Economic Data Summary: Week Ended July 2nd, 2010

To finally play catch up, here we are. This was once again somewhat of a mixed week for economic data, though with a downward bias to be sure. It seems to be somewhat of a theme lately and one that indicates a sudden slowing of economic growth. As I discussed in another post, I don't think this signifies a double-dip, but it has come on unexpectedly fast for something that has no apparent proximate cause.

June Non-farm Payrolls

Most of the financial press called this a "mixed report", but I disagree. It was a deeply disappointing report. Of course, beneath the headline of -125,000 jobs (entirely due to Census layoffs) was the somewhat increased private sector hiring compared to May, though at less than 100,000 it was weak. I guess it's better than the job loss recovery (yes, I used job loss rather than jobless) from the 2001 recession, but that was so much shallower of a recession than what we went through. As some have indicated this is a typical recovery path from a financial panic induced recession.

More worrisome to me was that aggregate weekly hours turned down as did aggregate payrolls with declines in both hours worked and hourly incomes. Much more of this sort of performance would get me truly concerned. One little nugget in the report was that those unemployed 27-weeks or more turned down while the numbers increased down the scale a little bit. That was an interesting development and might bear watching to see if it is repeated. Down the scale makes sense from laid off Census workers, but those out 27-weeks or more should be continuing to increase. It might have just been a statistical burp.

June ISM and Chicago PMI Surveys 


Neither report was what I would call "weak" in the sense that they indicate contraction. The Chicago PMI, at 59.1, is firmly in expansion territory, indicating continued solid growth in industrial production. Granted, there is some slowing in new orders, but production actually hit new highs. In fact, the overall rate of growth was barely off from May at all.

The national ISM figures showed modest slowing, but still a broad based expansion in manufacturing activity. All major indexes are north of 55, which indicates the likelihood of average to slightly above average conditions in the manufacturing sector in the near term. Next week watch for the regional Fed surveys to get a better sense of what July might look like. If the slowing trend rapidly accelerates into a real downdraft, there is real cause for concern.

April Case Shiller House Price Index

Economic Data Summary: Week Ended June 25th, 2010

This is belated on my part and for that I apologize. Two weeks ago, we had a fairly rough raft of economic data and that situation actually only intensified the next week as we all saw. I will whip through these as gingerly as possible to keep us flowing.

May Existing Home Sales and May New Home Sales


These reports were gross and grosser. Existing home sales dropped 2.2% to 5.66 million at an annual rate from April to May, which was well well well below expectations of 6.2 million. Inventory to sales ratios have ballooned out to over 8 months again. There was almost nothing good to say here so I will not even attempt to. I fully expect that sales will be horrid in June as well as throughout the summer before beginning to pick up again, at a seasonally adjusted rate anyway, toward the end of the year. Any improvement then will be slow.

New home sales were catastrophic (watch until about the 0:30 mark for the proper visual of this report). The consensus was for a 400,000 annual rate and they came in at 300,000. I've rarely seen a miss quite that bad in any report. Inventories once again surged to over 8 months, which is a level consistent with price declines in the future. The expiration of the tax credits has had a massively negative impact on home sales. Going forward it will be hard to piece together what the real estate market is looking like, but suffice it to say that it will not be positive for some time to come.

May Durable Goods Orders

This is one of the most volatile economic numbers and it did not disappoint in that regard in May. The headline number was down 1.1% while ex-transportation they were up 0.9%. Most categories actually increased, but airplane orders caused the volatility here. For the best comparison, here is non-defense capital goods ex-aircraft:

As you can see, we are having a much more rapid recovery in business spending in this recession than in the prior recession. In this category, the fall was not actually much worse either. This is one of the very encouraging aspects of this recovery for all of the disappointments.

Richmond Fed and Kansas City Fed June Manufacturing Surveys 


Mixed bag here, but it does reflect that the manufacturing recovery might be slightly running out of gas, at least for a brief period. The Richmond Fed survey showed what still look to be solid numbers indicating a decent clip of growth. They noted that optimism is waning a bit, but I would not characterize this as a weak report.

