It Was a Good Week in Economic News

Like last week, this week we learned more about the underlying structure of the US economy. More and more little pieces are coming together indicating the worst is probably over.

From the conference board:

The Conference Board LEI for the U.S. increased for the third consecutive month in June. Most of the components contributed positively to the index this month except real money supply* and manufacturers' new orders for nondefense capital goods*. The six-month change in the index has risen to 2.0 percent (a 4.1 percent annual rate) in the period through June, up substantially from - 3.1 percent (a -6.2 percent annual rate) for the previous six months, and the strengths among the leading indicators have remained balanced with the weaknesses in recent months.

Let's highlight why these numbers are so important. There are three types of economic indicators -- leading, coincident and lagging. Leading indicators happen before anything happens. The amount of advance time can vary, but the important point to remember is they typically happen first. A three month rise in leading indicators is a strong economic development that indicates we have a strong prospects of growth in the next few quarters.

The 4-week moving average of jobless claims continues to drop:

This number has been decreasing for several months and has now moved below the 600,000, currently standing at 566,000. While the seasonally adjusted number increased 30,000 this week, the unadjusted number decreased by 90,298. There has been some debate in economic circles regarding statistical adjustments to the seasonally adjusted numbers that was caused by auto industry lay-offs. However, the drop of 90,298 in the unadjusted numbers gives a strong indication that traditional seasonal factors are in play.

Existing home sales increased last month by 3.6%. However, the best part of the news is a possible bottoming in the pace of existing home sales. Here's the chart:

Notice there are two relevant time periods. The first is from (roughly) October 2007 to September/October 2008. This period saw a strong level of sales consistency. Then sales dropped again, largely caused by the financial problems of last fall. However, sales appear to have hit a bottoming level from that event and are stabilizing. It's important to note this only deals with the pace of sales. There are still big issues in the housing market that indicates we'll probably have a two bottoms -- a bottom in sales and a bottom in prices -- and Prices are nowhere near bottom right now. But, there are increasing signs of hope.

As I originally pointed out on Thursday all the major averages have broken through resistance and are moving higher.

This is important for several reasons.

1.) This is an indication that investors' risk appetite is returning. That bodes will for the future.

2.) Stock indexes are a leading economic indicator, indicating there is growing confidence in future earnings prospects.

The one bad piece of news was a drop in consumer sentiment:

From Bloomberg:

Confidence among U.S. consumers fell in July for the first time in five months as mounting unemployment and stagnant wages shook households.

The Reuters/University of Michigan final index of consumer sentiment decreased to 66, in line with forecasts, from 70.8 in June. A preliminary report for July showed a reading of 64.6.

The biggest employment slump of any recession in the last eight decades is making Americans less secure, which is likely to restrain spending and lift savings. Amazon.com Inc. cut prices last quarter to boost sales and American Express Co. said more cardholders fell behind on payments, resulting in lower- than-anticipated earnings.

So, we have more information from the underlying data that the economy is bottoming.

Comments

[kankankan]

Bondad, you don't need to put away the charts, just look more deeply and thoroughly.

Please, Hale and anybody that might be persuaded by the above article please look at data in charts at: http://www.zerohedge.com/article/end-end-recession or read "Mish" Mike Shedlock's blog that dialy presents similar data as www.zerohedge.com 's the "end of the end of the recession". These guys have lots of charts too, and they make a very compelling case that we are in big trouble and anyone reading this should prepare for worst, not believe the latest stock market highs. Better to be safe than sorry.

We will be very very lucky if this does not turn into a depression worse than 1930s.

[SaigonHappened]

Bonddad, for a long time your columns have been some of the best, supported with lots of data but, I'm sad to say, this time you need to put your charts down and look out the window at the real economy. I really hope you're not going to start smoking the "green shoots." The social contract is unraveling -- upticks in the stock market and new jobless claims "improving" from 600,000 to 550,000 are not going to save anything. Stick a fork in us, cause we're done.

[RandVictims]

We realize we screwed you over for past 30 years and destroyed your wealth, outsourced your employment opportunities in a giant ponzi-scheme....

