The Wall Street Examiner » Wall Street Examiner Exclusives http://wallstreetexaminer.com Get the facts. Fri, 31 Jul 2015 02:43:53 +0000 en-US hourly 1 Here’s The Bad News That Nobody Is Telling You About The Record Lows In Initial Unemployment Claims http://wallstreetexaminer.com/2015/07/heres-the-bad-news-that-nobody-is-telling-you-about-the-record-lows-in-initial-unemployment-claims/ http://wallstreetexaminer.com/2015/07/heres-the-bad-news-that-nobody-is-telling-you-about-the-record-lows-in-initial-unemployment-claims/#comments Thu, 30 Jul 2015 17:10:58 +0000 http://wallstreetexaminer.com/?p=257624 The headline, fictional, seasonally adjusted (SA) number of initial unemployment claims for last week came in at 267,000. The Wall Street economist crowd consensus guess close to the mark this week, at 272,000.

We focus on the trend of the actual data Instead of the seasonally manipulated headline number expectations game. Facts tend to be more useful than the economic establishment’s favored fictitious numbers. Actual claims based on state by state filings were 230,430, which is another record low for this calendar week. It continues a nearly uninterrupted string of record lows that began in September 2013.

The Department of Labor (DoL) reports the unmanipulated numbers that state unemployment offices actually count and report each week. This week it said, “The advance number of actual initial claims under state programs, unadjusted, totaled 230,430 in the week ending July 25, a decrease of 32,519 (or -12.4 percent) from the previous week. The seasonal factors had expected a decrease of 43,528 (or -16.6 percent) from the previous week. There were 257,625 initial claims in the comparable week in 2014. ”

Initial Claims and Annual Rate of Change- Click to enlarge

Initial Claims and Annual Rate of Change- Click to enlarge

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You can see for yourself from the chart just how extraordinarily low these numbers are.

When using actual data we want to see if there’s any evidence of trend change. Thus we look at how the current week compares with this week in prior years, and whether there’s any sign of change. The actual change for the current week was a decrease of -32,500 (rounded). This week of July always has a large drop. Based on the data for this week from the last 10 years, the current decline was not very good, stronger than only last year (-29,500), and the same week in 2008 (also -29,500). In 2008 the economy was collapsing. The 10 year average decline for this week was -70,000.

Is this weakness material? Week to week changes are noisy. The trend is what is important and it remains on track. Actual claims were 10.6% lower than the same week a year ago. Since 2010 the annual change rate has mostly fluctuated between -5% and -15%. This week’s data was right in the middle of that range. There’s no sign yet of a significant uptick in the trend of firings and layoffs.

Population has been growing and the size of the workforce has as well, although not as fast as population. To get a better idea of how the claims data is performing over time, I normalize it based on the size of monthly nonfarm payrolls. Here’s where we can see just how extraordinary the current levels are. There were 1,613 claims per million of nonfarm payroll employees in the current week. This was a record low for that week of July, well below the 2007 previous record of 1,889. The 2007 extreme occurred just before the carnage of mass layoffs that was to begin a couple of months later. Employers were still clueless that the end of the housing bubble would have devastating effects. If they were clueless then, they are in an advanced state of delirium and delusion now.

However, it is absolutely normal for employers to completely miss the signs of impending doom.

Last week the media noted the fact that claims were lower than the record low of 1973. What they failed to mention was that that low came well after the Dow reached an all time high in January of that year. The devastating 1973-74 bear market, which cut the value of stocks by 50%, was in its early stages. This was an early example of employers being late to the funeral.

Employers Late To The 1973 Funeral - Click to enlarge

Employers Late To The 1973 Funeral

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Similar employer hoarding of workers has been associated with bubbles in the more recent past and has led to massive retrenchment, usually within 18 months or so. In the housing bubble, employer hoarding behavior continued well beyond the peak of that bubble in 2005-06.

It’s worth noting that there was an institutional stock market bubble in 1972-73. It was the Nifty Fifty bubble, where the biggest best known stocks kept soaring while everything else in the market went nowhere. A bubble does not require mass public participation. Institutional bubbles are just as insidious, even more so.

The current string of record lows in claims is now 5 months beyond the point at which other major bubbles have begun to deflate. Based on the fact that previous records were attained at and for some time after the peaks of massive bubbles, by that standard, the current financial engineering, central bank bubble finance bubble, which is very much a big money, institutional bubble, may be the bubble to end all bubbles!

As a result of the fact that employers apparently tend to take their cues from stock prices, we cannot depend on the next downturn in the claims data to give us advance warning of a decline in stock prices, although there should at least be concurrent confirmation. However, history shows that the fact that claims are at record lows is warning enough!

Initial Claims and Annual Rate of Change- Click to enlarge

Initial Claims and Annual Rate of Change- Click to enlarge

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I look at an analysis of individual state claims as a kind of advance decline line for confirmation of the trend in the total numbers. The impact of the oil price collapse started to show up in state claims data in the November-January period. While most states show the level of initial claims well below the levels of a year ago, in the oil producing states of Texas, North Dakota, Louisiana, and Oklahoma, since the beginning of 2015 claims have been consistently above year ago levels. North Dakota and Louisiana claims first increased above the year ago level in November of last year. Texas reversed in late January. Oklahoma joined the wake shortly after that.

Data for the July 25 week:

Click here to view table if viewing in email

Claims increased year to year in North Dakota, Oklahoma, and Texas. The drop in Louisiana this week is suspicious. It may be a reporting issue. That state has consistently shown higher year to year claims. The numbers have varied widely week to week but the trend of claims being significantly higher than the same week last year has been persistent. Texas, with a huge and more diversified economy improved in the second quarter as the price of oil rebounded and stabilized, but that improvement was temporary and new claims in Texas have been climbing in July.

In the July 25 week, in total only 7 states had more claims than in the same week in 2014. That was down from 11, last week. This number fluctuates widely week to week with many states near even. At the end of the third quarter of 2014 just 5 states showed an increase in claims year to year. At the end of 2014 that had increased to 8. In early April this year the number had risen to 22. The number this week is the lowest it has been all year. This is yet another example of the extreme which employer hoarding of workers has reached.

The 22 states that were higher in early April gives us a benchmark to watch, similar to an advance decline line in the stock market. If the number of states showing a year to year increase in claims should exceed 22, it should be an indication that the national trend of decreasing claims has reversed.

I track the daily real time Federal Withholding Tax data in the Wall Street Examiner Pro- Federal Cash Flows report. The year to year growth rate in withholding taxes in real time is now running +3.5% in nominal terms. That’s equivalent to around +1.5% to 2% adjusted for wage inflation. The growth rate has dropped sharply in July after being remarkably consistent around +5-6% in the second quarter.

Withholding tax collections tend to rise and fall in a cycle lasting three to four months. It’s too soon to tell if the July drop is the beginning of weakening in the slow growing top line of the “Tale of Two Economies,” US economy, or just part of the normal cyclical swing pattern in this data. The behavior of the data over the next several weeks will tell.

The following is reposted from prior reports for the benefit of new visitors.

