Primary coincident economic indicators for September continue to show slow growth

- by New Deal demorat

[Note: this was supposed to be a post at XE.com, but we're still working on uploading graphs, and I wanted to make sure I got this information out.]

For four years, there has been a brand of pundit I mock as "Doomers." These are the people who, week after week and month after month have written long-winded, persuasive sounding epistles, usually accomplanied by whatever data point is pointing south now, explaining that the economy is nowhere near growing, or never adding jobs, or heading for a double dip, a triple dip, or whatever dip it is going to be next. When the eonomy doesn't cooperate, or last month's sure-fire negative indicator improves, it is lost to the memory hole and on to the next sure harbinger of DDOM! we go.

Meanwhile those of us who are just boring nerds keep our eyes focused on the data, operating under the theory that it is far more likely than not, that it's not different this time, and that data has consistently told a story of slow but steady improvement.

September brought us more of the same. Typically the NBER looks at four sets of data -- production, jobs, sales, and income -- to decide if the economy is in a recession or expansion. Two of those -- sales and income - have already surpassed their pre-recession peaks. This month a third -- industrial production -- moved wtihin 1% of its prior high.

Here's what the four primary coincident indicators of the economy look like as of their last report.

First, here's industrial production, which is sort of "the first among equals." Most often the NBER dates recessions from the month this series tuns:



Industrial production rose 0.6 in September. At its current pace, it will finally exceed its 2007 peak sometime this winter.

Next, here is real income excluding transfer payments (e.g., disability payments):



This broke through its pre-recession high over a year ago, and as of its last report in August, was still rising.

Next, here is real retail sales:



These also exceeded their pre-recession highs about a year ago. While real retail sales declined slightly in September, the positive trend is fully intact.

Finally, here is nonfarm payrolls:



Jobs have been the real laggard among the four big categories. While about 7 million jobs have been added since their low at the beginning of 2010, we are still close to 2 million below that peak. At our current pace, it will take another year before we have as many jobs as we did at the end of 2007 -- and that isn't adjusting for population growth.

So the story remains the same as it has been since the bottom of the recession in 2009. The economy continues to impove, just not enough to substantially improve the lot of the average American household.

Mexican ETF Consolidating

The weekly chart for the Mexican ETF shows two important trends.  The first is a rally that started in mid-2011 and lasted until the Spring of 2012.  During this time we see rising momentum and increased CMF readings, indicating money flowing into the market.  From trough to peak, prices increased about 68%, which is an impressive showing for any index.

But for this year, prices have retreated as the overall economy has slowed.  Here's a chart of the annual percent change in Mexican GDP:

In addition, the new president is attempting to push through an impressive and broad series of economic and political reforms, which has led to a slowing economy.

   

Weekly Indicators for October 28 - November 1 at XE.com

- by New Deal democrat

Due to a significant decline in interest rates from their recent highs, weekly indicators are generally improving and for the most part have bounced back from their weakness during the federal government shutdown. Click on the link for the full report at XE.com.

P.S. I'm not 100% sure the link will take you directly to the post. If it doesn't, please let me know in comments.

Oil Breaks Support and Continues Move Lower

Oil has broken the support level at the 97/98 level and is continuing to move lower.  Prices have moved through the 200 day EMA and are currently resting at the 38.2% Fib level from the mid-April - late August rally.  More importantly, the chart is in a very bearish orientation right now: prices are clearly moving lower, momentum is dropping and volume is flowing out of the market.

This is a very important development for the economy, as the decrease will give consumers more in-pocket income to spend.

California glitches still having major impact on initial jobless claims

. - by New Deal democrat

UPDATE: California says this week's number does not include any backlog. The following post describes its large continued impact on last week's number.

Computer issues in California continued to bedevil the weekly initial jobless claims reports through last week's report. In early September, computer issues prevented the Sunshine State from entering all of its initial claims. That ended after a few weeks, but then California had to catch up in its data entry, thus distorting data to the upside. There is a one week delay in reporting state by state data, so this post does not discuss this morning's report.

But get a load of this: last week unadjusted initial jobless claims fell by 49,000 in the other 49 states, but rose by 15,000 in California!

