Monday, May 2, 2016

April ISM manufacturing new orders strong, invenotry liquidation continues

 - by New Deal democrat

I have been tracking and averaging the new orders components of the regional Fed indexes to see if they anticipate the dirrection of the monthly ISM new orders, which in turn is a leading indicator for business sales and industrial production.

This morning' April ISM manufacturing report - the second strong monthly report in a row - is potent evidence of a coming change in trend for manufacturing and industry. (up at

Sunday, May 1, 2016

US Equity, US Bond Market and International Week in Review

My weeking columns are up at

US Equity Week in Review

US Bond Market Week in Review

International Week in Review

Another thought for Sunday: coming soon to North Carolina sports arenas

If it's important enough for voting, it is certainly important enough to protect privacy:

A thought for Sunday: gerrymanders are like levees

 - by New Deal democrat

A gerrymander acts like a levee.  A river in flood stage can be contained within a channel, so long as the water level is less than the height of the levee.  Similarly, by packing democrats into relatively few districts, and spreading the remaining, smaller GOP majorities over many, the GOP was able to withstand a 52%-48% numerical voting loss for Congressional seats in 2012 and retain a comfortable majority.

But if the water level from a river in flood exceeds - even slightly - the height of the levee, this is what happens:

Similarly, by taking what would otherwise be 60/40 or 65/35 GOP districts and turning them into a greater number of, say, 55/45 districts, then, should the democratic vote this November be 55.1%, you get the electoral version of the above picture.

Saturday, April 30, 2016

Weekly Indicators for April 25 - 29 at

 - by New Deal democrat

My Weekly Indicators piece is up at

There are continuing signs of a bottoming of the industrial recession.  But I am concerned about poor consumer spending.  I am increasingly coming to the conclusion that consumers' gas savings have been vacuumed up by increasing rents and house prices.

Friday, April 29, 2016

Rents are going through the roof!

Rent increases appear to be out of control.  Median asking rent rose from $850 to $870 in the first quarter of 2016, and is up $71 from $799 YoY, an increase of 9%!  This sets yet another record for rents.  

Here is the graph of nominal median asking rents by the Census Bureau:

Here is an updated look at real. inflation adjusted median asking rents, which also set a new record:

Year Median
Asking Rent
Usual weekly
Rent as %
of earnings

2004 59962995
2013 73477894
2014  76279196
2016  Q1870823106

Vacancies remain extremely tight: 

Despite the ongoing stratospheric increase in rents, not enough multi-unit housing is being built.  When the large Boomer generation hit adulthood 50 years ago, note how multi-unit construction quickly shot up to 1,000,000 a year, and remained above 400,000 almost continuously for 20 years thereafter, until the last Boomer hit adulthood:

Now here is the comparable look for the similarly large Millennial generation:

The increase has only been to the 400,000 level, and has been stuck in that neighborhood for 2years.

Renters are typically from the lowest 2 quintiles of the income distribution.  The second lowest quintile has had the poorest record of income changes since the recession{

and that hasn't changed as of the latest update from the Consumer Expenditure Survey released two weeks ago:

It has increasingly occurred to me that one reason we haven't had a bigger kick of consumer spending from lower gas prices, is that it is all getting sucked up by rent increases.  

That rents have been going through the roof is one of the most underreported important stories in the economy.

ADDENDUM:  Bill McBride says "there are serious questions about the accuracy of this survey. .... The Census Bureau is investigating the differences between the HVS, ACS and decennial Census, and analysts probably shouldn't use the HVS to estimate the excess vacant supply or household formation, or rely on the homeownership rate, except as a guide to the trend." 

Of course, the rate of increase in rents is exactly the trend.  But for completeness' sake, let's compare Median Asking Rent with other similar measures.

The only other contemporaneous measure is "rent of primary residence"  from the CPI report.  It is a mean, not a median:

It has been rising at over 3% a year for the last 2 years -- and MEMO TO THE FED! Housing is the only important sector that is showing any actual inflation.  If there is a shortage of multi-unit housing, exactly how is raising rates going to help???

