The Wall Street Examiner » Wall Street Examiner Exclusives http://wallstreetexaminer.com Get the facts. Sun, 26 Apr 2015 14:03:10 +0000 en-US hourly 1 The More Things Change, The More They Stay The Same http://wallstreetexaminer.com/2015/04/the-more-things-change-the-more-they-stay-the-same/ http://wallstreetexaminer.com/2015/04/the-more-things-change-the-more-they-stay-the-same/#comments Fri, 24 Apr 2015 18:18:27 +0000 http://radiofreewallstreet.fm/?p=27780 Read more →

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Lee Adler goes behind the paper curtain of Wall Street propaganda to strip away the media hype and hysteria around the financial news headlines to show you the actual facts. With economic data whipsawing wildly, this week he focuses on the trend of actual data to reveal whether anything has changed that would cause the outlook to change. The answer probably won’t surprise you. Subscribers may click here to open or right click to download this video and play in your media player.

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Today’s RFWS was absolutely outstanding. (I’m glad I actually watched this one rather than just listening while running.) When it comes to financial journalism, Lee, you remain an island of sanity in a huge sea of crap. Thanks.

Bob

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For Whom The Bell, Toll Brothers, While DR Horton Hears A “Who?” http://wallstreetexaminer.com/2015/04/does-the-bell-toll-for-housing-bubble-ii/ http://wallstreetexaminer.com/2015/04/does-the-bell-toll-for-housing-bubble-ii/#comments Thu, 23 Apr 2015 17:38:20 +0000 http://wallstreetexaminer.com/?p=244813 In the game of pin the tail on the number, today’s release on new home sales was a big miss. Wall Street conomists had expected a seasonally adjusted annualized number (i.e. seasonal adjustment error times 12) of 520,000. Instead, that number came in at 481,000. Are we surprised?

Hell no. Except this month’s number is just as misleading as last month’s, partly a result of the stupid practice of annualizing monthly seasonal adjustment errors or other one time anomalies in the data. In the big picture, what matters is the actual trend of actual sales and asking the question whether anything has changed. In that regard, the answer is still a resounding “NO” in terms of sales volume, but “maybe” in terms of the price bubble.

If you recall last month, the new home sales number game was a big “beat.”

U.S. New Home Sales Reach Highest Level in Seven Years

blared the Wall Street Journal. It subheaded:

Sales of newly built single-family homes increased 7.8% in February to annual rate of 539,000

Holy cow! This month’s 481,000 looks like a veritable crash. But it wasn’t. And the reversal was both predictable, and predicted.

I wrote last month:

That’s the ticket! Strong demand! Housing is back, America! Low pay, unqualified borrowers are back, and we’re selling over a half million houses annually!

Behind that headline, a bump in southerly migration joined with the usual random noise in February in other regions to send the number reported by the back slapping, self-congratulatory, Washington-Wall Street media echo chamber, to da moon.

As usual, they were annualizing a monthly, seasonally adjusted, abstract impressionist interpretation of loosely estimated reality. In other words they multiplied the seasonal adjustment error plus the huge sampling error that is a feature of the first release of this data, times 12. To its credit, the WSJ did point out in a later paragraph that “February’s advance estimate came with a margin of error of plus or minus 15.2 percentage points.” 15.2%! Are you kidding me! Why are we even discussing this number?

So annualizing the seasonally adjusted advance estimate launched the headline number into outer space, in an arc almost certain to crash back to earth in March and April.

The Commerce Department even has an official warning about the oversized revisions that follow the first release, after they’ve had a chance to look at the actual data as it comes in over the next few months.

“A necessary part of the process of issuing these early data involves the issuance of subsequent revisions. The revisions to new single-family houses sold estimates are primarily the result of the replacement of imputed data with data which are reported in subsequent months. New residential sales have larger revisions than other residential construction series. This is due to the fact that most of the new residential construction survey data are based on a permit being issued. Since many homes have a sales contract signed prior to a permit being issued, an estimate must be determined for these sales prior to permit authorization.”

In other words, they base their estimate for the current month on building permits. That means that if builders who have been sitting on their butts through a frozen winter decide to start a few extra spec homes to get a jump on the Spring selling season, the Census Bureau won’t know that until a few months later. If that’s what happened here, we won’t find out for another month or two as the revisions come in.

