march housing, industrial production, retail sales, et al, week ended April 21st

FRED Graphexcept for March retail sales, which came in at what was likely a warm weather induced 0.8% month over month gain, the economic reports this week indicated surprising weakness in several sectors, such that a handful of articles appeared wondering if we may be into another spring swoon, like we had last year and the spring before that…one of the points of concern was another week of rising first-time unemployment claims, including the revision of last week’s claims to the largest jump in a year…this has been an historically volatile metric which is given far too much attention, and is invariably revised upwards the when the report is released the following week, and, as the entire increase in these recent reports was as the result of seasonal adjustments, it’s hard to see why so much is being read into it…taking a long view of the 4 week moving average of initial claims, as you see on the adjacent chart, it’s clear that it takes years after a recession (grey bars) for layoffs to stabilize at a lower level, and jobless claims are still falling at a faster rate this time around than they have in the past…our persistent unemployment problem, then, is not so much from new job losses, but rather from the lack of new job formation…

this week’s housing reports were probably the source of the greatest concern; according to the census bureau, housing starts for March came in at a seasonally adjusted annual rate of 654,000, which was 5.8% below what was estimated for february, although census itself gives the 90% confidence level on that as (±15.6%); most of the decline came in starts of structures with 5 or more units, which fell 19.8% from february’s annual rate; single family starts were virtually unchanged…since housing starts in january and february were also down and we’re now at the lowest level of starts since october, there’s no way we can blame the decline in starts on seasonal construction pulled forward by the warmer than normal winter…however, the same report indicated a 4.5% increase in new building permits authorized, which was skewed heavily towards multifamily units, so we should see a reversal of the decline going forward…the other housing report this week was of existing home sales for march from the National Association of Realtors, and they also skidded for the third time in four months to a seasonally adjusted annual rate of 4.48 million home sales, which was 2.6% below february level…distressed homes, which includes foreclosures and short sales, accounted for 29% of March sales, a decline from the 34 percent distressed that made up february’s sales; first time home buyers accounted for 33% of the transactions, up from 32% in february but unchanged from last year…and all-cash transactions accounted for 32% of sales, with those classified as investors buying 21% of the houses sold in march

another March report we had this week was Industrial production and Capacity Utilization from the Fed, but the internals of this report werent as bad as they may have looked on the surface; for the 2nd month in a row, industrial production was unchanged on a seasonally adjusted basis, however, it rose 5.4% on a quarter over quarter annual rate for the first three months of this year; also, although manufacturing was down 0.2% for march, it was still up at a 10.4% annualized rate for the quarter; however, the output of utilities dropped at an annual rate of 13.8% for the quarter, largely because of the record warm winter, even though march utility output was up 1.5% on a month over month adjusted rate (could that be abnormal A/C usage in march?)…& output of mining fell 5.4%, which was more than likely related to declining use of coal…overall capacity utilization, which you can think of as the percentage of the total installed industrial base in use, declined in march from 78.7% to 78.6%, which was still 2.1% above its level from a year earlier…this week also saw the release of the first two April regional manufacturing surveys from the NY & Philly Feds; both showed continued expansion, albeit at a more subdued pace; the overall empire state manufacturing index fell to 6.56 from 20.21 in march (wherein positive readings indicate expansion), and the Philly Fed index fell to 8.5, from a previous reading of 12.5…

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we’ll also take a brief look at March retail sales, also from census (pdf); first note that this is a seasonally adjusted advance estimate of retail and food services sales, not adjusted for price changes; as reported, March sales were at $411.1 billion, an increase of 0.8% (±0.5%) from february and 6.5% (±0.7%) above March of last year; february’s estimated sales were also revised to a gain of 1.0%, from the originally reported 1.1% …leading sales in march were building materials & garden supplies, which were up an adjusted 3.0%, gasoline, autos & home furnishings, all up 1.1%, & electronics, up 1.0%…excluding autos, gas, and home supplies, the so-called core sales rose 0.5%…overall, not an unexpected bounce which occurred over the past two warmer than normal months…however, the day after the release, there was a bit of a flap in some corners of the blogosphere, when the report came under attack by Charles Biderman, CEO of TrimTabs, which provides payroll data and and alternate unemployment estimate… his primary objection was that the media reported these numbers as gospel, whereas they came from a subsample of mailed questionnaires sent to about 5000 retail firms a month, which had to be filled in manually by those firms and then mailed back through the postal service…(see the bottom of page 3 for the census description of their methods)…it’s a legitimate gripe, because so much of the small sample government data is reported as is without explanation; but the alternative becomes including a caveat and a (±%) for nearly every number, which would  make reports on it virtually impossible to read…doug short @ advisor perspectives charts retail sales using the census data with a number of different screens, including adjustments for population growth & inflation in the cost of goods; of his charts, the one included here is for real, inflation & population-adjusted retail sales excluding gasoline…if you click on that chart for a larger view, you can see that by that metric, retail sales are still 8.1% below the january 2006 peak, and at the same level as they were in november 1998…