The July 12 week was the reference week for the July payrolls survey. The numbers for that week were weaker than the June numbers, suggesting that Wall Street economists are likely to find their estimates for July are too high. Whether the cockamamie seasonally adjusted headline number reflects that reality or not is a crapshoot. It takes the BLS 7 revisions of the SA data over 5 years to fit it to the actual trend. The first release is hit or miss. But even if the number comes in below expectations, it probably will not influence the Fed, which remains hellbent on trying to get rates up sooner rather than later.

The Fed’s favored measure of inflation, PCE, suppresses the measurement of inflation even more than the just released CPI. If the Fed believed this data, it would be even further behind the curve in recognizing that inflation is running much hotter than the official measures show than it is. The Fed knows that, and has inserted weasel words into its various propaganda releases that it will raise rates as long as the Fed thinks that inflation is moving toward the 2% target. It does not actually need to be at the target. The Fed is prepared to ignore the official measures because the members realize that they’re bogus.

The Fed will use or ignore whatever stats it wants depending on whether they fit its preconceived narrative, which is “We’re gonna try to raise rates at least once this year, and if that doesn’t work, we’ll think of an excuse not to do it again, because raising rates is really data dependant depending on which data dependably supports our narrative, and which data we will ignore, because it all depends on dependably dependant official data, none of which is dependable.”

The actual claims data, and actual withholding data, show the financial engineering bubble economy is still at full boil. This will continue to encourage the Fed to engage in the charade of pretending to raise interest rates sooner rather than later, but only because they have conditioned the market to expect it, a conditioning that they now regret they had undertaken. They’re walking back expectations now because they know they will have problems getting rates to go up. I cover that subject in depth in the weekly Money-Liquidity Pro reports.

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Fed Is Not Just Behind The Curve, It’s Driving The Bus Over The Cliff http://wallstreetexaminer.com/2015/07/fed-not-just-behind-the-curve-its-driving-the-bus-over-the-cliff/ http://wallstreetexaminer.com/2015/07/fed-not-just-behind-the-curve-its-driving-the-bus-over-the-cliff/#comments Wed, 29 Jul 2015 19:45:15 +0000 http://wallstreetexaminer.com/?p=257474 So the Fed didn’t raise rates again. And the timing of the rate increase will be data dependent. Ho hum.

There’s just one little problem. The inflation measures the Fed watches really don’t measure inflation. The Fed won’t see what its cronies in the government and economic establishment refuse to measure, which is that we’ve already long since passed the Fed’s 2% inflation target.

Every 3 months the US Census Bureau releases the results of its quarterly housing survey. We now know that rents rose by 6.2% year over year in the second quarter. But the fictitious number that the BLS uses to account for housing costs in the CPI, called Owner’s Equivalent Rent (OER), is only up by +2.9% year over year. The difference of 3.3% is known by the technical term: fudge factor. In this case, the BLS is undercounting the housing component of CPI by more than half.

Owner’s equivalent rent and actual renter’s rent account for 31% of the total weight of the CPI.  Multiplying the weighting of this component by the 3.3% fudge factor cuts a full 1% off the headline CPI and 1.3% off core CPI. If rent were counted accurately, headline CPI would be 2.2%, year over year, not 1.2%. Core CPI (excluding food and energy) would be +3.1%, not 1.8%.

Since Core has lately been stronger than the headline number, the Fed has naturally shifted its focus away from Core. But it doesn’t matter. The Fed is behind the curve. Way behind.

Actual Rent Versus Owner's Equivalent Rent- Click to enlarge

Actual Rent Versus Owner’s Equivalent Rent- Click to enlarge

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The BLS counted actual housing prices in CPI until 1982, but it got too expensive. The Federal Government uses CPI to index government salaries and benefits, and major employers often use it for the same purpose. So back in 1982 business and government came together and got the BLS to find a way to fudge the housing component of CPI so that it would understate inflationary reality. As a result, over the past 15 years, on the basis of this factor alone, CPI has understated actual consumer price inflation by about 0.5% on average each year. The BLS reported average inflation of 1.8% per year for the past 15 years, when it was actually 2.3% if rent had been correctly measured. That saved the government and businesses billions, while likewise increasing the burden of inflation on government beneficiaries and workers whose wages were indexed by CPI.

Likewise, the Fed would not need a phony 2% inflation target because inflation has always been above 2%. They have used the bogus CPI (and even worse PCE deflator which suppresses the rate even more) to create a bogus issue to justify keeping rates at zero.

Most of the differential between actual rent and OER has come in 3 surges. The first was from 2001 to 2004. The next was from 2006 to 2009, and the most recent one began in 2011. It is still widening. It looks like this.

Actual Rent Versus Owner's Equivalent Rent- Click to enlarge

Actual Rent Versus Owner’s Equivalent Rent- Click to enlarge

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There are other measures of inflation which show that the Fed is way behind the curve. We can’t say for sure that the gap will continue to widen, or will even remain this wide. A deflationary debt collapse is not beyond the realm of possibility. In fact, one is happening in commodities right now, which is one reason the Fed is afraid to move off the dime.

Amazingly, the commodity price collapse has not translated into downward pressure on consumer or producer prices. Consumption goods inflation is a sticky, sticky thing. Businesses don’t like to cut prices. They almost never pass falling costs on to their customers.

What we can say is that the Fed is conning us, or themselves, probably both. Oscar Levant said there’s a fine line between genius and insanity. If you put 12 genius Fed brains in a room, that’s a lot of insanity.

Most Americans, particularly the elderly, are paying the price for that insanity as our wages fail to keep pace with the rising cost of living, the interest income on our savings remains nil, and we are forced to liquidate principal to pay the bills. Thus the US middle class standard of living perpetually erodes.

Obviously the Fed can foment stock market bubbles. It has been doing it for the past six years. But a healthy stock market eventually needs a growing economy where members of middle income strata are both engines and beneficiaries of that growth, instead of being forced into poverty and government dependency by stagnant or even falling real wages and loss of interest income.

Middle income people must be able to spend and invest too. If growth is confined only to the uppermost echelon at the expense of everybody else, that’s a trend that common sense says can’t be sustained forever. But this is what the irrational incentive of zero interest rates promotes and sustains. As long as the Fed uses phony inflation data to buttress its insistence on maintaining ZIRP, these negative trends will persist, and will ultimately end badly for everybody, including stockholders.

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Will A Bear Market By Proxy Roll Out of China? http://wallstreetexaminer.com/2015/07/will-a-bear-market-by-proxy-roll-out-of-china/ http://wallstreetexaminer.com/2015/07/will-a-bear-market-by-proxy-roll-out-of-china/#comments Wed, 29 Jul 2015 17:26:01 +0000 http://wallstreetexaminer.com/?p=257454 The Composite Liquidity Indicator has been flat in recent weeks as it skirts the high set in January. Stock prices have mimicked that rangebound pattern with a temporary blip to the downside interjected last week.  The index is moving toward its 39 week moving average.

Macro Liquidity

The Fed has committed to “normalize” its balance sheet. While I view that as a questionable proposition, it does seem more likely that this indicator will remain flat, than that the Fed would resume QE, which would push macroliquidity to new highs.

The question now is whether sentiment alone could cause enough margin liquidation to begin to reduce total liquidity. So far that has not happened, but the situation in China is a wild card. The authorities are desperately trying to stop the capital destruction that has been occurring there in recent months.  A key issue is that the restriction of liquidation there will force the big players in that market to liquidate what they can, where they can, when they can, in the rest of the world. That could cause a bear market by proxy, which has already manifest itself in commodities and emerging markets, and may yet bring pain to The Last Ponzi Game Standing, the US markets.

