Friday, October 1, 2010

Weekly Indicators: September was not the cruelest month Edition

- by New Deal democrat

This was a slow news week for monthly statistics. Personal income and spending both came in very well at +0.4% and +0.5% respectively, so "real" PCE's were up +0.2%. Construction spending also somewhat unexpectedly improved, although nonresidential declined -1.4% so as expected no bottom there yet (but the rate of decline is decreasing). The Chicago PMI showed a return to strong manufacturing, but regional Federal Reserve reports were mixed and generally weak, as was the ISM Manufacturing Index. The ISM employment index also declined, but not enough to signal actual job contraction. Second quarter GDP was revised very slightly higher to 1.7%. Household debt as a percentage of disposable income continued to plummet during the spring as well. Consumer confidence was awful as measured by the Conference Board, and merely very bad as measured by the University of Michigan. [UPDATE: September auto sales, at 11.76 million annualized units, were the highest all year - just slightly.]

On the other hand, we already know enough to estimate that September's Leading Indicators will almost certainly be positive. The yield curve remains positive. Initial jobless claims declined strongly from August. Money supply has increased significantly so far from last month. The stock market rallied all during the month and is at a three month high. Housing permits for August rose slightly. Orders for core capital durable goods were up strongly as well. So far, only the U Michigan consumer expectations decline and the significant ISM vendor deliveries decline are negative (the latter strongly so). Unless hours worked in manufacturing collapses in the jobs report a week from today, we are very likely to have a significantly positive LEI for September.

High frequency weekly indicators have also run well all month, and continued this week.

The Mortgage Bankers' Association reported that its Refinance Index decreased 1.6% from the previous week, and has now declined for 4 straight weeks, although demand is strong compared with the last year in general due to very low rates. The seasonally adjusted Purchase Index increased 2.4% from one week before. Purchase mortgage activity continues to remain significantly above its July lows, but the bounce is insignificant compared to declines since one year ago..

The ICSC reported same store sales for the week ending September 26 increased 0.4% week over week, and up 3.6% YoY, for the second week returning to its strong YoY performance of several months ago. Shoppertrak also reported that for the week ending September 25, YoY sales rose 2.1%.

Gas prices declined 3 cents to $2.69 a gallon, and at usage at 9.383 million gallons was /250 ahead of last year at this time. Gasoline stocks continue to be 10% above their normal range for this time of year.

The BLS reported 453,000 new jobless claims. The four week average declined to 459,000, near the bottom of its range for this year.

Railfax showed rail traffic improving again last week, and improving at a rate similar to one year ago. The only weak spot is that economically sensitive waste and scrap metal continue to run at or below last year's levels, and autos loads are weak as well.

The American Staffing Association reported that for the week ending September 19, temporary and contract employment increased to 98.0, the highest reading in over two years.

M1 remained flat last week, but increased about 2.5% month over month, and up 6.5% YoY, so “real M1” is up 5.3%. M2 increased again very slightly in the last week, +0.7% month over month, and up 3.0% YoY, so “real M2” is up 1.8%. The ultimate story remains the same: Real M1 still strongly indicates no double-dip recession, and real M2 has been generally improving in the last few months, but is still under 2.5% YoY which would get us into the green zone.

Weekly BAA commercial bond rates declined last week, down .07% to 5.66%. That rates fell while stocks rose is a good sign. the DJ Bond Average also made a new high last week. This is inconsistent with economic contraction.

Twenty days into September, the Daily Treasury Statement is up $128.1 B vs. $117.6 B a year ago, a gain of ~8.8%. September's withholding tax receipts have consistently been among the best readings in the last 6 months.

The weekly indicators have now put in a solid 4 weeks of positive readings. The only fly in the ointment is the significant decline in manufacturing growth. It seems that vendors are very leery of being caught with excess inventory, and are trimming back orders accordingly. Nevertheless, that only signifies a slowdown in manufacturing growth, not any outright double dip.