ECRI now claims we're in the longest recession since 1929-32

 - by New Deal democrat

I haven't addressed the badly blown recession call by the formerly highly-regarded ECRI since its 2 year anniversary last September.  I'm updating my commentary now because, as of February, ECRI's fictitious recession, which they claim started in July 2012, is 1 year and 8 months old.  That makes it longer than 1973-74, longer than 1981-98, even longer than December 2007 - June 2009.  In fact if their claim is to be believed, this is the longest recession since the "great contraction" of 1929-32.

Forget government statistics, which ECRI notes can be revised significantly.  Private statistics which don't get revised like railroad traffic, truck tonnage, steel production, the ISM manufacturing and services indexes, temporary hiring and consumer purchasing as measured by the ICSC, Johnson Redbook, and Gallup, have all nearly relentlessly risen throughout this period.

ECRI's original mistake was a very human one:  the interpretation of a downturn in their indexes.  You may recall that they originally said that a recession was "unavoidable" even by concerted government action, and was imminent if it had not already begun, back in September 2011, just after the debt ceiling debacle.  During that time almost all economic statistics dropped like a rock, as consumers and businesses froze while they waited to see whether the US government would actually default on its debts, and if not, what altered landscape any proposed "grand bargain" might bring about.

As a result, the ECRI Weekly Leading Index and Weekly Coincident Index, which had each been as high as about +7 early in 2011, and had already dipped to 0 in the WLI and about +4 in the WCI at the time the debt ceiling debacle began,  dropped to about -7 and +3 by the time of their September recession call.  He's a graph of both of the them for the year 2011:

ECRI simply misinterpreted the fallout from a transitory political crisis as an organic economic development.

By stubbornly refusing to admit error, they have undercut if not outright contradicted  their own earlier thesis that the US economy was entering what they called "The Yo Yo Years." Their thesis was that GDP was not capable of meandering about 2% for very long.  It would either spike into expansion or downward into recession.  These Yo Yo expansions and recessions would happen with increasing frequency.  Instead GDP has generally meandered at around 2% +/-1.5% for 3 years now.

And instead of more frequent, if brief, expansions and recessions, they are stuck trying to defend a recession call going on 3 years old, with a seies of ad hoc references to the declining data du jour.

Their most recent missive, in fact, appears to be a flat-out contradiction to a position they took only 2 years ago.

Earlier this month, in an article entitled "Failure to Launch," ECRI touted their Weekly Coincident Index again, showing that the change in their coincident index had dropped precipitously from the end of November until the end of January:  



That's pretty straightforward.  Everybody who follows economic data knows that such a deterioration has taken place.

The part that appears disingenuous, however, is the preceding part of the index, which shows the growth rate climbing throughout the rest of the year, and spending the 8 months between April and November almost entirely above 4%.

Now take a look at this graph of ECRI's coincident index that was supplied to Mike Shedlock a/k/a Mish in March 2012 (annotations are Mish's):



Here's the very specific claim that ECRI made at the time:

The latest USCI growth rate is 1.94% (which can be rounded off to 1.9%). In January 1996, it had dropped only to 2.06% (which can be rounded off to 2.1%). This was certainly not below current readings. Of course, no recession followed. 

In 1998, the USCI growth came nowhere near current readings, so the question doesn’t arise. It wasn’t until January 2001 that it fell below 2%, and the recession began two months later. 

.... If you look at all the occasions in the last 50-plus years when USCI growth fell to 2.0% or below ..., it is clear that recessions began around those dates.... 

In sum, it is precisely accurate to claim that y-o-y USCI growth has never dropped to current readings in the past 50-plus years without a recession ensuing.

Shedlock was properly incredulous  at the claim that once the coincident index fell below 2 (to 1.94), the economy would inexorably slide into recession, whereas at 2.06 the economy would bounce back.

While ECRI has apparently taken its Weekly Coincident Index out of the public domain, we do have its monthly Coincident Index covering 2011 through 2013, showing that with the exception of 3 months in late 2012 and early 2013, the Coincident Index was above the allegedly critical "2" level:



And what the 2013 Weekly Coincident Index supplied by ECRI itself shows is that, to the contrary, all the time for the last year that ECRI has been claiming we are in recession, the Weekly Coincident Index was also well above that allegedly crucial "2" level.

In other words, ECRI's position now appears to be in blatant contradiction to the position they took in March 2012.  The Coincident Index did not continue to fall, but instead at virtually all times thereafter has been higher -- just like after January 1996.

One final thing.  It's pretty clear that one of the components of the Coincident Index is personal income. That's what explains the upward spike in December 2012, and the downward equivalent spike in January 2013.  At the time of ECRI's "Failure to Launch" commentary, the YoY comparison was with the December 2102 upward spike.  On March 3, January personal income will be reported, and the YoY comparison will now be with January 2013's downward spike.  I confidently predict that ECRI will not publicly update its Weekly Coincident Index once that data is reported.

