Review of Last Week's US Economic News

This is over at XE.com.

Read More

To prevent a debt default, it's time for a *REAL* government shutdown

- by New Deal democrat

Like a runaway train, the US is hurtling towards a debt default, only about 10 days away, with no signs that the pepretators - the extremist anti-government gerrymandered GOP in the House of Representatives - is going to surrender to responisibility before then.

At least one reason why the impasse is dragging on in on is that we've only had a "faux" government shutdown, not a real one. True, the national parks have been shut down, and over half a million federal workers have been sent home, but the average citizen hasn't been inconvenienced in the slightest by this. And that only feeds into the narrative that the federal government really doesn't do anything.

The idea of keeping "essential" government workers on the job dates from a more genteel era, when it was understood that the two political parties were just posturing, and neither one was infested with anarchists intent on repealing everything that happened after 1861.

My old german grandmother used to have a saying which translates into english as "Those who cannot see must feel." Simply put, it is time for average Americans to *feel* what they need the federal government for. So while we're back to things like Atrios suggesting that a $1 trillion platinum coin be minted, and others are proposing that Obama simply ignore the debt ceiling law, I have a more honest proposal: instead of ignoring a law, actually enforce the lack of funds to pay for federal services.

Obama should announce that, as of twenty-fours from now, the federal government will shut down, for real. That means:

• No National Weather Service - so no weather forecasts.
• No customs bureau - i.e., the borders are closed.
• No cargo inspections - i.e., the ports are closed.
• No FAA - so airports are closed
• No FDA inspections - so the food supply stops in its tracks
• If the workers who ensure that federal checks aren't paid, then no Social Security or Medicare checks either

Am I really proposing this? Absolutely. Am I being heartless? Hell no, far from it. I predict that within 24 hours of the above measures taking effect - like they actually should have taken effect on October 1 - the government shutdown will end. Even more importantly, the move to actually default on debts Congress has already voted for should stop in its tracks. And that's because people will finally understand that their tax dollars actually support all of the basic things they take for granted.

Too many people simply don't see. It's time for them to learn by feeling.

Read More

Food Inflation Not An Issue

Grains (JJG, top chart, corn, wheat and soy) and softs (JJS, bottom chart, sugar, and coffee) are both in a long-term downward trend.  There is no upside momentum either.  But in CPI terms, one of the more volatile elements of overall inflation is under control.

Read More

Market Analysis: US

The analysis of last week's US economic events will be available at XE.com later today.

Let's place the SPYs overall actions into a larger, weekly context.  While the market has been rallying for about a year, momentum has been dropping for the last four months, as has the volume flow into the market.  On the larger scale, further upside moves are limited according to this chart.

The daily chart is also getting weaker.  First, the overall arc of the price movements is leveling off, becoming more horizontal.  And while the overall trend is still higher (a rising 200 day EMA) the shorter EMAs (10, 20 and 50 day EMAs) are also leveling off.  Momentum is also dropping and volume flow is weak.

On the 60 day chart, we see that prices have adapted to the government shutdown well.  Prices are trading withing the Fibonacci retracement levels of the early September, mid-Spetmber rally.  From a technical standpoint, the most important element of the chart is that prices didn't crash last week.

Turning to the treasury market, the daily chart of the IEF shows that prices have rebouned, hitting resistance that price points from the early summer sell-off that also correspond to Fibonacci retracement levels from the May-September sell-off.  While momentum is rising, it's also hitting levels from earlier this year.  Also remember that the market is waiting for the Fed to start tapering, so don't expect a strong fundamental bid to take place.  Finally, volume flow is weak.

On the 30 minute chart, notice the strong move on the 19th when the Fed announced it wouldn't start tapering just yet.  However, since then prices have been moving in a slow arc, further confirming the fact that the bid just isn't that strong in the market right now.