Download this report to read the complete analysis and see the charts of 9 liquidity source and use indicators which correlate strongly with US market performance.

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Case Shiller Is Too Slow- Here’s The Real (e)State of The US Housing Market Right Now http://wallstreetexaminer.com/2015/07/case-shiller-is-a-joke-heres-the-real-estate-of-the-us-housing-market-right-now/ http://wallstreetexaminer.com/2015/07/case-shiller-is-a-joke-heres-the-real-estate-of-the-us-housing-market-right-now/#comments Tue, 28 Jul 2015 17:22:05 +0000 http://wallstreetexaminer.com/?p=257213 The mainstream media reported the Case Shiller Index for “May.” I put that in quotes because the data does not represent the actual state of the market in May.

Case Shiller represents the 3 month average price of repeat sales (not all sales, just houses that had sold previously) which were recorded by county agencies in March, April, and May. It is now the end of July.

Since real estate closings typically occur 30-90 days after the contract is signed, the current Case Shiller Index represents average market values of repeat sales (not all sales) in February, March, and April. So in spite of the fact that the headlines said May, in reality the index represents a smoothed version of the average state of the market for February through April, not May.

The question is why anybody cares about that number now, at the end of July. Do we report the Dow’s average price in March now? The media makes a big deal here over old news which by now could be completely wrong.

We need to know where the market is now, not where it was in February or March. I assure you, your local real estate agents know the current state of the market even if Bloomberg, The Wall Street Journal, and Robert Shiller and Carl Case don’t. Corelogic, which now owns the Case Shiller Index, has access to current contract values. Why aren’t they aggregating and reporting that instead of data that is old, stale, and useless? In fact, Corelogic does that as a minor, incomplete, single graphic in its monthly market updates. Nobody pays attention to that.

Yes, data is available on the current state of the market. The Realtors’ MLS has current contracts in its database, but they don’t bother to report it publicly. Fortunately, online broker Redfin does. They post the information around the middle of each month for the preceding month. In mid July, they posted median contract values for the 55 largest US metros in June.

Redfin reported that June contract prices rose 5.1% year to year to $285,200. The month to month increase was 1.6%, a sign of radical acceleration in housing inflation, but one month does not a trend make.

At typical qualifying ratios, and with a 10% down payment, the US median income household can afford to pay approximately $220,000 to purchase a house. The median priced home is well out of reach for median income families. Yet prices keep rising thanks to the shortage of supply.

The 5.1% year to year gain in June is greater than the +4.9% which the Case Shiller 20 Index showed for February-March-April contracts. In March and April, contract prices rose +5.7% and +6.5% respectively, so there may have been some giveback in June. But the key point is that Case Shiller is understating the rate of increase. The average increase in contract prices over the 3 months was +5.7%, not 4.9%.

This is in part due to the excessive smoothing in Case Shiller, and in part due to Case Shiller’s use of repeat sales only. That helps to suppress the number by showing only the sales of older houses, many of which have suffered physical and functional depreciation if owners did not maintain and upgraded them to the current standards in the marketplace. The Case Shiller Index is so seriously deficient for those reasons, that it is stunning that the mainstream media and market pundits generally give it any credence. It simply does not represent the current state of the market.

Even Corelogic reported that closed sale prices rose by 6.3% in May, and that contract prices tacked on another +0.9% in June. The NAR showed a gain of 6.5% for sales closed in June after a +7.9% reading in May.

Case Shiller’s tendency to understate housing inflation is not new. It has been clear for years that Case Shiller has lagged and suppressed the actual rate of housing inflation, yet mainstream pundits continue to treat it as if it is the holy grail.

If it were the holy grail, Robert Shiller would not have so egregiously missed the bottom in prices in 2011-12. It took another year before he woke up. If you design an index to severely lag and suppress the actual price increases occurring in the marketplace, you will be late, that’s for sure.

Housing prices today are rising at least 1% faster than Case Shiller indicates, and in the vast majority of markets they are increasing far faster than that. The housing inflation rate has not stabilized as the Wall Street Journal  suggested today.

The percentage changes are reported on the basis of a national median. We all know that real estate is local. While a few severely economically depressed markets are holding down the national median, many others are, dare we say it, in bubbles.

Redfin’s data showed that 35 of the 55 largest US metros had year to year gains of greater than 5.1% in June. Excluding the 3 depressed markets that were negative year to year (Baltimore, Honolulu, Hudson Valley NY), the unweighted average gain of the remaining 52 markets was +7.1%.

26 markets had gains greater than 7.1%. The average gain in these markets was +10%.  9 of the markets had double digit gains.  In the 26 markets where the gains were less than 7.1%, the unweighted average gain was +4.1%.

Even those less ebullient markets are inflating at a rate far greater than the CPI, which does not include housing prices. Houses prices, after all, don’t “inflate,” they “appreciate.” Yay.

With half the country’s housing inflating at an average of 10%, I’d say that’s a housing bubble. Remember that in the Great Bubble of 2003-2006 not all markets were rising radically either. There were a few that stuck out like a sore thumb. Those same markets are red and swollen today, names like San Francisco, LA, San Jose, Miami, Fort Lauderdale and Tampa. Even Las Vegas, which got clobbered in the crash, is now humming along at a 9.8% annual increase.

Below is Redfin’s tabulation of the MLS current contract price data for the 55 large US Metros. Learn it. Study it. Because one day soon it’s going to test you and me and everybody else. It will start going the other way. And when it does, Case Shiller will once again be left in the dust, behind the curve as always. And the US financial system will once again be torn apart under the stress of falling housing collateral values.

MLS Contract Prices- 55 Metros

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The What’s Wrong With This Picture Chart of the Month – Durable Goods http://wallstreetexaminer.com/2015/07/the-whats-wrong-with-this-picture-chart-of-the-month-durable-goods/ http://wallstreetexaminer.com/2015/07/the-whats-wrong-with-this-picture-chart-of-the-month-durable-goods/#comments Mon, 27 Jul 2015 18:33:58 +0000 http://wallstreetexaminer.com/?p=257100 U.S. Durable Goods Orders Rise 3.4% in June

blared the Wall Street Journal headline this morning. As usual, not only is that not the whole story, it’s misleading. It’s wrong. It’s dumb. It raises the question of why the mainstream media adamantly refuses to report the facts. More importantly, why do they ignore the blatantly obvious implications of the actual data? The answer must be that they don’t want us to know. Because it’s ugly.

First, this figure is based not on the actual dollar figure, but on a seasonally adjusted figment of statisticians’ imaginations based on an arbitrary, multiple smoothed and filtered moving average that purports to represent what the number would be if it were not for those pesky seasonal swings. This number will be subject to multiple revisions in the months and years ahead until it most accurately fits the actual data. It is an abstraction which, as of the date of the initial release, may or may not come close to reality, and we have no way of knowing whether it does or not, other than to look at the actual data. So why not look at just the actual data, plot it on a chart, and see how it’s doing that way? That’s exactly what we do.

