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Weekly Review - Residential Construction Was Not Good Or Bad

This was a funny week for me as the data released this week which I thought was mediocre, the other analysts and market pumping pundits was excellent. Building permits (or starts) is a case in point - analysis here. Most pointed to building starts as the primary metric. I use two metrics as primary:

  1. the year-over-year change of permits issued and construction completions (which was one of the lowest year-over-year gains in 2012); and,
  2. the ratio between permits issued and construction completions which were also at a 2012 low. However, this is a seasonal issue, and the end of the year always has low numbers. The year-over-year gain was about average for 2012.

Overall my view is that building permits were ok - but nothing to write home about.

The Econintersect economic forecast for January 2012 shows weak growth. The underlying dynamics have a whiff of improvement - as underlying trends seemed to have stabilized with some marginally improving. Most of the recession markers have evaporated, and one of our alternate methods to validate our forecast remains recessionary (but now only slightly so). All in all, still not a great forecast - but at least there is hope that conditions will be improving in the months to come.

ECRI believes the recession began in July 2012. ECRI first stated in September 2011 a recession was coming . The size and depth is unknown. The ECRI WLI growth index value has been weakly in positive territory for over three months. The index is indicating the economy six month from today will be slightly better than it is today.

Current ECRI WLI Growth Index

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Initial unemployment claims fell from 371,000 (reported last week) to 335,000 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 - fell marginally from 365,750 (reported last week) to 359,250. 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 - 2010 (blue line), 2011 (red line), 2012 (green line)

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Bankruptcies this Week: Penson Worldwide, Blue Earth Solutions, Direct Markets Holdings

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

  • Rail movements (where the economic intuitive components indicate a moderately expanding economy).

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.

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