Saturday, June 2, 2012

Weekly Indicators: was the awful employment report an outlier or a harbinger? edition

 - by New Deal democrat

There was a slew of monthly and other data this past week.  In the rear view mirror, Q1 GDP was revised down slightly from 2.2% to 1.9%.  On the other hand, Q1 GDI, thought by many to be a more accurate measure, was reported at +2.6%.  April personal income and spending both rose, and real income also rose.  April construction spending also rose, and in particular private residential spending rose signifantly, adding to the evidence that the housing sector is rebounding.  May consumer confidence from the Conference Board declined, as did May auto sales.  The ISM manufacturing index turned slightly less positive, although new orders rose strongly.  And then, of course, came the May payrolls report, which was about as awful as you could get and still generate a positive number.  April was revised down. Manufacturing related parts of the index such as workweek and overtime also declined.  The unemployment rate rose slightly.  One slight positive was that temporary jobs increased slightly.

Let's start by making a couple of points about this column. First of all, it is designed to be predictive but rather an up-to-the-moment report on the economy by use of high frequency weekly indicators. Secondly, while there is some randomness in each week's data, if there is a turning point in the economy, it should show up in these indicators first before it shows up in monthly indicators. So this week let's see if the high frequency data confirms that the awful employment report indicate a negative turn in the economy, or whether it is not supported by other data.

Housing reports remained generally positive:

The Mortgage Bankers' Association reported that the seasonally adjusted Purchase Index fell -1.8% from the prior week, and was down  -3.9%  YoY.  The Refinance Index declined -1.5%. Despite the declines of the last few weeks, this index continues to be in the upper part of its 2 year generally flat range.

The Federal Reserve Bank's weekly H8 report of real estate loans, which had been negative YoY for 4 years, turned positive two months ago.   This week, real estate loans held at commercial banks declined -0.4% w/w, and their YoY comparison declined -0.6% to +1.0%.  On a seasonally adjusted basis, these bottomed in September and remain up +1.5%.

YoY weekly median asking house prices from 54 metropolitan areas at Housing Tracker  were up + 2.0% from a year ago.  YoY asking prices have been positive for the last 6 months, are higher than at any point last year, and we are now at the point where seasonally they are at their maximum.  For months I've been saying that either this index had to turn or the Case-Shiller repeat sales index had to turn.  With Case-Shiller now up two months in a row on a seasonally adjusted basis, I'm going to stick a fork in it.  The Housing Tracker index proved its worth and did exactly what I said it was going to do, which is lead the other indexes.  Barring the appearance of the long-delayed foreclosure tsunami (which, per Calculated Risk, may only occur in judicial states and be counterbalanced by the winding down of foreclosures in non-judicial states, which never had any delays), the bottom in prices is here.

Employment related indicators were mixed again:

The Department of Labor reported that Initial jobless claims rose 13,000 to 383,000 last week.   The four week average stands at 374,500.   This renews the question of whether there is a seasonal adjustment issue or whether something more ominous is going on.

The Daily Treasury Statement for the all of May showed $143.0 Bvs. $140.1B for May 2011.  For the last 20 reporting days, $119.9 B was collected vs. $117.0 B a year ago, an increase of $2.9 B, or +2.5%.  The year over year comparisons in this series have weakened significantly in the last several months, although generally they continue to be weakly positive.

The American Staffing Association Index rose to 94.  It has now surpassed 2007 and is only two points below its all time record from 2006 for this week of the year.

Same Store Sales continue to be solidly positive.

The ICSC reported that same store sales for the week ending May 19 fell -0.5% w/w, but were up +2.9% YoY.  Johnson Redbook reported a 3.2% YoY gain.  Shoppertrak reported a gain of 1.8% YoY.  The 14 day average of Gallup daily consumer spending  was very positive again this week at $76 vs. $68 in the equivalent period last year.

Money supply was slightly mixed:

M1 fell -0.7% last week, and also fell -0.1% month over month.  Its YoY level increased to +16.5%, so Real M1 is up 14.2%. YoY.  M2 rose +0.1% for the week, and was up +0.5% month over month.  Its YoY advance rose slightly to  +9.6%, so Real M2 increased to +7.3%.  Real money supply indicators continue to be strong positives on a YoY basis, although they have had a far more subdued advance since September of last year.

Bond prices rose slightly and credit spreads continued to blow out:

Weekly BAA commercial bond rates reported weekly last Monday rose .11% to 5.09%.  Yields on 10 year treasury bonds  rose .02% to 1.76%.  The credit spread between the two incresed again to 3.33%.  The trend remains of strongly falling bond yields, which means that fear of deflation is strong.  Spreads are now close to their 52 week maximum.

Rail traffic turned more positive this week.

The American Association of Railroads  reported a +2.6% increase in total traffic YoY, or +13,700 cars.  Non-intermodal traffic turned positive YoY, and was up by +3700 cars, or +1.3% YoY.  Excluding coal, this traffic was up +11,300 cars.  Ethanol-related grain shipments remained off, as were chemicals.   Intermodal traffic was up 10,00 carloads, or +4.3%.

The energy choke collar continues to disengage:

Gasoline prices fell for the sixth straight week, down another .04 to $3.67.  Oil fell again this week to end at $83.23.  Oil has only been less expensive for about 1 in the last 12 months.  Oil prices are now well below the point where they can be expected to exert a constricting influence on the economy.  Since gasoline prices follow with a lag, we can expect gasoline to fall to that point in about a month as well.  The 4 week average of Gasoline usage, at 8850 M gallons vs. 9083 M a year ago, was off  -2.6%.  For the week, 8931 M gallons were used vs. 9431 M a year ago, for a decline of -5.3%.  Although this week was off, generally gasoline usage is moving to parity with the reduced levels that began to be established one year ago.

Turning now to high frequency indicators for the global economy:

The TED spread rose 0.1 to 0.40, near the bottom of its recent 3 month range.  This index remains slightly below its 2010 peak.  The one month LIBOR rose 0.001 to 0.240.  It is well below its 12 month peak set 3 months ago, remains below its 2010 peak, and has returned to its typical background reading of the last 3 years.  It is interesting that neither of these two measures of fear have budged even slightly with the Europanic of the last month.

The Baltic Dry Index fell for the second week in a row, down from 1034 to 904.  It remains 234 points above its February 52 week low of 670.  The Harpex Shipping Index rose another 2 points from 457 to 459 in the last week, and is up 84 from its February low of 375.

Finally, the JoC ECRI industrial commodities index continued to slide this week, down from 119.64 to  117.74.  This is very close to its 52 week low.  This indicator appears to have more value as a measure of the global economy as a whole than the US economy.
There are certainly pockets of weakness in the weekly indicators, including commodity prices, the Baltic Dry Index, credit spreads, and initial jobless claims. Most of these appear to be related to global vs. US weakness. Nevertheless the dominant theme of the US-centric high frequency data is continued positivity, including cheaper gas, continued consumer spending, and at very least stability in housing. Hiring has certainly slowed, perhaps related to exports. Auto sales also disappointed. But with new orders for manufacturing increasing and consumer spending continuing, at least as an initial impression the employment report looks more like a reflection of the present rather than a portent of the future.