- by New Deal democrat
This was a sparse week for monthly data. Housing permits and starts both increased to near 12 month highs. Partly as a result, the Leading Economic Indicators for June were reported up .3, and May was revised to up .8. This appears to take a near-term economic contraction off the table (idiocy in Washington permitting).
The high-frequency weekly indicators rebounded. Let's take the opportunity to review their recent trends, because there are interesting, but mixed, currents in employment, housing, sales, and money supply:
Employment is stalled:
The BLS reported that Initial jobless claims last week were 418,000. The four week average decreased to 421,250. Jobless claims appear to have stabilized in a range generally between 410,000 - 430,000.
The American Staffing Association Index declined 3 points to 84. The ASA indicates that this reporting week included the July 4 holiday and so reflects seasonal weakness. This trend of this series for the year is distinctly worse than 2007, but slightly better than the early recession of 2008. Unless this report increases significantly in the next few weeks, it will have completely stalled.
Both of these generally have completely stalled since the end of the first quarter.
Housing shows signs of stabilization, or at least getting "less worse":
The Mortgage Bankers' Association reported that seasonally adjusted mortgage applications decreased -0.1% last week. For the 7th time in 8 weeks, however, the YoY comparison in purchase mortgages was positive, up 8.3% YoY. Refinancing also increased 2.3% w/w. The last 8 weeks have been the best for this series since late 2007.
YoY weekly median asking house prices from 54 metropolitan areas at Housing Tracker showed that the asking prices declined -4.1% YoY. The areas with double-digit YoY% declines decreased by one to 9. The areas with YoY% increases in price remained at 7. Except for 3 weeks ago, this is the best showing in 4 years.
Mortgage applications, like permits and sales, show a slow improvement in the housing market over the least few months. Prices show slowing declines. I read a report this week that homeowners had finally thrown in the towel to bearishness, with a large majority believing their houses would decline in price for the next year, and about half believing the decline would go on for up to 5 years. If we saw that kind of sentiment in the stock market, it would be a strong sign of a bottom. Housing brings out strong opinions, but the data is the data.
Gasoline and retail sales show substitution but not overcompensation by consumers:
Oil finished over $99.87 a barrel on Friday. This is decisively back above the level of 4% of GDP which according to Oil analyst Steve Kopits is the point at which a recession has been triggered in the past. Gas at the pump rose another $.04 to $3.68 a gallon. Gasoline usage at 9028 M gallons was -2.2% lower than last year's 9435. This is the fourth week in a row that gasoline usage has been significantly less than last year. Further, with the exception of 3 weeks, this comparison has been negative YoY since the week of March 12.
The ICSC reported that same store sales for the week of July 16 increased 4.5% YoY, and increased 0.4% week over week. This is the second week in a row of the best YoY comparison in months. Shoppertrak reported a 3.2% YoY increase for the week ending July 16 and a WoW increase of 3.1%. YoY weekly retail sales numbers had been slowly weakening for a month or so, but this week is the fourth week of a rebound for the ICSC, now joined by Shoppertrak.
The American Association of Railroads reported that total carloads increased a tiny +0.4% YoY, up 18000 carloads to 511,700 YoY for the week ending July 16. Intermodal traffic (a proxy for imports and exports) was up 2600 carloads, or 1.2% YoY. The remaining baseline plus cyclical traffic was down 800 carloads, or -0.3 YoY%. This series went negative for the first time one week ago after deteriorating all year.
Research by Professor James Hamilton of UC San Diego has shown that in the past, Oil shock recessions are triggered by price increases to levels higher than at least several years past, causing consumers to overcompensate, cutting back spending more than 2 times the amount that is spent because of increased gasoline prices. The wisdom of that research is borne out by the gasoline usage and retail sales statistics above. Contrary to Oil shock recessions, this year consumers appear to have cut back on gasoline sufficiently to continue to make retail purchases. There was a 3 week period in June when gasoline usage went positive YoY, and it was in that same time frame that weekly same store sales recorded their weakest YoY advances. Consumers do not appear to be overcompensating, hence an overall stall rather than a contraction. Rail traffic likewise indicates a stall, but not a contraction at this point.
Money indicators have generally turned outright bullish:
M1 was up 1.1% w/w, up 2.8% m/m, and up 15.1% YoY, so Real M1 was up 11.7%.
M2 was up 0.1% w/w, up 0.1% m/m, and up 7.8% YoY, so Real M2 was up 4.4%.
Both M1 and M2 have surged in the last 3 weeks. Real M2's move has put it solidly in the green zone above +2.5%, meaning that both money supply indicators are bullish.
Adjusting +1.07% due to the 2011 tax compromise, the Daily Treasury Statement showed that for the first 13 days of July 2011, $97.9 B was collected vs. $88.2 B a year ago. For the last 20 days, $137.2 B was collected vs. $124.9 B a year ago, for an increase of merely $12.3 B, or 9.9%. Use this series with extra caution because the adjustment for the withholding tax compromise is only a best guess, and may be significantly incorrect. In the past few weeks, this comparison has improved considerably.
The only weak spot in the money picture is that weekly BAA commercial bond rates declined -.13% to 5.71%. Yields on 10 year treasury bonds decreased .18% to 2.94%. Over the last 3 months, both yields have come down, but BAA corporates have gone generally sideways for the last 2. This indicates slowly increasing deflationary fears, and a slight increase in relative distress in the corporate market.
Overall, the picture that emerges is that of improving money conditions, and virtually everything else close to flatlining. The trend, however, has been from positive to stall in employment and transportation, vs. negative to flat in the housing market. The negative trend in gasoline sales is being offset by the positive trend in other retail sales. Since housing is a long leading indicator, and money supply a shorter term leading indicator as well, I continue to believe that the stall will not lead to a meaningful contraction (idiocy in Washington permitting), and we may be at the beginning of the ultimate bottoming process in the housing market.