The Albert Edwards Exploration Diary, Day 423
by ilene - December 3rd, 2010 11:42 am
Joshua M Brown found the latest entry in the diary of a frustrated bear in search of negative data showing the economy is headed for a downturn in The Albert Edwards Exploration Diary, Day 423. – Ilene
Courtesy of Joshua M Brown, The Reformed Broker
2 Decembre Anno Domini 2010
This morning I awoke to a cable from the nearest village informing me that Cyber Monday shopping stateside broke all kinds of records. I’ve also been informed that PMIs from around the world are now in expansionary territory in unison. Even jobs data is getting a tiny bit better, week by week…
But still I forge ahead. I will scour the ends of the earth to find indicators that cast economic conditions in a negative light. I will climb the highest peaks and plumb the depths of the Seven Seas in search of Depressionary evidence – no matter how obscure. I will measure the second derivative change in Chinese eel sales on the wharves of Tianjin. I will document the savings rates of retired sailors in Marseilles. I will stop at nothing to make the numbers agree with my orneriness – this I swear to you, faithful client of Societe Generale.
Although my employer SocGen, the bankroller of my exploration, appears to be losing faith in my stubborn jeremiads, I must continue until I am proven correct. I must plow on in my search for negative data until I am vindicated, even if global markets triple and quadruple before the next down cycle.
One day, the recovery will falter. And on that day, I will be redeemed.
Yours in Perma-Bearishness,
Albert
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The ECRI Weekly Leading Index
by ilene - September 17th, 2010 4:30 pm
The ECRI Weekly Leading Index
Courtesy of Doug Short
Today the Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) registered negative growth for the 15th consecutive week, coming in at -9.2, a slight improvement over last week’s -10.1. The index had been hovering around -10 for the previous five weeks. The latest weekly number is based on data through September 10.
The magnitude of decline from the peak in October 2009 is unprecedented in the Institute’s published data back to 1967. Recently, however, the Institute has disclosed that two earlier decades of data not available to the general public contained comparable declines in WLI growth (in 1951 and 1966) when no recession followed (HT Barry Ritholtz).
The Published Record
The ECRI WLI growth metric has had a respectable (but by no means perfect) record for forecasting recessions. The next chart shows the correlation between the WLI, GDP and recessions.
A significant decline in the WLI has been a leading indicator for six of the seven recessions since the 1960s. It lagged one recession (1981-1982) by nine weeks. The WLI did turned negative 17 times when no recession followed, but 14 of those declines were only slightly negative (-0.1 to -2.4) and most of them reversed after relatively brief periods.
Three of the false negatives were deeper declines. The Crash of 1987 took the Index negative for 68 weeks with a trough of -6.8. The Financial Crisis of 1998, which included the collapse of Long Term Capital Management, took the Index negative for 23 weeks with a trough of -4.5.
The third significant false negative came near the bottom of the bear market of 2000-2002, about nine months after the brief recession of 2001. At the time, the WLI seemed to be signaling a double-dip recession, but the economy and market accelerated in tandem in the spring of 2003, and a recession was avoided.
The Latest WLI Decline
The question, of course, is whether the latest WLI decline is a leading indicator of a recession or a false negative. The published index has never dropped to the current level without the onset of a recession. The deepest decline without a near-term recession was in the Crash of 1987, when the index slipped…
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July Seasonally Adjusted Retail Sales “Mixed Bag”; Manufacturing Output Rises Led by Auto Sector
by ilene - August 17th, 2010 5:26 pm
July Seasonally Adjusted Retail Sales "Mixed Bag"; Manufacturing Output Rises Led by Auto Sector
Courtesy of Mish
Excluding autos and gas retail sales ran out of steam in July 2010. Please consider the SpendingPulse Report July Retail Sales Show Mixed Results.
After several months of sales slowdown, total retail sales have stabilized somewhat, although overall growth has slowed sharply since earlier this year. In fact, growth in July headline numbers was driven largely by an increase in spending on gasoline, which is why the ex-auto ex-gasoline number is a better barometer to measuring the underlying health in retail spending.
July’s growth rate excluding auto and gasoline leaves the three-month average year-to-year growth rate of retail sales at 1.0%, well below the 3.5% for the prior three months. The ex-auto year-over-year numbers tell a similar story of a shallow and stabilizing trough, with the unadjusted three-month average year-over-year growth rate slowing to 1.6% compared to the 6.5% average growth rate for the previous three months.
The first table above compares June and July 2010 vs. the same month in 2009.
The second table shows July 201o vs. June 2010 seasonally adjusted. For an alleged recovery, these are weak numbers.
Industrial Production up 1 Percent, Led by Autos
Inquiring minds are taking a look at the July Federal Reserve Industrial Production and Capacity Utilization report.
