Consumers And Housing Are Still Saving The Economy

May monthly data reported this past week was dominated by yet another tepid jobs report of +175,000 with a slight increase in the unemployment rate due to more people entering the labor force. Average hourly earnings barely increased, so real earnings probably fell slightly for the month. The ISM reported that manufacturing contracted slightly, which services expanded at slightly better rate. Auto sales increased slightly for the month, but have been flat over a 6 month period. April factory orders also increased, but have also been flat for a 6 month period. Consumer credit increased. In the rear view mirror, in the first quarter productivity increased, and unit labor costs fell sharply but only partially reversing a huge spike in the fourth quarter due to income being shifted forward into that quarter.

Let's start this week's look at the high frequency weekly indicators by focusing on employment metrics, which have become decidedly mixed:

Employment metrics

American Staffing AssociationIndex 92 down -2 w/w, down -0.5% YoY

Initial jobless claims

  4 week average 352,500 up 5,500

Tax Withholding

$147.5 B for the last 20 reporting days vs. $138.8 B last year, up $8.7 B or +6.3%

In the last month, the ASA has deteriorated to being negative compared with last year, and had its worst comparison yet this week. After having a great 20-day comparison last week, this week tax withholding had its worst YoY comparison in several months. Initial claims remain within their recent range of between 325,000 to 375,000.

Transport

Railroad transport from the AAR

-3300 or -2.0% carloads ex-coal+5800 or +3.7% intermodal units+12,000 or +2.5% YoY total loads

Shipping transport

Rail transport has had four negative weeks in the last several months, but this week was positive.  The Harpex index has flattened after improving slowly from its January 1 low of 352. The Baltic Dry Index remains above its recent low.

Consumer spending

Gallup's YoY comparisons remain extremely positive, as they have been for the last half a year.  The ICSC varied between +1.5% and +4.5% YoY in 2012, while Johnson Redbook was generally below +3%. This week both were in the upper part of those ranges.

Housing metrics

Housing prices

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 made a new 6 year record.

Real estate loans, from the FRB H8 report:

Loans turned up at the end of 2011 and averaged about 1% gains YoY through most of 2012.  In the last several months the comparisons have completely stalled.

Mortgage applications from the Mortgage Bankers Association:

+14% YoY purchase applications-15% w/w refinance applications

Refinancing applications had their worst week in almost 6 months, due to higher interest rates, but purchase applications continue their slightly rising trend established earlier this year.

Interest rates and credit spreads

 4.90% BAA corporate bonds up +0.12%2.14% 10 year treasury bonds up +0.15%2.76% credit spread between corporates and treasuries down -.03%

Interest rates for corporate bonds, although rising strongly in the last month, have generally been falling since being just above 6% two years ago in January 2011, hitting a low of 4.46% in November 2012. On the other hand, Treasuries have returned in the last three weeks to their 2% high established in late 2011, compared with their low of 1.47% in July 2012. Spreads have varied between a high over 3.4% in June 2011 to a low under 2.75% in October 2012, so spreads are still a positive, and are only .01% above their 12 month low.

Money supply

M1

M2

Real M1 made a YoY high of about 20% in January 2012 and has generally been easing off since.  This week's YoY reading increased sharply for the second week in a row.  Real M2 also made a YoY high of about 10.5% in January 2012.  Its subsequent low was 4.5% in August 2012. It has increased slightly in the last few months and has stabilized since.

Oil prices and usage

Usage 4 week average YoY -0.8%

The price of a gallon of gas, after declining sharply in March and April, rose again in May. The 4 week average for gas usage remained negative after two positive YoY months several months ago.

Bank lending rates

The TED spread is still near the low end of its 3 year range.  LIBOR remains close to a 3 year low.

JoC ECRI Commodity prices

After several weeks of more positive signs, last week we returned to the pattern of gradual deterioration that began in February. This week most indicators remain positive and there were fewer negatives.

Temp staffing is becoming a larger concern as it declined again and remains below last year's rate. Also negative this week were mortgage refinancing and treasury bonds, reflecting the bond selloff. Real estate loans, commodities, and shipping were neutral. Gas usage remains negative but may continue to reflect increased efficiency. Gas prices increased sharply but we haven't moved into a constrictive price range yet. After having their best week in months last week, this week tax withholding had its worst comparison in months. Averaged out the two weeks are lukewarm.

The biggest positive remains very strong consumer spending. Positives included house prices, YoY purchase mortgage applications, money supply, and overnight bank rates. The spread between corporate and treasury bonds contracted. Weekly jobless claims improved. Rail had a very good week. It has been decidedly mixed over the last few months.

Last week I said that for me to be sold that the data is actually rolling over, I would want to see a sustained increase in jobless claims and a sustained deterioration in consumer spending. That wasn't happening as of last week, and it certainly didn't happen this week either. The economy still seems to be moving forward - but in first gear.

Have a nice weekend.

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