Friday, September 17, 2010

Join Bonddad and Mr$. Bonddad in Washington With Jon Stewart

I have done everything possible to make this site apolitical, and in general I think I and the other bloggers have done a good job. The reason for this is simple: I hate politics because both political parties are at best, inept. The Republicans have continually embraced an anti-intellectual agenda that adheres to "magic thinking" -- tax cuts pay for themselves, global warming is a myth, not teaching sex education prevents teen pregnancy etc.... The Democrats can't lead. For the last two years they have had large majorities in Congress yet they are acting like the system is paralyzed. And with the Tea Party, mere competence is optional.

But more and more our political dialog is about yelling. Data is irrelevant. And as such, I find all of it unwatchable and uninformative, with the exception of PBS. I read all my news with one important exception: Jon Stewart. Mr. and Mrs. Bonddad watch Jon Stewart every night he has a new show on.

So when he announced his Rally to Restore Sanity we were very pleased. This morning we purchased our tickets. I want to encourage all readers to think about attending. First -- it's gonna be fun: Jon and Stephen Colbert will be there. And both are a hoot (I'm a Texan; I can say that and not be laughed at). Glen Beck won't be there pushing gold as an investment. In addition, I am hoping it makes an important point: tone it down, in the name of all that is holy. And more importantly, the yelling class does not speak for me.

Also -- if we get enough Bonddad Blog readers -- we may be able to have dinner somewhere. I think this is actually pretty important.

Anyway, this is my one public service announcement.

Weekly Indicators: No Deflation here Edition

- by New Deal democrat

This week in the monthly indicators we found out that manufacturing was definitely slowing (Empire State, Philly Fed) while Industrial Production was up again in August. Inflation is back (which is better than deflation), and August retail sales were quite good. Consumer confidence, however, tanked. In short, the leading data was soft (and confidence outright poor), while the coincident data remained favorable.

I started tracking high frequency weekly indicators to gauge the staying power of the recovery. This they have done, as generally they have never turned negative on a YoY basis. More recently, they have started to bounce back from summer weekly declines, but this week they were more mixed.

The Mortgage Bankers' Association reported that its Refinance Index decreased 10.8% from the previous week, as slightly higher mortgage rates dissuaded applications, while the seasonally adjusted Purchase Index decreased slightly by 0.4% from one week before. Purchase mortgage activity has rebounded off its summer lows for the second week in a row, which is good news, although it means far below its level from earlier this year.

The ICSC reported same store sales for the week ending September 12 increased 0.8% week over week, and up 2.6% YoY. This is still the second weakest YoY performance in several months. On ther other hand, Shoppertrak reported that for the week ending September 11, YoY sales increased 5.7% percent, and were also up 3.0% compared with the previous week.

Gas prices rose $.04 to $2.72 a gallon, and at 9.029 usage again was virtually identical to one year ago. Gasoline stocks continue to be near record territory.

The BLS reported 450,000 new jobless claims, for the second week in a row. It looks like my conjecture that census and municipal/education layoffs were mainly responsible for the June - August spike, as well as a few states recording renewed claims after Congress extended benefits, as "new" claims, was correct.

Railfax showed that all sectors of rail traffic declined last week. This is not unusual due to seasonality, but the decrease was more than last year in all sectors, and economically sensitive waste and scrap metal continued to run below last year's levels.

The American Staffing Association reported that for the week ending September 5, temporary and contract employment decreased 1% to 96.0, the first decrease in a month, but this index still exceeds its 2008 as well as 2009 levels.

M1 increased +0.5% in the last week, about 2.5% month over month, and up 6.8% YoY, so “real M1” is up 5.6%. M2 increased 0.1% in the last week, +0.7% month over month, and up 3.0% YoY, so “real M2” is up 1.8%. Real M1 strongly indicates no double-dip recession, and real M2 has been gradually improving in the last few months. This is its best reading in over 6 months, and it is now only 0.7% into the caution zone.

Weekly BAA commercial bond rates rose for the second week in a row, up another .08% to 5.67%. This is still a very low rate.

Ten days into September, the Daily Treasury Statement is up $70.8 B vs. $62.4 B a year ago, a gain of ~13.5%. For the last 20 reporting days, withholding taxes are up $122.3 B vs. $111.6 B a year ago, for a gain of ~9.6%. This is the best showing in several months.

In general the recent action in these high frequency indicators tell me that the May-August declines in housing starts continue to ripple through the rest of the economy, especially in manufacturing, but other stressors (the Euro, Oil, municipal layoffs) have abated.

Next week we will see Housing Permits which will complete the Leading Indicators. So far they seem to remain "converging on zero."