In summary, ECRI appears to have descended to the level of Zero Hedge in trying to salvage their reputation.  Sad.

Agricultural ETF Rises Sharply

Above is a chart of the DBA -- the agricultural ETF.  Since late January, it has risen from a low of 24.4 to ~26.6 -- an increase of about 9%.  The primary reason is the driest growing season in Brazil in the last 60 years, which has effect both softs (coffee) and grains (soy beans).

The weekly chart places the move in a more historical context.  Prices have been bottoming for most of 2013, Falling from a price spike in 2010-2011.  Over the last few weeks, the weekly chart has printed some very strong price bars, moving prices through the 10, 20 and 50 day EMA.  Also notice that the MACD and CMF are in a position to become far more bullish in their overall measurements.

Weekly Indicators for February 17 - 21 at XE.com

 - by New Deal democrat

My Weekly Indicator column is up at XE.com.

Those of you of a certain Neanderthal age may remember a line from The Who's "Won't Get Fooled Again":  "Meet the new boss. Same as the old boss."

Well, there's been a return of the old boss when it comes to economic data.

The Dueling Doomers of DailyKos horribly bobble a "housing bubble"

 - by New Deal democrat

Ugh!  You would think after years of having their heads handed to them by economic data, the Doomers might go crawl away somewhere, but every now and then, they stick their heads up and, if they don't see their shadow, figure it's OK to come out and play economic analysis.

So today's lesson - alas, as usual - is about cherry-picking data.  Both of DK's Pied Pipers are out today with claims that we've been in a second "housing bubble." One of them even showed up with -as we will see, fatally flawed - graphs.

For those people who might amble over here from that non-bastion of economic analysis,  I've been bearish on the housing market for months.  So much so that I even have a charitable bet with Bill McBride a/k/a Calculated Risk that housing starts and sales will be down by at least 100,000 YoY at some point this year (he's bullish, he thinks housing sales will average +20% YoY this year).

But being bearish is different than saying that the increase in house prices that began 2 years ago (that neither of the aforesaid twins saw coming) is a "bubble."  It's possible that California might have some outlandish prices, but California is not the whole country.   As I pointed out earlier today, the best way to measure the true cost of housing is to compare it with wages, and when you do that, you see that the median prices of existing homes are a little less than they were in 1999 and 2000 (blue), and just to be fair, equal to 2000 prices (the earliest comparison that can be made) when we use median wages (red), although for this I am stuck with a quarterly measure last updated through December:



Now let's do the same thing (both measures) new homes:



There simply is no housing bubble in the vast majority of the housing market.  Even new home prices (10% of the market), adjusted both for average nonsupervisory wages and for median wages, are only about midway between their recent bottom and the bubble top.

But, but, but ... what about the graphs?   Most of the graphs I actually have no problem with (e.g., mortgage applications are in the tank, and housing permits and starts have stalled, as I've already documented -- like I said, I'm bearish).   Again, for those of you who might come over from yon, I've examined the relationship between interest rates and housing starts for almost the last 70 years, and the simple fact is, a 1% increase in interest rates almost always leads to a 100,000 decrease in permits and/or starts within a year afterward.

Most of the graphs have to do with housing sales.  No problem.  But there are two graphs upon which the claim that housing is in a bubble (i.e., prices) are based.  One doesn't really prove anything, and the other is flat-out dishonest.

The one which really doesn't prove anything is the graph showing housing flips and profits.  It's from Realty Trac, and here's the link to the article.   And here's what Realty Trac says about their data set:

Homes flipped in 2013 accounted for 4.6 percent of all U.S. single family home sales during the year, up from 4.2 percent in 2012 and up from 2.6 percent in 2011. Flips accounted for 3.8 percent of all sales in the fourth quarter, down slightly from 3.9 percent of all sales in the third quarter and down from 7.1 percent of all sales in the fourth quarter of 2012 — the highest percentage of sales represented by flips in a single quarter since RealtyTrac began tracking flipping data in the first quarter of 2011.

(my emphasis).
In other words, Realty Trac's data only began 3 years ago, close to the bottom of the housing market. What percentage of sales were flips in 2008? 2006?  2004? 2000? 1990?  Realty Trac doesn't know, and doesn't purport to know.  Is the percentage of flips in 2013 similar to what we saw in a healthy market?  Realty Trac doesn't know, and doesn't presume to tell us.  And even within their 3 year data set,  the percentage of sales that were flips in 4Q 2013 were only a little more than 1/2 of what they were a year before (3.8% vs. 7.1%).  Hardly the sign of a market that is getting frothy.

