Friday, April 2, 2010
Weekend Weimar and Beagle
Mrs. Bonddad and I have a very important announcement -- we have a new fur kid! Her name is Kassie, and she is a 13 inch Beagle. She is the top picture. Everyone is getting along very well. Our next project is to get another medium size girl for Sarge -- thereby giving him a harem....
The Weekly Indicators Kick A** Edition
- by New Deal democrat
With the exception of personal income (stagnant) and construction spending (still tanking), all of the monthly data this week was neutral to excellent.
The economy added 162,000 jobs in March, only 48,000 of which were census jobs, a kick-a** good number. Hours worked were up, the employment participation rate was up, and January and February were revised up.
Unemployment stayed the same at 9.7%, which is unacceptably high, of course, but nevertheless a decent result with the workforce adding 298,000 new persons.
March Auto sales were less than 12 million annualized, but still the highest in 7 months.
Chicago PMI was good, and the ISM manufacturing report was kick-a** stellar, showing increasingly strong positive activity in almost all sub-indices.
Turning to the high frequency weekly numbers ...
The ICSC reported that seasonally adjusted weekly same store sales we up 3.2% YoY (an easy comparison) and up 0.6% from the previous week. ShopperTrak reported that "year-over-year GAFO retail sales increased a 2.7 percent for the week ending March 27 while sales slipped 1.0 percent versus the previous week ending March 20." Retailers are apparently telling analysts that their March sales are kicking a**.
The E.I.A. reported that gasoline cost $2.80 a gallon. Oil was near $85/barrel late in the week. This is going to be a major concern later in this year. Usage was lower YoY as reported in the chart, but higher in the graph immediately below at their site. I have no idea why.
The BLS reported that new jobless claims were only $439,000, the lowest in about 18 months. The 4 week graph shows that the downward trend is established again.
Railfax again showed another strong week. All 4 components of transportation were up strongly, and 3 were also up strongly vs. last year. Rather than me try to describe, click on over and look at the graphs yourself. Rail traffic is also kicking a** YoY.
Daily Treasury Statement shows that March withholding taxes totaled $164.9B. That isn't just about $9B above March 2009 (about 5%), it is also several $billion higher than March 2008! Angry Bear has updated their graph of daily withholding taxes measured YoY, and here it is:
Another kick-a** report.
Everybody have a great weekend, hopefully the weather will be beautiful where you are. Maybe we can even get Bonddad to post some doggies....
With the exception of personal income (stagnant) and construction spending (still tanking), all of the monthly data this week was neutral to excellent.
The economy added 162,000 jobs in March, only 48,000 of which were census jobs, a kick-a** good number. Hours worked were up, the employment participation rate was up, and January and February were revised up.
Unemployment stayed the same at 9.7%, which is unacceptably high, of course, but nevertheless a decent result with the workforce adding 298,000 new persons.
March Auto sales were less than 12 million annualized, but still the highest in 7 months.
Chicago PMI was good, and the ISM manufacturing report was kick-a** stellar, showing increasingly strong positive activity in almost all sub-indices.
Turning to the high frequency weekly numbers ...
The ICSC reported that seasonally adjusted weekly same store sales we up 3.2% YoY (an easy comparison) and up 0.6% from the previous week. ShopperTrak reported that "year-over-year GAFO retail sales increased a 2.7 percent for the week ending March 27 while sales slipped 1.0 percent versus the previous week ending March 20." Retailers are apparently telling analysts that their March sales are kicking a**.
The E.I.A. reported that gasoline cost $2.80 a gallon. Oil was near $85/barrel late in the week. This is going to be a major concern later in this year. Usage was lower YoY as reported in the chart, but higher in the graph immediately below at their site. I have no idea why.
The BLS reported that new jobless claims were only $439,000, the lowest in about 18 months. The 4 week graph shows that the downward trend is established again.
Railfax again showed another strong week. All 4 components of transportation were up strongly, and 3 were also up strongly vs. last year. Rather than me try to describe, click on over and look at the graphs yourself. Rail traffic is also kicking a** YoY.
Daily Treasury Statement shows that March withholding taxes totaled $164.9B. That isn't just about $9B above March 2009 (about 5%), it is also several $billion higher than March 2008! Angry Bear has updated their graph of daily withholding taxes measured YoY, and here it is:
Another kick-a** report.
Everybody have a great weekend, hopefully the weather will be beautiful where you are. Maybe we can even get Bonddad to post some doggies....