And that, ladies and gentlemen, is exactly what happened. Builders pulled a ton of permits in February. The Census Bureau seasonal adjusters and their idiot fans on Wall Street and in the Wall Street captured media read that as a big increase in sales. With the heavy permit pud pulling already done, March was quiet and that looked like weak sales. But the trend is essentially right where it has been since the “recovery”, such as it is, began. The focus on the month to month error prone seasonally adjusted headline noise is insane, but this is what the media reports and what the market pays attention to, at least for a few milliseconds before it goes back to the trend it was on.

The actual reported number of sales in March, per the survey, not seasonally manipulated, was 45,000. That’s the same as February. Usually, March sees a bigger jump, but again, February was unusually active permit wise. The year to year gain was 15.4%, which is right in line with the trend.

New Home Sales Trend Since 2010- Click to enlarge

New Home Sales Trend Since 2010- Click to enlarge

Before we get too excited, this is only back to 2008 levels, right in mid crash. As a result of that crash, the housing industry no longer plays a significant role in boosting the US economy. Here’s the big picture.

New Home Sales Long Term Trend - Click to enlarge

New Home Sales Long Term Trend – Click to enlarge

But that hasn’t prevented a new price bubble from forming. New home sale prices rose by 48% between the bottom of the crash in 2009 and the price high in December 2014. Since then they have backed off a bit. Over the same period, average home size also increased, but not to that degree. The gain in average size from 2009 to 2013, the last available data, was 6.5% to an all time record of 2,598 square feet. So not only has there been a bubble in prices, but in size as well. The question now with both is whether this marks just a pause or the end. It’s too soon to tell. The trend still looks intact, but the surge late last year may have been a bubble blowoff, similar to what happened in new home prices in 2007, months after the broader housing bubble had peaked.

New Home Sales Price Bubble- Click to enlarge

New Home Sales Price Bubble- Click to enlarge

 

These price increases also belie the idea that there’s been no inflation in recent years. There’s been plenty of inflation, just not the kind that conomists recognize.

Over the course of this bubble, virtually all of the gains in sales have been in the Sunbelt as older people continue to move south or buy a second home there when they retire.

New House Sales By Region - Click to enlarge

New House Sales By Region – Click to enlarge

The data shows a massive surge in sales in the South and a good sized bump in the West, which includes sunny California and the Southwest. In the Northeast and Midwest sales have remained moribund for 6 years. The entire housing “recovery” story has been based on that southward migration, driven by the demographic wave of boomers retiring or nearing retirement. There’s no organic growth here, just people getting old and tired of freezing their asses off in the winter. They’re buying retirement homes or second homes down south.

One last point–along with this “growth” story, we must thank the almighty Fed for it’s perspicacity in promoting programs to help the average Joe. Here’s an example. It’s the spectacular growth of affordably priced homes for the “middle class” family. Since the Fed started QE and ZIRP sales to middle income families have been cut in half. Remind me again who Fed policy is supposed to be helping?

Thanks Fed! Click to enlarge

Thanks Fed! Click to enlarge

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Another Record Low In Initial Unemployment Claims But The Bubble Has Sprung Leaks http://wallstreetexaminer.com/2015/04/another-record-low-in-initial-unemployment-claims-but-the-bubble-has-sprung-leaks/ http://wallstreetexaminer.com/2015/04/another-record-low-in-initial-unemployment-claims-but-the-bubble-has-sprung-leaks/#comments Thu, 23 Apr 2015 14:02:07 +0000 http://wallstreetexaminer.com/?p=244797 The headline, fictional, seasonally adjusted (SA) number of initial unemployment claims for last week came in at 295,000, missing the Wall Street conomist crowd consensus guess of 288,000. Behind the headline numbers, claims continued to make record lows, below the lowest levels reached at the top of the housing bubble. Meanwhile, the number of states reporting a trend of increasing claims has been increasing. The days of record low national readings appear to be approaching an end.

The Department of Labor also reports actual, unmanipulated numbers. This week it said, “The advance number of actual initial claims under state programs, unadjusted, totaled 279,097 in the week ending April 18, a decrease of 28,102 (or -9.1 percent) from the previous week. The seasonal factors had expected a
decrease of 29,369 (or -9.6 percent) from the previous week. There were 299,182 initial claims in the comparable week in 2014.”

There were 1,989 claims per million of nonfarm payroll employees. This was a record low, below the April 2006 level of 2,014 at the peak of the housing bubble.