The flat out dishonest graph is this one:



It's probably from Zero Hedge, although it actually isn't sourced at all.  In fact it is a close relative of a Zero Hedge graph I debunked a year ago. Both suffer from the same dishonesty.  They compare nominal house prices with inflation-adjusted income.   If I compare the nominal price of Coca Cola from 1960 to the present, with inflation adjusted income, Coca Cola is going to look like its price has shot to the moon.  Totally dishonest.

The honest comparison is nominal prices to nominal wages (what I've done above) or inflation-adjusted prices to inflation-adjusted wages.  Do that, and if you find something that shows there is a bubble, now you've got my attention.

Unitl then, sorry, Doomers, there is no housing bubble in the vast majority of the housing market. But if it makes you feel any better, I think the housing slowdown is going to negatively impact the economy for at least most of this year.

International Week in Review: Central Banks Release Tons of Minutes Edition

This is up over at XE.com

January existing home sales and the housing slowdown

 - by New Deal democrat

Let me start out by saying that, in terms of their importance for the economy, existing home sales are the least signficant number, even though existing sales are about 90% of all sales.  That's becuase the impact from construction trades, suppliers, landscaping, furniture, appliances, etc., is much less for existing that new home sales.

But since they are 90% of the market, they dominate the housing slowdown.

Let me start by taking my graph of housing permits (blue) and starts (green) normed to 100 in September 2012, and add in existing home sales through this morning's report (red):



Existing home sales peaked earlier and are now lower than they were 16 months ago.

Next, to give you another perspective other than a YoY one, here are ths same three series, normed to 100 at their respective 2013 peaks:



All of them have declined at least 10% from those peaks.

Next, here is months' supply of inventory:



This is a little higher than during almost all of the housing boom.  It may be a neutral reading, or it may be slightly supportive of prices.

Finally, some writers are claiming that there has been a second housing "bubble."  There may have been some merit to that claim in terms of new home prices, but that claim has no credibility when applied to existing home prices.  To show you why, let's take a look at the median price for an existing home, divided by the average wage for nonsuperivosory workers.  I use this measure becuase housing itself is a component (the largest) of inflation, so measuring affordability by wages is probably a better "real" measure (note that these are not seasonally adjusted, hence the sine-wave pattern):



So measured, prices of existing homes, while more than 20% higher than they were at the bottom two years ago, still are slightly less than they were in 1999 and 2000, still far below what they were during the bubble.  I appreciate that people in California may be seeing a different situation, but that's the premium you pay to live in a beautiful climate, and the astronomical cost of living in California is a big reason for the outmigration to the interior West for the last 10-20 years.

All that being said, with home prices up 20% in two years, and interest rates having risen such that the monthly interest payment on a mortgage is about 30% more than it was for a mortgage in the same amount several years ago, it's no surprise that home sales have been falling.

Remember That The Long-Term USD/CAN Chart is Bullish

This is up over at XE.com

Existing home sales fall to 18 month low

 - by New Deal democrat

Existing home sales fell to 4.62 million annualized in January, the lowest number since July 2012 (seasonally adjusted).  Median prices also fell, but these are very seasonal, and need to be compared YoY.

While the median price for an existing home is more than 20% higher than it was in January 2012,  as a multiple of the average wage the median price is no higher than it was in 1999 or 2000.

This was  not unexpected, and is further evidence of a housing slowdown.  More later with a few graphs.

Rising natural gas partially offsets flat gasoline pries in January

 - by New Deal democrat

I have a post up at XE.com on this morning's CPI release.  It wasn't as low as I had hoped, but we are still on track for 1.0% or so YoY inflation in February.

A closer look at the housing slowdown

 - by New Deal democrat

With yesterday's reports on housing permits and starts, we now have 3 of 5 monthly reports that have turned negative YoY:  in addition to starts, pending sales and existing home sales already turned negative YoY in November and December,  respectively.

First of all, as I've documented a number of times, even in the post-World War 2 era where there was over 15 years of pent-up demand, typically a 1% rise in interest rates led to a -100,000 decline in nonfarm housing starts or permits within about 9 months.  Here's an update of that relationship covering the last 3 years, showing the YoY change in 1,000's in permits (blue) and starts (green), and comparing that with the YoY% change in treasury bond rates, expressed in basis points (red):



Now let's look at the same data, expressed as the YoY% change in permits and starts, and YoY change in treasuries by percent averaged monthly:



Permits and starts follow interest rates, it's just about that simple (with the exception being those few times when "buy now or be forever priced out" was a dominant theme, which may actually have played into the October and November 2013 spike).

The YoY low in interest rates was in early 2012 as shown in the above two graphs.  This next graph norms permits (blue) and starts (green) to 100 as of September 2012, about 8 months later:



Permits have failed to advance more than 5% above their level in September 2012 in 10 of the ensuing 16 months.  Starts are more erratic, with several spikes, but generally show the same pattern.

