Saturday, July 9, 2011

Weekly Indicators: Stall vs. double-dip edition

- by New Deal democrat

The monthly data reported this week included both factory orders and ISM services positive, but slightly weaker than expected.

Of course, the 800 pound gorilla in the room was the awful June payrolls report that matched an equally awful downwardly revised May report, that I told you to expect. Manufacturing hours, one of the 10 LEI, declined .3. It is at least possible that the LEI could be negative for the second time in 3 months, depending on housing permits. Perhaps even worse, for the second time in 7 months, there was actual wage deflation, albeit tiny. I don't suppose I need to pull out the history books to tell you that wage deflation in the presence of huge debt is lethal.

Back in January I foresaw this midyear stall, due to Oil and contractionary fiscal policy. The weekly indicators started to show the deterioration as early as March. Because of this, I haven't been caught up in any mood swing from complacency to dread, so I see no need to change my opinion going in to the end of the year now. For that, let's make the first high frequency weekly indicator this week, money supply:

M1 was up 0.5% w/w, up 0.5% m/m (comparing the entire month), and up 12.8% YoY, so Real M1 was up 9.4%.
M2 was up 8.4% w/w, up 0.8% m/m (comparing the entire month), and up 5.5% YoY, so Real M2 was up 2.1%.
Real M1 remains very bullish, while Real M2 remains stuck in the caution zone under 2.5%. At the same time, it is worth noting that Real M2 is not deteriorating.

Going back over 90 years, beginning with the 1920-21 recession and including the Great Depression, there has NEVER been a recession in the face of both a positive yield curve and positive real M1. Never. In fact, if we don't believe we are tipping into actual deflation, then the positive yield curve alone has a perfect record.

So let's turn to the other high-frequency weekly indicators. Do they show a stall, or actual contraction:

The BLS reported that Initial jobless claims last week were 418,000. The four week average decreased slightly to 424,750. We appear to have stabilized in a range between 410,000 - 430,000.

The American Association of Railroads reported that total carloads were up 7000 to 523,000 YoY, or a mere 1.3% YoY for the week ending July 2. Intermodal traffic (a proxy for imports and exports) was up 6000 carloads, or 2.5% YoY. The remaining baseline plus cyclical traffic was up less than 1000 carloads, or 0.3%. This series is very close to turning negative on a carload basis. (Note: The AAR has terminated Railfax's license. Railfax broke out cyclical vs. baseline traffic - and had great 13 week and 104 week graphs - whereas the weekly AAR report does not. I will try to recreate and continue to report on that breakout).

The Mortgage Bankers' Association reported that seasonally adjusted mortgage applications increased 4.8% last week. It was 11.7% higher than this week last year. This is the sixth week in a row that YoY comparisons in purchase mortgages were positive. Except for the rush at the two deadlines for the $8000 mortgage credit, these are the first YoY increases since 2007. Refinancing decreased 9.2% w/w.

The American Staffing Association Index rose 1 point to 88. This trend of this series is still rising, but since the beginning of this year is just barely better than a stall.

The ICSC reported that same store sales for the week of July 2 increased 3.5% YoY, and increased 1.5% week over week. This is the best YoY comparison in over a month. Shoppertrak reported a 1.6% YoY increase for the week ending July 2 and a WoW increase of 3.5%. YoY weekly retail sales numbers had been slowly weakening for a month or so, but this week is the second week of a rebound.

Weekly BAA commercial bond rates spiked .16% to 5.88%. Yields on 10 year treasury bonds spiked a nearly identical .15% to 3.11%. This was probably due to the ending of QE2. This does not show any relative increase in distress in the corporate market.

Adjusting +1.07% due to the 2011 tax compromise, the Daily Treasury Statement showed that for the first 4 days of July 2011, $39.1 B was collected vs. $33.0 B a year ago. For the last 20 days, $133.5 B was collected vs. $128.4 B a year ago, for an increase of $5.1 B, or 4.0%. Use this series with extra caution because the adjustment for the withholding tax compromise is only a best guess, and may be significantly incorrect.

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 by one to 8. The areas with YoY% increases in price remained at 7. This remains consistent with the hypothesis that in nominal if not real terms housing prices may bottom as early as this winter.

None of the above series are showing outright contraction. Only one weekly indicator - and it is a significant one - is sounding a true alarm bell:

Oil finished over $95 a barrel on Thursday, back slightly 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 $.01 to $3.58 a gallon. Gasoline usage at 9309 M gallons was -1.5% lower than last year's 9449. This is the second week in a row that gasoline usage has been significantly less than last year. This is especially disconcerting with the price of gas being near its 4 month lows.

As of now, both the LEI and the weekly indicators show only a slowdown or stall. It will probably take true idiocy from Washington to push us into a significant contraction. Which means, unfortunately, it remains a significant possibility.