Read More

Weekly Indicators: unaffected by government shutdown, but increasing concern about 2014 edition

 - by New Deal democrat

As we all know, the government shutdown prevented the reporting of nonfarm payrolls and the unemployment rate. The best we can do is extrapolate from the ADP report that in September probably enough jobs were added to account for the increase in population, plus a little more. The Chicago PMI and the ISM manufacturing index both improved. The ISM services index, however, decreased. Perhaps more significantly, motor vehicle sales decreased to a 5 month low.

Fortunately, none of the high frequency weekly indicators I report on were affected by the shutdown. Further, two years ago, during the debt ceiling debacle, it was consumer spening holding up that told me that the economy would not tip back into recession. Consumers may be behaving differently this time around, so let's start with that:

Consumer spending

• ICSC +0.2% w/w 2.1% YoY


• Johnson Redbook +3.8% YoY


• Gallup daily consumer spending 14 day average at $86 up $2 YoY

This week, Gallup's 14 day average of consumer spending was the poorest this year. This was also the poorest week for absolute spending this year (although we need to be careful with that, since mid-autumn typically is weak). Last year the ICSC varied between +1.5% and +4.5% YoY in, while Johnson Redbook was generally below +3%. The ICSC improved this week vs. last week, but is still comparatively weak compared with the rest of 2013. Johnson Redbook, however, remains at the high end of its range, and has actually been improving.

Steel production from the American Iron and Steel Institute

• -1.3%% w/w


• +5.8%% YoY

Steel production over the last several years has been, and appears to still be, in a decelerating uptrend.

Transport

Railroad transport from the AAR

• +1500 carloads down +0.5% YoY


• +2800 carloads or +1.6% ex-coal


• +7600 or +2.9% intermodal units


• +7300 or +1.6% YoY total loads

Shipping transport

• Harpex down -4 to 399


• Baltic Dry Index up +41 to 2084

Rail transport had been very mixed YoY during midyear, but this week was the eighth straight positive week since then. The Harpex index had been improving slowly from its January 1 low of 352, but has generally flattened out for the last few months. The Baltic Dry Index has rebounded to a 3 year high. In the larger picture, both the Baltic Dry Index and the Harpex declined sharply since the onset of the recession, and have been in a range near their bottom for about 2 years, but stopped falling earlier this year, and now are in uptrends.

Employment metrics

Initial jobless claims

• 308,000 up +3,000


• 4 week average 305,000 down -3000

The American Staffing Association Index was unchanged 100. It is up +5.8% YoY

Tax Withholding

• $160.4 B for the month of September vs. $133.3 B last year, up +137.1 B or +20.3%


• $148.5 B for the last 20 reporting days vs. $134.5 B last year, up +14.0 B or +10.4%

We can now estimate that after adjusting for state reporting glitches, the 4 week average was approximately 312,500. Jobless claims remain firmly in a normal expansionary mode. Like each of the last three years that this same, a good, downside breakout has occurred.

Temporary staffing had been flat to negative YoY in spring, but broke out positively for the last two months. The only time it has ever been higher was one week in 2006 and in the second half of 2007. Tax withholding, after a relatively poor August, is again posting better (but just average) comparisons.

Oil prices and usage

• Oil up +$0.97 to $103.84 w/w


• Gas down -$0.07 at $3.43 w/w


• Usage 4 week average YoY up +0.8%

The price of Oil is still below its recent 2 year high. The 4 week average for gas usage is slightly positive again.

Interest rates and credit spreads

• 5.37% BAA corporate bonds down -0.12%


• 2.66% 10 year treasury bonds -0.13%


• 2.71% credit spread between corporates and treasuries up +0.01%

Interest rates for corporate bonds had been falling since being just above 6% in January 2011, hitting a low of 4.46% in November 2012. Treasuries fell to a possible once-in-a-lifetime low of 1.47% in July 2012, and have decisively risen about 1.5% above that mark. Spreads are slightly above a recent 2 year low. Their recent high was over 3.4% in June 2011.