Finally, in the past I have documented that housing permits have typically declined 200,000 from their expansion high prior to a recession beginning (the notable exception was just prior to 2001, where they declined by 175,000.  This final bar graph shows the declines in permits from their October highs:



While the housing data continues to confirm my belief that 2014 will be marked by a deceleration in the growth of the economy, the decline above isn't serious enough to cause me to think the economy will actually contract anytime soon.  Further, I agree with Bill McBride that, over the longer term, the fundamentals favor a housing recovery.

Meanwhile, existing home sales will be reported this Friday, and new and pending home sales will be reported next week.

Emerging Markets Rebound, But Hit Resistance

 

 

 

The emerging market ETF has rallied from 37 to ~ 39.5 but has hit resistance just below the 200 day EMA and at the lower 40s -- a level that has support for technical resistance.  However, notice two important technical details with this chart: the MACD is still clearly moving lower and the CMF has been printing negative numbers over about 3 1/2 months.  Neither of these facts bodes well for the future price moves.

Will the 1.38 Level Provide Resistance For the EUR/USD Pair?

This is up over at XE.com.

Housing permits decline, housing starts now down YoY

 - by New Deal democrat

As Bill McBride reminded his readers this morning, he and I have a charitable bet on the direction of the housing market this year.  In the past, with rare exception, whenever interest rates have risen by at least 1%,  housing permits have decreased by 100,000 a year or more.  The exceptions (such as 1968 and at the peak of the housing bubble) were when "buy now or be forever priced out" was a reasonable - or widespread - argument.  In 1968 it was because of secularly and rapidly rising interest rates; in 2004-05 it was because of seemingly permanently rising prices.

This morning January housing permits and starts were reported.  Permits fell to 54,000 to 937,000.  This contrasts with 991,000 in December, and 915,000 one year ago, so permits rose 2.4% on a YoY basis.

The big story, however, is that housing starts fell 168,000 to 880,000.  Last month's number was revised upward by 49,000 to 1,048,000.  Which means that starts are down from 898,000 one year ago, or -18,000, or -2.0% YoY.

It seems obvious that weather was an issue in the January reports.  And the initial anecdotal reports from February (e.g., this morning's MBA report) look even worse.

But what is happening is what I expected to happen.  The weather has just made it happen a little sooner, I think.

PS.:  I'll update with YoY graphs once they are available on FRED.

Pound Rallies Versus Dollar; But Beware US Weather Influences

This is up over at XE.com

Australian ETF Breaks Through Resistance

Since a sell-off last fall, the Australian ETF has been trading between the upper 22s and mid 24s.  At the upper end of this range has been the 200 day EMA, the line delineating between a bull and bear market.  Now prices have moved through this level, with plenty of upside room to run.

Japanese GDP Disappoints, But the Details Are More Nuanced

This is up over at XE.com

Weekly Indicators for February 10 - 14 at XE.com

 - by New Deal democrat

My Weekly Indicators column is up at XE.com.

Weakness continues, but - maybe - Here Comes the Sun.

International Week in Review: Central Banks Take Center Stage Edition

This is up over at XE.com

Agricultural ETF Jumps

Since the beginning of February, the agricultural ETF has jumped a little over a point, or nearly 5% in percentage terms.  Prices are now about the 200 day EMA.

Diminished rainfall in Brazil is leading to price spikes in coffee and soy beans.

February 2014 may show the lowest YoY inflation rate in 50 years (ex-Great Recession)

 -by New Deal democrat

The loosening of the Oil choke collar this winter appears to be leading to the lowest YoY inflation rate in 50 years outside of the Great Recession.  I have the details up over at XE.com.

GM: "We're still not serious about hybrids"

  - by New Deal democrat

David Atkins over at Digby's blog is upset at a YouTube commercial for a new luxury car, in which the actor portraying the owner spouts a river of entitled 1%er bile..  Atkins has since corrected the error, but he  originally misidentified the ad twice as for a Chrysler, which is important from my point of view.

You see, the ad isn't for a Chrysler at all.  It's for the new Cadillac ELR, a luxury hybrid that Hybrid Cars says is 

a $76,000-plus compact coupe that offers nothing more than the Volt except ride, luxury, image and style.

That David didn't even know it was a Cadillac isn't surprising, since the ad copy (which he helpfully reproduces below the video) never once mentions the car's brand, or the fact that it is a bybrid.

And GM's ad agency, if they read David's post, would probably be doing high-5's. The entire point of the ad is that this guy is a total a*****e who thinks nothing of dropping $80,000 on a toy that he can't even be bothered to name, let alone describe.