Now , to the nerdy numbers. As I did last year with regard to Superstorm Sandy, we can arrive at a good estimate the "real" initial jobless claims have been, by comparing the unadjusted average for the other 49 states this year vs. last year in the same week, and projecting this year's "real" number by assuming that the percentage of claims in the other 49 states are the same percentage of the total this year as they were last year.For the other 49 states, claims were 83.2% of what they were last year. Since last year, seasonally adjusted, there were 372,000 claims, if California behaved similarly the 50 state number this year last week would have been 309,000.

Using this method, the below list shows the seasonally adjusted weekly jobless claims number on the left, and the right is the average adjusting for the likely impact of California's computer issues:

Sep 07  294,000  318,000
Sep 14  311,000  327,000
Sep 21  307,000  313,000
Sep 28  308,000  314,000
Oct 05  373,000  329,000
Oct 12  362,000  335,000
Oct 19 350,000 309,000
Oct 26. 340,000. -------


[Note: Since the raw state data is published with a one week lag, we do not know yet what this week's number will be.]

Here's what happens to the 4 week moving average:

Sep 28 305,000 318,000
Oct 5 324,750 320,500
Oct 12 337,500 323,500
Oct 19 348,250 321,750


October 5 and 12 were the two weeks during which federal workers affected by the government shutdown applied for unemployment insurance. In September, California's problems probably resulted in an underount of -53,000 claims by the above calculations. I had hoped that one week ago was the last week affected by California distortions, since cLose to 50,000 of those claims we're made up in the prior two weeks. That obviously wasn't the case, but hopefully this week was the end.

YoY Consumer prices in October likely Near or at lowest in 50 years ex-great recession

- by New Deal democrat

For the last few months I have been using the change in the price of a gallon of gas to forecast that month's CPI in advance. My point has been, that all you really need to know about inflation is the price of gasoline. So far each prediction has turned out to be within 0.1% of the actual number.

For September I predicted a rise of +0.1%. Inflation was actually reported at +0.2%, making the YoY inflation rate +1.2%:



On Monday the E.I.A. reported gas prices for the final week of October, so we can estimate October's inflation rate now. My method is to take the change in the price of a gallon of gas and divide by ten, then add 0.1% to 0.2% to account for core inflation, or else divide by 16 to be more conservative, to arrive at the non-seasonally adjusted inflation rate.

In September the average price of a gallon of gas was $3.53.2. This month it was $3.34.4. That is a -5.3% decline. Dividing by 10 gives us -0.53%, and adding 0.1% to 0.2% gives us a rounded -0.4% decline. Dividing by 16 gives us a -0.33% decline, and adding 0.1% to 0.2% gives us a rounded -0.2% decline.

The seasonal adjustment for October last year was +0.2%. This gives us a final seasonally adjusted inflation rate that rounds to -0.2% to 0.0%.

That will replace last October's +0.2% inflation rate, so that the YoY inflation rate will be approximately +0.9%. This will be lowest YoY inflation rate for the last 50 years outside of the great recession.

Since my number one concern is jobs and income, it's worth noting that this inflation rate is also subdued enough to suggest that real YoY wages have probably increased again in October (graph below is though September):



and may be getting closer to their all-time high set in 2010.

European ETF In Strong Rally

For the longest time, the EU was in a recession.  However, over the last few months it appears that the region is slowly pulling out of its economic malaise.  The markets -- acting in their role of leading indicator -- anticipated this improvement as shown by the weekly IEV chart:

The IEV bottomed in late 2011 and retested its lows about 9 months later in the spring of 2012.  However, since then we've seen a strong rally as prices moved through the 200 week EMA, printing a series of higher highs and higher lows.  Now we see prices above all the EMAs and the greater distance between the shorter and longer EMAs.  Also note the increase in volume over the last few months, indicating a move by investors into this ETF.

The daily chart shows a strong rally over the last four months, as again prices are printing a series of higher highs and higher lows.  But pay particular attention to the MACD: it may be moving to give us a sell signal -- or at least a signal not to make a move into the market just yet. 

Cattle Rallying

While most of the commodity world is decidedly bearish, cattle is rallying.  Let's start with the weekly chart:

Cattle was in a downward trend for most of the last two years.  But recently, prices have broken through resistance and moved above the shorter EMAs.  Momentum is positive and money is moving into the market.

The daily chart shows the rallying in far more detail.  Prices bottomed in mid-May and have been moving higher since.  We see a fair amount of resistance around the 26.75-27.25 area -- which also corresponds to the 200 day EMA.  Once that line was crossed, prices have consistently moved higher.

