The ”Real” Goods on the Latest Durable Goods Orders
by Chart School - May 24th, 2012 12:35 pm
Courtesy of Doug Short.
Earlier this morning I posted an update on the May Advance Report on April Durable Goods Orders. This Census Bureau series dates from 1992 and is not adjusted for either population growth or inflation.
Let’s now review the same data with two adjustments. In the charts below the red line shows the goods orders divided by the Census Bureau’s monthly population data, giving us durable goods orders per capita. The blue line goes a step further and adjusts for inflation based on the Producer Price Index, chained in today’s dollar value. This gives us the “real” durable goods orders per capita. The snapshots below offer a quite sobering corrective to the standard reports on the nominal monthly data (which itself was significantly below expectations).
Here is the same chart, this time ex Transportation.
Now we’ll exclude Defense orders.
And finally we’ll exclude both Transportation and Defense for a better look at core durable goods orders.
As these charts illustrate, when we study durable goods orders in the larger context of population growth and also adjust for inflation, the data becomes a coincident macro-indicator of a major shift in demand within the U.S. economy. It correlates with a decline in real household incomes, as illustrated in my analysis of the most recent Census Bureau household income data:
The secular trend in durable goods orders also helps us understand the trend of declining GDP that I’ve illustrated elsewhere. See especially the most recent update on GDP.
By all four of the metrics above, the real per-capita demand for durable goods has increased substantially since the trough at the end of the last recession. But orders remain far below their respective peaks near the turn of the century and earlier.
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DiggDurable Goods Orders Up 0.2%, But Below Expectations
by Chart School - May 24th, 2012 11:35 am
Courtesy of Doug Short.
The May Advance Report on April Durable Goods was released this morning by the Census Bureau. Here is the summary on new orders:
New orders for manufactured durable goods in April increased $0.3 billion or 0.2 percent to $215.5 billion, the U.S. Census Bureau announced today. This increase, up two of the last three months, followed a 3.7 percent March decrease. Excluding transportation, new orders decreased 0.6 percent. Excluding defense, new orders increased 1.2 percent.
Transportation equipment, also up two of the last three months, had the largest increase, $1.3 billion or 2.1 percent to $62.2 billion. This was due to motor vehicles and parts, which increased $2.3 billion. Download full PDF
Nnew orders at 0.2 percent came in below the Briefing.com consensus estimate of 0.3 percent. The ex-transportation -0.6 percent was below the consensus forecast of 1.0 percent.
If we exclude both transportation and defense, the core durable goods orders rose 0.8 percent in April following a 0.8 percent decline in March, and a 0.8 percent increase in February. In other words, the trend over the past three months has been relatively flat.
The first chart is an overlay of durable goods new orders and the S&P 500. We see an obvious correlation between the two, especially over the past decade, with the market, not surprisingly, as the more volatile of the two.
An overlay with unemployment (inverted) also shows some correlation. We saw unemployment begin to deteriorate prior to the peak in durable goods orders that closely coincided with the onset of the Great Recession, but the unemployment recovery tended to lag the advance durable goods orders.
An overlay with GDP shows some disconnect in recent quarters between the recovery in new orders and the slowdown in GDP — another comparison we’ll want to watch closely.
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Is a 30% decline and “Uncrowded” conditions enough to cause a rally in the mining sector?
by Chart School - May 24th, 2012 10:49 am
Courtesy of Chris Kimble.
One of the most “out of favor/uncrowded trades” at this time is taking place in the mining stocks sector, which have been hit very hard the past 6 months. The metals and mining ETF (GDX) is down 30% since its 2011 highs, a much bigger decline than Gold and the S&P 500 have experienced over the past 6 months.
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GDX created a large bullish wick at support last week and is attempting to break a steep falling resistance line, with sentiment levels reflects a very few metals bulls!
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Gold finds itself on a potential support line at the same time the number of Gold bulls has reached levels seldom seen the past 4 years.
Oversold bounces often take place when few investors expect a rally to happen… when it comes to the metals complex one thing is for sure right now, very few expect a rally to take place!
Weekly Unemployment Claims: Jogging in Place
by Chart School - May 24th, 2012 9:35 am
Courtesy of Doug Short.