In fact, he's their target buyer.  Cadillac only sold 24 of the ELR's in its first month.  According to Hybrid Cars,

Judging by the fictional ELR owner’s bold-as-brass attitude, and GM’s own prediction that it will not sell a lot of its new ELR, the automaker might be interpreted as saying it is just fine with the state of affairs.

And that's a shame, not just for the egregiously offensive political view that is promoted, but because of what the above says about GM's commitment to hybrids and other alternately fueled vehicles.

As Edmund's test drive concluded:

And at the end of the day it's not that quick, not that engaging to drive. Cadillac would like us to think of the ELR as a 6 Series or Tesla Model S competitor instead of a hyper-expensive Volt, but that's how it drives, for the most part.

The 2014 Cadillac ELR is stunningly beautiful from most angles. Photos truly do not do it justice. In the end, though, the 2014 Cadillac ELR displays far more show than go.

While Toyota was busy turning itself into your father's Oldsmobile, GM, especially via the Cadillac CTS and Buick LaCrosse, was turning out some state of the art styling, and with the aforesaid CTS, finally hit a home run with the kind of car they once described as a "little limousine."

But that aforesaid CTS has disappeared from the lineup, replaced with a model carrying the same badge but really a continuation of the old STS midsize.

GM could have priced the ELR at $50,000 and sold many 10,000's of the model to luxury car drivers who actually care about fuel economy, not to mention the environment, and shown that it was the carmaker to beat in the luxury hybrid niche.  Instead they have made crystal clear that the ELR is just an expensive bauble for collectors, which will undoubtedly disappear from the lineup after two or three years and sales of a few thousand. It is content to let Toyota/Lexus own the segment from the low end, and for Tesla to own it from the high end.

So the ad isn't just offensive politically.  It shows that economically GM still isn't ready to do what it needs to do not to be a dinosaur.

Yellen to Use Broader Employment Measures For Fed Decisions

This is up over at XE.com.

US Market Update; Look For Small Correction Over the Next Few Days

The QQQs (top chart) have had one heck of a strong run.  They've been rallying since February 5 and have rallied from 83.7 to 89.  But prices have hit resistance at levels from late January and the MACD is starting to decline.

In contrast, we have the DIAs (top chart) and IWMs (bottom chart).  Both have rallied over the same time period, but not as strongly and both are also hitting resistance areas.

We've had some strong upward movement over the last five days.  At the same time, we're seeing prices hit resistance on a number of fronts.  The cat is out of the bag on Yellen; she'll continue the easy money policies if Bernanke.   And considering she's using a broader measure of unemployment, we can expect a longer period of lower rates.   But over the next few days, we'll hear more of the same with added political grandstanding. 

 

OECD LEIs Point to Developed/Emerging Market Growth Divergence

This is up over at XE.com

Oil At Important Resistance Levels

After last year's traditional summer price rally (when oil traded between 102/104 and 110/112),, prices retreated to trade between the lower 90s and 100.  Now prices are again looking to breach the 100 level.  Should they do so, they face little upside resistance until the 110 level.

Vietnam ETF Consolidating Recent Gains

The Vietnamese ETF has bucked the trend of emerging market sell offs of late.  Prices started rallying in early September.  They consolidated gains at the end of last year between the 18.5-19 price level then rallied strongly in January, moving through resistance in the upper 20s.  Notice the big volume in-flow.  Prices are now consolidating in a triangle pattern between 20.3 and 22.2.

Weekly Indicators for February 3 - 7 at XE.com: The Big Chill

by New Deal democrat

My Weekly Indicators column is up at XE.com.

This was the poorest week in a long time. Is it due to the weather, at least in part, or is this real consumer weakness spreading throughout the economy?

International Week in Review: A Busy Week for Central Banks Edition

This is up over at XE.com

US Employment : Wow, Another Weak Report.

First, I have the rather unenviable task of filling in for NDD on this issue.  That does mean you'll get my somewhat different opinion about the employment report's importance.  I've grown to be less and less a fan of the monthly "US employment report" release for several reasons.  First, people only focus on the unemployment rate rather than the entire employment picture which includes such things as employer behavior (which is derived from the JOLTs report), employee confidence and labor utilization.  Second, this report is usually revised multiple times, so the first number could be an accurate number -- or nowhere near was happening.

In addition, this report as several one off points to deal with.  The first is the weather.  The entire country has been hit by massive weather disruptions over the last month or so.  We've seen this effect the ISM reports, housing numbers and auto sales.  In addition, this report has the deal with the effects of the expiration of unemployment benefits and the annual revision to the numbers.  This FT story explains this issue in more detail.

And we're off.  Let's start, well, at the beginning:

Total nonfarm payroll employment rose by 113,000 in January, and the unemployment rate was little changed at 6.6 percent, the U.S. Bureau of Labor Statistics reported today. Employment grew in construction, manufacturing, wholesale trade, and mining. 