as you all know, rising gasoline prices have become a political football, with congressional republicans blaming them on the administration’s offshore drilling restrictions and the delay of the keystone pipeline; this week Obama tried to shift the blame to energy speculators, who he claimed were manipulating prices by buying up paper oil contracts & hence gouging consumers; in a speech on tuesday, he asked congress to impose civil and criminal penalties on the speculators involved in manipulative practices & asked for more funding for the CFTC’s Division of Enforcement…that kicked off a debate in the media and the blogosphere as to whether a ban on oil speculation would have any effect, which is a question we’ve addressed in considerable detail previously; so to recap, those who blame oil speculators for driving up the price of oil often cite the large number of outstanding oil futures contracts as evidence of manipulation; a recent NYT op-ed pointed out that such “paper oil” was more than ten times what existed as physical oil; but as i’ve pointed out, for every long contract, there has to be a short; which means that someone had to have written a contract to sell that imaginary oil to those speculators who were buying it; for every buyer there’s a seller, which means at any point in time, there are an equal number of speculators betting that the price will go down as are betting that the price will go up…sure, it’s just a casino, and prices can be manipulated in the short term by big players to screw the little fish, but over time the bets even out and dont significantly impact prices on the street…as economist jim hamilton pointed out this week, more than 12 times “paper natural gas” was being traded daily than what was being produced, yet adjusted for inflation, natural gas prices were at an all time low….clearly what has driven oil prices up now are the threats associated with the embargo we’ve placed on iran; that has made speculators reluctant to bet on prices going down, despite our more than adequate current supplies…

obama’s buffett rule, which we discussed last week, fell nine votes short of the 60 votes needed to advance in the Senate, largely on a partisan vote, so ‘making millionaires pay their fair share’ will become the campaign issue it was intended to be from the beginning…meanwhile, in the House, majority leader eric cantor has come out in favor of hiking taxies on the poor, to make sure those with little to start with have "skin in the game"…and both houses of congress continued to develop their budget plans for fiscal 2013 this week, and not unsurprisingly, the House paid no attention to what the Senate was doing and of the need for an eventual reconciliation, as they unilaterally “deemed” their budget, based on the Ryan plan which we’ve mentioned several times, to be reconciled with the Senate so they could start detailed work on it in the 6 committees it would affect…to that end, Republicans on the House Financial Services Committee passed a budget that would cut $35 billion from Dodd-Frank and strip it’s resolution authority, or the ability of regulators to orderly liquidate insolvent banks; they also cut the budget for the Consumer Financial Protection Bureau to a mere $200 million for this year and next…and as many of the tea party contingent were unhappy with the depth of cuts to defense made by the budget control act (which came out of the debt ceiling impasse), they targeted a number of domestic programs, including food stamps, for cuts to offset what they intended to replace in defense…and not also not unsurprisingly, obama announced that he wouldnt sign that or any house appropriation bill that violated the agreed budget cuts made by the debt control act…meanwhile, things werent going a whole lot better in the Senate; Democrat Kent Conrad, chair of the Senate Budget Committee, is in the process of resurrecting the bowles-simpson proposals so his committee can put out something that might be bi-partisan enough to eventually be reconciled with the house…you may recall the simpson-bowles deficit commission, which released it’s report in Nov of 2010, was widely panned on the left as the "catfood commission" as the cuts to senior programs were thought to be so severe as to leave the elderly eating petfood; everyone considered it impossible & it didnt even pass the vote of the bi-partisan commission at the time, and now we’re seeing it being put forth as a Democratic proposal…& even that isnt going well, as committee republicans are proposing amendments to it such as repeal of health care reform….all for naught, anyhow, because Senate Majority Leader Harry Reid has already said will not be considered by the full Senate…you just cant make this stuff up…

(the above is my weekly commentary that accompanied my sunday morning links mailing, which in turn was mostly selected from my weekly blog post on the global glass onion, and also includes other links of interest…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me…)

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