The second problem, aside from seasonal finagling, is that the number is nominal. It does not include the impact of inflation. To get an accurate view of the volume of orders, it’s necessary to adjust for that, which is simple enough to do by applying the Producer Price Index to the current and historical nominal data.

On that basis real durable goods orders rose 16.9% month to month in June. Yes, that’s a whopping, world-beating number. June is usually up. Last year June was up 10.9% and in 2013 it was up 8.3%. Why so much this year? Because May stank. It was down -3.7%, which was far worse than any May over that 10 year period. May is usually an up month. The June gain was simply a matter of delayed orders from May catching up. The total gain of the 2 months was +13.2%. That was still pretty good compared to years past. In 2014, the total gain for the 2 months was +10.6%. In 2013 it was +15.9%, which was the best uptick for that 2 months since 2005.

The problem is with the year to year trend. It was down -0.7%. This was the third straight down month, and the fourth in the last 5. That sounds like a trend. This is not something new. That trend is part of a long term theme. Against it, the stock market bubble sticks out like a sore thumb.

Real Durable Goods Orders- Click to enlarge

Real Durable Goods Orders- Click to enlarge

As the Wall Street Journal accurately points out, durable goods orders can be whipped around crazily from month to month by things like airplanes and aircraft carriers. You would have to sell a load of refrigerators to equal one aircraft carrier order. Not that anyone manufactures refrigerators in the US, but you get the gist. The Journal said Boeing sold a ton of planes at the Paris Air Show. So the Journal and all the other mainstream outlets back out orders for defense and transportation goods to come up with what they call “core capital goods” orders. This is a pure measure of business investment. They said that after transportation orders were backed out, the monthly increase was just 0.8%, failing to mention that after inflation, that’s a negative.

Looking at the actual volume of orders after inflation, June was up 13.4%, which again is a big number boosted by delayed sales from May, which also had an unusual month to month decline in this data. The two months had a net gain of +11.1%. That was less than last year’s May-June total gain of +14.2%. It was about in the middle of the range for those 2 months for the past 10 years. It just wasn’t good enough to reverse a weakening trend.

The problem is in the trend. Without those big ticket transportation goods, annual growth is even worse than the trend including those items. The year to year change was a decline of -5.2%. That was the 6th straight monthly drop on a year to year basis, and it was the biggest drop yet in that string. Apparently business owners prefer to buy stocks than to purchase capital goods to invest in their businesses.

As Homer would say, “D’oh!”

Capture

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Here Are The Facts That Show New Homes Sales Are Actually a Bust And ZIRP A Failure http://wallstreetexaminer.com/2015/07/here-are-the-facts-that-show-new-homes-sales-are-actually-a-bust-and-zirp-a-failure/ http://wallstreetexaminer.com/2015/07/here-are-the-facts-that-show-new-homes-sales-are-actually-a-bust-and-zirp-a-failure/#comments Fri, 24 Jul 2015 21:04:12 +0000 http://wallstreetexaminer.com/?p=256725 The seasonally adjusted (SA) headline number for the monthly-error-times-12-annualized version of new home sales in June was 482,000. Wall Street analysts had guessed that the number would be 550,000. The Wall Street Journal went into apoplectic excuse-making mode, almost foaming at the mouth to try to find pundits to explain away the bad number. The whole spectacle was silly and pointless since we have actual data and we can readily see whether sales remain on trend or not. We don’t need no stinkin’ Wall Street pundits to tell us what to think. We can see for ourselves.

Actual June sales were estimated by the Census Bureau to be 45,000 units, based on their small sample of builders nationally. This number and the headline number are subject to big revisions in subsequent months because the margin of error on the initial release is huge. But let’s assume that the 45,000 figure is in the ballpark. That number was 7,000 units or 18.4% higher than June of last year. 2014 was a down year, but the current figure is also 4.7% above the June 2013 peak level. So new house sales are still trending higher, at least a little bit. They are a whopping 60.7% higher than the June 2010 low in the cycle.

Sounds great, right? Consider this. The current rate of sales is exactly the same as in June 2008, the next to last year in the housing collapse. It is 54% below the level of June 2006 and 61% below the June 2005 level (when I sold my house in Florida).

New Home Sales and Prices- Click to enlarge

New Home Sales and Prices- Click to enlarge

Click to view chart from email

While sales haven’t bounced much, the “recovery” in prices has been remarkable. If 2006 was the peak bubble year, with the median sale price in June hitting $243,200, what does that make the current median of $281,800, 16% higher? Not a bubble? I’ll let you be the judge.

The median price is up 31% since June 2010. But of course house prices don’t “inflate.” Neither the Wall Street Journal, whose godfather Rupert Murdoch also owns Realtor.com, nor none of the other mainstream media press release repeaters, ever use the word “inflate” or “inflation” when it comes to house prices. We must remember, “What we don’t inflate, you must appreciate!”

Prices have come down over the past year. Is the bloom off the bubble? Maybe, but the trend won’t be broken until the lower channel line, now around $265,000 gives way. We’ll keep an eye on that.

Looking under the cover of the headline number, the breakdown of the data is ugly. Virtually the entire year to year gain is because of your parents, and maybe you if you’re my age, moving to Florida. There were 26,000 sales in the “South” (actually the Southeast). That was 5,000 units or nearly 24% above last June, accounting for 58% of total sales. By the same token, even with the recovery, sales in the Southeast were still down 49% from the peak of June 2005.

New House Sales By Region- Click to enlarge

New House Sales By Region- Click to enlarge

Click to view chart from email

Other than that permanent demographic trend of retirees moving south, there is no new home sales market. It’s dead, finished, kaput. No other region, not even the West, which had also been seeing some retirement migration, is above the 2013 level. The West and Midwest were unchanged from last year, both down a thousand units from the June 2013 “peak.” The West is down 67% from the June 2005 level. The Midwest is down 73% from 10 years ago.

In the Northeast, there really is no housing market. The most densely populated region of the US, with approximately 56 million residents, had all of 3,000 new houses sold in June. That was up 1,000 from last June, but not better than the 3,000 units sold in June 2013.

The bottom line is that there’s no housing recovery in the Northeast or Midwest, the West has been stalled since 2012, and the South, while rising again, is still at only half the levels reached 10 years ago. The only recovery in the single family housing development market has been due to the demographic trend of boomers retiring. Absent that, there would be no growth, and for 3/4 of the country, there is none.

Finally, at least ZIRP is allowing working families to buy a new home, right?

Wrong.

Yes, it’s helping those in the upper income strata, but not those at the median household income or below. At typical qualifying ratios, a family with the US median household income of around $54,000 could afford to purchase a house costing around $200,000 with a minimal down payment. How many houses were sold at that price in June? 8,000, just 17.7% of total sales. That’s the same amount of sales as last June, but a third less than June 2013’s 12,000. It is even lower than the lowest level of the housing crash.

There are approximately 75 million US households at the median income or below. 8,000 new houses were sold at a price they could afford. That’s one house for every 10,000 families. This is just more evidence that ZIRP has done nothing for most ordinary working people.

New Home Sales For Median Income Families - Click to enlarge

New Home Sales For Median Income Families – Click to enlarge

Click to view chart from email

All the while, Wall Street economists and mainstream media press release repeaters show appreciation instead of approbation for the housing inflation that ZIRP has stimulated. For most working Americans aspiring to buy a home, house price inflation has made that goal that much harder to reach. And it has done nothing to help housing contribute to the US economy. Were it not for the demographic trend of baby boomers retiring and moving to Florida, there would be no growth in the housing market. All ZIRP has done is cause more inflation and hardship for millions of American families, victimized by this immoral and ineffective policy.

