More Positive Signs for Jobs

By Eldon Mast, on November 19th, 2010

On Thursday the government’s report of jobless claims held onto the big improvement of the prior week and only rose 2,000 to a lower-than-expected level of 439,000. The four-week average of 443,000 is now down more than 15,000 from a month ago and signals solid improvement for November payrolls.

Also reported on Thursday by the Conference Board were leading economic indications that continue to strengthen. Gains now reflect two strong back-to-back 0.5 percent gains for the Board’s index of leading economic indicators. A big central positive is the factory work week, strength that is likely to continue given persistent uplift underway in the manufacturing sector.

Philly Fed data has been lagging national data recently — but not in November. Thursday’s report of the November index registers general business conditions jumping from a zero-flat trend to a ballooning 22.5. This indicates very sharp month-to-month growth. New orders also rose more than 15 points to 10.4. Shipments were also up more than 15 points, to 16.8.

And all this is translating into jobs. The region’s factory jobs index rose more than 10 points to 13.3.

Other readings confirm strength: unfilled orders rose while delivery times and inventory contraction slowed. Input prices show steep month-to-month pressure at an accelerating rate yet output prices, that is prices manufacturers receive for their finished goods, continue to contract though now only slightly.

This report points to accelerating strength for what is already solid growth for the national manufacturing sector. Interestingly, these results contrast with Monday’s weak Empire State report from the New York Fed, a report that had been significantly stronger than Philly’s recently. Month-to-month swings in regional data shouldn’t cloud what is generally a positive outlook and continued leadership for the nation’s manufacturing sector.



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Economic Stabilization Measures And Their Effect On The Consumer

By Trace Mayer, on June 18th, 2010

Trace: Welcome back to the RunToGold Podcast. This is Trace Mayer. And I have with us a special guest, Bill Laggner of Bearing Asset Management. Welcome Bill.

Bill: Trace, good to hear from you today.

Trace: Wonderful. Now can you tell us a little bit about Bearing Asset?

Bill: Trace, we run a hedge fund, macro oriented hedge fund here in Texas. We began back in the summer of 2002. A lot of views that I’m sure that you have are the views that I will probably share with you today.

The biggest difficulty in analyzing this phase of the macro environment is how much of a true contraction in economic activity will we see, and then how much of a contraction in asset prices will be witnessed before we witness the central planners truly panic and implement the next round of money printing experiments.

Trace: Yeah, we actually met you up at the Mises Institute Conference in New York City, and we kind of hit it off and I think we have good things to talk about.

Now before we started recording, what we were talking about the rail numbers being down, Best Buy earning report that came out, and conversation that you had with a bankruptcy lawyer in Las Vegas. Can you expand a little bit on this and the outlook for the US consumer?

Bill: I think that when you try to find good, anecdotal muses that you can stitch together some type of a theme that could be acted upon, and I think that we are at the stage now, we look at just general leading economic indicators that are rolling over. We are over a year past the stimulus measures and spending that the government implemented.

You can see now in some of the other data points that you just referenced, the rail data, something about Best Buy with regards to the retailing space, high-end retailing, and a conversation I had with a Las Vegas bankruptcy foreclosure lawyer; the consumer is in deep trouble. I don’t think that the employment numbers are truly representative of how difficult the consumer situation is. You have the mortgage market, according to him in Las Vegas, where 60% of people are now upside down in their mortgages.

Trace: Oh my goodness…

Bill: Yeah, and if you compare that to… I know that you and I talked about Florida. I got family in Florida and know that you do too. Parts of Florida may be 25 to 28% of the mortgage wars in Florida that may be upside down.

So, some of the states that have real consumer problems, of course the BP oil spill is not going to help the Florida coast or the Louisiana coast, but I just think that the consumer in general is throwing up the white flag at this juncture.

Trace: Yeah, and you know I have to agree with that, look at what’s going on with BP, it’s shutting down a lot of the fishing, that can’t be good for what little business was remaining down there.

And now who exactly could they help the US? You know we were talking earlier, I’m over here in France watching the World Cup and on Friday I go to Rome… well Italy owes France 511 billion in its banks, and then Portugal owing Spain 58 billion, Spain owes France 2 20 billion, and so even with this trillion dollar bailout package, I don’t necessarily see the European economy coming to the US’s rescue.

Bill: Well, as good as they are the backdrop in the Eurozone is very similar to the backdrop in the States. We have New York, Illinois, California, and Arizona running huge deficits and taking extraordinary measures to try and keep this façade alive.

The state of New York borrowing money from a pension fund…

Trace: Wasn’t that just ridiculous?

When the Germans riot they buy gold.

Bill: …but we are in the shell game-phase of this unwind, and Spain has to, actually at 4:30 Eastern time, will be auctioning off quite a bit of debt. If you look at the way that the Spanish bond market is reacting versus say the German bond market, the market smells problems in Spain, and if they can get this auction off tomorrow morning, I think that that’s another feather in the cap of the bearers with regards to economic activity in Europe.