Industrial Production Break-Down

From the Federal Reserve:

Industrial production rose 0.2 percent in August after a downwardly revised increase of 0.6 percent in July. The downward revision in July primarily resulted from newly available data on the output of four industries within manufacturing: iron and steel, construction machinery, paper, and pharmaceuticals. The index for manufacturing output rose 0.2 percent in August after having advanced 0.7 percent in July; the step-down in the rate of increase reflected a fallback in the production of motor vehicles and parts, which had jumped sharply in July. Excluding motor vehicles and parts, manufacturing output increased 0.5 percent in August after having gained 0.2 percent in July. Production at mines moved up 1.2 percent in August, while the output of utilities moved down 1.5 percent. At 93.2 percent of its 2007 average, total industrial production in August was 6.2 percent above its year-earlier level. The capacity utilization rate for total industry rose to 74.7 percent, a rate 4.7 percentage points above the rate from a year earlier and 5.9 percentage points below its average from 1972 to 2009.

Let's take a look at the macro charts:

Overall industrial production continues its rebounds, as does

overall capacity utilization

Let's look at the market groups in more detail

Overall consumer goods were down .4% because of a drop in auto production.

The chart above shows the drop in durable consumer goods. However, also note the longer trend up.

Non-durables also increased, but they are at stalling a bit, having been at the same level for the last few months.

Business equipment continues to increase

Materials production continues to increase, but largely because of

Durables materials.

Non-durables materials production has been stagnant for most of the year.

In short, this area of the economy looks to be in decent shape.

Yesterday's Market

For the last four days, the SPYs have been in a very tight range

Yesterday, prices gapped lower and then had a later day rally. But, again, note the tight price spread. The reason is

Prices are bumping into topside resistance at very important levels.

The IEF's continue in their downward trajectory, moving in a disciplined manner lower.

Gold is making highs. However, notice the last two days prices have printed a very tight range (weak bars) with little volume follow-through. Ideally, we'd like to see some stronger bars and stronger volume.

Oil is still in a trading range (A). However, it is currently moving higher (B) between lines (C) and (D). Also note there is a slight lift to the MACD. However, until the fundamental news starts to become a bit more bullish and supply becomes a bit more constrained, we probably won't see much upward price action.

Copper is still in an uptrend (A) and prices are consolidating between lines (B) and (C). Notice the EMAs (D) are all moving higher with the shorter above the longer (D). Also note the MACD is neutral.

Thursday, September 16, 2010

The Doomsday Crowd

From the AP:

Economists peddling dire warnings that the world's number one economy is on the brink of collapse, amid high rates of unemployment and a spiraling public deficit, are flourishing here.

The reason these "theories" are successful -- or at least gain traction in the public mind -- is this:

According to a poll by the StrategyOne Institute published Friday, some 65 percent of Americans believe there will be a new recession.

At this point, we get into a chicken and egg story: did the economists start this, which led to the people becoming pessimistic, or has the pessimism always been there, leading to an increase in the consumption of doomsday warnings.

The answer is it really doesn't matter, although my guess is the high unemployment rate is the primary driver of the public's thinking/perception.

One of the reasons why I have become so data driven is just this type of hysteria that we've been seeing over the last (approximately) one year regarding economic writing. For example, consider the information in the latest Beige Books which I covered here and here. The data says the economy is slowing, but is not near recession. Consumers are spending, but they are picky about their choices and the prices they pay. Manufacturers are slowing, but primarily because of construction/housing issues. Or consider the financial sector, which I covered here and here. The data says the sector is healing after a very severe contraction/downturn. Then there is the fact that we see none of the traditional procurers events to a recession in the current economic environment; they're just not there. In short, the economy is growing, albeit weakly.

Does this mean there are not problems? No. The unemployment rate is the obvious stand-out, but there are others such as high levels of household debt, and the ever-present trade deficit.

But the data does not warrant -- and has not warranted for some time -- the apocalyptic predictions we've continually seen promoted on the internet; the data simply does not warrant those conclusions.

"Foreclosure Tsunami" R.I.P.

- by New Deal democrat

Almost six months ago I had a debate with another blogger who viewed the March increase in foreclosures over February as the beginning of a new "tsunami." The genesis of this story goes back to this graph and others like it that made the rounds beginning in 2006:

In the above graph, month 43 -- August 2010 -- marks the peak of those resets. While there is a similar graph which shows an even higher peak next year, like the graph above it shows an "eye of the storm" in mid 2008 and increases since then, so YoY increases in foreclosures should have resumed by now. So, today I am officially sticking a fork in the notion of a "foreclosure tsunami" due to those resets.

This morning Realtytrac reported that:
foreclosure filings -- default notices, scheduled auctions and bank repossessions -- were reported on 338,836 properties in August, a 4 percent increase from the previous month but a 5 percent decrease from August 2009. One in every 381 U.S. housing units received a foreclosure filing during the month.

