This week continued the spate of strongly improving data - except for housing. Both the Empire State and Philly Fed regional reports surprised strongly to the upside. Industrial production and capacity utilization turned back up, although less strongly. Consumer inflation was somnolent, producer prices not so. Housing permits and starts remained down in the ditch. Leading Indicators came in at +1.1%, meaning the last 3 months are up a combined 2.0%, meaning more improvement ahead. But the star of the show had to be retail sales, which at +.8% continue a 5 month winnng streak, totaling +4.8% - or an annual growth rate in excess of 10%.
Most of this week's high frequency data was strong as well.
The BLS reported 420,000 new jobless claims. The 4 week moving average fell to 423,000, another new low since early August 2008. Seven of the last eight weeks have shown 440,000 or fewer new claims. As I said last week, if this trend continues (no guarantee), the average will drop below 400,000 by February.
Gas at the pump increased ten cents to $2.98 a gallon last week. This is about $0.30 above its average from a few months ago. Oil continued to flirt with the $90 a barrel mark. Despite this, gasoline usage was significantly higher than last year, 9.349 B gallons vs. 8.963 B a year ago. Gasoline stocks remain back in their normal range for this time of year.
The Mortgage Bankers' Association reported that its seasonally adjusted Purchase Index decreased 5.0% last week, but generally remains stable for the last couple of months. This series is comparable to year-ago levels excluding those periods when home buyers rushed to beat the expiring $8000 tax credit. Contrarily, the Refinance Index declined for the fifth straight week, by 0.7%. As I said last week, rapidly increasing mortgage interest rates are killing refinancing, and this may have an effect on consumer spending later.
The ICSC reported same store sales for the week ending December 11 increased 3.1% YoY, and increased 0.8% week over week. Shoppertrak reported that sales declined -0.4% YoY in the week ending December 11. They anticipate that Holiday sales will increase about 4% YoY when all is said and done.
Railfax showed improvement in most measures compared with last year. Additionally, for the first time in a while, shipments of lumber and scrap metal are comfortably above last year's numbers, indicating some improvement in the housing market.
The American Staffing Association reversed its Thanksgiving week decline and is back at 101 for the week ending December 4. This index will decline significantly over the next several weeks as it always does, and won't give much reliable information again until January.
M1 was down -1.5% for the week, down -.3% vs. last month, and +8% YoY, meaning "real M1" is up 7.0%. M2 held steady for the week, but was up +.15% vs. last month, and 3.0% YoY, meaning "real M2" is up 2.0%. Real M2 has stalled without being able to break out of the "red zone" below +2.5% YoY.
Weekly BAA commercial bond rates increased from 5.95% last week to 6.09%. This compares with yields on 10 year bond yields going up .25%. All bonds have come under stress recently, but this suggests investors are "reaching for yield." It's worth noting also that bond yields and stocks continue to move in opposite directions, indicating zero fear of a deflationary pulse.
The Daily Treasury Statement showed receipts in the first 11 reporting days of December of $77.8 B vs. $67.0 B a year ago, for a gain of 16%! For the last 20 days, $130.9 B has been received vs. $117.5 B a year ago, another strong gain of 11%.
The development of commodity inflation, especially as feeding through into the bond market, will have to be watched. Still, with the exception of housing, the economy seems to be firing on all cylinders. A few pundits have begun to use the surprising phrase that the economic recovery seems to be turning "self-sustaining." I would say they are more likely correct than incorrect, and even though we would like a lot more growth in jobs and income, that has to be very welcome news.
Have a nice weekend!