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Steven Hansen
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Steven Hansen is an international business and industrial consultant specializing in turning around troubled business units; consults to governments to optimize process flows; and provides economic indicator analysis based on unadjusted data and process limitations.
My company:
Econintersect LLC
My blog:
Global Economic Intersect
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  • Enjoying The Ride? - The Markets Remain Overpriced

    The markets ended a very turbulent week - and the roller coaster has been reoccurring for months.

    (click to enlarge)

    As an economic analyst, it has been my opinion that the markets have outperformed the business cycle - and that means the markets are overpriced. The data currently coming in is weak, but still showing reasonable growth. I still see long term strength IF some trends remain in play.

    But that is the problem - isn't it. The trend lines on important elements are mixed - income up, spending down - employment up, industrial production down. The business cycle is not cooperating with the markets.

    Our Economic Forecast continues to show a stable and growing economy - again with a modest decline in growth from last month. Most portions of the economy outside our economic model - except residential housing, business sales and industrial production - are showing reasonable expansion. Although the growth trend line for our model is decelerating, if we toss in a few more elements which we analyze (but do not include) in our economic forecast model (such as employment or consumer sentiment) - the trends are improving rather than slowing.

    This difference in trends when employment and sentiment are included in economic models shows why one has the feeling that the economy is getting better - but these are rear view mirror elements. Our employment six month forecast discussed below continues to forecast an improving employment situation as employment is driven by economic pressures realized months ago. So our February forecast is likely more contrarian than others. Still, our economic index level is above average for the range seen in the last 3 years.

    • The consumer portion of the economy and the business sector now seem to be growing at nearly the same rate. However, we are watching oil price impacts because this is slowing the business sector.
    • The year-over-year rate of growth of income and expenditures is nearly the same. The consumer continues to spend a historically high percentage of income - and there continues to be little room for improvement in the rate of spending growth. Note that the quantitative analysis which builds our model does not include personal income or expenditures.
    • Another data point - the correlation between retail sales and employment has been confined to a narrow range and remains below the levels seen during other times of economic expansion. Note that neither employment nor retail sales are part of our economic model.
    • And another data point - our Joe Sixpack index - is still saying poor Joe is worse off than he was in the previous period.

    Other Economic News this Week:

    You can read more on our Econintersect Economic Index for February 2015

    The ECRI WLI growth index value remains in negative territory which implies the economy will not have grown six months from today.

    Current ECRI WLI Growth Index

    The market was expecting the weekly initial unemployment claims at 280,000 to 310,000 (consensus 300,000) vs the 265,000 reported. The more important (because of the volatility in the weekly reported claims and seasonality errors in adjusting the data) 4 week moving average moved from 306,750 (reported last week as 306,500) to 298,500. The rolling averages have been equal to or under 300,000 for the 19 of the previous 20 weeks.

    Weekly Initial Unemployment Claims - 4 Week Average - Seasonally Adjusted - 2011 (red line), 2012 (green line), 2013 (blue line), 2014 (orange line), 2015 (violet line)

    (click to enlarge)

    Bankruptcies this Week: Wet Seal, Hipcricket

    For a view of all the analysis and news this week [click here]

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Jan 30 11:56 AM | Link | Comment!
  • How Strong Is The Data Right Now?

    I know GDP was strong in 3Q2014 - and this coming week we will see the first wild guess at 4Q2014 GDP. With the elements which comprise GDP, I really have no solid evidence whether this estimate will be better or worse than the previous quarter. In reality, I could care less about most of the elements of GDP as I believe the proof of the strength of the economy is how the people's lives are improving.

    The only element of GDP which even remotely measures the people is consumer spending (and this is really not a good metric to view how well people are doing).

    But looking at the recent data, consumer spending (retail sales) has not been particularly strong (but not terrible either). I like to look at transport as the canary in the coal mine. The 4Q2014 was strong at the beginning of the quarter, but tailed off at the end of the quarter. So based on transport, the advance estimate for 4Q2014 GDP should be rather strong. The advanced estimate generally includes little actual data on the tail end of a quarter - and is an extrapolation of the beginning of a quarter.

    Import data has been particularily soft recently - and exports have been softening over the last 12 months - and are now negative. Imports tattle on the consumer buying - and that too was soft.

    My bottom line for 4Q GDP is that the advance estimate will be higher than the subsequent second and third estimates. My belief based on the data I am seeing is that 4Q will be weaker than 3Q.

    Other Economic News this Week:

    The Econintersect Economic Index for January 2015 is showing our index is midrange in a tight growth range for almost a year. Although there are no warning flags in the data which is used to compile our forecast, there also is no signs that the rate of economic growth will improve. Additionally there are no warning signs in other leading indices that the economy is stalling - EXCEPT ECRI's Weekly Leading Index which is slightly below the zero growth line. There have been some soft data points which caused our index to decline this month - but as the individual rolling averages are not declining, we must assume it is simply a bad data month.

