Saturday, February 18, 2012

Weekly indicators: the Oil choke collar re-engages Edition

- by New Deal democrat

Monthly reports came in generally weakly positive. Retail sales were up 0.4% but only 0.2% after inflation. Industrial production was flat and capacity utilization slightly negative for January, but were revised strongly upward for December. Producer prices rose a slight 0.1% and consumer prices 0.2% in January. The YoY comparisons in inflation are all falling. The best news was that housing starts and permits, while flat on a monthly basis, remain at 3 year highs for the third month in a row.

The weekly high frequency data continued positive, with the significant exceptions of withholding tax collections (about which I'm not concerned) and energy prices (about which I very much am concerned).

Employment related indicators were generally positive:

The Department of Labor reported that Initial jobless claims fell by 10,000 to 348,000, the lowest report in close to 4 years. The four week average declined by 1000 to 365,250. This too is the lowest reading since mid-2008.

The American Staffing Association Index fell by 1 to 86 last week. It is now right in between its levels of 2011 and 2007, higher than the former and below the latter.

The Daily Treasury Statement showed that for the first 12 reporting days of February, $95.6 B was collected vs. $90.7 one year ago, a gain of over 5%. For the last 20 reporting days, $145.2 B was collected vs. $145.6 B a year ago, a decline of -0.3%. Since the beginning of this year, however, collections have been $254.3 B vs. $243.6 B for the equivalent period last year, a gain of over 4%. In other words, we had a brief rough patch in late January that does not appear to in any way to have impacted the longer term trend.

Housing reports were slightly negative:

The Mortgage Bankers' Association reported that The Refinance Index increased +0.8% from the previous week, to its highest level in over half a year. The seasonally adjusted Purchase Index decreased -8.4% from the prior week, and was -7.6% lower YoY. The purchase index is close to the bottom of its 21 month overall flat range.

YoY weekly median asking house prices from 54 metropolitan areas at Housing Tracker were positive, up +4.0%. This is the first week this number did not make a new positive record, as it is off -0.2% from last week. Still this series turned positive over two months ago and has remained so since.

Sales and transportation were weakly positive:

The ICSC reported that same store sales for the week ending February 11 were off -2.2% w/w, but increased 2.8% YoY. Shoppertrak reported +4.4% YoY gains. Johnson Redbook reported a 2.7% YoY gain. The ICSC and Johnson Redbook reports are weak relative to most reports in the last 12 months.

The American Association of Railroads reported reported that for the week ending February 11, 2012, 279,501 carloads wer originated, up 1.7% YoY. Intermodal loads were 227,207, -0.4% YoY. Total traffic was 3700 carloads above last year, or +0.7%.

Money supply was flat but Credit spreads were positive:

M1 was flat last week, and was up a weak +0.5% month over month. It remained up 18.8% YoY, so Real M1 is up 15.9%. YoY. M2 fell -0.1% week over week, but was also up weakly +0.3% month over month. It was up 10.0 YoY, so Real M2 was up 7.1%. In short, real money supply indicators continue strongly positive on a YoY basis.

Weekly BAA commercial bond rates increased .04% to 5.17%. Yields on 10 year treasury bonds rose .11% to 1.99%. The credit spread between the two, which had a 52 week maximum difference in October but once again tightened this past week.

Gasoline usage in particular continues to be much lower YoY:

Oil rose about $4.50 this week to close at $103.24 a barrel. Gas at the pump rose another $.04 to $3.52. Both of these are back above the point where they can be expected to exert a constricting influence on the economy. Gasoline usage, at 8167 M gallons vs. 8810 M a year ago, was off -7.3%. The 4 week moving average is off -6.4%. The YoY comparisons went negative last March, and have been substantially so since July. This week's 4 week average was one of the biggest differences since then

Now let's turn to new high frequency indicators designed to track the global slowdown/recession:

The TED spread is at 0.420 down from 0.425 week over week. This index is back below its 2010 peak, and has declined from its 3 year peak of 7 weeks ago. The one month LIBOR is at 0.245, down .005 from one week ago. It is well below its 12 month peak set 6 weeks ago, remains below its 2010 peak, and ihas now completely returned to its typical background reading of the last 3 years.

