Saturday, November 19, 2011

Weekly Indicators: ECRI vs. the LEI edition

- by New Deal democrat

Monthly data for October released in the last week was excellent. In stark contrast to ECRI's continued recession call, the Index of Leading Indicators was up 0.9, primarily as a result of the surge in housing permits, which rose to their highest level (ex-housing credit) in 3 years. Starts also remained steady at over 600,000. PPI fell -0.3% and the CPI fell -0.1%. The YoY CPI also fell -0.2% to 3.6%, the first YoY evidence from the recent decline in gasoline prices. Industrial production rose by a strong 0.7. Real sales also rose strongly, up 0.5%, and with the decline in inflation, real retail sales were up 0.6%. The Empire State and Philly manufacturing reports for November were also both positive.

The high frequency weekly indicators generally were positive again, but with a likely error in a housing report, and a disconcerting decline in tax withholding.

Starting with jobs, the BLS reported that Initial jobless claims fell 2,000 to 388,000. Only 3 weeks in the last 3 years have been lower. The four week average declined to 396,750. The four week average remains close to its best reading in over 3 years. This is a short leading indicator and bodes well for the next payrolls report.

The American Staffing Association Index remained at 91 last week. In the last couple of months, this series has resumed a slight upward trajectory, but remains lower YoY.

Disconcertingly, however, Tax withholding was significantly down from last year's levels. Adjusting +1.07% due to the 2011 tax compromise, the Daily Treasury Statement showed that for the first 12 reporting days of November, $84.2 B was collected vs. $91.5 a year ago, a decline of -7.3 B. More importantly, for the last 20 days, $129.1 B was collected vs. $132.7 a year ago, a decline of $3.6 B or 2.7%. I use the 20 day metric precisely because there is a definite pattern to deposits by day of the week, but this is the steepest 4 week loss all year. This will have to be closely watched in the next several weeks.

The MBA weekly report may have had errors. The Mortgage Bankers' Association reported that seasonally adjusted purchase mortgage applications decreased -14.8% last week. On a YoY basis, purchase applications were down -9.5%. This would be very bad, but it is completely at odds with the report of the same data at Mortgage News Daily, which showed a -2.2% decline w/w and a -5.1% decline YoY, which is firmly within the range that purchase mortgage applications have been in since May 2010. I am inclined to believe that Mortgage News Daily was reporting the correct numbers. Refinancing fell -12.2% w/w. Refinancing has been very volatile and affected by small changes in interest rates.

Meanwhile, YoY weekly median asking house prices from 54 metropolitan areas at Housing Tracker showed that the asking prices declined -0.5% YoY. Once again, this is a new "best" YoY reading in 4 1/2 years. The areas with YoY% increases in price remained at 19, meaning that one third of all metropolitan areas in this survey now have YoY positive changes in asking prices. The areas with double-digit YoY% declines decreased to only 1 -- Chicago.

Retail same store sales remained positive as they have been all year. The ICSC reported that same store sales for the week of November 5 increased 3.1% YoY, and 0.3% week over week. Shoppertrak reported that YoY sales rose 3.6% YoY and were up 6.5% week over week.

The American Association of Railroads reported that total carloads increased 2.6% YoY, up about 13,700 carloads YoY to 544,600. Intermodal traffic (a proxy for imports and exports) was up 11,100 carloads, or 5.2% YoY. The remaining baseline plus cyclical traffic increased 1500 carloads or 0.5% YoY. Total rail traffic has rebounded in the last 6 weeks month after having been soft during the summer.

Weekly BAA commercial bond rates rose .01% to 5.12%. Contrarily, yields on 10 year treasury bonds fell .02% to 2.05%. This is a very minor episode of increasing spreads in contrary directions. If it were to continue and amplify, it would represent significant weakness.

Money supply continues to stabilize after its Euro crisis induced tsunami. M1 increased 0.1% last week, and is down -1.1% month over month. remains up 19.3% YoY, so Real M1 remains up 15.7%. M2 increased 0.5% w/w. It remained up 0.1% m/m, and 9.8% YoY, so Real M2 was up 6.2%. The YoY increase in both M1 and M2 remains very high.

Finally, the Oil choke collar remains engaged, as Oil closed at $97.41 a barrel on Friday. This is back above the recession-trigger level calculated by analyst Steve Kopits. Gas at the pump iincrreased $.02 to $3.44 a gallon. Measured this way, we probably are about $.15 above the 2008 recession trigger level. Gasoline usage is once again off substantially, down -3.7% YoY, at 8625 M gallons vs. 8952 M a year ago. The 4 week moving average is off -5.7%. This appears more and more to be evidence that consumers have permanently altered their gasoline usage habits towards more conservation.

The stark difference in forecasts between the Conference Board LEI and the ECRI index sets up a real world test of these two reports. Most significantly, as far as we know ECRI does not make use of the yield curve, but the yield curve is an important component of the LEI. All of the monthly data reported this week shows an economy briskly expanding and poised to continue. The weekly data was more tepid, but generally positive with the very significant exceptions of the price of Oil and tax withholding. Since WTI and Brent Oil are converging, and retail gasoline prices so far are not reflecting any surge, this may not be as bad news as it initially seemed. The next few weeks will tell if the poor tax withholding in the last 4 weeks was noise or not.

Have a nice weekend.