Solid Recovery in the January Credit Managers’ Index

December dip reversed:


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Solid Recovery in the January Credit Managers’ Index

National Association of Credit Managements CMI report for January encourages, rebounds to 57.3. Main indices improved and all sub-indices are now out of contraction territory, indicating December was the likely the anomaly.

January 30 — Januarys reading for the Credit Managers Index (CMI) from the National Association of Credit Management (NACM) rebounded to 57.3, the highest point reached in over a year and even more robust than the 57.1 notched in November. This now begs the question, which of the last three months is signaling the real trend? The November CMI hit a two-year high followed by a December low that took the index back to summer levels and now the January is back to highs not seen in two years. In December, there was a palpable gloom falling over the economy where the data was concerned. The December CMI recorded a low not seen since July and it looked as if all the gains that started to accumulate in the third and fourth quarters were evaporating. The January data dispels that mood a little.

The factors comprising the CMI provide more insight. All of the favorable factors improved in January. Sales regained some of its former momentum and climbed back into the 60s to 61.5 after falling to 58.7 last month. Granted, this is still on the low end of the 60s, but is trending in a more positive direction. New credit applications rose from 57.2 to 58.2, with the biggest improvement occurring in dollar collections, which jumped from 58.7 to 60.9, its first time over 60 since October. There was also a very significant jump in amount of credit extended from 62.6 to 65.4, marking its first time cresting over 65 since May. Finally, amount of credit extended hasnt been this high in almost three years and shows that credit is far more accessible now than it has been in some time. The favorable factor index regained a little of its luster and is back in the 60s with a fairly comfortable margin of 61.5 compared to Decembers 59.3.

The unfavorable factor index also provided some good news. The majority of the factors showed improvement and some truly regained the momentum that had been building in the months prior to December. Rejections of credit applications remained stable, moving up from 54.5 to 54.6, which is certainly better than the stagnant course recorded in the last few months. The reading hit the bottom of a downward trend in May at 50.8 and barely budged from June on. Accounts placed for collection improved quite a bit from 53.4 to 55.2, suggesting the little slump recorded at the end of the year did not force many companies into a state of distress. There was similar improvement in disputes from 50.7 to 52.2, which washed away end-of-year worries that struggling companies would be pushed over the edge and would start to become a challenge from a collection point of view. Dollar amount beyond terms was one of the big gainers, jumping out of contraction territory from Decembers 49.7 to Januarys 52.8. Finally, dollar amount of customer deductions stayed almost the same, improving very slightly from 51.5 to 51.6 and filings for bankruptcies posted a nice improvement from 59.0 to 60.5. Overall, the unfavorable factor index steadied more than many had expected with its bump from 53.1 to 54.5.

The numbers posted in the December CMI were anything but inspiring and seemed to match a general lack of enthusiasm in the economy, said NACM Economist Chris Kuehl, PhD. It was suggested that the low reading was likely an anomaly and, with the rebound in January, it now appears this is the case. The next set of data will attract a lot of attention as analysts seek to determine whether there is a clear trend back to more positive readings and if this will occur on a more consistent basis.

Employment cost index, Personal income, Spending, and Saudi output

Still tame (with a hint of moving up some) particularly in comparison to the last cycle which was considered relatively tame:

Personal Consumption had a nice spike up in November:

But without the income to sustain it? (Ignore the latest yoy data point ‘dip’ as it’s from the spike a year ago. Just look at the last few monthly data points)

Highlights
Personal income was flat in December while spending was up. Income sluggishness may have been weather related. Personal income was unchanged after rising 0.2 percent in November. Markets expected a 0.2 percent rise. The wages & salaries component posted flat in December, following a 0.5 percent boost the month before.

Personal spending, however, was moderately strong, rising 0.4 percent after a 0.6 percent boost in November. Spending was led by a 1.5 percent jump in nondurables with services gaining 0.4 percent. Durables declined 1.8 percent after a 1.8 percent increase the month before.

The rise in personal consumption was not just price related. Real spending increased 0.2 percent in December after an increase of 0.6 percent in November.

Meanwhile, Saudi oil output, which indicates the net demand for global crude, keeps them in the sweet spot as swing producer/price setter:


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Jackson on high auto inventories

Slow down! We have too many cars: AutoNation CEO

Automakers should watch their bloated inventories even though 2014 seems like it will be a good year for car sales, AutoNation Chairman and CEO Mike Jackson told CNBC on Thursday.

The automakers have a “pretty bizarre” way of calculating inventories to justify these levels, he said in a “Squawk Box” interview. “But if you cut through the bogus calculations and look at dealer inventory for the Detroit 3, it’s over a 100-day supply. And it simply doesn’t need to be there.”

In response, Joe Hinrichs president of the Americas at Fordtold CNBC: “We have been cutting some production in the fourth quarter of last year and in the first quarter of this year on a couple of our product lines where we saw the inventory grow a little bit.”

But Hinrichs added, “The industry is a little different now. With our capacity running max out, we actually grow an inventory in the winter, come down in the spring and summer because we run our plants full all year round. In the old days when we had excess capacity, we’d take the plants down in the winter and work overtime in the spring/summer to supply to the demand.”

He added: “We’re watching it carefully, but I think we’re going to be OK.”