NFP +162,000
From the BLS:
Nonfarm payroll employment increased by 162,000 in March, and the unemployment rate held at 9.7 percent, the U.S. Bureau of Labor Statistics reported today. Temporary help services and health care continued to add jobs over the month.
Employment in federal government also rose, reflecting the hiring of temporary
workers for Census 2010. Employment continued to decline in financial activi-
ties and in information.
First, let's remember there are two surveys -- the household and the establishment. The household provides information for the unemployment rate. So, let's start there.
It appears the unemployment rate has topped out in the 9.5%-10% range. While we're not seeing any downward momentum, we aren't seeing anymore strong upside moves either.
Also note the unemployment rate continues to be high for those with low educational achievement and low for those with high educational achievement:
Unemployment rate for
Less than a high school diploma: 14.5%
High school with no college: 10.8%
Some college or associates degree: 8.2%
Bachelor's or higher: 4.9% (this is near full employment from an economic perspective).
The civilian labor force increased by 398,000. This is a very important number because it is the denominator in the unemployment calculation. Last month we also saw an increase of 134,000 in overall unemployment. That means the unemployment rate remained stable at 9.7%.
The participation rate increased .1%, indicating more people are moving back into the civilian labor force.
Those "not in the labor force" decreased 238,000.
Those who were unemployed between 0 and 26 weeks decreased as well. The only time category that increased was the 27+ weeks unemployed.
Those working part time for economic reasons increased 263,000.
The establishment survey was solid. First, total private hiring was 123,000 -- meaning the "census workers tilted the numbers" argument is wrong. Secondly, goods producing jobs increased 41,000. This sector of the economy has been a drag on growth for the last few months. In addition, construction and manufacturing jobs account for the vast majority (over 70%) of all job losses during the recession. So an increase is welcome.
In addition, service jobs also saw an increase 82,000, with only two service sector areas (financial services and information technology) showing decreases.
While average hourly earnings decreased (largely because of labor market slack) weekly hours increased by .1 meaning weekly earnings increased from $762.41 to $763.98. The index of aggregate weekly hours increased from 91 to 91.4
Overall, this is a solid report.
Let me add this caveat. On August 22, 2009, I wrote the following:
Now -- that leads to the final question: when will the jobs come back? In order for that to happen we need to see at least one quarter of a positive GDP and probably two. That means the soonest we can expect a drop in the unemployment rate would be the a few months from now and that is only under the rosiest of scenarios. The most likely possibility is it won't be until the end of the first quarter of next year before we start to see a ticking down (and that assumes a stronger rate of growth than I think is going to happen).
Forex Fridays
Starting with the big picture, prices are in a clear uptrend, although they are approaching important technical support. The EMAs are in a bullish configuration, but the 10 and 20 day EMAs have recently turned lower. Prices are also below the 10 and 20 day EMA, which will pull prices lower going forward. The MACD is about to give a sell-signal. Also note the degree to which money has flowed out of the security (the A/D line at the bottom). 
In the last few weeks we've had several large gaps higher (very bullish) and several gaps lower (bearish). The real question to ask about this chart is this: is the last gap higher an exhaustion gap -- the last hurrah of the bulls?
Last Wednesday we had a big gap higher (A) followed by an island reversal (B). Prices gapped lower for two days (C) and then gapped lower again (D). Note that prices are generally in a lower trending orientation right now.
Yesterday's Market
Consider the price action for the entire week.
A.) On Monday, prices gap higher, attempt a rally in the AM that fails and then spend the rest of the day trading sideways. Prices do move higher at the end, but can't get above highs set in the AM.
B.) On Tuesday, prices gap higher at the opening, attempt a rally but the rally quickly stalls. Prices close near the open.
C.) On Wednesday, prices gap lower in the AM, rally to around the opening price and stay there for most of the day until a late day sell-off puts prices back about where they started.
D.) Yesterday, prices gap higher at the open but can't hold the momentum. The fall until a late day day places prices near the open.
As a result of this action, you get the following daily chart:
Note the incredibly weak bars over the last few days.
In short, all week long we've seen an extraordinary lack of momentum in the market.
NFP +162,000
From the BLS:
Nonfarm payroll employment increased by 162,000 in March, and the unemployment rate held at 9.7 percent, the U.S. Bureau of Labor Statistics reported today. Temporary help services and health care continued to add jobs over the month.
