- by New Deal democrat
There was very little in the way of monthly data released during the past week: consumer confidence fell slightly, the trade deficit widened very slightly, and consumer credit increased strongly. Turning now to the high frequency weekly indicators:
Weekly employment-related data mainly continued to impress, with the significant exception of withholding tax collections.
The Department of Labor reported that Initial jobless claims fell by 9,000 to 358,000, the second lowest report in close to 4 years. The four week average declined by 9000 to 366,750. This too is the lowest reading since mid-2008.
The American Staffing Association Index rose by 1 to 87 last week. It is now not just significantly higher than last year, but very close to its pre-recession 2007 levels.
The Daily Treasury Statement showed that for the last 20 reporting days, $146.5 B was collected vs. $146.7 B a year ago. Since for the month of January we were up 10% YoY, this reflects poor collections this past week, and raises a yellow flag for further watching.
Housing reports were also positive:
The Mortgage Bankers' Association reported that seasonally adjusted purchase mortgage applications rose +0.1% week over week, although they were still down -4.1% YoY. The overall trend remains flat since June 2010. Refinancing rose +9.4% in the last week, as rates fell to historic lows.
For the eighth week in a row, YoY weekly median asking house prices from 54 metropolitan areas at Housing Tracker were positive, up +4.2% YoY. This is yet another week establishing the record best YoY reading since this index began nearly 6 years ago. The number of metropolitan areas with YoY positive sking prices increased to 34. The number with YoY declines of greater than 5% decreased to 5.
Sales and transportation were also positive:
The ICSC reported that same store sales for the week ending February 4 increased 3.5% YoY, and were up 1.8% week over week. Once again, Shoppertrak, did not report, however Johnson Redbook reported a 2.5% YoY gain, an improvement over the last several weeks.
The American Association of Railroads reported mixed weekly rail traffic for the week ending February 4, 2012, with U.S. railroads originating 284,546 carloads, up 6.2% compared with the same week last year. Intermodal volume for the week totaled 232,990 trailers and containers, up 16.8% compared with the same week last year. Total carloads were up 10.7% from one year ago.
Money supply and Credit spreads were generally positive:
M1 decreased -0.2% last week, and +2.2% month over month. It is also up 18.8% YoY, so Real M1 is up 15.8%. This is about 6% off peak YoY gain at the end of last summer. M2 increased +0.1% week over week, up +0.9% month over month, and up 10.2 YoY, so Real M2 was up 7.2%. This is about 3% less than its YoY reading at the crest of the tsunami.
Weekly BAA commercial bond rates decreased .16% to 5.13%. Yields on 10 year treasury bonds fell .13% to 1.88%. This had a whiff of fear of deflation, but on the other hand, the credit spread between the two had a 52 week maximum difference in October but once again continued to tighten this past week.
Gasoline usage in particular continues to be much lower YoY:
Oil rose about $1 this week to close at $98.67 a barrel. This is at the recession-trigger level calculated by analyst Steve Kopits (adjusted for general inflation). Gas at the pump rose $.04 to $3.48. Measured this way, we are back above the 2008 recession trigger level. Gasoline usage, at 8039 M gallons vs. 8524 M a year ago, was off -5.7%. The 4 week moving average is off -6.8%. Since last March the YoY comparisons have been almost uniformly negative, and substantially so since July. This week once again featured one of the biggest declines in the 4 week average since then.
Now let's turn to new high frequency indicators designed to track the global slowdown/recession:
The TED spread is at 0.425 down from 0.456 week over week. This index is back below its 2010 peak, and has declined from its 3 year peak of 6 weeks ago. The one month LIBOR is at 0.250, down .011 from one week ago. It is well below its 12 month peak set five weeks ago, remains below its 2010 peak, and ihas now completely returned to its typical level of the last 3 years.
