Steven Hansen's  Instablog

If I had only one item to look at to gauge the economy - it would be rail. Rail moves the raw materials and semi-finished goods for manufacturing. Rail moves finished goods to distribution centers (much by containers or trailers).

It is a view of the GDP measured economy months in advance.

Now consider that rail traffic for the last month has been showing very positive growth dynamics.

• Four week rolling average is improving, and better than the rolling average one year ago;
• 13 week rolling average is improving, and better than the rolling average one year ago; and,
• 52 week rolling average is improving, and better than the rolling average one year ago.

These are dynamics which should not be ignored - and clearly shows expansion. However the rate of growth is not massive - 0.3% year-over-year growth using 52 week rolling averages to 2.7% year-over-year growth using monthly rolling averages.

Conservatively, the real economy is now growing in May over 2% using rail as a metric.

The Econintersect economic forecast for May 2012 declined marginally, but remains in a zone which says the economy is beginning to grow normally. There are some warning signs that our interpretation is not correct - but we will see how these play out in the coming months.

The ECRI WLI growth index value has been weakly in positive territory for over four months - but in a noticeable improvement trend. The index is indicating the economy six month from today will be slightly better than it is today.

(click to enlarge)

Initial unemployment claims fell from 360,000 (reported last week) to 340,000 this week. Historically, claims exceeding 400,000 per week usually occur when employment gains are less than the workforce growth, resulting in an increasing unemployment rate (background here and here).

The real gauge - the 4 week moving average - was statistically unchanged from 339,250 (reported last week) to 339,500. Because of the noise (week-to-week movements from abnormal events AND the backward revisions to previous weeks releases), the 4-week average remains the reliable gauge.

(click to enlarge)

Bankruptcies this Week: none

Data released this week which contained economically intuitive components (forward looking) were:

• Rail movements are beginning to show a modest growth trend.

All other data released this week either does not have enough historical correlation to the economy to be considered intuitive, or is simply a coincident indicator to the economy.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Two points this week:

1. I do not understand the focus on initial unemployment claims. If they stay under 400,000 - there is little to no correlation to the jobs gain for the month. The data wobbles in any event, and is seasonally adjusted. I have no issues with the seasonal adjusting methodology of the DOL - but it still is a guess. I would only worry if claims went over 400,000.
2. There is a general softness in the coincident data but nothing to raise a lot of concern. What I am concerned about is the strengthening of the dollar which is already effecting exports. This is one reason industrial production is soft. I know of no economic forecast that adjusts for currency variations.

The Econintersect economic forecast for May 2012 declined marginally, but remains in a zone which says the economy is beginning to grow normally. There are some warning signs that our interpretation is not correct - but we will see how these play out in the coming months.

The ECRI WLI growth index value has been weakly in positive territory for over four months - but in a noticeable improvement trend. The index is indicating the economy six month from today will be slightly better than it is today.

Current ECRI WLI Growth Index

/images/z weekly_indexes.PNG

Initial unemployment claims rose from 323,000 (reported last week) to 360,000 this week. Historically, claims exceeding 400,000 per week usually occur when employment gains are less than the workforce growth, resulting in an increasing unemployment rate (background here and here).

The real gauge - the 4 week moving average - modestly degraded from 336,750 (reported last week) to 339,250. Because of the noise (week-to-week movements from abnormal events AND the backward revisions to previous weeks releases), the 4-week average remains the reliable gauge.

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

(click to enlarge)

/images/z unemployment.PNG

Bankruptcies this Week: SBM Certificate, Skinny Nutritional

Data released this week which contained economically intuitive components (forward looking) were:

• Rail movements are beginning to show a modest growth trend.

All other data released this week either does not have enough historical correlation to the economy to be considered intuitive, or is simply a coincident indicator to the economy.

Weekly Economic Release Scorecard:

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Another week has passed and another week Mr. Market has risen. I always worry about long periods of price growth. But I continue to remind myself that there are many reasons for growth - outside of the areas I monitor.

The big warning sign for me is wholesale sales which is contracting in real and current dollars year-over-year. I see no other contraction - so one would conclude that the middle-man is being cut out. Just one more new normal condition.

The Econintersect economic forecast for May 2012 declined marginally, but remains in a zone which says the economy is beginning to grow normally. There are some warning signs that our interpretation is not correct - but we will see how these play out in the coming months.

The ECRI WLI growth index value has been weakly in positive territory for over four months - but in a noticeable improvement trend. The index is indicating the economy six month from today will be slightly better than it is today.

/images/z weekly_indexes.PNG

Initial unemployment claims fell from 324,000 (reported last week) to 323,000 this week. Historically, claims exceeding 400,000 per week usually occur when employment gains are less than the workforce growth, resulting in an increasing unemployment rate (background here and here).

The real gauge - the 4 week moving average - modestly improved from 342,250 (reported last week) to 336,750. Because of the noise (week-to-week movements from abnormal events AND the backward revisions to previous weeks releases), the 4-week average remains the reliable gauge.

(click to enlarge)

/images/z unemployment.PNG

Bankruptcies this Week: SBM Certificate, Skinny Nutritional

Data released this week which contained economically intuitive components (forward looking) were:

• Rail movements remain mixed.

All other data released this week either does not have enough historical correlation to the economy to be considered intuitive, or is simply a coincident indicator to the economy.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.