Employment in federal government also rose, reflecting the hiring of temporary
workers for Census 2010. Employment continued to decline in financial activi-
ties and in information.
First, let's remember there are two surveys -- the household and the establishment. The household provides information for the unemployment rate. So, let's start there.
It appears the unemployment rate has topped out in the 9.5%-10% range. While we're not seeing any downward momentum, we aren't seeing anymore strong upside moves either.
Also note the unemployment rate continues to be high for those with low educational achievement and low for those with high educational achievement:
Unemployment rate for
Less than a high school diploma: 14.5%
High school with no college: 10.8%
Some college or associates degree: 8.2%
Bachelor's or higher: 4.9% (this is near full employment from an economic perspective).
The civilian labor force increased by 398,000. This is a very important number because it is the denominator in the unemployment calculation. Last month we also saw an increase of 134,000 in overall unemployment. That means the unemployment rate remained stable at 9.7%.
The participation rate increased .1%, indicating more people are moving back into the civilian labor force.
Those "not in the labor force" decreased 238,000.
Those who were unemployed between 0 and 26 weeks decreased as well. The only time category that increased was the 27+ weeks unemployed.
Those working part time for economic reasons increased 263,000.
The establishment survey was solid. First, total private hiring was 123,000 -- meaning the "census workers tilted the numbers" argument is wrong. Secondly, goods producing jobs increased 41,000. This sector of the economy has been a drag on growth for the last few months. In addition, construction and manufacturing jobs account for the vast majority (over 70%) of all job losses during the recession. So an increase is welcome.
In addition, service jobs also saw an increase 82,000, with only two service sector areas (financial services and information technology) showing decreases.
While average hourly earnings decreased (largely because of labor market slack) weekly hours increased by .1 meaning weekly earnings increased from $762.41 to $763.98. The index of aggregate weekly hours increased from 91 to 91.4
Overall, this is a solid report.
Thursday, April 1, 2010
Initial Unemployment Claims Drop
From Bloomberg:
Fewer Americans filed claims for jobless benefits last week, bringing the average over the past month to the lowest level since 2008, as the economic recovery prompted companies to retain staff.Initial jobless applications declined by 6,000 to 439,000 in the week ended March 27, in line with the median forecast of economists surveyed by Bloomberg News, Labor Department figures showed today in Washington. The number of people receiving unemployment insurance was little changed, while those getting extended benefits rose.
Employers are slowing job cuts, a sign of confidence, as the U.S. emerges from the worst recession since the 1930s. Sustained employment gains are needed to boost consumer spending, which accounts for about 70 percent of the economy.
“We are turning a corner in the labor market,” said Julia Coronado, a senior U.S. economist at BNP Paribas in New York, who had forecast a decline in the weekly jobless claims. “Businesses are gradually starting to have more confidence in the recovery.”
.....
Employers announced fewer job cuts in March than a year earlier, another report showed today. Planned firings fell 55 percent last month to 67,611 from 150,411 a year earlier, according to data collected by the job placement firm Challenger, Gray & Christmas Inc. Announcements increased from February’s three-year low of 42,090.
Let's go to the data:
A few weeks ago, I expressed concern about the initial claims numbers, largely because they seemed to be unable to continue to move lower. Over the last several weeks we've seen those numbers drop a bit which eases my mind. However, a continued move lower to the 400,000 range is really needed right now.
The job cut number has been pretty low for awhile now and points to continued improvement in the jobs market.
State Tax Revenues & Withholding Taxes Increase
- by New Deal democrat
Most of my analysis proceeds from the view that leading indicators still lead, and lagging indicators still lag. While no approach is perfect, you will be right a lot more than most armchair (and highly-paid) pundits if you simply proceed from the premise that It Isn't Different This Time, and that while each recession, recovery, and expansion will have areas of variance from the norm (as in housing bubble and bust that still persists), in the main they will abide by past patterns. I parted from the vast majority of the doomish econoblogosphere almost a year ago when I noticed that consumers were refusing to play dead but, zombie-like, were rising from the grave to spend again, at least making a bottom in those figures. Shortly thereafter, the Leading Indicators almost all began to stabilize or even turn positive, in the face of the most severe economic downturn in decades.
As time has gone on, more and more of the bearish argument has focused on lagging indicators, and as an exercize to show that they do indeed lag and would turn positive in time, just as in prior recoveries, I have been tracking them here.