Initial Claims and Annual Rate of Change- Click to enlarge

Initial Claims and Annual Rate of Change- Click to enlarge

On the basis of the week to week change it was a mixed bag. Claims normally decline in this week of April. The weekly change was worse than average for this week. The actual decline of 28,000 (rounded) compared with the 10 year average decrease for that week of 39,000 (rounded). However, claims decreased by just 20,000 in the comparable week last year. So, while not as good as the average, the current week was stronger than last year.

In terms of the trend over the longer term, actual claims were 6.7% lower than the same week a year ago. Since 2010 the annual change rate has mostly fluctuated between -5% and -15%. The current number is within the range.

At the last bubble peak in 2006, claims began to increase late in that year. The housing bubble had already peaked a few months earlier but the stock market continued on its merry way for 9 more months, not finally ending its run until September 2007. In that instance a clear breakout in the number of claims toward the end of 2006 gave plenty of advance warning that all was not well before stock investors got a clue. Conversely, at the 2000 top, claims had given little advance warning. They began to break out concurrently with the top in stock prices through midyear 2000.

The oil price collapse may be analogous to the housing bubble peak in 2006.

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, and Louisiana, claims have been above year ago levels since the turn of the year. North Dakota and Louisiana claims first increased above the year ago level in November. Texas reversed in late January. In the most current state data, for the April 11 week, claims in these states were well above year ago levels. Texas was up 17% (vs. 14% in the previous week), Louisiana +24% (vs. +9%), and North Dakota +69% (vs. +87%). Another oil producing state, Oklahoma, was up by 26.8% (vs. +30%).

With its huge and widely diversified economy, Texas could be the harbinger of things to come for the entire nation as the ripple effects of the oil collapse and the disappearance of those $85,000 per year jobs spread through the US economy.

In the April 11 week, 22 states had more claims than in the same week in 2014. That’s up from 11 in the week ended April 4. At the end of 2014 only 8 were up year to year. At the end of the third quarter of 2014 there were just 5. This is akin to a stock market advance-decline line in a negative divergence from an advance in the market averages. It may be a warning sign of deterioration that is not apparent in the topline numbers.

I track the daily real time Federal Withholding Tax data in the Wall Street Examiner Professional Edition. The year to year growth rate in withholding taxes in real time is running slightly above 5% in nominal terms. This is down from a peak of over 8% in February, but it remains a strong number that supports the likelihood of a solid gain in payrolls for April.

The jobs data will continue to encourage the Fed to engage in the charade of pretending to raise interest rates sooner rather than later.

Initial Claims Inverted and Stock Prices- Click to enlarge

Initial Claims Inverted and Stock Prices- Click to enlarge

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Sing LA LA LA and Pretend Housing Doesn’t Count – That’s How Conomists Ignore Inflation http://wallstreetexaminer.com/2015/04/sing-la-la-la-and-pretend-housing-doesnt-count-thats-how-conomists-ignore-inflation/ http://wallstreetexaminer.com/2015/04/sing-la-la-la-and-pretend-housing-doesnt-count-thats-how-conomists-ignore-inflation/#comments Wed, 22 Apr 2015 18:34:25 +0000 http://wallstreetexaminer.com/?p=244707 In the hall of mirrors where conomists live, there’s no housing inflation. When the prices of consumption goods rise it’s “inflation.” But when housing prices rise, it’s not inflation, it’s “appreciation.” It’s like stock prices. There’s literally no stock price inflation. There’s “multiple expansion,” or “appreciation,” but there’s no “inflation.” That’s how establishment conomists can claim there’s no inflation. They exclude the rising prices of assets.

Mainstream conomic mythology conveniently defines inflation to affect only goods that are consumed, not those held as assets. Establishment conomists simply cover their eyes and ears, and sing “LALALALALALA LA LAAAA, I CAN’T HEAR YOU” as asset prices rise at breakneck speed.

The BLS uses that theory to eliminate housing inflation from its calculation of CPI. Even though it gives shelter costs a weighting of roughly 40% of CPI, it creates a nonsense number called Owners Equivalent Rent (OER) that uses tenants long term contract rents rather than market rents, so that it rises at about the same rate as recent CPI. Since most residential leases have CPI escalators, it’s a self fulfilling prophecy!

While housing prices and rents have been rising at 4-5% per year, and faster than that in 2012-13, the BLS has lopped off a percent or so from the CPI every month by using OER in its CPI measure instead of actual house prices or market rents. This helps the Federal Government to save billions in benefit and other government payments every year.

