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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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  • Leading Indices Are Suggesting The Worst Is Over?

    I admit to being addicted to leading indices - not necessarily believing or taking the information to the bank. Leading indexes usually provide 6 months forward view.

    This week the Philly Fed released their leading index. Note that this index is not accurate in real time as it is subject to backward revision. Per the Philly Fed:

    The Federal Reserve Bank of Philadelphia has released the leading indexes for the 50 states for May 2015. The indexes are a six-month forecast of the state coincident indexes (also released by the Bank). Thirty-nine state coincident indexes are projected to grow over the next six months, while 11 are projected to decrease. For comparison purposes, the Philadelphia Fed has also developed a similar leading index for its U.S. coincident index, which is projected to grow 1.6 percent over the next six months.

    [click on graphic to enlarge]

    (click to enlarge)

     May 2015AprilMarchFebruaryJanuaryDecember 2014NovemberOctober
    Leading Index Value1.61.51.31.00.91.61.61.7

    This index has been noisy, but remains well above 1% - and obviously missed the 1Q2015 economic slowdown. So far, this index is not really accurate.

    The Other Leading Indicators

    Chemical Activity Barometer (NYSE:CAB) - The CAB is an exception to the other leading indices as it leads the economy by two to fourteen months, with an average lead of eight months. The CAB is a composite index which comprises indicators drawn from a range of chemicals and sectors. Its relatively new index has been remarkably accurate when the data has been back-fitted, however - its real time performance is unknown - you can read more here. A value above zero is suggesting the economy is expanding. Econintersect's analysis of this index is [here].

    ECRI's WLI short term trend is flat and barely in positive territory. Econintersect's review of this index is [here].

    Current ECRI WLI Index:

    The Conference Board's Leading Economic Indicator (NYSEMKT:LEI) - Looking at the historical relationships, this index's 3 month rate of change must be in negative territory many months (6 or more) before a recession occurred. This index is in positive territory and improving - implying any recession is months away. Econintersect's review of this index is [here].

    (click to enlarge)

    Nonfinancial leverage subindex of the National Financial Conditions Index - a weekly index produced by the Chicago Fed signals both the onset and duration of financial crises and their accompanying recessions. Econintersect has some doubt about the viability of this index as its real time performance has been subject to significant backward revision. In other words the backward revision is so large that one really does not know what the current situation is. The chart below shows the current index values, and a recession can occur months to years following the dotted line below crossing above the zero line.

    Leading Indicators Bottom Line - no recession in the next six months but most suggesting marginally slow growth:

    • Chemical Activity Barometer is in expansion territory, and its rate of growth is marginally accelerating.
    • ECRI's WLI continues to suggest there will be little growth over the next six months.
    • The Conference Board (LEI) is indicating modest growth over the next 6 months.
    • The Philly Fed's Leading Index is indicating moderate economic growth - and the rate of growth is now accelerating.
    • The Chicago Fed's Nonfinancial leverage subindex is not warning a recession could be near.

    Other Economic News this Week:

    The Econintersect Economic Index for June 2015 continues to weaken. Most tracked sectors of the economy are relatively soft with most expanding well below rates seen since the end of the Great Recession. When data is this weak, it is not inconceivable that a different methodology could say the data is recessionary. The significant softening of our forecast this month was triggered by marginal declines in many data sets which are dancing closer and closer to zero growth. Please note that most 6 month outlook forecasts are for a marginally improving economy.

    The ECRI WLI growth index is now in positive territory but still indicates 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 270,000 to 275,000 (consensus 273,000) vs the 271,000 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 277,000 (reported last week as 276,750) to 273,750. The rolling averages generally have been equal to or under 300,000 since August 2014.

    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: Midway Gold, Molycorp, Local

    To read all of our analysis this week - [click here].

    Jun 27 7:04 AM | Link | Comment!
  • Industrial Production Is Weak But Not Terrible

    Industrial production is simply mimicking the weak economy. It is soft but not terrible. The headlines say seasonally adjusted Industrial Production (NYSE:IP) declined. This month the manufacturing portion of this index also declined month-over-month. This is another weak report, and again under expectations.

