prices shouldn't impact overall CPI (Alphaville)
8. Global growth stuck in twilight zone (Alphaville)

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Dude, where's my recession? Housing and Initial jobless claims

- by New Deal democrat

Two piece of economic data released this morning make it considerably harder for bears to argue that we are slipping into, let alone already in, a new recession.

Housing permits rose to 812,000. This is the first time over 800,000 and the highest level in 4 years. Permits have risen over 200,000 on an annualized basis over the last year. The now-strong upward trend in permits, generally consistent in the past with GDP over 3% in the near future, is evident on the updated graph below, showing permits in blue, private residental construction spending in red, and residential construction employment in green:



You can see that permits lead spending, which in turn leads construction employment. Needless to say, the rise in permits is bullish for both residential construction spending and future employment.

Also this morning the four week average for first time unemployment claims fell to 363,750, only 750 or 0.2% above its lowest reading during the entire recovery:



No recession has ever begun within 2 months of such a reading.

There are certainly major problems with the expansion, most notably the plateauing of consumer retail spending since this year began, and the complete stalling and perhaps slight contraction in manufacturing. But this morning's releases put an exclamation point on the proposition that the expansion hasn't expired yet.

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Coincident economic indicators rise

  - by New Deal democrat

We now know the values for July for 3 of the 4 indicators that the NBER uses to mark economic peaks and troughs.

Nonfarm payrolls were reported up 163,000 for the month.  Further, their YoY growth has been acceleratiing slightly a compared with earlier this year.

This morning Industrial production was reported at +0.6.  Production made another post-recession high in July, and is now only about 2.5% less than its pre- Great Recession peak, as shown on the graph below:



The YoY growth has decelerated slightly.

Yesterday retail sales were reported up 0.8%  for July.  With this morning's flat CPI report, we now know that real retail sales were also up 0.8%. (Based on Gallup's spending data, I had thought these would come in poor. I was wrong, but happily so.)  This reverses last month's decline, although we are still below the levels set in February and March.  These are about 1.7% under their pre- Great Recession peak:



The final coincident indicator, real income, won't be reported for another couple of weeks.   Barring downward revisions, however, it seems likely that the economic expansion continued in July.

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Morning Market Analysis: Long-Term Europe Edition

The weekly Spanish chart shows the market may be making a bottom.  First, notice the depth of the sell-off; prices moved from 40 to about 21 for a drop of almost 50%.  However, prices have twice attempted to sell-off to the 20/21 area.  Also note the first sell-off was done on much higher volume than the second. 

The Italian market is in a similar situation as the Spanish market, but the above chart has a less clear double bottom signal.  There is a heavier volume picture, but it's not as clear-cut as the Spanish market. 

The weekly chart of the British market shows that -- despite three quarters of contraction -- the market is actually consolidating in an ascending triangle pattern.  While the British economy is weak (they've had three quarters of contraction), it has benefited from capital inflows as a result of its haven status.

The weekly chart of the French market shows that prices have been consolidating in a sideways pattern for nearly a year.

The weekly German chart has no pattern.  However, prices are right at the 200 day EMA and are in the middle of a multi-month rally.

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Liborgate

Liborgate, despite the brief interlude provided by the chaff from the DFS over Standard Chartered, rumbles on.

The BBC reports that seven banks (HSBC, Royal Bank of Scotland Barclays, Citigroup, Deutsche Bank, JPMorgan and UBS), are to be questioned in the US for alleged Libor manipulation.

The US authorities will look to see if there is sufficient evidence to support a criminal prosecution.

The coming weeks will see much behind the scenes haggling between the banks, the regulatory authorities and governments, in order to avoid this going to court.

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