The report further noted that, while:
Lenders foreclosed on 95,364 U.S. properties in August, the highest monthly total in the history of the report ... A total of 96,469 U.S. properties received default notices (NOD, LIS) in August, a 1 percent decrease from the previous month and a 30 percent decrease from August 2009 -- the seventh straight month where default notices have decreased on a year-over-year basis. Default notices peaked in April 2009, when 142,064 were reported nationwide.

In other words, old foreclosures were pushed to conclusion, while the pace of new foreclosure actions has slowed dramatically.

Here is an updated chart showing total foreclosure activity and YoY change for the last 19 months:

MonthYoY % changeactual foreclosures
04/2009+32 342,038
05/2009+18 321,480
06/2009+33 336,173
07/2009+32 360,149
08/2009+18 358,471
09/2009+29 343,638
11/2009+22 306,627
12/2009+15 349,519
01/2010+15 315,716
02/2010+6 308,524
03/2010+8 367,056
04/2010-2 333,837
07/2010-10 325,229

It bears emphasizing that the rate of foreclosures isn't "good", in fact it's very bad. But if the new wave of re-amortizing mortgage resets were going to result in a foreclosure tsunami, it surely would have manifested itself by the crest of that new wave. It hasn't. Foreclosure activity probably has been driven not by mortgage resets, but by stabilization in home prices and stabilization in jobs. The fundamental position of homeowners did not change for the worse in the last year.

Thus, there may yet be an echo-foreclosure increase due to renewed house prices declines - not mortgage resets - in the next couple of years. RealtyTrac's spokesman, Rick Sharga, suggested as much a month ago, indicating his belief that foreclosure activity probably won't peak until next year.

Nevertheless, the idea that an increase in resets would lead to a foreclosure tsunami at this point has to be regarded as a myth that has been busted.

Railroad Traffic Continues to Increase

From Investor's Business Daily:

In the week ended Sept. 4, U.S. railroads loaded more carloads than in any week this year. There were more carloads loaded per week in August than in any month since November 2008, says the Association of American Railroads. Carloads typically haul commodities like coal, metals and grains.

Doing still better is intermodal traffic -- containers and trailers that are passed between rails, ships and trucks. In August, U.S. railroads originated a weekly average of over 234,000 intermodal trailers and containers -- the most since October 2008, AAR reports, and up nearly 20% from August of last year.

The gains in part reflect easy year-earlier comparisons. Month-to-month data point to some slowing in rail's growth rate. Seasonally adjusted carloads dipped slightly in August. They are essentially flat over the last four months.

However, intermodal traffic continued to rise in August.

On balance, railroads have been a bright spot in the murky recovery. To some degree, this reflects rail's competitive edge more than any broader economic strength. Cheaper and more fuel-efficient than trucks, rails have been gaining market share for medium- and long-haul transport in recent years. During the recession, many struggling truckers trimmed fleets. As a result, there's been "a big shortage of truck capacity," Mims said. This has allowed still further gains for the rails.


Global grain demand has strengthened in the wake of Russia's decision to halt wheatexports. Burlington Northern Santa Fe cites grain shipments as an area of current and forecast strength.

"We are anticipating a very large harvest across all the grain-producing states for corn, wheat and soybeans," Burlington Northern Santa Fe spokeswoman Suann Lundsberg wrote in response to questions from IBD. "Additionally, we are seeing strong world demand" for U.S. wheat, corn and soybeans.


For the railroad industry as a whole, shipments of metals including scrap, iron ore and rolled steel have been on the rise.

BNSF also reports strength in shipments of commodities used in oil and gas drilling. These include pipe, sand and a variety of clays.

Of 19 commodities carried by rail and tracked by AAR, 16 enjoyed increased carload loadings in August when compared with last year.

Consider these charts from RailFax:

Baseline traffic has rebounded from a lull at the beginning of the third quarter.

Cyclical traffic has increased from a lull as well.

Intermodal traffic is in a strong upswing. As a result,

Total rail traffic is at it's highest point in a year.

In addition, here is a link to a chart that shows how far cyclical and inter-modal traffic have come.

In addition, consider the latest report from the American Association of Railroads:

The Association of American Railroads (AAR) today reported weekly rail carload volume set a new 2010 record for the second consecutive week. U.S. railroads originated 305,000 carloads during the week ending Sept. 4, 2010, up 6.9 percent compared with the same week in 2009, and at comparable levels to the same week in 2008. The 2008 comparison week included the Labor Day holiday while the corresponding weeks in both 2010 and 2009 did not. In order to offer a complete picture of the progress in rail traffic, AAR reports 2010 weekly rail traffic with comparison weeks in both 2009 and 2008.

Intermodal traffic totaled 237,006 trailers and containers, up 18 percent from the same week in 2009, and up 18 percent compared with 2008. Compared with the same week in 2009, container volume increased 19.4 percent and trailer volume rose 10.7 percent. Compared with the same week in 2008, container volume increased 27.1 percent and trailer volume declined 16.9 percent.

