An initial note: at another, large blog, someone commented that "Krugman = lagging indicator." The person meant it sarcastically, but rephrased as "pundits = lagging indicator," it is true. It has been proven over and over again that pundit opinion as a whole follows trends. Which means that it misses turning points, which is why the KISS method of sticking with the LEI is more successful. As the economic data has deteriorated in the last few months, the range of generally accepted opinion has moved Gloomier and Doomier. It will continue to move that way until AFTER the next turning point.
More specifically, this weekend check out the Barron's website's data section, and see what insiders are doing, since individual investor sentiment is totally spooked by the "Hindenberg omen." Like the "Digby put" almost 2 months ago, it may actually be the "Hindenberg contrary omen." Insider buying vs. selling will tell us so.
This week the reduction of 2nd quarter GDP was made official. The economy is in the doldrums, nearly completely stalled. Durable goods orders, a leading indicator, tanked. New and existing home sales also declined, completing the collapse since the expiration of the $8000 tax credit.
One other item of interest, quite overlooked in the media, was the release of loan data for the second quarter by the Fed. Loans typically do not bottom until well after the bottom of a recession. They are badly lagging indicators, but they do confirm a turn. As it happens, a few of the series did actually turn up. Most all of the rest continued to decline, but at a much lower rate than they had up until this year. Too early to say they've turned, but they look like they are getting ready to turn.
Now here's my look at high frequency weekly indicators:
The Mortgage Bankers' Association reported that "the Refinance Index increased 5.7 percent from the previous week and is at its highest level since May 1, 2009. The seasonally adjusted Purchase Index increased 0.6 percent from one week earlier." The Purchase index continues to tell us that we have hit bottom, but without a significant bounce back yet. Refinancing tells us that household debt as a percentage of disposable income is going down, probably substantially. This is a good sign for the future.
The ICSC reported same store sales for the week ending August 21 rose 2.3% vs. a year earlier, and declined -0.4% from the prior week. Shoppertrak, on the other hand, reported that for the week ending August 21, YoY sales were up 4.5%, and down -0.4% vs. the prior week. The ICSC report concerns me, as this is the poorest YoY showing in several months, and the 4th straight week of WoW declines. Are consumers growing fearful again?
Gas prices decreased $.05 to $2.70 a gallon, at the low end of the range since May. At 9.373 million barrels consumed a day vs. 9.105 the same week last August, we continue to run ahead of last year, indicating expansion.
The BLS reported 473,000 new jobless claims, back in its 8 month range. We won't know if the increase we saw since early June has due primarily to state and local government and census layoffs until we see the jobs numbers a week from today.
Railfax continued to show renewed strong growth vs. last year in all 4 sectors: Cyclical, intermodal, baseline, and total traffic all continued to move sharply up, and intermodal traffic hit a new high! Auto carloads also continued to rebound strongly, although waste and scrap metal remained at last year's levels. In the last few weeks, I have written tht rail traffic has suggested that the double-dip was right now. Last week a reader asked in the comments
Question: when you say that the rail traffic suggests the double dip is right now, does that mean we are already on the way up out of it, given that traffic is turning back up after having been down?Answer: yes it may be so. The bottom line is, indicators seem to behave differently in deflation vs. inflation, in that lead times become much more compact. Rail traffic has suggested that the downturn foreseen in the LEI beginning in April has already been happening. Rail traffic may now be telling us that the downturn in the private vs. public sector may be abating.
The American Staffing Association reported that for the week ending August 15, temporary and contract employment increased by 1.31%, pushing the index to a two year high of 95.0. This series is a leading indicator for jobs, and again suggests that the private sector is continuing to grow.
M1 declined -0.6% in the last week, but was up 1.0% month over month, and up 4.4% YoY, so “real M1” is up 3.1%. M2 increased less than 0.1% in the last week, and is up 0.3% month over month, and up 2.4% YoY, so “real M2” is up 1.1%. We have never had a recession without a negative real M1 reading, so this is encouraging, although the YoY trend remains down. Additionally, I would like to see real M2 up over 2.5% to feel confident that there will be no double-dip.
Weekly BAA commercial bond rates dropped .22% more last week to 5.56%, a decline of 0.76% in 9 weeks! This is simply totally inconsistent with the notion that another deflationary bust has started and creditworthiness is about to become an issue.