The Baltic Dry Index at 717 was up slightly from 715 one week ago, and up 67 from its 52 week low of 2 weeks ago, although still well off its October 52 week high of 2173 (please note that even so this is nothing even remotely close to its decline during the Great Recession. This type of decline has happened 4 times since March 2009 without triggering any "double dip."). The Harpex Shipping Index declined 11 to 379 in the last week, setting a new 52 week low. Please remember that these two indexes are influenced by supply as well as demand, and have generally been in a secular decline due to oversupply of ships for over half a decade. The Harpex index concentrates on container ships, and led at recent tops and lagged at troughs. The BDI concentrates on bulk shipments such as coal and grain, and lagged more at the top but turned up first at the 2009 trough.

Finally, once again the Shadow Weekly Leading Index accurately foretold a decrease in ECRI's WLI, although a considerably larger one than was reported. This helps indicate that commodity prices and credit spreads are given a stronger weighting in the WLI than are purchase mortgage applications. We already have the value for 3 of its components, including the S&P 500, which rose from 1342.64 to 1361.23, a gain of about 1.5% for the week. The Dow Jones Bond Index decreased .41 to 116.66. The JoC-ECRI industrial metals index rose from 126.20 to 128.89, just slightly below a 4 month high. The first is slightly positive, the second slightly negative, but commodity prices a strong positive for the calculation of ECRI's weekly leading index next Friday.

Why I'm especially concerned about the Oil choke collar. Friend of the blog Fladem a couple of days ago wrote that:
There is evidence that oil over the last year has acted as almost a governor on the economy. As soon as the economy looks like it is about to take off, oil prices get high enough to limit the recovery. Than, we it looks like it is going to contract, the oil price goes down.
That is exactly what I mean by the "Oil choke collar." We saw this last year, and I believe we are starting to see it again now. Last year a recovery that appeared to be approaching escape velocity suddenly ground to a halt in the first quarter due mainly to a surge in energy prices (with an assist from the Japanese earthquake). Initial jobless claims, which had dropped under 400,000 for the first time since 2008, reversed. Last year there was no double dip as consumer spending (fueled by savings accumulated during the recession) remained very positive. There is not so much of a cushion now. Weekly retail sales numbers will probably assume an increased importance among the indicators.

Have a nice weekend.

Friday, February 17, 2012

The German Economic Miracle

Germany has done incredibly well over the last few years -- in fact, their overall economy is probably one of the best performing in the world.  Below are some macro-level statistics that put that performance in perspective.  The information is from the website Trading Economics.

Let's start with GDP.  The above chart shows the annual German growth rate expressed every quarter.  Like the US, the contraction was incredibly deep -- they had two quarters of an extremely sharp contraction (6.3% and 6.8%).  However, coming out of the recession, thy had five quarters of 3%+ growth.

As a result of their economic growth rate, the German unemployment rate has been dropping continuously for the last two years.  It is currently at 6.6%.

Inflation is contained at 2%, which means

Their cost of financing  their debt -- the interest rate on their bonds -- is very cheap.  In addition, German Bunds are the European equivalent of US Treasuries -- they're the safe investment on the continent.

German industrial production rebounded nicely from the recession, but is now slowing on a YOY basis.

The above chart of overall industrial production in Germany shows that it has regained its pre-recessionary level, but has dropped for the last two months.

This is a big reason for Germany's success: they have a positive balance of trade.  Put another way, their economy has strong export component.

The above chart from the St. Louis Fed shows that total exports for Germany have rebounded strongly from their recessionary lows, and are now higher than their previous peak.

Retail sales have softened over the last few months, really slowing down in the last six months of last year.