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The Laird Report - February 8 2014
The Laird Economics Report from February 8, 2014, assesses current economic indicators in the US, Europe, and Canada, highlighting a temporary slowdown in the US economy attributed to poor weather, though employment ratios are improving. European unemployment remains high, particularly in Spain and Greece, while Canada experiences a slight economic slowdown amidst currency depreciation. The report includes various economic indicators, covering employment, business activities, and global financial markets, offering insights into economic predictions and trends.
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The Laird Report - February 8 2014
- 1. .... The Laird EconomicsReport Feb 08, 2014 Where we are now . . . . . . . . . . . . . . . . . . . . . . . . 1 Indicators for US Economy . . . . . . . . . . . . . . . . . . . 2 Global Financial Markets . . . . . . . . . . . . . . . . . . . . 4 US Interest & Inflation Rates . . . . . . . . . . . . . . . . . 9 QE Taper Tracker . . . . . . . . . . . . . . . . . . . . . . . . . 11 Exchange Rates . . . . . . . . . . . . . . . . . . . . . . . . . . 12 US Banking Indicators . . . . . . . . . . . . . . . . . . . . . . 13 US Employment Indicators . . . . . . . . . . . . . . . . . . . 14 US Business Activity Indicators . . . . . . . . . . . . . . . . 15 US Consumption Indicators . . . . . . . . . . . . . . . . . . 16 US Housing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Global Business Indicators . . . . . . . . . . . . . . . . . . . 18 Canadian Indicators . . . . . . . . . . . . . . . . . . . . . . . 20 European Indicators . . . . . . . . . . . . . . . . . . . . . . . 21 Chinese Indicators . . . . . . . . . . . . . . . . . . . . . . . . 23 Global Climate Change . . . . . . . . . . . . . . . . . . . . . 24 Where we are now Welcome to The Laird Economics Report. This report looks at where we are today based on a presentation of economic indicators with some historical context. In the US, the economy took a bit of a pause over Christmas. Most commentators were blaming it on the poor weather - if you look at the weather charts, you’ll see that north-east US and Canada were much cooler than usual - and with a fair bit more precipitation. No long term trends were broken, though looking at the various leading indicators, you can just see that the last month of data shows a slowdown (i.e. manufacturing hours, PMI, deliveries). Employment has been improving - though the most recent US numbers were below expectations. The good thing was the slight tick up in employment ratios. Europe is still out in the cold - the unemployment figures in Spain and Greece are literally off the charts. However, it did warm up a bit - oddly enough, inflation is still low, bond yields are low - but the Ger- mans are still afraid of government intervention and no one wants to use up that ammo on improving things. Canada is doing okay - a slight slowdown, though our currency has been hammered. Our country is having a 10% off sale right now - ar- guably that would be helpful for us, however our manufacturing base is smaller than the past and most of our exports are already priced in US dollars (yay resource economy!) - so the net effect is simply to improve the profits of those companies. What effect does that have on us? Arguably, given the number of consumer goods we import, that drives up inflation - but not my area of expertise. Formatting Notes The grey bars on the various charts are OECD recession indicators for the respective countries. In many cases, the last available value is listed, along with the median value (measured from as much of the data series as is available). Subscription Info For a FREE subscription to this monthly re- port, please email us at [email protected] The Laird Report, Feb 08, 2014