....but if you give us your remaining meager savings and get back in the trading-game, we promise never to do it again.

Scout's Honor! ;)

[RandVictims]

We don't need jobs, we need more derivitives!!

[RandVictims]

Repost:

Yeah, HP, scrub the "inconvenient" posts!!

Forget the critics, - ride the latest Bubble, kiddies!

C;mon! Let's keep playing economic "hot-potato" and pretend Western Capitalism is still relevant.

"Turn those machines back on!!!!"

[RandVictims]

Yeah, HP, scrub the "inconvenient" posts!!

Forget the critics, - ride the latest Bubble, kiddies!

C;mon! Let's keep playing economic "hot-potato" and pretend Western Capitalism is still relevant.

"Turn those machines back on!!!!"

[kankankan]

Only when most of the wealth and debt is of most everyone is wiped out, will we have a recovery, or alternatively, only when most of US Debt is wiped out by inflation, dollar crises or deflation/default will we have a recovery. Until then, this economy is as moribond plantation of debt/tax slaves and no more cute, quick fixes will work anyomore. Default/jubilee and consequent lost wealth is only way to get things re-started. Stimulus can't remotely off-set the loss of private commercial activity happening, I know, I'm in the construction industry and except for a few special case niches of industry, nobody expects to see much of anything from govt spending on infrastructure, and even where they see it, it will only lessen the amount of work they are losing from states, home builders, and commercial builders, US govt stimulus can't make up the huge difference, we can't sell that much debt anymore.

[kankankan]

And what of consumer that makes the majority of the market, are they suddenly going to have more money to spend to fuel this recovery? They certainly are not getting more credit than they had last year or 3 years ago. Their wages are certainly not going to be more...even if job creation, which it is not, new jobs will be at lower end entry level salaries, many will be unemployed for years, and those with jobs are taking pay cuts. The union auto workers will never make wages they once did....I got 10 percent sliced off my professional 25 yr experience salary. Everybody I know with or without jobs is scared because they know great, smart, well-educated people that have been laid-off and unable to find a job for over 6-12 months, unless lying on their resume (to hide suspect experience and education) and moving way way down in payscale. So consumer, even if they had access to credit they previously had, is not going to spend money until they feel safe in their job, and that is not even close to happening in the next six to 12 months. The consumers attitude has changed to more frugality and the consumer will not leave this new attitude for a long time. Someone wiped by bankruptcy, lost house, lost a high paying job may never in their life-time return to the spending patterns they had in 2005.

[kankankan]

Mr. Stewart:

Why is residential real estate emphasized more than commercial real estate, aren't these both huge markets? I don't think housing has actually bottomed and turned a permanent corner, but even if it had as you seem to think, commercial real estate is dropping off a cliff with no bottom remotely, recent graphs of Moody's commercial real estate shows it peak last fall, much later than housing, but since then has been dropping at a quicker rate tha CaseShiller housing track showed from its peak. CRE suffers just as bad if not worse over-leveraged, over-loosened lending standards and much worse tightening of credit now that CRE is deflating, and those looking to re-fi their CRE or buy CRE do not have a Fannie and Freddie govt sponsored entity to provide loosened credit to businesses. CRE is completely dependent on banks or commercial paper/private/securitzed lending and given the legit fears such lenders have and the very much decreased appetitie for risk, CRE is collasping in value. See hotels defaulting. See retail and office space worth 50 percent of what it was 3-4 years ago in many places, including NYC.

And what will CRE do the banks all across this country as it collapses??

[watchTVgetSTUPID]

Nice graphs .... but

Our economy is temporarly pumped up with 1.8 trillion of excess government spending. Assuming $50K jobs, and assuming the deficit does drop to $900 billion next year, then that means 18 million jobs would dissappear.

Assuming government spending continues at a 1.8 tillion deficit, then the value of the dollar will slide by a significant percentage (assuming it does not crash to 1/3rd value like what happened in Argentina), then we can expect serious inflation that drastically cuts consumer discretionary spending. When discretionary spending cuts in half, then many sectors of the economy will shrivel up.

