Weekly Economic Indicators: Jan 4 — 8, 2016

Summary

This week reveals the interesting reality that is reading economic indicators. On the one hand, we have mounting consumer debt and faltering manufacturing indices. On the other, surprisingly positive employment news. Specifically, construction is slowing. Overall manufacturing is signaling that we should be wary of recession. Consumer credit, relative to wages, continues to mount, thereby rendering them more vulnerable to economic shocks. Wholesale inventory to sales ratios are soft-signaling recession.

However, December’s (preliminary) numbers show one of the strongest overall hiring months in a while.

Consider this graph, though. It should be clear that job indices are lagging indicators. Thus, we need to be examining other indexes for warning signs. The ISM Manufacturing Index, while not prophetic, corresponds much more closely to the actual state of the economy. This is not good for our present situation. Considered in the wider context of Federal Reserve monetary policy, we could now be in historic times.

Please examine the data. Any feedback is welcome. If community reaction is appreciative, I hope to continue these.

Indicators

Construction Spending (Nov 2015)

Grade: C-
Key reasons for rating: This represents a very mild decline from October, but a far more significant miss, compared to what was expected. It also represents a reverse in an upward trend.
Key values:
-
A 0.70% increase was expected
- Total seasonally adjusted spending decreased 0.4% to $1.122T from Oct 2015
- Nov 2014’s estimate was $1.016T
- Non-seasonally adjusted spending decreased by 9% to $93B.
Source (PDF)

ISM Manufacturing (Dec 2015)

Grade: F
Key reasons for rating: We haven't seen consecutive months below 50 since the last recession. This is a very bad sign. Another bad sign is that commodity prices are down, almost universally. Only dairy went up, and no commodity is in short supply. Falling prices are another hallmark of a recession.
Key values (growth relative to the end of Sept):
- Expected value is 49.2
- Actual value is 48.2, a decrease of 0.4 from November
- The last time the ISM was below 50 for two consecutive months was during the 2008 - 2009 recession.
- The last time the ISM survey was below 50 was Nov 2012, just as QE 3 was coming into effect.
Source
Graphs and historical data

Domestic Motor Vehicle Sales (Dec 2015)

Grade: B
Key reasons for grade:
Taken completely by itself, this seems to be a good report. New sales are in the vicinity of where they were pre-recession. I do not have the data in front of me, but my understanding is that significant portions of this market are driven by subprime. This would suggest a bubble, and thus this good news should be accompanied by a boon in credit default swaps on auto loan securities.
Key values:
- Seasonally adjusted total sales dropped 3% to 449,200
- Lowest value since February
Source (Excel document)
Historical Graph

Value of Manufacturing’s New Orders (Nov 2015)

Grade: C-
Key reasons for grade:
This is a very modest decrease. However, it is worth nothing that current new order levels are at the exact same place they were the month the recession started. In eight years of ZIRP, we have seen no increase in this metric, which should be viewed as a very important leading indicator of the state of the economy.
Key values:
- Decreased 0.2% to $472.2M
Source (PDF)
Historical Graph

US International Trade Data (Nov 2015)

Grade: D
Key reasons for grade:
At this point, any value that is not positive should be viewed with alarm. America has not been in the black for two decades now, and this can not go on. The dollars that leave this nation to buy foreign goods eventually will have to come back.
Key values:
- Total goods imports decreased $3.7B to $183.5B
- Total goods exports decreased $1.4B to $122.2B
- Total services imports decreased $0.1B to $41.1B
- Total services exports decreased $0.1B to $60B
- Total balance is -$42.4B
Source (PDF)
Historical Graph

Challenger Gray & Christmas Job Cuts (Dec 2015)

Grade: A
Key reasons for grade:
This is the lowest number of job cuts we have ever seen in December since Challenger Gray started releasing its report. It's interesting contrasting this with Am
Key values:
- 23,622 in announced corporate layoffs
- Lowest December on record
Source
Historical Graph

Consumer Credit (Nov 2015)

Grade: D
Key reasons for grade:
Student loans are in trouble, and they make up over a third of all consumer loans, by value. Increasing debt relative to wages is another factor that makes this a bad report. At some point, the consumer will have to pay off these loans, and the more in debt they are, relative to wages, the harder that will be. Naturally, this will cause problems for those who made the loans.
Key values:
- Total consumer debt increased by $14B to $3.526T.
- Total student loan debt
was last reported in Sept at $1.31T
- Total car loan debt was last reported in Sept at $1.03T
Source
Historical Graph, with comparison to total wages in America

Employment Situation (Dec 2015)

Grade: B+
Key reasons for grade:
Leisure, health, and temporary help alone saw 107,000 of the new jobs, and manufacturing saw a paltry 8. Considering America's continuing inability to produce anything for the world to consume, this is a negative. However, 292,000 new jobs is not a bad thing, leading to a strongly positive rating.
Key values:
- Average hourly earnings
decreased one penny to $25.24
- Nonfarm payrolls
increased by 292,000 to 143.2M.
- Unemployment rate
remained at 5%. Total unemployed not in the workforce increased to 94.6M
Source
Historical Graph

Wholesale Inventories M/M (Nov 2015)

Grade: D
Key reason for grade:
While inventory liquidation is a good sign, the inventory to sales ratio still remains at levels more similar to a recession than prosperity. Until this normalizes, getting a good rating will not be possible.
Key values:
- Inventory value
dropped 1% to $442B
- Sales dropped $2B to $582.9B
- Inventory to Sales ratio increased 0.01 to 1.32
Source (Current month, pdf)
Historical Graph
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