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Here’s Why Initial Claims Show That This Time Really Is Different http://wallstreetexaminer.com/2015/07/heres-why-initial-claims-show-that-this-time-really-is-different/ http://wallstreetexaminer.com/2015/07/heres-why-initial-claims-show-that-this-time-really-is-different/#comments Thu, 23 Jul 2015 17:58:02 +0000 http://wallstreetexaminer.com/?p=256579 Initial claims for unemployment compensation extended the string of record lows into its 22nd month this week. The mainstream media is reporting this as if the record low is something new. That’s because they look at the seasonally adjusted (SA) fictitious data only. The actual, not seasonally finagled number has been at a record low relative to total employment since September 2013.

However, it is remarkable that the SA total is at its lowest level since 1973, when the work force was far smaller than today. The current numbers are well beyond the bubble record lows of 1999-2000 and 2006-07. The implication is that this time really is different. It is the bubble to end all bubbles.

The headline, fictional, seasonally adjusted (SA) number of initial unemployment claims for last week came in at 255,000. The Wall Street economist crowd consensus guess was too high at 279,000. They had merely shaved a few hairs off the tail on the donkey of the previous week’s number of 281,000.

The stock market sold off on the correct expectation that the data would encourage the Fed to engage in the game of interest rate raising charade sooner rather than later. This isn’t news to us, since the hard, unmanipulated economic data we track has never deviated from the slow growth trend it has been on for the past couple of years. The Fed knows that, but the mainstream media headline writers and press release repeaters, along with the investing public, are constantly whipsawed by the month to month, often misleading or outright wrong squiggles in the fictional SA data.

Permit me to get on my anti-seasonal adjustment soapbox for a moment. The seasonal adjustment factor applied this week is just silly, so I can’t blame the Wall Street crowd for being so far off the mark in its current guess. Their guess was probably more correct than the official number.

Here’s why. The factor applied this week was 0.965. This week of July is always a week where actual claims filed are extremely low and down sharply from the prior week. Why would the DoL further reduce the number by using a factor of less than 1.0? In fact, the factors applied for the comparable week from 2012 to 2014 were 1.07, 1.03, and 1.01. These numbers are based on an arbitrary statistical formula, but at least those factors make some sense. Reducing the weekly number for this week by applying a factor of 0.965 does not. In reality, the actual number of claims filed this week was perfectly consistent with the trend which claims have been on. There should have been no “surprise” here.

Instead of the seasonally manipulated headline number expectations game, we focus on the trend of the actual data. Facts are much more useful than the Wall Street captured media’s fantasy numbers. Actual claims based on the actual state by state filings reported to the Department of Labor (DoL) were 262,981, which is another record low for this calendar week, continuing a nearly uninterrupted string of record lows that began in September 2013. There’s just no news here, no big surprise.

Employers in some sectors are hoarding workers. Similar behavior in the past has been associated with bubbles, and has led to massive retrenchment, usually within 18 months or so. In the housing bubble, similar behavior continued well beyond the peak of that bubble in 2005-06. Employers seem to take their cues from stock prices. The current string is now 4 months beyond the point at which other major bubbles have begun to deflate. Based on the fact that previous records were attained at and for some time after the peaks of massive bubbles, by that standard, the current financial engineering, central bank bubble finance bubble, aka “bubble bubble”, is the bubble to end all bubbles, Bubbie!

The DoL reports the unmanipulated numbers that state unemployment offices actually count and report to the DoL each week. This week it said, “The advance number of actual initial claims under state programs, unadjusted, totaled 262,981 in the week ending July 18, a decrease of 81,382 (or -23.6 percent) from the previous week. The seasonal factors had expected a decrease of 54,210 (or -15.7 percent) from the previous week. There were 287,049 initial claims in the comparable week in 2014. ”

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Initial Claims and Annual Rate of Change- Click to enlarge

Click here to view chart if viewing in email

Claims virtually always fall sharply during this week of July. We need to know how the current week compares with this week in prior years, and whether there’s any sign of trend change. In fact, the decline last week was only the 4th largest for this week in the last 10 years. The actual change for the current week was a decrease of -81,000 (rounded). The decline for the same week last year was -83,000, and in 2013 -71,000.

Week to week changes are noisy. The important thing is the trend and it remains on track. Actual claims were 8.1% lower than the same week a year ago. Since 2010 the annual change rate has mostly fluctuated between -5% and -15%. This week’s data was on the weak side of that range for a third straight week. These slightly weaker readings followed an unusual degree of strength that had persisted for 2 months in May and June. The last 3 weeks have probably been a little payback for that strength. There’s no sign yet of a significant uptick in the trend of firings and layoffs.

There were 1,841 claims per million of nonfarm payroll employees in the current week. This was a record low for that week of July, well below the 2007 previous record of 2,190. The 2007 extreme occurred just a  few months before the carnage of mass layoffs that was to begin later that year. Employers were still clueless that the end of the housing bubble would have devastating effects. If they were clueless then, they are in an advanced state of delirium and delusion now.

As a result of the fact that employers apparently tend to take their cues from stock prices, we cannot depend on this data for advance warning of a decline in stock prices, although there should at least be concurrent confirmation. So far, we’re not seeing any signs of that.

Initial Claims and Stock Prices- Click to enlarge

Initial Claims and Stock Prices- Click to enlarge

Click here to view chart if viewing in email

I look at an analysis of individual state claims as a kind of advance decline line for confirmation of the trend in the total numbers. The impact of the oil price collapse started to show up in state claims data in the November-January period. While most states show the level of initial claims well below the levels of a year ago, in the oil producing states of Texas, North Dakota, Louisiana, and Oklahoma, since the beginning of 2015 claims have been consistently above year ago levels. North Dakota and Louisiana claims first increased above the year ago level in November of last year. Texas reversed in late January. Oklahoma joined the wake shortly after that.

Data for the July 18 week:

Capture

Click here to view table if viewing in email

Claims increased sharply in these oil states last week. The numbers have varied widely week to week but the trend of claims being significantly higher than the same week last year has been persistent. Texas, with a huge and more diversified economy improved in the second quarter as the price of oil rebounded and stabilized, but that improvement was temporary, and new claims in Texas have been climbing in July.

In the July 18 week, 11 states had more claims than in the same week in 2014. That was down from 17, last week. This number fluctuates widely week to week with many states near even. At the end of the third quarter of 2014 just 5 states showed an increase in claims year to year. At the end of 2014 that had increased to 8. In early April this year the number had risen to 22. The trend has moderated as the oil collapse has leveled off.

The 22 states that were higher in early April gives us a benchmark to watch, similar to an advance decline line in the stock market. If the number of states showing a year to year increase in claims should exceed 22, it should be an indication that the national trend of decreasing claims is reversing. That could be an advance warning of a big stock market decline as well.

I track the daily real time Federal Withholding Tax data in the Wall Street Examiner Pro- Federal Cash Flows report. The year to year growth rate in withholding taxes in real time is now running +2.9% in nominal terms. Over the past week the growth rate has dropped sharply after being remarkably consistent around +5-6% since April.

