Saturday, July 16, 2011

Weekly Indicators: moving further towards contraction edition

- by New Deal democrat

Monthly data released this past week was consistent with very slow growth or a stall. There was monthly deflation in June via import prices, producer prices, and consumer prices, all due to Oil. Retail sales improved, up +.1% from May, so real retail sales were up +.3%. Capacity utilization was flat. Industrial production was up +.2, but May was downgraded to -.1. All of this at least was positive for the economy. Consumer confidence, including consumer expectations (one of the 10 LEI) plummeted, however, an important negative.

The high-frequency weekly indicators, however, moved towards outright contraction.

Areas in YoY contraction included transportation and mortgages:

Oil finished over $97 a barrel on Friday, 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 $.06 to $3.64a gallon. Gasoline usage at 9016 M gallons was -0.7% lower than last year's 9080. This is the third 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 American Association of Railroads reported that total carloads actually declined YoY, down 8000 carloads to 438,000 YoY, or a -1.8% YoY decline for the week ending July 9. Intermodal traffic (a proxy for imports and exports) was down 300 carloads, or -0.2% YoY. The remaining baseline plus cyclical traffic was down a little less than 8000 carloads, or -3.2 YoY%. This series, which has been deteriorating for months, is now negative for the first time. (Note: Railfax has graciously given me their breakdown of baseline vs. cyclical groups. I will start to break those out in the next few weeks).

Also, the Mortgage Bankers' Association reported that seasonally adjusted mortgage applications decreased 2.6% last week. For the first time in 7 weeks, the YoY comparison in purchase mortgages was negative, down -0.2% YoY. Refinancing also decreased -6.2% w/w and also was down -42.1% YoY.

Two other series have deteriorated to the point where they are very close to contraction:

Adjusting +1.07% due to the 2011 tax compromise, the Daily Treasury Statement showed that for the first 9 days of July 2011, $65.8 B was collected vs. $63.2 B a year ago. For the last 20 days, $129.6 B was collected vs. $129.3 B a year ago, for an increase of merely $0.3 B, or 0.2%. Use this series with extra caution because the adjustment for the withholding tax compromise is only a best guess, and may be significantly incorrect. Nevertheless, this is one of the worst 20 day showings all year, and is very nearly negative.

The American Staffing Association Index declined 1 point back to 87. As this number typically declines for the reporting week of July 4 (which this number includes), it may simply reflect seasonality. This trend of this series for the year is still just barely rising. The trend is slightly better than the early recession of 2008, but worse than 2007.

Housing price information was equivocal:

YoY weekly median asking house prices from 54 metropolitan areas at Housing Tracker showed that the asking prices declined -4.5% YoY. The areas with double-digit YoY% declines increased to 10. The areas with YoY% increases in price remained at 7.

Other series, chiefly monetary, still show continued expansion or improvement:

The ICSC reported that same store sales for the week of July 9 increased 5.5% YoY, and increased 0.4% week over week. This is the best YoY comparison in months. Contrarily, Shoppertrak reported a 1.2% YoY increase for the week ending July 2 and a WoW decrease of -2.2%. YoY weekly retail sales numbers had been slowly weakening for a month or so, but this week is the third week of a rebound for the ICSC, contrary to Shoppertrak.

The BLS reported that Initial jobless claims last week were 405,000. The four week average decreased to 423,250. This weekly number was the best report in over 3 months, but was probably affected by seasonality (i.e., the seasonal adjustment was too great). Still, we appear to have stabilized in a range generally between 410,000 - 430,000.

Weekly BAA commercial bond rates declined -.04% to 5.84%. Yields on 10 year treasury bonds, contrarily, increased .01% to 3.12%. This was probably due to the ending of QE2. Needless to say, this does not show any increase in distress in the corporate market.

Finally, M1 was up 2.5% w/w, up 1.4% m/m, and up 14.1% YoY, so Real M1 was up 10.7%.
M2 was up 1.0% w/w, up 0.7% m/m, and up 7.1% YoY, so Real M2 was up 3.7%.
Both M1 and M2 have surged in the last 2 weeks. Real M1 remains very bullish, and Real M2 has now re-entered the green zone above 2.5%.

Despite the contraction in other indicators, it is worth reiterating that going back to 1920, there has never been a recession with both real M1 positive and real M2 positive by more than 2.5%, and also a positive yield curve. Even in the deflationary 1920s and 1930s, positive M1 and M2 have never existed during a recession in the absence of a previous actual yield curve inversion. At the same time, it is worrisome that Oil refuses to decline below $94 (except for about 1 week), and plummeting consumer confidence also shows that idiocy in Washington will affect consumers.