Saturday, September 8, 2012

Weekly Indicators: long leading indicators positive, but manufacturing and employment are huge concerns edition

  - by New Deal democrat

The big monthly news this week was yesterday's positive but lousy employment report, showing a miserable 96,000 jobs being added in August (but see Lee Adler's interesting analysis indicating that this was the best August report NSA in years, defeated by an unusually heavy seasonal adjustment downwards), and a decline in the unemployment rate to 8.1% driven entirely by a decline in the labor force (the reasons for which are hotly contested). Construction spending, both residential and commercial, was also down. The ISM manufacturing index showed slight contraction for the third straight month. Labor costs were revised downward. On the upside, the ISM services index showed expansion, and we had the best month of vehicle sales in over 4 years.

The high frequency weekly indicators which ought to show turns before they show up in monthly or quarterly data, however, were generally more positive, with a few exceptions, most especially gas prices, so let's start once again with those.

The energy choke collar remains engaged, but gasoline usage is holding up:

Gasoline prices rose yet again last week, up $.06 from $3.78 to $3.84. Gas prices have risen $0.48 since their early July bottom, and are now only $0.10 cheaper than at their highest point this spring.Oil prices per barrel ended close to unchanged for the week, only down $0.05 at $96.42.

Gasoline usage was positive on a YoY basis. For one week, it was 9177 M gallons vs. 8956 M a year ago, up +2.5%. The 4 week average at 9158 M vs. 9097 M one year ago, was also up +0.7%.

Employment related indicators were again mixed this week.

The Department of Labor reported that Initial jobless claims fell 9000 to 365,000 from the prior week's unrevised figure.   The four week average rose 1,000 to 371,250, about 2.7% above its post-recession low. If higher oil prices are again acting as a governor preventing fast economic growth, then this number, unforturnately, should continue to rise in coming weeks, although there is no persuasive impact yet.

The Daily Treasury Statement showed that for August 2012, $145.5 B was collected vs. $142.5 B a year ago, a $3 B or 2.1% increase. For the last 20 days ending on Thursday September 6, $131.4 B was collected vs. $125.7 B for the comparable period in 2011, a solid gain of $5.7 B or +4.3%.

The American Staffing Association Index remained stalled at 93. This index was generally flat during the second quarter at 93 +/-1, and for it to be positive should have continued to rise from that level after its July 4 seasonal decline. That it has not done so is a real concern, as it is still performing worse than it did in 2007 and 2011.

Same Store Sales were positive, while Gallup consumer spending was flat:

The ICSC reported that same store sales for the week ending August 25 gained +0.4% w/w, and rose +3.7% YoY.  Johnson Redbook reported a solid 2.5% YoY gain. The 14 day average of Gallup daily consumer spending as of September 6 was $68, only up $1 over last year's $67 for this period. Gallup's comparison plunged at the very end of August, but has rebounded somewhat since, after 5 strong weeks.

Bond yields fell as did credit spreads:

Weekly BAA commercial bond rates declined .13% to 4.83%. Yields on 10 year treasury bonds only fell .11% to 1.63%.  The credit spread between the two narrowed to 3.20%, which is closer to its 52 week minimum than maximum, and continues to improve from several months ago.

Housing reports were modestly positive:

The Mortgage Bankers' Association reported that the seasonally adjusted Purchase Index fell -0.8% from the prior week, but is up 1% YoY. Generally these are in the middle part of their 2+ year range. The Refinance Index fell -3% for the week due to higher mortgage rates, to a 4 month low.

The Federal Reserve Bank's weekly H8 report of real estate loans this week rose 7 to 3519. The YoY comparison rose to +1.2%, which is also the seasonally adjusted bottom.

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 9 months now.

Money supply remains generally positive despite now being fully compared with the inflow tsunami of one year ago:

M1 rose +0.3% last week, and was up a slight +0.2% month over month.  Its YoY growth rate declined slightly to +9.5%, as comparisons with last year's tsunami of incoming cash are in full progress. As a result, Real M1 fell to +8.1%. YoY.  M2 also increased +0.3% for the week, and was up 0.2% month/month.  Its YoY growth rate declined to +6.1%, so Real M2 grew at +4.7%.  The growth rate for real money supply has slowed significantly, but is still positive even though the tsunami of cash arriving from Europe last summer has disappeared from the comparisons.

Rail traffic was positive ex-coal while its diffusion index remained steady:

The American Association of Railroads  reported a +0.9% increase in total traffic YoY, or +4,800 cars.  Non-intermodal rail carloads were off a substantial -3.4% YoY or -10,300, once again entirely due to coal hauling which was off -12,700.  Negative comparisons remained at 10 types of carloads.  Intermodal traffic was up 15,200 or +6.5% YoY.

Turning now to high frequency indicators for the global economy:

The TED spread declined to a new 52 week low of 0.31. The one month LIBOR declined to 0.228, setting another new 52 week low. It remains well below its 2010 peak and is lower than at all time during the last 3 years with the exception of about 5 months. Even with the recent scandal surrounding LIBOR, it is probably still useful in terms of whether it is rising or falling.

The Baltic Dry Index fell yet again from 703 to 669, setting a new 52 week low.  The Harpex Shipping Index fell 3 from 396 to 393, and remains only 18 above its February low.

Finally, the JoC ECRI industrial commodities index rose once again from 120.61 to 122.23, although it is still down 10% YoY. While it remains a strong sign  that the globe taken as a whole has slumped, it is improved sharply over the last month.

What emerges from the updated numbers at this point is a sharp bifurcation. Every single manufacturing number is either showing contraction or close thereto. Manufacturing employment and work week have also contracted. The global picture remains gloomy, although the JoC ECRI increases and the continuing declines in the TED spread and LIBOR suggest that may be bottoming.

I am very concerned that we will get an actual loss of jobs at some point by the end of the year. Should that happen in the next two months, it will probably dominate the eve of the US presidential election. Temp services have declined, wages have declined, and short term unemployment (a leading indicator) is at recession inception levels. Gasoline prices may be impacting consumers again, and consumer spending is a short leading indicator for employment.

At the same time almost all of the housing indicators continue to show improvement, we just sold more cars than at any point in the last 4+ years. money supply continues to be positive, bond yields are low, and credit spreads are contracting. The stock indexes just made new multi-year highs. These are all long or medium term leading indicators, and suggest that the US economy's prospects generally remain good.

On balance, I remain very cautiously optimistic, but continuing increases in gasoline prices are making me more concerned about the end of this year and the first half of next year.

Have a good weekend.