Category: Energy

Economics Update

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Well, in the real economy, we have the Federal Reserve releasing yet more down numbers on industrial production and capacity utilization.

The most of the rest of today’s (and yesterday’s, I was not blogging yesterday) news today basically has to do with inflation, with increasing energy prices being responsible for increased retail and wholesale sales, producer prices rising 1.8% in June, and Consumer price rising 0.7% in June, though for the CPI, it was only 0.2% when the more volatile food and energy segments were taken out, and the CPI was down 1.4% year over year, the biggest drop since 1950.

We also have the yield curve slope hitting highs.

The yield curve slope is the difference in interest rates between 2-year and 10 year treasury bills, and is an indicator of market concerns about inflation, so it means that the bond market is seeing inflation out there in the medium term.

I’m not sure where this inflation would come from though, because this year’s back to school sales season is looking as anemic as the 2008 Christmas shopping season.

In any case, good corporate returns for Intel, and obscene returns for Goldman Sachs have left people optimistic, and so the US dollar fell, and, with the help of an anemic inventories report, oil rose above $61/bbl.

Economics Update

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Interesting day. Not a whole bunch of news, but what I saw looks like it might mean more than it seems.

First, we have 10-year treasuries spiking, because bond investors believe that the economy will not be recovering this year.

We may also have S&P warning of a lending bubble in China, with the possibility of a “sharp deterioration in banks’ assets,” over the next few months as a result.

I think that if the bond market is right, and that is a big if, then the expansion of lending in China does have a real possibility of a significant hang-over in the next few months.

It does seem that pessimism is ruling energy and currency too, with retail gasoline having its biggest 2 week drop since the end of last year, and crude oil closing at a 2 month low.

Additionally, demand for a safe haven has driven the dollar higher.

Economics Update

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So, the Michigan swurvey of consumer sentiment is down. Perhaps the average person knows something that the “green shoots” folks don’t, or maybe it’s that average people pay more attention to the unemployment rate, which is a lagging indicator.

One interesting thing is that U.S. trade deficit in May fell to its lowest level in a decade, and it was falling imports, along with an increase in exports, that appears to have driven this.

The implication here, assuming that this is not a 1 month blip in the stats, is that the US is lagging the rest of the world in economic recovery, which is not what it has been historically.

It does seem that investors are heading for safety, which drove bond prices up, and bond yields down.

These concerns have led to the biggest weekly drop in oil prices in 6 months, and a strengthening of the Yen and dollar, as a result of demand and safety concern.

Economics Update

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Thursday is new jobless claims day, and new jobless claims fell by 52K, to 565K,, bringing the number down below 600K for the first time since late January of this year. (Full disclosure here, one of those 565,000 people was me, if anyone knows of mechanical engineering openings in the greater Baltimore, MD area, it would be greatly appreciated.)

The other shoe dropping is that continuing claims hit an all time high, rising by 159 to 6.88 million.

Also note that these numbers are the seasonally adjusted numbers, and actual claims increased by 17K to 577.5K, and the seasonal adjustment includes a correction for auto factory shutdowns for model changes, which occurred early this year for GM and Chrysler, because of the bankruptcies.

Ain’t statistics grand?

A slightly more realistic metric than the massaged jobs claim data is the fact that retail sales missed expectations in June.

The fact that retailers were selling less than expected led to wholesalers drawing their inventories to the lowest levels since August 2007.

The big news in central bank land is that the Bank of England neither cut its rates nor increased its bond purchases, which had the effect of driving treasuries down, and their yields up.

In any case, it appears that the bogus job numbers (see above) have halted the slide in crude oil prices, with prices settling at $60.41/bbl.

The Bank of England’s move not to cut rates or buy bonds (print money) any faster had the effect of weakening both the dollar and the Yen.

Economics Update

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Consumer borrowing has fallen for the 4th straight month, as households continue to deleverage.

The real question is whether this is a long term or a temporary change in consumer behavior.

In banking, interest rates are falling again, with yields on treasuriess falling as more people flock to their relative safety, and falling interest rates on mortgages have boosted mortgage applications.

In currency, concerns over unrest in China have driven both the Yen and the dollar up vs the Euro, though the dollar is has fallen to a 5 month low vs. the Yen.

I think that the currency traders are more sanguine about Japan than about the US.

In energy, increased inventories and concerns about future demand drove the priuce of oil down to near 60.

Economics Update

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So much for green shoots. We now know that delinquencies in loans and credit cards have hit an all time high, and records for this have been kept for 35 years.

We’re also machine orders in Japan falling for the 3rd straight month.

So, we are seeing a continuing pullback in both manufacturing and consumers, so perhaps the focus on reviving the banking incumbents was a bit short sighted.

