Thursday, July 05, 2012

Thursday Economic Reports: Lookin' Pretty Good

1. Private-sector employment increased by 176,000 in June according to today's ADP National Employment Report.  The June job gain was the 29th straight monthly increase in private employment and the 10th consecutive month of a job increase above 100,000.  The 12-month gain through June of nearly two million private-sector jobs is the largest annual  increase in almost six years, since the 12-month period ending in August 2006.

2.  (Reuters) - The number of U.S. businesses and consumers filing for bankruptcy fell 14 percent in the first half of 2012 and could end the year at the lowest level since before the 2008 financial crisis, according to data released today by Epiq Systems and the American Bankruptcy Institute.

3.  The fixed rate for 30-year mortgages fell to another fresh low this week of 3.62%, according to Freddie Mac. The fixed rate for 15-year mortgages also dropped to a new low of 2.89%.

4. From the American Association of Railroads today: "Intermodal volume for the week totaled 253,497 trailers and containers, up 7 percent compared with the same week last year and the fifth highest-volume intermodal week ever for U.S. railroads."

5. "Planned layoffs fell to a 13-month low in June, as U.S.-based employers announced job cuts totaling 37,551 during the month. That is down 39% from the 61,887 announced job cuts in May, according to today's report on downsizing activity from Challenger, Gray & Christmas. The June total is 9.4% lower than the 41,432 planned job cuts announced during the same month a year ago. It is the lowest monthly total since May 2011, when employers announced plans to eliminate 37,135 workers from their payrolls."

6. "U.S. unemployment, as measured by Gallup without seasonal adjustment, was 8.0% in June, unchanged from May, but significantly better than the 8.7% from a year ago. Gallup's seasonally adjusted number, based on applying an estimate of the government's June adjustment, is 7.8%, an improvement from 8.3% in May, and down considerably from 8.5% in June 2011. Both the unadjusted and the adjusted numbers are at least tied for the lowest Gallup has recorded since it began collecting employment data in 2010."

7. Intrade odds of a U.S. recession this year? Less than one-in-six chance at 15.8%.

44 Comments:

At 7/05/2012 4:04 PM, Blogger PeakTrader said...

"Thursday Economic Reports: Lookin' Good"

Have we even begun a recovery yet?

It looks like a recoverless recovery in a rolling depression.

Will there be another recession before an actual recovery?

 
At 7/05/2012 4:08 PM, Blogger Jon Murphy said...

Have we even begun a recovery yet?

Well, what do you call a recovery?

Real GDP is at a record level.

US Industrial Production (as a benchmark for the economy), however, is below the pre-recession level.

Our economy has grown since the bottom (USIP is up some 12% off the low, and real GDP is at record levels). Growing economic activity is called a recovery.

So, I guess my question is: what are you defining as a recovery?

 
At 7/05/2012 4:13 PM, Blogger PeakTrader said...

Jon, a recovery to me is getting back on track.

We haven't even moved towards the track yet.

Output Gap (through Q4 2011):

http://stateofworkingamerica.org/charts/output-gap-real-gdp-compared-to-potential-gdp-2000-11/

In 2012, the economy slowed and may be slowing from a slow rate.

 
At 7/05/2012 4:15 PM, Blogger Jon Murphy said...

By the way, I hope you don't take this as me being aggressive, Peak. My point is just that, depending on what indicator your use, the argument can be made either way whether we have recovered or not (I think we have not fully recovered given the employment situation and USIP number). Depending on what definition you want to use will depend on whether we will be "recovered" before then next recession hits.

 
At 7/05/2012 4:17 PM, Blogger Jon Murphy said...

Jon, a recovery to me is getting back on track.

Ah, nice and vague. Good answer :-P

So, assuming we are going with the GDP gap, then no, we will not have fully recovered before the next recession hits (early signs from leading indicators suggest this to be late 2013/early 2014).

 
At 7/05/2012 4:26 PM, Blogger PeakTrader said...

Jon says: "Ah, nice and vague."

Like someone in a coma, while the world continues to turn.

 
At 7/05/2012 4:45 PM, Blogger Gene Hayward said...

Part-time Theme park and shopping mall related jobs will be the order of the day tomorrow--oh, and medical care as usual to give it some luster. Subtract those out and we will see if there is some underlying substance.

 
At 7/05/2012 5:05 PM, Blogger bart said...

