Economic Indicators to Watch for Signs of Recovery Economic Recovery Has Stalled, Recession in the Cards by Year End New York, NY Monday, June 27, 2011 Richard Yamarone Author of The Trader s Guide to Key Economic Indicators
Economy Isn t Advancing Fast Enough to Engender Job Creation Nonfarm Payrolls vs. Real GDP Payrolls ('000) GDP YOY% 1200 800 400 0-400 -800-1200 -1600-2000 -2400 Payrolls GDP (Y/Y%) Source: BEA, BLS, Bloomberg '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 6 5 4 3 2 1 0-1 -2-3 -4-5 -6-7
Economy Operating Well Below its Potential Real GDP (Blns) vs. Real Potential GDP (Blns) $14,500 $13,500 $12,500 $11,500 $10,500 Potential GDP Real GDP $9,500 $8,500 $7,500 $6,500 Source: BEA, CBO, Bloomberg CBOPGDPR <Index>, GDP CHWG <Index> $5,500 1980 1985 1990 1995 2000 2005 2010 2015
Employment To Be a Slow Train Coming Nonfarm Payroll Creation From Onset of Recession 102 100 98 96 94 '73 - '75 1980 '81 - '82 '90 - '91 92 2001 '07 - current 90 Source: BLS, NBER, Bloomberg 88 1 5 9 13 17 21 25 29 33 37 41 45 Months
Employment To Be a Slow Train Coming -- II peak-to-trough % jobs lost Recession Date (months) total jobs lost (millions) months to job restoration peak-to-trough Period 1 1948-49 11 2.34 22 5.17 1953-54 10 1.71 23 3.33 1957-58 8 2.22 20 4.17 1960-61 10 1.19 20 2.16 1969-70 11 1.04 18 1.46 1973-75 16 2.17 19 2.70 1980 6 1.16 10 1.20 1981-82 16 2.84 28 3.09 AVG: 11 1.83 20 2.91 Period 2 1990-91 8 1.62 32 1.40 2001 8 2.71 48 2.04 AVG: 8 2.16 40 1.72 Period 3 2007-09 (current) 18 8.31? 6.03
No Hiring by the Private Sector Total Private Hires, (thousands) 5,500 5,000 4,500 4,000 3,500 HIREPRIV <Index> 3,000 2001 2003 2005 2007 2009 2011
No Words to Express this Stat Average Duration of Unemployment in Weeks 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 USDUMEAN <Index> Source: Bureau of Labor Statistics 0.0 1948 1958 1968 1978 1988 1998 2008
Unemployment Benefits Headed in Wrong Direction Real GDP (Y/Y%) vs. Initial Jobless Claims 6 250,000 5 4 3 2 300,000 350,000 400,000 1 450,000 0-1 -2-3 -4 GDP CYOY <Index>, INJCJC <Index> Real GDP, LHS Initial Claims, (RHS) Source: Bureau of Economic Analysis, Dept. of Labor, Bloomberg '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 500,000 550,000 600,000 650,000
Trusted Street Indicator Signaled Double-Dip ECRI Weekly Leading Index Smoothed Growth Rate (%) 30 20 10 0-10 -20 Source: ECRI, Bloomberg ECRWGROW <Index> <GO> -30 1990 1995 2000 2005 2010
Economy Set for An About-Face Leading Economic Indicators (Y/Y%) vs. Real GDP Growth (Y/Y%) 10 10 8 8 6 6 4 4 2 2 0 0-2 -2-4 GDP LEI GDP CYOY <Index> <GO>, LEI TOTL <Index> <GO> -4-6 Source: Bureau of Economic Analysis, The Conference Board '85 '95 '05-6
If GDP Dips to 2.0% -- It s Recession Time 14 Real GDP (Y/Y %) 12 10 8 6 4 2 0-2 GDP CYOY <Index> -4 Source: NBER, BEA, Bloomberg -6 1948 1952 1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008
Robust Fed Index Points to Sub-Par Performance Chicago Fed National Activity Index Three Month Moving Average 1.00 0.50 0.00-0.50-1.00-1.50-2.00-2.50-3.00-3.50 Source: Federal Reserve Bank of Chicago -4.00 '90 '93 '96 '99 '02 '05 '08
Economic Deceleration Occurred During Early June 14,000 Weekly U.S. Rail Carloads -- Waste/Scrap 12,000 10,000 8,000 6,000 4,000 2,000 Source: Association of American Railroads, Bloomberg RAILWAST <Index> <GO> 0 2005 2006 2007 2008 2009 2010 2011