Is this the first real sign of a weakening economy in the withholding data, or part of the normal cyclical swing pattern in this data? Stay tuned! The next few weeks should be interesting.

The following is reposted from prior reports for the benefit of new visitors.

The July 12 week was the reference week for the July payrolls survey. The numbers for that week were weaker than the June numbers, suggesting that Wall Street economists are likely to find their estimates for July are too high. Whether the cockamamie seasonally adjusted headline number reflects that reality or not is a crapshoot. It takes the BLS 7 revisions of the SA data over 5 years to fit it to the actual trend. The first release is hit or miss. But even if the number comes in below expectations, it probably will not influence the Fed, which remains hellbent on trying to get rates up sooner rather than later.

The Fed’s favored measure of inflation, PCE, suppresses the measurement of inflation even more than the just released CPI. If the Fed believed this data, it would be even further behind the curve in recognizing that inflation is running much hotter than the official measures show than it is. The Fed knows that, and has inserted weasel words into its various propaganda releases that it will raise rates as long as the Fed thinks that inflation is moving toward the 2% target. It does not actually need to be at the target. The Fed is prepared to ignore the official measures because the members realize that they’re bogus.

The Fed will use or ignore whatever stats it wants depending on whether they fit its preconceived narrative, which is “We’re gonna try to raise rates at least once this year, and if that doesn’t work, we’ll think of an excuse not to do it again, because raising rates is really data dependant depending on which data dependably supports our narrative, and which data we will ignore, because it all depends on dependably dependant official data, none of which is dependable.”

The actual claims data, and actual withholding data, show the financial engineering bubble economy is still at full boil. This will continue to encourage the Fed to engage in the charade of pretending to raise interest rates sooner rather than later, but only because they have conditioned the market to expect it, a conditioning that they now regret they had undertaken. So now the Fed is saying, “just once and then we’ll see.” They’re walking back expectations now because they know they will have problems getting rates to go up. I cover that subject in depth in the weekly Money-Liquidity Pro reports.

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Mouthpiece Of The Mob Says Existing Home Sales Are All Good News http://wallstreetexaminer.com/2015/07/mouthpiece-of-the-mob-says-existing-home-sales-are-all-good-news/ http://wallstreetexaminer.com/2015/07/mouthpiece-of-the-mob-says-existing-home-sales-are-all-good-news/#comments Wed, 22 Jul 2015 19:08:29 +0000 http://wallstreetexaminer.com/?p=256416 The media dutifully reported the NAR’s version of seasonally adjusted, built-in monthly error times 12, annualized, officially recorded, home sales closings in June today. The housing industry cartel and lobbying behemoth said that houses are selling at an annual rate of 5,340,000 on that basis.

Bloomberg enthused that, “Sales of previously owned U.S. homes climbed to an eight-year high in June as momentum in the residential real estate market accelerated.”  The WSJ crowed, “Prices of existing homes sold in the U.S. hit a nominal high in June, eclipsing the previous mark set in 2006, as sales increased at their strongest pace in more than eight years.”

What about those statements, true or false? The answer: TRUE! The median sale price was up 6.5% year to year to a new all time high. June officially recorded sale closings totaled 573,000, which exceeded the June 2007 level of 536,000.

The problem, as always, was the bullish slant of the mainstream reporting, particularly the Journal’s. The “nominal high” is above the highs at the top of the bubble in 2006. There was no mention of the bubble association in either report, as if being higher than the last bubble doesn’t make this a bubble. And the sales volume was similar to the volume level just before the market collapsed. No mention of that either.

We expect the bullish slant from the Journal because it is the PR arm of Rupert Murdoch’s, Move Inc. According to the WSJ’s standard disclaimer when reporting NAR propaganda, Move Inc. “operates a website and mobile products for the National Association of Realtors.” Oh gee, a website and mobile products–nothing to see here, move along. The disclaimer leaves out a minor detail or two. Move, Inc. actually OPERATES Realtor.com, the NAR’s online listing service for consumers in the housing market, and it operates several other services whose sole purpose is to serve NAR members and customers.

Rupert Murdoch is Realtor.com’s Don Corleone, its Godfather! The Wall Street Journal is the actual mouthpiece for the Realtor mob, the massive, monolithic, all powerful cartel that controls the sales of existing homes in the US, and not to mention, is the second highest spending US government lobbying organization, spending $55 million in 2014 to influence Congress, according to OpenSecrets.org.

And we’re supposed to take their “news” reporting at face value. Give me a break.

While Rupert Murdoch’s News Corp. owns the Journal and Realtor.com and controls the Journal’s propaganda, Bloomberg has no such tie to the NAR. Its reporting is less slanted, but still tilted to only look on the bright side of life when it comes to the NAR data.

In neither the WSJ or Bloomberg report today was the word “inflation” used in reference to the big increase in house prices. Neither used the word “bubble” when comparing current levels to those reached at the tail end of the 2002-07 housing bubble of blessed memory. Neither mentioned that the last time sales were this high, the housing market was on the doorstep of total collapse and disintegration. Apparently, such correlations are insignificant to The Wall Street Journal and Bloomberg.

Well, we don’t think they’re insignificant. They are facts, and we pay attention to facts.

The fact is that when sales are at a cycle record high, at some point most potential buyers who have the ability and willingness to purchase a house, have done so. That’s why there are cycles in the housing business. Given current job market conditions where few jobs are created that provide enough income to make the purchase of a house affordable, the market is probably getting close to the point where most people who can afford to buy have already bought.

The inflation of house prices to a record level won’t help that condition. It will only exacerbate it. The NAR’s chief economist, Lawrence Yun, actually alluded to that in the NAR press release.

Home Sale Prices and Volume - Click to enlarge

Home Sale Prices and Volume – Click to enlarge

(If reading in email, click here to view chart.)

Another fact which the mainstream media glossed over in its NAR PR releases was just how tight supply is. The inventory to sales ratio, based on actual sales contracts signed in May, which will show up in the July “existing home sales” data, is 4.0. Only June 2013 at 3.9 was lower. Tight supply will continue to foster house price inflation.

Inventory to Sales Ratio- Click to enlarge

Inventory to Sales Ratio- Click to enlarge

(If reading in email, click here to view chart.)

Supply remains artificially suppressed thanks to ZIRP and house price inflation. They encourage aging homeowners to hold on to their “appreciating” asset rather than liquidating and cashing out for income when they buy their Florida or Arizona retirement home.

Meanwhile, with mortgage rates stabilizing after rising in the spring, the contract fallout ratio bounced back to within the recently normal range. The spike down occurred as a result of mortgage rates surging earlier this year. Buyers on the edge of qualifying took a hike or were forced to walk the plank.

Contracts and Closings- Click to enlarge

Contracts and Closings- Click to enlarge

(If reading in email, click here to view chart.)

Mortgage rates are tied closely to the 10 year Treasury yield, not to short term money rates like the Fed Funds rate. Contrary to what the Fed wants you to think, it has little control over bond yields. If yields should break out to the upside, another spike in the contract fallout ratio would be a sign that the housing market could be beginning a cyclical downturn from its distorted and already weak fundamental position. As mortgage rates rose, more contracts falling through would be a sign of trouble ahead, suggesting that even fewer buyers would qualify for mortgages.

