The big monthly news this week was that inflation took off, with sharp increases in both producer and consumer prices, while industrial production and capacity utilization fell just as sharply. Retail sales rose slightly more than gasoline prices, but June and July were revised down slightly. Consumer sentiment improved sharply, and in particular expectations, one of the 10 components of the LEI.
The high frequency weekly indicators should show turns before they show up in monthly or quarterly data. Most of these remain quite positive, although employment indicators are concerning, and gas prices are at the highest levels ever for this time of year. Let’s start once again with them.
The energy choke collar is solidly engaged, but gasoline usage is holding up:
Gasoline prices rose yet again last week, up $.01 from $3.84 to $3.85. Gas prices have risen $0.49 since their early July bottom, and are now only $0.09 cheaper than at their highest point this spring.Oil prices per barrel rose from $96.42 to $99.00. Gasoline usage was slightly negative on a YoY basis. For one week, it was 8695 M gallons vs. 8848 M a year ago, down -1.7%. The 4 week average at 9004 M vs. 9011 M one year ago, was essentially unchanged.
Employment related indicators were again mixed this week.
The Department of labour reported that Initial jobless claims rose 17,000 to 382,000 from the prior week’s unrevised figure. The four week average rose 3,750 to 375,000, about 3.3% above its post-recession low. If higher oil prices are again acting as a governor preventing fast economic growth, then this number, unfortunately, should continue to rise in coming weeks, although there is no persuasive impact yet.
The American Staffing Association Index fell by one to 92. This index was generally flat during the second quarter at 93 +/-1, and for it to be positive should have continued to rise from that level after its July 4 seasonal decline. That it has now actually declined again is a serious red flag, as it is still performing worse than it did in 2007 and 2011.
On the other hand, the Daily Treasury Statement showed that 8 days into September, $60.4 B was collected vs. $57.6 B a year ago, a $2.8 B or a 4% increase. For the last 20 days ending on Thursday, $129.4 B was collected vs. $120.6 B for the comparable period in 2011, a gain of $8.8 B or +7.3%.
Same Store Sales and Gallup consumer spending were all solidly positive:
The ICSC reported that same store sales for the week ending September 1 gained +1.0% w/w, and rose +3.4% YoY. Johnson Redbook reported a solid 2.7% YoY gain. The 14 day average of Gallup daily consumer spending as of September 13 was $70, compared with $65 last year for this period. Gallup’s comparison plunged at the very end of August, but has rebounded somewhat since, after 5 strong weeks.
Bond yields were mixed but credit spreads contracted:
Weekly BAA commercial bond rates fell slightly -.01% to 4.82%. Yields on 10 year treasury bonds rose slightly, up .01% to 1.64%. The credit spread between the two narrowed to 3.18%, which is closer to its 52 week minimum than maximum, and continues to improve from several months ago.
Housing reports were all positive:
The Mortgage Bankers’ Association reported that the seasonally adjusted Purchase Index rose about 8% from the prior week, and is also up about 7% YoY. Generally these are in the middle part of their 2+ year range. The Refinance Index also rose strongly, about +12% for the week, although the MBA cautioned that it may be an artifact from the labour Day weekend.
The Federal Reserve Bank’s weekly H8 report of real estate loans this week rose 15 to 3534. The YoY comparison rose to +1.7%, which is also the seasonally adjusted bottom. This is the best comparison in a long time.
YoY weekly median asking house prices from 54 metropolitan areas at Housing Tracker were up +2.2% from a year ago. YoY asking prices have been positive for over 9 months.
Money supply remains generally positive despite now being fully compared with the inflow tsunami of one year ago:
M1 rose sharply, up 4% last week alone, and was up +3.4% month over month. Its YoY growth rate also rose sharply to +12.6%, as comparisons with last year’s tsunami of incoming cash are in full progress. As a result, Real M1 also rose to +10.9%. YoY. M2 increased +0.2% for the week, and was up 0.5% month/month. Its YoY growth rate also rose to +6.4%, so Real M2 remained the same at +4.7%. The growth rate for real money supply has slowed significantly, but is still quite positive.
Rail traffic was completely flat YoY due primarily to coal:
The American Association of Railroads reported that total rail traffic was unchanged YoY. Non-intermodal rail carloads were off a substantial -2.3% YoY or -6,300, once again entirely due to coal hauling which was off -11,800. Negative comparisons improved from 10 to 8 types of carloads. Intermodal traffic was up 6,400 or +3.1% YoY.
Turning now to high frequency indicators for the global economy:
The TED spread declined sharply to a new 52 week low of 0.29. The one month LIBOR also declined, to 0.220, and also set another new 52 week low. It remains well below its 2010 peak and is lower than almost the entire past 3 years. Even with the recent scandal surrounding LIBOR, it is probably still useful in terms of whether it is rising or falling.
The Baltic Dry Index fell yet again from 669 to 662, setting another 52 week low. The Harpex Shipping Index fell 3 from 393 to 390, and is now only 15 above its February 52 week low.
Finally, the JoC ECRI industrial commodities index rose once again from 122.23 to 124.64, although it is still down YoY. This number has improved sharply over the last month.
The sharp bifurcation in the numbers continued. Every single manufacturing number is either showing contraction or close thereto. The decline in the ASA’s temporary staffing index is particularly concerning as to employment. Gasoline prices may be having an impact on hiring and a slight impact on layoffs so far. Rail traffic is completely flat YoY, although coal is playing the major role here. Globally, shipping rates continue to decline.
At the same time almost all of the housing indicators continue to show solid improvement, money supply is also strongly positive, bond yields are low, and credit spreads are continuing to contract. The stock indexes just made new multi-year highs. These are all long or medium term leading indicators, and suggest that the US economy’s prospects generally remain good. On the employment front, Treasury receipts show no weakness at all. On the global front, rising natural resource prices and sharply declining short term interest rates are also very positive.
Continuing increases in gasoline prices as well as the apparent slight manufacturing contraction are making me more concerned about the remainder of this year and the first half of next year, but so long as the consumer continues to hold up, on balance my outlook is still very cautiously positive.
Have a good weekend.
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