Kansas City barely showed any growth at all, though you often have to put several of these months together to get a proper idea. It bares watching a few weeks from now when these reports come out again. If they show further deterioration, I will begin to get somewhat more nervous. Patchy regional growth is somewhat worrisome as we had seen such strong synchronized growth for a few months in a row. Still, if you look at the history of these indicators you will see a lot of chop in them. The chop only gets troubling when it coincides with other signs of weakness just as a pain in your chest may be nothing, but if your arm goes numb and you become lightheaded, then it might be time to worry.

And the rest....


GDP was revised down to a 2.7% growth rate in the first quarter. There's not much to say there except that international trade is once again becoming a persistent drain on GDP growth. China's currency manipulation along with a rebound in oil prices have done some damage.

Jobless claims for that week edged down from an earlier spike, but that has been a back and forth motion for some time now. It is very difficult to read much into these figures for now. They have been translating into weaker than expected employment reports lately so that relationship might be making sense again.

The weekly retail sales reports for that week were soft, indicating a slightly weak June, though nothing cataclysmic. I will be curious what the retailers say this coming week as they report their monthly sales. They might give us a hint into July.

Finally, MBA indicated that purchase applications and refinancings remain soft. This is no surprise, though with the recent plunge in long term bond rates, look for both of these to start increasing again some time in the future. If they don't, then consumers have really and truly turtled up.

Economic Data Summary: Week Ended June 18th, 2010

This was a decidedly mixed week of economic data. Industrial production was quite strong, but housing starts and the Philly Fed were fairly weak.

May Industrial Production 

This was the highlight of the week. 1.2% on the headline number, 0.9% on manufacturing, 1.3% on business equipment, construction equipment up 0.8%, and so on. There was not a weak component in the entire report except for mining, which is always quite volatile. Just to make the point about the strength of the recovery in manufacturing, here is a comparison of the past three recessions:

There is a V-shaped recovery, but it is only in manufacturing. Still, I consider industrial production one of the very best coincident indicators so this is an encouraging sight.

May Housing Starts and Building Permits

If everything about industrial production was good, everything about housing starts was bad. Starts were down 10.0% and permits were down by 5.9%, indicating future weakness in starts. Weakness was widespread and should be expected to continue going forward as the distorting effects of the tax credit wane. I expect there to be many mixed signals in the next few months on housing and don't expect there to be a definitive up-trend until either the end of the year or well into next year. A potential full on relapse in housing with prices and sales falling on a sustained basis is not out of the question, though the magnitudes would be much less if for no other reason that there is not much room on the downside.

Economic Data Summary: Week Ending June 11th, 2010

This was a pretty pathetic week for economic data. There was really only one report of note and that was the monthly retail sales report. That was a fairly anemic report, but I wouldn't be too concerned about it just yet.

May Retail Sales 

The headline was weak at -1.2% month to month, ex-auto was weak at -1.1% and ex-auto ex-gasoline was weak at -0.8%. It was a tough month all the way around. Not much more can be said than that. However, this is a volatile series and it actually has had a fairly decent run of late. A quick look at the chart below tells the story:

While we are still not at the pre-recession highs, retail sales have been coming back fairly strongly, albeit from highly depressed levels. If the May weakness spills over into June, I will get pretty concerned, however. I don't suspect that it will from what I have seen elsewhere, but keep your eyes peeled.

April International Trade

The data here suggested some weakness in exports and imports in April, but it is hard to glean much from that tidbit of information. The recovery in trade overall has been fairly strong and leaked Chinese export data suggests that it will continue to be. The widening trade deficit, though it is happening gradually and we are still well below pre-recession levels, suggests that global rebalancing has not occurred. The rapid decline of the euro will only worsen the return to previous global imbalances. In the long run, that will put some pressure back on the dollar, but don't look for that to happen just yet.

One thing I want to point out to some who have been concerned that we are at risk of having serious damage done by an export contraction due to impending disasters in Europe and possibly China is that our exports are a small portion of our overall GDP. On an annualized basis, they are about 12% of GDP. The idea that our economic recovery so far has been dependent on overseas demand is truly laughable. Of that chunk, much goes to Canada and Mexico. China ranks a fairly distant third on that list. The Eurozone overall is fairly important, but it would still take epic declines to derail us solely from an exports perspective. The financial contagion channel is far more important.