Most pointedly, back in November, Lee Adler of the Wall Street Examiner wrote a piece called Retail Sales Data, Tell me another Joke in which he said:
This was an argument I had already had last July at the place where I used to blog, when they claimed that the worst state tax revenue declines in 46 years meant Doom was upon us. I pointed out in a comment that the bottom in revenues would come one or two quarters after the bottom in the economy, to no avail, because in January of this year, they did it again, claiming If this is a Recovery, shouldn't tax revenue be increasing?
Now we know that even before they were writing this, in the last quarter of 2009, according to an article in Business Week, state tax revenues were indeed beginning to increase, one to two quarters after the bottom in the economy, just like I said they would:
Adler's piece noted that the reporting of state tax revenue (by the Rockefeller Institute) lagged badly, usually 4 months behind the collections. So he made use of the Daily Tax Receipts (h/t Matt Trovisonno) for more recent information, claiming that they too showed a non-Recovery. The TrimTabs mantra of poor withholding receipts comparisons had also been picked up by others of the Doomish persuasion. But of course those taxes too are lagging indicators, and as I've been noting weekly for the last few months, the YoY comparisons kept getting better and better until this month, they finally surpassed the taxes withheld in March 2009. As I write this, with one day left of reporting, March 2010 taxes withheld are already ahead of last year, $159.2B to $156.0B (and nearly equal to the March 2008 figure of $162.6B).
Well, TrimTabs will no longer give them comfort either, because as of yesterday they claim that the economy added between 80,000 and 130,000 non-Census jobs in March. [Note: I am not endorsing their analysis, which has been suspect in the past. The point is that in the parlance of sandlot baseball, "your own man says so."]
Leading indicators still lead, and lagging indicators still lag. It wasn't different this time. With their withholding, sales, and state revenue arguments gone or rapidly dissipating, there really is very little (bank loans, but historically those lag too) in the statistical data left for Doomsters to hold onto.
Most of my analysis proceeds from the view that leading indicators still lead, and lagging indicators still lag. While no approach is perfect, you will be right a lot more than most armchair (and highly-paid) pundits if you simply proceed from the premise that It Isn't Different This Time, and that while each recession, recovery, and expansion will have areas of variance from the norm (as in housing bubble and bust that still persists), in the main they will abide by past patterns. I parted from the vast majority of the doomish econoblogosphere almost a year ago when I noticed that consumers were refusing to play dead but, zombie-like, were rising from the grave to spend again, at least making a bottom in those figures. Shortly thereafter, the Leading Indicators almost all began to stabilize or even turn positive, in the face of the most severe economic downturn in decades.
As time has gone on, more and more of the bearish argument has focused on lagging indicators, and as an exercize to show that they do indeed lag and would turn positive in time, just as in prior recoveries, I have been tracking them here.
Most pointedly, back in November, Lee Adler of the Wall Street Examiner wrote a piece called Retail Sales Data, Tell me another Joke in which he said:
The reported rise in retail sales this morning had the media had in a full throated bull chorale...But as usual it’s all hype, little substance. A dead cat bounce is not a recovery. The “recovery” the pundits are talking about is little more than a semantic game. Bernanke sounds more like Chauncey Gardener every day. If this is recovery it must be just like the “recovery” that took place in the 4th quarter of 1929 and first quarter of 1930.Adler's piece was quickly picked up by the usual suspects, as proof that the Recovery was illusory. Now, I respect Lee Adler a lot, and in particular he was one of few non-permabears who called the September-October 2008 crash ahead of time. But the fact is that state and withholding tax collections lag. You have to have the recovery and the hiring first, before people pay taxes on their new jobs and revenues!
This was an argument I had already had last July at the place where I used to blog, when they claimed that the worst state tax revenue declines in 46 years meant Doom was upon us. I pointed out in a comment that the bottom in revenues would come one or two quarters after the bottom in the economy, to no avail, because in January of this year, they did it again, claiming If this is a Recovery, shouldn't tax revenue be increasing?
Now we know that even before they were writing this, in the last quarter of 2009, according to an article in Business Week, state tax revenues were indeed beginning to increase, one to two quarters after the bottom in the economy, just like I said they would:
The two-year slide in tax collections that opened a $196 billion gap in U.S. state budgets has stopped, easing pressure on credit ratings and giving leeway to lawmakers as they craft spending plans for next year.Although getting recent, accurate state tax receipt data on the internet is fiendishly difficult, it nevertheless appears that once again, Mish unintentionally bottom-ticked an economic indicator a month ago when he highlighted the shortfall in November 2009 state revenues.