Thirteen of the 19 carload commodity groups increased from the comparable week in 2009 with metallic ores and metals and metal products continuing to post significant increases, up 57.1 percent and 32.4 percent respectively. Nine carload commodity groups, led by farm products excluding grain, posted an increase over the 2008 comparison week.

And consider these charts:

Total carloads have increased.

The totals for each category are increasing on a year over year basis.

Last month saw a big increase in total cars and intermodal traffic.

See also this post on port traffic at the Port of LA.

Yesterday's Market

The treasury market is clearly in a downward sloping pennant pattern, making a disciplined move lower (a). Also note that prices are bouncing between the EMAs for technical support and resistance (b).

Yesterday, Treasury prices gapped lower (a), but rallied just above the previous days highs (b). prices couldn't maintain the upward momentum and started for move lower for the rest of the day, with prices rallying a few times into the EMAs (c). At the end of the day, prices consolidated in a triangle pattern (d) with some high volume totals (d).

Notice that SPY prices are right in an area of key resistance (a). If prices can move through these levels, the index has some upward room to move.

Yesterday's action had three key segments: a rally (a), a fallback to Fibonacci levels (b) and then another rally (b) that ended on high point with strong volume (c).

Notice the the transports are still below key resistance levels (a).

Remember that stock prices have been hampered by the Treasury market's rally. But with the Treasury market falling, we may now have enough ammunition for the market to move higher.

Gold stalled a bit yesterday, and is still at important resistance levels (a). Ideally, we need prices to make another strong move above this level in order to move higher.

Jobless Claims and Nonfarm Payrolls

Non seasonally adjusted Initial Jobless Claims and Total Nonfarm Payrolls....

9/11/10 339,838 130.311 million (August numbers)
9/12/09 411,126 129,857 ( September 2009)
9/13/03 328,414 129,925 (September 2003)
9/10/83 288,700 91,231 ( September 1983)

On the other side of the job picture Private Sector Job Openings today are 2.723 million which
is up from last years'number of 2.046 million. At the start of the recession this number was 3.92 million and in September 2003 this number was 2.819 million.

Wednesday, September 15, 2010

Industrial Production Increases, Albeit Slower

From Bloomberg:

Production in the U.S. cooled in August as automakers scaled back following a surge in output the prior month.

Industrial production increased 0.2 percent last month after rising 0.6 percent in July, figures from the Federal Reserve showed today. Factory output climbed 0.5 percent excluding autos, the most since May.

Ford Motor Co. is among companies not looking to boost U.S. output on concern a lack of jobs will hold back consumer spending, which accounts for about 70 percent of the world’s largest economy. Orders from overseas and the need for some companies to replace outdated equipment are supporting other manufacturers including Caterpillar Inc.

“Most of the signs are still pointing to growth in the factory sector, although it’s going to be more modest than the explosion we saw earlier in the year,” Omair Sharif, a senior economist at RBS Securities Inc. in Greenwich, Connecticut, said before the report. “You’ll see manufacturing grow more at a pace that’s in line with the rest of the economy.”

I'll have more on this tomorrow

Beige Book, Part IV

Let's take a look at the lending activity from the latest Beige Book:

Lending activity was stable to down slightly on net. Most Districts reported little or no change from existing low levels of commercial and industrial lending, as businesses remained quite cautious about expansion plans. Dallas and San Francisco reported that overall lending trailed off, with declines driven by weak business lending stemming in large part from uncertainty about future economic conditions. Consumer lending remained sluggish in general, with contacts in Philadelphia and Richmond emphasizing the role of households' ongoing efforts to reduce their debt burdens. A recent flurry of refinancing activity spurred increased demand for residential mortgages in the New York, Cleveland, Chicago, and Kansas City Districts, but new-purchase mortgage originations remained quite sluggish in general. A few Districts pointed to increases in nonbank financing activity, including rising availability of trade credit in Atlanta and further increases in venture capital funding in San Francisco.

Lending standards were largely unchanged. However, New York reported tighter standards in all lending categories, particularly for commercial mortgages, and Kansas City reported that a few banks tightened standards for commercial real estate loans. By contrast, reports from Chicago indicated that credit availability and terms loosened for business and consumer loans. Credit quality also changed little on balance. Philadelphia, Chicago, and San Francisco noted modest improvements in overall credit quality, while New York reported rising delinquencies for all categories except consumer loans and Atlanta reported an increase in business and household bankruptcies.