The Daily Treasury Statement as of August 25 (18 reporting days into the month) shows $116.4 B has been collected vs. $110.2 B a year ago, a gain of 5.6%. For the last 20 reporting days, we are up 5.8%, $125.0 B vs. $119.2 B. This is towards the low end of advances since the series turned positive YoY in March. This suggests to me that private sector employment is not continuing to improve relative to last year, although small positive growth may be taking place.
For the first time in awhile, almost all of the weekly indicators were positive, although their strength varied. Mortgage applications and rail traffic are particularly encouraging. The ICSC same store sales figure does concern me, however. Next week we'll get the jobs report, and what I will be particularly watching is whether weakness remains concentrated in the real estate/construction and government jobs area where stimulus programs expired, or whether the weakness is spreading out.
8 comments:
Great summation....
Thanks for the always concise and accurate postings. By the way, is the "Horse Latitudes" another "Doors" reference?
The continued increase in intermodal rail traffic is more of a negative than a positive. It follows the continued increases in imported container traffic at US ports, particularly at Long Beach and LA. IMports are subtracted from GDP and is an indicator of more and more money leaving the United States, or wealth seeping out of it. The trade deficit might be as much of a factor in keeping this economy at a standstill than any other.
Same store sales losing momentum is very negative as stores continue to be closed. Both American Eagle Outfitters and Abercrombie and Fitch, for example, indicated last week or so that they'd each close 100 more stores. All but the best located malls continue to empty.
About BAA commercial bonds, it's not the rate, but rather the spread to the highest quality bonds that is most important.
Anon --
The increase in imports also signals the US consumer is hardly dead. As noted in an earlier post, PCEs are up 2%, indicating that consumers are still willing to spend. As PCEs account for 70% of GDP and imports account for 16.14%, the increase in PCEs is by far more important.
Imports did subtract a ton from this GDP report. However, if you look at the last time we saw a downward revision of this size from GDP caused by imports, it has been more than 30 years.
Nice "survivor bias" argument again. Do you have any proof, aside from your anonymous comment not backed up by anything other than "I read it on a blog" statement? Of course not. As such, it's a moot point, not based in any fact, aside from an unverified opinion.
The next time your statement includes a non-verified argument questioning a government statistic, I will delete the entire comment. As mentioned in the rules section, any argument that questions the veracity of statistics my be proven by reference to a paper written by a person with at least a PhD in economics and statistics. You don't have either.
BAA bonds are very important as they indicate risk tolerance in the market. The higher the spread, the less risk investors are willing to take. Take a look at the JNK ETF -- it's been rallying along with Treasury Bonds.
Anon at 2:26 -- Since same store sales are, by definition, measured at stores that have been open at least a year, survivor bias is easily handled. When you call the store and they don't pick up because they're closed, they get a "0"! If the ICSC isn't doing this, it is way beyond stupid to outright dishonest. Do you have any evidence that they are being dishonest?
Bearnut -- Well, as I said in the title of last week's column, Summer's Almost Gone....
The still unanswered question is where are the jobs coming from. Until housing bottoms and construction starts to pick up, I am not sure what the answer is for many non-skilled workers. Add that to my continuing fear about offshoring and I have trouble identifying an industry other than health care where jobs will be added in large numbers.
At some point the increases in productivity are going to lead to a period of high economic growth. My guess is that this will happen when housing turns. When it happens it is going to catch everyone by off guard. But I am not convinced the housing market has turned.
Taxes up almost the same amount as hours worked. .1 hours is about .3%increase, this is good news. .1 hours is about the same as 300K jobs created.
Bernanke likes to remind everyone that he is an expert on the great depression and knows how to prevent it from happening again in the US. Apparently he is also an expert on Japan and its struggle with chronic deflation following its housing bubble in the 1980's. In fact Bernanke wrote an article in 2000 titled "Japanese Monetary Policy: A Case of Self-Induced Paralysis," where he goes on to lecture BOJ officials about what they could and should have done differently in order to to avoid a deflationary outcome. He goes on to postulate that the BOJ was not trying hard enough to stimulate the economy and that 0% interest rates are just one tool to beat deflation. The Fed Chairmen even goes so far as to assert that he knows how to escape a liquidity trap caused by 0% interest rates. The reason I bring this up is because it gives people a good idea of what Bernanke's next move may be. The US is dangerously close to falling into the dreaded "liquidity trap" as deflation takes hold and monetary policy loses its effectiveness.
Here are some of his suggestions to the BOJ:
http://blackswaninsights.blogspot.com/2010/08/bernanke-explains-how-to-escape.html
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