Seeking Alpha

Steven Hansen's  Instablog

Steven Hansen
Send Message
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
View Steven Hansen's Instablogs on:
  • The Markets Get Their Wish - Weak Data And A Dovish Fed

    This past week was market friendly because it seems assured low interest rates are here to stay. I have discussed the Fed's options on interest rates in my main post today on Seeking Alpha - and the original post is [here]. It is the weak economy the Fed fears - and this week manufacturing came in soft (with significant backward revision) - and now shows a decline over the last three months.

    The headlines say seasonally adjusted Industrial Production (NYSE:IP) improved. This is misleading as manufacturing declined - and has declined for the last 3 months (now evident due to backward revision) - and the reason for the increase in IP was due to a massive jump in utilities. This is a weak report, and under expectations.

    • Headline seasonally adjusted Industrial Production (IP) increased 0.1% month-over-month and up 3.5% year-over-year.
    • Econintersect's analysis using the unadjusted data is that IP growthdecelerated 0.6% month-over-month, and is up 3.5% year-over-year.
    • The unadjusted year-over-year rate of growth decelerated 0.5% from last month using a three month rolling average, and is up 4.0% year-over-year.
    • The market was expecting:
    Headline Seasonally AdjustedConsensus RangeConsensusActual
    IP (month over month change)-0.1 % to 0.5 %+0.3%+0.1%
    Capacity Utilization79.1 % to 79.7 %79.5%78.9%
    IP Subindex Manufacturing (month over month change)-0.3 % to 0.4 %+0.1%-0.2%

    IP headline index has three parts - manufacturing, mining and utilities - manufacturing was down 0.2% this month (up 3.4% year-over-year), mining down 2.5% (up 5.3% year-over-year), and utilities were up 7.3% (up 1.3% 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 3.5%. 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)

    Even though manufacturing employees roughly 10% of the population, it accounts for 20% of GDP. Soft manufacturing has a knock-on effect and shows the economy is slowing.

    Other Economic News this Week:

    The Econintersect Economic Index for March 2015 continues to show a growing economy, but the rate of growth is decelerating. All tracked sectors of the economy are expanding - but most sectors are showing some slowing in their rate of growth. The negative effects of the recently solved West Coast Port slowdown (a labor dispute which had been going on for months) can be seen be seen in much of the raw data - and it will be an economic drag on 1Q2015 GDP. Although beyond our forecast view, we expect a slight economic bounce in the coming months as a trillion dollars annually of cargo begins to traverse the West Coast Ports again in a normal flow.

    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 275,000 to 305,000 (consensus 293,000) vs the 291,000 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 302,500 (reported last week as 302,250) to 304,750. The rolling averages have been equal to or under 300,000 for most of the last 6 months, but this week again exceeded this number.

    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: Korea-based Daebo International Shipping Co., Quicksilver Resources, American Spectrum Realty, Sierra Resource Group

    Please visit our landing page to view all the news and analysis this week.

    Mar 21 7:39 AM | Link | Comment!
  • Real Deflation Coming Soon?

    I have been a long and continuous opponent of the Fed's Zero Interest Rate Policy - it is ok for short periods of time but the consequences of long term interest rate reduction is not well understood. Japan tried it and it got deflation.

    Now we are beginning to evidence deflation setting in - partly accelerated by the strength of the dollar (isn't that what happened to Japan and the Yen?). Coincidence? - maybe but maybe not.

    Next week we will see the Consumer Price Index for February - but we have already seen both the Producer Price Index and Import / Export Price Index which are deflating at a very high rate.

    The Producer Price Index inflation continued its growth deceleration - and overall the PPI is in deflation year-over-year. In all events, the intermediate processing continues to show a very large deflation in the supply chain.

    The PPI represents inflation pressure (or lack thereof) that migrates into consumer price.

    • The BLS reported that the headline Producer Price Index (PPI) finished goods prices (now called final demand prices) year-over-year inflation rate fell from 0.0% to 0.6%.
    • The market had been expecting:
    month over month changeConsensus RangeConsensusActual
    PPI-Final Demand Goods (PPI-FD)0.1 % to 0.7 %+0.3%-0.5%
    PPI-FD less food & energy (core PPI)0.0 % to 0.2 %+0.1%-0.1%
    PPI-FD less food, energy & trade services0.0 % to 0.2 %+0.1%+0.0%

    The producer price inflation breakdown:

    categorymonth-over-month changeyear-over-year change
    final demand goods-0.4% 
    final demand services-0.5% 
    total final demand-0.5%-0.6%
    processed goods for intermediate demand-0.6%-6.4%
    unprocessed goods for intermediate demand-3.9%-25.0%
    services for intermediate demand+0.1%+1.2%

    (click to enlarge)

    In the following graph, one can see the relationship between the year-over-year change in crude good index and the finish goods index. When the crude goods growth falls under finish goods - it usually drags finished goods lower.

    Percent Change Year-over-Year - Comparing PPI Finished Goods (blue line) to PPI Crude Materials (red line)

    Global trade prices are continuing to deflate. Import prices are down 9.4% from a year ago, while export prices are down 5.9% from a year ago. Of course oil prices were up 6.5% this month, but agricultural prices fell 2%.