I think that the Germans, I know the constitutional courts turned down the request to listen, hear the bailout case and maybe put it on hold, but I know that the German people know that they are going to get hung with most, or all, of these liabilities . And so I think that the backlash in Germany will only continue to build as we move into the fall here.

Trace: Yeah.

I would like to close with one tip, and I hate to say that it’s the same as the Germans have. You know the saying is that when the Germans, when they riot, they buy gold.

Bill: Yeah.

Trace: So going into this next leg of The Great Credit Contraction, and it’s down where we’re seeing real economic activity grinding to a halt, moving money slowing to a Bush pace, the consumer drying up both in Europe and in the US, the budget deficits with the States, both in the individual states in the US and with the nations in Europe and as we were talking about the protocol and number one killer for small businesses is cash flow.

So when you have these state budget deficits, we are borrowing from a pension fund, making your pension fund payment or maybe your payment to some type of business that relies on government revenues, when these show gains start to collapse in this next stage of the credit contractions that are happening, what would be your tip to the people listening to this show, what should they do to protect themselves and their capital?

Bill: The biggest difficulty in analyzing this phase of macro environment is how much of a true contraction in economic activity will we see, and then how much of a contraction in asset prices will be witnessed before we witness the central planners truly panic and implement the next round of money printing experiments. And that’s what exactly they are. They are experiments.

We don’t know exactly which sectors are going to be getting handouts, Trace. We don’t know what sectors can be ignored, we can see the battle of the states between the political class and the real economy. There is a huge battle going on right now as we go into the elections this fall, you can see some of the primaries. So I do think that they will not sit idle, they will at some point panic but we may not see a panic until asset prices go down another 20% or more and the question then becomes Will they come to the rescue with $1 trillion or $5 trillion and that’s one reason why I think that gold, even in a deflation should perform well because most people realize now that any significant decline will just be met with even more money printing. And more handouts. And more intervention. And more misallocated science projects.

So gold on weakness makes sense. I don’t think that you’ll see the gold price decline, percentage-wise, as much as it did in the fourth quarter of 2008, because I think that these central banks will intervene and print relentlessly and that will ultimately, at some point, slow the decline, nonetheless, of prices.

Trace: Yeah. You couldn’t get a better run to gold, right? And during this depressionary environment, cash is King and gold is Emperor because of these fiat currencies of operations is nothing, you can still make payroll with gold coins.

Bill: Absolutely.

Trace: You will still be able to buy things, so I think that I have to agree with you on that. And avoiding things like Starbucks (SBUX) and their five dollar coffee when there are substitutable goods like McDonald’s (MCD) available, stuff like that. Oh, anything else to add?

Bill: Well I think that that makes a lot of sense. Being very prepared and know that the central planners at this juncture are taking extraordinary steps to try and fight the deflationary waves that we have right now and know that they will continue to try to pull rabbits out of their hat as things become more and more difficult.

Trace: Exactly. Well thank you very much Bill.

Bill: Thanks Trace.

Trace: You’ve been listening to the RunToGold.com Podcast.

DISCLOSURE: Long physical gold, silver and platinum with no interest in Starbucks (SBUX), McDonald’s (MCD), the problematic SLV or GLD ETFs or the platinum ETFs.

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Leading Indicators Now Up for 5 Straight Months

By Eldon Mast, on September 22nd, 2009


The Conference Board’s index of U.S. leading economic indicators rose for the fifth straight month in August. The streak represents the longest string of LEI gains in five years. The data further bolsters our view that growth likely began in June and will continue to strengthen through the end of the year. The index was up 0.6 percent in August after a jump of 0.9 percent in July.

Stock price gains, consumer confidence, and homebuilding increases helped push the leading index higher as more and more economists are beginning to finally share our view of much better than lackluster results in the second half.

“This is another signal that economic growth is turning sharply positive this quarter,” said Dean Maki, chief U.S. economist at Barclays Capital. “All of the elements for a robust recovery are falling into place. As we look ahead, job losses will end and the unemployment rate will stop rising…”



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Employment, Manufacturing, and Leading Indicators Flash Positive Signs

By Eldon Mast, on June 22nd, 2009

June 18 was yet another good news Thursday. Three independent reports showed positive surprises in employment, manufacturing and leading economic indicators.

Perhaps the biggest news of the day showed that continuing claims for unemployment has now started to fall. It was the first time that continuing claims have fallen since Jan 3. The four week moving average for initial claims also continues to fall further clarifying the lagging peak for those claims for the recession just ended. That lagging peak was in March at 674,000. Thursdays report shows initial claims now at 608,000.

(click to enlarge)
(Chart Source Haver Analytics)

The good employment news was rivaled by a huge surge in the Philadelphia Fed on regional manufacturing. The Philly reading improved to negative 2.2 from negative 22.6 last month. Economists expected a reading of negative 17. Among the sub-indexes manufacturing shipments actually turned positive for the first time since May of last year. More good news is found in the 6-month outlook where the general business conditions index rose more than 10 points. Respondents also pointed to employment continuing to picking up six months down the road.

