Weekly Indicators: Ominous Signs Regarding Jobs And Economic Contraction Edition

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 |  Includes: BND, DIA, IEF, IYT, KME, OIL, QQQ, SPY
by: Hale Stewart

by New Deal Democrat

In monthly reports released during the last week, consumer prices were up more than expected, +0.4% in August and up 3.8% YoY. Retail sales, however, were flat in August and further, July's report was revised down to +0.3%. This means that for the last two months, real retail sales have turned negative. This is a number watched by the NBER and also is a leading indicator specifically for jobs in the coming months. New York and Philadelphia region manufacturing indexes were also negative. On the positive side, industrial production was up as was capacity utilization. Consumer confidence also rebounded slightly in the first half of this month.

There has now been enough contraction in enough of the high frequency weekly indicators to make me think that overall economic contraction, and specifically job contraction, may have begun. Let's start with the ominous reports bearing on September nonfarm payrolls:

The BLS reported that Initial jobless claims rose 14,000 to 428,000. The four week average increased to 419,500. This is unwelcome and does not bode well for the September jobs report.

Adjusting +1.07% due to the 2011 tax compromise, the Daily Treasury Statement showed that for the first 10 days of September 2011, $69.7 B was collected vs. $70.8 a year ago, meaning that there was an actual decrease of $1.1 B. For the last 20 days, $121.9 B was collected vs. $122.3 B a year ago, for a decrease of -0.3%. That this has turned in a YoY loss is also ominous for the September jobs number. Matt Trivisonno also keeps note of these reports, and he has posted a detailed note here, along with an excellent graph. As of his last report, YoY withholding is still up about 1.5%. While we have to track these YoY due to seasonality, this means that the data will lag the actual turning point. Thus I am particularly concerned with any negative report.

Here are the other numbers in contraction, in general order of their importance:

Oil finished at $87.58 a barrel on Friday, essentially unchanged from a week ago. Gas at the pump fell $.01 to $3.72 a gallon. Gasoline usage was -1.9% lower than a year ago, at 8848 M gallons vs. 9019 M a year ago. With the exception of a few weeks, gasoline usage has been negative for half a year. While measured as West Texas Crude, oil is about $7 below its recession trigger level, gas at the pump may be the better measure, and this is about $.30 above its inflation adjusted recession trigger level from 2007.

The Mortgage Bankers' Association reported that seasonally adjusted mortgage applications increased 7.0% last week. For the fifth week in a row, however, the YoY comparison in purchase mortgages was negative, down -7.2% YoY. On the other hand this decrease does not change the overall flatness of purchase mortgage applications for the last 16 months. Refinancing increased 6.0% w/w with near record low interest rates.

The American Staffing Association Index decreased again one point to 87. This series has completely stalled at the 87-88 range for close to 3 months.

Weekly BAA commercial bond rates fell 0.16% to 5.24%. Yields on 10 year treasury bonds decreased .18% to 1.99%. This continues the recent trend of increasing spreads between these two rates, as well as overall weakness, and so indicates a continuing slight increase in the relative distress in the corporate market, further indicating increased relative fear of rising corporate defaults.

Retail same store sales showed their first sign of turning south. While the ICSC reported that same store sales for the week of September 3 increased 3.3% YoY, and also increased 1.7% week over week, Shoppertrak reported that YoY sales were completely flat -- the worst showing all year -- and were up a poor 0.8% week over week increase.

There are still several reports supporting optimism, however:

YoY weekly median asking house prices from 54 metropolitan areas at Housing Tracker showed that the asking prices only declined -1.8% YoY. This is yet another record smallest YoY decline in the 5 year history of this series (YoY measurements were possible beginning in April 2007). . The areas with YoY% increases in price increased by one to 14. The areas with double-digit YoY% declines also increased by one to 4. If the current trend continues, nationwide asking prices will be YoY positive by the end of this year, meaning that a bottom has occurred. Whether the recent restart in the foreclosure process by several big banks in several states reverses this trend becomes the next question. Probably most observers think it will be awful no good terrible rotten, but they have also completely missed the trend towards stabilization this year. Personally I think the result will be much more muted.

The American Association of Railroads reported that total carloads increased 1.0% YoY, up 5400 carloads YoY to 539,200. Intermodal traffic (a proxy for imports and exports) was up 2300 carloads, or 1.0% YoY. The remaining baseline plus cyclical traffic was also up 3200 carloads, or 1.1 YoY%. Using the breakdown of cyclical vs. baseline traffic from Railfax, baseline traffic was down 3200 carloads, or -1.7%YoY, while cyclical traffic was up 5400 carloads, or +5.0% YoY. Rail traffic has been negative YoY for 5 of the last 10 weeks.

Money supply continued to surge. M1 was up 0.6% for the week, and also increased 1.5% m/m, and 21.4% YoY, so Real M1 was up 17.6%. M2 increased 0.2% w/w, and also increased 0.9% m/m, and 10.4% YoY, so Real M2 was up 6.6%. The YoY increase in both M1 and M2 continue near historic high levels. To reiterate my statement from last week, while I believe that European panic is a likely source for this recent sharp increase, which means it is "hot money" that could decrease just as quickly, nevertheless this time it's not different. Over a very long history an increase in real money supply has been a good thing and in my opinion should be regarded as such now.

The NBER dating committee is known to watch at least 5 indicators: nonfarm payrolls, aggregate hours worked, industrial production, real retail sales, and real income. Two of these have now turned negative, one is flat, and two remain positive. Should the negative trends continue - and I emphasize that there is no guarantee that they will - at some point the NBER could date a new recession from this month, September 2011.