Weekly Indicators: Is The Contraction Self-Sustaining?

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

by New Deal Democrat

In the rear view mirror, 2nd quarter GDP was revised upward to +1.3%. The Chicago PMI for September came in at a strong 60.4. Durable goods for August declined slightly, but were well ahead of expectations. One consumer confidence measure showed slight improvement, but the other continued to decline, as did the forward looking expectations gauge. Personal income also declined, and spending was up no more than inflation. Many of these measures owe their recent cliff-diving to the Washington debt debacle. Not coincidentally the ECRI forecasting service made an official call that a new recession was about to begin. So congratulations are in order for those Beltway participants who wanted to induce a new recession for their own partisan gain. May they go to a deeper ring of hell.

Many of the high frequency weekly indicators actually rebounded this week, while several continued to signal contraction.

On the jobs front, the BLS reported that Initial jobless claims fell 32,000 to 391,000. The four week average decreased to 417,000. The BLS reports that seasonal factors influenced this week's number, but this is still welcome, and is the lowest number in 6 months.

The American Staffing Association Index increased two points to 90. This is the first time that this series has broken out of its 87-88 range after 3 months. That's good news, but there is a big upside seasonal effect at about this week every year, so extra caution is necessary.

On the other hand, adjusting +1.07% due to the 2011 tax compromise, the Daily Treasury Statement showed that for the first 20 days of September 2011, $128.1 B was collected vs. an identical $128.1 a year ago. This comes after several actual negative readings and so continues as an ominous sign for jobs.

Housing had a reasonably good week as well. The Mortgage Bankers' Association reported that seasonally adjusted purchase mortgage applications increased 2.2% last week. On a YoY basis, purchase applications were up 0.1%. The decline in applications has ended for two weeks, and in a longer term sense purchase mortgage applications have essentially been flat for the last 16 months. Comparisons will get more challenging in the next few months. Refinancing increased 11.2% w/w with record low interest rates.

As to housing prices, YoY weekly median asking house prices from 54 metropolitan areas at Housing Tracker showed that the asking prices declined -1.4% YoY. This is yet another record smallest YoY decline in the 5 1/2 year history of this series (YoY measurements were possible beginning in April 2007). The areas with YoY% increases in price decreased by one to 14. The areas with double-digit YoY% declines remained at only 2. If the current trend continues, nationwide asking prices will be YoY positive by the end of this year.

Rail traffic also had a good week. The American Association of Railroads reported that total carloads increased 1.8% YoY, up about 10,000 carloads YoY to 553,500. Intermodal traffic (a proxy for imports and exports) was up 7000 carloads, or 3.0% YoY. The remaining baseline plus cyclical traffic increased over 3000 carloads, or +1.1% YoY. Keep in mind that Rail traffic has been negative YoY for 6 of the last 12 weeks.

Most of the remaining series were neutral. The Money supply surge appears to have ended. M1 was flat for the week. It remains up 0.6% m/m, and 19.1% YoY, so Real M1 was up 15.3%.
M2 declined -0.1% w/w. It remained up 1. 0% m/m, and 10.2% YoY, so Real M2 was up 6.4%. The YoY increase in both M1 and M2 nevertheless continue near historic high levels.

Retail same store sales had another mixed performance. While the ICSC reported that same store sales for the week of September 24 increased 2.7% YoY, and decreased -0.2% week over week, Shoppertrak reported that YoY sales only rose 1.9% and also increased 0.8% week over week.

Weekly BAA commercial bond rates decreased .15% to 5.18%. Yields on 10 year Treasury bonds also decreased .15% to 1.88%. The spread between the two rates did not increases, but the trend of continuing overall weakness continues.

The most negative reading again goes to Oil, which finished at ~$79 a barrel on Friday, only slightly less than one week ago. This remains close to its 24 month low. This is about $15 below its recession-trigger level. Gas at the pump fell $.09 more to $3.51 a gallon. Measured this way, we probably are still about $.20 above the 2008 recession trigger level. Gasoline usage was down -4.5% YoY, at 8964 M gallons vs. 9383 M a year ago. This is a firm recessionary reading.

Paul Kasriel's post WW2 infallible recession warning indicator was predicated upon a negative real M1 and an inverted yield curve. Neither of those conditions obtain now. The Confidence Board's LEI have also not turned negative. ECRI is clearly relying on pre-WW2 type of criteria, presumably having to do in the greatest part with manufacturing. They also specifically referenced falling sales.

My biggest concern in the wake of the debt ceiling debacle has been whether or not the destruction of confidence and the pullback in manufacturing would become self-reinforcing or not. ECRI clearly believes they are so becoming. I suggest that the biggest clue this coming week will not be the jobs report, but rather auto sales which will be reported Monday.