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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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  • Forget The Markets, Economic News This Week Was Not That Bad

    Not only was the news not that bad - it seemed like a normal week for the major releases. If one looked at the headlines alone:

    • industrial production was up (our analysis agreed);
    • retail sales were down (our analysis said sales were up).

    For grins, let us look at a portion of our analysis on retail sales ...

    Retail sales declined according to US Census and well below expectations. Our analysis disagrees. Note that the 3 month rolling average of sales growth improved.

    Econintersect Analysis:

    • unadjusted sales rate of growth accelerated 2.5% month-over-month, and up5.8% year-over-year.
    • unadjusted sales 3 month rolling year-over-year average growth accelerated 0.5% month-over-month to 4.6% year-over-year.
    Advance Retail Sales Year-over-Year Change - Unadjusted (blue line), Unadjusted with Inflation Adjustment (red line), and 3 Month Rolling Average of Unadjusted (yellow line)

    (click to enlarge)

    /images/z retail1.png

    • unadjusted sales (but inflation adjusted) up 4.6% year-over-year
    • backward revisions were slight;
    • this is an advance report. Please see caveats below showing variations between the advance report and the "final".
    • almost all areas were headwinds this month for retail sales growth, with only electronics and food services being the tailwinds month-over-month.

    U.S. Census Headlines:

    • seasonally adjusted sales down 0.3% month-over-month, up 4.3% year-over-year
    • the market was expecting:

     

    seasonally adjustedConsensus RangeConsensusActual
    Retail Sales - M/M change-0.5 % to 0.3 %-0.1%-0.3%
    Retail Sales less autos - M/M change0.0 % to 0.9 %0.3%-0.2%
    Less Autos & Gas - M/M Change0.3 % to 0.6 %0.5%-0.1%

     

    Year-over-Year Change - Unadjusted Retail Sales (blue line) and Inflation Adjusted Retail Sales (red line)

    Retail sales per capita seems to be in a long term downtrend (but short term trends vary depending on periods selected - see graph below).

    Year-over-Year Change - Per Capita Seasonally Adjusted Retail Sales

    From the U.S. Census Bureau press release:

    The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for September, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $442.7 billion, a decrease of 0.3 percent (±0.5%)* from the previous month, but 4.3 percent (±0.9%) above September 2013. Total sales for the July through September 2014 period were up 4.5 percent (±0.7%) from the same period a year ago. The July to August 2014 percent change was unrevised from 0.6% (±0.2%).

    Retail trade sales were down 0.4 percent (±0.5%)* from August 2014, but 4.0 percent (±0.7%) above last year. Auto and other motor vehicle dealers were up 10.4 percent (±3.2%) from September 2013 and food services and drinking places were up 7.1 percent (±3.3%) from last year.

    Seasonally Adjusted Retail Sales - All (red line), All except food services (blue line), and All except motor vehicles (green line)

    The differences between the headlines and Econintersect are due to different approaches to seasonal adjustment (see caveats at the end of this post). Long and medium term trends always agree comparing the adjusted to the unadjusted data - it is the short term trends and month-over-month change where the conflict occurs.

    Comparison of the Year-over-Year Census Seasonally Adjusted Retail Sales (blue line) and Econintersect's Unadjusted Retail Sales (red line)

    So the major releases this week showed little sign of a weakening economy - in fact the opposite is true. Only one fly in the ointment was ECRI's WLI discussed below. Have a great week.

    Other Economic News this Week:

    The Econintersect Economic Index for October 2014 is showing our index remaining in a tight growth range for over a half a year. Outside of our economic forecast - we are worried about the consumers' ability to expand consumption although data is now showing consumer income is now growing faster than expenditures growth - but with the rate of savings historically on the low side. There are no warning signs in other leading indices that the economy is stalling - although ECRI's Weekly Leading Index is showing very little growth is coming.

    The ECRI WLI growth index value has been weakly in positive territory for almost two years. The index is indicating the economy six month from today will be slightly better than it is today.