Ironically, rising yields may even trigger an increase in supply as increasing interest rates may free up some of the supply withheld from the market because the “rate is too damn low!”

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Initial Claims Falsely Support Steady State Universe Theory http://wallstreetexaminer.com/2015/07/initial-claims-falsely-support-steady-state-universe-theory/ http://wallstreetexaminer.com/2015/07/initial-claims-falsely-support-steady-state-universe-theory/#comments Fri, 17 Jul 2015 18:02:32 +0000 http://wallstreetexaminer.com/?p=255754 It has been a few weeks since we took a hard look at initial unemployment claims. There hasn’t been much reason to, since they seem to exist in a steady state universe, almost never deviating from the growth path they have been on for the past 5 years. But the steady state universe theory has long been discredited. Even though the Wall Street media propaganda machine wants us to believe in steady state financial markets, chances are we’re headed for another Big Bang. Periods of stability such as the present create a false sense of complacency as the dangers grow.

The headline, fictional, seasonally adjusted (SA) number of initial unemployment claims for last week came in at 281,000. The Wall Street economist crowd consensus guess was almost right on the money at 283,000. The expectations game didn’t provide much excitement for the players this week.

Instead of the seasonally manipulated headline number expectations game, we focus on the trend of the actual data. Facts and reality are much more useful than the Wall Street captured media’s fantasy numbers. Actual claims were 344,002, which is another record low for this calendar week by a huge margin, continuing a nearly uninterrupted string of record lows that began in September 2013.

Employers in some sectors are hoarding workers. Similar behavior in the past has been associated with bubbles, and has led to massive retrenchment, usually within 18 months or so. In the housing bubble, similar behavior continued well beyond the peak of that bubble in 2005-06. Employers seem to take their cues from stock prices. The current string is now 4 months beyond the point at which other major bubbles have begun to deflate. Is the bungee cord simply longer this time, or is this the new paradigm?

The Department of Labor (DoL) reports the unmanipulated numbers that state unemployment offices actually count and report to the DoL each week. This week it said, “The advance number of actual initial claims under state programs, unadjusted, totaled 344,002 in the week ending July 11, an increase of 40,416 (or 13.3 percent) from the previous week. The seasonal factors had expected an increase of 59,887 (or 19.7 percent) from the previous week. There were 370,559 initial claims in the comparable week in 2014.”

Initial Claims and Annual Rate of Change- Click to enlarge

Initial Claims and Annual Rate of Change- Click to enlarge

[Click here to view chart if viewing in email]

Claims always rise substantially during this week of July. We need to know how the current week compares with this week in prior years, and whether there’s any sign of trend change. The actual change this week was an increase of 40,000 (rounded). That sounds like a lot but it is significantly less than the 10 year average of +59,000 for this week. It compared with an increase of 48,000 for that week last year.

Week to week changes are noisy. The important thing is the trend and it remains on track. Actual claims were 7.2% lower than the same week a year ago. Since 2010 the annual change rate has mostly fluctuated between -5% and -15%. This week’s data was on the weak side of that range but slightly better than last week’s reading of -6%. These slightly weaker readings followed an unusual degree of strength that had persisted for 2 months in May and June. The last two weeks have probably been a little payback for that strength. There’s no sign yet of a significant uptick in the trend of firings and layoffs.

There were 2,409 claims per million of nonfarm payroll employees in the current week. This was a record low for that week of July, well below the 2007 previous record of 2,817. The 2007 extreme occurred just a  few months before the carnage of mass layoffs that was to begin later that year. Employers were still clueless that the end of the housing bubble would have devastating effects.

Because employers apparently tend to take their cues from stock prices, we cannot depend on this data for advance warning of a decline in stock prices, although there should at least be concurrent confirmation.

Initial Claims and Stock Prices- Click to enlarge

Initial Claims and Stock Prices- Click to enlarge

[Click to view chart if viewing in email]

I look at an analysis of individual state claims as a kind of advance decline line for confirmation of the trend in the total numbers. The impact of the oil price collapse started to show up in state claims data in the November-January period. While most states show the level of initial claims well below the levels of a year ago, in the oil producing states of Texas, North Dakota, Louisiana, and Oklahoma, since the beginning of 2015 claims have been consistently above year ago levels. North Dakota and Louisiana claims first increased above the year ago level in November of last year. Texas reversed in late January. Oklahoma joined the wake shortly after that.

Data for the July 11 week:


[Click here to view if viewing in email]

 

These numbers have varied widely week to week but the trend of claims being significantly higher than the same week last year has been persistent. Texas, with a huge and more diversified economy has improved since April as the price of oil rebounded and stabilized, but the state has been showing small year to year increases in July.

In the July 11 week, 17 states had more claims than in the same week in 2014. That was up from 11, 4 weeks earlier. This number fluctuates widely week to week with many states near even. At the end of the third quarter of 2014 just 5 states showed an increase in claims year to year. At the end of 2014 that had increased to 8. In early April this year the number had risen to 22. So there has been some moderation in this trend as the oil collapse has leveled off.

The 22 states that were higher in early April gives us a benchmark to watch, similar to an advance decline line in the stock market. If the number of states showing a year to year increase in claims should exceed 22, it should be an indication that the national trend of decreasing claims is reversing. That could be an advance warning of a big stock market decline as well.

I track the daily real time Federal Withholding Tax data in the Wall Street Examiner Pro- Federal Cash Flows report. The year to year growth rate in withholding taxes in real time is now running +5.1% in nominal terms. The growth rate has been remarkably consistent around 5-6% over the past couple of months.

The July 12 week was the reference week for the July payrolls survey. The numbers for that week were weaker than the June numbers, suggesting that Wall Street economists are likely to find their estimates for July are too high. Whether the cockamamie seasonally adjusted headline number reflects that reality or not is a crapshoot. It takes the BLS 7 revisions of the SA data over 5 years to fit it to the actual trend. The first release is hit or miss. But even if the number comes in below expectations, it probably will not influence the Fed, which remains hellbent on trying to get rates up sooner rather than later.

The Fed’s favored measure of inflation, PCE, suppresses the measurement of inflation even more than the just released CPI. If the Fed believed this data, it would be even further behind the curve in recognizing that inflation is running much hotter than the official measures show than it is. The Fed knows that, and has inserted weasel words into its various propaganda releases that it will raise rates as long as the Fed thinks that inflation is moving toward the 2% target. It does not actually need to be at the target. The Fed is prepared to ignore the official measures because the members realize that they’re bogus.

The Fed will use or ignore whatever stats it wants depending on whether they fit its preconceived narrative, which is “We’re gonna try to raise rates at least once this year, and if that doesn’t work, we’ll think of an excuse not to do it again, because raising rates is really data dependant depending on which data dependably supports our narrative, and which data we will ignore, because it all depends on dependably dependant official data, none of which is dependable.”

The actual claims data, and actual withholding data, show the financial engineering bubble economy is still at full boil. This will continue to encourage the Fed to engage in the charade of pretending to raise interest rates sooner rather than later, but only because they have conditioned the market to expect it, a conditioning that they now regret they had undertaken. So now the Fed is saying, “just once and then we’ll see.” They’re walking back expectations now because they know they will have problems getting rates to go up. I cover that subject in depth in the weekly Money-Liquidity Pro reports.

