Macro Snapshot: 2/11/12

2/11/12:

Jobless Claims: 358k, implies .83% payroll growth (~90k/mo)

Payrolls: 1.50% Yoy Implies 2.94% growth.

Retail Sales:

   Monthly: 6.5% YoY (65th percentile) | 3.4% inf-adj YoY

   ICSC Weekly: 3.5% (47th percentile)

   Redbook Weekly: 2.5% (34th percentile)

 Mortgage Purchase: -7.947% YoY, giving back some the recent gains, but still trending closer to home on a rate of change basis.

ECRI: -4.3% up 1% from last week

ECRI Inflation: 101.2 rising from 98.6 in December

Confidence Indices:

   Michigan: 72.5 (-2.5)

   Consumer Conf: 61.1 (-3.7)

Manufacturing Surveys:

   ISM:       54.1,  implies 3.52% growth

   Philly:    7.3,   implies 2.69% growth

   Chicago:   60.2,  implies 3.85% growth

   Dallas:    15.3,  implies 2.28% growth

   Richmond:  12,    implies 3.78% growth

   Empire:    13.48, implies 1.89% growth

   Milwaukee: 58.4,  implies 2.42% growth

   Weighted avg: 2.95% growth implication

Home prices:

   Case Shiller: -3.67% in November

   Zillow: -4.7% YoY in December

   List prices down 2.4% YoY in December. Negative trend remains.

   Total Homes Sold: Down 4.0% YoY

   Value per sq. ft down 4.2% YoY

   Foreclosure sales: 19.1% up 2.9% YoY

  Percent with increasing values: 30% up 5.8%

Economic Surprises:

   US: 97th percentile of positive surprise index data points. 

   Europe: 47th percentile of positive surprise index.

Money Supply:

   Real M2: Growing at 6.4% annual rate / 4.55% ROC for 6mo.

   Real M1: Growing at 15% annual rate / 6.82% ROC for 6mo..

   Excess reserves: $1.53 trillion

   M2 Velocity: 0.4th percentile

Mortgage Delinquencies:

   BBMDPDLQ: Bloomberg all inclusive Prime (30+ through REO): 23.27% (14% growth)

   ALT-A: 34.68% (flat trajectory)

   Subprime: 21.25% (shrinking by 48% annually, odd data set)

Prime Mortgages (non-agency):

   ARM1: 102.654

   ARM2: 91.967

   FRM1: 105.614

   FRM2: 96.762

On the Run CDX Investment Grade: 98.5 (23% wider YoY)

Leading Indicators (non-financial)

   Average weekly hours, manufacturing: 41.5 (strong)

   Initial claims for unemployment insurance 358k (improving)

   New orders, consumer goods 120.89 (pop, slowing YoY)

   Index of supplier deliveries 49.9 (flat,slowing)

   Nondefense capital goods 48.884 (18%, strong pop)

   Building permits, new private housing 679 (8%, down from 20%)

   Index of consumer expectations 63.6 (recent pop but low)

Brief thoughts: The numbers remain consistent with a muddle through or even slightly better than muddle through scenario in the near term. Implied growth from the surveys of 2.95% is downright rosy compared to expectations in the economic community. I’ve added a monetarist component to the analysis which suggests industrial production will continue to trend higher until at least mid-year. The biggest risks I can see at the moment come from abroad. Both Europe and the emerging markets have slowed considerably and prevent potential hurdles globally. A European recession or hard landing in China could certainly change risk appetite in the US.

-What can we expect in industrial production: Currently it looks like industrial production should peak mid-year at measurably higher levels than we currently sit.

-What is sentiment: Sentiment is extremely bullish, in the 89th percentile for AAII Bulls vs. Bears metrics. It will be harder to make progress with expectations as high as they are and economic surprises having been so consistently positive recently (95th percentile).

-What are valuations like: Valuations in equities are all over the place. Many remain quite cheap (high quality), but others appear stretched. An overall market P/E around 14 is below the post-war average of appx 16, but cyclical adjusted P/Es are still high.Shiller’s P/E stands at 22.2, which implies annual returns of just 2.9%.

Bias: Bias is to be long opportunistically here. Sentiment is concerning given the risk that it is derailed by something happening overseas. A major deterioration in US prices seems unlikely in the near future unless we see further international deterioration.

Macro Snapshot 1/28/12

1/28/12:

Jobless Claims: 377k, implies .44% payroll growth (~50k/mo)

Payrolls: 1.25% Yoy Implies 2.68% growth.