Let's take a look at the data from the districts:

NY: Contacts at small to medium sized banks in the District report decreased demand for consumer loans and commercial mortgages, and steady demand for commercial and industrial loans. Demand for residential mortgages picked up, but this may largely reflect refinancing of existing loans (which rose sharply). Respondents indicate a tightening of credit standards for all categories--particularly in the commercial mortgage category. For the first time in well over a year, bankers report a decrease in spreads of loan rates over costs of funds--primarily for residential mortgages. Bankers report little or no change in spreads for other loan categories. Finally, bankers' responses point to increased delinquency rates for residential mortgages, commercial mortgages and commercial and industrial loans but little change in delinquencies for consumer loans.

Philly: Total outstanding loan volume at most of the Third District banks contacted for this report has been virtually level since the last Beige Book. Commercial bank lending officers said there has been a slight increase in credit extended on home equity lines, but practically no change in outstandings in other credit categories. Bankers continued to report low demand for both consumer and business loans. "It's still a deleveraging story," one banker said. Commercial bank officers indicated that credit quality has been steady or has improved slightly since the last Beige Book.

Cleveland: The market for business lending remains soft, with bankers generally characterizing the demand for new commercial and industrial loans as steady or slowly improving. Commercial real estate lending is particularly weak. Interest rates moved by only a few basis points. On the consumer side, conventional loan demand is weak. Those seeing an uptick attributed it mainly to consumers looking for home equity loans and competitive pricing. Most of our contacts said that the demand for residential mortgage refinancing is very strong, while new-purchase mortgage originations continue at a slow pace. Core deposits held steady or increased at almost all banks, with much of the growth occurring in transaction accounts. Reports on credit quality were mixed, while delinquency rates declined somewhat. Employment rolls and wages showed little change.

Richmond: Banking was widely described by contacts as weak and relatively unchanged since our last assessment. Several bankers noted that consumer loan demand remained soft, as consumers continued to reduce debt, and mortgage demand centered mostly on refinancing with existing clients. Small business loan demand was also described by most contacts as soft, as firms struggled with weak demand. One community bank official stated that auto dealers had difficulty obtaining floor-plan loans, even though they needed more inventory to support the current sales rate. A bank economist reported some improvement in equipment expenditure financing, which was mostly to replace out-dated technology and not to increase capacity. Tighter controls on credit cards, such as higher fees on overdrafts, were cited by one banker as limiting consumers' credit card usage. Credit quality was mostly unchanged, with several bank contacts noting no increase in delinquencies or late payments.

Atlanta: Uncertainty and conservative lending continued to hamper loan activity across the District. Businesses cited difficulties receiving credit and many firms expressed little or no interest in applying for new loans because of low expectations for future sales or orders. Businesses also reported refusing offers of credit because of unfavorable terms from banks. However, multiple contacts indicated an expansion of trade credit to create and extend lines of credit outside of the traditional banking infrastructure. Personal and business bankruptcies increased across the District.

Chicago: Credit conditions improved slightly from the previous reporting period. Corporate credit spreads edged lower and business loan demand was steady, driven mostly by refinancing and acquisition activity. On the other hand, demand for liquidity remained high with greater uncertainty over the economic outlook, regulation, and the political landscape restraining the supply of credit. Contacts indicated, however, that demand for distressed commercial properties continued to be strong. Banking contacts again noted that fierce competition was leading to greater flexibility in pricing and terms and greater availability of business loans. Consumer loan availability also increased, particularly for auto loans and credit cards. Bank loan quality continued to slowly improve, and lower loan loss provisions contributed to higher bank earnings.

St. Louis: A survey of senior loan officers at a sample of large District banks indicates little change in overall lending activity for the three-month period ending in July. Credit standards for commercial and industrial loans remained basically unchanged, while demand for these loans was about the same. Credit standards for commercial real estate loans were also basically unchanged, while demand for these loans varied slightly, ranging from moderately weaker to moderately stronger. Meanwhile, credit standards for consumer loans were basically unchanged, while demand for these loans was mixed, ranging from weaker to moderately stronger. Credit standards for residential mortgage loans remained basically unchanged, while demand for these loans was moderately weaker.

KC: Bankers reported steady loan demand, stable deposits, and an unchanged outlook for loan quality. Overall loan demand was little changed after edging up in the previous survey. Demand was also stable in all major loan categories. As in previous surveys, a few banks tightened standards on their commercial real estate loans. However, credit standards on other types of loans were unchanged. Slightly more bankers reported an improvement in loan quality from one year ago than reported deterioration. Also, for the third straight survey, respondents expected no change in loan quality over the next six months. Deposits were flat, continuing the pattern since late last year.

Dallas: Financial firms said loan demand continued to trail off. Business lending was especially weak, and contacts said businesses lacked confidence and were unwilling to make financial commitments. Deposit growth was strong, and credit quality on outstanding loans was stable. Several respondents reported concerns over financial reform legislation and other political uncertainties. Earnings projections are flat for 2011, and some contacts were building up loan loss reserves in preparation for the coming year.