Call it what you want, buyers in the housing market are feeling the pressure of housing inflation. The NAR released its monthly data on house prices today. MLS member firms in 160 markets submit this data to the NAR for monthly aggregation and tabulation. It showed an increase of 7.8% in the median US house sale price over the past 12 months. This is for closed sales, which typically occur about 4 to 6 weeks after the date of the contract. Then it takes another month or so for the data to be collected and released. So while it’s not it’s not exactly current data, it is not as slow as the severely lagged and overly smoothed Case Shiller data which represents sales from 5-6 months earlier, when it is released.

Home Sale Prices and Volume- Click to enlarge

Home Sale Prices and Volume- Click to enlarge

Does the NAR data overstate the current rate of price increase? Perhaps. Redfin, a national online real estate brokerage specializing in top US markets, accumulates data from the MLS on current contracts each month from multiple markets. This is the most timely broad based data available. Their data showed a year to year gain of 4.6% in March. Their data is not quite as broad as the NAR’s coverage, and the markets which they cover had been leading the NAR data higher through 2014. The NAR’s data now seems to be catching up to Redfin’s gains. I would give some weight to both numbers and guess that nationally, on average, the US median sale price is trending at roughly 6% per year.

Those numbers don’t reveal the whole story. Redfin’s data is weighted by the number of sales in each market. Of the 50 metros it covers, 16 had double digit percentage gains in March. Another 23 had gains of more than 5% but less than 10%. The majority of sunbelt markets had double digit gains. Weighting each market equally, the year to year gain was 7.8%. All real estate is local. There is no national housing market per se. In the most desirable markets where most people want to leave or move into, double digit increases are common.

Even Redfin’s 4.6% weighted median is still a lot more than the BLS’s bogus OER input into CPI, which it plugged at 2.7%. That had the effect of reducing CPI by at least 0.75% below what it would have been had actual housing prices been used. If trend housing inflation is closer to 6%, then CPI is suppressed by closer to 1.25%.

Meanwhile current conditions are ideal for continued housing inflation. The inventory of existing homes for sale remains near record lows for this time of year at 2 million listings.

Existing Homes Listing Inventory and Sales- Click to enlarge

Existing Homes Listing Inventory and Sales- Click to enlarge

Tight inventory leads to higher prices. As long as interest rates remain near zero, sellers who might otherwise cash out and leave the purchase market have no incentive to do so. That means listing inventory is likely to remain suppressed until competitive cash returns give older homeowners a reason to cash out as they would have in the past when their offspring left the nest. The problem is compounded today by the fact that those children are no longer leaving that nest.

While inventory remains suppressed, the NAR reported a strong increase in houses going under contract in February. The March data on existing home sales (actual closings) supported the February contract data. Closings in March increased by 13.5% over March 2014. It was the strongest March since 2010 when sales were goosed by a tax credit program. To some extent this was snapback from very weak sales in January and February. If inventory remains tight and sale prices continue to ratchet up, sales are likely to weaken again.

As a result of the increase in sales and low inventory, the inventory to contracts ratio for February was at a record low for the month at 4.78. The upward pressure on house prices should continue barring a surge in properties listed for sale

Inventory to Contracts Ratio- Click to enlarge

Inventory to Contracts Ratio- Click to enlarge

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Will Weak Economic Data Force The Fed To Back Off? http://wallstreetexaminer.com/2015/04/will-weak-economic-data-force-the-fed-to-back-off/ http://wallstreetexaminer.com/2015/04/will-weak-economic-data-force-the-fed-to-back-off/#comments Fri, 17 Apr 2015 14:44:27 +0000 http://radiofreewallstreet.fm/?p=27737 Read more →

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This is a syndicated repost courtesy of Radio Free Wall Street. To view original, click here.

Lee Adler goes behind the paper curtain of Wall Street propaganda to strip away the media hype and hysteria around the financial news headlines to show you the actual facts. This week he examines the economic data for any signs that might cause the Fed to change course from its current plan of attack. He also reviews the New York Fed’s attempt to convince market participants via its Son of Harry Potter road show that the Fed will be able to control short term rates with its unconventional tools. Potter may have scored some points.

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Today’s RFWS was absolutely outstanding. (I’m glad I actually watched this one rather than just listening while running.) When it comes to financial journalism, Lee, you remain an island of sanity in a huge sea of crap. Thanks.