Others


Yep, it was a pretty slow week, so let's rip through the rest.

Weekly retail sales were actually pretty good once again. Put a couple more weeks like that together and June could be a decent recovery from May.

Jobless claims were stubborn at 456,000. We've not made significant progress on this front in some time. Ideally, we would start seeing numbers around 420,000 and then 400,000, but that has not happened yet. I would caution against believing that the stagnation at these levels is prelude to a surge in claims, though. There is little evidence that will happen.

Wholesale and Business Inventories showed continued improvement in both sales and inventory growth. The inventory to sales ratios are now at record lows and will probably continue the downward trend that they have been on for years. How low can the ratio get? That is truly difficult to say. Many sectors now have less than a month's inventory in stock. If there was ever a major shipping disruption, things could get ugly. The major inventory adjustments are all behind us for now, though.

Economic Data Summary: Week Ending June 4th, 2010

Well, this week was quite a week for economic data. Strangely enough, it was quite solid outside of the employment report. As I will discuss in a moment, the employment report was not quite as bas as it looked either when you look at it from more of an economic perspective and less from a journalistic perspective.

May Employment Report

On the surface, this looked good. Just below the surface it looked awful. Into the core it actually looked alright. How is that all possible?

The headline number of 431,000 jobs looks good until you realize almost all of that was from the Census workers. Only 41,000 private payrolls. That's not particularly encouraging. This is a big relapse from March and April where we grew by an average of 183,000 a month in private payrolls. The 183,000 pace is not great, but it is much better than out of the prior two recessions. Still, it needs to be better and I suspect it will be as the year grinds on. Still, the diffusion indices indicated that most industries were hiring in May, though it had fallen back from April's very strong reading.

Now, the actually good parts of the report were found further into the bowels of data tables. Specifically I am talking about aggregate weekly hours for private industries. Here we saw the index tick up 0.4% after a 0.4% increase in April and a 0.5% increase in March. On an annualized basis, that is right north of 5% growth in aggregate weekly hours. Aggregate weekly payrolls, which is (hours*payroll employment*wages), increased a still better 0.6% after 0.8% in April and 0.3% in March.

For a comparison to the prior two recessions here is a graph:

This once again is the better measure than the headline payrolls number because it indicates the actual amount of labor demand in the economy as measured by hours. So long as this continues to increase, jobs will be created. Now, it is not bouncing back as quickly as it did from 1981-82, but on the other hand no one expected it to. This was a different kind of recession. It would have been nice if it was as simple as being caused by 21.5% interest rates to break inflation.

May Manufacturing ISM Survey

Economic Data Summary: Week Ending May 28th, 2010

We've finally gotten to a point where I think all data series have had some level of explanation or are at least straightforward enough that we can cut right through them. In any case, the data this week were somewhat of a mixed bag, though still show that the economic recovery remains intact. Without further ado:

April New and Existing Home Sales


As expected both new and existing home sales had very strong months in April. New home sales were up 14.8% at an annual rate and existing home sales were up 7.6%. However, this was largely due to the homebuyer tax credit. As we have discussed previously, that is likely to distort the data going forward for some time to come. How much the distortion will be has yet to be seen, but my guess is that it will be significant. The depressed home sales in the coming months will probably weigh on prices that have otherwise firmed recently, which takes us to our next data...

March S&P Case Shiller House Price Index


Sputtering. That is the appropriate word to use for what had been some decent house price increases in mid through late 2009. Seasonally adjusted, house prices did edge up somewhat in March in the markets followed by the 10-city index, but the broader 20-city index fell slightly from 146.0 to 145.93. Not a huge decline, but still it does indicate that house prices are likely to remain moribund for some time to come.

Economic Data Summary: Week Ending May 21st, 2010

The data released in the past week were mixed, the first week in a while where that was true, however there does not seem to be much of a change in the overall trend of steady, moderate economic growth.

April Consumer Price Index (CPI)

This is the measure of prices paid by consumers for a pre-determined basket of market goods. Along with the PCE deflator, it is one of the two primary methods for determining the rate of inflation for consumers.