Retail Sales:

   Monthly: 6.5% YoY (65th percentile) | 3.4% inf-adj YoY

   ICSC Weekly: 2.8% (33rd percentile)

   Redbook Weekly: 2.5% (34th percentile)

   

Mortgage Purchase: -7.947% YoY, giving back some the recent gains, 
   but still trending closer to home on a rate of change basis.

ECRI: -6.5% up 1% from last week

   ECRI Inflation: N/A

Confidence Indices:

   Michigan: 75 (+1)

   Consumer Conf: 64.5

Manufacturing Surveys:

   ISM: 53.9,     implies 3.48% growth

   Philly: 7.3,   implies 2.69% growth

   Chicago: 62.5, implies 4.27% growth

   Dallas: -3,    implies 1.19% growth

   Richmond: 12,  implies 3.78% growth

   Empire: 13.48, implies 1.89% growth

   Milwaukee: 58, implies 2.42% growth

   Weighted avg: 2.85% growth implication

Home prices:

   Case Shiller: -3.4% in October

   Zillow: -4.6% YoY in November

   List prices -2.1% YoY in December. Negative trend remains.

   Total Homes Sold: +4.2% YoY

   Price per sq. ft -4.2% YoY

   Foreclosure sales: 19% +3% YoY

   Percent with increasing values: 31% +7.2%

Economic Surprises:

   US: 95th percentile of positive surprise index data points.

   Europe: 50th percentile of positive surprise index.

Money Supply:

   M2: Growing at 9.6% annual rate. 86th percentile

   M0: Growing at 28% annual rate.

   Excess reserves: $1.51 trillion

   M2 Velocity: 0.4th percentile (continues to slow)

Mortgage Delinquencies:

   BBMDPDLQ: Bloomberg all inclusive Prime (30+ through REO):  
     23.27% (14% growth)

   ALT-A: 34.68% (flat trajectory)

   Subprime: 21.25% (shrinking by 48% annually, odd data set)

Prime Mortgages (non-agency):

   ARM1: 102.208

   ARM2: 91.339

   FRM1: 104.819

   FRM2: 96.181

On the Run CDX Investment Grade: 106 (16% wider YoY)

Leading Indicators (non-financial)

   Average weekly hours, manufacturing: 41.5 (strong)

   Average initial claims               377k (back to average)

   New orders, consumer goods           120.89(pop, slowing YoY)

   Supplier deliveries                  49.9 (flat,slowing)

   New orders, nondefense capital goods 48.884 (18%, strong pop)

   Building permits                     679 (8%, down from 20%)

   Consumer expectations                63.6 (recent pop but low)

Brief thoughts:    Mixed changes in the indicators this week with next week being far more important for data points. Claims, retail sales, economic surprises, and building permits all moderated, while ECRI and most manufacturing data points gained ground. I don’t think anything stands out as extremely pertinent here. GDP, which was released earlier this week, was somewhat surprising. Consensus has generally been that the 4th quarter was extremely strong, and consistent beats on the numbers front left most people I know expecting a better than reported consensus Q4 GDP number. What we got was a slight disappointment (2.8% vs. 3%) with moderating inflation data. Real final sales were only up .8% leaving inventory restocking to drive much of the Q4 number. This doesn’t strike me as a particularly encouraging data point given the overall buzz surrounding Q4, but it’s still reasonable growth if consistent.

   The market has a very strong tone to it with the Fed’s now perpetual plan for zero rates. It seems likely that we’ll see decent volatility either way in line with which way the data comes in. There are many professionals that are underinvested and cautious that will likely be forced to throw in the towel in an illiquid market should the numbers come in strong or even in line. If the numbers suggest the muddle through scenario is waning and ECRI’s recession call was in fact right, we’re in for a bumpy ride lower. Overall perception seems to be extremely uncertain for a large part of the investing audience and shifts in one direction or the other should have a meaningful impact.

Follow-ups:    Muddle through remains intact. The huge downward shift in claims disappeared, which seemed likely even last week. Next week will provide a lot more meat in terms of new numbers.

Macro Update: 1/21/12

1/21/12:

Jobless Claims: 352k,    implies .95% payroll growth (major positive change if sustained)
Payrolls: 1.25% Yoy      implies 2.68% growth.

Retail Sales:
  Monthly: 6.5% YoY (65th percentile) | 3.4% inf-adj YoY
  ICSC Weekly: 3% (37th percentile)
  Rebook Weekly: 2.8% (42nd percentile)

 Mortgage Purchase: -7.9% YoY but still improving on a RoC basis.

