Weekly Indicators: Contraction Abates Edition

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

by New Deal Democrat

In monthly reports, September's Leading Indicators were reported up 0.2. Despite the fact that this index has been positive for 5 straight months, the spokesman for the Conference Board suggested that there was a 50% chance of a recession. Doesn't the Conference Board have confidence in its own numbers?

Industrial production rose 0.2. Capacity utilization rose 0.1%, but only with an equal -0.1% revision to August. Housing starts had a very strong September, while permits declined slightly under the 600,000 level. The Empire State and Philly regional manufacturing indexes were mixed. Inflation at the wholesale and retail levels remained hot, with PPI up 0.8% in September, and CPI up 0.3% and also up 3.9% YoY. That inflation is this high, with virtually flat wages, means that the average American is in no shape to re-ignite strong growth.

The high frrequency weekly indicators were very mixed this week. Some showed good growth, while others continued to signal contraction.

On the jobs front, the BLS reported that Initial jobless claims fell 1,000 to 403,000. The four week average decreased to 403,000. With the exception of 8 weeks at the beginning of spring, the four week average is the best reading in over 3 years.

The rest of the jobs-related indicators were weak. The American Staffing Association Index remained at 90 for the 4th straight week. This series remains lower YoY.

Further, adjusting +1.07% due to the 2011 tax compromise, the Daily Treasury Statement showed that for the first 13 days of October, $96.1 B was collected vs. $97.7 a year ago. For the last 20 days, $130.4 B was collected vs. $132.7 B a year ago. This continues the string of actual negative readings and so continues as an ominous sign for jobs.

Housing was mixed. The Mortgage Bankers' Association reported that seasonally adjusted purchase mortgage applications decreased 8.5% last week. On a YoY basis, purchase applications were also down 5.1%. Generally speaking, in the last couple of months purchases mortgage applications have established new lows (the lowest since 1996 says the MBA), but only slightly lower than the flat range they had been in for the prior 15 months. Refinancing decreased 18.6% w/w. Refinancing has been very volatile and affected by small changes in interest rates.

As to housing prices, however, YoY weekly median asking house prices from 54 metropolitan areas at Housing Tracker showed that the asking prices declined only -0.8% YoY. Like almost every single week for the last couple of months, this is yet another record smallest YoY decline in the 5 1/2 year history of this series. The areas with YoY% increases in price remained at 16. The areas with double-digit YoY% declines remained at only 2. If the current trend continues, nationwide asking prices may turn YoY positive next month.

Several of the remaining series put in good numbers. Retail same store sales had another good week. The ICSC reported that same store sales for the week of October 15 increased 3.6% YoY, and increased 0.1% week over week, Shoppertrak reported that YoY sales rose 6.5% and increased 4.0% week over week.

Weekly BAA commercial bond rates increased .26% to 5.52%. Yields on 10 year treasury bonds also increased .29% to 2.22%. This is a good reading for a change -- the spread between the two rates decreased and increasing rates in both shows less fear of deflation.

The Money supply surge appears to have ended. M1 declined -1.9% for the week. It remains up 2.4% m/m, and 21.6% YoY, so Real M1 was up 17.7%.
M2 rose 0.2% w/w. It remained up 1. 4% m/m, and 10.2% YoY, so Real M2 was up 6.3%. The YoY increase in both M1 and M2 nevertheless continue near historic high levels.

Rail traffic remained mixed. The American Association of Railroads reported that total carloads increased 1.3% YoY, up about 7200 carloads YoY to 547,800. Intermodal traffic (a proxy for imports and exports) was up 7200 carloads, or 3.0% YoY. The remaining baseline plus cyclical traffic was unchanged or 0% YoY. Total rail traffic has improved in the last few weeks after having turned negative for 6 of 12 weeks during the summer. Using the breakdown of cyclical vs. baseline traffic from Railfax, baseline traffic was down 6200 carloads, or -3.1%YoY, while cyclical traffic was up 6300 carloads, or +6.1 % YoY.

The most negative reading again goes to Oil, which finished at $87.40 a barrel on Friday. This is about $7 below its recession-trigger level. Gas at the pump rose $.06 to $3.48 a gallon. Measured this way, we probably are still about $.20 above the 2008 recession trigger level. Gasoline usage was down -3.3% YoY, at 8598 M gallons vs. 8891 M a year ago. Gasoline usage is a concurrent recessionary reading, while the decline in prices in the last 6 months suggests a resumption of expansion soon.

There certainly appears to have been some improvement in these weekly indicators from their post debt-debacle contraction. That is certainly good news. On the other hand, there is nothing in these numbers to suggest a strong rebound is underway, particularly when it comes to jobs.