Mass layoffs are still in a sideways trend, not at all like Challenger data.

http://www.nowandfutures.com/images/mass_layoffs1.png

http://www.nowandfutures.com/images/mass_layoffs2.png


Real GDP, with more full corrections for inflation, is at best level



Do I get an atta-boy for zero aggression yet, and just posting the facts?

 
At 7/05/2012 5:05 PM, Blogger bart said...

Same GDP chart, linear instead of log based

 
At 7/05/2012 9:04 PM, Blogger Don Culo said...

Obama's econmic recovery plans are taking effect.

 
At 7/06/2012 9:57 AM, Blogger bart said...

"Any sufficiently advanced technology is indistinguishable from magic."

 
At 7/06/2012 10:10 AM, Blogger bart said...

"Worst Quarter for Jobs Growth Since 2010"


My U7 unemployment rate went up to 22.3% from 21.7%.
Both U6 unemployment rate measures up, NSA one way up.

Only 80k new jobs, when over 150k are needed to stay even.

Recession odds up again.

Euro area recession spreads.

China still slowing.

 
At 7/06/2012 11:20 AM, Blogger Jon Murphy said...

A nuke going off in Newark would look good to Mark because no matter what the real data is showing he is looking for a positive narrative

New Jersey (and with it that God-awful show Jersey Shore) gets destroyed. Looks like a win-win to me.

 
At 7/06/2012 11:22 AM, Blogger bart said...

I'm really tired of the bad/poor news too, but prefer reality and realism.

It's how we both have made quite profitable investing decisions for many years, and avoided only riding the down elevator. Even with just a CPI adjustment, the Dow is down over 10% since 2000.

 
At 7/06/2012 11:30 AM, Blogger juandos said...

"Real GDP is at a record level"...

As measured with Zimbabwe like dollars jon m?

Meanwhile the U6 (the real employment picture) is 14.9%...

From Political Calculations: Testing a Hypothesis for New Jobless Claims

 
At 7/06/2012 12:14 PM, Blogger Hydra said...

I am so glad that everything is hunky dory.

 
At 7/06/2012 12:30 PM, Blogger Jon Murphy said...

As measured with Zimbabwe like dollars jon m?

Well, no. Real GDP is nominal GDP deflated using the GDP deflator.

 
At 7/06/2012 12:52 PM, Blogger bart said...

Global Manufacturing PMI trends suck!

 
At 7/06/2012 1:03 PM, Blogger Jon Murphy said...

Bart-

Maybe I am not seeing it, but what do you define as "neutral" PMI? I only ask because it looks like the range is only above 50.0; anything below 50.0 you call contracting?

 
At 7/06/2012 1:29 PM, Blogger morganovich said...

payrolls showed only +80k today, much lower than the the ADP number.

CR has a great chart on the jobs recovery.

http://www.calculatedriskblog.com/2012/07/employment-another-weak-report-more.html

look at the chart that shows the duration of jobs recoveries.

each successive recession since greenspan took over as fed chair has been the slowest since ww2.

this sure makes notions that the fed can, through activist policy, control the business cycle and encourage full employment look questionable. loose money winds up being the brake, not the gas for jobs.

 
At 7/06/2012 1:46 PM, Blogger Jon Murphy said...

Morganovich-

Please, please, please do not take the the wrong way, but I am surprised you distrust the CPI numbers, but are willing to take SA numbers at their face value.

 
At 7/06/2012 1:50 PM, Blogger morganovich said...

jon-

SA numbers?

if you mean u3, sure, it's outlandishly gamed using labor force size etc. but it would read higher without that which just emphasizes my point further.

 
At 7/06/2012 1:50 PM, Blogger morganovich said...

interesting stat:

"The disability ranks have outpaced job growth throughout President Obama's economic recovery. While the economy has created 2.6 million jobs since June 2009, fully 3.1 million workers signed up for disability benefits."

hard to see how that is a good trend.

 
At 7/06/2012 1:58 PM, Blogger Jon Murphy said...

SA numbers?

Your quote of the 80K payrolls added. That's the Seasonally Adjusted "headline" number.

 
At 7/06/2012 2:27 PM, Blogger juandos said...

"Well, no. Real GDP is nominal GDP deflated using the GDP deflator"...

Well that's the way I used to understand what it was...

From AEI: June jobs swoon: America’s labor market depression continues

'This continues to be the longest streak — 41 months — of unemployment of 8% or higher since the Great Depression'...