The Baltic Dry Index at 695 finally broke its fall this week, up 48 from 647, although still well off its October 52 week high of 2173 (please note that even so this is nothing even remotely close to its decline during the Great Recession). The Harpex Shipping Index declined another two to 390 in the last week, although it remains just above its 52 week low of 389 set five weeks ago. Please remember that these two indexes are influenced by supply as well as demand, and have generally been in a secular decline due to oversupply of ships for over half a decade. The Harpex index concentrates on container ships, and led at recent tops and lagged at troughs. The BDI concentrates on bulk shipments such as coal and grain, and lagged more at the top but turned up first at the 2009 trough.
Finally, once again the Shadow Weekly Leading Index accurately foretold an increase in ECRI's WLI. We already have the value for 3 of its components, including the S&P 500, which was off a slight -0.2% for the week. The Dow Jones Bond Index increased .50 to 116.87. I don't know how I missed this, but the DJBI made an all time high on February 2 at 116.99. The JoC-ECRI industrial metals index rose from 124.41 to 126.20, reversing almost all of its decline of one week before. The first is flat, the second two significant positives for the calculation of ECRI's weekly leading index next Friday.
With the singular exceptions of tax withholding and gasoline prices, all of the data was positive this week and continues to reflect a recovery attempting to attain escape velocity. That gasoline is already close to $3.50 a gallon, however, is strong evidence that the Oil choke collar is already beginning to engage -- a choke collar that already strangled one attempt at self-sustaining recovery one year ago. Meanwhile this past week several bearish blogs -- Zero Hedge and Mish -- noticed that gasoline usage is significantly less than last year. This should be no surprise to readers of these weekly updates, as I literally started to report on this phenomenon last March, and its intensification beginning last September. Whether the development is as bearish as they believe is a subject for another day. But what is clear once again is the value of watching high frequency weekly indicators in real time.
Have a nice weekend.
Saturday, February 11, 2012
Friday, February 10, 2012
Ben's Testimony
Last week, Bernanke gave a general overview of the current US economic situation. These are great "you are here" moments, as they usually provide a solid overview of most current US economic numbers. His testimony follows with relevant charts.'
As is often the case, the ability and willingness of households to spend will be an important determinant of the pace at which the economy expands in coming quarters. Although real consumer spending rose moderately last quarter, households continue to face significant headwinds. Notably, real household income and wealth stagnated in 2011, and access to credit remained tight for many potential borrowers. Consumer sentiment has improved from the summer's depressed levels but remains at levels that are still quite low by historical standards.
Total net worth of households is still below pre-recession levels. While it has risen from low levels, it dipped last month and is barely above year ago levels.
As we have been documenting here for some time, consumers have been paying off credit for most of this recovery. The last two quarters, we have seen an increase, however.
Real disposable personal income has been stagnating for the recovery. As a result,
income for new purchases is coming from personal savings.
Household spending will depend heavily on developments in the labor market. Overall, the jobs situation does appear to have improved modestly over the past year: Private payroll employment increased by about 160,000 jobs per month in 2011, the unemployment rate fell by about 1 percentage point, and new claims for unemployment insurance declined somewhat. Nevertheless, as shown by indicators like the rate of unemployment and the ratio of employment to population, we still have a long way to go before the labor market can be said to be operating normally. Particularly troubling is the unusually high level of long-term unemployment: More than 40 percent of the unemployed have been jobless for more than six months, roughly double the fraction during the economic expansion of the previous decade
There are three important charts here.
the 4-week average of initial unemployment claims continues to move lower. The last month and a half, we've seen this number move significantly lower.
While the total number of employees is still far below previous levels, this trend is moving in the right direction.
The unemployment rate is moving lower, although it is still at uncomfortably high levels.
Uncertain job prospects, along with tight mortgage credit conditions, continue to hold back the demand for housing. Although low interest rates on conventional mortgages and the drop in home prices in recent years have greatly improved the affordability of housing, both residential sales and construction remain depressed. A persistent excess supply of vacant homes, largely stemming from foreclosures, is keeping downward pressure on prices and limiting the demand for new construction.
In response, I would point out that CR has argued for a bottom in housing -- a sentiment while I wrote about last May (I was a bit early) and which NDD has been all over (see here, here and here) as examples.