SF: District banking contacts reported that loan demand slipped somewhat. Commercial and industrial loan volumes waned a bit, reportedly restrained by businesses' cautious attitudes towards capital spending stemming from their uncertainty about the future economic environment. While a majority of respondents across all industries indicated that they anticipate no change in the pace of economic growth in their respective industry or area in the second half of the year compared with the first, most of those who do expect a change foresee a slowdown as opposed to a pickup. Consumer loan demand also remained weak overall. By contrast, venture capital financing continued to be a bright spot, with contacts noting increased levels of funding, as well has heightened IPO activity. Although contacts noted slight improvements in overall credit quality, lending standards stayed relatively restrictive for business and consumer lending.

Recently, the FDIC issued their quarterly banking profile. I covered that report in two installments, which are here and here.

I covered the recent senior loan officer survey here

Let's look at the data:

Total loans and leases rose briefly earlier this year, but are still at depressed levels.

The same analysis applies to the total loans and investments

Commercial and industrial loans are decreasing, as are

Total real estate loans.

Total non-revolving credit outstanding has been stagnant while

Revolving credit has been dropping.

I have no idea what caused the big spike in consumer loans, which look very out of place considering

Consumers are continuing to cut back on overall credit outstanding.

Retail Sales And Inventories Increase

From the Census:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for August, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $363.7 billion, an increase of 0.4 percent (±0.5%)* from the previous month, and 3.6 percent (±0.5%) above August 2009. Total sales for the June through August 2010 period were up 4.7 percent (±0.3%) from the same period a year ago. The June to July 2010 percent change was revised from +0.4 percent (±0.5%)* to +0.3 percent (±0.2%).

Let's take a look at the underlying data:

Click for a larger image.

I've blocked out the areas that decreased, which fall in three primary categories: autos, furniture and electronic stores. In other words -- anything related to big durable goods purchases.


On a real (inflation-adjusted) basis, sales were stagnant.

From the Census:

The U.S. Census Bureau announced today that the combined value of distributive trade sales and manufacturers' shipments for July, adjusted for seasonal and trading-day differences but not for price changes, was estimated at $1,090.0 billion, up 0.7 percent (±0.2%) from June 2010, and up 9.2 percent (±0.5%) from July 2009.

Inventories. Manufacturers' and trade inventories, adjusted for seasonal variations but not for price changes, were estimated at an end-of-month level of $1,375.7 billion, up 1.0 percent (±0.1%) from June 2010 and up 2.4 percent (±0.4%) from July 2009.

More from Bloomberg:

A big inventory build may be underway in what is a new and uncertain factor for the economy. Business inventories, up 1.0 percent in July, rose significantly for a second month and outpaced sales for a second month. The build is broad: up 1.3 percent at wholesalers, up 1.0 percent at manufacturers, up 0.7 percent at retailers. The build for retailers is skewed by a second straight giant build at auto dealers. Full lots at dealers are probably going to become a big problem given the weakness in auto sales in today's retail sales report for August.

Bloated inventories are not yet a problem for the economy but could become a problem if economic growth fizzles out. Outside of car dealers, today's retail sales report was mostly upbeat for August meaning that excess inventory isn't a risk right now for that sector. Note however that early indications on September retail sales, including in today's Redbook report, point to no better than flat sales for September. Inventories do appear to be heavy in the wholesale sector where sales are flat. Data in the ISM report for August hint at the risk of unwanted build in the manufacturing sector.

Yesterday's Market

Gold was the big story yesterday. Prices are currently in the middle of important resistance levels (A) and are almost through them (B). We've even seen a small bump to momentum (C). Ideally, we'd like to see some strong follow-through tomorrow.

In contract, we have the lumber market. After falling earlier this year (A), prices have been consolidating, forming a very strong base (B). Obviously the housing has a great deal to do with this market, and the housing market's current slowdown is not helping lumber prices.

SPY prices are currently right at the top of resistance.

Also note that as prices have advanced to the top of the range we've seen the bars get smaller. Notice the progression to smaller bars between circles a, b and c.

Yesterday, prices consolidated in a triangle pattern between lines A and B. At the end of trading, we saw prices break to the downside on heavy volume (C).

In the Treasury market, prices gapped higher at the open (a) then traded sideways into the EMAs (b). Prices then started a gentle but consistent upward move for the rest of the day.

Finally, the cattle market -- while still in a rally (A) may be done consolidating (B) and move higher (C). Also note the MACD is about to give a buy signal.

Tuesday, September 14, 2010

Australia Wheat Crop To Be Large

From the FT:

Australia is set for a bumper wheat harvest that could propel the nation’s exports to their second highest level on record, according to the Australian Bureau of Agricultural and Resource Economics (Abare).

The official forecasting body lifted its estimates for this year’s harvest yield to 25.1m tonnes, 14 per cent higher than it projected in June and 16 per cent ahead of last season. It added that exports could reach nearly 18.4m tonnes, second only to 1996-97’s 19.2m tonnes.