ISM ISM & GDP Trends Diverging Real GDP (Y/Y%) vs. ISM PMI GDP 65 6 60 4 55 2 50 0 45-2 GDP 40 ISM NAPMPMI <Index>, GDP CYOY <Index> -4 Source: ISM, Bureau Economic Analysis, Bloomberg 35 1987 1991 1995 1999 2003 2007 2011-6
ISM Inventory-Orders Indicator Projects Recession ISM New Orders Index minus Inventories Index 30 25 20 15 10 5 0-5 -10 Recessions -15 Source: ISM, NBER, Bloomberg NAPMNEWO <Index>, NAPM ISNV <Index> -20 1980 1990 2000 2010
Manufacturing Gains Not Generating Jobs Industrial Production Index, Manufacturing Jobs ('000) 20,000 105 18,000 100 16,000 95 90 14,000 MFG Jobs (lhs) IP (rhs) 85 12,000 10,000 Source: Federal Reserve, Bureau of Labor Statistics, Bloomberg USMMMANU <Index>, IP <Index> 80 75 8,000 1995 2000 2005 2010 70
It s 1941 For Manufacturing 20,000 U.S. Manufacturing Employment (in thousands) 19,000 18,000 17,000 USMMMANU <Index> 16,000 15,000 14,000 13,000 12,000 Source: Bureau of Labor Statistics, Bloomberg 11,000 10,000 1940 1950 1960 1970 1980 1990 2000 2010
Auto Industry a Fraction of Its Old Self Light Weight Vehicle Sales: Autos & Light Trucks 20 in millions 15 10 Source: U.S. Dept. of Commerce; BEA, Bloomberg 5 1990 1995 2000 2005 2010
Won t Get Any Jobs from Housing Residential Construction Spending ($ mls) Construction Employment (thousands) 700,000 8,000 600,000 7,500 500,000 Spending (lhs) Jobs (rhs) 7,000 6,500 400,000 6,000 300,000 5,500 200,000 USECTOT <Index>, CNSTRESI <Index> 5,000 100,000 Source: U.S. Department of Commerce, Bureau of Labor Statistics, Bloomberg 4,500 0 1993 1997 2001 2005 2009 4,000
Housing Depression Continues Existing & New Home Sales 7.500 1400 New ('000, lhs) First-Time Home Buyer Credit 7.000 1200 Existing (mlns, rhs) 6.500 1000 6.000 800 5.500 5.000 600 ETSLTOTL <Index>, NHSLTOT <Index> 4.500 400 4.000 200 Source: U.S. Department of Commerce, National Association of Realtors, Bloomberg 1999 2002 2005 2008 2011 3.500
Home Prices Appear to be Flatlining S&P/Case Shiller Home Price Indices AZ-Phoenix 300 CA-Los Angeles CA-San Diego CA-San Francisco 250 200 CO-Denver DC-Washington FL-Miami FL-Tampa GA-Atlanta 150 IL-Chicago MA-Boston 100 SPCS20 <Index> MI-Detroit MN-Minneapolis NC-Charlotte NV-Las Vegas 50 Source: Standard & Poor's, Bloomberg NY-New York OH-Cleveland 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 OR-Portland TX-Dallas WA-Seattle
Commercial Construction Slump Total U.S. Commercial Construction Spending ($ mlns) $100,000 $90,000 $80,000 $70,000 $60,000 CNSTCOMM <Index> $50,000 $40,000 $30,000 Source: U.S. Census Bureau, Bloomberg $20,000 1993 1996 1999 2002 2005 2008 2011
Retailers Headed Out of the Malls Regional & Strip Mall Vacancies 12.0% 11.0% 10.0% Strip Mall Regional & Superregional Malls 9.0% 8.0% Source: Reis Inc. 7.0% 6.0% 5.0% 4.0% 2000 2003 2006 2009
Earnings/Analyst Conference Calls
Bloomberg Orange Book Summary of Commentary on Current Economic Conditions By Corporation NI ORANGEBOOK <GO> from earning statements commencing July 1, 2010
It Pays to Read those 200 Transcripts GDP 8.00 Fed Ex Total US Package Shipments (Y/Y%) vs. Real GDP (Y/Y%) Packages 8.00 6.00 4.00 6.00 4.00 2.00 2.00 0.00 0.00-2.00-4.00-2.00 Real GDP Packages -6.00-4.00-6.00 Source: Federal Express, Bureau of Economic Analysis 1999 2001 2003 2005 2007 2009 2011-8.00-10.00-12.00
Small Businesses Drive the Economy Unemployment % NFIB Small Business Hire Plans Hire Plans 3.0 24 4.0 18 5.0 6.0 12 7.0 6 8.0 9.0 USURTOT <Index>, SBOIHIRE <Index> 0 10.0 Unemployment Rate (Inverted scale) NFIB Hiring Plans Source: NFIB, Bureau Labor Statistics -6 11.0 '97 00 '03 '06 '09-12