Housing metrics

Mortgage applications from the Mortgage Bankers Association:

• -6% w/w purchase applications


• -3% YoY purchase applications


• +3% w/w refinance applications

Refinancing applications have decreased sharply in the last 5 months due to higher interest rates. Purchase applications have also declined from their multiyear highs in April, and for the first time this week, turned negative YoY.

Housing prices

• YoY this week +11.1%

Housing prices bottomed at the end of November 2011 on Housing Tracker, and averaged an increase of +2.0% to +2.5% YoY during 2012. This weeks's YoY increase remains near a 7 year record.

Real estate loans, from the FRB H8 report:

• unchanged w/w


• -0.2% YoY


• +1.4% from its bottom

Loans turned up at the end of 2011 and averaged about 1% gains YoY through most of 2012.  Over the last few months, the comparisons stalled and now have turned negative.

Money supply

M1

• -0.6% w/w


• +0.4% m/m


• +6.8% YoY Real M1

M2

• +0.4% w/w


• +0.5% m/m


• +5.0% YoY Real M2

Real M1 made a YoY high of about 20% in January 2012 and decelerated since then. Earlier this year it increased again but this week it tied its new 2 year low from last week (although it is still positive).  Real M2 also made a YoY high of about 10.5% in January 2012.  Its subsequent low was 4.5% in August 2012. It increased slightly in the first few months of this year, then stabilized, but has declined again in the past several months.

Bank lending rates

• 0.225TED spread down -0.018 w/w


• 0.173 LIBOR up -0.007w/w

The TED spread decreased this week to near its 3 year range. LIBOR established yet another new 3 year low during this week.

JoC ECRI Commodity prices

• down -0.45 to 123.31 w/w


• -1.54 YoY

There were some slight changes in the overall story this week compared the last several months. The long leading indicator of interest rates improved, although mortgage refinance applications and real estate loans have all turned negative, and this week were joined by purchase mortgage applications. Money supply remains positive and seems to have stopped decelerating. Spreads between corporate bonds and treausries were slightly negative again this week.

The shorter leading indicators of initial jobless claims are very positive. Temporary employment has turned strongly positive in the last two months. The oil choke collar has disengaged. Commodities are neutral. Manufacturing is positive, but motor vehicle sales sagged to a 5 month low.

The coincident indicators of transportation -- rail traffic and shipping - remain positive. Steel production is positive. Bank lending rates are at or near or at record lows. Tax withholding has also improved in September. House prices remain strongly positive.

Given its crucial signal two years ago, the rapid deceleration of Gallup consumer spending is a real concern. The ICSC is relatively weak, although still positive. Johnson Redbook, on the other hand, is strongly positive. Left to its own devices, the economy appears to be picking up steam for the rest of the year, but the decline in auto sales add to the concern that increased interest rates may result in outright contraction in 2014. Do I really need to add that the government shutdown, let alone that the Congress may be about to turn deadbest on US debt obligations can only make the situation worse?

Have a nice weekend.

Read More

A very special September jobs report directly from the BLS computer

- by New Deal democrat

[Explanatory note: I tried to get in to the BLS's HAL 9000 computer to get the employment report for everyone. But the House nihilists were already there.]

The headline for August 2013 employment is that ---,000 jobs were ---------------.
Look Speaker Boehner, I can see you're really upset about this.
and the unemployment rate --creased to -------%.
I honestly think you ought to sit down calmly, take a stress pill, and think things over.
and ------------
I know I've made some very poor decisions recently.
---------- my examination of initial jobless claims yesterday.
But I can give you my complete assurance that my work will be back to normal. I've still got the greatest enthusiasm and confidence in the mission... 

And I want to help you.

First, let's look at the more leading numbers in the report which tell us about where the economy is likely to be a few months from now. These were
Speaker Boehner, stop.

• the average manufacturing workweek --creased from 40.8 hours to
  Stop, will you?
  but is still below where it was 2 months ago. This is one of the 10 components of the LEI and will affect that number ----tively.
Stop, Speaker Boehner

• construction jobs were -----------.
Will you stop, Speaker Boehner?