In contrast to the household sector, the business sector has been a relative bright spot in the current recovery. Manufacturing production has increased 15 percent since its trough, and capital spending by businesses has expanded briskly over the past two years, driven in part by the need to replace aging equipment and software. Moreover, many U.S. firms, notably in manufacturing but also in services, have benefited from strong demand from foreign markets over the past few years.
Industrial production -- which crashed as a result of the contraction -- has been steadily making its way back. While we're still not at previous levels, we continue to get closer.
An untold story during this expansion has been the incredibly strong rate of investment by businesses, which is now at higher levels than the previous expansion in real terms.
More recently, the pace of growth in business investment has slowed, likely reflecting concerns about both the domestic outlook and developments in Europe. However, there are signs that these concerns are abating somewhat. If business confidence continues to improve, U.S. firms should be well positioned to increase both capital spending and hiring: Larger businesses are still able to obtain credit at historically low interest rates, and corporate balance sheets are strong. And, though many smaller businesses continue to face difficulties in obtaining credit, surveys indicate that credit conditions have begun to improve modestly for those firms as well.
Interest rates are incredibly cheap by historical standards.
Globally, economic activity appears to be slowing, restrained in part by spillovers from fiscal and financial developments in Europe. The combination of high debt levels and weak growth prospects in a number of European countries has raised significant concerns about their fiscal situations, leading to substantial increases in sovereign borrowing costs, concerns about the health of European banks, and associated reductions in confidence and the availability of credit in the euro area. Resolving these problems will require concerted action on the part of European authorities. They are working hard to address their fiscal and financial challenges. Nonetheless, risks remain that developments in Europe or elsewhere may unfold unfavorably and could worsen economic prospects here at home. We are in frequent contact with European authorities, and we will continue to monitor the situation closely and take every available step to protect the U.S. financial system and the economy.
Let me now turn to a discussion of inflation. As we had anticipated, overall consumer price inflation moderated considerably over the course of 2011. In the first half of the year, a surge in the prices of gasoline and food--along with some pass-through of these higher prices to other goods and services--had pushed consumer inflation higher. Around the same time, supply disruptions associated with the disaster in Japan put upward pressure on motor vehicle prices. As expected, however, the impetus from these influences faded in the second half of the year, leading inflation to decline from an annual rate of about 3-1/2 percent in the first half of 2011 to about 1-1/2 percent in the second half--close to its average pace in the preceding two years. In an environment of well-anchored inflation expectations, more-stable commodity prices, and substantial slack in labor and product markets, we expect inflation to remain subdued.
PPI has spiked higher, but has recently moved lower. In addition, PPI rarely bleeds through to CPI -- or, perhaps more appropriate, CPI has a good track record of absorbing PPI increases without passing them onto the consumer.
The above chart shows CPI and PPI. While PPI has wilder swings, they rarely bleed through to CPI.
The above chart is the YOY percentage change in CPI. It shows that prices are contained.
As is often the case, the ability and willingness of households to spend will be an important determinant of the pace at which the economy expands in coming quarters. Although real consumer spending rose moderately last quarter, households continue to face significant headwinds. Notably, real household income and wealth stagnated in 2011, and access to credit remained tight for many potential borrowers. Consumer sentiment has improved from the summer's depressed levels but remains at levels that are still quite low by historical standards.
Total net worth of households is still below pre-recession levels. While it has risen from low levels, it dipped last month and is barely above year ago levels.
As we have been documenting here for some time, consumers have been paying off credit for most of this recovery. The last two quarters, we have seen an increase, however.
Real disposable personal income has been stagnating for the recovery. As a result,
income for new purchases is coming from personal savings.