.....
 
Total nonfarm payroll employment increased by 113,000 in January. In 2013, employment growth averaged 194,000 per month. In January, job gains occurred in construction, manufacturing, wholesale trade, and mining.  

These are not wonderful numbers.  First, 113,000 is simply a weak number.  And the 194,000/month of growth for the last year is OK but we would do better.  What is interesting is the economy was growing strongly in the last two quarters of 2013, yet the employment growth numbers were still weak.

Both the number of unemployed persons, at 10.2 million, and the unemployment rate, at 6.6 percent, changed little in January. Since October, the jobless rate has decreased by 0.6 percentage point.

The good news here is the number didn't increase.  The bad news is it didn't meaningfully decrease, either.  This is where I think the weather did play at least a marginal role.  Let's face facts: heavy snowstorms would make is difficult to get to a job interview etc...

After accounting for the annual adjustment to the population controls, the civilian labor force rose by 499,000 in January, and the labor force participation rate edged up to 63.0 percent. Total employment, as measured by the household survey, increased by 616,000 over the month, and the employment-population ratio increased by 0.2 percentage point to 58.8 percent.

This is where some of the re-benchmarking issues come into play.  The household survey number is very impressive.  Also remember this household employment number tends to lead the establishment survey.

Overall job growth was fair (see tables here).  There simply wasn't enough of it.  This is also the third month in a row when the total number of professional service jobs added has been weak.

In January, the average workweek for all employees on private nonfarm payrolls was unchanged at 34.4 hours. The manufacturing workweek declined by 0.2 hour to 40.7 hours, and factory overtime edged down by 0.1 hour to 3.4 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls was unchanged at 33.5 hours. 

Average hourly earnings for all employees on private nonfarm payrolls rose by 5 cents to $24.21. Over the year, average hourly earnings have risen by 46 cents, or 1.9 percent. In January, average hourly earnings of private-sector production and nonsupervisory employees increased by 6 cents to $20.39.

The hours worked decline is disappointing.  However, the 5 cents/hour increase is good news.  But -- just to throw a cold blanket on that number -- hourly earnings only increased 1.9% over the last 12 months.

The market view this report as disappointing.  However, I would add the important caveat that here the weather is probably playing a role in the slowdown.

NDD will add his comments later today.

Draghi Drops the Ball

This is over at XE (link fixed).

Japanese ETF Breaks Two Key Support Areas

The Japanese ETF has broken support in both the lower 11's and the 200 day EMA.  This move was telegraphed by the slowing declining MACD over the last 6 months.

Is he Oil choke collar finally letting go of the US economy?

- by New Deal democrat

I have a new post up on the Oil choke collar over at XE.com.

Most "Problem" Emerging Economies Have Inflationary Problems

While inflation does not explain all of the problems faced by these countries, it is clearly a contributing problem.  And considering the most of these countries also have high unemployment, we can conclude there are systemic issues at work.

Read more over at XE.com.

Yes, It's A Correction. No, You Shouldn't Panic

The markets have been selling off since the beginning of the year.  Considering equities have been rallying strongly for most of last year, and that money managers poured money into the market at the end of the year to dress up their numbers, some reactionary sell-off was warranted.  And no, it's not time to panic.


First, let's look at the 30 minute chart:

We see two strong sell-offs. The first is through the 181.31 level of support and the second is through the upper 176/lower 177 level.  Both sell-offs have been strong and occurred on higher than usual volume.  From peak to trough, the overall sell-off is from about 184 to 14 or a loss of almost 6%.

Above is a chart of the daily price action.  Prices are now at important Fib levels as well as the 200 day EMA -- a very important technical point.  The sell-off has obviously hit momentum and increased volatility (increased Bollinger Bands).

But, even if prices move below the 200 day EMA, it will most likely be the result of an overly aggressive selling instinct.  While we are reading reports about traders being concerned with economic growth, remember we are seeing weaker numbers partially because of weather-related factors.  Once we thaw out, I would expect a return to more consistent, positive numbers.

Oil At Critical Resistance Levels

Oil has been trading between the upper 90s and 100 area for the last four months.  However, prices have again risen to the key resistance area of ~100.  Also note that prices are now about all the EMAs -- including the 200 day EMA. 

If consumers can't buy, and can't refinance, a recession follows

 - by New Deal democrat

It's not too often when the Progressive point of the day coincides exactly with something wonky I was going to say, but well, today is such a day.

From the New York Times via Charlie Pierce and Atrios, we learn that

As politicians and pundits in Washington continue to spar over whether economic inequality is in fact deepening, in corporate America there really is no debate at all. The post-recession reality is that the customer base for businesses that appeal to the middle class is shrinking as the top tier pulls even further away.