In April, the headline number fell 0.1% and is up 2.2% year on year. The April decline was driven by lower energy prices and that trend will probably continue for a couple more months with the recent decline in crude oil prices as well as gasoline and natural gas prices. The core rate, less food and energy, was flat for the month and is up 0.9% year on year. Inflation is very modest and there are few signs that it will accelerate soon in any meaningful way.

April Producer Price Index (PPI)

This is essentially the CPI for businesses, focusing on manufacturers in particular. There's really not much more to say about it except to say that, along with the CPI, these releases can move markets when there are concerns about Federal Reserve interest rate moves. This is because when markets are on edge fearing rate hikes, strong inflation numbers will change interest rate expectations to the upside and hurt equity and bond prices.

Like the CPI, the headline number was down 0.1% month on month, driven by energy. Year on year, the finished goods index was up 5.5%, which would look scary under most circumstances. However, as recently as July of last year the PPI was down 6.9% year on year so the comparisons are somewhat skewed. PPI is subject to much more wild swings than CPI because changes in raw materials prices are felt more rapidly and are not moderated by the fact that not all price increases are passed on to consumers.

April Housing Starts

Economic Data Summary: Week Ending May 14th, 2010

The economic data this week were once again fairly positive so the general story of a moderately strong economic recovery remains in place. I will editorialize a bit here to say that compared to the expectations of many 8-12 months ago, we are having a much stronger recovery than projected.

April Industrial Production


My personal favorite coincident indicator as it is the proxy for determining the demand for goods. Manufacturers will not produce if they do not think that there is a market for their goods. The one wrinkle in this is that inventory trends can be a short term driver of the industrial production index, making it unclear how much growth is due to restocking of inventories and how much is actually because of growing end-demand. Industrial production is released by the Fed right about the middle of the month every month.

In line with what we have been seeing out of the manufacturing diffusion indices, industrial production showed strong growth in April with 0.8% growth on the headline number. Below the surface, business equipment grew 1.0% and construction supplies 2.8%. March and January were revised higher, February lower. The diffusion indices also showed broad based growth.

Here's a look at the manufacturing index subset (does not include utilities and mining):

Yes, we are still far below the peak, but the pattern of recovery remains firmly intact. There are not even signs of wheezing at this moment.

Economic Data Summary: Week Ending May 7th, 2010

This was an unambiguously positive week for economic data. If you don't have a lot of time on your hands, take that much from this post. Nearly every single indicator is moving in the right direction and most are improving in a big way.

As before, I will provide a brief description of why the data set is important if I have not covered it before.

April Employment Report


Bureau of Labor Statistics Link


For the uninitiated, this is arguably the most widely watched economic indicator and the one with the greatest impact on markets. What's nice about it is that the Bureau of Labor Statistics releases the data for the previous month within no more than 9 days of its completion and sometimes as little as 2. It is thus very timely and of very broad scope. Timeliness and scope are the two major factors that give an economic report its market moving potential.

Importantly, remember that the unemployment rate and the headline number of job creation are derived from two different series. The unemployment rate is derived from the Household Survey of employment, which is a monthly survey of approximately 30,000 households. The Establishment Survey is used to determine the number of non-farm payrolls created or lost in the course of a month. This is a survey of north of 300,000 employers covering a huge chunk of total employment. As such, the non-farm payrolls number is the more accurate as well as the more important of the two. The unemployment rate is an interesting talking point, but is not necessarily an accurate snapshot at any given time of labor force utilization, regardless of what measure you use.

So what happened in April? 290,000 non-farm payrolls were created and the unemployment rate edged up from 9.7% to 9.9%. Job gains were also revised up in March and February. The slight increase in the unemployment rate has to do with job seekers becoming encouraged by labor market conditions and returning to the labor force. The several hundred thousand if not millions who exited the labor force during the prior two years kept unemployment from rising more and will also keep it from falling too rapidly as jobs start coming back.

Gains were very widespread with the diffusion index for employers shooting up well over 60 at 64.3. This is well within the range of a healthy economic expansion, indicating far more employers are adding jobs than cutting them. Really impressive is how much manufacturing is coming back with 79,000 jobs created there in just the last three months. Of course, losses in manufacturing were enormous during the pit of the recession such as in April of last year when 149,000 jobs were lost, but this is a good sign. All major categories also gained jobs.

