Friday, March 19, 2010
It was a relatively quiet week for monthly reports. The LEI came in as predicted at +0.1%, suggesting a marked Summer Slowdown (but not reversal). Industrial production advanced very modestly. Housing permits and starts also declined from January, suggesting continuing havoc in the monthly statistics caused by the $8000 housing credit.
On a weekly basis, ICSC reported sales declined -0.4% from the week before, but still up +3.2% YoY. Shoppertrak reported that retail sales rose +0.9% for the same week, while YoY sales increased 2.4%.
Gasoline prices rose again, to $2.78 a gallon. Usage increased substantially vs. last year, however. Oil closed out the week near $82/barrel.
Railfax reported a strong weekly increase in all components. Intermodal, cyclical and overall traffic rose, and rose substantially YoY as well. This was a particularly strong weekly report.
The BLS reported a slight decrease of 5000 initial jobless claims. The 4 week average also declined. You can still make an bullish, bearish, or sideways argument, depending on your starting point and trend line.
February 2010 NY State sales tax collections turned positive by +3.8% YoY. Florida, however, went to -5.9% YoY in February. Bad Florida!
Finally, the Daily Treasury Statement for St. Patrick's Day showed monthly receipts from Withholding taxes of $111.0B this year vs. $110.1B for March 18 of last year, a gain of +0.9% YoY. Receipts for the last 4 weeks as a whole have been $154.8B vs. $155.2B in 2009, a tiny -0.3% shortfall YoY. It does look like this metric is about to turn positive for the first time since September 2008, another signal of actual job growth.
Yesterday I mentioned I was concerned with initial unemployment claims. After a period continuing improvement, claims have moved sideways/slightly higher. Here is a chart of the data.
Let's take a deeper look at this statistic.
First, note the boxed area which indicates that a reading below ~350,000 is the sign of an economy in the middle of an expansion. Therefore, we're already about 130,000 above that level. Also note the last time we saw this number over 600,000 was in the early 1980s.
After that recession (the early 1980s) , it took about a little over a year to get below the 400,000 level. Let's compare that to the current environment:
The number has been decreasing for a little under a year and we're a bit below the 480,000 -- about 80,000 above the 400,000 level. In other words the pace of improvement is behind the pace of the 1983 expansion. In comparison,
The pace of recovery of the 1990s and 2000s recession shows that job losses stayed above the 400,000 level for at least a year, yet the recovery continued.
In other words, initial jobless claims above 400,000 is not fatal to a recovery. But, a continuing period over 400,000 is probably confirmation of a "jobless" recovery. This is consistent with where job losses are occurring -- over 70% of total job losses are in manufacturing (where automation is replacing employees) and construction (thanks to the housing correction). In short, there is little reason to see strong improvement in the areas where we've seen massive job losses.
First, remember that we've been in an up (A), down/consolidation(B), up (C) pattern for some time. However,
A.) Is this now a rounding top pattern with the 200 day EMA as technical support?
B.) The shorter term trend (10 and 20 day EMA) is now down. In addition, the 10 day EMA is not below the 20 day EMA.
A.) Prices are above important resistance levels.
B.) The EMA picture is bullish -- the shorter EMAs are above the longer EMAs, all the EMAs are moving higher and prices are above all the EMAs
C.) Momentum is positive as is
D.) The money flowing into the security.
Take a look at the IWRs (mid-cap) and the IWMs (small cap). They all fall into the same pattern.
However, with the IWMs note the dip in the A/D line which could indicate some profit taking.
Thursday, March 18, 2010
Weekly jobless claim are indicating only the slightest improvement in the labor market. Initial claims fell 5,000 in the March 13 week to 457,000, following a 6,000 dip in the prior week. The four-week average fell 4,250 to 471,250, showing no significant change from February and well above readings in January.
Continuing claims, up 12,000 to 4.579 million in data for the March 6 week, are likewise indicating no improvement in the labor market. The four-week average for continuing claims, at 4.575 million, is only slightly lower than February levels. The unemployment rate for insured workers is unchanged at 3.5 percent.
The economic recovery may be emerging but it looks to be a jobless recovery, at least so far. Markets were little changed in reaction to today's report which was accompanied by benign consumer-price headlines
Here's the chart:
The move down (letter A) was a very positive development. However, the circled area (B) is troublesome. While the bleeding has stopped we're still seeing job losses at uncomfortable levels.
I'll be looking at this data in more detail tomorrow.
Manufacturing in the Philadelphia region expanded in March at the fastest pace so far this year as factories lead the U.S. economic recovery.
The Federal Reserve Bank of Philadelphia’s general economic index rose to 18.9, in line with the median forecast of economists surveyed by Bloomberg News and the highest level since December, from 17.6 in February. Readings greater than zero signal growth.
Factories keep adding workers and increasing production to replenish depleted inventories and meet rising global demand. Gains in manufacturing may be the spark that ignites a broader economic expansion, leading to increases in payrolls and consumer spending.