 In the 4th quarter of 2013, consumers only got a little help.  We got two reports on median wages in the last couple of weeks.

First came the Census Bureau's report os usual weekly wages:



Usual weekly wages went up $1 adjusted for inflation in the 4th quarter.  The post-recession bottom was in the 3rd quarter of 2012 and the 1st quarter of 2013.  Usual weekly wages have stagnated since the end of the tech boom, now nearly 15 years ago.  The big jump during the recession is when gas prices fell from $4.25 a gallon to below $1.50 a gallon, and the decline from 2009 through 2012 was gas prices going right back up to nearly $4 a gallon again.

Last week the Employment Cost Index was reported.  This is another median measure.  In nominal terms, median wages rose over 2% for the first time in over 4 years:



Adjusted for inflation, in 2013 median wages rose about 0.5% from 2012, and were at about 2007 levels. But note they are still below their 2008 levels, let alone their levels a decade ago in 2002--04


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Which brings me to my reminder that the middle class being unable to refinance due to either a rising asset price like their house, or due to lower interest rates for at least 3 years, has been a precursor to recession:



Interest rates made a likely once-in-a-liefetime low in July 2012, over 18 months ago, and as this graph from Mortgage News Daily shows, refinancing has dried up:



As much as Pierce, Atrios and other progressives dislike the current situation, imagine a new recession and X millions more Americans losing their jobs.  That we will have an incomplete recovery before that happens is my biggest fear.

Weaker Chinese Data Hitting Hong Kong ETF

While China has been printing economic numbers showing a slowing economy, the primary ETF that is taking the hit for this slowdown has been the Hong Kong ETF.  The ETF continued to hit resistance at the 20.75 level for several months before sharply selling off over the last few weeks, sending prices through all the EMAs -- including the 200 day.

Weekly Indicators for January 27 - 31 at XE.com

 - by New Deal democrat

My column describing Weekly Indictors is up at XE.com

What was relatively strong vs. what was relatively week has been reversed in the last several weeks compared with the last 9 months.

International Week In Review: Despite the EM Rout, Some Surprisingly Good Numbers Edition

This is over at XE.com

Recent News is Euro Negative in EUR/USD Trade

This is up over at XE.com

Emerging Market ETF Has Stabilized For Now

Above is a chart of the emerging market ETF.  While it has broken the 200 day EMA and pulled the lower EMAs through the 200 day EMA, prices appear to have stabilized around the 38 level.  Finally, the sell-off has occurred on higher volume.

However, notice the declining momentum and negative CMF reading.  This ETF won't be making a strong relief rally anytime soon. 

Comparing personal consumption expenditures with real retail sales: an update

 - by New Deal democrat

A couple of years ago I wrote a few posts describing how, if you compare PCE's with real retail sales, you get a good idea where you are in the economic cycle.  I've published an update over at XE.com, and also updated my look at real per capita retail sales, which are a short leading indicator.

A Review Of Recent Extraordiary Emerging Market Central Bank Action

This is over at XE.com

NEWS FLASH: Real residential investment *declined* in the 4th quarter

  - by New Deal democrat

From the BEA:

Real residential fixed investment decreased 9.8% [in the 4th quarter of 2013].

Are all you Doubting Thomases out there starting to pay attention?

More later ....

Update:

Here's the updated graph of private fixed residential investment (green), as measured as a YoY% (blue), and as measured as a percentage of GDP (red):



I expected that real residential investment would decline measured as a YoY%, but the absolute decline is a bit of a surprise.

What I want you to pull from the graph above is that the order is (1) decline of fixed private residential investment as a percentage YoY comes first, followed by (2) decline as a share of GDP (the measure favored by Professor Leamer as the first portion of the economy to decline prior to a recession) , and finally by (3) absolute decline.

I want to emphasize that this does NOT mean we are inexorably sliding into a recession from here.  Housing could certainly bounce back.  But it does add another brick in the wall of evidence supporting my forecast of a decline in housing starts and permits in the first half of this year at least.  It also does raise a yellow caution flag to watch for further signs of deterioration in the economy as we head towards 2015.

Flight to Safety Since January 1

Above are four charts, all of which are from US treasury market ETFs.  The IEIs are for the 3-7 years, IEFs for 7-10 year, TLHs for 10-20 year and TLTs for 20+ years.  All have rallied since the beginning of the year.

What this shows is since January 1, we've seen a fundamental shift in trader's perception of the market as they prefer the relative safety of treasuries over stocks.

Q.: What's the politically correct word for "mentally retarded?" A.: Apparently, "Peter Schiff"

 - by New Deal democrat

According to Business Insider, last night Euro Pacific Capital president Peter Schiff actually took the position that "people don't go hungry in a capitalist economy.....  It's socialism that creates scarcity, that creates famine," Schiff said. "In a free market, there's plenty of food for everybody, especially the poor."