The Unemployment Insurance Weekly Claims Report was released this morning for last week. The 370,000 new claims is a slight decline from last week’s upward revision of 2,000 for the previous week — which was originally reported, same as today, at 370,000. The less volatile and closely watched four-week moving average also came in at 370,000. Here is the official statement from the Department of Labor:
In the week ending May 19, the advance figure for seasonally adjusted initial claims was 370,000, a decrease of 2,000 from the previous week’s revised figure of 372,000. The 4-week moving average was 370,000, a decrease of 5,500 from the previous week’s revised average of 375,500.
The advance seasonally adjusted insured unemployment rate was 2.6 percent for the week ending May 12, unchanged from the prior week’s unrevised rate.
The advance number for seasonally adjusted insured unemployment during the week ending May 12 was 3,260,000, a decrease of 29,000 from the preceding week’s revised level of 3,289,000. The 4-week moving average was 3,271,500, a decrease of 17,250 from the preceding week’s revised average of 3,288,750.
Today’s seasonally adjusted number came in higher than the Briefing.com consensus estimate of 365K.
As we can see, there’s a good bit of volatility in this indicator, which is why the 4-week moving average (shown in the callouts) is a more useful number than the weekly data.
Occasionally I see articles critical of seasonal adjustment, especially when the non-adjusted number better suits the author’s bias. But a comparison of these two charts clearly shows extreme volatility of the non-adjusted data, and the 4-week MA gives an indication of the recurring pattern of seasonal change in the second chart (note, for example, those regular January spikes).
Because of the extreme volatility of the non-adjusted weekly data, a 52-week moving average gives a better sense of the long-term…
Market Recap – 2011 All Over Again, Gold Update
by Chart School - May 23rd, 2012 5:37 pm
Courtesy of Blain.
The best to the point recap for today comes from Mark from MarketMontage (emphasis mine),
The market remains a mess right now as we are back to the environment of latter 2011 and middle 2010 where random comments from officials across the Atlantic move everything en masse. Today the market was hit by word that preparations for Greece’s exit from the EU are being considered.
Of course a denial by another official would send the market up 1% immediately. Rinse, wash, repeat – year #3.
The bigger picture right now is all stocks are moving as one asset class as our massive correlations return. Until that changes it is very difficult to bother to be a stock picker.
According to IBD day four+ from the bottom is when we are looking for a fresh accumulation day to confirm a bottom has been set into place. Something to keep an eye out for heading into the end of the week.
Stay frosty out there.
And here is a good look at Gold courtesy of the StockCharts.com blog. If Gold breaks below support, the next support area is down at the 135-138 area.
S&P 500 Snapshot: The Big U-Turn
by Chart School - May 23rd, 2012 4:35 pm
Courtesy of Doug Short.
Europe tanked today, with all most of the major indexes losing two to three percent. The US markets followed suit, with the S&P 500 hitting its intraday low, off 1.53%, during the lunch hour. But the index began a slow afternoon rally that began accelerating in the final 90 minutes of trading. Amazingly enough, the index closed the day with a fractional gain of 0.17%. CNBC reports that “Italian Prime Minister Mario Monti and French President Francois Hollande have agreed to consider all measures to boost European economic growth, including eurobonds….” No word yet on Angela Merkel’s take on the topic.
The index is now up 4.87% for 2012, which is 7.06% off the interim closing high.
From an intermediate perspective, the S&P 500 is 94.9% above the March 2009 closing low and 15.7% below the nominal all-time high of October 2007.
Below are two charts of the index, with and without the 50 and 200-day moving averages.
For a better sense of how these declines figure into a larger historical context, here’s a long-term view of secular bull and bear markets in the S&P Composite since 1871.
These charts are not intended as a forecast but rather as a way to study the current market in relation to historic market cycles.
Position Yourself for the Rest of “Conquer the Crash”
by ilene - May 23rd, 2012 3:47 pm
Position Yourself for the Rest of "Conquer the Crash"
The earlier you prepare, the better
By Elliott Wave International
To this day, I wonder why Robert Prechter's book Conquer the Crash has not been more widely recognized. It described in advance much of what happened in the 2008 financial crisis.
Published in 2002, the book provided detailed descriptions of then-future economic scenarios. They were detailed vs. general. Prechter was specific in a way that would prove right or wrong; there was no gray.