“The manufacturing sector has been the one bright spot for the economy in recent months,” said Scott Brown, chief economist at Raymond James Associates Inc. in St. Petersburg, Florida. “Clearly a sustainable recovery will require an improvement in the jobs. We’re right on the cusp of new hiring.”
Let's go to the data.
Click for a larger image
Click for a larger image.
The main point to take from this report is the index has remained positive for seven consecutive months.
Inflation is a very important issue because high inflation would force the Fed's hand with monetary policy whereas low inflation allows the Fed to keep interest rates low for an extended period of time.
All Imports: In February, import prices decreased for the first time since a 0.6 percent decline in July, falling 0.3 percent. The February downturn followed a 1.3 percent advance in January and was driven by a turnaround in fuel prices. Despite the February decline, import prices advanced 11.2 percent for the year ended in February after decreasing 12.7 percent for the February 2008-09 period.
Fuel Imports: Import fuel prices countered an upward trend in February, falling 1.9 percent following a 4.9 percent rise in January. A 2.2 percent decline in petroleum prices was slightly offset by a 2.6 percent increase in natural gas prices. Over the past year, the price index for petroleum increased 81.3 percent and natural gas prices rose 16.3 percent, driving overall fuel prices up 70.8 percent for the same period. The 12-month increase in fuel prices followed a 49.8 percent drop for the February 2008-09 period.
All Imports Excluding Fuel: Prices for nonfuel imports rose for the seventh consecutive month, advancing 0.2 percent. The increase was led by higher prices for nonfuel industrial supplies and materials. Lower prices for foods, feeds, and beverages, capital goods, and consumer goods mitigated the overall advance. Over the past 12 months, nonfuel import prices increased 2.0 percent.
Take a look at the oil chart (USO) from an earlier posting. Note that a year ago prices were at extremely depressed levels which explains the 81% increase in fuel prices. Here is a chart of the data:
Let's deal with the producer prices data by looking at the stages of production. The reason why is producer prices are best thought of as a time series. If prices increase at the beginning of production (crude goods) they typically work their way through to the end of production at some point. But it's also incredibly important to remember there is a tremendous amount of price arbitrage with production -- meaning, the price difference between inputs and outputs can be very large, giving manufacturers a fair amount of flexibility. Let's start with crude goods:
Note the fairly high rate of volatility in these numbers. The crude numbers increase at higher rates one month and then barely increase the next month. This is the result of fairly volatile commodity prices. Also note that the year over year numbers are high because of low year over year comparisons. This will exist will all the data we're looking at.
Note the volatility with intermediate prices as well. This volatility is good as it allows manufacturers to "catch their breath" from a price increase. For example, suppose input prices increase .5% in January. Manufacturers will have to perform calculations to figure out how to deal with these price increases. But if prices only increase .1% in February, then they have an additional month to factor in the January increase.
Finally, finished goods -- which include by definition previous month crude and intermediate numbers -- have been bouncing around as well. Here is a chart of the monthly and 12 month change in the PPI. Note that negative readings are typically associated with large drops in either food or energy prices.
Now to to CPI:
On a seasonally adjusted basis, the Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in February, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the index increased 2.1 percent before seasonal adjustment.Let's go to the charts:
The unchanged all items index was the result of a decline in the energy index being offset by slight increases in the indexes for food and for all items less food and energy. Within the latter group, declines in the indexes for apparel and household furnishings and operations were more than offset by continuing increases in the indexes for medical care and used cars and trucks. The 12-month increase in the index for all items less food and energy now stands at 1.3 percent, the lowest since February 2004.
The food index also edged up in February. The food at home index rose slightly, the net result of the major grocery store food group indexes posting a mix of modest increases and decreases. In contrast the energy index declined in February. Decreases in the indexes for gasoline, electricity, and fuel oil more than offset an increase in the index for natural gas.
These are not levels that should scare anyone.
The YOY numbers are also well-contained.
The bottom line is clear: inflation is not an issue right now.
This is a three year chart in weekly increments. In other words, this is a big, longer term picture.
A.) Prices hit resistance at the 200 week EMA and fall back.
B.) Prices hit the 200 week EMA and move through it.
This is a very important technical development, as the 200 day/week EMAs are what separate bull and bear markets.
First, note where oil prices are in the longer picture. Since the last quarter of last year they have been in a trading range.
A.) Prices have been gravitating around the 200 day EMA. Notice how the shorter EMAs have been moving around as well -- but they have been spending far more of the time below the 200 day EMA rather than above it.
B.) Momentum has been tracking the price changes.
C.) The volume in and out of the stock is a bit more interesting, especially the latest surge that started a few months ago. People are clearly pouring more money intro this security, probably in anticipation of a rally based on the "summer driving season."
Wednesday, March 17, 2010
Information received since the Federal Open Market Committee met in January suggests that economic activity has continued to strengthen and that the labor market is stabilizing. Household spending is expanding at a moderate rate but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly. However, investment in nonresidential structures is declining, housing starts have been flat at a depressed level, and employers remain reluctant to add to payrolls. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability.