Asked who should earn a wage of $2 an hour, Schiff replied, "What the politically correct word for 'metnally retarded'?"

Never mind that in the Great Depression, with 25% unemployment in 1932, people died of starvation in nearly every single town, and at one point it was estimated that 25% of all schoolchildren were malnourished.

All of those perfectly competitive free market equations that people like Schiff love don't guarantee that people won't starve, they just (supposedly) assure that the most economically efficient number will starve.

So the answer to Schiff's question appears to be, "Peter Schiff."

He walked into that one.

A reminder about housing sales and prices

 - by New Deal democrat

House prices show a lot of seasonality, so the only good way to keep track of them is YoY, and YoY price increases are still running very strong.

So how can I be forecasting a decline in house sales if prices have continued to rise so strongly?  Because sales will peak and turn down before prices.

In case you needed a refresher, here's a graph of sales of single family homes (red, right scale) compared with median prices for new single family homes (blue, left scale) for the last 10 years:



Recall that sales peaked a full two years before nominal prices turned down.

While I don't believe we are in a new bubble (adjusted for income, prices haven't risen nearly so much off their bottom), there has been quite an outcry that traditional first time homebuyers are priced out of some markets.

In any event, I believe the transmission of higher interest rates through the housing market will unfold the same way.  Sales will turn down before prices do.

But isn't inventory still tight?  Yes, but remember that the months-of-supply metric can resolve either through more inventory coming on the market, or monthly sales declining, or both, which is what happened when the housing bubble burst.  If in the next few months sales decline to 900,000 annualized, that will go a long way to a "normal" number of months of supply.

Indian ETF Hitting Resistance

The top chart is the daily Indian ETF chart, while the bottom is the weekly chart.  Both charts show the market hitting resistance in the mid 57 area.  Anytime a market hits resistance this regularly, we need to ask why, which is almost always answered by the fundamentals.

The Indian economy is experiencing fairly serious structural problems.  On one hand, inflation is high bringing with it all the associated problems.  At the same time, growth is slowing, leaving the central bank in a rather unenviable position.

The housing slowdown has already begun

 - by New deal democrat

With yesterday morning's surprise -50,000 month/month decline in new home sales, the 2013 housing data is in the books, and it confirms that in 2013 there was a marked slowdown in the housing recovery.

Below is the graph of building permits (blue), starts (green), new home sales (beige) and existing home sales (orange) for the last three years, normed to 100 at the start of each year:



After being up over 10% in each of 2011 and 2012 (over 20% as to permits), permits, starts, and new home sales finished 2013 up 10% or less for the year, and existing home sales are actually negative for the year.

Now here is the same data presented as YoY percentage change, and compared with the YoY change in interest rates (red, inverted, right scale):



The simple fact is that the housing market follows interest rates usually with a six to nine month lag.

Finally, here are housing permits (blue) and starts (green) in 100,000's YoY vs. interest rates, inverted:



The past history is that a 1% increase in interest rates typically is consistent with a 100,000 decline in permits and starts.  The data that we have seen in December confirms that in 2013 we already have seen a slowdown, and is in accord with my forecast that at some point this year, we will see a YoY change of -100,000 in permits and/or starts.  Could it be different this time?  Of course, but history is on my side.

Australian ETF Breaks Support on Weekly Chart

Above is a weekly chart for the Australian ETF.  It had been consolidating in a triangle formation which lasted about 9 months.  But price action over the last several days has sent prices through the support of the lower trend line.

There are several reasons for this.  First, Australia's fortunes are directly tied to Chinas, as Australia exports a large amount of goods to China.  Second, Australia recently had a very negative employment print, showing a contraction of jobs rather than an expansion.  As a result, traders have sent the ETF lower.

What the Heck is Happening In the Markets?

This is up over at XE.com

The International Sell-Off In Perspective

As we start this week, we should look at the price action from the end of last week, as this will have a strong impact for the next few tradings days.

The all Asia except Japan ETF had been trading between 57/57.5 and the lower 61s.  Last week we saw a sharp sell-off as prices broke through the 57.5 level by printing two strong down-day bars.  Also note that prices moved through the 200 day EMA.  The only thing lacking from this sell-off was a huge volume spike. But this could mean the big volume spike is yet to come.

The emerging market ETF was already below the 200 day EMA, making last week's sell-off more pronounced.  Unlike the AAXJ chart above, this one does have a huge volume spike.  Also note the shorter EMAs are now below the 200 day EMA.

International Economic Week in Review: Emerging Market Sell-off And US Profit Taking Edition

This is up over at XE.com