Saturday, August 13, 2011

Weekly Indicators show continued stabilization edition

- by New Deal democrat

There was little monthly data released this week, but there were two very big numbers - in opposite directions. The big positive was retail sales, up .5% in July. June was also revised up from .1% to .3%, and May was revised higher as well. Q2 productivity declined, so maybe firms could hire a few more workers instead? Consumer sentiment for the end of July, on the other hand, plunged to multi-decade lows, mirroring and almost certainly a direct result of the lunacy in Washington and the crashing stock market.

For the third week in a row, however, the high frequency weekly indicators show a halt in the trend towards contraction.

First, let's look at the positive signs in order of their magnitude:

Money supply -a leading indicator - has been surging lately. M1 increased 1.1% w/w, and also increased 1.6% m/m, and 14.7% YoY, so Real M1 was up 11.3%. M2 increased 0.2% w/w, and also increased 2.0% m/m, and 7.9% YoY, so Real M2 was up 4.5%. Comparing the entire month of July m/m and YoY, M1 was up 2.5% m/m and 10.6% YoY, so Real M1 was up 7.2%. M2 was up 2.2% m/m and 7.6% YoY, so Real M2 was up 4.2%. In short, both Real M1 and Real M2 are solidly bullish.

The Oil choke collar has loosened again, with the usual positive result. Oil finished at $85.37 a barrel on Friday. This is the lowest price since last November, and is nearly $10 below its recession-trigger level. Gas at the pump fell $.04 to $3.67 a gallon. For the first time in 7 weeks and for only the 4th time in 5 months, gasoline usage was higher than a year ago: up 0.1% at 9244 M gallons vs. 9236 a year ago.

Initial jobless claims - another leading indicator - have clearly reversed their April - June upturn and are solidly trending back downward. The BLS reported Initial jobless claims of 395,000. The four week average decreased to 405,000. Jobless claims have decisively broken to the downside from their recent range, and with the exception of 7 weeks in February - April of this year, are lower than they have been in 3 years.

Despite nearly universal opinion "knowing" to the contrary, Housing - a third, and major, leading indicator - continues to trend positive. As to sales, the Mortgage Bankers' Association reported that seasonally adjusted mortgage applications decreased 0.9% last week. For the 10th time in 11 weeks, however, the YoY comparison in purchase mortgages was positive, up 4.9% YoY. Refinancing also increased 30.4% w/w due to cliff-diving interest rates.

As to housing prices, YoY weekly median asking house prices from 54 metropolitan areas at Housing Tracker showed that the asking prices declined -2.9% YoY. This is the smallest YoY decline since May 2007. The areas with double-digit YoY% declines decreased by one more to 6. The areas with YoY% increases in price increased by one more to 11. This again continues the record of improving YoY comparisons in this series. Just a couple of months ago only 3 or 4 areas had actual increases, and well over 10 had decreases. At the beginning of this year, only one metro area was showing YoY increases.

Retail same store sales continue to perform well. The ICSC reported that same store sales for the week of July 30 increased 4.0% YoY, and increased 0.3% week over week. Shoppertrak reported a 4.1% YoY increase for the week ending July 30 and a WoW increase of 0.5%. This is the sixth week in a row of a strong rebound for the ICSC, joined for the third week by Shoppertrak.

None of the four remaining series are negative, although they are just above a stall. Only one subindex was negative.

The American Staffing Association Index for the third week in a row is at 88. This trend of this series for the year is worse than 2007, and is now equivalent to the first half of the recession year of 2008 - and just slightly better than a complete stall.

Weekly BAA commercial bond rates decreased .34% to 5.38%. Yields on 10 year treasury bonds fell a nearly identical .35% to 2.62%. This indicates a significant increase in the fear of deflationary, but no relative distress in the corporate market. If the market feared rising corporate defaults, this spread should be widening.

Adjusting +1.07% due to the 2011 tax compromise, the Daily Treasury Statement showed that for the first 8 days of August 2011, $59.3 B was collected vs. $58.7 B a year ago, for an increase of $0.6 B. For the last 20 days, $129.0 B was collected vs. $126.7 B a year ago, for an increase of $2.3 B, or 1.8%. Collections faded this week from their strong July rebound, but are still positive.

The American Association of Railroads reported that total carloads increased 0.3% YoY, up 1500 carloads to 533,300 YoY for the week ending August 6. Intermodal traffic (a proxy for imports and exports) was up 4400 carloads, or 1.9% YoY. The remaining baseline plus cyclical traffic was up 1100 carloads, or 0.4% YoY%. This series returned to gains after 2 of the last 5 weeks were negative. Railfax graciously gave me their breakdown of baseline vs. cyclical carloads, which shows that baseline traffic was down 3700 carloads, or -2.0%YoY, while cyclical traffic was up 4700 carloads, or +4.6% YoY.

In summary, the last three weeks of high frequency data have suggested an end to the March - July declining trend into contraction in the data sets, chiefly Oil prices and gasoline usage, but also rail traffic and initial jobless claims. Additionally, BAA bonds in comparison with treasuries have gone from negative to neutral. Real M2 has improved, as have same store sales, and housing prices continue to move towards stabilization. Real M1, retail sales, and purchase mortgage applications remain solidly positive. Temporary staffing and rail traffic in particular continue to be areas of concern, and whether there has been any important positive trend break in gasoline usage will be watched closely.

Have a nice weekend!