Bob

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First Time Claims Balloon But Is It A Warning? http://wallstreetexaminer.com/2015/04/first-time-claims-balloon-but-is-it-a-warning/ http://wallstreetexaminer.com/2015/04/first-time-claims-balloon-but-is-it-a-warning/#comments Thu, 16 Apr 2015 18:41:35 +0000 http://wallstreetexaminer.com/?p=244020 The headline, fictional, seasonally adjusted (SA) number of initial unemployment claims for last week came in at 294,000. The Wall Street conomist crowd consensus guess was 280,000. In the game of pin the tail on the number, this week was a miss.

According to the Department of Labor the actual, unmanipulated numbers were as follows. “The advance number of actual initial claims under state programs, unadjusted, totaled 307,500 in the week ending April 11, an increase of 53,967 (or 21.3 percent) from the previous week. The seasonal factors had expected an increase of 41,129 (or 16.2 percent) from the previous week. There were 318,793 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

The week to week change was worse than average for that week of April. The actual increase of 54,000 (rounded) compared with the 10 year average increase for that week of 38,000 (rounded). Claims increased by just 19,000 in the comparable week last year.

Looking at the momentum of change over the longer term, actual claims were 3.5% lower than the same week a year ago. Since 2010 the annual change rate has mostly fluctuated between -5% and -15%. The current number is slightly above the range but not so much that it would indicate that the trend is beginning to weaken.

At the last bubble peak in 2006, claims began to increase late in that year. The housing bubble had already peaked a few months earlier but the stock market continued on its merry way for 9 more months, not finally ending its run until September 2007. In that instance a clear breakout in the number of claims toward the end of 2006 gave plenty of advance warning that all was not well before stock investors got a clue. Conversely, at the 2000 top, claims had given little advance warning. They began to break out concurrently with the top in stock prices through midyear 2000.

The oil price collapse may be analogous to the housing bubble peak in 2006.

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, and Louisiana, claims have been above year ago levels since the turn of the year. North Dakota and Louisiana claims first increased above the year ago level in November. Texas reversed in late January. In the most current state data, for the April 4 week, claims in these states were well above year ago levels. Texas was up 14%, Louisiana +9%, and North Dakota +87%. Another oil producing state, Oklahoma, was up by 30%.

With its huge and widely diversified economy, Texas could be the harbinger of things to come for the entire nation as the ripple effects of the oil collapse and the disappearance of those $85,000 per year jobs spread through the US economy.

In the April 4 week, 11 states had more claims than in the same week in 2014. That’s down from 17 at the end of February. In that regard, there’s been some improvement, but at the end of 2014 only 8 were up year to year. At the end of the third quarter of 2014 there were just 5. This is akin to a stock market advance-decline line in a negative divergence from an advance in the market averages. It may be a warning sign of deterioration that is not apparent in the topline numbers.

I track the daily real time Federal Withholding Tax data in the Wall Street Examiner Professional Edition. The year to year growth rate in withholding taxes in real time is running slightly above 5% in nominal terms. This is down from a peak of over 8% in February, but it remains a strong number that supports the likelihood of a solid gain in payrolls for April.

The jobs data will continue to encourage the Fed to engage in the charade of pretending to raise interest rates sooner rather than later.

Initial Claims Inverted and Stock Prices- Click to enlarge

Initial Claims Inverted and Stock Prices- Click to enlarge

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Industrial Production Chirps Like A Canary http://wallstreetexaminer.com/2015/04/industrial-production-chirps-like-a-canary/ http://wallstreetexaminer.com/2015/04/industrial-production-chirps-like-a-canary/#comments Wed, 15 Apr 2015 16:19:27 +0000 http://wallstreetexaminer.com/?p=243801 The US Industrial Production (IP) Index slowed in March to an annual growth rate of +2.0%. That was the slowest since July 2013 when the growth rate briefly dropped to +1.7%. IP is measured on the basis of units of production, so no adjustment is necessary for inflation.

On a month to month basis the actual IP index (not seasonally manipulated) dropped by less than 0.1. March is normally an up month with an average gain of +0.7 over the past 10 years. So even though the number was little changed from February, it’s a bad number. However, it’s too soon to tell if this is the beginning of the end or just a pause. If the slowdown in IP persists, the correlation on this chart suggests that it will be bad news for the stock market.

Industrial Production- Click to enlarge

Industrial Production- Click to enlarge

 

The US oil and gas boom/bubble has skewed total IP upward since 2011. In spite of the crash in oil prices, production and capacity growth hasn’t slowed much yet. Production is still growing at a 12% annual rate. That’s about the same growth rate since the peak in prices in mid year last year.

