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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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  • Everyone Thinks Retail Sales Improved, I Do NOT

    Retail sales were improved according to US Census and at expectations. Our analysis disagrees. Note that the 3 month rolling average of sales growth is continues to decelerate.

    I do not like the seasonal adjustment methodology of US Census. The unadjusted data is saying that retail sales are going along at a good clip - but is not suggesting an improving trend.

    Econintersect Analysis:

    • unadjusted sales rate of growth decelerated 1.6% month-over-month, but up 3.2% year-over-year.
    • unadjusted sales 3 month rolling year-over-year average growth decelerated 0.6% month-over-month to 4.1% 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 1.5% year-over-year
    • backward revisions were moderate and slightly up;
    • this is an advance report. Please see caveats below showing variations between the advance report and the "final".
    • big box retail and gasoline stores were the big headwind this month for retail sales growth, with auto sales the big tailwind month-overr-month.

    U.S. Census Headlines:

    • seasonally adjusted sales up 0.6% month-over-month, up 4.5% year-over-year
    • the market was expecting:


    seasonally adjustedConsensus RangeConsensusActual
    Retail Sales - M/M change0.2 % to 1.0 %0.6%0.6%
    Retail Sales less autos - M/M change0.1 % to 0.5 %0.3%0.3%
    Less Autos & Gas - M/M Change0.2 % to 0.6 %0.4%0.5%


    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

    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 295,000 to 325,000 (consensus 300,000) vs the 315,000 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 303,250 (reported last week as 302,750) to 304,000.

    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: Lenco Mobile, Privately-held Associated Wholesalers, Privately-held Trump Entertainment Resorts

    To read more of 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.

    Sep 13 3:08 AM | Link | Comment!
  • Trade Data Not Indicating Economy Is Improving

    I just published ECRI's leading index which is now forecasting little economic growth over the next 6 months. I know the markets thinks everything is hunky dory - and falsely believes that the BLS employment data confirms a growing economy. They believe Friday's bad data was an anomaly - and I too believe this one month cannot be viewed as a new trend.

    But our Econintersect employment forecast index is not indicating that there will be any improved rate of growth in employment over the next six months, and one cannot use employment to forecast the future as it is a lagging index.

    But trade data - on the other hand - is a good indicator of the future (especially imports). The unadjusted data is saying import rolling averages decelerated month-over-month whilst exports accelerated. The import unadjusted data and the associated rolling averages do not agree with headline seasonal adjusted data. Historically, a decline in consumer imports is not a positive economic sign.

    • Import goods growth has positive implications historically to the economy - and the seasonally adjusted goods and services imports were reported up month-over-month. Econintersect analysis shows unadjusted goods (not including services) growth deceleration of 3.2% month-over-month (unadjusted data). The rate of growth 3 month trend is decelerating.
    • Exports of goods were reported up, and Econintersect analysis shows unadjusted goods exports growth acceleration of (not including services) 1.8% month-over month. The rate of growth 3 month trend is accelerating.

    Inflation Adjusted But Not Seasonally Adjusted Year-over-Year 3 Month Rolling Average - Goods Export (blue line) and Goods Import Excluding Oil (red line)

    (click to enlarge)

    /images/z trade2.PNG

    • The increase in headline exports was broad based (except for consumer goods, while the improvement in headline imports was also broad based (except for capital goods and consumer goods).
    • The market expected a trade deficit of $41.0 to $46.7 billion (consensus $45.0 billion deficit) and the seasonally adjusted headline deficit from US Census came in at a deficit of $40.5 billion.
    • It should be noted that oil imports were up 24.8 million barrels from last month, and down 24.5 million barrels from one year ago.
    • The data in this series is noisy, and it is better to use the rolling averages to make sense of the data trends.

    The headline data is seasonally but not inflation adjusted. Econintersect analysis is based on the unadjusted data, removes services (as little historical information exists to correlate the data to economic activity), and inflation adjusts. Further, there is some question whether this services portion of export/import data is valid in real time because of data gathering concerns. Backing out services from import and exports shows graphically as follows:

    Inflation Adjusted But Not Seasonally Adjusted Year-over-Year Change Goods Export (blue line), Goods Import Excluding Oil (red line), and Goods Import with Oil (yellow line)

    (click to enlarge)

    /images/z trade1.PNG

    Growing exports is a sign of an expanding global economy (or at least a sign of growing competitiveness).

    Seasonally Adjusted Total Imports (blue line), Exports (red line) and Trade Balance (green line)

    Indexing the data to the end of the recession, here is a look at the relative growth of imports and exports using current dollars as the basis for the index.

    Seasonally Adjusted Total Imports (blue line), Exports (red line) and Trade Balance (green line) indexed to the End of Recession

    Econintersect is most concerned with imports as there is a clear recession link to import contraction. Adjusting for cost inflation allows apples-to-apples comparisons in equal value dollars between periods. The graph below uses seasonally adjusted data.

