Monthly releases were dominated by the payrolls report, which disappointed only in that it wasn't more of a blowout than January, which was revised up to +284,000 jobs. The household survey showed over 400,000 jobs added. This survey has shown a surge of 2.448 million jobs in the last 8 months, worth noting because the household survey often leads at inflection points. The participation rate increased 0.2%. Had it remained constant, the unemployment rate would have fallen to 8.0%. The manufacturing workweek, a leading indicator, increased.
In other news, factory orders declined but less than anticipated. Labor productivity stalled, which is actually good for the addition of more jobs.
Turning to the high frequency weekly indicators which I watch because any turning pointwill show up in these indicators first. This week they were all mixed up, but importantly several warning flags of flagging consumer demand in the face of rising gas prices have been raised.
Let's review from positive to negative.
Housing reports were positive:
The Mortgage Bankers' Association reported that the seasonally adjusted Purchase Index increased +2.1% from the prior week, although it was still -7.8% lower YoY. This continues its rebound from the bottom of its nearly two year range. The Refinance Index decreased -2.0% from the previous week, still near its highest level in over half a year.
YoY weekly median asking house prices from 54 metropolitan areas at Housing Tracker were again up +3.9%. This number has stabilized on a YoY basis for a month, which is what I would have expected. It remains at odds with the Case-Shiller reports of worsening YoY declines in price for comparable sales. One of the two is going to turn.
Bond prices and credit spreads also improved:
Weekly BAA commercial bond rates declined -0.8% t0 5.07%. Yields on 10 year treasury bonds fell -0.4% to 1.97%. The credit spread between the two, which had a 52 week maximum difference of 3.34% in October, tightened again this past week to 3.11%. Once again, narrowing credit spreads are not at all what I would expect to see if we were going into a recession.
Employment related indicators were positive or neutral:
The Daily Treasury Statement showed that for the last 20 reporting days ending 6 days into March, on March 8, 2012, $156.7 B was collected vs. $152.1 B for the eequivalent 20 day period in 2011, an increase of 3.0%..
The American Staffing Association Index rose to 87 again last week. It remains midway between its 2011 and 2007 levels. Seasonally we want to see this move slightly higher over the next few weeks.
The Department of Labor reported that Initial jobless claims rose to 362,000 last week. The four week average increased 1000 by 355,000. These are still close to the lowest reading since spring 2008.
Sales remained positive, but one report flashed a warning. The ICSC reported that same store sales for the week ending March 3 rose +1.3% w/w, and also rose only +1.7% YoY. Shoppertrak did not report. Johnson Redbook reported a 3.0% YoY gain. Last week I said that "these reports have taken on added significance. If the consumer is beginning to fold, I would expect to see YoY comparisons under 2% as a warning signal." This week we got one such signal. Only one report and only one week, but it raises a yellow flag to pay extra attention.
Money supply was flat to slightly negative:
M1 declined -0.2% last week, and also fell -0.4% month over month. On a YoY basis it fell to +18.5%, so Real M1 is up 15.6%. YoY. M2 was flat for the week, and rose a tiny +0.1% month over month. Its YoY advance fell to +9.8%, so Real M2 was up 6.91%. In short, real money supply indicators continue slightly less strongly positive on a YoY basis, although not so much as in previous months, and have generally stalled in the last couple of months.
Rail traffic was negative but with an explanation. The American Association of Railroads reported a 5000 car decline in weekly rail traffic YoY for the week ending March 3, 2012. Intermoal traffic was up 13,000 carloads, or +6.0%, but other carloads decreased 19,000, or -6.2% YoY. Last week I included a graph from Railfax and said it would be troublesome if the data did not turn up. This week it turned up. The entire decline in carloads is due to coal shipments which were off 23,000 carloads or -16.6%. It appears that a warm winder, coupled with cheap natural gas prices, caused a cliff-dive in demand from power stations. Still, the decline in mining and shipment of coal is still a decline in economic activity.
Gasoline prices are more than 10% higher than one year ago while usage continues to be much lower: Oil rose slightly to $107.40. Gas at the pump rose another $.07 to $3.79. Both of these are significantly above the point where they can be expected to exert a constricting influence on the economy. Gasoline usage, at 8262 M gallons vs. 9192 M a year ago, was off -10.1%. The 4 week moving average is off -7.8%. These are the most severe YoY declines since they began last March. Last week I said that a YoY decline for more than 10% for one week, or a 4 week average decline in excess of 7.5%, would be warning signals that the Oil choke collar was having an effect. This week we got both.
Finally, the JoC ECRI industrial commodities index fell from 128.13 to 126.00. This is a strong decline in what is almost certainly the most heavily weighted component of ECRI's WLI, and suggests there will be a significant decline when that index is reported next Friday.
Turning now to high frequency indicators for the global economy:
The TED spread is at 0.390 down from 0.410 week over week. This index remians slightly below its 2010 peak, and has declined from its 3 year peak of 2 months ago. The one month LIBOR is at 0.242, down .001 from one week ago. It is well below its 12 month peak set 2 months ago, remains below its 2010 peak, and has returned to its typical background reading of the last 3 years.
The Baltic Dry Index at 824 was up 53 from 771 one week ago, and up 174 from its 52 week low, although still well off its October 52 week high of 2173. The Harpex Shipping Index was flat at 376 in the last week, still up 1 from its 52 week low. Please remember that these two indexes are influenced by supply as well as demand, and have generally been in a secular decline due to oversupply of ships for over half a decade. The Harpex index concentrates on container ships, and led at recent tops and lagged at troughs. The BDI concentrates on bulk shipments such as coal and grain, and lagged more at the top but turned up first at the 2009 trough.
This is a replay of last year, when oil's choke collar brought an accelerating recovery to a virtual standstill. Most of the usual leading indicators continue to give positive signals. But the further cutback in gasoline usage, and the (admittedly, only one) data point showing definite slowing in retail sales are like thunder in the distance. The most important report to watch this week will be Tuesday's retail sales. Expectations are high, for more than a 1.0% increase. An increase of +0.5% or higher, while "disappointing," will still most likely be positive after inflation is reported Friday. Any report of +0.2% or less, however, should be treated like a siren warning of an approaching storm.