Friday, November 5, 2010

Weekly Indicators: Quantitative Dis-ease edition

- by New Deal democrat

At the end of the day, it's really all about jobs and income. The big news this week was that the economy added 151,000 jobs during October. Also, both August and September were revised up significantly. The two sectors that were set back a year because of stimulus expiration, construction and state/local workers, showed a gain of 5,000 and a loss of 7,000 respectively - which is as good as could have been hoped for. Income in October actually went down 0.1%, but increasingly confident consumers spent 0.2% more than the previous month. Auto sales went up over 5% from the previous month, and about 15% from last October, to a 2 year high at over 12 million vehicles annualized. ISM services, and especially ISM manufacturing showed surprising strength. Monthly sames store sales were only up 1.6%, confirming the weekly reports. The economy appears to have recovered from the shocks of summer.

Turning now to the high frequency weekly data, I want to start with a big fat caution flag:

The price of a barrel of Oil, almost certainly reacting to the Fed's quantitative easing program, increased about $5 just in this week to close to $90 a barrel. This is simply not sustainable. If Oil goes over $90 and stays there, we will probably go right back down into a recession in a few months. Gas at the pump remained stable at $2.82 a gallon. Gasoline usage was exactly the same as one year ago, at 9.015. Gasoline stocks are down considerably, to no more than 5% above their normal range for this time of year.

Meanwhile the Mortgage Bankers' Association reported that its seasonally adjusted Purchase Index increased 1.4% last week, the second week of increase. Meanwhile, the Refinance Index decreased 6.4% from the previous week. Refinancing is still proceeding at a good clip in response to near record low 15 and 30 year mortgage rates.

The ICSC reported same store sales for the week ending October 30 increased 0.1% week over week, and were up only 2.0% YoY, again a very weak comparison with recent months. Shoppertrak reported that sales were up only 1.1% for the week ending October 30 compared with a year ago, thus confirming the slowdown we have seen in the ICSC reports for the last few weeks.

The BLS reported 457,000 new claims. The 4 week average is still slightly above 450,000. So after last week, at least this week we went right back into the muck.

Railfax continued to show growth compared with last year, but the rate of growth for baseline and intermodal loads declined slightly compared with this time last year. Economically sensitive waste and scrap metal improved is running ever so slightly better than last year's levels. There is trend growth but no higher.

The American Staffing Association reported that for the week ending October 26, temporary and contract employment advanced to 101.0. This is good news as a leading indicator for employment in general, but it is still below its all time high of 110. .

M1 increased .9% last week, and was up 0.7% month over month, and up 5.7% YoY, hence “real M1” is up 4.6%. M2 declined .1% last week, but increased +0.6% month over month, and increased 3.3% YoY, so “real M2” is up 2.2%.

Weekly BAA commercial bond rates increased 0.04% last week to 5.80%. This compares with yields on 10 year bonds up +.13%. Thus there is no sign of buyers seeing increased default risk in B rated corporate bonds.

The final October report of the Daily Treasury Statement showed $131.3 B in receipts vs. $124.7 B a year ago, a gain of about 5.5% (and this year October had one fewer reporting day than 2009). For the last 20 days, receipts are up $134.6 B vs. $124.8 B a year ago, a gain of about 7.8%. Seasonality is beginning to be felt in the early November numbers.

With the pointed exception of the price of Oil, economic conditions are looking at least as hopeful as they were last spring -- and the best in over two years. Which may still be somewhat weak tea, but its the best we've got. We will have to watch the effect of Quantitative easing on the price of Oil like hawks, and we have to find a way to put Washington to sleep for two years so they don't #$%^ things up.

In the meantime, have a nice weekend!