    Seasonally and Inflation Adjusted Year-over-Year Change Imports (blue line) and Exports (red line)

    Note: In general this is a rear view look at the economy - however, imports do have a forward vision of up to three months ahead of expected economic activity. I would not be betting that an economic growth tidal wave is coming.

    For a complete look at economic and financial events 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.

    Tags: economy
    Sep 06 8:01 AM | Link | 4 Comments
  • There Is No Evidence Yet The Economy Is Gaining Strength

    I feel I am watching snails race - and to have pundits predicting an improving economy seems baseless. This week, personal expenditures had to dismay the economic bears. Consumer spending growth was less than last month - and in a consumer economy, the opposite needs to happen for the economy to pick up steam.

    • The market looks at current values (not real inflation adjusted) and was expecting:.
     Consensus RangeConsensusActual
    Personal Income - M/M change0.1 % to 0.5 %0.3 %0.2%
    Consumer Spending - M/M change0.0 % to 0.3 %0.2 %-0.1%
    PCE Price Index -- M/M change0.0 % to 0.2 %0.1 %0.1%
    Core PCE price index - M/M change0.1 % to 0.2 %0.1 %0.1%
    • In other words, both income and spending were below expectations.
    • The monthly fluctuations are confusing. Looking at the inflation adjusted 3 month trend rate of growth, income continues to trend down and expenditures continues to trend down.
    • Real Disposable Personal Income is up 2.6% year-over-year, and real personal expenditures is up 2.0% year-over-year (table 10).
    • this data is very noisy and as usual includes moderate backward revision making real time analysis problematic.
    • The second estimate of 2Q2014 GDP indicated the economy was growing at 4.2%. Expenditures are counted in GDP, and income is ignored as GDP measures the spending side of the economy. However, over periods of time - income and expenditure must grow at the same rate. Usually this differential signals a future slowdown of consumer spending growth.
    • The savings rate continues to be low historically, but improved this month.

    (click to enlarge)

    The inflation adjusted income and consumption are "chained", and headline GDP is inflation adjusted. This means the impact to GDP is best understood by looking at the chained numbers. Econintersect believes year-over-year trends are very revealing in understanding economic dynamics.

    Per capita inflation adjusted expenditure has exceeded the pre-recession peak.

    Seasonally and Inflation Adjusted Expenditure Per Capita

    Per capita inflation adjusted income is above pre-recession levels.

    Seasonally and Inflation Adjusted Income Per Capita

    The graph below illustrates the relationship between income (DPI) and expenditures (PCE) - showing clearly income and expenditures grow at nearly the same rate over time. In dollar terms, incomes are growing faster than consumer expenditures - and this is positive for long term economic growth.

    Indexed to Jan 2000, Growth of Real Disposable Income (blue line) to Real Expenditures (red line)

    The long term trend remains that the consumer is spending more of its income - although the growth rate has been in a tight range for over one year.

    Seasonally Adjusted Spending's Ratio to Income (a declining ratio means consumer is spending less of its Income)

    PCE is the spending of consumers. In the USA, the consumer is the economy. Likewise, personal income is the money consumers earn to spend. Even though most analysts concentrate on personal expenditures because GDP is based on spending, increases in personal income allow consumers the option to spend more.

    There is a general correlation of PCE to GDP (PCE is a component of GDP). PCE is not very noisy compared to GDP, but subject at times to significant backward revision (see caveats below).

    Seasonally and Inflation Adjusted Year-over-Year Change of Personal Consumption Expenditures (blue line) to GDP (red line)

    Econintersect and GDP uses the inflation adjusted (chained) numbers. Disposable Personal Income (DPI) is the income after the taxes.

    Seasonally & Inflation Adjusted Percent Change From the Previous Month - Personal Disposable Income (red line) and Personal Consumption Expenditures (blue line)

    Yet year-over-year growth is not exceptional with both consumption and income below GDP growth.

    Seasonally & Inflation Adjusted Year-over-Year Change - Personal Disposable Income (red line) and Personal Consumption Expenditures (blue line)

    FRED Graph

    The savings rate has been bouncing around - but the general trend is down. In an economy driven by consumers, a higher savings rate does not bode well for increased GDP. This is one reason GDP may not be a good single metric of economic activity. The question remains what is the optimal savings rate for the current demographics. It might be expected that as people near retirement, the savings rate rises and after people retire, savings rate falls. Econintersect is not aware of any study which documents this effect. The graph below is from BEA table 2.6. - and shows a significant fall in savings rate for January 2013 - and now remains range bound. The savings rate is now 5.7% - last month was 5.3%.

    Personal Savings as a Percentage of Disposable Personal Income

    It is obvious personal expenditures correlates to GDP - and without person expenditures increasing, GDP will not increase.

    To view all the 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
    Aug 30 7:49 AM | Link | Comment!
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