In real estate, we have the pending home sales rising slightly, and mortgage rates falling, though it must be noted on all home sales reports that the percentage of distressed sales, foreclosures and short sales, has been increasing, so any increase in sales reflects this phenomenon.

In any case, fears of a continued recession have pushed up the dollar and the Yen, while depressing the price of crude oil.

Economics Update

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Slow news day on the economic front.

We are seeing a big drop in lending by the SBA to small businesses, largely because in the SBA guaranteed program are refusing to lend.

Additionally, we are seeing the Federal Reserve’s plan to purchase mortgage backed securities opening much smaller than originally stated, $20 billion, as opposed to more than $100 billion.

I think that a lot of this is because the relaxation of accounting rules make it easier for executives to write themselves big pay checks with all the crap remaining on their books priced as gold, or if not gold, at least copper.

In any case, the dismal job numbers, are driving concerns that the economy has not yet hit bottom, which drove the dollar up, and oil down.

Economics Update

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Unemployment Rate Actual data vs. the Summers-Geithner Stress Test Assumptions
H/T Calculated Risk

The obvious lede is the various corporate measures of job cuts, with ADP Employer Services saying that there were 393K private-sector jobs cut, Challenger, Gray & Christmas saying that planned job cuts in June were 74,393, and the Monster Employment Index (PDF) moderating somewhat for June.

These are a bit better than May, but only in “the 2nd derivative is improving” way.

Jobs are still being cut, when you need to job growth to match the growth of the work force.

In related “2nd derivative” news, there is CNN trumpeting the fact that the Institute for Supply Management’s (ISM) manufacturing index rose for the 6th straight month:, while Bloomberg correctly notes that what this really means is that Manufacturing in U.S. Shrank at Slower Pace in June.

Falling less slowly is not improvement.

I am so sick of hack Panglossian journalists.

We also have mortgage applications falling to a 7 month low, which indicates that right now the housing market is in a death dance with economic recovery.

Any recovery will bump interest rates a few points, but that will kill any recovery in real estate……Catch 22.

If you want some good news, industrial sentiment rose in Japan, but it’s a “2nd derivative” thing too, with the index rising to minus 48 in June from minus 58 in March.

The only really good news, is that Calculated Risk’s June Economic Summary in Graphs is out, so there is some good chart pr0n for the wonks.

In energy, we have US Diesel inventories up, along with both oil and gasoline falling on increasing inventories.

Finally, the dollar fell, though I can’t tell if this is China’s suggestion of an alternate reserve currency, or because all the “2nd derivative” stuff make investors feel less of a need for a safe haven.

Economics Update

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Case-Shiller data vs. the Stress Test Assumptions
H/T Calculated Risk


Default rates on mortgages, Also
H/T Calculated Risk

Uh-oh, consumer confidence fell in June, largely based on job concerns.

The reporter interviews an analyst who is surprised about this, because of , “the fact that the S&P 500 is close to 40 percent off its March lows.”

The fact is that the general public is better at recognizing a dead cat bounce than this analyst, because they are concerned about jobs, which are still being lost.

Meanwhile in the world of real estate, or perhaps we should call it unreal estate, the
Case-Shiller index posted an 18.1% year over year drop, and delinquencies on prime mortgages going off the charts.

We also got GDP numbers for the 1st quarter from the UK, and we have their economy falling off a cliff, down 2.4% for the quarter, and 4.9% year over year.

Maybe the good news is that there U.K. house prices rose in June, following May’s increase, up 0.9%, though it’s still down 9.3% year over year.

Until I see year over year numbers below 2%, I don’t see any green shoots, just the 2nd derivative of price going positive.

In any case, the crappy consumer confidence report drove oil down and the dollar up, as there are concerns about reduced demand for oil, and a flight to safety in dollars.

Economics Update

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It’s a fairly slow day, with bond prices rising, and yields falling as the markets wait for the non-farm payroll (NFP) and unemployment rates later this week, so investors are concerned about risk, and moving into Treasurys.

This sentiment has also strengthened the dollar today.

Still, we are seeing decreased volatility in the markets, with the VIX volatility index falling to its lowest level since September.

Losses for insurers in the 1st quarter hit a new record, but that should surprise no one who has been watching.

There has actually been a fair amount of news about energy though, with natural gas declining on high stockpiles, and the IEA cutting its 5 year outlook on oil demand because of the economic downturn.

Oil was actually up today, on further violence in the Niger delta, though it appears that retail gasoline prices will hold steady for the July 4 holiday.

Economics Update

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Generally, the news has been pretty good, with personal income rising and consumer confidence hitting the highest level in over a year.

Additionally, we are seeing more signs of a credit thaw, with the 3 month dollar LIBOR falling below 0.6%.

In energy, we have an offer of amnesty on the table in Nigeria, which has driven oil lower.

This has led to a decreased perception of risk, which, along with some statements by China’s central bank, drove the dollar down.