There are two other median measures in addition to median asking rent from the HVS :  the American Community Survey (as noted by McBride) and the Consumer Expenditure Survey.  Unfortunately the former has only been reported through 2014, and the latter through mid-2015.  The below table shows their YoY increases, compared with median asking rent:

SURVEY: ACS        CES      HVS
2009 --------  (817)    -------     ------  (708)
2010  +2.9%  (841)   +1.4%   +2.6% (698)
2011  +3.6% (871)    +4.4%   -0.6%  (694)
2012  +2.1% (889)    +5.2%  +3.3% (717)
2013. +1.7% (904)    +4.3%  +2.4% (734)
2014  +1.8% (920)    +9.2%  +3.8% (762) 
2015  ----      -----     +4.3%* +6.7% (813)
*June 2014-June 2015 all shelter

The CES through mid-2015 actually shows a bigger post-recession surge in rents than the measure of median asking rents.  The ACS is more tame, but ends in 2014.  When you also consider rents as measured by the CPI, it is pretty clear that rents are increasing faster than wages.

The Dollar Is Approaching Key Support Levels

While technical analysts may differ about the exact level of short-term technical support, most numbers will be around the 93 level.  Commodities (most importantly, oil) will get a boost if that happens.

Yesterday's weak GDP print all but kept the Fed on the sidelines for the next few meetings.  With no rate hike on the horizon, the shorts may take over.   

Bonddad Friday Linkfest

Today, it's all about yesterday's GDP report

BEA Table Showing the Q/Q % Change 

The main takeaways in today’s preliminary GDP estimate: consumers are inclined to pare spending on personal items but are ramping up expenditures in the residential sphere. Businesses, meanwhile, are increasingly cautious on capital investment these days.

Housing investment was one bright point. Another was growth in government spending at the state 
and local level which more than made up for a drop at the federal level.

From Doug Short

Thursday, April 28, 2016

In which I was cheerleading the Q1 economy

 - by New Deal democrat

Back in 2009 and 2010, when I still wrote at the Great Orange Satan, I used to take flak for the crime of  allegedly "cheerleading" the economy.  You know, saying that the recession had bottomed and that the numbers were improving, when all of the Doomer kewl kidz just knew that conditions were always and everywhere getting worse and worse for everybody.

Well, Q1 2016 GDP just got reported preliminarily at +0.5%.  So let me give you a few samples of my cheerleading.

Back in December, citing the negative Index of Leading Indicators from last summer:
The US$ would not meaningfully have changed the value of the strong LEI values during the first half of 2014, but would have subtracted -.1 or -.2 in the last half of 2014 into 2015, and again during the 3rd quarter of 2015.  This would correlate well with the relative weakness of the economy in the early part of 2015, and strongly suggests rough patch this winter into next spring.
In January, quoting Prof. Tim Duy:
we might get a negative GDP print, the weakness in the economy is very concentrated.  The broader economy is holding up pretty well.  That's not a recession.
In my forecast for the first half of 2016:
The third quarter of 2015 featured no positive readings whatsoever.  On top of that, I have recently suggested that the trade weighted US$ should be included as a short leading indicator, with a weight given of +/- .1 for each +/-1% change in the value of the dollar.  Since the US$ has been slowly trending higher over the last 6 months, this suggests to me that this winter we can expect a definite rough patch, that probably has already started.   With the readings for the final 3 months of 2015 firmly positive so far, by late spring we should be seeing a rebound.
So as you can see, I am clearly nothing but a pom-pom-waving cheerleader.

And as for that potential rebound during this quarter, here are the new orders results from the 5 regional Fed manufacturing indexes for April:

  • Empire State up +1 to +11
  • Philly down -16 to 0
  • Richmond down -6 to +18
  • Kansas City unchanged at -2
  • Dallas up +11 to +6
The average of the five is +6, down from +9 ib March.  This suggest that we will get the 4th month in a row of positive ISM manufacturing new orders rreadings, traditioinally a harbinger of a turnaround in manufacturing activity.

The housing market: a detailed look for April 2016

  - by New Deal democrat

I have a detailed look at the housing market, from interest rates through sales to prices to inventory, up at

Japan's In Serious Trouble

     Recent Japanese economic releases are extremely concerning.

Industrial production (top chart) increased a paltry .1% and contracted in 7 of the last 12 months.  One of Abenomics goals was to devalue the yen to make Japanese industry competitive.  This would then lead to increased production.  This obviously hasn't happened.

The BOJ hoped to spur inflation through a variety of measures.  Yet, the Y/Y CPI rate is currently fluctuating around 0%.  The latest reading was -.3% Y/Y.

The BOJ has continually suggested they are counting on a "virtuous cycle:" low unemployment leading to increased wages followed by increased consumer activity.   Yet the Y/Y percentage change in retails sales (bottom chart) shows consumer activity is slowing, not increasing.

