This is a syndicated post, which originally appeared at Tainted Alpha. View original post.

May 24th, 2012 by Belisarius

This is a syndicated post, which originally appeared at Tainted Alpha. View original post.

May 21st, 2012 by Belisarius

This report is an excerpt from the permanent Employment Chart page. 

The edge that Federal Withholding Tax collections had held over last year continued to narrow last week, suggesting a weakening employment picture in May.

The chart below compares current withholding tax collections with last year on the same date. This year collections have been running slightly ahead of last year in nominal terms. As of May 17, collections for the prior 10 business days were 3% greater than last year. A month ago, the edge was 4%. The 1 month moving average was 2.4% higher than last year. At the end of April the 1 month moving average was 4.2% higher than last year.

Federal Withholding Taxes Daily - Click to enlarge

This chart looks at the year to year change in withholding in real terms, adjusted by the average weekly wage data from the BLS.  On this score, following a bulge in March that was probably due to mutual fund withholding for capital gains distributions, the comparison is now slightly negative in real terms which does not bode well for employment in May. The employment surveys are taken for the week which includes the 12th day of the month.  In real terms, adjusted for the increase in average weekly earnings, the current week was down 1.4% versus the same week last year. That does not bode well for the coming jobs reports for May.

Real Federal Withholding Taxes - Click to enlarge

These 2 charts are updated and analyzed weekly in the Professional Edition Treasury update  in conjunction with their implications for employment, and in particular  the Federal deficit and Treasury supply.

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]]> http://wallstreetexaminer.com/2012/05/18/weakening-federal-withholding-tax-collections-do-note-bode-well-for-employment/feed/ 0 http://wallstreetexaminer.com/2012/05/18/unemployment-claims-like-barbecue-lower-but-slower/ http://wallstreetexaminer.com/2012/05/18/unemployment-claims-like-barbecue-lower-but-slower/#comments Fri, 18 May 2012 15:29:37 +0000 Lee Adler http://wallstreetexaminer.com/?p=93731

While the mainstream media was reporting that jobless claims were steady last week, the real picture was more nuanced. The media reports only the seasonally smoothed  number, which can obscure what’s really going on and is often late in recognizing trend changes because of the inherent smoothing. I liken it to Impressionist Art. It’s an attempt to represent reality, but it isn’t reality. It’s more beautiful than reality.

The actual number showed a decline in claims this week, as is normal for this week in May. It was a smaller decline than last year, but a stronger performance than the previous 10 year average.

Actual, not seasonally manipulated, weekly initial unemployment claims, while volatile week to week,  have continued to decrease at a relatively constant rate over time since mid 2010.

In the week ended May 12, actual claims fell by 15,600 including  the usual upward adjustment of 4,000 due to incomplete state counts at the time of  the advance release (current week). This week wasn’t as strong as the week ended May 14, 2011, when claims fell by 36,200 but it was better than the 10 year average of a decline of 5800 for the same week of May.

There’s a lot of week to week volatility in the data. Looking at a two week span this year showed a decline of 6,700 versus a decline of 54,400  in the same 2 weeks in 2011. So this year was much weaker than the similar period last year. It’s too soon to say if this is a sign that the trend of improvement has reversed, but it could be a canary in the coal mine.

The year to year decline was 9.6% which remains strong. Total claims in the current week were 327,000, including the upward adjustment for the usual weekly revision, versus 362,000 in the same week last year. While this is a good indication that fewer people are losing jobs, it does not tell us how many are finding work.

Initial Unemployment Claims - Click to enlarge

Plotted on an inverse scale, the correlation with stock prices is strong. Both are driven by the Fed’s operations with Primary Dealers as covered weekly in the Professional Edition Fed Report. See also The Conomy Game, a free report.

Initial Unemployment Claims and Stock Prices- Click to enlarge

As the number of workers eligible for unemployment compensation has trended upward slightly since 2009, the percentage of workers filing first time claims has continued to decline.

Initial Unemployment Claims Percentage of Total Employed - Click to enlarge

The chart below gives a longer term perspective. We can see the trend improving but still above the bubble years with their 10 million fake jobs taking orders for new and unneeded condos and houses, building them, and taking and processing mortgage applications. This however does not account for the thousands of mortgage industry executives and Wall Street bankers  who should be in jail but who still have jobs, and still bribe politicians.

