Weekly Indicators: continuing positive trends edition

- by New Deal democrat

First, as to the monthly reports, home sales continued poor, but consumer confidence jumped back further, completely regaining its pre-debt debacle levels. In the rear view mirror department, 4Q 2011 GDP was +2.8% although some internal components were weaker. Those few sources who thought a new recession might begin by the end of 2011 were almost certainly wrong.

Turning now to the high frequency weekly indicators:

Weekly employment-related data was mixed.

The BLS reported that Initial jobless claims rose by 25,000 to 377,000, which is still an excellent in comparison with almost any report in the last 4 years except for the week preceding. This is the last report affected significantly by seasonality. The four week average declined by 1500 to 377,500. This is close to the lowest level since mid-2008.

The American Staffing Association Index rose by 3 to 87 last week, the best January reading since 2008, and significantly ahead of last year.

The Daily Treasury Statement showed that withholding for the first 17 days of January 2012 was $138.6 B vs. $132.7 B a year ago. Adjusting +0.27% due to the 2011 tax compromise, for the last 20 reporting days, $162.0 B was collected vs. $156.9 B a year ago, a gain of +3.3%.

Housing data was mixed:

The Mortgage Bankers' Association reported that seasonally adjusted purchase mortgage applications decreased 6.5% YoY and was also down -9.7% from one week ago. The overall trend remains flat since June 2010. Refinancing fell -5.2% in the last week.

For the seventh week in a row, YoY weekly median asking house prices from 54 metropolitan areas at Housing Tracker were positive, up +3.7% YoY. This is the best reading in close to 5 years. The number of metropolitan areas with YoY positive sking prices increased to 31. The number with YoY declines of greater than 5% decreased to 7.

Sales and transportation continued positive:

Retail same store sales were relaitvely weak. The ICSC reported that same store sales for the week ending January 21 increased 2.8% YoY, but were down -1.4% week over week. Shoppertrak, did not report, however, Johnson Redbook reported a weak 2.5% YoY gain, the weakest in 6 months.

The American Association of Railroads reported an increase in weekly rail traffic for the week ending January 21, 2012, with U.S. railroads originating 287,734 carloads, up 1.6 percent compared with the same week last year. Intermodal volume for the week totaled 219,706 trailers and containers, up 3 percent compared with the same week last year.

Money supply and Credit spreads were also positive:

M1 increased +0.4% last week, and +2.3% month over month. It is also up 18.9% YoY, so Real M1 is up 15.9%. This is about 5% off peak YoY gain at the end of last summer. M2 was up +0.2% week over week, and up +1.4% month over month, and up 10.1% YoY, so Real M2 was up 7.1%. This is about 3% less than its YoY reading at the crest of the tsunami.

Weekly BAA commercial bond rates declined .01% to 5.20%. Yields on 10 year treasury bonds rose .01% 1.96%. Falling spreads on lower rates is the best signal of improvement, although it is only for two weeks. This spread had a 52 week maximum difference in October and has been tightening slightly in the last few weeks.

Gasoline usage in particular continues to be much lower YoY:

Oil rose slightly to close at $99.56 a barrel on Thursday. This is about at the recession-trigger level calculated by analyst Steve Kopits (adjusted for general inflation). Gas at the pump was flat at $3.39. Measured this way, we are just at or slightly above the 2008 recession trigger level. Gasoline usage, at 8098 M gallons vs. 8632 M a year ago, was off -6.2%. The 4 week moving average is off -6.4%. Since last March the YoY comparisons have been almost uniformly negative, and substantially so since July. It's at least possible some of this reflects the unusually warm winter most of the country has been experiencing.

Now let's turn to new high frequency indicators designed to track the global slowdown/recession:

The TED spread is at 0.500 down from 0.520 week over week. This index is slightly above its 2010 peak, but has declined from its 3 year peak of 4 weeks ago. The one month LIBOR is at 0.270, down .007 from one week ago, below its 12 month peak of three weeks ago, and also remains below its 2010 peak.