ECRI: -7.5% up nearly 1% from last week
ECRI Inflation: N/A

Confidence Indices:
  Michigan: 74
  Consumer Conf: 64.5
  Manufacturing Surveys:
  ISM: 53.9, implies 3.48% growth

Economic Surveys:
   Philly: 7.3,            implies 2.69% growth
   Chicago: 62.5,      implies 4.27% growth
   Dallas: -3,             implies 1.19% growth
   Richmond: 3,        implies 2.81% growth
   Empire: 13.48,      implies 1.89% growth
   Milwaukee: 57.77, implies 2.42% growth
     Weighted avg: 2.71% growth implication

Home prices:
   Case Shiller: -3.4% in October
   Zillow: -4.6% YoY in November
   List prices down 2.1% YoY in December. Negative trend remains.
   Total Homes Sold: Up 4.2% YoY
   Price per sq. ft down 4.2% YoY
   Foreclosure sales: 19% up 3% YoY
  Percent with increasing values: 31% up 7.2%

Economic Surprises:
  US: 97th percentile of positive surprise index data points.
  Europe: 54th percentile of positive surprise index. (up nearly 40pts WoW)

Money Supply:
  M2: Growing at 9.6% annual rate. 86th percentile
  M0: Growing at 31% annual rate.
  Excess reserves: $1.52 trillion
  M2 Velocity: 2.3% percentile

Mortgage Delinquencies:
  BBMDPDLQ: Bloomberg all inclusive Prime (30+ through REO): 23.27% (14% growth)
  ALT-A: 34.68% (flat trajectory)
  Subprime: 21.25% (shrinking by 48% annually, odd data set)

Prime Mortgages (non-agency):
  ARM1: 102.58
  ARM2: 90.824
  FRM1: 105.024
  FRM2: 95.121

On the Run CDX Investment Grade: 106 (27% wider YoY)

Leading Indicators (non-financial)
  Average weekly hours, manufacturing: 41.5 (strong)
  Average weekly initial claims for unemployment insurance 352k (spike pos)
  Manufacturers’ new orders, consumer goods and materials 119.01(pos, but slowing)
  Index of supplier deliveries – vendor performance 49.9 (flat,slowing)
  Manufacturers' new orders, nondefense capital goods 45.6 (10%, slowing)
  Building permits, new private housing units 681 (20%, strong)
  Index of consumer expectations 63.6 (recent pop but low)


Brief thoughts: Changes in the macro data were to the upside in the US. Only a few real data point changes this week with Initial Claims being the major mover. If the 352k print isn’t a one off aberration, it signifies a significant pickup in job creation, but it comes on the heels of a 399k print. Both sit approximately 25k off the 4wk moving average, just on opposite sides of that trend. Until we have confirmation in either direction, it seems best to assume claims from this week were shifted into the week prior.
   Looking abroad, Eurozone confidence picked up significantly moving from -54 to -32, with German sentiment moving from a -53.8 to a -21.6 (-49.4 survey). Further East, Chinese retail sales remained strong, Australian job creation disappointed, Japanese Industrial Activity disappointed, and Chinese GDP surprised slightly to the upside. A mixed bag in Asia, but overall improvement in Europe. There’s no conclusive evidence for any change in the status quo globally and equity and credit moves reflect that.

Follow-ups: We’re still consistent with a muddle through scenario in all the trailing data, and some of the leading data has picked up in the past week. ECRI still suggests a recession, which means the cognitive dissonance remains.

What they said...

"Our point is that the means to repay debt must be in the assets purchased by that debt. We define assets broadly, to include the social assets of education and social order and the public goods of infrastructure. If assets do not generate the net increase in value to pay the debt, debt service will be a reduction of net incomes. A reduction of net incomes means reduced means – sometimes called growth – from which debt may be paid and will thus lead to a downward slope – sometimes called a spiral."

Demand Side Economics

Consumer Credit Thoughts

One of the most interesting pieces of macroeconomic thought I've stumbled upon is Steve Keen's research on credit and its role in the economy. Start here for more information. The basic gist is that neoclassical economics greatly underestimates the role of debt creation in driving overall aggregate demand. Aggregate spending (on both consumption and financial assets) includes national income and the change in debt in the economy. In hindsight, it does not seem to be a large leap to pin much of the current malaise on the resultant unwind of the buildup of private and financial debts over the prior decade to finance asset purchases (homes, mortgage backed securities, LBO loans). A similar, if less technical, line of thought flows through Gary Schilling's research and book The Age of Deleveraging. It would follow that monitoring stock and flow of public and private debt should be a core part of measuring the health of the US and global economy. Given that I tend to subscribe to Schilling and Keen's views that current debt levels are likely unsustainable in the long run and that we are in for an extended period of deleveraging, the current consumer credit figures caught me by surprise.
   The November Consumer Credit figures show an increase of $20.4bn (top 1% of historical changes [fig.1], top 21% when scaled by GDP [fig.2]). This is not what one would expect in a period of sustained deleveraging. November's figure is part of a broader period of releveraging on the part of the consumer and falls squarely into the range of prints during the heyday of the housing boom. The savings rate, currently at 3.5%, has fallen from as high as 8.3% in May of 2008 (show inverted in fig. 3). It's hard to know what to make of this current trend. With housing prices still retreating at low levels and retirement plans underfunded across the board, it bucks common sense that the American consumer is willing to continue to reduce savings in the face of 8+% unemployment. That said, it suggests caution in taking an overly negative stance on the economy in the very near term. Consumer confidence has risen vertically since the August lows, and perhaps that renewed optimism has brought with it a willingness to lay down the credit card a little more openly.