    • with import prices up 0.4% month-over-month, down 9.4% year-over-year;
    • and export prices down 0.1% month-over-month,down 5.9% year-over-year..
    • the markets were expecting:
     Consensus RangeConsensusActual
    Export Prices - M/M change-0.8 % to 0.5 %-0.1%-0.1%
    Import Prices - M/M change-1.0 % to 0.9 %+0.2%+0.4%

    There is only marginal correlation between economic activity, recessions and export / import prices. Prices can be rising or falling going into a recession or entering a period of expansion. Econintersect follows this data series to adjust economic activity for the effects of inflation where there are clear relationships.

    Econintersect follows this series to adjust data for inflation.

    Year-over-Year Change - Import Prices (blue line) and Export Prices (red line)

    The question remains - can the Fed EVER move away from zero interest? If it does, the dollar will continue to strengthen.

    Other Economic News this Week:

    The Econintersect Economic Index for March 2015 continues to show a growing economy, but the rate of growth is decelerating. All tracked sectors of the economy are expanding - but most sectors are showing some slowing in their rate of growth. The negative effects of the recently solved West Coast Port slowdown (a labor dispute which had been going on for months) can be seen be seen in much of the raw data - and it will be an economic drag on 1Q2015 GDP. Although beyond our forecast view, we expect a slight economic bounce in the coming months as a trillion dollars annually of cargo begins to traverse the West Coast Ports again in a normal flow.

    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 292,000 to 320,000 (consensus 309,000) vs the 289,000 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 306,000 (reported last week as 304,750) to 302,250. The rolling averages have been equal to or under 300,000 for most of the last 6 months, but this week again exceeded this number.

    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: England-based Towergate Financial filed for Chapter 15 protection, BPZ Resources, Dune Energy, Allied Nevada Gold, Doral Financial (dba Doral Financial Puerto Rico), Standard Register Company, Chassix Holdings

    To read all of our analysis and news for the past week [click here].

    Mar 14 6:27 AM | Link | 1 Comment
  • Will The Great Jobs Report Trigger Earlier Fed Actions To Raise Their Rates

    I use this post to summarize the week. Based on the market's reactions, the fairly great jobs report was not market friendly - as many believe this will trigger earlier actions to leave the Fed's zero interest rate policy (ZIRP). The market believes ZIRP is market positive - and if you are trader, belief trumps fact.

    I serious doubt that six or so years of ZIRP is doing anything at this point. But the market runs on emotion - facts be damned.

    Further, employment is a lagging indicator. The great employment reports only confirm where were up to six months ago - and is not a good forecaster.

    I see a mixed economy - as several elements strengthen as others are weakening. I see the Fed's accommodation (ZIRP and QE) which started out a economically positive is now mostly economically negative. One contracting element is investing in new construction which was released this week - which if ZIRP or QE really worked should be going like gangbusters.

    The headlines say construction spending declined this month - the data is volatile and backward revisions distort the picture. However, the rate of growth looking at the unadjusted rolling averages shows a persistent decline in the rate of growth for the last 12 months. Noteworthy is a continued softness in private sector construction which is now much weaker than the public sector..

    Econintersect analysis:

    • Growth decelerated 1.6% month-over-month and Up 1.2% year-over-year. The backward revision was downward - so the decline is worse than indicated.
    • Inflation adjusted construction spending down 0.7% year-over-year.
    • 3 month rolling average is 2.1% above the rolling average one year ago, anddown 0.9% month-over-month. As the data is noisy (and has so much backward revision) - the moving averages likely are the best way to view construction spending.
    Unadjusted Construction Spending - Three Month Rolling Average Compared to the Rolling Average One Year Ago

    (click to enlarge)

    US Census Analysis:

    • Down 1.1% month-over-month and Up 1.8% year-over-year (versus the reported 2.2% year-over-year growth last month).
    • Market expected -0.3% to 0.6% month-over-month (consensus +0.3) versus the -1.1% reported

    What is best for the market is the Fed leaving its accommodative policy. Yes, one would expect a negative effect initially as all change is disruptive (the economy is running on accommodative drugs). The accommodation has been going on too long - but it will allow the economy to find its natural equilibrium so it can grow on a real foundation.

    Other Economic News this Week:

    The Econintersect Economic Index for March 2015 continues to show a decelerating but growing economy. All tracked sectors of the economy are expanding - but most sectors are showing some slowing in their rate of growth. The negative effects of the recently solved West Coast Port slowdown (a labor dispute which had been going on for months) can be seen be seen in much of the raw data - and it will be an economic drag on 1Q2015 GDP. Although beyond our forecast view, we expect a slight economic bounce in the coming months as a trillion dollars annually of cargo begins to traverse the West Coast Ports normally.

    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 290,000 to 305,000 (consensus 300,000) vs the 320,000 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 294,500 (reported last week as 294,500) to 304,750. The rolling averages have been equal to or under 300,000 for most of the last 6 months, but this week exceeded this number.

    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: University General Health System (UGHS), Cal Dive International, AtheroNova and subsidiary, AtheroNova Operations, Sport-Haley Holdings

    A complete list of all economic analysis and news released in the last seven days [is here].

    Mar 07 7:37 AM | Link | 5 Comments
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.