THE BASIS POINT

Mostly Weaker Fundamentals Last 2 Weeks

Below are economic Fundamentals for the past two weeks. Latest housing, jobs and manufacturing stats are all weaker. A good start to U.S. earnings season has been a bright spot, but the picture is more bleak outside the U.S., most notably with Spain’s stock market trading around lows it hit during the depth of the global financial crisis.

End result for rate markets: the safe haven of mortgage bonds (MBS) and Treasuries continues, which helps keep rates low.

Daily Fundamentals data and commentary schedule resumes this week.

WEEK OF APRIL 16-20

Here’s recap of week with comments on each report below that (and click image for more).

Initial Jobless Claims (week ended 4/14)
– New Claims 386,000
– Previous (revised) 388,000
– 4-week Moving Average 374,750
– Fourth straight week of higher than expected claims

For the jobs market, April may be the cruelest month. The key to economic growth is to have more people working and the decreases in Jobless Claims has stalled for the time being.

Existing Home Sales (March 2012)
– Existing Home Sales (seasonally adjusted annualized) 4,480,000
– Existing Home Sales, Month/Month -2.6%
– Existing Home Sales, Year/Year 5.2%
– Inventory 1.3% to 2.37m, a 6.3-month supply, same as in February.
– Listed inventory is 21.8% below a year ago and well below record of 4.04m in July 2007
– Median existing-home price $163,800, up 2.5% from March 2011.
– Foreclosures and short sales were 29% of March sales (18% foreclosures, 11% short sales)
– Foreclosures sold for 19% below market price, short sales were 16% below market
– All cash deals were 32% of sales
– Investors purchased 21% of homes in March
– First-time buyers accounted for 33% of transactions in March

With significant joblessness, declining or flat values and tough lending guidelines there simple are fewer people willing and able to buy.

Philadelphia Fed Manufacturing Survey (April 2012)
-Index of manufacturing activity in Philly region dropped to 8.5 from 12.5 in Mar, 10.2 in Feb
-Zero is the dividing line between expansion and contraction
-This was highest reading since April 2011
-Region is: Eastern Pennsylvania, Southern New Jersey, Deleware
Full report and chart below

Leading Economic Indicators (March 2012)
– Month/Month change +0.3%.

This index is supposed to forecast economic growth (GDP) 3-4 months from now. It is the Fed’s low interest rates and expanded money supply which have been pumping this up.

Mortgage Applications
– Purchase Index, Week/Week -11.2%
– Refinance Index, Week/Week 13.5%
– Composite Index, Week/Week +6.9%

Refinance applications are up because rates were down last week. Purchase applications were down partly because FHA premiums went up in March but the purchase number still indicates market weakness.

Housing Starts (March 2012)
– Starts 654,000 (seasonally adjusted annualized).
– Previous revised was 694,000
– Permits 747,000. Previous was 715,000.
– No surprise here. The inventory of foreclosed homes and lower prices discourage building.

National Assn of Homebuilders (NAHB) Confidence Index (April 2012)
-Homebuilder Confidence Index value for April was 25
-Down from 28 past two months, after 5 months of gains
-Index best since 2007 but still way off from 50+ considered to be healthy market
-For this index, 50 is dividing line between positive and negative sentiment
-Last 50+ reading was April 2006
Full report
-Here’s a table showing builder confidence from 1985-PRESENT

Industrial Production (March 2012)
– Production – Month/Month unchanged
– Capacity Utilization Rate – 78.6%. Previous was 78.7%.

Retail (week ended 4/14/2012)
ICSC-Goldman Store Sales
-Store Sales, Week/Week -1.0%
– Store Sales, Year/Year +3.2%

Redbook (week ended 4/14)
-Store Sales Year/Year +3.0%.

Retail Sales were down because Easter was over.

Retail Sales (March 2012)
– Retail Sales, Month/Month +0.8%
– Retail Sales less autos, Month/Month +0.8%
– Less Autos & Gas, Month/Month +0.7%
– Retail Sales were up 6.5% year/year.

Consumer spending is about 70% of GDP and Retail Sales are consumer Spending.

Prior month/month was revised to +1.0%.

Unlike GDP, Retail Sales are not adjusted for inflation. These are nominal dollars not actual (inflation adjusted) dollars. In short, the number are not as good as they appear at first glance.

Empire State Manufacturing Survey (April 2012)
-Index of manufacturing conditions in NY region plummeted from 20.21 to 6.56.
-Zero is the dividing line between expansion and contraction
-This is the fifth consecutive monthly gain, but 13.65 is a huge drop
Full Report and chart below

WEEK OF APRIL 9-13

Here’s recap of week with more on each report below that (and click image for more).

Initial Jobless Claims (week ended 4/12/2012)
– New Claims 380,000
– Prior revised 367,000
– 4-week Moving Average 368,500

Combined with last week lousy BLS Employment Situation Report this shows a continued weak jobs market. Jobless claims have indeed fallen over the past year but we are not adding enough jobs to sustain fiscal policy. 90% of the increase in jobs in last week’s BLS report merely kept pace with population growth.

PPI: Producer Inflation (March 2012)
– PPI, Month/Month 0.0%
– PPI, Year/Year change 2.8%
– PPI core (less food & energy), Month/Month 0.3%
– PPI core (less food & energy), Year/Year 2.9%
– Inflation is restrained at the wholesale level.

CPI: Consumer Inflation (February 2012)
-CPI, Month/Month +0.3%. Previous +0.4%.
-CPI, Year/Year +2.7%
-CPI core (less food & energy) Month/Month +0.2%. Previous +0.1%.
-CPI core (less food & energy) Year/Year +2.3%

Trade Deficit (February 2012)
– The monthly Trade Deficit in February was $46.0 billion down from 52.6 billion the previous month.

Mortgage Applications (week ended 4/6/2012)
– Purchase Index, Week/Week Change -0.5%
– Refinance Index, Week/Week Change -3.1%
– Composite Index, Week/Week Change -2.4%

Refinancing is rate dependant and rates have been bouncy of late. This index shoud recover thos week. The purchase Index was affected by the increase in FHA premiums.

Import/Export Prices (March 2012)
– Export Prices, Month/Month +0.8%
– Export Prices, Year/Year +0.9%
– Import Prices, Month/Month +1.3%
– Import Prices, Year/Year +3.4%

Increases in import prices are largely about energy. Increases in export prices are largely about food. These are the two things which can lead to political/social instability when the prices change.

Retail
ICSC-Goldman Store Sales (week ended 4/7)
– Store Sales +0.5% week/week.
– Previous was +3.8%.
– This data is skewed by the movement of Easter. Pay it little attention.

Redbook (week ended 4/7)
– Store Sales Year/Year +4.1%.
– Previous was +4.6%.
– Same comment regarding Easter applies here.

NFIB Small Business Optimism Index (March 2012)
– level 92.5. Previous was 94.3.

Wholesale Inventories (February 2012)
– Inventories (month/month) +0.9%, This data is not inflation adjusted making it difficult to see what this means for GDP.

by Julian Hebron & Dick Lepre
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