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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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  • 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!
  • A Lot Of Mixed Signals Now - Where Is The Economy Headed

    What a wonderful jobs report this past week. Even though it is a rear view mirror of the economy - it confirms the economy has been growing strongly. And history has shown that unless there is a precipitating event (say 1972), economic declines are as gradual as economic growth.

    A big consumer based economy like the USA does not take off like a rocket or fall off a cliff. I know most pundits believe this growth spurt we see in hindsight will continue - but I believe there is higher probability of a slowing of growth in 2015 then a continuing of the growth we are seeing.

    Why?

    Some data elements have limited forward vision as they become final sales several months from now. Take November 2014 Census Manufacturing new orders where the rate of growth has declined for four months in a row. Last Friday, wholesale sales fell dramatically and inventories grew - far from a good sign. I always warn NEVER to take a single data point and run - this could be an anomaly.

    The headlines say wholesale sales declined and inventories grew. This data series is very noisy, and continues on a roller coaster of good and bad data. 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 fourth month in a row. The data for wholesale trade was terrible this month but it could have been caused by a changing seasonal demand.

    The unadjusted rolling averages seem a little soft this month - but it could just be a new change in wholesale and associated warehousing for the holiday season. [note that Econintersect analysis is year-over-year - so that the analysis is based on the change from one year ago.] Econintersect Analysis:

    • unadjusted sales rate of growth decelerated 4.5% month-over-month (last month was a revised 4.9%)
    • unadjusted sales year-over-year growth is down 0.6% year-over-year
    • unadjusted sales (but inflation adjusted) down 2.3% year-over-year
    • the 3 month rolling average of unadjusted sales decelerated 1.1% month-over-month, and up 4.1% year-over-year (September was a very high growth month which affected the averages).
    Year-over-Year Sales - Unadjusted (blue line), Unadjusted but Inflation Adjusted (red line), 3 month Rolling Averages (yellow line)

    (click to enlarge)

    /images/z%20wholesale1.PNG

    • unadjusted inventories up 7.1% year-over-year (accelerated 0.2% month-over-month), inventory-to-sales ratio is 1.29 which is historically is well above non-recessionary periods for Octobers.

    US Census Headlines based on seasonally adjusted data:

    • sales down 0.3% month-over-month, up 2.4% (last month was reported 4.3%) year-over-year
    • inventories up 0.8% month-over-month, inventory-to-sales ratios were 1.16 one year ago - and are now 1.21.
    • the market expected inventory month-over-month change between -0.3% to +0.7% (consensus 0.3%) versus the +0.8% reported.
    Year-over-Year Growth - Wholesale Sales - Unadjusted data (blue line), Inflation Adjusted Data (red line)

    (click to enlarge)

    The short term year-over-year trend for sales is now fluctuating.

    Wholesale Sales - Unadjusted - $ Millions

    (click to enlarge)

    /images/wholesale_2005on.PNG

    Wholesale sales have now been at record highs for almost two years - until this month where they contracted year-over-year. Overall, the inventory-to-sales ratios (a rising ratio is an indicator of economic slowing) was abnormally high relative to past Novembers. The graph below however shows the change in the ratios from a year ago - and any number above zero is good.

    Unadjusted Inventory-to-Sales Ratio (blue line) Year-over-Year Change

    (click to enlarge)

    Year-over-year change in the inventory-to-sales ratio is what is important - and this month it jumped up - a jump in the ratio which could indicate a slowing economy (one month of data is not a trend). A flat trend would indicate an economy which was neither accelerating or decelerating. A decelerating trend would indicate an improving economy.

    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 point which caused our index to decline this month - but none of them are currently show the 3 month rolling averages declining.

    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 280,000 to 297,000 (consensus 290,000) 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 290,750 (reported last week as 290,750) to 290,500. 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: Tengion

    To view all of out 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.

    Tags: economy
    Jan 10 6:43 AM | Link | Comment!
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