Industrial production rose 1.0 percent in July after having edged down 0.1 percent in June, and manufacturing output moved up 1.1 percent in July after having fallen 0.5 percent in June. A large contributor to the jump in manufacturing output in July was an increase of nearly 10 percent in the production of motor vehicles and parts; even so, manufacturing production excluding motor vehicles and parts advanced 0.6 percent.
The production of consumer goods moved up 1.1 percent, as the output of consumer durables jumped 4.9 percent: Production for all of its major components advanced. In addition to a gain of 8.8 percent in the output of automotive products, which was mainly due to a large increase in light truck assemblies, the indexes for home electronics and for miscellaneous goods increased 1.3 and 1.5 percent, respectively; the index for appliances, furniture, and carpeting moved up 0.5 percent.
Among components of consumer nondurables, the output of non-energy nondurables declined 0.2 percent, and the output of consumer energy products moved up
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10 LEADING ECONOMIC INDICATORS THAT ARE ROLLING OVER
by ilene - May 25th, 2010 4:11 pm
10 LEADING ECONOMIC INDICATORS THAT ARE ROLLING OVER
Courtesy of The Pragmatic Capitalist
Via David Rosenberg at Gluskin Sheff:
1. The ECRI weekly leading index growth rate peaked on October 9, 2009 (at 28.54%; now at 9.0%).
2. The Conference Board’s LEI peaked at 109.4 in March (109.3 in April).
3. ISM orders/inventory ratio peaked at 1.805 in August 2009 (1.33 in April).
4. University of Michigan consumer expectations peaked on September 2009 (at 73.5) – now at 65.3 in May.
5. The UofM index of big-ticket consumer purchases peaked in February-March at 136; is down to 129 as of May.
6. Jobless claims bottomed at 442k on March 11. They had peaked at 651k on March 28, 2009. But they are back at 471k, which is where they were back on December 19, 2009 so the improvement has stalled out. Not only that, but to keep 472k into perspective, claims were at 453k the week after 9/11 (and the economy back then was eight months into recession). Yes, yes, employment has been rising of late; however, keep in mind that nonfarm payrolls are in the index of coincident indicators; claims are in the index of leading indicators. Please let’s not drive looking through the rear window.
7. Single-family building permits peaked at 542k (annual rate) in March (were 484k in April).
8. Mortgage purchase applications peaked on April 30th at 291.3 and now are at a 13-year low of 192.1 even though mortgage rates have come down 20 basis points since the nearby high.
9. Auto production peaked at 7.8 million units (seasonally adjusted annual rate) in January – was at 7.2 million in April.
10. Electrical utility output was down 0.1% YoY as of May 15th. Could be another early sign that the production revival is behind us.
Source: Gluskin Sheff
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GDP Contraction Coming In Second Quarter 2010?
by ilene - February 26th, 2010 2:34 pm
GDP Contraction Coming In Second Quarter 2010?
Courtesy of Mish
I have been speaking with Rick Davis at the Consumer Metrics Institute about leading economic indicators. Davis claims his data leads the GDP by about 17 weeks while noting that other so-called "leading indicators" are merely a reflection on the stock market and yield curve.
Davis captures his data solely from online transactions of real consumers, in real time.
Here are a four charts. The first chart shows the Consumer Conference Board LEI, not the Consumer Metrics Index.
Consumer Conference Board LEI vs. S&P 500
Davis writes:
Is the conference board LEI really leading anything or is it merely a reflection of the stock market? A look at the actual values of the LEI and the S&P 500 over the last four years confirms the indicator is really a coincident indicator for the equity markets, published once a month, three weeks in arrears.
Weighted Composite Index (WCI) vs. S&P 500
The above chart shows the Consumer Metrics Weighted Composite Index (WCI) vs. the S&P 500 Index. Watch what happens when the above data is offset by 5 months.
WCI vs. S&P 500 Shifted 5 Months
The Consumer Metrics website shows most of the WCI components advancing. However, housing and consumer spending account for roughly 60% of the index and those are contracting.
It is hard to make a case on the basis of so little data, but at least since 2006 we see evidence of actual leading.
However, the stock market does not always follow the economy nor is the stock market a leading indicator of the economy.
Please see Is the Stock Market a Leading Indicator? for a discussion.
Thus, as interesting as the above chart may be, I would not recommend using Consumer Metrics Data to project stock market movements. However, when a stock market is as lofty as this one, and a recovery is priced in that is not likely to happen, I would expect the stock market to decline if the economy tanks.
Daily Growth Index (DGI) vs. BEA GDP
The above chart shows Consumer Metrics Daily Growth Index (DGI) plotted against GDP.
According to Davis the DGI is 91-Day moving average of the WCI that corresponds to a trailing ‘quarter’, and is translated from a 100-base number into a +/- percentage. For example 99 on the WCI would roughly correspond…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the site