(click to enlarge)
(Source: Econoday)

The Conference Board’s index of leading economic indicators (LEI) rose 1.2% in May adding to the 1.1% gain in April. Further the index has now risen 1.2 percent (a 2.4 percent annual rate) between November 2008 and May 2009. That represents the first time the index has increased over a six-month period since July 2007.

(click to enlarge)
(Source: The Conference Board)

Commenting on Thursday’s good news and its effect on stocks, Bill Webb of Gluskin Sheff summarized, “We’ve already priced in an end of the recession and the start of the recovery.”



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Do U.S. Economic Indicators Still Reflect Reality?

By Cheryl Grey, on July 7th, 2008

The face of U.S. demographics is changing. According to the U.S. Census Bureau, the central point of the U.S. population U-Hauled from central Indiana to Phelps County, Missouri—about halfway between Springfield and St. Louis on U.S. Highway 44—between the years 1900 and 2000. In the decade preceding the turn of this last century, it shifted a distance of 324 miles further west and 101 miles south as people moved out of the densely populated Northeastern states to warmer and more economically friendly climates.

Businesses moved with them. Between 1996 and 2006, according to the ALEC-Laffer report Rich States, Poor States, nonfarm payroll employment in Nevada grew by 52.0%, the highest rate in the U.S. and well above the national average of 13.4%, followed by Arizona (39.7%), Idaho (30.8%), Florida (29.7%), Utah (26.0%), Wyoming (25.1%) and Texas (21.7%). The states with the lowest levels of job growth include such traditional industrial areas as Ohio (2.8%), Illinois (4.3%), Indiana (4.7%) and Michigan which had 0.3% fewer jobs in 2006 than in 1996. When Wyoming’s state government realized they had more jobs than workers, they advertised in Michigan; and so many automotive manufacturing jobs have moved south that the Atlanta division of the Federal Reserve tracks the statistics independently from other industrial sectors.

Representative government trailed along, too. Following the 1990 census, 19 of the 435 seats in the House of Representatives were reapportioned, moving from the Northeastern and Midwestern states to—you guessed it—the South and West, with California, Florida and Texas gaining political clout and New York, Illinois, Michigan, Ohio and Pennsylvania losing it. Another 12 seats followed in 2000 and an additional 14 are projected to shift in 2010 according to POLIDATA.

Work Is Where the Heart Is

Another factor doing cosmetic surgery on U.S. demographics is the explosion of telecommuting and home-based businesses. In 2005 the Census Bureau counted 20.4 million non-employer establishments, mainly one-person or mom-and-pop shops, out of an estimated 149.3 million civilian workers. While it’s certainly possible that some number of these people still hold their day jobs, the most requested form on the IRS website is the W-9, the taxpayer identification form for contractors.

Yet another telling statistic comes from the Department of Labor which in 2004 estimated that 20.7 million people, both employees and the self-employed, regularly perform all or part of their work from home rather than at a centralized worksite. With the wide availability of email, cell phones and teleconferencing, more and more people find they don’t need to live near their employers or clients. While some urban workers are moving downtown to cut their commutes, subdivisions are also springing up in the West Texas desert near Big Bend National Park, as far out of a city as it’s possible to get. (Check e-Bay; it’s for real.)

Falling Behind

Have U.S. economic indicators been left behind in this shifting landscape?

Take Standard & Poor’s Case-Schiller Home Price Index as an example. It’s widely used as a barometer of home values at the national level; however, what it actually does is measure changes in house prices in 20 selected metropolitan areas. These are mainly located in traditional industrial and business centers such as New York City, Washington, D.C., Los Angeles and Chicago, the areas of waning influence in the U.S. economic landscape. Leaving aside the entire issue of an exploding housing bubble, of course these areas are losing value—along with population, jobs, business opportunities and House seats.

So why does Standard & Poor’s, no fools when it comes to analysis, continue to monitor house values in Minneapolis, Cleveland and Detroit while ignoring those in Houston, the fourth largest city in the nation and still growing? Good question.

Or there’s the manufacturing survey, a monthly questionnaire sent to regional CEOs which gives an excellent snapshot of that area’s industrial health and expectations. The press squawked over the poor figures in the recent Empire State Manufacturing Survey when more CEOs reported declining levels of shipments and new orders than those reporting increasing ones. On the survey’s June 16 release date, the U.S. dollar fell against the currencies of Switzerland, Great Britain, Australia, New Zealand, Canada and the Eurozone and crude oil surged to a record price of $139.89 per barrel. But when Federal Reserve branches in Dallas, Richmond and Atlanta all reported more positive results, nobody peeped.

The most significant aspect of any regional indicator is the level of influence it commands within the national and international frameworks. So perhaps our current population of economic indicators should shift their demographic boundaries, too.



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