The 15 largest states by population forecast a 3.9 percent gain in tax revenue in fiscal 2011, budget documents show. The 50 states on average may increase collections by about 3.5 percent, the first time in two years the figure is expected to grow, said Mark Zandi, chief economist at Moody’s Economy.com,
....
Combined state and local tax collections climbed to $360.1 billion during the final three months of 2009 , the first year- over-year gain in five quarters and an almost 1 percent boost from the same period in 2008, according to the agency.
....
“We’ve seen the worst,” said Philip Condon, who oversees about $9.4 billion in municipal bonds for DWS Investments in Boston. “While it may not be great, it’s getting better.”
Adler's piece noted that the reporting of state tax revenue (by the Rockefeller Institute) lagged badly, usually 4 months behind the collections. So he made use of the Daily Tax Receipts (h/t Matt Trovisonno) for more recent information, claiming that they too showed a non-Recovery. The TrimTabs mantra of poor withholding receipts comparisons had also been picked up by others of the Doomish persuasion. But of course those taxes too are lagging indicators, and as I've been noting weekly for the last few months, the YoY comparisons kept getting better and better until this month, they finally surpassed the taxes withheld in March 2009. As I write this, with one day left of reporting, March 2010 taxes withheld are already ahead of last year, $159.2B to $156.0B (and nearly equal to the March 2008 figure of $162.6B).
Well, TrimTabs will no longer give them comfort either, because as of yesterday they claim that the economy added between 80,000 and 130,000 non-Census jobs in March. [Note: I am not endorsing their analysis, which has been suspect in the past. The point is that in the parlance of sandlot baseball, "your own man says so."]
Leading indicators still lead, and lagging indicators still lag. It wasn't different this time. With their withholding, sales, and state revenue arguments gone or rapidly dissipating, there really is very little (bank loans, but historically those lag too) in the statistical data left for Doomsters to hold onto.
ISM Manufacturing Index Shows Further Strong Expansion
- by New Deal democrat
The ISM Manufacturing Report for March 2010 showed almost across the board increases. Only employment (at 55.1) and the backlog of orders (at 58.0) decreased slightly, meaning both increased, but at a slightly slower rate. Exports also increased at a faster rate, as did every other component of the index.
The overall index increased to 59.6, the highest since July 2004. Indeed, this is the strongest ISM number since the 1982 recession, with the exception of 9 months in 1984, 2 in 1987, and 8 in 2004. There is simply no doubt now that manufacturing is having a V-shaped recovery and is leading the way in the economy.
Here are the sample quotes provided by the ISM:
From Bonddad
Here is a chart of the overall ISM reading:
This is not simply a one and done situation -- that is, we aren't just seeing one good number out of a series of bad numbers. This number has continued to rebound from low levels for some time -- as in over one year. The shows the underlying economy is strengthening and has been for some time.
In addition, consider this chart of the industrial sector:
Prices are in a strong uptrend (A) and the EMA picture is strong -- shorter EMAs are above longer, all EMAs are rising and prices are above all the EMAs. The two problems with this chart are the same problems that exist with the larger averages -- momentum is decreasing (C) and the money flowing into the security is slowing (D). The last two indicate we may be setting up for a correction in the near term.
The ISM Manufacturing Report for March 2010 showed almost across the board increases. Only employment (at 55.1) and the backlog of orders (at 58.0) decreased slightly, meaning both increased, but at a slightly slower rate. Exports also increased at a faster rate, as did every other component of the index.
The overall index increased to 59.6, the highest since July 2004. Indeed, this is the strongest ISM number since the 1982 recession, with the exception of 9 months in 1984, 2 in 1987, and 8 in 2004. There is simply no doubt now that manufacturing is having a V-shaped recovery and is leading the way in the economy.
Here are the sample quotes provided by the ISM:
• "Certain markets served have increased by 50 percent in new customer orders, while other markets are not as strong." (Miscellaneous Manufacturing)As to employment, the ISM said:
• "Business levels continue to be strong coming out of the Chinese New Year. First quarter will be our best since 2000." (Machinery)
• "Business is steady and prospects are good for Q2." (Food, Beverage & Tobacco Products)
• "After-market sales are improving as more vehicles require maintenance." (Transportation Equipment)
• "There is a serious shortage of basic electronic components, and lead times are becoming a problem. We are also seeing dramatic price increases." (Computer & Electronic Products)
This is the fourth consecutive month of growth in manufacturing employment. An Employment Index above 49.8 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.Although it would have been nicer had the employment index increased, showing faster growth, this is an almost perfect report, and its leading component adds to the likelihood that March's Index of Leading Indicators number will be quite good, meaning continued growth in the next 3-6 months.