As a result, exports are going to be large:

And exports would, at 18.4m tonnes, be bettered only by the 19.2m tonnes in 1996-97.

The export forecast was 3.9m higher than Abare's last estimate, in June. While the bureau failed to detail the reasoning behind its upgrade, the revision comes amid increasing evidence of alternative exporters benefiting from Russia's decision to ban grain exports following its worst drought on record.

Both the European and the US last week reported their best weekly export data for three years. A separate Abare report on Tuesday showed Australian shipments rising by one half, year on year, to 1.6m tonnes in July.

"The largest markets for bulk wheat exports in July were Indonesia, Sudan and Yemen," the report said.

As news of the Russian situatuon hit the markets, we saw a big rally (a). Prices consolidated from that rally (b) and have moved a bit higher (c), although not in a major way. While the EMA picture is still bullish (e), momentum is still weak (d). This news should lead to more downside pressure on prices.

The Biege Book, Part III

Let's turn now to the services part of the
Beige Book Report:
Activity was largely stable or up slightly for professional and other nonfinancial services. Providers of information technology (IT) services such as computer software saw substantial revenue and sales gains in the Boston and Kansas City Districts, with increased demand for IT labor reported in Chicago as well. Demand for professional services such as accounting held largely steady, with Minneapolis and Dallas noting increases for selected types of consulting and legal services. Conditions were mixed for providers of real estate services, as heightened appraisal activity for refinancing purposes was offset by depressed home sales and consequent limited needs for agents and brokers. Demand for temporary staffing services remained on an upward trend, with increases noted by Boston, Philadelphia, Richmond, and Minneapolis, although Chicago pointed to a slight softening during the reporting period. Reports from the health-care sector were mixed: Boston, Cleveland, and Chicago reported ongoing increases in demand for health-care workers, while Philadelphia indicated a flattening in demand for health-care services and San Francisco noted a decline in the frequency of elective procedures and routine tests. Demand for shipping and transportation services generally expanded, although according to Cleveland the pace of growth slowed and contacts there expect little change from existing volumes in the near term.

Across a variety of industries, demand for services appears to be good. Here are the snippets from the various Fed Districts:

Boston: Software and information technology contacts in the First District report that business conditions continued to improve. Year-over-year revenue increases ranged from mid-single digits to 15 percent in the most recent quarter. Half of contacted firms increased their headcounts and another was "on the cusp of hiring."

The majority of First District staffing contacts report that business continues to strengthen, although a few experienced stagnant or inconsistent activity over the past three months. Most contacts describe business since the end of Q2 as "fair to good" or "generally positive," with revenue growth in the single digits. Year-over-year revenue changes vary widely, from down slightly to up by over 40 percent. Labor demand increased, particularly in the light industrial, information technology, and health care sectors; however, the consensus among contacts is that jobs are hard to fill. A few contacts report that the supply of job seekers is plentiful but that clients are reluctant to hire; others said that recruiting workers with specific skills has become more difficult. Bill rates and pay rates are steady or up slightly, as many clients show increased willingness to pay higher rates for quality workers. The number of conversions from temporary to permanent staff increased and permanent placements picked up.

NY: Non-manufacturing firms report ongoing improvement in general business conditions and continue to report moderate increases in employment; they remain fairly optimistic about the near term outlook

A major NYC employment agency, specializing in office jobs, reports that, while the job market is difficult to gauge during the slow summer season, market conditions appear to be improving gradually and conditions are not as dire as last summer. The pool of available candidates is not as large as it was last summer; however, some people who had given up looking are starting to come back.

Philly: Service-sector firms generally reported minimal gains or flat rates of activity since the previous Beige Book. A large business services firm reported that client companies were not contracting for as much business as they had indicated earlier in the year. Several health-care organizations noted recent flattening in activity that is interrupting a long growth trend. In contrast, some temporary employment agencies noted that demand had picked up recently. Looking ahead, most of the services firms contacted for this report expect growth to be slow for the rest of the year. Some have reduced their forecasts; as one contact said, "It looks like we were a little too optimistic earlier this year."

Richmond: Services-providing firms also gave mixed reports. Contacts at healthcare organizations noted that demand was typical for the summer, while airport officials and electrical contractors saw a small increase in demand for their services. A telecommunications contact reported accelerating revenues, while several administrative-support firms cited flat or slowing revenue growth. Local officials in Norfolk, Virginia noted that a recently announced shut-down of major military facilities would affect a large number of civilian contractors.

St. Louis: The District's services sector also has continued to improve since our previous report. Firms in the transportation, business support, telecommunications, and government services industries expanded existing operations and hired new employees. Additionally, firms in the restaurant industry opened several new facilities. In contrast, contacts in the business support services and janitorial services industries reported plans to decrease operations and lay off workers.