    • Headline seasonally adjusted Industrial Production decreased 0.2% month-over-month and up 1.4% year-over-year.
    • Econintersect's analysis using the unadjusted data is that IP growth decelerated 0.5% month-over-month, and is up 1.6% year-over-year.
    • The unadjusted year-over-year rate of growth decelerated 0.6% from last month using a three month rolling average, and is up 2.1% year-over-year.
    • The market was expecting:
    Headline Seasonally AdjustedConsensus RangeConsensusActual
    IP (month over month change)0.1 % to 0.5 %+0.2%-0.2 %
    Capacity Utilization78.2 % to 78.7 %78.4%78.1%
    IP Subindex Manufacturing (month over month change)0.2 % to 0.4 %+0.3%-0.2%

    IP headline index has three parts - manufacturing, mining and utilities - manufacturing was down 0.2% this month (up 1.8% year-over-year), mining down 0.3% (down 0.3% year-over-year), and utilities were up 0.2% (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 2 years has been between 2% and 4% - it is currently 1.6%. 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)

    The bottom line for me is that Industrial Production is doing better than GDP - and a lot of the softness is do to mining (specifically coal mining which recently has been down over 15% year-over-year.

    Other Economic News this Week:

    The Econintersect Economic Index for June 2015 continues to weaken. Most tracked sectors of the economy are relatively soft with most expanding well below rates seen since the end of the Great Recession. When data is this weak, it is not inconceivable that a different methodology could say the data is recessionary. The significant softening of our forecast this month was triggered by marginal declines in many data sets which are dancing closer and closer to zero growth. Please note that most 6 month outlook forecasts are for a marginally improving economy.

    The ECRI WLI growth index is now in positive territory but still indicates 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 265,000 to 280,000 (consensus 275,000) vs the 267,000 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 278,750 (reported last week as 278,750) to 276,750. The rolling averages generally have been equal to or under 300,000 since August 2014.

    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: Colt Defense, Saratoga Resources

    Please visit our landing page to view all of our analysis this past week.

    Jun 20 8:02 AM | Link | Comment!
  • The Consumer Is Not Returning To The Trough

    Most posts I saw on retail sails talked about consumers returning to the consumption trough - I was in the minority. We see a continued slowing of retail sales using the year-over-year unadjusted data. Consider that the headline data is not inflation adjusted and prices are currently deflating making the data better than it seems (but still not excellent and still decelerating).

    We see a continued slowing of retail sales using the year-over-year unadjusted data. Consider that the headline data is not inflation adjusted and prices are currently deflating making the data better than it seems (but still not excellent and still decelerating).

    Overall the rolling averages are yielding a declining growth trend.

    Econintersect Analysis:

    • unadjusted sales rate of growth decelerated 0.4% month-over-month, and up1.0% year-over-year.
    • unadjusted sales 3 month rolling year-over-year average growth decelerated0.2% month-over-month to 1.6% 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 2.5% year-over-year
    • this is an advance report. Please see caveats below showing variations between the advance report and the "final".
    • in the seasonally adjusted data - there were few weak sectors.

    U.S. Census Headlines:

    • seasonally adjusted sales up 1.2% month-over-month, up 2.7% year-over-year (last month was 1.3% year-over-year).
    • the market was expecting:
    seasonally adjustedConsensus RangeConsensusActual
    Retail Sales - M/M change0.5 % to 1.8 %+1.3%+1.2 %
    Retail Sales less autos - M/M change0.5 % to 1.3 %+0.8%+1.0 %
    Less Autos & Gas - M/M Change0.2 % to 0.6 %+0.5%+0.7 %
    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

    Sorry - the headlines are misleading. The consumer has not returned ....

    Other Economic News this Week:

    The Econintersect Economic Index for June 2015 continues to weaken. Most tracked sectors of the economy are relatively soft with most expanding well below rates seen since the end of the Great Recession. When data is this weak, it is not inconceivable that a different methodology could say the data is recessionary. The significant softening of our forecast this month was triggered by marginal declines in many data sets which are dancing closer and closer to zero growth. Please note that most 6 month outlook forecasts are for a marginally improving economy.

    The ECRI WLI growth index is now in positive territory but still indicates 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 270,000 to 280,000 (consensus 275,000) vs the 279,000 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 275,000 (reported last week as 274,750) to 278,750. 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: Privately-held Health Diagnostic Laboratory (aka HDL), Privately-held Boomerang Tube

    Please view all of our analysis for this week - [click here]

    Jun 13 6:54 AM | Link | Comment!
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