Saturday, February 9, 2013

Weekly Indicators: a blizzard of conflicting signals edition

- by New Deal democrat

Monthly data released last week were sparse, but included a substantial increase in December factory orders, Productivity in the 4th quarter decreased, and unit labor costs increased. Consumer credit increased, and wholesale inventories decreased.

This week continued to give some indications that tax increases may be affecting the economy. So Let's start this look at the high frequency weekly indicators by checking what is happening with tax withholding:

Employment metrics
Daily Treasury Statement tax withholding
  •  $137.6 B (adjusted -13.1% for 2013 payroll tax withholding changes) vs. $146.5 B, -6.2% YoY last 20 days. The unadjusted result was $158.1 B for a 7.9% increase.
Initial jobless claims
  •   366,000 down 2,000

  •   4 week average 350,500 down 1,500
American Staffing Association Index
  • unchanged at 89 w/w up 2.5% YoY
Employment metrics were again weak this week. Initial claims remained in their 2012 range this week. In the second half of 2012 the ASA index's performance compared with 2011 declined significantly, although the absolute index was higher. In the last two weeks, however, the Index declined below its 2007 values and has lessened its increase over last year at this time.

I am adjusting my YoY tax withholding figures to reflect the increase in personal withholding taxes. While the YoY collections are up substantially, they should be up over 15% to compesnate for the tax increase. Since I can think of no reason why employment itself should have fallen off a cliff in January, it is very possible that there is a lag in the payment of withholding taxes with the new increase. In fact, the rolling 20 day average this week is much better than the average was last week compared YoY. If this hypothesis is correct, I would expect tax withholding to be much more reliable by the end of February.

Consumer spending
  • ICSC +2.4%%% w/w +2..6% YoY

  • Johnson Redbook +1.5% YoY

  • Gallup daily consumer spending 14 day average at $80 up nearly $20 YoY
Gallup remains significantly positive. The ICSC varied between +1.5% and +4.5% YoY in 2012. This week was again close to the bottom end of that range. Johnson Redbook is also in the lower part of its YoY growth range from 2012. Even in the worst case, it still looks like consumer spending has not collapsed due to the tax withholding increase.

Housing metrics

Housing prices
  • YoY this week. +2.6%
Housing prices bottomed at the end of November 2011 on Housing Tracker, and have averaged an increase of +2.0% to +2.5% YoY for the last year.

Real estate loans, from the FRB H8 report:
  • 0.3% w.w

  •  +1.3% YoY

  • +2.9% from its bottom
Loans turned up at the end of 2011 and averaged about 1% gains YoY through most of 2012, and have recently shown somewhat more YoY strength. This week remained was closer to the bottom of its recent YoY range.

Mortgage applications
  • +2% w/w purchase applications

  • +16% YoY purchase applications

  • +4% w/w refinance applications
Purchase applications had been going sideways for 2 years,, but in recent weeks have finally looked like they may be breaking out of that range to the upside, but the move is not decisive yet. Refinancing applications were very high for most of last year with record low mortgage rates, which have recently increased.

Interest rates and credit spreads
  • +0.13% to 4.85% BAA corporate bonds

  • +0.12% to 2.02% 10 year treasury bonds

  • +0.01% change at 2.83% credit spread between corporates and treasuries
Interest rates for corporate bonds have generally been falling since being just above 6% two years ago in January 2011, hitting a low of 4.46% in November 2012. Treasuries have fallen from about 2% in late 2011 to a low of 1.47% in July 2012. Spreads have varied between a high over 3.4% in June 2011 to a low under 2.75% in October 2012. The last several weeks have seen a marked increase in rates, although the YoY changes remain positive.

Money supply

  • +0.4% w/w

  • +1.1% m/m

  • +10.5% YoY Real M1

  • +0.1% w/w

  • -0.4% m/m

  • +5.3% YoY Real M2
Real M1 made a YoY high of about 20% in January 2012 and has generally been easing off since. This week's YoY reading remained above a new low set several weeks ago. Real M2 also made a YoY high of about 10.5% in January 2012. Its subsequent low was 4.5% in August 2012. It weakened once again this week. Both are still quite positive in absolute terms.

Oil prices and usage
  •  Oil $95.72 down $2.05 w/w

  •   gas $3.54 up $.18 w/w

  • Usage 4 week average YoY +4.7%
Gas prices are increasing seasonally, although markedly so in the last week. Unusually for the last year plus, the 4 week average for the third week in a row was positive YoY.


Railroad transport
  •  -9800 or -3.4% carloads YoY

  • +1800 or +0.6%% carloads ex-coal

  • +16,600 or +7.2% intermodal units

  • +6,800 or +1.3% YoY total loads

  • 9 of 20 types of carloads up YoY, a decrease of 1 from last week
Shipping transport
  • Harpex up 7 at 366

  • Baltic Dry Index down 10 to 748
Rail transport has been whipsawing between very positive and very negative readings over the last 2 months. This may well be the aftermath of the dock strikes. Traffic ex-coal returned to being positive this week. The Harpex index is still near its 3 year low of 352, and the Baltic Dry Index is still generally declining towards its 52 week low from last February.

Bank lending rates
  • 0.225 TED spread down -0.015 w/w

  • 0.2000 LIBOR down -0.006 w/w
The TED spread is barely above its 52 week low. LIBOR is again at a new 52 week low and is close to a 3 year low.

JoC ECRI Commodity prices
  • up 0.02 to 129.91 w/w

  • +2.15% YoY
The most important issue at the moment is whether the 2% increase in withholding tax rates is having an effect on consumers. We can add to that the issues of the impending austerity of the budget sequestration, and the potential consequences of moving income and spending forward into 2012 from 2013 due to tax increases. This week and last week it looks like we got evidence for the first time that there has been an effect.

By far the most negative data was tax withholdings, although these were not so bad as last week. Temporary jobs also stalled, and initial claims are back in their 2012 range. Bond interest rates and spreads are also increasing. Money supply, while positive, is near the lower end of its range.

Continuing positives include the housing market, money supply, consumer spedning, bank lending rates, and commodity prices. Gas prices, while rising, haven't turned constrictive yet. Gas usage has turned positive. Rail traffic is also positive again.

If austerity measures emanating from Washington are enough to tip the economy into contraction, the evidence should accumulate in the next few weeks. While there is some evidence of a consumer and employment slowdown, most of the high frequency data continues to support economic expansion.

Have a nice weekend.