From Bonddad
Here is a chart of the overall ISM reading:
This is not simply a one and done situation -- that is, we aren't just seeing one good number out of a series of bad numbers. This number has continued to rebound from low levels for some time -- as in over one year. The shows the underlying economy is strengthening and has been for some time.
In addition, consider this chart of the industrial sector:
Prices are in a strong uptrend (A) and the EMA picture is strong -- shorter EMAs are above longer, all EMAs are rising and prices are above all the EMAs. The two problems with this chart are the same problems that exist with the larger averages -- momentum is decreasing (C) and the money flowing into the security is slowing (D). The last two indicate we may be setting up for a correction in the near term.
Yesterday's Market
All of the charts below tell the same story: prices have broken important uptrends and the MACD is giving a sell-signal. This is the case with the big caps (SPYs), mid-caps (IWRs), small caps (IWMs), microcaps (IWC), and transports (IYT). In addition, over the last few weeks we've seen the leaders -- indexes that increased -- move from the smaller indexes (IWCS and IWMs) to the larger stocks. This indicates a move to more conservative investments.
Thursday Oil Market Round-Up
The oil market chart has been very perplexing for some time. Consider this yearly chart with simple price bars and nothing else:
There is just not a lot to sink you teeth into on that chart. In general, prices have moved between a few prices, but that's about all you can say. Ideally, we want to see prices move firmly in any direction. Instead, there has been a lot of zig-zagging between points.
That being said, let's look a little closer at the chart:
A.) For the last few weeks, prices have moved between two different price levels: 40.40 and 38.30.
B.) The EMA picture is turning bullish: the shorter EWAs are moving higher and the shorter EMAs are above the longer EMAs. But we've seen the EMAs bounce around the 200 day EMA for the last few months, advancing and then declining, only to advance again.
C.) Momentum is about to give a buy signal and
D.) Money is flowing into the stock.
Ideally the last two indicators tell us we're going to see a move higher, through some of the upside resistance areas. This would coincide with the "summer driving season."
Wednesday, March 31, 2010
ADP Sees Job Loss of -23,000
From ADP:
Nonfarm private employment decreased 23,000 from February to March on a seasonally adjusted basis, according to the ADP National Employment Report®. The estimated change of employment from January 2010 to February 2010 was revised down slightly, from a decline of 20,000 to a decline of 24,000.
The March employment decline was the smallest since employment began falling in February of 2008. Yet, the lack of improvement in employment from February to March is consistent with the pause in the decline of initial unemployment claims that occurred during the winter.
Let's go to the data:
First, service industries are adding jobs and have been for the last several months. Goods producing industries are still the laggards. Also notice that small firms are the ones adding the most jobs.
Bloomberg highlights the primary reason for the last of growth:
Companies are still hesitant to add workers until they see sustained sales gains and are convinced the economic recovery has taken hold. Economists surveyed by Bloomberg News anticipate the government’s report April 2 will show payrolls increased by 184,000, in part due to temporary hiring by the federal government to conduct the 2010 census and because of better weather compared with February.
This is what economists call "visibility" -- it refers to the comfort people have looking out a few years and saying, "I see growth". The problem is right now there is little to no visibility; hence, we're still seeing modest job cuts.
Case Shiller: Good News and Bad News
First, the good news:
The rate of decline on a YOY basis is now very close to 0. That is good news. BUT
The month to month number has stalled out. From here, a sideways move wouldn't be a bad thing - in fact, I would personally not mind a bit. However, a sideways move can easily change into a downward move which is my biggest fear.
Compounding the problems with the last report is the above chart which shows that only two cities saw a month to month increase in housing prices. That adds further problems to the housing market -- problems we don't need right now.
Productivity and Employment
From the Washington Post:
When workers become more efficient, it's normally a good thing. But lately, it has acted as a powerful brake on job creation. And the question of whether the recent surge in productivity has run its course is the key to whether job growth is finally poised to take off.One of the great surprises of the economic downturn that began 27 months ago is this: Businesses are producing only 3 percent fewer goods and services than they were at the end of 2007, yet Americans are working nearly 10 percent fewer hours because of a mix of layoffs and cutbacks in the workweek.
