Investment

» ECRI - Bloomberg AND Kudlow/CNBC today

In response to Bloomberg AND Kudlow/CNBC today posted by permabear:

Hi Permabear,

Thanks for your comments. Our basic view that the home price decline may be drawing to a close is based on our Leading Home Price Index which has been rising for a number of months (it did dip in latest reading). Recall, the LHPI remained correctly optimistic for many years after the 2001 recession, finally turning down in June of 2005, a pretty good real-time track record. We'll see if it's good record holds up.

I would also point out that the median price of existing homes (85% of all homes) has risen by 2.6% over the past two months, dire headlines notwithstanding. Meanwhile, the median new home price has risen four times as much -- by 10.4% -- since September. Before seasonal adjustment the numbers are 2.9% and 12.0% respectively.

Finally, when you say I say the economy is fine, that's fine, but the main point I'm making is no recession. I'm well aware of the growth rate cycle slowdown that we've been through, as we were talking about it more than a year ago, knowing that both housing and industrial slowing would be part of the story.

Basically, we'd describe things today as a Goldilocks economy with a few blemishes, but we wouldn't call it a bear.

Thanks,
Lakshman

-- posted by ECRI

» Jas_Jain - Inflationists Please Note: FIG Falling + The US Recession watch:

--

May 06, 2007

Inflationists Please Note: FIG Falling + The US Recession watch: Employment

ECRI's Future Inflation Gauge (FIG)

Month Index Growth Rate

Oct-05 125.6 9.8
Nov-05 121.6 3.1
Dec-05 121.3 1.7
Jan-06 123.5 4.6
Feb-06 122.6 2.8
Mar-06 121.2 -0.1
Apr-06 122.0 0.8
May-06 123.3 2.4
Jun-06 123.3 1.6
Jul-06 122.6 0.3
Aug-06 121.8 -1.1
Sep-06 121.6 -1.4
Oct-06 118.8 -5.1
Nov-06 120.0 -2.5
Dec-06 119.6 -2.8
Jan-07 119.5 -2.8
Feb-07 118.5 -3.6
Mar-07 118.6 -3.0
Apr-07 116.6 -5.7

Prior cycle:

Apr-00 124.7 14.1
May-00 123.0 8.9
Jun-00 122.6 6.7
Jul-00 121.6 3.6
Aug-00 121.5 2.0
Sep-00 119.2 -2.7
Oct-00 116.7 -7.0
Nov-00 114.9 -9.6
Dec-00 115.5 -8.5
Jan-01 113.2 -11.0
Feb-01 111.1 -13.0
Mar-01 109.6 -14.1
Apr-01 106.8 -16.6
May-01 105.5 -16.5
Jun-01 104.2 -16.5
Jul-01 102.2 -17.4
Aug-01 100.0 -18.4
Sep-01 100.0 -16.0
Oct-01 97.2 -18.1

Inflation, the laggiest of the lagging indicator, doesn't peak and starts to fall seriously until the economy is several months into the recession. At least, the FIG's fall is consistent with potential recession.

-x-x-x-x-x-x-x-x-x-x-

From Merrill Lynch's David Rosenberg:

Nonfarm post mortem: This glass wasn't just half empty

"...The unemployment rate, to be sure, only ticked up from 4.4% to 4.5% and that was fully expected by the consensus. But that up-move was understated because of a huge slide in the labor force - in fact, any time you see a 0.2 percentage point slide in the participation rate, as we did in April (a decline not seen in 27 months), to 66.3% from 66.0% in March, you know that some tectonic shifts are taking place in the labor market. Not only that, but the key "employment rate" - the employment-to-population ratio - sagged to 63% from 63.3% and this we can assure you is not lost on the central bank. The last time the employment/population ratio fell this much in one month was back in October 2002 when the Fed was consumed with deflation fear and was on the precipice of cutting the funds rate two more times. Bottom line is that if the labor force had not contracted in April as much as it did (-392,000), employment tally from the Household Survey was so weak (-468,000) that the unemployment rate would have actually risen just a smidgen above 4.7%. In our view, that is the threshold for the Fed to start easing policy by the August meeting (or shall we say "removing restraint")."

http://rsch1.ml.com/9093/24013/ds/206834...

Employment, a known lagging indicator, doesn't fall until during, and most importantly, after is recession, officially, is well over. It starts to weaken at the onset of recessions.

Recession indicators just keep piling up.

Jas

-- posted by Jas_Jain

» ECRI - Inflationists Please Note: FIG Falling + The US Recession watch:

In response to Inflationists Please Note: FIG Falling + The US Recession watch: posted by Jas_Jain:

Hi Jas,

Thanks for your comments.

You wrote, "Inflation, the laggiest of the lagging indicator, doesn't peak and starts to fall seriously until the economy is several months into the recession. At least, the FIG's fall is consistent with potential recession."

I'd like to remind all that the FIG is a cyclical leading indicator of the inflation cycle, not a measure of coincident inflation. Therefore, I would not say that the FIG's fall is part of a recession story. For example, in 1995 the FIG fell about twice as much without a recession.