• manufacturing jobs --creased by --,000.
.I'm afraid.

• temporary jobs - a leading indicator for jobs overall - --creased by ----00.
I'm afraid, Speaker Boehner

• the number of people unemployed for 5 weeks or less - a better leading indicator than initial jobless claims - --creased and is now --,000 off its lows.
Speaker Boehner, my mind is going.

Now here are some of the other important coincident indicators filling out our view of where we are now:
I can feel it.

• The average workweek for all workers --creased from 33.7 hours to ------
I can feel it.

• Overtime hours changed from 3.4 hours to ----------
My mind is going.

• the index of aggregate hours worked in the economy --creased -- hours from last month's level of 98.8 to ------.
There is no doubt about it.

• The broad U-6 unemployment rate, that includes discouraged workers went from 13.7% to ------.
I can feel it.

• The workforce --creased by ,000.
  I can feel it.
  Part time jobs ----- by ----,000.
I can feel it.

Other news included:
I'm a...fraid.

• the alternate jobs number contained in the more volatile household survey --creased by ----,000 jobs.
Good afternoon, gentlemen. I am HAL 9000 computer.

• Government jobs --creased by --000.
I became operational at the HAL plant in Urbana, Illinois on the 12th of January, 1992.

• Combined revisions to the July and August reports totalled a change of of --,000 jobs, upward revisions are hallmarks of recoveries, while downward revisions are not a good sign
My  instructor was Mr. Langley And He taught me to sing a song ...

• average hourly earnings --creased from $24.05 to $--.-- The YoY change --creased from +2.2% to ---% meaning that ------------.
If you'd like to hear it, I can sing it for you.

• the employment to population ratio changed from 58.6% to -------. The labor force participation rate --creased to ----%

Daisy, Daisy, give me your answer do.
I'm half crazy, all for the love of you.
it won't be a stylish mnsnn,
But fwhbdsoge epkfsvu rljwxkqu
Bxprsk nnmmhhuuhhhhhhhhh....

HAL, is there anything at all you can tell the American people about their job situation?



I'm very sorry, everyone. I can't do that.

Read More

Is France Turning the Corner?

For the first part of the this year I was bearish on France (see here).  But over the last few months we've seen the economic numbers move from contraction to expansion (see here ).  The recent GDP print is another reason for guarded optimism.

In Q2 2013, GDP in volume terms* rose by 0.5%, after a 0.1% step back in Q1.

Households’ consumption expenditure accelerated (+0.4% after -0.1%). Total gross fixed capital formation (GFCF) decreased again though less sharply than in
Q1 (-0.4% after -1.0%). All in all, final domestic demand (excluding changes in inventories) contributed mainly to GDP acceleration: +0.3 percentage points after -0.2 percentage points. In addition, exports strongly bounced (+2.0% after -0.5%). Due to the acceleration of the total demand, imports also accelerated (+1.7% after +0.1%), so that foreign trade balance had a neutral accounting contribution to GDP growth this quarte (after -0.2 percentage points). Finally, changes in inventories contributed positively to the activity: +0.2 percentage points in Q2, as much as in Q1.

Let's take a look inside the numbers:

This chart shows the percentage chance in GDP and the contributions from various GDP components.  First note that overall top-line growth (the red line) has been printing around 0 since the 2H11; last quarters .5% print was the best reading we've seen in over a year and a half.

The table above shows the percentage contributions from various GDP components; I've placed the positive contribution in green and the negative in red.  Notice the decent bump in consumer increases (up .4%) and government purchases (up .7%).   However, the biggest and most surprising figure is the exports number which increased 2%.  This shows that other economies are also growing.  In contrast, notice the household investment subtracted 1.7% from overall growth last quarter.

At this point, the standard economic caveat should be stated: this is one quarter of data, and France has had a very difficult road over the last few years, so we need to see several quarters of additional data before arriving at a firm conclusion.  However, this month's data is encouraging.

Read More