- 2. Indicators for USEconomy Leading indicators are indicators that usually change before the economy as a whole changes. They are useful as short-term predictors of the economy. Our leading indicators include the Leading Index which summarizes multiple indicators; initial jobless claims and hours worked (both decrease quickly when demand for employee services drops and vice versa); purchasing manager indicies; new order and housing per- mit indicies; delivery timings (longer timings imply more demand in the system) and consumer sentiment (how consumers are feeling about their own financial situation and the economy in general). Leading Index for the US Index:Est.6monthgrowth −3−1123 median: 1.41 Dec 2013: 1.65 Growth Contraction Initial Unemployment Claims 1000'sofClaimsperWeek 200400600 median: 353.88 Feb 2014: 334.00 Manufacturing Ave. Weekly Hours Worked Hours 39.040.041.042.0 median: 40.60 Jan 2014: 41.70 ISM Manufacturing: PMI Composite Index Index:SteadyState=50 3040506070 median: 53.20 Jan 2014: 51.30 expanding economy contracting economy Manufacturers' New Orders: Durable Goods BillionsofDollars 120160200240 median: 181.31 Dec 2013: 229.99 ISM Manufacturing: Supplier Deliveries Index 40506070 median: 51.50 Jan 2014: 54.30 Slower Deliveries Faster Deliveries Capex (ex. Defense & Planes) Percentchange(3months) 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 −10−505 median: 0.92 Dec 2013: 0.98 Chicago Fed National Activity Index IndexValue 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 −4−202 median: 0.075 Dec 2013: 0.16 U. Michigan: Consumer Sentiment Index1966Q1=100 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 507090110 median: 88.40 Jan 2014: 81.20 The Laird Report Feb 08, 2014 Page 2
- 3. Leading Indicators vs.Real GDP Growth We can model the various leading indicators versus changes in real GDP as a way of inidicating their relationship. The plots below show the correlations between the indicators and, using a simple linear model, the corresponding real GDP change in the next quarter consistant with that level. The red dot shows the current predicted value. The red bar at the bottom shows the 25%-75% confidence intervals for real GDP change. The green lines show the regression line along with confidence intervals. Given these are simple univariate models, these plots are best used to estimate growth/no-growth scenarios, rather than partic- ular growth levels. −2 −1 0 1 2 3 4 Leading Index vs Real GDP % QoQ Change in GDP (+1Q) EstimatedGDP%Growth −3 −2 −1 0 1 2 3 r2 : 0.56 −2 −1 0 1 2 3 4 Initial UI Claims vs Real GDP % QoQ Change in GDP (+1Q)%ChangeinClaims −20 −10 0 10 20 30 40 r2 : 0.35 −2 −1 0 1 2 3 4 % Change in Hours Worked vs Real GDP % QoQ Change in GDP (+1Q) %ChangeinHours −1.0 −0.5 0.0 0.5 1.0 r2 : 0.31 −2 −1 0 1 2 3 4 PMI vs Real GDP % QoQ Change in GDP (+1Q) PMIIndexValue 30 40 50 60 70 r2 : 0.26 −2 −1 0 1 2 3 4 Durable Goods Orders vs Real GDP % QoQ Change in GDP (+1Q) %ChangeinGoodsOrdered −15 −10 −5 0 5 r2 : 0.24 −2 −1 0 1 2 3 4 Suppliers Index vs Real GDP % QoQ Change in GDP (+1Q) SuppliersIndex −0.2 −0.1 0.0 0.1 0.2 0.3 r2 : 0.058 −2 −1 0 1 2 3 4 Capex vs Real GDP % QoQ Change in GDP (+1Q) %ChangeinNewOrders −8 −6 −4 −2 0 2 r2 : 0.19 −2 −1 0 1 2 3 4 National Activity Index vs Real GDP % QoQ Change in GDP (+1Q) IndexValue −4 −3 −2 −1 0 1 2 r2 : 0.50 −2 −1 0 1 2 3 4 Consumer Sentiment vs Real GDP % QoQ Change in GDP (+1Q) Sentiment 60 70 80 90 100 110 r2 : 0.17 The Laird Report Feb 08, 2014 Page 3
- 4. Global Financial Markets GlobalStock Market Returns Country Index Name Close Date Current Value Weekly Change Monthly Change 3 month Change Yearly Change Corr to S&P500 Corr to TSX North America USA S&P 500 Feb 07 1797.0 0.8% I -2.2% J 2.9% I 19.1% I 1.00 0.78 USA NASDAQ Composite Feb 07 4125.9 0.5% I -0.7% J 7.0% I 30.4% I 0.94 0.71 USA Wilshire 5000 Total Market Feb 07 19203.9 0.5% I -2.1% J 3.5% I 20.5% I 0.99 0.78 Canada S&P TSX Feb 07 13786.5 0.7% I 1.4% I 3.7% I 8.1% I 0.78 1.00 Europe and Russia France CAC 40 Feb 07 4228.2 1.5% I -0.8% J -1.2% J 17.4% I 0.60 0.64 Germany DAX Feb 07 9301.9 -0.0% J -2.1% J 2.4% I 22.5% I 0.60 0.63 United Kingdom FTSE Feb 07 6571.7 0.9% I -2.7% J -1.9% J 5.5% I 0.53 0.61 Russia Market Vectors Russia ETF Feb 07 26.0 2.8% I -5.6% J -7.3% J -12.0% J 0.74 0.63 All Europe Euro Stoxx 50 Jan 31 3014.0 -0.5% J -3.1% J -1.8% J 11.5% I 0.62 0.60 Asia Taiwan TSEC weighted index Feb 07 8387.4 1.5% I -1.5% J 1.3% I 5.6% I -0.05 0.09 China Shanghai Composite Index Jan 30 2033.1 -0.4% J -3.1% J -5.9% J -14.7% J -0.10 -0.06 Japan NIKKEI 225 Feb 07 14462.4 -3.0% J -8.5% J 1.6% I 27.3% I 0.20 0.26 Hong Kong Hang Seng Feb 07 21636.8 1.1% I -4.7% J -5.4% J -6.6% J 0.07 0.19 Korea Kospi Feb 07 1922.5 0.1% I -1.9% J -4.1% J -0.5% J 0.21 