- by New Deal democrat
Last week I said that I was currently watching our high frequency indicators especially to contrast the forces of continued strengthening (initial jobless claims) vs. Oil's choke hold on the economy. The data this week shows the contrast of both of those indicators at inflection points. As I wrote this morning, Oil's rise past $90 during January already seems to be having an impact on consumer spending. Its level near that point since last spring is also showing up in slowing industrial production. More than a a whiff of inflation - primarily but not exclusively caused by energy prices - showed up in both the PPI and CPI. Meanwhile the LEI gave us a paltry +.1 increase, due in part to range-bound initial jobless claims and a decline in the manufacturing workweek (plus housing permits, which is probably a one month blip taking back December's big increase).
So let's see how those contrasting forces played out in this week's high frequency data:
I want to give some extra attention to the BLS's report of initial jobless claims increasing to 410,000. The 4 week moving average fell slightly to 415,000. I suspected that we would see a spike this week, perhaps to 440,000 or above. It didn't happen. Here are the weekly readings since jobless claims first hit 410,000 three months ago:
2010-11-20 410000
2010-11-27 438000
2010-12-04 423000
2010-12-11 423000
2010-12-18 420000
2010-12-25 391000
2011-01-01 411000
2011-01-08 447000
2011-01-15 403000
2011-01-22 457000
2011-01-29 419000
2011-02-05 385000
2011-02-12 410000
Here is the last time before then that jobless claims were this low:
2008-07-19 405000
Thus the "spike" was to a level that is (horror of horrors!) tied for the 4th best week in two and a half years! We have been rangebound in the 4 week average between 410,000 and 430,000 for 3 months. The last three weeks average 405,000. If next week comes in at under 425,000, we will establish a new post-recession low. We'll see.
Meanwhile, Oil retreated during the week to under $85 a barrel before trading at $86.35 Friday morning. Gas at the pump rose one penny to another new post-recession high at $3.14 a gallon. Gasoline usage was 66,000 barrels a day lower than last year, or -0.7%. This is the third consecutive negative YoY reading, and is more evidence that gas prices are beginning to "bite." It is also proof of the adage that "the cure for high gas prices, is high gas prices."
Railfax has really proven its worth over the last couple of months. Week after week, I have noted the odd sluggishness of its YoY comparisons, finally noting that it might be signaling a slowdown. This week, industrial production and retail sales showed us it wasn't odd at all. I guess even I ought to pay more attention to this proven and up-to-the-minute indicator. This week, total YoY rail shipments rebounded to 11.0% higher than in 2010. Nevertheless, baseline and cyclical traffic remain barely ahead of last year on a 4 week moving average, and shipments of waste and scrap metal remain actually below last year's levels.
The Mortgage Bankers' Association reported an decrease of 5.9% in seasonally adjusted mortgage applications last week, which maintains this series generally in a flat range since last June. Refinancing decreased 11.4%, and is at its lowest point since last July 3. Higher mortgage rates - up over 1% in the last few months - have really bitten these two series. This is yet more evidence that a slowdown is likely to develop, as a decline in refinancing in particular means slower consumer deleveraging, and less free cash to spend.
The American Staffing Association Index remained at 90 for the third week in a row. This was 14% higher than a year ago, and remains only about 9% below its pre-recession peak levels. But it too has stopped making progress towards that peak.
The ICSC reported that same store sales for the week of February 12 increased 2.7% YoY, but declined -1.4% week over week. This series' YoY comparisons have been trending lower since the first of the year. Shoppertrak reported that sales actually declined 0.4% YoY for the week ending February 5, and also increased 6.1% from the week before. Together, these are tepid to poor compared with recent readings.
Weekly BAA commercial bond rose +.05% to6.22%. This has broken out of its recent range and is at the highest since last June. This looks bad, but it compares with another 0.14% increase in the yields of 10 year treasuries to 3.68%, which is their highest rate since last April. This correlates with increasing inflation risk, but on the other hand certainly does not imply relative weakness for corporate bonds.
M1 was down 1.9% w/w, up 1.9% M/M and up a strong 9.0% YoY, so Real M1 is up 7.3%. M2 was up 0.6% w/w, up 6.7% M/M and up 4.3% YoY, so Real M2 is up 2.6%. Both of these remain in ranges where economic expansion has always taken place.
Adjusting +1.07% due to the recent tax compromise, the Daily Treasury Statement showed adjusted receipts for the first 12 days of February of $91.7 B vs. $95.7 B a year ago, for a loss of -4.0%+ YoY. For the last 20 days, $147.2 B was collected vs. $142.8 B a year ago, for a gain of 3%. February has stunk so that even the 20-day gain is poor compared with most comparisons over the last 10 months.
Altogether there are ample signs that we are entering another slowdown (note: NOT a "double-dip"). The culprits are increasing interest rates and $90+ Oil. Whether the slowdown is small or not depends on whether Oil increases as we move towards the summer driving months, or bounces off $90 as it did last year. It also depends on what Bonddad calls the "Washington lobotomy factory."
Have a great President's day weekend! If you have never been there, a visit to Washington's estate at Mount Vernon is an excellent way to spend a day (and I highly recommend it's colonial- food- themed restaurant). He was a Big Thinker, an innovator, had a first-class eye for talent, and a laser-like focus on detail. But while his will freed his (few) slaves, Martha's (many) slaves were not.