State & Local Governments May be a Ticking Time Bomb State & Local Government Employment (in thousands) 14,800 14,600 14,400 14,200 14,000 13,800 13,600 Local (lhs) State (rhs) 5,250 5,200 5,150 5,100 5,050 5,000 4,950 4,900 13,400 13,200 13,000 Source: Bureau of Labor Statistics USEGSTSA <Index>, USEGLCSA <Index> 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 4,850 4,800 4,750
Not Enough Fuel in the Tank Real Disposable Personal Incomes (Y/Y%) 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00 Source: BEA, Bloomberg -1.00 PIDSDCWT <Index> -2.00 1990 1995 2000 2005 2010
Not Enough Fuel in the Tank -- II Average Hourly Earnings: Total Private Industries, Production and Nonsupervisory Employees (Y/Y%) 10 9 8 7 6 5 4 3 2 Source: Bureau of Labor Statistics, Bloomberg 1 USHEYOY <Index> 0 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
What Happens When the Stimulus Ends? Government Stimulus Driving Incomes Incomes in $ billions $10,500 $10,000 $9,500 $9,000 Real Dis Pers Incomes $8,500 PIDSCWT <Index>, PIDSPINX <Index> Real Incomes less Transfers $8,000 Source: BEA, Federal Reserve Bank of St. Louis, Bloomberg 2000 2002 2004 2006 2008 2010
Collapse In Credit Card Debt Consumer 'Revolving' Debt ($ billions) 1,000 950 900 850 800 CCOSREVL <Index> 750 700 650 600 550 Source: Federal Reserve, Bloomberg 500 '99 '01 '03 '05 '07 '09 Jan-11
Persons Receiving Food Stamps at All-Time High Supplemental Nutrition Assistance Program Number of Participants 45,000,000 40,000,000 35,000,000 30,000,000 FDS PNUM <Index> Source: U.S.D.A, Bloomberg 25,000,000 Oct-06 Mar-07 Aug-07 Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jul-10 Dec-10
There is No Holy Grail of Economic Indicators
Fab Five Dining Out Spending: Meals at Other Eating Places (Y/Y%) 8 6 4 2 0-2 RPCEDPMB <Index> <GO> -4 Source: Bureau Economic Analysis, NBER -6 '98 '01 '04 '07 '10
Fab Five Jewelry & Watches Spending: Jewelry & Watches Y/Y% 16 12 8 4 0-4 -8-12 RPCEDJRW <Index> <GO> -16-20 Source: Bureau Economic Analysis, NBER '98 '01 '04 '07 '10
Fab Five Cosmetics & Perfumes Spending: Cosmetics & Perfumes (Y/Y%) 9 6 3 0-3 RPCECOS <Index> <GO> -6 Source: Bureau Economic Analysis, NBER -9 '98 '01 '04 '07 '10
Fab Five Women s Dresses Spending: Women's & Girls' Clothing (Y/Y%) 12 9 6 3 0-3 RPCEDWGC <Index> <GO> -6-9 Source: Bureau Economic Analysis, NBER '98 '01 '04 '07 '10
Fab Five Casino Gambling Spending: Casino Gambling Y/Y% 24 20 16 12 8 4 0-4 -8-12 -16 Source: Bureau Economic Analysis, NBER RPCEDCAS <Index> <GO> '98 '01 '04 '07 '10
Trade Helped During the Housing Bust, But No Longer Convincingly Contributor Contribution to GDP Residential Spending & Trade 4 3 Residential Trade 3.21 2.88 3.27 2 1.94 1.5 1.47 1.9 1 0-1 -2 0.44 0.02-0.27-0.71-1.12-1.36-1.18 1.04 0.87 0.84 0.01-0.02-0.62-0.53-0.63-0.91-0.84-1.24-1.23-1.18-1.22-1.43-0.54 0.25-0.02-1.37-0.32-0.31 0.55-0.75-1.7 0.07 0.14-0.05-3 -4 GDP %NETX <Index>, GDP%RES <Index> Source: BEA -3.5 '06 QII QIII QIV '07 QII QIII QIV '08 QII QIII QIV '09 QII QIII QIV '10 QII QIII QIV '11
Money Not Entering Goods Market to Chase too Few Goods 900 C& I Loans Large Commercial Banks ($blns) 800 700 ALCBLCID <Index> 600 500 400 Source: Federal Reserve, Bloomberg 300 200 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Inflation Not A Primary Concern Core Personal Consumption Expenditure Deflator (Y/Y%) 12.00 10.00 8.00 6.00 PCE CYOY <Index> 4.00 2.00 Source: BEA, Bloomberg 0.00 1960 1970 1980 1990 2000 2010