Fig.1: Overal Change in Consumer Credit

 Figure 2: Chg. In Consumer Credit / GDP

 

Figure 3: Total Consumer Creidt (w/ rate of change [lower]) & Inverted Savings Rate

Macro Snapshot 1/15/12

1/15/12:
Jobless Claims: Last printed 399k vs. 375k expectations. Implies minimal payroll growth
Payrolls: Rising YoY at 1.25% which implies reasonable growth of mid-2% area.
Retail Sales: Real sales growing at 3.4% YoY. Still relatively healthy.
Mortgage Purchase: Up 4% WoW, but still down over 7% YoY and at 1997 levels. Nothing compelling in housing yet.
ECRI: -8.4% Still back at 2000-2001 levels. Very disconcerting.
ECRI Inflation: -4.3%
Confidence Indices:
Michigan: Strong rally off 8/11 lows, back to 74.
Consumer Conf: Strong rally back to 64.
Manufacturing Surveys:
ISM: Last print of 53.9. Consistent with 3.4% growth

Philly: Last print of 6.8. Consistent with 2.6% growth
Chicago: Last print of 62.5. Consistent with 4.27% growth
Dallas: Last print of -3. Consistent with 1.19% growth
Richmond: Last print of 3. Implies 2.8% growth
Empire: Last print of 9.53. Implies 1.53% growth
Milwaukee: Last print of 57.8. Implies 2.42%
Weighted avg: 2.64%
Home prices:
Case Shiller: -3.4% in October
Zillow: List prices down 2.1% YoY in December. Negative trend remains.
Total Homes Sold: Up 3.2% YoY

Price per sq. ft down 4.2% YoY

Foreclosure sales: 19% up 3% YoY

Percent with increasing values: 31% up 7.2%
Economic Surprises:
US: 97th percentile of positive surprise index data points. March ‘11,
Europe: 29th percentile of positive surprise index.
Money Supply:
M2: Growing at 9.8% annual rate. 86th percentile
M0: Growing at 30% annual rate.
Excess reserves: $1.52 trillion
M2 Velocity: 2.3% percentile
Mortgage Delinquencies:
BBMDPDLQ: Bloomberg all inclusive Prime (30+ through REO): 23.27% (14% growth)
ALT-A: 34.68% (flat trajectory)
Subprime: 21.25% (shrinking by 48% annually, odd data set)

Prime Mortgages (non-agency):
ARM1: 101.36
ARM2: 93.89
FRM1: 104
FRM2: 89.85

Leading Indicators (non-financial)
Average weekly hours, manufacturing: 41.5 (strong)
Average weekly initial claims for unemployment insurance 399k (spike neg)
Manufacturers’ new orders, consumer goods and materials 119.01(pos, but slowing)
Index of supplier deliveries – vendor performance 49.9 (flat,slowing)
Manufacturers' new orders, nondefense capital goods 45.6 (10%, slowing)
Building permits, new private housing units 681 (20%, strong)
Index of consumer expectations 63.6 (recent pop but low)


Brief thoughts: The trailing data is reasonably consistent with a muddle-through scenario. Payroll growth and the manufacturing surveys are consistent with mid-2% growth. Confidence has rallied significantly from the August lows. The consistently better than expected data across the board has taken Citi’s economic surprise indices to very high levels (97th percentile). The cognitive dissonance comes from the fact that the ECRI leading indicators are significantly negative here. Additionally, claims took a large leap to 399k this week. The current claims data implies approximately flat to slightly down job growth and has for a while. Overall, it’s a mixed picture, but more positive than I’d expect. There are enough positive data points to balance out my overall fear/expectations of impending difficulty. More digging will be required to understand the dire forecast out of ECRI. The financial components are likely important as 2/10s for instance should be signaling impending weakness.

Follow-ups: N/A