In the rear view mirror, 3Q GDP increased 2.5%. The primary difference from the last two poor quarters was that government consumption did not actually contract. In monthly reports, September’s durable goods orders decreased but was considerably better than expected, as were “core capital goods” which have now, like real GDP, exceeded their pre-recession peak. Personal income just barely rose, but spending was up a strong 0.6%. New home sales also exceeded expectations, and the Case-Shiller report once again remained above its March lows With both residential and nonresidential investment actually making positive contributions to GDP last quarter, the quarterly, monthly, and weekly data (as discussed below) all suggest that housing sales as well as prices may actually have put in their bottom. On the other hand, consumer confidence plummeted further to a low last seen during the worst part of the “great recession.”
The high frequency weekly indicators were generally good this week, with the singular and stunning exception of gasoline usage.
Oil finished near $94 a barrel on Thursday. This is at its recession-trigger level. It is extremely concerning that just a few days of good economic news causes oil prices to rocket right back to their choke collar point. Gas at the pump declined $.02 to $3.46 a gallon. Measured this way, we probably are still about $.20 above the 2008 recession trigger level. Gasoline usage plummeted -9.2% YoY, at 8501 M gallons vs. 9358 M a year ago. This reading of gasoline usage has in recent years only occurred in the dead of winter, and is the biggest YoY% decrease in at least the last 4 years. This is an absolutely huge decline measured both ways. Bill McBride a/k/a Calculated Risk believes it may just be noise, but if so it is one helluva thunderclap. Bill suggests using a 4 or even 10 week moving average. Even so, another reading next week like the last two weeks (last week was similarly low, and down -3.3% YoY) would give us a strong warning on a 4 week basis. This week may be telling us that consumers have permanently altered their gasoline usage habits towards more conservation.
All three jobs-related indicators improved in the last week. The BLS reported that Initial jobless claims fell 1,000 to 402,000. The four week average increased to 405,500. With the exception of 8 weeks at the beginning of spring, the four week average remains close to its best reading in over 3 years.
The American Staffing Association Index rose to 91 last week. In the last couple of months, this series has resumed its upward trajectory, but remains lower YoY.
Tax withholding also improved. Adjusting +1.07% due to the 2011 tax compromise, the Daily Treasury Statement showed that for the first 17 days of October, $117.5 B was collected vs. $115.3 a year ago. For the last 20 days, $134.2 B was collected vs. $126.8 B a year ago. This breaks the string of actual negative readings from the last month.
Housing had a another reasonably good week. The Mortgage Bankers’ Association reported that seasonally adjusted purchase mortgage applications decreased 6.4% last week. On a YoY basis, purchase applications were down -2.7%. This is back in the range that purchases mortgage applications have had been in for the 15 months before September. Refinancing increased 4.4% w/w. Refinancing has been very volatile and affected by small changes in interest rates.
Meanwhile, YoY weekly median asking house prices from 54 metropolitan areas at Housing Tracker showed that the asking prices declined only -0.7% YoY. Like almost every single week for the last couple of months, this is yet another record smallest YoY decline in the 5 1/2 year history of this series. The areas with YoY% increases in price increased by one to 17. The areas with double-digit YoY% declines remained at only 2. Nationwide asking prices may turn YoY positive within the next month.
Turning to money supply, M1 declined -0.3% for the week. It remains up 2.0% m/m, and 20.7% YoY, so Real M1 was up 16.8%.
M2 rose 0.1% w/w. It remained up 0.6% m/m, and 10.3% YoY, so Real M2 was up 6.4%. The YoY increase in both M1 and M2 nevertheless continue near historic high levels. It will be interesting to see what happens to these two series in the next several weeks, as a gauge of confidence as to whether the Euro situation is truly on its way to being solved.
Retail same store sales were tepidly positive. The ICSC reported that same store sales for the week of October 22 increased 2.4% YoY, while decreasing -0.8% week over week. Shoppertrak reported that YoY sales rose 2.7% YoY and were down -1.5% week over week.
Weekly BAA commercial bond rates decreased .11% to 5.41%. Yields on 10 year treasury bonds also decreased .02% to 2.20%. This is the third week in a row of decreasing spreads between the two rates, a good sign.
The American Association of Railroads reported that total carloads increased 1.5% YoY, up about 8300 carloads YoY to 547,300. Intermodal traffic (a proxy for imports and exports) was up 9800 carloads, or 4.2% YoY. The remaining baseline plus cyclical traffic declined 1500 carloads or -0.6% YoY. Total rail traffic has improved in the last month after having turned negative for 6 of 12 weeks during the summer.
With the exception of gasoline usage, this was probably the best week for the high frequency indicators in over 3 months. Unfortunately, if the positive economic news continues, I expect that Oil choke collar to be applied again almost immediately.
Have a nice weekend.