Minneapolis: Activity in the professional business services sector increased since the last report. Contacts from the legal sector reported that billings during July were up from a year ago, especially for firms that deal with bankruptcies. A call center is expanding in South Dakota. Appraisers and other professional services firms that support home refinancing reported strong activity over the past month.

KC: Growth in transportation services moderated slightly from previous surveys but remained solid, and a major supplier of diesel fuel reported continued solid sales. Most high-tech services firms reported strong growth in sales, although a few contacts noted softened demand. Business firms' expectations for future sales eased somewhat from the previous period but remained positive.

Dallas: Most staffing firms report that demand continues to grow at a solid pace, and is particularly strong for light industrial, sales, administrative, professional and technical workers. Placement activity continues to be mostly for contract work as employers are still hesitant to hire permanent staff. Near-term outlooks are optimistic, but respondents are cautious about the longer term. Accounting firms note that while demand for tax-related services has slowed seasonally and that for real estate and construction-related work remains nonexistent, there has been a pickup in transactional and consulting activity. Demand for legal services was largely unchanged during the reporting period, with the exception of an uptick in corporate demand for mergers and acquisitions-related activity.

Demand for transportation services remains positive.Railroad respondents noted a broad-based increase in cargo volumes, with shipments of grain products recording the largest increase. Shipping firms said small parcel cargo volumes rose, while large freight shipments declined during the reporting period. Intermodal transportation firms reported a modest increase in shipments. Airline traffic was flat to slightly down since the last report, but is stronger than a year ago. The outlook is for continued stability in air travel demand.

Let's take a look at some of the data:

While still positive, the ISM services index has been heading lower for a few months.

The new orders index has been moving lower as well.

The employment section of the ISM report has been floating around 50 for awhile, but has not made any strong gains above the level.

And the business activity, while still positive, is moving lower.

The above charts show a sector that is still expanding, albeit a bit more slowly.

The latest ISM report stated:

"The NMI (Non-Manufacturing Index) registered 51.5 percent in August, 2.8 percentage points lower than the 54.3 percent registered in July, indicating continued growth in the non-manufacturing sector but at a slower rate. The Non-Manufacturing Business Activity Index decreased 3 percentage points to 54.4 percent, reflecting growth for the ninth consecutive month, but at a slower rate than in July. The New Orders Index decreased 4.3 percentage points to 52.4 percent, and the Employment Index decreased 2.7 percentage points to 48.2 percent, reflecting contraction after one month of growth. The Prices Index increased 7.6 percentage points to 60.3 percent in August, indicating that prices increased significantly in July. According to the NMI, nine non-manufacturing industries reported growth in August. Respondents' comments continue to be mixed about business conditions and the state of the overall economy."


The nine industries reporting growth in August based on the NMI composite index — listed in order — are: Arts, Entertainment & Recreation; Construction; Real Estate, Rental & Leasing; Educational Services; Transportation & Warehousing; Finance & Insurance; Accommodation & Food Services; Information; and Wholesale Trade. The eight industries reporting contraction in August — listed in order — are: Agriculture, Forestry, Fishing & Hunting; Mining; Professional, Scientific & Technical Services; Management of Companies & Support Services; Utilities; Retail Trade; Health Care & Social Assistance; and Public Administration.


  • "In general, sales have increased slightly compared to the same period last year. However, [sales] are still significantly less than the same period two years ago." (Public Administration)
  • "Continuing to show signs of positive growth." (Construction)
  • "Business is pretty stagnant; starting to see price erosion in our selling markets." (Agriculture, Forestry, Fishing & Hunting)
  • "Due to general economic conditions, we are finding more aggressive pricing and deals to win business in the competitive marketplace." (Health Care & Social Assistance)
  • "We are anticipating a slowdown in the third and fourth quarter of this year, with no signs of recovery for the next few quarters." (Professional, Scientific & Technical Services)
  • "Purchasing has been cut back to meet expenses. As a result, some segments of company revenue have been negatively impacted." (Retail Trade)
Notice, again, the trend is for slower growth, not contraction.

And finally, consider this report from the Census Bureau regarding the services industry:

Information sector revenue for the second quarter rose a sequential 0.8 percent to an adjusted $290.9 billion vs. a revised 0.9 percent gain in the first quarter (plus 1.1 percent first reported). Year-on-year, information sector revenue rose 2.7 percent vs. a 2.2 percent gain in the first quarter. Employment services revenue rose an adjusted 5.4 percent from the first quarter vs. the first quarter's 5.3 percent gain. Year-on-year, employment services were up 20.9 percent vs. plus 11.0 percent in the first quarter. Unadjusted data of interest include a 10.0 percent sequential second-quarter gain for transportation & warehousing and a fractional 0.1 percent rise for finance & insurance.