Initial Unemployment Claims Long View - Click to enlarge

The following chart is a picture of reality versus the the Impressionist art of seasonal adjustments. Sometimes it represents reality to some degree, and sometimes it doesn’t. If you are following that data, at any given time you have no way of knowing which it is. One thing is certain. It ain’t photo-realism. There are ways to measure trends using actual data. One way is shown on this chart, which is to show the year to year line as of the current and corresponding date. Another is to view the annual rate of change as shown in the first chart above.

Initial Claims, Seasonally Manipulated vs. Actual - Click to enlarge

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The headline number for retail sales today was an increase of 0.1% month to month, seasonally adjusted, which exactly met the conomic consensual sextimate of 0.1%. Here’s how Bloomberg put it.

U.S. Retail Sales Cool After Warm-Weather Spree: Economy

Retail sales rose in April at the slowest pace of the year as Americans took a break from a shopping spree induced by unseasonably warm weather in prior months and an earlier Easter holiday.

The 0.1 percent gain followed a 0.7 percent increase in March, Commerce Department figures showed today in Washington. The April advance matched the median forecast in a Bloomberg News survey.

via U.S. Retail Sales Cool After Warm-Weather Spree: Economy – Bloomberg.

The market was focused on other bad things today and that news certainly didn’t help. The Greek situation and the questions swirling around JPM were the focus of the malaise.

An underlying “situation,” which no one was talking about, was that the market had to settle $35 billion in net new Treasury paper today. That sucked cash out of the accounts of Primary Dealers and others who had bought that paper. The Fed was probably quickly funding that, if it hadn’t already greased the skids to counter the Greece skid. The Fed normally settles all of its monthly forward MBS purchases, usually around $30 billion worth, with the Primary Dealers around mid month. It may have sent the cash out on Monday for this round, as suggested by Monday’s big drop in Treasury yields. (I cover these issues in depth in the weekly Professional Edition Treasury updates).

But back to retail sales, we should be interested in actual volume of sales, not the inflation skewed dollar total. To get to the kernel of that, I like to look at the real, not seasonally adjusted retail sales, adjusted by top line CPI inflation (not core which normally understates the actual).  Then I back out gasoline sales, which are a substantial portion of total retail sales. Gasoline sales distort total retail sales higher when gas prices are rising, when they actually act like a tax on disposable income and reduce non-gasoline sales. To get the real picture of the strength of the consumer sector or lack thereof, we must back that out. Therefore the number that I track is real, inflation adjusted sales, ex gasoline.

Retail Sales and Real Retail Sales Ex Gasoline - Click to enlarge

April is virtually always a down month for that series. This year the the month to month decline as 5.7%. That is bad. Last April the drop was only 2.7%. In April 2010 the decline was 1.6%. Even in the pits of the depression in April of 2008 and 2009, the numbers were only down by 2.2% and 0.2% respectively. The average decline for April for the past 10 years was 2.1%. Any way you slice it, this was a really bad number, far more recession-like than like a recovery. It follows on the heels of a terrible performance in March and it’s consistent with the weakness in Federal withholding tax collections in April that suggested that the US was headed back into recession.

It gets worse. The year to year gain of 0.9% was a sharp deterioration from the trend which had been running at a gain of 2.4% or better since last August.  Was it just a giveback from the warm weather in February and March? Perhaps partially, but the slowing of the growth rate to below the floor rate of the last 9 months is a red flag that the economy has sharply decelerated. More government stimulus spending will not be forthcoming, so without an artificial prop such as more Fed pumping, it’s likely that the economy will sink into recession soon if it hasn’t already.

The history of the past decade suggests that stock prices won’t tank until the annual rate of change in this series goes negative. However,  there were a couple of false starts in 2006 when the annual rate of change did drop below zero, but the stock market bubble persisted for another year. Once the annual rate of change went negative in early 2007, that was  the beginning of the end of the bull market.

In funding its emergency direct lending programs by withdrawing funds from the Primary Dealers, the Fed made massive blunders in the second half of 2007 and in 2008 that exacerbated those negative forces. It certainly will not make those mistakes again.  Instead, it’s likely to engage in yet more money printing if the economy should begin to shrink. That will be another signal for stocks to rally and the stop-start ratcheting of the economy and the markets will go on. Eventually the Fed will lose control on one of those cycles. We’ll know when eventually is at the time, when it becomes apparent that the pumping no longer works, or else it resolves into an extreme inflationary spiral. Either way, it won’t end well.