'If the size of the U.S. labor force as a share of the total population was the same as it was when Barack Obama took office—65.7% then vs. 63.8% today—the U-3 unemployment rate would be 10.9%. Even if you take into account that the LFP should be declining as America ages, the unemployment rate would be 10.5%'...

From IBD: 10 reasons why jobs market even worse than weak June employment report...

 
At 7/06/2012 3:14 PM, Blogger bart said...

Maybe I am not seeing it, but what do you define as "neutral" PMI?

I'm looking at the trends.

 
At 7/06/2012 3:16 PM, Blogger Jon Murphy said...

I'm looking at the trends.

So, if the PMI is loving sideways, it's neutral, moving up it's positive, and moving down it's negative?

 
At 7/06/2012 3:17 PM, Blogger Jon Murphy said...

That should say "moving" not "loving." Otherwise, this conversation just got all kinds of awkward.

 
At 7/06/2012 3:25 PM, Blogger bart said...

<b?So, if the PMI is loving sideways, it's neutral, moving up it's positive, and moving down it's negative? </b?

It depends.

Do you think the Global PMI trends are good?


Freudian slip on loving? -g-

 
At 7/06/2012 3:36 PM, Blogger Jon Murphy said...

Freudian slip on loving? -g-

I am not going to answer that :-P

Do you think the Global PMI trends are good?

There are some areas that are good, some areas that are bad.

Shit PMIs: Europe (with the exception of Ireland, and Scandinavia. Russia's not too bad), not thrilled with China, Brazil.

Treading water: SE Asia, Japan, Korea. US

Good: Latin America is performing pretty well.

There are pockets of opportunities, to be sure. I'd avoid Europe as they continue to limp along over the next year-and-a-half. China will do what China always does: make up numbers and build ghost towns (this could make the potential late 2013-2014 recession even worse). SE Asia may pick up some steam. The Middle East (incl Turkey) is a big question mark. Mexico should grow nicely over the next few years. Brazil should rebound from their recession soon. Columbia is a safe bet.

So, pockets.

 
At 7/06/2012 3:48 PM, Blogger bart said...

I am not going to answer that :-P

well... ok... just this once. *stupid/silly grin*


Cool on the rest

 
At 7/06/2012 3:51 PM, Blogger Jon Murphy said...

I gotta admit, PMI is one of my better liked indicators. It is hard to interpret as it is a diffusion index, but I think it does provide a better "up-to-date" view on manufacturing than many other indicators.

 
At 7/06/2012 5:17 PM, Blogger morganovich said...

jon-

ah. i did not know what you meant by SA.

yes, SA has been a mess for the last few year in particular.

that's a tough one though. without SA you get a really strong seasonal cycle that makes the data really bumpy.

i guess you could go YOY by month or week to look at changes, but that can make for really slow turn times if you are looking for inflection points.

 
At 7/06/2012 7:08 PM, Blogger Jon Murphy said...

without SA you get a really strong seasonal cycle that makes the data really bumpy.

Which is why you use move averages/totals. They smooth out the seasonality. Seasonally adjusted numbers try to do the same thing, but they try to accomplish it using mathematical mumbo jumbo that ultimately comes down to one's judgement. I prefer my numbers naturally smoothed.

Although, even with SA numbers, you get bumpy data trends. That's why I always get so pissed when there is much to do about monthly ups and downs. They are largely meaningless outside of context.

By the way, I apologize for not writing out "seasonally adjusted." Old habits die hard.

 
At 7/06/2012 9:51 PM, Blogger bart said...

I prefer my numbers naturally smoothed.

My single malt scotch and women too... (*rimshot*)


For a short term trader, watching monthly ups & downs can be critical especially when significant trend lines are broken.

 
At 7/07/2012 11:38 AM, Blogger morganovich said...

"I prefer my numbers naturally smoothed."

as bart said, the issue with using MA smoothing is that you see inflection points late.

you also pick up artifacts from the last.

using a 12 mo MA for jobs, for example, you can get a rise for may 2012 even though the number dropped from april because the may 2011 number may have been a bad one.

smoothing has its own set of issues.

measurement of economies is hard.

 
At 7/08/2012 9:22 AM, Blogger Jon Murphy said...

For a short term trader, watching monthly ups & downs can be critical especially when significant trend lines are broken.

True. But when you are making long term economic decisions, the monthly changes are noise.

as bart said, the issue with using MA smoothing is that you see inflection points late.

