Saturday, June 16, 2012

Weekly Indicators: on the cusp of contraction edition

 - by New Deal democrat

The monthly data released this past week was almost all poor.  Real retail sales were up slightly, but only because consumer prices decreased more than nominal sales.  Producer prices declined sharply.  Industrial production and capacity utilization were down.  Consumer sentiment declined.

The high frequency weekly indicators this week generally are in agreement with the poor monthly reports, although there are significant areas that are positive. Let's start with those and progress to the most negative.

Housing reports are the best they have ever been for as long as I have been preparing this weekly summary:

The Mortgage Bankers' Association reported that the seasonally adjusted Purchase Index rose 12.8% from the prior week, and was up 4%  YoY.  The Refinance Index rose 19.2%. Refinancing is at a 3 year high, and purchase mortgages are at the top of their two year range.  

The Federal Reserve Bank's weekly H8 report of real estate loans, which had been negative YoY for 4 years, turned positive over two months ago.   This week, real estate loans held at commercial banks rose +0.2%, and their YoY comparison improved to +1.2%.  On a seasonally adjusted basis, these bottomed in September and remain up +1.5%.

YoY weekly median asking house prices from 54 metropolitan areas at Housing Tracker  were up + 2.1% from a year ago.  YoY asking prices have been positive for over 6 months, are higher than at any point last year, and at their maximum seasonal point  on a seasonally adjusted basis. Barring the appearance of the long-in-coming foreclosure tsunami (which, per Calculated Risk, may only occur in judicial states and be counterbalanced by the winding down of foreclosures in non-judicial states, which never had any delays), the bottom in prices is here.

Same Store Sales continue to be positive.

The ICSC reported that same store sales for the week ending June 2 fell -0.7% w/w, but were up +2.9% YoY.  Johnson Redbook reported a 2.0% YoY gain.  Shoppertrak did not report.  The 14 day average of Gallup daily consumer spending  at $71 was equal to last year's average on this date.  I am struggling with how best to report Gallup's numbers, which tend to ebb and flow over 3 to 5 week periods.  Average spending over 14 days peaked two weeks ago at $78, which is considerably above any number in spring 2011, while we are at a peak in last year's numbers.  Unless there is a continuing poor comparison in these numbers, I am not concerned.        

The energy choke collar continues to disengage:

Gasoline prices fell for the eighth straight week, down another .04 to $3.57.  Oil prices per barrel finished flat at $84.  Oil has only been less expensive for about 1 in the last 12 months.  Oil prices are now well below the point where they can be expected to exert a constricting influence on the economy, and gasoline is following.  The 4 week average of Gasoline usage, at 8836 M gallons vs. 9247 M a year ago, was off  -4.4%.  For the week, 9130 M gallons were used vs. 9370 M a year ago, for a decline of -2.6%.  Although this week was off, generally gasoline usage is moving to parity with the reduced levels that began to be established one year ago.

Money supply was generally mixed to positive:

M1 increased +0.4% last week, and also rose +0.1% month over month.  Its YoY growth fell to +15.4%, so Real M1 is up 13.7%. YoY.  M2 fell -0.1% for the week, and was flat month over month.  Its YoY growth eased to  +9.3%, so Real M2 increased to +7.6%.  Real money supply indicators continue to be strong positives on a YoY basis, and after slowing earlier this year,  are increasing again.

Employment related indicators again were strongly contradictory:

While the Daily Treasury Statement was positive, showing $67.0B vs. $65.6B for the first 10 days of June, and for the last 20 reporting days, $124.4B was collected vs. $119.1B a year ago, an increase of $5.3B, or +4.3%...

Contrarily the Department of Labor reported that Initial jobless claims rose 6,000 to 386,000 last week.   The four week average rose 4250 to 382,000.   The rise in jobless claims is of concern, but there is still the question of whether there is a seasonal adjustment issue or whether something more ominous is going on.

Even worse, the American Staffing Association Index fell another point to 92.  This is also a yellow flag.  Any further renewed weakness must be viewed as a serious issue in the jobs market.   

Rail traffic was also decidedly mixed:

The American Association of Railroads  reported a +0.8% increase in total traffic YoY, or +4,100 cars.  Non-intermodal traffic was negative again, down -5,000 cars, or -1.7% YoY.  Excluding coal, this traffic was up +5,400 cars, but weakness has diffused into more types of loads, with 10 of 20 groups now negative YoY.  Intermodal traffic, however, remained up 9,000 carloads, or +3.8%.   

The worst domestic high frequency data was Bond prices and credit spreads:

Weekly BAA commercial bond rates increased by .02% to 5.03%.  Yields on 10 year treasury bonds  were flat at 1.61%.  The credit spread between the two increased again to 3.42%, a 52 week high.  The recent collapse in government bond yields screams of fear of deflation.  An uptick in corporate yields begins to signal increasing fear of default.  This pattern frequently occurs on the cusp of a recession.  

The high frequency indicators for the global economy were also mixed to poor:

The TED spread fell 0.1 to 0.38, near the bottom of its recent 3 month range.  This index remains slightly below its 2010 peak.  The one month LIBOR rose 0.002 to 0.243.  It is well below its 12 month peak set 3 months ago, remains below its 2010 peak, and has returned to its typical background reading of the last 3 years.  It is interesting that neither of these two measures of fear have budged significantly with the annual May Europanic.

The Baltic Dry Index rose 47 from 877 to 924.  It remains 254 points above its February 52 week low of 670.  The Harpex Shipping Index fell slightly for the second straight week from 457 to 451, but is still up 76 from its February low of 375.  

Finally, the JoC ECRI industrial commodities index continued to slide this week, down from 116.25 to 115.34.  This is a 52 week low.  This indicator appears to have more value as a measure of the global economy as a whole than the US economy.

The high frequency indicators were more negative last September than they are now, and of course that was the bottom. There are all sorts of signs that the world economy as a whole may be slipping into outright contraction. But the US is a continental sized economy that is still 20% or more of global GDP, and by no means is it a certainty that the US must follow vs. simply slowing down. Refinancing of debt at yet lower rates is soaring. Housing sales related data are all looking more positive. Consumers are still spending. Inflation has nearly fallen to the point where YoY real wages are at least holding steady. I suspect we are in the midst of a rough few months, and I continue to believe that watching consumer spending is the key.
P.S. The summary final paragraph and the title are always the last two things I write. That is by design, to minimize my own cognitive bias while I report on the data, which is after all about 90% of the piece. It also means that if readers disagree about my conclusions, they are easy to strip out while keeping the up-to-the-week data useful to them. So I alternately have to laugh or sigh at some of the comments this piece gets when it is republished elsewhere (usually with a different title), by people who clearly can't see past their own ideological straightjackets long enough to simply read a piece that is by design about as exciting as watching paint dry.

From Bonddad: regarding credit spreads, note that the JNK and LQD corporate bond ETFs are starting to technically weaken, although they are by no means in or near a bear market.