One wonders how bank failure Friday will shake out tonight.

Economics Update

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Philly Fed Coincident Index(red is bad)

The Philadelphia Bank of the Federal Reserve has released its “state coincident indicators”, and 49 of 50 states showed contraction during the past quarter.

And another day, another S&P downgrades of residential mortgage backed securities. They review 101, and downgraded 93 of them.

Meanwhile, May existing home roes, but the year over number is still down, and median home prices have declined 16.7% year over year, so there is no incication that prices are falling.

Distressed home sales, foreclosures, short sales, etc., declined to only 33% (!) of sales from 45% (!!!) in April, so we are still well in vulture territory.

There looks to be downward pressure on interest rates, as treasurys have risen, pushing the yield down.

Not much in the way of “green shoots” in Europe, with both consumer spending in France and the a purchasing managers’ index in Germany falling.

Of course everyone is holding their breath about what the Federal Open Market Committee will do tomorrow, though the consensus is that they will not raise rates, which pushed the dollar lower.

The falling dollar, and unrest in Nigeria, drove oil up today/a>, it finished the session at just below $70/bbl.

Economics Update

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Well, I’ve missed a point on jobless claim numbers, which came out today, and showed increasing initial jobless claims, from 605,000 to 608,000, still into what Atrios calls “holy crap” territory, but that continuing claims fell from 6.74 million to 6.69 million.

I generally find continuing claims to be a better metric, but, as Susie Madrak notes, continuing claims do not count people whose benefits have been exhausted.

I’m not sure how to account for this in the data, but it is a factor.

On the other hand, we do have some unequivocally good news in the April vehicle miles driven statistics from the DOT for the first time in 20 months, which could be an indicator of a recovery, though gas prices nationally are about a buck cheaper, which may also be goosing the driving numbers.

We also have the index of leading economic indicators rising, a good sign, though the Philadelphia Fed’s Business Outlook Survey improved significantly, though it still shows contraction, so it’s an positive 2nd derivative.

It also looks like yesterday’s report of declining mortgage bond yields did predict today’s report of falling mortgage rates, with the 30 year fixed rate dropping 21 basis points (0.21%) to 5.38%, which should relieve some of the pressure on housing.

Still, with Midtown Manhattan office rents falling, down 28% year over year (!), the other show in real estate, the commercial side, is clearly dropping.

A note on the recent rise in interest rates, the real yield (interest -inflation) on 10 year treasuries is at a 15 year high, over 5%, which indicates that that inflation fears might be overblown.

The energy and currency markets have viewed today’s news as generally positive though, with oil rising, though Nigerian unrest contributed to this, and the dollar falling.

Economics Update

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So, we have the inflation numbers for May, and the CPI was up 0.1% over April, and down 1.3% year over year, the biggest price decline since April, 1950.

The deflation would have been worse, but for the ramp up in retail gasoline prices, which continues on its tear, with prices having risen for 50 straight days.

In the mean time, banking is getting interesting, with S&P cutting ratings on 18 major banks, including Wells Fargo, Capital One, BB&T.

Additionally, you have credit default swaps (CDS) have shown their largest 3 day in over 3 months, which indicates that there is a belief that the risks of default on corporate bonds is getting worse.

The fact that treasuries have staged a mini-rally, with prices up and yields down, is either a measure of concern about corporate bonds, or relief about the low inflation numbers, I’m not sure which.

Real estate is full of mixed signals. Mortgage applications fell to a 7 month low, largely on the relatively high interest rates, but mortgage bond yields have been falling for a week, which would point toward lower rates in the future.

The low inflation is perceived, to be a good marker for recovery, which pushed the dollar down, because of less demand for the $US safe haven.

Oil is getting just plain flaky. It finished the day up, to $71.03/bbl, though it dropped like a stone earlier in the day following news that gasoline stockpiles rose by 3.4 million bbl this week.

I’m not certain where oil is going, but the recent volatility seems to indicate that it is going somewhere in the near term, probably up.

Economics Update

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Well, if you are looking for “green shoots”, the New York Fed Empire State Manufacturing Survey is not one of them, they got worse (see picture).

Additionally, the NAHB Builder Confidence fell a bit in June, from 16 to 15, with 50 being neutral, so that remains awful.

When one considers that delinquencies on commercial mortgage backed securities broke 2%, this is a state of mind that accurately reflects the reality out there.

Still, another measure of consumer confidence, this one from the University of Michigan, , which is marginally better, but still well below the 10 year average of 88.2.

We also have two relatively well known business have filed for bankruptcy reorganization, Six Flags amusement parks and the Extended Stay hotel chain.

Meanwhile, in Ireland, deflation has hit an annual rate of -4.7%, which is not surprising. There are a lot fewer dollars (Euros) chasing goods there, now that their bubble has popped.