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The May Empire State Manufacturing Survey indicates that manufacturing activity expanded in New York State at a moderate pace. The general business conditions index rose eleven points to 17.1. The new orders index inched up to 8.3, and the shipments index shot up eighteen points to 24.1. The indexes for both prices paid and prices received were positive but lower in May, indicating that the pace of price increases slowed. Employment index readings remained relatively healthy, suggesting that employment levels and hours worked continued to expand. Future indexes were noticeably lower than last month, indicating a positive but somewhat less optimistic view of the six-month outlook.

via Empire State Manufacturing Survey (overview) – Federal Reserve Bank of New York.

The composite liquidity indicator downticked last week on small declines in most of its components. We know that the downtick in the Fed’s pumping to Primary Dealers is temporary, but the weakening in other indicators may not be. Over the course of this latest surge, most of the cash has been targeted at the Treasury market, with stocks getting only an occasional bid. As Treasury supply goes through its seasonal increase, the pace of the advance in Treasuries should materially slow. If the indicator stalls, then both stocks and bonds could be weak. As long as the indicator remains in an uptrend however, Treasuries should continue to rally, and stocks should at least get an intermittent bid.

The following is an extended excerpt from the Primary Dealers section of the report. Subscribers click here to download complete report in pdf format.

Primary dealers’ fixed income holdings dropped sharply in the week ended 5/2/12 (reported with a one week lag), after a big increase the week before. When they start reducing those positions that should signal a more persistent rise in yields. They continue to reduce their positions in corporates, a downtrend that has been under way since October 2007 (chart, page 52).

Primary Dealer Holdings- Click to view

Primary Dealer Holdings of Corporate Bonds - Click to view

Primary Dealers sold some of their big Treasury long position in the week ended May 2, (reported with a one week lag). Based on the long term chart of the 10 year yield (next page), Treasuries remain at an extreme level of extension from the trend. This looks like a distribution pattern, similar to the one in early 2003.

Primary Dealer Holdings- Click to view

The dealers are still getting a lot of help from European capital flight and heavy public buying so as long as they maintain their positions at this level, yields should stay low and bond prices high. When this pattern breaks (chart below) is when yields are likely to start trending higher.

Commercial bank (including foreign based US branches) trading accounts grew by $1.0 billion in the week ended May 2 (after revisions). The short term and intermediate trends of this indicator are now neutral. This indicator is included in the liquidity composite.

Bank Trading Accounts - Click to enlarge

The Fed settled no MBS purchases in the week ended May 9. At the same time, purchases and sales under Operation Twist were slightly offset resulting in a small net sale that was not material and will be quickly reversed. The dealers no longer have the benefit of the huge Treasury paydown windfall that they had in mid April. They will suffer the opposite, with increasing levels of new Treasury supply to absorb. That will mute the bullish effects of the Fed purchases of MBS.

There should be a large settlement this week. It may already have occurred or be under way and it is probably part of the reason Treasuries have been so strong for the past couple of days. It is no accident that the Fed schedules these big settlements coincident with the settlements of the 10 year and 30 year bond auctions. This could give stocks a little boost later this week.

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Stay up to date with the machinations of the Fed, Treasury, Primary Dealers and foreign central banks in the US market, along with regular updates of the US housing market, in the Fed Report in the Professional Edition, Money Liquidity, and Real Estate Package. Try it risk free for 30 days. Don’t miss another day. Get the research and analysis you need to understand these critical forces. Be prepared. Stay ahead of the herd. Click this link and begin your risk free trial NOW!

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Chart of US and Euro Zone industrial production. From Scott Barber, Reuters

US and Euro zone industrial production- Scott Barber - Click to enlarge

Equity Mutual Fund Flows

The permanent page for these charts is Mutual Fund and Money Market Fund Flows Charts. The charts will be updated there regularly.

Equity Mutual Fund Flows - Click to enlarge

April projected based on weekly figures. While not a primary liquidity driver, this chart is useful as a peripheral market indicator. It has begun to turn intermediate term bearish in April. Updated weekly with analysis in the Professional Edition Fed Report. Click for summaries.

Taxable Bond Mutual Fund Flows

Taxable Bond Mutual Fund Flows - Click to enlarge

Money Market Fund Assets

Money Market Fund Assets - Click to enlarge

More Economic Charts

Follow my real time comments on the markets and economy @Lee_Adler on Twitter!

Stay up to date with the machinations of the Fed, Treasury, Primary Dealers and foreign central banks in the US market, along with regular updates of the US housing market, in the Fed Report in the Professional Edition, Money Liquidity, and Real Estate Package. Try it risk free for 30 days. Don’t miss another day. Get the research and analysis you need to understand these critical forces. Be prepared. Stay ahead of the herd. Click this link and begin your risk free trial NOW!