That means high-level gains in productivity -- which in the long run is the key to a higher standard of living but in the short run contributes to sky-high unemployment. So long as employers can squeeze dramatically higher output from every worker, they won't need to hire again despite the growing economy.
.....
Businesses have certainly not been investing in new equipment that might enable workers to be more efficient -- capital expenditures plummeted during the recession and are rebounding slowly. And the structural shifts occurring in the economy are so profound that one would expect productivity to be lower, rather than higher, as people need new training to work in parts of the economy that are growing, such as exports and the clean-energy sector.
.....
Instead companies squeezed more work out of remaining employees, accounting for a 3.8 percent boost in worker productivity in 2009, the best in seven years. Which raises the question: Why couldn't companies have achieved those gains back when the economy was in better shape? The answer to that may lie on the other side of the equation -- employees.
Workers were in a panic of their own in 2009. Fearful of losing their jobs, people seem to have become more willing to stretch themselves to the limit to get more done in any given hour of work. And they have been tolerant of furloughs and cutbacks in hours, which in better times would drive them to find a new employer. This has given companies the leeway to cut back without the fear of losing valuable employees for good.
First, consider charts:
The percent change in overall business output since the beginning of 2009 has been on the rebound, turning positive in about mid-2009.
At the same time we say an overall increase in output, we also saw a big spike in the output per hour of person.
So - why is this happening now? I think the last paragraph nailed the real reason: panic. People were looking around themselves and noticing that companies were really cutting back. Then they saw the national unemployment numbers and became extremely grateful for having a job. At this point, employers realized they could really push people hard and expect little to no blow back (people leaving/come type of confrontation etc..).
What's important to note is this set of circumstances can't be duplicated; they are unique to the economy as it currently exists. When we start to see less labor market slack, more consecutive periods of growth and lower unemployment, this situation will slowly disappear.
Yesterday's Market
I have added some moderately arbitrary high and low lines to make a simple point: the markets have been in a very narrow range with very little happening to either the high or low end. When looking at either the SPYs, QQQQs or IWMs, there is very little to get excited about. The vast majority of action is occurring on small price swings. Also note the very neutral EMA picture -- there is little separation between the EMAs and all are floating around the 200 minute EMA. In short, this has been a very boring market this week.
Wednesday Commodities Round-Up
Industrial metals started an uptrend (A) in early February. As prices rose, they consolidated in two downward sloping pennant patterns (C and D). In addition, we see several strong, upward gaps (B) indicating the rally has some strength. Pennant D broke the uptrend, but prices have broken out to the upside at E.
A.) The EMA picture is bullish: all the EMAs are moving higher, the shorter are above the longer and prices are above all the EMAs.
B.) Momentum is neutral, although the MACD is about to give a bullish crossover.
C.) We're seeing some money flow into the market, but ideally this index should be rising at a higher and faster level to be more bullish.
On the 5-minute daily chart, notice there have been four upside gaps (A, B, C, and D) and all have broken through important resistance levels (E, F and G).
Tuesday, March 30, 2010
Personal Income Unchanged and Spending Up
From the BEA:
Personal income increased $1.2 billion, or less than 0.1 percent, and disposable personal income (DPI) increased $1.6 billion, or less than 0.1 percent, in February, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $34.7 billion, or 0.3 percent. In January, personal income increased $30.4 billion, or 0.3 percent, DPI decreased $26.0 billion, or 0.2 percent, and PCE increased $38.5 billion, or 0.4 percent, based on revised estimates.
Real disposable income increased less than 0.1 percent in February, in contrast to a decrease of 0.4 percent in January. Real PCE increased 0.3 percent, compared with an increase of 0.2 percent.
Let's go to the data. Click on all images for a larger image.
Total compensation has been increasing since September.
But the increase is not coming from the manufacturing sector. This part of the economy has been hit very hard in the recession, meaning there is very little upward wage pressure. But also note this is a small section of the economy -- total goods producing wages account for 13.23% of total compensation.
With the exception of November, total service compensation has been increasing since July of last year. This sector accounts for 51% of total compensation.
Transfer payments have also been increasing.
Let's turn our attention to expenditures.
Real PCEs have been increasing since September.
The largest component of expenditures is on services, which account for 65.66% of all expenditures. With the exception of November, this category of expenditures have been increasing since last July.