Let's look at this statement in more detail.
Household spending is expanding at a moderate rate but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit.
Real personal consumption expenditures have been increasing. But
Unemployment is still high (although it appears to be topping out) and
Real disposable personal income is still weak.
I'm not sure I agree with the Fed's complete assessment of household wealth.
While housing wealth decreased in 4Q09
Wealth from financial assets increased leading to
An increase in household wealth.
In general, I think the biggest issue constraining further expansion of spending is the jobs market.
The Fed continued:
Business spending on equipment and software has risen significantly. However, investment in nonresidential structures is declining, housing starts have been flat at a depressed level, and employers remain reluctant to add to payrolls.
Equipment and software investment rebounded nicely last quarter.
Non-residential fixed investment rebounded a bit, bit realistically won't be a major player in the expansion for some time.
Housing starts are still very depressed and
Employers aren't adding jobs yet.
Bank credit topped at the beginning of 2009 and has yet to expand. But interest rates are still very low.
In February last year the 47-year-old was laid off from her job selling time-shares at the Seaview Marriott in Galloway, N.J. In July, she enrolled in an office-technology program at nearby Atlantic Cape Community College hoping it would quickly land her a new position. She finished that program—and a four-week internship in December—but is still hunting for work.
Ms. Motte still thinks the training will help her get hired. "The fact that I have the computer skills will put me on par with someone who's younger," she says. She reckons that, along with 25 years of experience as a salesperson and manager, will make her an attractive prospect for any job that comes up.
Economists agree that retraining pays off, eventually.
"The labor market just isn't doing a lot of hiring right now, but there are obviously long-run payoffs" to retraining, says Harvard economist Lawrence Katz. He says that's especially true for skills that can be applied to a variety of jobs.
But while retraining may improve unemployed workers' long-term prospects, in the shorter term many are struggling to find work. Job losses across the country have hurt blue- and white-collar workers alike and left few industries unscathed. That has created a deep pool of workers competing for the positions available.
The article highlights a point I made in this post where I noted the unemployment rate for unskilled labor (no high school diploma) was at 15% while the unemployment rate for college educated (and higher) people was still at 5% or technical full employment. For people in between -- that is people with some college or some technical school -- the rates lie between.
The point of this article is people are moving in the right direction. The problem right now is the job market is moving very slowly in the right direction -- that is, to the point where there are enough job openings to start hiring people.
Agricultural commodities broke two uptrends (A and B). Since the beginning of the year prices have been in a clear downtrend (C). Finally, prices recently broke through support at D.
Industrial metals broke the shorter term support (B) but are still using (A) as long-term support.
Energy has broken long-term support (A). Looking at this chart, you may be thinking support exists between the 2009 low in May and the low in February of this year. The problem with that line is it only uses two points and the points are nearly a year apart. I just don't like the wya that one looks.
A.) Prices have moved above resistance
B.) The EMAs are bullish -- the shorter are above the longer, all the EMAs are moving higher and prices are above the EMAs
C.) Momentum is increasing and
D.) Money is flowing into the stock.
In the two charts below, note the same patterns mentioned above with the exception of the OEFs' price. Wisth the OEF, note that finally the large caps are looking to break above resistance. This is in stark contrast to the small and medium caps which are already above these levels.
Tuesday, March 16, 2010
Let's continue our look at the Flow of Funds. This document breaks down consumer debt into mortgage, non-mortgage (think revolving credit cards) and total household debt.
Non-mortgage debt is by far the smallest amount of mortgage debt outstanding, coming in right around 2.5 trillion. Notice this debt topped out in early 2008 and has been declining since.
Like revolving credit, mortgage debt appears to have topped out in early 2008, as does
Total household debt.
But over the last six months I have become an independent because frankly, they're all idiots. And please -- don't suggest that I join the tea party movement. I have an IQ over 50, making membership an impossibility.
And -- as usual -- the comedian is the one who gets it right.
|The Daily Show With Jon Stewart||Mon - Thurs 11p / 10c|
|Crumbums & Fatcats|
From the Federal Reserve:
Industrial production edged up 0.1 percent in February following a gain of 0.9 percent in January. Production was likely held down somewhat by winter storms in the Northeast. Manufacturing decreased 0.2 percent in February, with mixed results among its major industries. The output of mines rose 2.0 percent, while the index for utilities rose 0.5 percent. At 101.0 percent of its 2002 average, industrial output in February was 1.7 percent above its year-earlier level. Capacity utilization for total industry moved up 0.2 percentage point to 72.7 percent, a rate 7.9 percentage points below its average from 1972 to 2009.
Let's take a look at the charts (as always, click for a larger image):
Notice that both industrial production and capacity utilization have increased for five months in a row.
Industrial production has bounced off its mid-2009 low as has
What is most encouraging about this number is how it moved higher last month despite the weather.