The Baltic Dry Index at 726 continued to plummet -136 as it has for the last 4 weeks and further continues to decline from its October 52 week high of 2173. The Harpex Shipping Index was declining for a full year, but at 394 is above its 52 week low of 389 three weeks ago. It declined -2 last week. Please note that these two indexes are influenced by supply as well as demand, and have generally been in a secular decline due to oversupply of ships for over half a decade. The Harpex index concentrates on container ships, and has been leading at recent tops and lagging at troughs. The BDI concentrates on bulk shipments such as coal and grain, and has been more lagging at the top but has turned up first at the 2009 trough.

Finally, the unweighted Shadow Weekly Leading Index was slightly negative this week. Next day, so was the ECRI WLI. Once again I not surprised.

Global worries have continued to abate. In the US virtually all the news is positive, but some weakly so, and mortgage applications contnue to bounce up and down along their two year bottom. There remains no sign of any present or imminent downturn in the economy right now.

Have a good weekend.

Really -- Austerity is a Really Stupid Idea, Completely Divorced From Data and Reality

Today, the BEA released the initial estimate of 4Q GDP.  Above is a chart of the percentage change in 4Q11 GDP and the elements that contributed or subtracted from GDP growth.  Guess what?  Austerity subtracted from growth.  This occurred because of contractions at the federal (which subtracted .62 from the calculation) and state level (which subtracted .32 from the calculation).  

I would be remiss if I didn't add that this is not what Socialism looks like, either.

A Special Note From Bonddad on the Absolute Stupidity Behind the Expansionary Austerity Movement

We've written quite a bit here about how mind-numbingly stupid the idea of austerity is.  My reasoning is simple: government spending is a component of the GDP equation (which is C+I+(X-M)+G).  This equation has been around a long time, and is a basic component of macro-econoimcs.  Under the basic concepts of math, if you lower a value in an equation that involves addition, you wind up with a lower total number on the other side of the equals sign.

In addition, we have a ton of data from the existing attempts to use this idea that it really doesn't work.  Here's a post I wrote a little bit ago titled, "this is not what socialism looks like."  In the US, government spending at the state level has been contracting for 6 of the last 8 quarters.  Guess what?  It's subtracting from overall US growth.  We're not the only country to experience this first hand: we've also see it happen in the Baltic States and Ireland.  And of course, China spent massively to avoid the effects of the recession and their economy has grown at a very strong pace, proving the point from the opposite side of the argument.  Then of course, there was the US experience during the Great Depression when we saw growth rates of around 10% for three years straight and then 5% the following year thanks to government spending.  And, as I've noted in my history projects, Korean War spending shifted the US economy into overdrive in the early 1950s (see here, here and here).

Now we have more data that shows how stupid austerity is, this time coming from England.  First, this outcome was projected to happen, as reported by Bloomberg on July 13, 2010:

U.K. Prime Minister David Cameron’s planned budget cuts increases the chance the economy will slip back into recession, said Geoffrey Dicks, who heads economic forecasting at Britain’s new fiscal watchdog.

Responding to questions during a parliamentary hearing in London today, Dicks said measures proposed in the June 22 budget led his office to shave 0.5 percentage points from its growth forecast in the “near term.” His Office for Budget Responsibility predicts an expansion of 1.2 percent in 2010.

“There are some budget measures which will have reduced demand,” Dicks told the Treasury Committee, which scrutinizes economic policy. “The near-term outlook for GDP is not as good as it was before the budget. I still don’t think that will mean a double dip, but logically the chances of that happening have increased.”

Someone in the British government knows their macro and someone doesn't.  Guess who?  From Professor Brad DeLong:

Yep. This many months after the start of the Great Depression, the British economy was rapidly converging back to its pre-depression level of production under Chancellor of the Exchequer Neville Chamberlain's policy of using stimulative policies to restore the price level to its pre-Great Depression trajectory.

By contrast, the Cameron-Osborne policies of expansion-through-austerity have produced a flatline for real GDP, and the odds are high that British real GDP is headed down again.

In less than a year, if current forecasts come true, the Cameron-Osborne Depression will not be the worst depression in Britain since the Great Depression, but the worst depression in Britain… probably ever.

That is quite an accomplishment.

Reality continues to intrude rudely and sharply into the proposals of the austerity crowd. Yet, despite the overwhelming amount of data that disproves their central thesis, they continue to cry for austerity.  Obviously, facts, data and logic are meaningless now, as, despite the fact that that we have an overwhelming amount of data, we continue to hear from people who argue on the other side of them.  We are clearly through the looking glass in regards our public discourse.