Household spending will depend heavily on developments in the labor market. Overall, the jobs situation does appear to have improved modestly over the past year: Private payroll employment increased by about 160,000 jobs per month in 2011, the unemployment rate fell by about 1 percentage point, and new claims for unemployment insurance declined somewhat. Nevertheless, as shown by indicators like the rate of unemployment and the ratio of employment to population, we still have a long way to go before the labor market can be said to be operating normally. Particularly troubling is the unusually high level of long-term unemployment: More than 40 percent of the unemployed have been jobless for more than six months, roughly double the fraction during the economic expansion of the previous decade
There are three important charts here.
the 4-week average of initial unemployment claims continues to move lower. The last month and a half, we've seen this number move significantly lower.
While the total number of employees is still far below previous levels, this trend is moving in the right direction.
The unemployment rate is moving lower, although it is still at uncomfortably high levels.
Uncertain job prospects, along with tight mortgage credit conditions, continue to hold back the demand for housing. Although low interest rates on conventional mortgages and the drop in home prices in recent years have greatly improved the affordability of housing, both residential sales and construction remain depressed. A persistent excess supply of vacant homes, largely stemming from foreclosures, is keeping downward pressure on prices and limiting the demand for new construction.
In response, I would point out that CR has argued for a bottom in housing -- a sentiment while I wrote about last May (I was a bit early) and which NDD has been all over (see here, here and here) as examples.
In contrast to the household sector, the business sector has been a relative bright spot in the current recovery. Manufacturing production has increased 15 percent since its trough, and capital spending by businesses has expanded briskly over the past two years, driven in part by the need to replace aging equipment and software. Moreover, many U.S. firms, notably in manufacturing but also in services, have benefited from strong demand from foreign markets over the past few years.
Industrial production -- which crashed as a result of the contraction -- has been steadily making its way back. While we're still not at previous levels, we continue to get closer.
An untold story during this expansion has been the incredibly strong rate of investment by businesses, which is now at higher levels than the previous expansion in real terms.
More recently, the pace of growth in business investment has slowed, likely reflecting concerns about both the domestic outlook and developments in Europe. However, there are signs that these concerns are abating somewhat. If business confidence continues to improve, U.S. firms should be well positioned to increase both capital spending and hiring: Larger businesses are still able to obtain credit at historically low interest rates, and corporate balance sheets are strong. And, though many smaller businesses continue to face difficulties in obtaining credit, surveys indicate that credit conditions have begun to improve modestly for those firms as well.
Interest rates are incredibly cheap by historical standards.
Globally, economic activity appears to be slowing, restrained in part by spillovers from fiscal and financial developments in Europe. The combination of high debt levels and weak growth prospects in a number of European countries has raised significant concerns about their fiscal situations, leading to substantial increases in sovereign borrowing costs, concerns about the health of European banks, and associated reductions in confidence and the availability of credit in the euro area. Resolving these problems will require concerted action on the part of European authorities. They are working hard to address their fiscal and financial challenges. Nonetheless, risks remain that developments in Europe or elsewhere may unfold unfavorably and could worsen economic prospects here at home. We are in frequent contact with European authorities, and we will continue to monitor the situation closely and take every available step to protect the U.S. financial system and the economy.
Let me now turn to a discussion of inflation. As we had anticipated, overall consumer price inflation moderated considerably over the course of 2011. In the first half of the year, a surge in the prices of gasoline and food--along with some pass-through of these higher prices to other goods and services--had pushed consumer inflation higher. Around the same time, supply disruptions associated with the disaster in Japan put upward pressure on motor vehicle prices. As expected, however, the impetus from these influences faded in the second half of the year, leading inflation to decline from an annual rate of about 3-1/2 percent in the first half of 2011 to about 1-1/2 percent in the second half--close to its average pace in the preceding two years. In an environment of well-anchored inflation expectations, more-stable commodity prices, and substantial slack in labor and product markets, we expect inflation to remain subdued.
PPI has spiked higher, but has recently moved lower. In addition, PPI rarely bleeds through to CPI -- or, perhaps more appropriate, CPI has a good track record of absorbing PPI increases without passing them onto the consumer.
The above chart shows CPI and PPI. While PPI has wilder swings, they rarely bleed through to CPI.
The above chart is the YOY percentage change in CPI. It shows that prices are contained.
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