Oil and Gas Capacity and Production- Click to enlarge

Oil and Gas Capacity and Production- Click to enlarge

Where would we be without the oil/gas production boom?

Where Would We Be Without Oil and Gas Boom?  Click to enlarge

Where Would We Be Without Oil and Gas Boom? Click to enlarge

 

A partial answer is that non-energy industrial production has only recently recovered to 2007 levels, and just barely.

Non Energy Industrial Production- Click to enlarge

Non Energy Industrial Production- Click to enlarge

Considering that the oil/gas production boom probably helped to boost not just related businesses but even unrelated industries via ripple effects, industrial production probably would not have been even this strong without the fracking revolution. While Bernanke likes to take credit for saving the world, in truth the fracking boom did more to boost the US economy. It got overdone, but it was real production with high paying jobs and widespread ripple effects throughout the US economy.

Now we must wait and see what happens to the US economy when the collapse of the oil price bubble finally begins to curtail production. If the housing bubble is any guide, it can take up to a year or so for production to collapse in reaction to the reality of the marketplace.

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Here’s Why Strong Retail Sales Per Capita Ex Gas Chirps Like A Canary http://wallstreetexaminer.com/2015/04/heres-why-strong-retail-sales-per-capita-ex-gas-sound-like-a-canary/ http://wallstreetexaminer.com/2015/04/heres-why-strong-retail-sales-per-capita-ex-gas-sound-like-a-canary/#comments Tue, 14 Apr 2015 16:06:25 +0000 http://wallstreetexaminer.com/?p=243650 The headline seasonally adjusted retail sales number slightly missed conomists’ expectations this morning, but beneath the headlines, the actual hard data tells a different story.

Nominal retail sales, not seasonally adjusted and not adjusted for inflation (or deflation), rose by $54.9 billion in March from February. March is always an up month. This month was better than the average increase for the past 10 years of $44.5 billion ($48.4 billion average ex 2008-2009). It was also slightly better than the March 2014 gain of $53.6 billion. On a top line basis, this was a strong performance.

On a year to year basis, nominal sales rose 1.6%, which was just 0.1% better than February’s 1.5% year to year gain. That was the smallest yearly rate of increase since a +0.9% reading in February 2013. It is at the low end of the rate of change of the past 2 years but it is still within the range. There’s no evidence here yet that the economy is sliding into a ditch.  In 2012 there was a radical slowing in the growth rate since the bungee rebound years of 2010 and 2011, but since then the growth rate has been rangebound.

Nominal Retail Sales- Click to enlarge

Nominal Retail Sales- Click to enlarge

 

The rate of change graph may look ominous when we don’t consider the skewing effect of gas prices collapsing. Much of the slowing in the growth rate is attributable to the decline in gasoline prices, which reduced total nominal sales over the past 9 months.

Backing out gasoline sales and adjusting the nominal sales for changes in the price level over time gives a picture of real sales over time, without the counter trend distortion of large changes in gas prices.

Real Retail Sales Ex Gas- Click to enlarge

Real Retail Sales Ex Gas- Click to enlarge

Real retail sales excluding gasoline sales jumped by 13.3% from February to March. That’s modestly stronger than the average March gain of +12.6% for the past 12 years and about the same as the March 2014 gain of +13.2%. The annual growth rate was +1.6%, about the same as in February and somewhat above the low side of the growth rate range of the past 2 years, which was as low as slightly negative in early 2013.

To normalize the data for population growth I also divided by total US population resulting in a figure for real retail sales ex gas on a per capita basis.

Real Retail Sales Per Capita- Click to enlarge

Real Retail Sales Per Capita- Click to enlarge

Here, the picture looks stronger. The monthly change of +13.1% is stronger than the 10 year average for March of +12.2%, but the big difference is in the annual growth rate. At +3.2% it is well above the bottom of the range of the past 2 years. The growth rate has been trending up since the middle of last year when gas prices peaked. This shows that consumers have increased their spending on items other than gas, benefitting those sectors of the economy while energy production and sales suffer.

That’s a logical impact. What was illogical was conomists’ conclusion, including those at the Fed, that the US economy as a whole would be boosted. Transferring income from one sector of the economy to another does not add to total economic output.