Still, it appears that foreign investors are more confident about the future on a global level, as they have cut back on purchases of long term US securities, as the flight to safety slowed/reversed.

Meanwhile, we are starting to see some inflation from the recovery in oil prices, with import prices rising 1.3%, largely on oil, though they are down by 17.6% (!) year over year.

This has driven the price of retail gasoline up again, and are now up 63% for the year, though crude oil fell today.

The dollar was up, largely on statements by Russia that it should remain the world’s reserve currency.

Economics Update

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We had the latest jobless report come out, and it’s another mixed bag, with the initial claims falling by 24K to 601,000, and the 4 week moving average fell to 621,750, but continuing claims rose again to another record, 6.82 million.

We also have mixed news on retail sales, with a ½% increase month over month, but a 10.8% decrease year over year, and a lot of the increase was driven by more expensive retail gasoline, which, by the way, was up again today, to $2.632/gal.

And real estate is not looking good, with foreclosures hitting the 3rd highest on record, and
mortgage rates rising sharply, to nearly 6%.

Additionally we have, despite the recent stock rally, Americans’ wealth falling $1.3 so far in 2009.

Additionally, international trade is still in the doldrums, with China’s exports in may down 26.4% year over year.

On the brighter side, Treasury yields fell, indicating that the upward pressure on interest rates may be abating.

In any case, it looks like oil will continue heading up, a prices closing at $72.68/bbl, though it was above $73 earlier in the day, largely on the IEA’s upwardly revised estimates of world demand.

In currency, the dollar fells on what were seen to be positive jobs and sales data, which reduced safe-haven demand.

Economics Update

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From Wingnut Economist Arthur Laffer and the contemptible Wall Street Journal OP/ED page, but there has been a huge growth in the money supply under “Helicopter” Ben Bernanke.

Well, we are seeing some more signs of increasing rates, with the 10-year Treasury hitting 4%, the highest level since October of last year.

It could mean that fewer investors are fleeing to the safety of treasuries, or it could mean that the monetary expansion is finally hitting interest rates (see pic).

My money is on the former, but that doesn’t stop rising mortgage rates from pushing down the volume of home loan applications.

In international trade, the US trade deficit rose, not because of additional imports, but because of fewer exports. International trade remains at rather low levels.

We have some good news from the Federal Reserve, in a 2nd derivative kind of way, with their so-called Beige Book showing that the pace of the decline is slacking off somewhat.

We also have some good news from the UK, with UK industrial output rising for the first time since February of last year, up 0.3%, though it is still down 12.3% year over year.

Gordon Brown’s aggressive approach to the downturn may be showing some fruit.

We actually had a lot of action in the currency market today, with both Russia and Brazil making large buys of IMF bonds, so as to diversify away from US Treasuries.

For Russia, that may just be grandstanding, but for Brazil, it’s a significant move.

In any case, it drove the dollar down for most of the day, though it finished up at the end of trading.

In energy, oil rose on falling stockpiles, and wholesale gasoline futures rose about $2/gal for the first time since October.

Economics Update

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Well, we have good news, that consumer confidence rose in June, to 50.8, which means that it crossed 50, the dividing line between optimism and pessimism.

We also have mixed news in that wholesale inventories fell for the 8th straight month, which can either mean that we are seeing continued weak demand, or that we are approaching the point where orders have to pick up, because they still need to ship to retailers.

For what it’s worth, and I’m not a big fan of the predictive powers of “the market”, but both oil rose on the expectation of increasing demand and the US dollar fell, on reduced demand for a safe haven.

Economics Update

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I think that the lede for today is the fact that two of the most prominent indicators of consumer distress, consumer credit card delinquency and consumer bankruptcy filings are up 11% and 37% year over year respectively.

These “green shoots” are all about the bankers, not about the real economy, or real people.

What’s more, indicators of the economy that are independent of investment banking, things like, the American Trucking Association Tonnage Index and the AAR’s reports on rail volume (same link), continue their downward trend.

The so-called “green shoots” are things like the Conference Board’s Employment Trends Index, which improved for the first time in 16 months:

The Conference Board Employment Trends Index (ETI)™ saw a small uptick in May. The index now stands at 89.9, increasing 0.2 percent from the revised April figure of 89.7, and down 20 percent from a year ago.

So, a 1 months uptick of less than 0.3% is a promising sign (100=1996), even though it’s still down 29% year over year, and 1996 was a great year only by the standards of the Bush economy.

Meanwhile, in international finance, downgraded the Celtic Kitten, Ireland from AA+ to AA, because Ireland, the Baltics, and much of the rest of the new EU members have experienced growth driven more by speculative flows rather than real economic development.

In energy, retail gasoline was up again this week, that’s about 27% in the past month and a half, to $2.613/gal, though oil was down slightly, largely on a stronger dollar.