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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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  • The Economy Is Growing Slower While The Markets Rise

    Yesterday, the following chart greeted me in my inbox as the markets closed.

    (click to enlarge)

    Part of the narrative from Business Insider:

    There's a huge disconnect in the US stock market right now.

    A new Bank of America Merrill Lynch survey published Friday finds that US investors have pulled $79B out of equities year to date - including net outflows in 9 of the past 10 weeks - despite stock prices continuing to break new record highs.

    On Thursday, the Nasdaq closed at its highest since March 2000.

    And on Friday, the S&P 500 traded at another intraday high above 2120, crossing the record for a second straight day.

    As this imbalance grows, Bank of America writes that the risk of something we haven't seen in the market in years will continue to grow: a correction.

    What always entertains me is that the markets are thought to be forward looking - but the obvious weakness in the business end of the economy has been evident since November - but the markets have been shrugging it off believing it was caused by transient factors.

    Well this week, likely the best real indicator of the state of the economy was released - the Chicago Fed National Activity Index (CFNAI). It showed that the economy was growing even slower last month - and continues to grow below the historical trend rate of growth but well above levels associated with recessions.

    The three month moving average of the Chicago Fed National Activity Index (CFNAI) which provides a summary quantitative value for all the economic data being released - declined significantly from -0.12 (originally reported as -0.08 last month) to -0.27.

    PLEASE NOTE:

    • This index IS NOT accurate in real time (see caveats below) - and it did miss the start of the 2007 recession.
    • The headlines talk about the single month index which is not used for economic forecasting. Economic predictions are based on the 3 month moving average. The single month index historically is very noisy and the 3 month moving average would be the way to view this index in any event.
    • The market expected the month (not the three month moving average) between -0.26 to +0.20 (consensus 0.15) versus the reported value of -0.42.
    • This index is a rear view mirror of the economy.

    (click to enlarge)

    A value of zero for the index would indicate that the national economy is expanding at its historical trend rate of growth, and that a level below -0.7 would be indicating a recession was likely underway. Econintersect uses the three month trend because the index is very noisy (volatile).

    CFNAI Three Month Moving Average (blue line) with Historical Recession Line (red line)

    As the 3 month index is the trend line, the trend is currently showing a marginally decelerating rate of growth. As stated: this index only begins to show what is happening in the economy after many months of revision following the index's first release.

    The forward looking market has ignored the slowing - showing the financial end of the economy is disconnected.

    Other Economic News this Week:

    The Econintersect Economic Index for April 2015 is indicating growth will be sluggish. Most tracked sectors of the economy are expanding - but now there is contraction in some data sets. The negative effects of the recently solved West Coast Port slowdown (a labor dispute which had been going on for months) and bad weather continues to be seen in much of the raw data - and it will be an economic drag on 1Q2015 GDP and into 2Q2015. It is difficult to differentiate these transient issues (weather and labor) from cyclic economic conditions - but one could argue that transient issues are a cause of economic cycles.

    The ECRI WLI growth index remains slightly in negative territory which implies the economy will have little growth 6 months from today.

    Current ECRI WLI Growth Index

    The market was expecting the weekly initial unemployment claims at 280,000 to 305,000 (consensus 286,000) vs the 295,000 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 282,750 (reported last week as 282,750) to 284,500. The rolling averages have been equal to or under 300,000 for most of the last 7 months.

    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: Fredericks of Hollywood

    [click here] to view all the analysis and news for the last week.

    Apr 25 7:57 AM | Link | 3 Comments
  • New Home Building Sector Remains Surprisingly Weak Considering Families Need To Live Somewhere

    I get that it is currently difficult to accumulate enough wealth for someone to buy their first home - but they need to live somewhere, even if it is a rental home. New home construction is doing OK, but after almost 10 soft years you would expect a little more recovery.

    Residential building data remains soft. The rolling averages are the best metric to view this series - and the rolling averages are decelerating. This data was below expectations.

    • The unadjusted rate of annual growth for building permits in the last 12 months has been around 10% - it is 7.6% this month.
    • Unadjusted 3 month rolling averages for permits (comparing the current averages to the averages one year ago) show that construction completions are lower than permits this month for a change.
    3 month Rolling Average for Year-over-Year Growth Unadjusted Data
     Building PermitsConstruction Completions
    Current Movementdeceleratingdecelerating
    Unadjusted 3 Month Rolling Average of Year-over-Year Growth - Building Permit (blue line) and Construction Completions (red line)

    (click to enlarge)

    Econintersect Analysis:

    • Building permits growth decelerated 2.2% month-over-month, and is up 7.6% year-over-year.
    • Single family building permits declined 3.1% year-over-year.
    • Construction completions decelerated 5.3% month-over-month, down 6.8% year-over-year.

    US Census Headlines:

    • building permits down 5.7% month-over-month, up 2.9% year-over-year
    • construction completions down 3.9% month-over-month, down 5.8% year-over-year.
    • the market expected:
    Annual RatesConsensus RangeConsensusActual
    Housing Starts0.950 M to 1.120 M1.048 M0.926M
    Housing Permits1.040 M to 1.150 M1.085 M1.039 M

    Note that Econintersect analysis herein is based on UNADJUSTED data - not the headline seasonally adjusted data.

