Thursday, July 14, 2011
In The Land Of The Error Bars
I'm working through today's reports, all of which look to be error-bar-ish. Weekly initial claims (this crosses the July 4th holiday and there are way more than the normal estimates, so it could change quite a bit next week). Also there is a potential issue with seasonal adjustments, because of the normal July MV shutdown cycle which may be off this year. But regardless, the four week moving average of claims is still pretty much in the same 425K range, although on the low side (423,250), but the downside is that the previous couple of weeks were revised to the high side. Also I am disappointed that the continuing claims four week moving average is now inching up - this is not a good sign.
H.8 will tell us where this is going to go, but the June retail report doesn't look like consumers feel secure. I am hoping for a skipping recession - that's what the stores look like. In theory, you can't have a skipping recession in an economy as biased toward services and consumption as ours, but you know what? In theory you can't have a recession this quickly after a deep recession, so maybe it's just time to throw theory out the window and rely on evidence.
Skipping recessions are quite common in production-weighted economies, and they are not necessarily a bad thing at all. They prevent much worse downturns. The general pattern is that inventory builds up a bit, there is something of a coordinated slowdown for a couple of months, and then it pops up for a month or two, and then it cycles down a bit. Overall until the causative factor is addressed the general trend is down, but it is so slow and gradual that there is time to adjust (usually in pricing/efficiencies), and so a major downturn is avoided. You kind of knock out the last third of the negative spiral effects, which helps a lot. They are slow adaptations.
Perhaps if we duct-taped Bernanke's mouth and sent him to the Biden corner for a few months....
Retail sales: the error bar on this one is +/- 0.5, so it is safe to characterize the last couple of reports as flat. Unfortunately that is flat nominally, which means a real decrease. This is only through May, but it shows what we are encountering:
All I can say about today's retail report is that there were only marginal improvements in auto sales from May, which is not too good because in May inventory was more of a retarding factor.
Given the month-to-month error, the low sales in grocery stores and pharmacies probably are a better indicator of the future three-month trend. Groceries came up a bit, but pharmacies went negative.
The doughnut hole and reduced senior real incomes appear to be exerting some real drag on sales.
Last, but not least, the Producer Price Index was published. The twelve-month change in crude goods is at a new high of 26.2%. The twelve-month change in intermediate goods is at a new high of 11%. The twelve-month change in finished goods dropped from 7.3% last month to 7% this month. I have a hunch that may not hold. If it does, then it is an indicator that we are in a recession, but I suspect that Bernanke's groping of Mr. Market's private parts yesterday may have an influence here.
Unfortunately, taking the retail reports together with the PPI implies that the Bernanke market wedgie may only push us from a skipping recession to a more traditional recession. I do not like this, so I am fantasizing about putting Howard Davidowitz in the steel cage with Bernanke. Two go in, one comes out, and let's face it, Howard would come out waving Ben's severed head in triumph.
If you have never encountered The Howard before, now is the time to get acquainted. He lambasted Bush, he is lambasting Obama, he is lambasting Congress and he thinks both parties are insane:
"We're better than we were three years ago." - Jim Cramer, July 12, 2011
Two go in! One comes out!
Please allow them to fight. Please!
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