Last Week's Important International Economic Numbers

This is over at XE.com

Chinese Market Breaks Support

The Chinese market had a sharp sell-off in early June.  Since then, however, we've seen a sustained and very solid rally.  Prices consolidated in a triangle pattern through September and August, with prices using the rally's trend line as the lower line of support.  The MACD was declining during this time, but this is a standard technical development during periods of consolidation. 

Last week prices took a major drop, breaking support.  This is occurring right inside a key technical area -- the Fibonacci retracement levels from the early February highs and late September lows.  Adding to the importance of this development is it's occurring around the 200 day EMA.

Two notes for Sunday: on Social Security and XE

- by New Deal democrat

It's Sunday, so you know what that means: I get to say whatever I want.

First, a note on XE.com. I know posting has been light here for a couple of weeks, but that has more to do with the government shutdown and lack of data than with Bonddad and me being elsewhere. I expect posting to ramp back up somewhat starting this week.

If you've followed our links over to XE, you know that the format is a little clunky. We can't crosspost in both places, but as we said when we told you we had landed paying gigs, we absolutely want you to be able to follow us, so we've been posting links to make it easy for you. XE intends to improve the format, probably by establishing a separate "blog" header at the top of their home page. They also want to give us more functionality with graphs and hyperlinks. It's a work in progress, and it should improve over the next few months. And, by the way, in case you didn't click over yet, in this week's "Weekly Indicators" column we find out that somebody on the President's Council of Economic Advisors apparently knows of or reads the column, because they adopted an almost identical format with the same name, "Weekly Indicators," to report data during the government shutdown.

Also, nothing makes me go so berserk as talks of grand bargaining away Social Security. I've been working on a Democrat-only, no GOP compromise desired, no-catfood plan to keep the Social Security trust fund solvent forever - and I do mean, so long as the USA exists. Crucially, it relies on automatic triggers that kick in both if the program is overfunded and underfunded - so, for example, withhholding taxes can automatically go down, and benefits be increased, under this plan. There is never, and I do mean never, a need for further Congressional legislation. The plan takes Social Security off the table not just for Boomers and X'ers, but Millenials -- and the grandchildren of Millenials when that time comes as well.

I had hoped to have the post ready for today, but it's going to take at least one more week. Stay tuned.

Weekly Indicators for the week of October 21 at XE.com

-by New Deal democrat

The high frequency indicators are continuing their post-shutdown bounce. Click on the link to read the article.

"Real" initial jobless claims 335,000 ex-California computer glitches

. - by New Deal democrat

Computer issues in California have bedeviled the weekly initial jobless claims reports since the bginning of September. As I did last year with regard to Superstorm Sandy, we can arrive at a good estimate the "real" initial jobless claims have been, by comparing the unadjusted average for the other 49 states this year vs. last year in the same week, and projecting this year's "real" number by assuming that the percentage of claims in the other 49 states are the same percentage of the total this year as they were last year.

Using this method, the below list shows the seasonally adjusted weekly jobless claims number on the left, and the right is the average adjusting for the likely impact of California's computer issues:

Sep 07  294,000  318,000
Sep 14  311,000  327,000
Sep 21  307,000  313,000
Sep 28  308,000  314,000
Oct 05  373,000  329,000
Oct 12  362,000  335,000
Oct 19 350,000 ------------

[Note: Since the raw state data is published with a one week lag, we do not know yet what this week's number will be.]

Here's what happens to the 4 week moving average:

Sep 28 305,000 318,000
Oct 5 324,750 320,500
Oct 12 337,500 323,500
Oct 19 348,250 ------


October 5 and 12 were the two weeks during which federal workers affected by the government shutdown applied for unemployment insurance. In September,California's problems probably resulted in an underount of -53,000 claims by the above calculations. Close to 50,000 of those claims have been made up in the last two weeks. We might have one more week of distortion, and hopefully that will be the end.

RBA Should Lower Rates to Increase Australian Growth and Stem Aussie's Rise

This is up over at XE

RBA Should Lower Rates to Increase Australian Growth and Stem Aussie's Rise

This is up over at XE

Delayed September Jobs Report: More Meh

This is up over at XE.

Daily Oil Chart Moves Below 200 day EMA

Great Piece on JP Morgan

Thanks to Barry at the Big Picture for this. 

