This is the week we found out that we have actually already started into deflation with PPI declining 0.5% and CPI declining for the third month in a row, albeit by only 0.1%. Virtually every piece of monthly economic data released -- retail sales, industrial production, capacity utiilization, consumer confidence, the Empire State and Philly Fed reports -- all pointed to a marked slowdown. Whether it actually tips into negative GDP and if so for how long remains the question.
The single most important weekly leading indicator continued to worsen, increasing the odds yet again of an outright contraction in GDP. The MBA mortgage indexes for the week ending July 9 both fell. According to the MBS, the purchase index fell yet another 3.1% to its lowest measure since December 1996. Even the refinance index fell slightly, although clearly there is a lot of refinancing being done at the extremely low mortgage rates now being offered.
Since house prices look like they may be falling quickly, between the end of the "spring selling season" and the expiration of the $8000 credit, deflationary expectations in this market may be feeding on themselves. I'll look into this more shortly.
The ICSC reported same store sales for the week ending July 9 rose 3.2% in the July 3 week vs. a year earlier, although down -1.5% from the last week. This is the third week in a row of 3%+ YoY comparisons. Shoppertrak did not issue a public report this week.
Gas fell back slightly to $2.72. The 4 week average of usage remians up substantially from last year, about +2%-4% YoY in the last several weeks. Apparently consumers like cheaper gas. Hoocoodanode?
The BLS reported 429,000 new jobless claims this week. And now, {drum roll}, let me repeat a quote from this very post last week:
In the next 3 weeks, we may finally break out of the range these have been in since the beginning of the year -- but if so the reason is most likely that GM in particular is keeping its auto plants open in July, so typical seasonal layoffs aren't happening.As I say from time to time, you're reading the right blog.
Railfax was, frankly, a poor report. Both intermodal and cyclical traffic turned down slightly, and decreased their improvement over last year's report. Worse, baseline traffic is now all the way back to where it was a year ago. Raiflfax has recently started highlighting motor vehicle and scrap metal carloads, and both of these declined sharply in the last week. As I frequently counsel, please click through and take a look at their very revealing graphs.
M1 fell 1% in the week, but the 4 week average in Real M1 is still about +3.5% YoY. M2 also fell about 0.4%, but Real M2 is up about 1.5% YoY (due to declining YoY CPI growth). Monetary indicators aren’t out of the woods yet (I would want to see real M2 up more than 2.5%), but are looking better.
The American Staffing Association reported a decrease of 1.86% in its index for the week ending July 4, 2010. They ascribed to the decline to the shortened workweek.
There is good news in the Daily Treasury Statement. July is continuing the pattern of improvement over last year's numbers, $57.6 B vs.$49.0 B last year, a gain of over 18%. For the last 20 reporting days, we are also up 6%, $129.3 B vs. $121.6 B.
This week repeated the pattern from last week. Coincident indicators continue to show some strength, but leading indicators -- especially purchase mortgage applications, which are the most important metric of all right now-- are of real concern.
Next week I hope to post my semi-awaited updated outlook for the second half and the beginning of next year. Deflation will certainly play a role in that outlook.
In the meantime, in the immortal words of Nat King Cole:
Roll out those lazy, hazy, crazy days of summer,
those days of soda and pretzels and beer...
(and some really good German white brots that I'll be wolfing down tomorrow!)
