Saturday, February 2, 2013

Weekly Indicators: austerity bites edition

- by New Deal democrat

In the rear view mirror, 2012 4th quarter GDP unexpectedly declined -0.1%, due mainly to the largest cutback in military spending in 40 years, plus inventory reductions. November Case-Shiller house prices increased. December monthly data included a big increase in durable goods spending and personal income, and an increase in construction spending and personal spending. January auto sales were virtually unchanged from November and December. Both the Chicago and PMI January manufacturing indexes surprised to the upside. One measure of consumer confidence rose and the other declined in January.

This week appears to give the first indication that tax increases may be affecting the economy. So Let's start this look at the high frequency weekly indicators by checking what is happening with tax withholding:

Employment metrics
Daily Treasury Statement tax withholding
  •  $127.6 B (adjusted -13.1% for 2013 payroll tax withholding changes) vs. $149.0 B, -14.4% YoY last 20 days

  •  $149.5 B (adjusted -13.1% for 2013 payroll tax withholding changes) vs. $158.7 B, -5.8% YoY for all of January
Initial jobless claims
  •   368,000 up 38,000

  •   4 week average 352,000 up 250
American Staffing Association Index
  • unchanged at 89 w/w up 3.5% YoY
Employment metrics were poor this week. Initial claims increased back into their 2012 range this week. In the second half of 2012 the ASA index's performance compared with 2011 declined significantly, although the absolute index was higher. This week, however, the Index declined slightly compared with 2007 and remains below 2008. Tax withholding was the worst since the last recessioin after being particularly weak for two weeks in a row. Since the 1st of each month tends to be a very big day for payment of these taxes, the 20 day average is something of an aberaation this week. But the monthly January reading is not so affected. Thus the YoY decline is a real concern. Please note I am adjusting my YoY figures to reflect the increase in personal withholding taxes, and it is possible that the adjustment is off.

Consumer spending
  • ICSC -1.0% w/w +2.0% YoY

  • Johnson Redbook +1.6% YoY

  • Gallup daily consumer spending 14 day average $76 up $12 YoY
Gallup remains significantly positive. The ICSC varied between +1.5% and +4.5% YoY in 2012. This week was close to the bottom end of that range. Johnson Redbook is also in the lower part of its YoY growth range from 2012.

Housing metrics

Housing prices
  • YoY this week. +2.6%
Housing prices bottomed at the end of November 2011 on Housing Tracker, and have averaged an increase of +2.0% to +2.5% YoY for the last year.

Real estate loans, from the FRB H8 report:
  • 0.0% w.w

  •  +2.0% YoY

  • +2.6% from its bottom
Loans turned up at the end of 2011 and averaged about 1% gains YoY through most of 2012, and have recently shown somewhat more YoY strength. This week remained near the top of its recent range.

Mortgage applications
  • -2% w/w purchase applications

  • +2% YoY purchase applications

  • -10% w/w refinance applications
Purchase applications have been going sideways for 2 years. This week's reading remained close to the top of that range. Refinancing applications were very high for most of last year with record low mortgage rates, are responding to an increase in rates.

Interest rates and credit spreads
  • +0.03% to 4.72% BAA corporate bonds

  • +0.03% to 1.90% 10 year treasury bonds

  • 0.0% change at 2.82% credit spread between corporates and treasuries
Interest rates for corporate bonds have been falling since being just above 6% two years ago in January 2011, hitting a low of 4.46% in November 2012. Treasuries have fallen from about 2% in late 2011 to a low of 1.47% in July 2012. Spreads have varied between a high over 3.4% in June 2011 to a low under 2.75% in October 2012. This weak was slightly negative, although the YoY changes remain very positive.

Money supply

  • +0.6% w/w

  • +0.9% m/m

  • +10.3% YoY Real M1

  • -0.5% w/w

  • +0.2% m/m

  • +5.7% YoY Real M2
Real M1 made a YoY high of about 20% in January 2012 and has generally been easing off since. This week's YoY reading remained above a new low set several weeks ago. Real M2 also made a YoY high of about 10.5% in January 2012. Its subsequent low was 4.5% in August 2012. It weakened this week. Both are still quite positive in absolute terms.

Oil prices and usage
  •  Oil $97.77 up $1.89 w/w

  •   gas $3.34 up $.04 w/w

  • Usage 4 week average YoY +3.0%
Gas prices are increasing seasonally. Unusually for the last year plus, the 4 week average for the second week in a row was positive YoY.


Railroad transport
  •  -18,000 or -6.3% carloads YoY

  • -100 or virtually unchanged carloads ex-coal

  • +3,800 or +1.6% intermodal units

  • -14,200 or -2.7% YoY total loads

  • 10 of 20 types of carloads up YoY, an increase of 1 from last week
Shipping transport
  • Harpex unchanged at 359

  • Baltic Dry Index down 40 to 758
Rail transport has been whipsawing between very positive and very negative readings over the last 2 months. This may well be the aftermath of the dock strikes. That traffic is off YoY even ex-coal, however, is cause for concern. The Harpex index is still near its 3 year low of 352, and the Baltic Dry Index is declining towards its 52 week low from last February.

Bank lending rates
  • 0.240 TED spread down +0.010 w/w

  • 0.2006 LIBOR down -0.0031 w/w
The TED spread is near its 52 week low. LIBOR is again at a new 52 week low and is close to a 3 year low.

JoC ECRI Commodity prices
  • up 0.36 to 129.89 w/w

  • +4.40% YoY
The most important issue at the moment is whether the 2% increase in withholding tax rates is having an effect on consumers. We can add to that the issues of the impending austerity of the budget sequestration, and the potential consequences of moving income and spending forward into 2012 from 2013 due to tax increases. This week we got strong evidence for the first time that there is indeed an effect.

Tax withholdings were the weakest in a long time. Rail was weak. Initial jobless claims spiked. Shipping rates are low, although much of that is likely seasonal. Gas prices are rising seasonally. Consumer spending as measured by same store sales are now at or near the weak end of their 2012 YoY comparisons. Consumer confidence is declining precipitously, at least as measured by one survey, although the other shows an improvement.

Continuing positives include the housing market, money supply (although more weakly positive than in the last year or two), bank lending rates, and commodity prices. Gallup consumer spending is still strong. Manufacturing conditions surprisingly improved in January.

If austerity measures emanating from Washington are enough to tip the economy into contraction, the evidence should accumulate in the next few weeks.

Have a nice weekend.