You'd think so, but no. Using a 12MMA, we see the inflection point about the same time the seasonally adjusted monthly data inflects (usually within a month). The advantage is, we can see it coming. Using internal trends (3MMA/Ts, seasonality, month-to-month changes, and month-over-same-month-last-year changes), as well as a system of leading indicators we can spot an inflection point about 6-8 quarters out with 97% accuracy.

using a 12 mo MA for jobs, for example, you can get a rise for may 2012 even though the number dropped from april because the may 2011 number may have been a bad one.

True, which is why we montior many internal trends as well, not just the 12MMA.

measurement of economies is hard.

Ain't that the truth!

 
At 7/08/2012 11:57 AM, Blogger bart said...

But when you are making long term economic decisions, the monthly changes are noise.

Au contraire, MA breath.

I caught, among *many* other similar calls, the top of the gold and silver markets 5 days ahead of time in January 1980 by completely ignoring monthly or any long term MA or other changes.

More recently, I hedged silver at $48.70 and gold at $1875 - both on the same day as the relative top.
I also very recently shorted the S&P around 1355 after the non QE "surprise", added leverage, and then exited around 1322 average.


In other words, noise is prevalent across all trading periods but finding the actual signal(s) require way more than monthly looks or MAs. MAs alone almost always fail on trading, partly due to chart painting, partly due to smoothing always hiding details (by definition), partly to false volatility, partly due to the crowd is seldom right, etc. etc. etc.

And broad generalities are always wrong... *wink*

"Long term" is quite relative too. My 1980 call was true long term as in over a decade, but the 2011 gold & silver call was more a trading call than an investing one.

 
At 7/08/2012 12:24 PM, Blogger VangelV said...

But when you are making long term economic decisions, the monthly changes are noise.

You boys are talking past one another. We have Jon talking about economic investing decisions while Bart is talking about trading and timing. The two are very different animals.

 
At 7/09/2012 7:58 AM, Blogger bart said...

We have Jon talking about economic investing decisions while Bart is talking about trading and timing. The two are very different animals.

Only partly true, since my examples included both recent trading examples and the 1980 economic investing long term call.

My point remains that using things like MAs would have caused my 1980 call to be late rather than early.

 
At 7/09/2012 8:46 AM, Blogger VangelV said...

Only partly true, since my examples included both recent trading examples and the 1980 economic investing long term call.

My point remains that using things like MAs would have caused my 1980 call to be late rather than early.


I do not disagree that MAs do great harm if used to make serious decisions. But I really doubt that they are even considered by good companies when making long term economic decisions. The miners that I talk to use projected price data that is discounted from the average annual price. Even when calculating reserves some are still using $800 per ounce for gold and $14 for silver, nowhere near the MA data. This is particularly true for the long term investments that have a long build cycle. If I have a mine coming on line in 2017 I do not really care much about what some monthly price index is showing today. My bigger concern would be the general supply/demand fundamentals and the overall economic environment.

 
At 7/09/2012 10:00 AM, Blogger bart said...

I do not disagree that MAs do great harm if used to make serious decisions. But I really doubt that they are even considered by good companies when making long term economic decisions.

Very different scenarios, and agreed on a 2017 mine decision.

My basic point was that MAs do hide changes at the margin, which is where the best entry or exit points exist. I'd be curious to know if the system that his company uses got them out before the dot com crash or got them into gold or commodities and other similar items at or near major turning points.

 
At 7/09/2012 10:43 AM, Blogger VangelV said...

My basic point was that MAs do hide changes at the margin, which is where the best entry or exit points exist. I'd be curious to know if the system that his company uses got them out before the dot com crash or got them into gold or commodities and other similar items at or near major turning points.

I do not disagree with this. If you are going to trade you better have something more than MAs to tell you what is going on. As you know, I do not have the temperment for trading and prefer the much longer picture, volatility and all.

 
At 7/09/2012 10:55 AM, Blogger bart said...

If you are going to trade you better have something more than MAs to tell you what is going on. As you know, I do not have the temperment for trading and prefer the much longer picture, volatility and all.

Different strokes for different folks, and you're successful with your chosen path. That's all that really counts in the final analysis.

I still wonder whether his system has actually worked at the many major turns, or how late it has been.



By the way and OT, being a follower of Shadowstats, you might be interesting in my first cut at my own CPI correction algo:

Consumer Purchasing Power Index (CPPI) (aka a way better reflection of real inflation)

 

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