    When more building permits are issued than residences completed - the industry is expanding - and this expansion was underway for three years (except for last month). In the graph below, any value above zero shows more permits are being issued than completions.

    Difference Between New Home Building Permits and Construction Completions (unadjusted)

    Construction completions trend is now noticeably downward.

    Unadjusted Year-over-Year Change New Homes -Permits (blue line) and Construction Completions (red line)

    Other points to take away from the data:

    • Before we start thinking all is well, the residential home industry is about half of the pre-2005 peak.
    Seasonally Adjusted Residential Building Permits

    • Apartment permits (structures with 5 or more units) grew 5.0% year-over-year. Apartments accounted for 34.9% of all building permits, and 25.4% of construction completions.
    Unadjusted Ratio Apartment Permits (structures with 5 or more units) to Total Permits - higher number means more Apartments

    What i would expect is that multiple family units (meant for rentals) would have been stronger. Because new construction is so slow, It looks to me that there is a shortage of rental properties coming on line which will drive rents upward.

    Other Economic News this Week:

    The Econintersect Economic Index for April 2015 is indicating growth will be sluggish. Most tracked sectors of the economy are expanding - but now there is contraction in some data sets. The negative effects of the recently solved West Coast Port slowdown (a labor dispute which had been going on for months) and bad weather continues to be seen in much of the raw data - and it will be an economic drag on 1Q2015 GDP and into 2Q2015. It is difficult to differentiate these transient issues (weather and labor) from cyclic economic conditions - but one could argue that transient issues are a cause of economic cycles.

    The ECRI WLI growth index remains slightly in negative territory which implies the economy will have little growth 6 months from today.

    Current ECRI WLI Growth Index

    The market was expecting the weekly initial unemployment claims at 275,000 to 290,000 (consensus 280,000) vs the 294,000 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 285,500 (reported last week as 282,250) to 282,750. The rolling averages have been equal to or under 300,000 for most of the last 6 months.

    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: Brazil-based OAS (fka OAS Engenharia e Participacoes), Energy Future Holdings, Australia-based NewSat Limited

    Please [visit our landing page] for all the news and analysis for this past week.

    Apr 18 7:17 AM | Link | 2 Comments
  • There Are Strange Data Points For Our Forward Looking Markets

    I always want to start this kind of post stating I do not see anything currently that I consider a recessionary flag for the economy. But two data points are of continuing concern which are contracting year-over-year - rail movements and wholesale sales. Both of these sectors are canaries for the retail sector months from now.

    I have recently highlighted rail (which has been a concern for most of 2015) in previous posts. And this week the data for wholesale sales shows it contracted year-over-year for the second month in a row.

    The headlines said wholesale sales contracted year-over-year and inventories grew to levels associated with recessions. This data series is very noisy, and this month included significant annual revision. Because of this noise, the best way to look at this series may be the unadjusted data three month rolling averages which decelerated for the seventh month in a row. This was a soft report.

    Note that Econintersect analysis is year-over-year - the analysis is based on the change from one year ago. Econintersect Analysis:

    • unadjusted sales rate of growth accelerated 1.5% month-over-month (last month was a revised -7.7%)
    • unadjusted sales year-over-year growth is down 1.8% year-over-year
    • unadjusted sales (but inflation adjusted) down 3.5% year-over-year
    • the 3 month rolling average of unadjusted sales decelerated 0.6% month-over-month, and up -0.3% year-over-year .
    Year-over-Year Sales - Unadjusted (blue line), Unadjusted but Inflation Adjusted (red line), 3 month Rolling Averages (yellow line)

    (click to enlarge)

    z%20wholesale1.PNG

    • unadjusted inventories up 6.0% year-over-year (decelerated 0.3% month-over-month), inventory-to-sales ratio is 1.45 which is historically is well above non-recessionary periods for Februarys.

    US Census Headlines based on seasonally adjusted data:

    • sales down 0.2% month-over-month, down 1.5% (last month was reported down 1.0%) year-over-year
    • inventories up 0.3% month-over-month, inventory-to-sales ratios were 1.20 one year ago - and are now 1.29.
    • the market expected inventory month-over-month change between 0.0% to +0.6% (consensus 0.2%) versus the 0.3% reported.

    We will continue to monitor.

    Other Economic News this Week:

    The Econintersect Economic Index for April 2015 is indicating growth will be sluggish. Most tracked sectors of the economy are expanding - but now there is contraction in some data sets. The negative effects of the recently solved West Coast Port slowdown (a labor dispute which had been going on for months) and bad weather continues to be seen in much of the raw data - and it will be an economic drag on 1Q2015 GDP and into 2Q2015. It is difficult to differentiate these transient issues (weather and labor) from cyclic economic conditions - but one could argue that transient issues are the cause of economic cycles.

    The ECRI WLI growth index remains slightly in negative territory which implies the economy will have little growth 6 months from today.

    Current ECRI WLI Growth Index

    The market was expecting the weekly initial unemployment claims at 275,000 to 325,000 (consensus 285,000) vs the 281,000 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 285,250 (reported last week as 285,500) to 282,2500. The rolling averages have been equal to or under 300,000 for most of the last 6 months.

    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: Xinergy (fka Greenwich Global Capital), EveryWare Global

    For all of our analysis and opinion this week - [click here]

    Apr 11 7:42 AM | Link | 3 Comments
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