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You Need To See How The 1% Spends Wildly While Wall Street Suppresses Retail Sales Reports http://wallstreetexaminer.com/2015/07/you-need-to-see-how-the-1-spends-wildly-while-wall-street-suppresses-retail-sales-reports/ http://wallstreetexaminer.com/2015/07/you-need-to-see-how-the-1-spends-wildly-while-wall-street-suppresses-retail-sales-reports/#comments Thu, 16 Jul 2015 17:03:16 +0000 http://wallstreetexaminer.com/?p=255560 Following the mainstream media reports on economic data is a waste of time for investors. It may have some value to traders, because the headlines give them an idea of what to fade. Most of the time any widely reported and widely accepted economic “fact” is almost certain to be wrong. Wizened traders have learned to do the opposite of what the headlines encourage the majority to do.

The incorrect fact of the week this week is that retail sales were weak in June. That misconception was a result of the silly Wall Street expectations game and the use of arbitrarily fabricated, fictitious numbers in the monthly report.

These fictitious numbers are known as “seasonally adjusted” (SA) data. SA data is an abstract impressionist view of reality which may or may not represent reality. It is designed to smooth the actual data for viewing by the unwashed masses. The process is completely haphazard because seasonal adjustment seeks to remove seasonal variation based on past patterns, which change and may include non-seasonal elements that appear seasonal. You may have known that, but you probably did not know that SA data also uses future data, which has yet to be reported.

The government agencies that report the SA data subsequently adjust the first release, what they call the “advance estimate,” multiple times in the months and years to follow as additional actual data becomes available. They fit the each month’s number to the actual trend for 5 years following the first release. Nobody reports those later revisions. They only report the advance release, with minor mention of the revision to the previous month.

The media consigns subsequent revisions to the dustbin of history, never reporting them. However, they publish charts of seasonally adjusted (SA) data which DO reflect these subsequent adjustments. It therefore appears that the SA graph reasonably represents the trend. This is only true of the older data, because it has been fit to the actual data over time. It is not true of the current release, where the reported SA data is little more than a wild guess based on an arbitrary factor derived from the past several years.

I’m a technical analyst. The mainstream practice of ignoring actual data to look solely at a highly idealized, complex moving average that purports to, but may or may not, represent reality, mystifies me. What possible justification is there for doing that? Put the actual data on a chart and draw a few trendlines, and voila, you see EXACTLY what is actually going on. It is not some abstract impressionist view that in the short run may be completely distorted and unreal, and which the artist will repaint 7 times over 5 years before completing the work and storing it away in the attic where nobody sees it.

There are easy ways to see exactly what retail sales are really doing. First, look at the actual, not seasonally adjusted data. Second, back out inflation in order to see the real trend of the volume of goods sold, not just price increases. Third, back out gas sales. They’re 10% or so of total retail sales and large changes in gas prices will send the total sales number in the opposite direction of sales volume, and that can skew total sales a bit.

For example, as gas prices collapsed in the second half of 2014, total dollar sales of gas fell sharply, reducing total retail sales. But in truth, as gas prices fell, consumers actually bought MORE gas and more stuff in general. The falling gas price suppressed the reported gains. When gas prices rebounded for a few months, the opposite was true. Lately gas price changes have been muted so that their effect on the top line has been minimal, but for the sake of the consistency of the measure and to view the effect of gasoline on total sales, I continue to run one chart including them and one excluding them.

Finally, I want to know whether retail sales are increasing relative to population growth. If population is growing by 1% a year, then 1% retail sales growth only reflects population growth. I want to know if there’s growth over and above that, so I divide the total sales by total population. This shows how fast sales are growing on a per capita basis. That does not mean that the growth is shared equally across the the population, just that we can see if sales are growing faster than population.

The reported fiction this month was that retail sales fell 0.3% in June against Wall Street economists consensus expectations of a 0.3% gain. What no one on Wall Street or in the media told you was that this was based on dividing actual, not seasonally adjusted (NSA) nominal retail sales by the seasonal adjustment factor of 1.008, thereby reducing the reported print below the actual sales. For June 2014, they divided by .994, thus increasing the print for June 2014. They used .996 in June 2013, increasing the print for that month.  Why would they increase the number for the 2 prior years, then reduce it this year? Shouldn’t the seasonal adjustment be the same for the same month each year? Had the BEA applied the same seasonal factor this year as it applies to the NSA for 2014, the SA monthly change would have been +0.1%, not -0.3%. That’s still less than the guessing game expectation, but it’s not negative as the headlines reported.

Here are the facts. Nominal, not seasonally adjusted retail sales are virtually always down in June. The issue is whether the current month is stronger or weaker than the trend in a way that would indicate that the current trend is changing direction. This year the decline was $16 billion from May. That’s significantly stronger than the $25 billion drop in June of last year, and the $22 billion drop in June 2013. As Junes go, this one was pretty good. There was no deviation from the trend.

On a year to year basis, sales rose by 2.9%. This was the fastest growth rate since January. Contrary to the implication of the headlines, retail sales are on the same slow growth trend they have been on since 2012, a fact that is clearly visible when the actual data is plotted on a chart with monthly trend lines.

Nominal Retail Sales- Actual- Click to enlarge

Nominal Retail Sales- Actual- Click to enlarge

[Click here to view chart if reading in email.]

Getting down to the nitty gritty of whether there’s growth beyond population growth and without gas sales the message is similar. Sales were down in June versus May as they virtually always are, but they fell less than in June 2014 and June 2013. The year to year growth rate was +4%. That’s in the upper half of the growth rate range of the past year. Here again there’s no sign of deviation from the trend.

Retail Sale Ex Gas Per Capita- Click to enlarge

Retail Sales Ex Gas Per Capita- Click to enlarge

[Click here to view chart if reading in email.]

This is not to say that all is well in retail sales land. Jeff Snider at Alhambra Partners showed that the growth rate of retail sales ex autos has turned negative. That means that the growth in total sales has been driven by surging auto sales as other retail sales have slowed. People who can get credit, or have the marginal income or wealth to buy cars are spending more, a lot more. Some of those sales are due to the growth of questionable non-prime credit growth.

Likewise, we know that top line sales growth per capita is not due to the majority having growing incomes. Wage growth is slowing. Real median incomes are stagnant. Sales growth has been driven purely by the growing wealth at the top of the income spectrum. They are spending their stock market gains. Bernanke was right about that. It was probably the only thing he was right about. Where he was wrong is that there would be trickle down effects. Instead the wealth pooled at the top. The trend of rising retail sales can persist only as long as the stock market keeps rising. When that stops, the dam will break and the fictitious wealth created by central bank driven stock market gains will disappear. Retail spending will collapse, without any of the gains having reached the majority of people.

Retail Sales Rise As The 1% Spends Its Stock Market Gains - Click to enlarge

Retail Sales Rise As The 1% Spends Its Stock Market Gains – Click to enlarge

[Click here to view chart if reading in email.]

Obviously, neither of these trends is good for the economy or sustainable retail sales growth. But the Fed will look at the top line numbers and see that the purported slowdown in retail sales is “transitory.” It will not be deterred from attempting to raise interest rates sooner rather than later.

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