This is no good news in today's releases.  In fact, there is a tremendous amount of very bad news, because the data implies Abenomics is either failing or has failed.

Bonddad Thursday Linkfest

We'll be doing our regular monthly economic review on Thursday, April 28th at 3PM CST.  You can sign up at this link.

Let’s dig into the data a little. The post-crisis slump in international trade was initially concentrated among advanced economies, particularly in Europe. More recently, the trade slowdown has been centred in the emerging markets of Asia, including China. This has led many investors to link weak trade to the slowdown in China, and therefore in the global economy.

Recent work at the Bank of Canada and elsewhere shows that about half of the slowdown in trade growth among advanced economies in the post-crisis period can be explained by weak economic activity, especially sluggish business investment. Throughout this period, companies have been dealing with high levels of uncertainty about the prospects for the global economy, in some cases because of aggressive deleveraging. This has held back investment and, in turn, contributed to soft trade. Investment spending involves capital equipment, with inputs from many countries, and therefore is very trade-intensive. So when economic growth slows because of weak investment, trade slows disproportionately.

While advanced economies were dealing with the worst of the crisis, China’s economy continued to expand. This supported demand for commodities, thereby keeping a portion of international trade flows moving. Higher prices for commodities also prompted commodity producers to make big investments and ramp up supply.

Ultimately, though, growth in China began to moderate to a more sustainable pace. More importantly, the Chinese economy has begun to shift away from investment-driven growth toward consumption, especially of services. Quite simply, this has meant less international trade. Even so, China’s imports of many commodities continue to grow at double-digit rates.

So, we have reason to expect global trade to grow more slowly than in the past: first, because global investment spending is in a lull, and second, because China’s economy is restructuring toward more domestic consumption and less trade. We can certainly expect global trade to pick up when the world economy gets back onto a self-sustaining growth track, with stronger business investment. Still, as I just noted, cyclical factors can explain only about half of the trade slowdown, so we have more explaining to do.

Indeed, I think we need to step back and consider the possibility that the rapid pace of trade growth that prevailed for the two decades before the crisis was the exception, and not the rule. Why would I say that? What we saw during the 1990s and 2000s was the result of the natural incentive to use trade to increase specialization, in reaction to reduced trade barriers and major advances in communication and transportation technology.

During those years, countries formed regional trading blocs through arrangements such as the North American Free Trade Agreement and the European Union. Previously closed economies, such as China, became more engaged by joining the World Trade Organization (WTO).

This combination of elements gave the natural incentive to trade a great deal more room to grow. It paved the way for companies to build global supply chains—the “integrative trade model.” A factory that made a product no longer needed to be next door to the product’s designers. Firms could now exploit their comparative advantage by specializing, not just in one particular good or service, but in one part of a good or service. The result was an explosion of specialization as markets became global and companies became more efficient.

As the Peterson Institute for International Economics put it in its recent persuasive report Reality Check for the Global Economy, “trade boomed during the 1990s and early 2000s in part because intermediate goods began globetrotting.”

However, any trend that goes on for 15 or 20 years becomes ingrained in our expectations. We should have realized all along that this process of integration simply could not continue at the same pace forever. At some point, trade would reach a new balance point in the global economy where firms had built optimal supply chains that crossed international borders, slowing the integration process, at least for the present.

Yes, there are other structural reasons you can point to for the deceleration in global trade. A troubling number of protectionist measures have been put in place since the crisis, for example. But I believe that the most important structural factor behind the slowdown in trade growth is that the big opportunities for increased international integration have been largely exploited. China can join the WTO only once. That’s not to say that further integration waves won’t happen—I certainly hope they will. But if global trade has reached a new balance point, we should not fret that global export growth hasn’t recovered to pre-crisis levels.

Change in gross domestic product (GDP) is the main indicator of economic growth. GDP is estimated to have increased by 0.4% in Quarter 1 (Jan to Mar) 2016 compared with growth of 0.6% in Quarter 4 (Oct to Dec) 2015.

Output increased in services by 0.6% in Quarter 1 (Jan to Mar) 2016. The other 3 main industrial groupings within the economy decreased, with production falling by 0.4%, construction output by 0.9% and agriculture by 0.1%.

GDP was 2.1% higher in Quarter 1 (Jan to Mar) 2016 compared with the same quarter a year ago.