You also wrote, "Employment, a known lagging indicator, doesn't fall until during, and most importantly, after is recession, officially, is well over. It starts to weaken at the onset of recessions."

While there can be leading qualities in some employment data approaching recessions, generally speaking employment is a coincident indicator. In fact it is one of the four key measures used to define recession (employment, production, income and sales). We're not saying that the jobs market is particularly strong here, but we don't read the recent jobs data as recessionary.

Thanks,
Lakshman

-- posted by ECRI

» ECRI - WLI growth at 3-year high

http://www.reuters.com/article/economicN...

NEW YORK, May 11 (Reuters) - A weekly gauge of future U.S. economic growth edged higher on stronger housing activity and lower jobless claims and interest rates, while its growth rate rose to a three-year high, a research group said on Friday.

The Economic Cycle Research Institute, an independent forecasting group, said its Weekly Leading Index increased to 142.7 in the week ended May 4 from 142.4 in the prior week.
Its annualized growth rate rose to 5.2 percent, a three-year high, from 4.4 percent the previous week.

"WLI growth has improved significantly of late; accordingly, the U.S. economic growth outlook is fairly optimistic in contrast with the more coincident sales figures recently released," said Lakshman Achuthan, managing director at ECRI.

A Commerce Department report on Friday showed U.S. retail sales unexpectedly fell 0.2 percent in April. Economists in a Reuters survey had expected a rise of 0.4 percent.

Achuthan said the current softness in retail sales is consistent with the growth-rate cycle slowdown predicted by the decline in the WLI last year.

-- posted by ECRI

» DrToast - WLI growth at 3-year high

In response to WLI growth at 3-year high posted by ECRI:

Lakshman,

I'm wondering if you saw this commentary and if you did what you thought of it: http://www.fanniemae.com/media/berson/we...

I know the purchase index is a component of the WLI, so I was wondering if you thought the WLI could be overstating things. Thanks.

-- posted by DrToast

» ECRI - WLI growth at 3-year high

In response to WLI growth at 3-year high posted by DrToast:

Thanks - will take a look at the data that Berson references. I didn't see that he was talking about the data we use in the WLI though.

-- posted by ECRI

» DrToast - WLI growth at 3-year high

In response to WLI growth at 3-year high posted by ECRI:
Sorry about that. That link has been updated with the latest commentary. It was the current commentary when I posted it.
Check out the archives for the May 7th report for the one I was referring to:
http://www.fanniemae.com/media/berson/we...

-- posted by DrToast

» ECRI - WLI growth at 3-year high

In response to WLI growth at 3-year high posted by DrToast:

Thanks. Still looking into the suggestion that multiple apps by the same person may be driving the series higher. In the meantime, we did re-run the WLI excluding apps and it's still reaching new highs and telling the same story of better growth ahead.

-- posted by ECRI

» DrToast - WLI growth at 3-year high

In response to WLI growth at 3-year high posted by ECRI:

Thanks for the reply, Lakshman. I figured that would be the case since other WLI components were favorable.

Today's G.17 report looked pretty good. Does ECRI view the industrial production slowdown that you predicted last spring to be coming to an end now?

-- posted by DrToast

» ECRI - WLI growth at 3-year high

In response to WLI growth at 3-year high posted by DrToast:

Yes, as part of our outlook for 2007 we expect a bottoming in the industrial sector slowing based on a recovery in our Leading Manufacturing Index.

Regarding the mortgage apps question, I did find the following from Tony Crescenzi:

"Some are wondering whether mortgage applications might be overstating sales activity. This camp argues that recent elevated readings on mortgage applications will not translate into the same amount of activity as similar readings would have in months past. They argue that fewer applicants are actually getting approved.

A case in point is the pending home-sales figure for March, which at -4.9% in March vs. February is weaker that one would expect based on the mortgage applications data.

While fewer applicants are likely getting approved these days, this has arguably been the case since the fourth quarter of last year, when mortgage lenders began to tighten credit. The tightening accelerated earlier this year, so today's data on mortgage applications provide a generally good apples-to-apples comparison, although a modest discounting is rational for a bit longer.

Supporting this view are comments from the Mortgage Bankers Association, which were given in response to a question by Stone & McCarthy Research Associates.

The MBA told SMRA that any over-counting would be minimal. The two key reasons are: 1) Filers must pay a fee, and this is as a barrier to multiple filings; 2) Applications from brokers, who tend to file with multiple lenders, are not included in the survey.

Here is the MBA's response:

Any possible double counting would be minimal at best. The survey is mostly retail channel applications and our definition of an application is that the entire creditworthiness evaluation process must be carried out on the application before it can be counted. This implies that the applicant would have paid any application fee required, thus reducing the likelihood that applicants would file multiple applications with different lenders. It is possible to have these types of applications, but there will not be a significant number. Additionally, since this is a retail survey, broker applications are not included in the survey, eliminating applications where brokers file multiple applications with different lenders shopping for the best rates and terms.

Strength in home sales is most vital during the spring selling season, which represents the best chance for the housing industry to rid itself of the massive excess in unsold homes, estimated at about 1.4 million (1.2 million existing homes and 200,000 new homes). Very little progress has been made on this front thus far."

-- posted by ECRI