In spite of this surge in spending, retail sales per capita ex gas are still below the peak housing bubble years of 2004-2007. Cash-out refinancing of homes in those years allowed people to spend more than their income would normally permit. This time around they have no such benefit, so the numbers lag behind those peak levels. However, the surge in the growth rate to above 5% in January could be a sign of spending exhaustion at this late stage of the growth cycle. Similar surges in 2004 and 2005 marked the “as good as it gets” stage of the housing bubble economy.

While the top 10% of the income spectrum does most of the spending, the gain that took place from the middle of last year through January was still a remarkable surge. Hidden beneath the headline numbers was a spending orgy, which may have exhausted itself in January when the annual growth rate hit +5.6%. February and March have been softer as an after effect of that surge.

Mid and lower income consumers have shifted their dollars formerly spent at the Mini Mart gas pump to WalMart, Costco, and maybe even the local car dealer. When non discretionary spending declines thanks to a drop in gas prices, discretionary spending may or may not increase, depending on whether people opt to spend, save, or pay down debt. Consumers have shifted some spending. But total spending will remain the same or decline. For consumers to spend more in total, their income must increase. For the bulk of Americans, that isn’t happening.

Lower gas prices have stimulated some times of retail spending. But the other shoe has yet to drop. That is the weakening that will occur from the layoffs of highly paid oil and gas workers, plus the shutdown of orders of related machinery, equipment and materials, and the major ripple effects including job losses and the accompanying decline in spending that will follow. Those are still in the works. The effects of slowing oil exploration and production have yet show up in the broader economic data.

The invisible retail spending orgy since mid 2014 could be the final stages of a bubble. Only nobody realizes it yet. The pundits were too busy wailing over the misleading weak headline numbers in January and February. This could take a year or more to play out, but the canary may have already sung.

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St. Louis Fed is Doing It Backward http://wallstreetexaminer.com/2015/04/st-louis-fed-is-doing-it-backward/ http://wallstreetexaminer.com/2015/04/st-louis-fed-is-doing-it-backward/#comments Sun, 12 Apr 2015 23:53:22 +0000 http://wallstreetexaminer.com/?p=243451 Each week the St. Louis Fed produces what it calls the Financial Market Stress Index. It issues a press release updating the index. This week it read like this.

Financial market stress fell slightly over the previous week, according to the St. Louis Fed Financial Stress Index (STLFSI). For the week ending April 3, 2015, the STLFSI measured -1.072, down from the previous week’s revised value of -1.068. This is the third consecutive weekly decline.

It explains:

The St. Louis Fed Financial Stress Index (STLFSI)

The STLFSI measures the degree of financial stress in the markets and is constructed from 18 weekly data series: seven interest rate series, six yield spreads and five other indicators. Each of these variables captures some aspect of financial stress. Accordingly, as the level of financial stress in the economy changes, the data series are likely to move together.

How to interpret the index
The average value of the index, which begins in late 1993, is designed to be zero. Thus, zero is viewed as representing normal financial market conditions. Values below zero suggest below-average financial market stress, while values above zero suggest above-average financial market stress.

And their chart.

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Low stress. Ho hum, right?

Not so fast! Because, you see, they’re doing it backward.

St. Louis Stress Index Inverted - Click to enlarge

St. Louis Stress Index Inverted – Click to enlarge

Technical analysts and market chartist call that orange line since the middle of last year a negative divergence. Last time there was one lasting as long as this was in 2007. Apparently it works well at bottoms too, with months long positive divergences developing ahead of stock market turns.

Useful? I’ll let you be the judge.

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Bears May Need To Batten Down The Hatches Again http://wallstreetexaminer.com/2015/04/bears-may-need-to-batten-down-the-hatches-again/ http://wallstreetexaminer.com/2015/04/bears-may-need-to-batten-down-the-hatches-again/#comments Sat, 11 Apr 2015 20:50:49 +0000 http://radiofreewallstreet.fm/?p=27689 This is a syndicated repost courtesy of Radio Free Wall Street. To view original, click here.

Lee Adler goes behind the paper curtain of Wall Street propaganda to strip away the media hype and hysteria around the financial news headlines to show you the actual facts drowned out by all the noise. This week he explains why things may get tough for bears over the next few weeks, and what to look for as triggers.

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Today’s RFWS was absolutely outstanding. (I’m glad I actually watched this one rather than just listening while running.) When it comes to financial journalism, Lee, you remain an island of sanity in a huge sea of crap. Thanks.

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