Recap 12-29-11

Main Items:

  • US Initial Jobless Claims increased to 381k last week vs 375k exp and 364k prev.
  • Chicago PMI improved 62.5 vs 61 exp and 62.6 prev
  • Pending Home Sales jumped 7.3% MoM in Nov, much stronger than the 1.5% exp. The West exhibited a 15.7% jump, but the National Association of Realtors (NAR) has reported in recent months that cancellation rates have been above normal.
  • Barron’s: The number of companies in the S&P 500 that have made downward profit revisions is at a level not seen since the 2001 economic recession. A total of 96 companies revised their fourth-quarter earnings estimates downward, while 27 companies revised them upwards. Earnings season technically kicks off Mon 1/9
  • WSJ: Many hedge funds are buying housing related investments.


  • Regulators are growing increasingly concerned about some banks running out of the collateral required to post to the ECB tender operations – WSJ
  • German CPI declined to 2.4% YoY as exp vs 2.8% prev
  • Spanish Real Retail Sales declined -7.2% YoY in Nov vs -7.4% exp and -7.0% prev.


Note that the ending of the ethanol subsidy (finally) is a large contributor to recent corn price action. The subsidy has provided the oil and agribusiness industries with 45 cents per gallon of ethanol blended into gasoline. By some estimates, Congress has awarded $45 billion in subsidies to the ethanol industry since 1980

Separately, I wanted to dig a bit deeper into the recent macro data.
The Chicago PMI, which has a large auto production component, has exhibited unusual strength over the past year. As the chart below shows, the 12 month moving average of the index has held fairly steady at multi-decade highs for a while:

Furthermore, over the past 6 months, the Chicago PMI (blue line below) was the lone major regional PMI index that has held steady above recessionary levels. Interestingly, the last time this happened was in 1H 2008. Note however, that this time, other regional PMI indices have now recovered:

On the bright side, the strength in Auto sales appears solid. Total US Auto sales in November ran at a 13.6mm annual rate, the highest since mid 2008 but still well below levels prevailing prior to the Lehman:

Interestingly, the strength is almost exclusively due to an improvement in sales of trucks. Car sales growth has actually been flat. This suggests that the improvement may be a result of business purchases. Historically, corporate profit growth (orange) has been somewhat correlated to Truck sales. (white) The moderation in corporate profit growth could mean that the strength in truck sales growth could moderate somewhat:

The strength in Auto Sales is occurring in conjunction with a surge in pending home sales. The NAR Pending Home Sales Index (orange) jumped to 100.1 in Nov, the highest print since the new homebuyer tax credit surge in 2009/2010. (Note that the index has an upward seasonal bias toward year end) Interestingly, the MBA Purchase Index remains stuck at very low levels, suggesting that there may be a large number of cash-only transactions, or a higher than usual cancellation rate.

Although this suggests that existing home prices may not exhibit much strength, the volume of new home sales are another matter. In some metropolitan areas, it appears that demand is finally outstripping supply. One indication is that the ADP construction employment data, after 4 long years of negative prints, has finally broken above zero:

This is important because the market consensus is expecting minimal contribution to GDP growth from the construction sector. The chart above suggests that GDP growth may start to get help from the residential construction sector again going forward.

So, to recap:
1) Truck sales growth has been strong, but may moderate
2) The improvement in pending home sales data is not corroborated by the MBA purchase index
3) Homebuilding is likely to add incrementally to GDP again.
In other words, the coincident data suggests that the US growth is OK for the time being.

2 thoughts on “Recap 12-29-11

  1. Hii..

    Thanks for posting your thoughts. I have been going through them for the past few weeks.

    I am a beginner and getting into macrotrading. I wonder if you have any suggestions on any books/resources to start learning the strategy.


Comments are closed.