Now, I think the most important figure from a macroeconomic perspective is the aggregate weekly hours index. The reason is that this indicates what is the total amount of work happening in the economy. Theoretically, weekly hours could be declining while payrolls are rising and vice versa. As such, aggregate weekly hours is the best indicator of demand for labor. It has also risen substantially from the bottom last year :

Importantly, this is recovering far more rapidly than it has in the prior two recessions. Those expecting the slow "jobless recovery" that we got used to recently might, I will emphasize "might", be surprised.

April ISM Manufacturing and Non-Manufacturing Surveys

ISM Manufacturing Survey Link
ISM Non-Manufacturing Survey Link


For those who remember the post on the Chicago PMI and regional Federal Reserve indexes, these are the same sort of survey based diffusion indices. There is relatively little more to add to them except to say that they have much more sway on the market. The ISM manufacturing index in particular has historically had one of the most dramatic impacts on market movements of any indicator. This is because it is a national survey of manufacturing that is released on the first trading day of the month for the prior month. Manufacturing is the best leading indicator of the economy as a whole and the survey comes out right after the month is over. The non-manufacturing index is conducted in the same way, but even though it covers a larger sector of the economy it has a shorter history (only has been conducted since 1997) and seemingly worse tracking to the overall economy.

The ISM manufacturing index registered at a very strong 60.4%, indicating a very strong rate of expansion in manufacturing. Importantly, the new orders index came in at 65.7% with 52% reporting better orders and only 8% reporting lower orders. Put simply, this is beyond strong and indicates continued moderate to high rates of overall economic growth over the next few months at least.

The non-manufacturing index came in at 55.4%, which is fairly solid. The business activity index rose to a whopping 60.3% with 39% reporting higher activity and only 10% lower activity. Employment was a little weak, but the monthly employment report out of BLS contradicts this.

March Construction Spending 


Census Bureau Construction Spending Link


This is pretty self-explanatory. It represents annualized outlays on private non-residential, private residential, and public construction projects. As it trails by more than a full month, it does not have particularly much market impact.

In March, spending rose by 0.2%, but this was driven almost entirely by public expenditures. Private non-residential and residential outlays fell by 0.7% and 1.1% respectively. Construction outlays have proven to be a continued source of weakness and non-residential in particular is unlikely to recover any time soon.

Jobless Claims


DOL Jobless Claims Link

Claims fell a little to 444,000, but they had been upwardly revised for the prior week. The level of jobless claims is proving stubbornly high, but it doesn't seem to be correlating with weakness in the labor markets. If this level correlates with what we saw in April's employment report, then it is good news, but this has clearly become harder to interpret.

April Car Sales, Personal Income and Spending, and April Chain Store Sales


Car sales in April were down a little from March as incentives were reduced, but still are on a recovery track. That said, at an 11.2 million annual rate, these are still very low levels of car sales.

Personal income and spending for March you would think would be a more closely followed report, but it really doesn't tell us much we didn't know already due to more timely indicators. Nonetheless, both income and spending showed strength in March. Spending was mainly bolstered by depleted savings and government transfer payments, so the trends of March will be difficult to repeat for long. However, with employment growth resuming, the "quality", for lack of a better term, of future consumption growth will likely improve. Link

April chain store sales were weak due to both bad weather in certain parts of the country and, more importantly, the shift of the Easter holiday. When the Census Department releases its Retail Sales report next week we will get a better sense of it. Normally these reports have a  large influence on the markets due to their timeliness, but this week it was hard to tell due to the strangeness of Thursday.

Anyway, these and other reports are summarized on the Bloomberg Calendar

Economic Data Summary: Week Ending April 30th, 2010

This will be the first of my weekly economic data summaries. Understanding the economic trends of the world is very important to making prudent investment decisions and in order to understand the trends, you must know how to read the data.

Because I know readers will have disparate familiarity with various data sets, I will post brief summaries of how the data should be looked at in terms of importance for the next few weeks. Eventually it will only be analysis.

1st Quarter GDP
The releases of Gross Domestic Product are not overly consequential to financial markets for the most part largely because higher frequency data sets (retail sales, home sales, industrial production) come out well before the first reading on GDP. Hence, GDP rarely surprises by wide margins.