    The ECRI WLI growth index value crossed slightly into negative territory which implies the economy will not have grown six months from today.

    Current ECRI WLI Growth Index

    The market was expecting the weekly initial unemployment claims at 289,000 to 305,000 (consensus 300,000) vs the 307,000 reported. The more important (because of the volatility in the weekly reported claims and seasonality errors in adjusting the data) 4 week moving average moved from 300,000 (reported last week as 298,000) to 306,500. The rolling averages had been equal or under 300,000 for the previous 18 weeks.

    Weekly Initial Unemployment Claims - 4 Week Average - Seasonally Adjusted - 2011 (red line), 2012 (green line), 2013 (blue line), 2014 (orange line), 2015 (violet line)

    (click to enlarge)

    /images/z unemployment.PNG

    Bankruptcies this Week: Wet Seal, Hipcricket

    Read all of our analysis and opinion for this week [here].

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: economy, gdp
    Jan 24 7:34 AM | Link | Comment!
  • Industrial Production Data May Not Have Been That Bad

    I know everyone thinks December Industrial Production data was bad, but in the scheme of things remains on an upward growth path.

    • Headline seasonally adjusted Industrial Production (NYSE:IP) decreased 0.1% month-over-month and up 4.9% year-over-year.
    • Econintersect's analysis using the unadjusted data is that IP growthdecelerated 0.4% month-over-month, and is up 4.8% year-over-year.
    • The unadjusted year-over-year rate of growth accelerated 0.2% from last month using a three month rolling average, and is up 4.8% year-over-year.
    • The market was expecting:

     

    Headline Seasonally AdjustedConsensus RangeConsensusActual
    IP (month over month change)-1.5 % to 0.3 %-0.1%-0.1%
    Capacity Utilization78.6 % to 97.8 %80.0%79.7%
    IP Subindex Manufacturing (month over month change)-0.5 % to 0.3 %+0.2%+0.3%

    IP headline index has three parts - manufacturing, mining and utilities - manufacturing was up 0.3% this month (up 4.9% year-over-year), mining up 2.2% (up 11.1% year-over-year), and utilities were down 7.3% (down 5.4% year-over-year). Note that utilities are 9.8% of the industrial production index, whilst mining is 15.9%.

    Comparing Seasonally Adjusted Year-over-Year Change of the Industrial Production Index (blue line) with Components Manufacturing (red line), Utilities (green line), and Mining (orange line)

    Unadjusted Industrial Production year-over-year growth for the past 12 months has been between 2% and 4% - it is currently 4.8%. It is interesting that the unadjusted data is giving a smooth trend line.

    Year-over-Year Change Total Industrial Production - Unadjusted (blue line) and the Unadjusted 3 month rolling average (red line)

    Economic downturns have been signaled by only watching the manufacturing portion of Industrial Production. Historically manufacturing year-over-year growth has been negative when a recession is imminent. This index is not indicating a recession is imminent.

    Seasonally Adjusted Manufacturing Index of Industrial Production - Year-over-Year Growth

    Seasonally Adjusted Capacity Utilization - Year-over-Year Change - Seasonally Adjusted - Total Industry (blue line) and Manufacturing Only (red line)

    Econintersect uses unadjusted data and graphs the data YoY in monthly groups. IP seems to have settled down to be somewhat predictable in the New Normal. It appears that industrial production has returned to pre-recession levels.

    Total Industrial Production - Unadjusted

    (click to enlarge)

    So in my view, December data was soft - but not too bad.

    Other Economic News this Week:

    The Econintersect Economic Index for January 2015 is showing our index is midrange in a tight growth range for almost a year. Although there are no warning flags in the data which is used to compile our forecast, there also is no signs that the rate of economic growth will improve. Additionally there are no warning signs in other leading indices that the economy is stalling - EXCEPT ECRI's Weekly Leading Index which is slightly below the zero growth line. There have been some soft data points which caused our index to decline this month - but as the individual rolling averages are not declining, we must assume it is simply a bad data month.

    The ECRI WLI growth index value crossed slightly into negative territory which implies the economy will not have grown six months from today.

    Current ECRI WLI Growth Index

    The market was expecting the weekly initial unemployment claims at 281,000 to 325,000 (consensus 295,000) vs the 316,000 reported. The more important (because of the volatility in the weekly reported claims and seasonality errors in adjusting the data) 4 week moving average moved from 291,250 (reported last week as 290,500) to 298,000. Rolling averages under 300,000 are excellent.

    Weekly Initial Unemployment Claims - 4 Week Average - Seasonally Adjusted - 2011 (red line), 2012 (green line), 2013 (blue line), 2014 (orange line), 2015 (violet line)

    (click to enlarge)

    Bankruptcies this Week: Caesars Entertainment Operating Company (CEOC) (aka Harrah's Operating Company), Privately-held Suntech America (aka Suntech Power)

    Please [click here] to view all of our analysis and news this week.

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Jan 17 8:33 AM | Link | Comment!
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