This is from the book:
There are five major conditions in place at many banks that pose a danger: (1) low liquidity levels, (2) dangerous exposure to leveraged derivatives, (3) the optimistic safety ratings of banks' debt investments, (4) the inflated values of the property that borrowers have put up as collateral on loans and (5) the substantial size of the mortgages that their clients hold compared both to those property values and to the clients' potential inability to pay under adverse circumstances. All of these conditions compound the risk to the banking system of deflation and depression.
Conquer the Crash, second edition, (p. 179)
That's just one excerpt about one topic in a 456-page text. Perhaps you see why I believe the book deserves more credit. Yet even that one paragraph from the book turned out to be a virtual mirror of what came to pass. And much of what he predicted is unfolding today: the JPMorgan trading fiasco, massive withdrawals at Greek banks, downgrades of Italian and Spanish banks and much more. Those are just a few headlines.
The broader point is that Conquer the Crash prepared its readers. Around the time the book's second edition published in 2009, the Chicago Sun-Times remarked
And the credit implosion is still not over. Please take a look at the chart:
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In the Conquer the Crash quote in the first part of this…
The 2012 Durable Goods Benchmark Revisions
by Chart School - May 23rd, 2012 3:35 pm
Courtesy of Doug Short.
Tomorrow morning the Census Bureau will release the Advance Report on April Durable Goods, and I’ll post my updates shortly thereafter. The new report will be based on the benchmark revisions published in the Census Bureau on May 18th (available here in PDF format). The revisions are substantial, as I’ll illustrate below. But first, let’s get a sense of the relative size of durable goods new orders as compared to GDP. Here is a chart showing how much of nominal GDP is attributable to durable goods new orders. As we can readily see, durable goods is a rather tiny part of GDP. And particularly interesting is its decline over time.
Here is a similar chart showing the relationship between durable goods and Personal Consumption Expenditures (PCE). The series is a bit noisier because it is based on monthly data rather than the quarterly data of the GDP version.
Now let’s compare the pre- and post-benchmark revision data from 2000 through March 2012. I’ve added monthly markers to facilitate the comparison.
The table on the chart highlights the magnitude of the revision. The post-revision data gives us a deeper trough, 42% off the 2007 peak, and puts it a month earlier in March 2009. The recovery is markedly stronger in the revised series. The percentage change from the 2009 trough to the present went from a rise of 36.3% to 52%. In fact, if we compare the pre- and post-revision recoveries to their interim highs, which occurred in December 2011, the change is from a 44.6% rise to a post-revision 63%.
If we dig deeper into the data we discover that transportation orders were by far the biggest source of the revisions. Here is an overlay showing the post-revision percentage change of durable goods new orders ex transportation and the percentage change for the transportation component.
The durable goods 2012 benchmark report is a powerful reminder of that the latest economic data, especially the National Accounts and Production & Business Activity series, should be taken with a grain — make that a shaker — of salt.
European Markets: Oops!
by Chart School - May 23rd, 2012 1:35 pm
Courtesy of Doug Short.
My quick snapshot yesterday of major European markets showed a massive rally, which I playfully suggested was driven by a “Don’t bet against the EU Summit” sentiment. Well, the market today showed that yesterday’s bet belonged in the same category as Facebook IPO (if somewhat less extreme).
The Bloomberg table below shows the savagery of today’s decline in the major European indexes. Not surprisingly, the worst performers were Spain and Italy.
So let’s take a closer look. Note that Spain’s IBEX 35 today hit a new interim low. The Italian market is fractionally above its 2009 low.
Greece’s Athens Index is too small to warrant a row on the Bloomberg table, but it also finished in the red, although at 1.79%, it was less severe than most of the other European declines. But today’s loss puts the Athens Stock Exchange Index in “uncharted” territory — over 90% off its all-time high set at the end of October 2007.
The Deflation Trend
by Chart School - May 23rd, 2012 10:35 am
Courtesy of Doug Short.
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
Deflation simply means falling prices. The 4-pack below reflects that the bond players believe in the deflation theme as the yield on the 10-year note breaks below the 2009 and 2011 lows.
Speaking of deflation and falling prices, the CRB has now broken below last summer’s lows, the CRX is at last summer’s lows, and Crude Oil finds itself on key rising support.
From a portfolio construction standpoint, the deflation/falling-price theme continues to suggest that protection of capital is a key strategy for a variety of asset classes.
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