The oil choke collar disengages - and that's good news

. - by New Deal democrat

The oil choke collar -- the dynamic by which an improving economy caused gas prices to rise to the point where they choked back consumer spending on other items, which weakened the economy, which in turn caused gas prices to decline -- in other words the mechanism that acted as a governor restricting growth -- has disengaged in the last few months. Gas prices are now 13% lower than they were a year ago, and even lower than they were two years ago at this time!

That kind of price decline has only happened 5 times in the last 20 years. The graph below shows this by measuring the YoY percentage change in gas prices and adds 13 so that a 13% decline shows as zero (blue line):



In each time this has happened it has been a good sign for growth, either immediately, or at least in several quarters (real GDP YoY growth shown in red). In fact I believe the decline in the price of gas from $4.25 a gallon to $1.50 a gallon in the second half of 2008 is one of the big reasons that the great recession bottomed out in midyear 2009.

One of the things I've been pointing out in my Weekly Indicators column for months now is that, left to its own devices, the economy looks like it wants to grow more in the near future. The disengagement of the oil choke collar is a potent piece of evidence in support of that thesis.

Are Bonds Signaling A Weak Fourth Quarter Stock Market Performance?

From Marketwatch:

The sigh of relief felt in the U.S. bond market as Congress temporarily shelved its fiscal standoff is giving way to a more worrisome market signal: the economy isn’t as strong as we thought it would be by now. 

The Treasury market has been on a tear in recent days, beginning in earnest as Senate leaders announced a deal Wednesday to reopen the government through January and allow the Treasury to continue borrowing through February. The benchmark 10-year note 10_YEAR 0.00%   yield, which falls as prices rise, is down roughly 15 basis points from its close on Tuesday, on track for its lowest closing yield since August. Strategists say yields are likely to stay in this range in the near term, in contrast to the sharp yield climb that characterized much of the summer. 

“We’re pretty comfortable saying the 10-year won’t see 3% this year. At this stage, the September yield peak will be the high of the year,” said Ian Lyngen, senior rates strategist at CRT Capital Group. 

Treasury yields, which serve as benchmark rates, push lower when economic and political uncertainty prompt investors to buy into the security of the government debt market. When the Congressional standoff came to a close this week, strategists thought yields would rise as the abating political uncertainty turned investor attention away from Treasurys and back toward riskier assets. But yields made a U-turn and moved in the opposite direction, catching many market participants by surprise. It’s one sign that the debt ceiling debate had simply masked, and possibly contributed to, a slowdown in economic growth. 

Before looking at the chart, let's review some bond market basics.  In theory, bond prices are near their highest (and yields the lowest) right at the end of a recession.  At this point in the economic cycle inflation is at its lowest and equities are offering weak capital gains potential.  So, investors are looking more for the "sure thing" -- interest payments, which are more attractive because the bite of inflation is so low.  As the economy expands, investors leave bonds for riskier assets, lowering bond prices and thereby increasing bond yields.   One of the more difficult part of looking at the markets during this expansion has been the Fed's QE program, which have put a permanent bid in the bond market, thereby skewing the predictive power of this market action.  However, with the Fed talking of tapering its QE program, one could argue we're seeing a return of the predictive power of the bond market.

The Fed began its tapering take in the late Spring, which explains the drop in the IEFs from 108.4 to 98.45, or a drop of 9%.  However the bond market caught a bid during the budget showdown, printing a rounding top pattern from mid-September to mid-October.  But since the end of the stand-off, bond prices printed a gap and moved higher.  

The Marketwatch article continues:

“Since the end of the debt ceiling conflict, the focus has shifted in financial markets to what the economic implications would be,” said Jeffrey Rosenberg, chief investment strategist for fixed income at BlackRock. “And it came at a time when the economy had been slowing down, when there was disappointment in what was at the time heightened expectations of better second half growth. 

Rosenberg puts the turning point in economic growth around the beginning of September, when the nonfarm-payrolls report missed expectations. Since then, many indicators have begun to slip. 

While not crashing, employment numbers haven't been printing gangbusters growth, either.  As the Fed noted in its most recent Beige Book, the expansion continues to be "moderate."  Durable goods have been OK as well.  And now we have the fiscal drag related to the debt deal shenanigans in Washington.  

This week will be the first full trading week post-debt deal.  The market action should fill begin to fill in a number of gaps as the week progresses.