    Current ECRI WLI Growth Index

    The market was expecting the weekly initial unemployment claims at 280,000 to 295,000 (consensus 290,000) vs the 264,000 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 287,750 (reported last week as 287,750) to 283,500.

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

    (click to enlarge)

    Bankruptcies this Week: Endeavour International, Inversiones Alsacia

    To look at all our analysis 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.

    Oct 18 5:38 AM | Link | Comment!
  • Consumer Credit Is Bouncing Around

    The July 2014 consumer credit headlines showed growth of 9%. Then August 2014 data was released - and not only did the growth disappear - but the August headlines disappointed. It is time to take a step back.

    Econintersect analysis of August 2014 consumer credit is that total growth decelerated 0.1% month-over-month, and the year-over-year growth is 6.9%. The seasonally adjusted consumer credit headlines are showing a growth of 5.0%. Last month's data was significantly revised down, and when you consider that this month's headlines are measured against last month - this data is disappointing for those who believe credit growth is the way to fuel the economy.

    Even with this soft month, consumer credit growth has been in a tight range for over a year. When student loans are backed out, the rate of expansion of consumer credit is:

    • slightly trending down;
    • significantly better than the current growth of GDP.

    The headline from the Federal Reserve said:

    In August, consumer credit increased at a seasonally adjusted annual rate of 5 percent. Revolving credit decreased at an annual rate of 1/4 percent, while nonrevolving credit increased at an annual rate of 7 percent.

    Econintersect's view:

    Unadjusted Consumer Credit Outstanding
     Month- over- Month GrowthYear- over- Year GrowthMonth- over- Month Growth without Student LoansYear- over- Year Growth without Student Loans
    Total-0.1%+6.9%+0.0%+4.4%
    Revolving-0.1%+3.3%n/an/a
    Non- Revolving-0.2%+8.2%+1.1%+6.3%

    Overall takeaways from this month's data:

    • Student loan growth has been decelerating for the past 18 months;
    • Non-revolving credit growth (ignoring student loans) strongly strengthened compared to the previous month - and revolving credit (credit cards) marginally decelerated;
    • The backward revision this month was significant.

    The market expected consumer credit to expand $15.2 to $29.0 billion (consensus = $20.0 billion) versus the seasonally adjusted headline expansion of $13.5 billion reported.

    Note that this consumer credit data series does not include mortgages.

    The Econintersect analysis is different than the Fed's:

    • an effort is made to segregate student loans from consumer credit to see the underlying dynamics;
    • this analysis expresses growth as year-over-year change, not one month's change being projected as an annual change - which creates a lot of volatility.
    • where our analysis expresses the change as month-over-month, month-over-month change is determined by subtracting the previous month's year-over-year improvement from the current month's year-over-year improvement.

    The commonality between the Fed and Econintersect analysis is that consumer credit is expanding whether one considers student loans or not. Econintersect does not believe the seasonal adjustment methods used in the headlines are accurately conveying the situation for a variety of reasons.

    This month student loans accounted for 54% of the growth of total consumer credit. Since the Great Recession, much of the increase in consumer credit had been from student loans. The following graph shows the flow into consumer credit including student loans (blue line) against the flow into student loans alone (red line).

    Flow of Funds into Consumer Credit - Total Consumer Credit (blue line) vs Student Loans (red line)

    You may want to [read the complete analysis here].Other Economic News this Week:

    The Econintersect Economic Index for September 2014 is showing our index declined from last months 3 year high. Outside of our economic forecast - we are worried about the consumers' ability to expand consumption although data is now showing consumer income is now growing faster than expenditures growth. The GDP expansion of 4.2% in 2Q2014 is overstated as 2.1% of the growth would be making up for the contraction in 1Q2014, and 1.4% of the growth is due to an inventory build. Still, there are no warning signs that the economy is stalling.

    The ECRI WLI growth index value has been weakly in positive territory for almost two years. The index is indicating the economy six month from today will be slightly better than it is today.