Either way, our economy is headed for a huge blood bath

[olephart]

Green Shoots?

From down on the farm.

"Cracks (brown shoots) are now appearing in the Ag industry. I have Ag business in three States and I’ve been watching and waiting for cracks to appear. Up until now the Ag industry has been amazingly insulated from the rest of the US/world’s economy. Credit hasn’t been a problem, commodity prices have been solid, green shoots everywhere.

But the inevitable has happened.

A largish local dairy (1200 cows or so) can no longer pay for feed. Farm Credit has cut the dairy off, no more credit. I’ve stopped feed delivery. As of now Farm Credit has canceled all meetings with the dairy owner, won’t even talk. Then I hear on NPR a piece about the huge financial problems in the dairy industry. According to the radio piece somewhere about January of 2009 US dairy exports tanked. With about 10% of US production going to exports, demand evaporated prices tanked and for a business that operates on credit, that spells trouble. Dairy financial problems are world wide,"

[vagabondvet]

Credit in the US agriculture industry is way better off than overseas.

[kankankan]

Thanks for mentioning ag, its an often ignored situation but I heard first hand from a co-worker that grew up a dairy farm in WI that back in the home town a friend that works at local bank that reviews lending for farmers has a database that tells him whether he needs to talk to his boss before lending to a farmer. If a farmer was in suspect shape, his account would be flagged with the note "See Jack" (his bosses name). Used to be that note would rarely show up for the farmers in the worst shape, he says that note now shows up everytime any farmer, even the previously well-off ones walk into the bank. He say every account says "See Jack"

[olephart]

Green Shoots?

Housing is nowhere near a bottom:
“According to the latest data, the number of vacant U.S. homes touched 18.7-million in the second quarter. That is a daunting figure, of course, but it is more fun to put it in context. Assuming four people per household, the U.S. currently has enough surplus housing to put the entire population of the U.K., with room left over for Israel.”
[via Bloomberg]

The Transportation Index has confirmed the bullish trend, Dow Theory.

However those pesky fundamentals have a mind of their own:

“• Carloads originated on U.S. railroads in June 2009 were down 19.5% (252,078 carloads) from June 2008 to 1,037,928 carloads. June 2009 was the eighth straight double-digit monthly carload decline, but it was a smaller decline than the previous two months. Average weekly carloads in June 2009 (259,482) were 10,311 carloads higher than in May 2009.
• U.S. intermodal traffic (which is not included in carloads) was down 18.2% (168,031 trailers and containers) in June 2009 to 755,000 units.”

[SeekWisdom]

Who moved my rose-colored glasses?

Should we be encouraged by the news that a few less people got shot in the forehead this week? There are already millions lying there bleeding and waiting for the EMT's to arrive. Will any survive or will they just die in the gutter? So far, no EMT's in sight but a few less got shot this week.

It may be a tad premature to proclaim that the war is over. I can't see popping the ole champagne cork over putting out a camp fire when surrounded by a 10,000 acre blaze.

[Social Construct]

Instead of another jobless recovery, maybe we'll discover a new and interesting economic phenomena known as a job-negative recovery. For any economic statisticians: Are there historical data that would show the general loss of higher wage employment being replaced, for lack of a better term, by lower wage positions during periods of economic downturn and recovery?

[Social Construct]

Addendum: Perhaps an simplistic inquiry, to be sure, and I am not looking for particular people to point fingers at if this is indeed a trend we need to be concerned about. I am just wondering, according to the more informed than myself, what the growing numbers of unemployed have to look forward to regarding stagnant, declining or even positively directed wages are concerned? From my limited knowledge on such matters, I cannot see green shoots where living wage jobs figure into the equation. This country has a great deal of wealth but it seems that it is primarily used to make more wealth for fewer and fewer people.

[memosyne]

The stock market is a shell game with "insiders" sucking money from the sheep. My $ has been out of the market for a long time. And IRA "fees" are confiscatory in this situation. Check it out.