Expenditures on non-durable goods (which account for 22.21% of all expenditures) rose steadily until December, but have risen for the two months since December.
Real durable goods purchases (which comprise the smallest amount of all PCEs) are in a funk. But that is to be expected in this kind of economy. Durable goods typically require longer-term financing. Households are currently lowering their debt ratios and are also concerned about the economy as a whole, leading to less spending on more expensive items.
The increases in PCEs are a prime, underlying reason for the increase in stocks related to consumer expenditures. For example
The XLYs (consumer discretionary stocks) are in a clear uptrend (line A). Also note the bullish EMA picture -- all the EMAs are moving higher, the shorter EMAs are above the longer EMAs and prices are above all the EMAs. The momentum is topping out, however (C), although there is still plenty of money flowing into the ETF (D).
The same analysis applies to the retail holders trust.
Housing Starts & Completions and Construction Employment
- by New Deal democrat
An anonymous commenter raised a good point in response to yesterday's entry, in which I said that, housing permits having bottomed, residential construction jobs presumably had as well. The commenter pointed out that housing completions were still in excess of housing starts, so there were probably continuing layoffs in residential construction.
I think the point is well taken, but let's take a closer look. The first graph compares housing starts, in blue, with completions, in red:
Sure enough, there are more completions than starts, although in the last year that gap is narrowing.
In the second graph, I've added construction jobs in green, right scaled. Note that the data doesn't permit you to break down residential vs. commercial construction jobs. Also note that economagic, where the graphs were generated, only allow annualized monthly changes, so the figure is noisier than I'd like:
Again, sure enough, construction jobs seem to correlate with the gap between starts and completions.
To smooth out some of the noise in the graphs, in this last graph the blue line depicts the difference between starts and completions. Note that the series turned negative and is still so, as there are still more completions than starts. The red line in this graph is the one year change in construction jobs (which means the line lags by six months):
In summary, the commenter's point is well taken, but I would add the following:
1. Layoffs in residential construction now are probably much less than they were a year or two ago.
2. The trend in starts vs. completions suggests that the gap will be closed at some point in the next 6 months.
3. At that point layoffs in residential construction will probably end, but because of the lag in commercial construction, layoffs in construction generally will continue to be recorded. This will be the mirror image of what readers of Calculated Risk will recall from 2006 and early 2007, when construction jobs seemed to levitate even though housing starts had taken a cliff-dive.
An anonymous commenter raised a good point in response to yesterday's entry, in which I said that, housing permits having bottomed, residential construction jobs presumably had as well. The commenter pointed out that housing completions were still in excess of housing starts, so there were probably continuing layoffs in residential construction.
I think the point is well taken, but let's take a closer look. The first graph compares housing starts, in blue, with completions, in red:
Sure enough, there are more completions than starts, although in the last year that gap is narrowing.
In the second graph, I've added construction jobs in green, right scaled. Note that the data doesn't permit you to break down residential vs. commercial construction jobs. Also note that economagic, where the graphs were generated, only allow annualized monthly changes, so the figure is noisier than I'd like:
Again, sure enough, construction jobs seem to correlate with the gap between starts and completions.
To smooth out some of the noise in the graphs, in this last graph the blue line depicts the difference between starts and completions. Note that the series turned negative and is still so, as there are still more completions than starts. The red line in this graph is the one year change in construction jobs (which means the line lags by six months):
In summary, the commenter's point is well taken, but I would add the following:
1. Layoffs in residential construction now are probably much less than they were a year or two ago.
2. The trend in starts vs. completions suggests that the gap will be closed at some point in the next 6 months.
3. At that point layoffs in residential construction will probably end, but because of the lag in commercial construction, layoffs in construction generally will continue to be recorded. This will be the mirror image of what readers of Calculated Risk will recall from 2006 and early 2007, when construction jobs seemed to levitate even though housing starts had taken a cliff-dive.
Treasury Tuesdays
First, remember that Treasury prices are at the far side of a head and shoulders formation.
A.) In the last week, we've seen prices move strongly lower. First, note the gaps, indicating a serious change in the supply/demand equation. In addition,
B.) Prices are forming a possible price island below the neck line of the head and shoulders pattern.
The daily, 5-minute chart shows the price action in more detail. First, we see the gaps power at points A and B. Next,
Notice that prices have found upside resistance at the 50% Fibonacci level.
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