Turkey’s Prime Minister on rates and inflation

Turkey’s central bank prepared to tighten policy further

“Mr Erdogans own resistance to interest rate rises goes deep: on the flight, the prime minister insisted that, contrary to economic theory, increases in interest rates cause inflation. I believe that inflation and interest rates are not inversely proportional but in direct proportion, he told reporters. In other words, the relationship between inflation and interest is cause and effect: the interest rate is the cause, inflation is the result. If you increase the rate, inflation increases. If you reduce it, both drop together. When you think they are inversely proportional you always get much more negative results.

GDP and unemployment claims charts

Highlights
The economy ended the year on a moderately positive note, rising an annualized 3.2 percent in the advance estimate for the fourth quarter. This followed a 4.1 percent boost in the third quarter. The consensus expected a 3.0 percent rise in the fourth quarter.

But demand was not as strong. Final sales of domestic demand gained 2.8 percent after a 2.5 percent boost in the third quarter. Final sales to domestic purchasers slowed to 1.4 percent in the fourth quarter after a 2.3 percent increase the prior quarter. The softening was largely due to a drop in government purchases. A positive was improvement in consumer spending.

Inflation is soft with the GDP price index rising only 1.3 percent after a 2.0 percent increase in the third quarter. The core price index eased to 1.7 percent, following a 1.9 rise in the third quarter.

Highlights
A surprise 19,000 rise in initial jobless to a much higher-than-expected 348,000, together with a rising trend for continuing claims, are not pointing to much improvement for the labor market, at least for January. But a plus in the data is the 4-week average for initial claims, up only slightly to 333,000 which is more than 20,000 below the month-ago trend.

Another plus is a 16,000 dip in continuing claims to 2.991 million in data for the January 18 week. The 4-week average, however, is up sharply, 43,000 higher to 2.970 million which is the highest reading since August. The unemployment rate for insured workers, which had been as low as 2.1 percent in November, is at 2.3 percent for a 3rd straight week.

There are no special factors at play in today’s report though the latest initial claims are for the shortened Martin Luther King week which raises the risk of adjustment volatility. The Fed yesterday cited improvement underway in the labor market but its hard to find convincing proof in this report.

Growing Pains

FLASH- Fed to taper another $10 billion

Maybe they are concerned about all the interest income they are removing from the economy?
;)

General comments:

For GDP to grow at 3% all the pieces have to ‘average’ 3% growth

And if anything is growing at a slower pace than last year, something else has to grow at a faster pace or GDP growth slows.

So the growth rate of car sales has slowed and is expected to slow further this year:

How about housing?

Pending home sales year over year change:

New mortgage applications to purchase homes:

Purchase apps year over year:

Retail sales growth has been generally slowing and has yet to show signs of increasing:

How about orders for durable goods?

Is the income growth there to support higher levels of spending?

Is the growth rate of employment increasing?

Compensation?

Maybe consumers are somehow borrowing to spend at a higher rate?

How about the foreign sector?

Well, it was helping, but we need the rate of change to increase to have more of an impact than last year. And with GDP around $17 trillion, last year’s rate of increase has to be exceed by about $7 billion/mo to add an additional .5 to GDP. And the substantial currency depreciation of the EM’s isn’t going to help any.

Just saying, something big needs to start growing a lot just to keep GDP growth positive?

So what happened to growth?
Private sector spending (including non residents) in excess of income may no longer be keeping up with the reduction in the federal govt’s spending in excess of its income (deficit spending spending)?

Maybe the federal deficit is too low for current credit and financial conditions?

Deficit as a % of GDP through Sept 13. It’s even lower currently:

What a good economy should look like

What a good economy should look like

Warren Mosler, from a talk in Chianciano, Italy, on January 11, 2014 entitled Oltre L’Euro: La Sinistra. La Crisi. L’Alternativa.

What a good economy should look like

I just want to say a quick word about what a good economy is because it’s been so long since we’ve had a good economy. You’ve got to be at least as old as I am to remember it. In a good economy business competes for people. There is a shortage of people to work for business. Everybody wants to hire you. They’ll train you, whatever it takes. They hire students before they get out of school. You can change jobs if you want to because other companies are always trying to hire you. That’s the way the economy is supposed to be but that’s all turned around. For one reason, which I’ll keep coming back to, the budget deficit is too small. As soon as they started tightening up on budget deficits many years ago, we transformed from a good economy where the people were the most important thing to what I call this ‘crime against humanity’ that we have today……

So what you do is you target full employment, because that’s the kind of economy everybody wants to live in. And the right size deficit is whatever deficit corresponds to full employment…

ECB proposals to buy loans to households and companies

This is highly problematic.

If the ECB takes the risk, there is extreme moral hazard. If they don’t, lending won’t likely increase:

ECB poised for battle to ward off deflation

January 26 (FT) — Mario Draghi has signalled that he would be prepared for the ECB fight deflation in Europe by buying packages of bank loans to households and companies. Since the corporate bond market was small and working well, he said, there is no need to do something in that field. As the ECB does not issue debt and a decline in net lending remains a deep problem in peripheral eurozone countries, Mr Draghi said he favoured looking at a way to package bank loans to the private sector and for the ECB to buy them if economic conditions got worse. Mr Draghi said: What other assets would we buy? One thing is bank loans?.?.?.?the issue for further thinking in the future is to have an asset that would capture and package bank loans in the proper way. Right now securitisation is pretty dead, he said adding, that there was a possibility of buying asset backed securities if they were easy to understand, price and trade and rate.