So what did GDP tell us this week? First quarter growth at an annualized 3.2% (vs 3.4% expected) was a fairly strong number, though it was slower than last quarter's 5.6% pace. A few of the major components were also robust:

Personal consumption expenditures + 3.6%
Business investment in equipment and software +13.4%
Exports +5.8%

Business investment in particular has been quite encouraging and these numbers have been reflected in durable goods orders as well as industrial production in recent months. In the previous recession, business investment took a long time to truly begin recovering whereas this recovery in business investment appears to be coincident with the overall recovery.



Some have said but for the inventory adjustments, growth would have been meager. I wonder where these people were when the inventory adjustments made our contraction look much steeper in Q4 2008 and Q1 2009. Frankly, inventory adjustments are not just some accounting game, but I can discuss that another time.

That being said, there were some notable weak points. Residential investment fell after rising in Q4 while business investment in structures (mainly commercial real estate investment) continued to implode. Both of these areas will be weak for some time to come.

GDP release here: BEA GDP Release

Chicago PMI, Kansas City Fed Survey, Richmond Fed Survey

Some of the many manufacturing surveys that are expressed in the form of a diffusion index. This is an index where the number of respondents saying business is getting worse is subtracted from those saying business is getting better. The Chicago PMI uses the 50 level to indicate break even while the Richmond and Kansas City Feds use 0. Some take a strict level such as 14% say business was getting better while 12% said it was getting worse for a level of 2, or 51 in the case of the Chicago PMI. Others do seasonal and other adjustments and the exact calculation is hard to determine. We will go over this in the national ISM release next week.

In any case, these are good first indicators for the turning points in the economy. They come out earlier than nearly any other indicator and are generally pretty useful as proxies for industrial production. I used these indicators (specifically the Richmond and Kansas City Fed surveys) last year to get the edge on some who thought that the economy was not recovering rapidly enough to justify the stock market rally.

What are they saying now? All signs are good to go.

The Chicago PMI came in at a very robust 63.8, well into rapid expansion territory. Production, New Orders, and Employment indexes came in at 63.1, 65.2, and 57.2 respectively.

Link: Chicago PMI

The Kansas City and Richmond Feds confirmed the strength of the manufacturing recovery. I'll spare you the details and you can instead go to the sources:

Richmond
Kansas City


Jobless Claims

Weekly initial unemployment insurance claims are a high frequency data set that are fairly useful in determining the health of the labor market. They should be interpreted as, for lack of a better term, the gross number of people losing employment and going on UI benefits. You will see the ill-informed saying "450,000 people lost their jobs last week? How is this good news?". That's not what this series is. Even in boom times we almost never get below 300,000 a week. The labor market is highly dynamic.

Jobless claims have become difficult to interpret in this recession. As we have moved toward job gains in the monthly employment reports, they have not declined in the manner one would expect. Last week we stayed at around 450,000, which is normally a pretty horrid number. However, this appears to be at approximately the break even point for right now. Part of what may be happening here is that temporary employment has really taken off in recent months and as temporary workers move between jobs at the temp agencies more are going on UI. Also, the Senate has periodically delayed UI benefit extensions and when they do eventually get approved those who re-apply for UI benefits that had been on them previously count as new initial claims.

In general, the decline in UI claims seems to have flattened out, which is a little worrisome. We will see what happens next week with the monthly employment report.

Link: DOL Initial UI Claims

The Rest: Consumer Confidence, MBA Purchase Applications, Weekly Retail Sales

There was also the Michigan Consumer Confidence Index. Economists worry a lot about consumer confidence as a proxy for spending, however, evidence is mixed as to how useful these surveys are at predicting spending behavior.

Weekly retails sales as reported by ICSC and Redbook show month to month declines from March, but this appears to have to do with the Easter calendar shift more than anything. Retail sales are still well on a path to recovery.

Mortgage Banker Association Purchase Applications have had a strong run due to the home buyer tax credit, but will likely fall off with its expiration. Frankly, real estate data of nearly every kind will be very hard to interpret for months thanks to these distortions. This is not a political position on whether or not it should have been done, but it is a warning in looking at any home sales data for some time.

View these at the Bloomberg Economic Calendar