Today begins July, meaning that we have arrived at midyear, the point by which ECRI predicted we would enter a new recession. While we don't have the June data, as of May real income, payrolls, and real retail sales continued to rise, although retail sales are below their March peak. Industrial production was off slightly in May from its post recession peak in April.
In monthly data released last week, new home sales continued their recent improvement, making a 2 year high. The Case-Shiller index of repeat home sales after adjusting for seasonality still improved slightly for the third month in a row. Durable goods orders increased although their overall trend is still sideways. The Chicago PMI remained slightly positive. Consumer confidence continued to fade. Consumer spending was flat, but as indicated above consumer income improved.
Overall the high frequency weekly indicators were weakly positive in the past week, with the more leading components more positive than the more coincident ones. Since June payrolls will be reported next Friday, let's start with those and the more coincident indicators.
Employment related indicators were weak:
The Department of Labor reported that Initial jobless claims fell 1,000 to 386,000 last week. The four week average rose 500 to 386,750. The rise in jobless claims is a serious concern, but there remains some question of whether there is a seasonal adjustment issue or whether something more ominous is going on, as we had a similar rise during the second quarter of 2011.
The Daily Treasury Statement for the first 20 days of June showed $132.0B vs. $127.5B for the same period in 2011, an increase of $4.5B, or +3.5%. The YoY growth in ax receipts has lessened in the last few months although it remains positive.
The American Staffing Association Index remained at 93. This index has been flat for the last two months, mirroring its 2nd quarter flatness last year.
Rail traffic continued its recent more positive turn this week.
The American Association of Railroads reported a +3.0% increase in total traffic YoY, or +15,400 cars, at 534,900. Non-intermodal rail carloads were up 1.4% YoY at 288,700, as coal hauling leveled off YoY. Intermodal traffic was up 4.8% YoY at 246,100. Nine of the 20 carload types were negative YoY vs. 8 types one week ago.
Same Store Sales have weakened significantly.
The ICSC reported that same store sales for the week ending June 23 were up 2% w/w, and were up +2.7% YoY. Johnson Redbook reported a 1.9% YoY gain. Shoppertrak did not report last week. The 14 day average of Gallup daily consumer spending at $69 was barely positive compared with $68 last year. This is the third week in a row in which consumer spending has weakened significantly, barely if at all improving YoY. A few months back I noted that YoY consumer spending had consistently run better than 2.0% for the duration of the recovery. Gallup has now declined under that for the entire month. Johnson Redbook is under 2%, and Shoppertrak's last few reports have also been dismal. The consumer is wavering.
Housing reports continued positive although not quite so strong:
The Mortgage Bankers' Association reported that the seasonally adjusted Purchase Index fell 1% from the week prior, and was down 3% YoY, back into the middle part of its two year range. The Refinance Index fell 8%, but it still close to its 3 year high set one week ago.
The Federal Reserve Bank's weekly H8 report of real estate loans, which turned positive YoY in March after having been negative for 4 years, this week rose 0.1%, and the YoY comparison improved to +0.9%. On a seasonally adjusted basis, these bottomed in September and remain up +1.0%. The YoY growth rate has weakened in the last few weeks.
YoY weekly median asking house prices from 54 metropolitan areas at Housing Tracker were up + 2.1% from a year ago. YoY asking prices have been positive for 7 months, remain higher than at any point last year, and at their maximum seasonal point on a seasonally adjusted basis. Only the possibility that the long-in-coming foreclosure tsunami might finally materialize remains as a reason to think we have not seen the bottom in housing prices.
Money supply was mixed but continued very positive on a YoY basis:
M1 fell -1.0% last week, and was flat month over month. Its YoY growth rate declined to +15.7%, so Real M1 is up 14.0%. YoY. M2 fell -0.3% for the week, but was up 0.4% month/month. Its YoY growth fell slightly +9.4%, so Real M2 grew at +7.7%. Real money supply indicators continue to be strong positives on a YoY basis, and after slowing earlier this year, have increased again.
Bond prices were mixed and credit spreads declined:
Weekly BAA commercial bond rates decreased by .03% to 5.02%. Yields on 10 year treasury bonds rose .02% to 1.64%. The credit spread between the two fell to 3.38%, just above its new 52 week low set last week. The recent collapse in government bond yields shows fear of deflation due to economic weakness. Corporate yields have not followed.
The energy choke collar has disengaged:
Gasoline prices fell for the tenth straight week, down another .09 to $3.44. Oil prices per barrel rose sharply on Friday, so that for the week Oil rose over $5 from $79.76 to $84.96. Ex-Friday, Oil has only been less expensive for about 2 months in the last 3 years. Oil prices remain well below the point where they start to constrict the economy, and gasoline has followed. The 4 week average of Gasoline usage, at 8829 M gallons vs. 9278 M a year ago, was off -4.8%. For the week, 8840 M gallons were used vs. 9261 M a year ago, for a decline of -4.5%. This is a significant YoY decline; however, June and early July of 2011 were the only months after March 2011 where there was a YoY increase in usage, so the YoY comparison now is especially difficult. If this decline persists past the middle of July, it will be a red flag.
Turning now to high frequency indicators for the global economy:
The TED spread declined 0.1 to 0.38, in the middle of its recent 4 month range. This index remains slightly below its 2010 peak. The one month LIBOR rose another 0.001 to 0.246. It has risen slightly above its recent 4 month range, it remains well below its 2010 peak, and has still within its typical background reading of the last 3 years.
The Baltic Dry Index rose another 26 from 978 to 1004. It remains 334 points above its February 52 week low of 670. The Harpex Shipping Index fell for the fourth straight week from 447 to 438, but is still up 63 from its February low of 375.
Finally, the JoC ECRI industrial commodities index rebounded slightly from its recent cliff-dive, up from 113.89 to 114.53. This is just above its 52 week low. Its recent 10%+ downturn during the last few months is is a strong sign of all that the globe taken as a whole is slipping back into recession.
The best comparisons are found in money supply, bond yields, and housing. All of these are long leading indicators. Low gas prices are helping to fatten the consumer's wallet, as is the continuing surge in refinancing activity. The weakest are the short leading indicators of jobless claims, credit spreads, and industrial commodities. Payroll related data is weakly positive to weakly negative, portending a poor June payrolls report. I would not rule out a negative number. Consumer spending is also weakening. Rail traffic, however, has been turning more positive.
All things considered, it appears that this summer, like the summers of 2010 and 2011, will likely be the weakest point of the year. Deflation now should set up a rebound later. Turning to the title of this week's piece, while I suspect it will be touch and go for a couple more months, I continue to believe that ECRI's prediction will ultimately be proven wrong.
Have a nice weekend.
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