    Current ECRI WLI Growth Index

    The market was expecting the weekly initial unemployment claims at 285,000 to 295,000 (consensus 293,000) vs the 287,000 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 295,000 (reported last week as 294,750) to 287,750.

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

    (click to enlarge)

    Bankruptcies this Week: GT Advanced Technologies

    For a complete look at all of our analysis this past 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.

    Oct 11 8:52 AM | Link | 2 Comments
  • Manufacturing Seems To Be Trending Moderately Upward - But I Still Worry

    This past week, the headlines said manufacturing new orders declined from the previous month - and they did - but this was due to the entire growth of new orders from the previous month was from a massive spike in civilian aircraft orders - so a decline was expected. Still, excluding civilian aircraft, the data has been soft for two months in a row. Consider that this data is noisy - and the rolling averages (which include transport) continue to accelerate. If this softness of non-transport sectors continues next month, there may be cause for concern.

    • The Federal Reserve's Industrial Production and the US Census agree that August was worse than July.
    • The 3 month moving average of unadjusted new orders accelerated - but this includes civilian aircraft.
    3 Month Rolling Average - Unadjusted Manufacturing New Orders (blue line), Inflation Adjusted New Orders from the Unadjusted Data (red line)

    (click to enlarge)

    US Census Headline:

    • The seasonally adjusted manufacturing new orders is down 10.1% (after last month's rise of 13.0%) month-over-month, and up 4.3% year-to-date.
    • Market expected month-over-month growth of -11.0% to -1.2% (consensus -9.3%) versus the reported -10.1%.
    • Manufacturing unfilled orders up 0.6% month-over-month, and up 13.0% year-to-date

    Econintersect Analysis:

    • Unadjusted manufacturing new orders growth decelerated 13.6% month-over-month, but up 2.9% year-over-year
    • Unadjusted manufacturing new orders (but inflation adjusted) up 1.5% year-over-year
    • Unadjusted manufacturing unfilled orders growth decelerated 0.2% month-over-month, and up 12.1% year-over-year
    • As a comparison to the inflation adjusted new orders data, the manufacturing subindex of the Federal Reserves Industrial Production was growthdecelerated 0.4% month-over-month, and up 4.0% year-over-year.
    Seasonally Adjusted Manufacturing Value of New Orders - All (red line, left axis), All except Defense (green line, left axis), All with Unfilled Orders (orange line, left axis), and all except transport (blue line, right axis)

    From the above graphic, one can see that transport was weak compared to last month's strength - but everything else was soft also. The graph below shows sector growth year-over-year.

    Year-over-Year Change Manufacturing New Orders - Unadjusted (blue line) and Inflation Adjusted (red line)

    Now look at the manufacturing component of industrial production. While it is true that these are slightly different pulse points (inventory not accounted in shipments) - they should not have different trends for long periods of time. Although the general trend is mixed - but in narrow channels.

    I await the data for September which we will see later this month.

    Other Economic News this Week:

    The Econintersect Economic Index for September 2014 is showing our index declined from last months 3 year high. Outside of our economic forecast - we are worried about the consumers' ability to expand consumption although data is now showing consumer income is now growing faster than expenditures growth. The GDP expansion of 4.2% in 2Q2014 is overstated as 2.1% of the growth would be making up for the contraction in 1Q2014, and 1.4% of the growth is due to an inventory build. Still, there are no warning signs that the economy is stalling.

    The ECRI WLI growth index value has been weakly in positive territory for almost two years. The index is indicating the economy six month from today will be slightly better than it is today.

    Current ECRI WLI Growth Index

    The market was expecting the weekly initial unemployment claims at 285,000 to 311,000 (consensus 297,000) vs the 287,000 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 299,000 (reported last week as 298,500) to 294,750.

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

    (click to enlarge)

    /images/z unemployment.PNG

    Bankruptcies this Week: Reichhold Holdings

    [click on image below to be sent to a page with active hyperlinks]

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

    Oct 04 9:26 AM | Link | 3 Comments
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