0.29 South Asia and Austrailia India Bombay Stock Exchange Feb 07 20376.6 -0.7% J -1.5% J -2.1% J 4.1% I 0.19 0.24 India S&P CNX NIFTY Feb 07 6063.2 -0.4% J -1.6% J -2.0% J 2.1% I 0.19 0.24 Indonesia Jakarta Feb 07 4466.7 1.8% I 7.0% I -0.4% J -0.8% J 0.05 0.21 Malaysia FTSE Bursa Malaysia KLCI Feb 07 1808.6 1.7% I -0.9% J 0.1% I 11.7% I 0.12 0.11 Australia All Ordinaries Feb 07 5184.5 -0.4% J -2.5% J -4.3% J 4.6% I 0.06 0.17 New Zealand NZX 50 Index Gross Feb 07 4840.8 -0.7% J -0.5% J -1.7% J 14.6% I 0.06 0.18 South America Brasil IBOVESPA Feb 07 48074.0 0.9% I -4.7% J -8.8% J -17.6% J 0.49 0.40 Argentina MERVAL Buenos Aires Feb 07 5585.0 -7.2% J 4.3% I 5.3% I 69.1% I 0.22 0.29 Mexico Bolsa index Feb 07 1797.0 0.8% I -2.2% J 2.9% I 19.1% I 1.00 0.78 MENA and Africa Egypt Market Vectors Egypt ETF Feb 07 62.3 0.7% I 14.5% I 18.6% I 23.9% I 0.15 0.27 Market Vectors Gulf States ETF Feb 07 29.1 1.4% I 4.4% I 16.1% I 38.0% I 0.35 0.33 South Africa iShares MSCI South Africa Index Feb 07 58.3 1.0% I -6.1% J -6.5% J -11.3% J 0.74 0.63 Market Vectors Africa ETF Feb 07 30.3 1.2% I 0.2% I 0.4% I -0.5% J 0.68 0.68 Commodities USD Spot Oil West Texas Int. Feb 03 $96.4 0.6% I 3.0% I 2.0% I 0.2% I 0.36 0.26 USD Gold LME Spot Feb 07 $1260.0 1.1% I 1.8% I -4.3% J -24.8% J -0.13 -0.16 Note: Correlations are based on daily arithmetic returns for the most recent 100 trading days. The Laird Report Feb 08, 2014 Page 4
- 5. S&P 500 CompositeIndex The S&P 500 Composite Index is widely regarded as the best single gauge of the large cap U.S. equities market. A key figure is the valua- tion level of the S&P500 as measured by the Price/Earnings ratio. We present two versions: (1) a 12-month trailing earnings version which reflects current earnings but is skewed by short term variances and (2) a cyclically adjusted version which looks at the inflation adjusted earn- ings over a 10 year period (i.e. at least one business cycle). Forecasted earnings numbers are estimates provided by S&P. S&P 500 Stock Price Index (USD$ Inflation Adjusted to current prices − Log Scale) 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 100 200 350 500 750 1000 1300 1750 100 200 350 500 750 1000 1300 1750 S&P Quarterly Earnings (USD$ Inflation Adjusted to current prices) 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 −5.00 0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00 −5.00 0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00 Tech Bubble Japanese Asset Bubble House Bubble Asian Financial Crisis US Financial Crisis Eurozone crisis Oil Crisis I Oil Crisis II Gulf War Savings and Loans Crisis High Inflation Period Afganistan/Iraq WarVietnam War Reported Earnings Operating Earnings Trailing P/E Ratios for S&P500 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 01020304050 01020304050 12−month P/E ( median = 17.3, Feb = 16.9) 10−year CAPE ( median = 19.4, Feb = 23.1) The Laird Report Feb 08, 2014 Page 5
- 6. S&P 500 CompositeDistributions This is a view of the price performance of the S&P 500 index com- panies. The area of each box is proportional to the company’s market cap, while the colour is determined by the percentage change in price over the past month. In addition, companies are sorted according to their industry group. AAPL −5.5% GOOG 5.8% MSFT −1.6% IBM −3.9% ORCL −1.4% FB 18% V QCOM CSCO INTC MA EBAY HPQ ACN EMC TXN YHOO CRM ADP ADBE CTSH MU TEL FIS BRK−A −4.1% WFC 1.5% JPM BAC 4.5% C AXP GS USB AIG MS MET BLK SPG PNC COF PRU BEN ACE AMT STT AFL TRV PSA CME AON ALL MHFI L XL JNJ −1.1% PFE 3.3% MRK GILD BMY ABBV UNH BIIB ABT LLY MDT BAX ACT ALXN SYK WLP CI A ZTS AMZN DIS HD MCD FOXA NKE PCLN F TWX SBUX GM LOW TJX TWC DTV CBS VIAB TGT YUM CCL JCI M DG LB GE −8.4% UTX BA −7.1% UPS MMM UNP CAT PCP GD ITW ETN DE WM PH IR WMT −6.5% PG KO PM −6.7% PEP −2.3% CVS MO MDLZ WAG CL COST KMB RAI EL K SYY LO XOM −8.6% CVX SLB 0.77% COP OXY EOG HAL APC KMI APA NOV BHI VLO SE HP LYB DD MON DOW PX FCX ECL PPG IP CF AA DUK D SO EXC PPL ED FE NI T −6.3% VZ −3.4% CCI Information Technology Financials Health Care Consumer Discretionary Industrials Consumer Staples Energy Materials Utilities Telecommunications Services <−25.0% −20.0% −15.0% −10.0% −5.0% 0.0% 5.0% 10.0% 15.0% 20.0% >25.0% % Change in Price from Jan 01, 2014 to Feb 07, 2014 Average Median Median Median Sector Change P/Sales P/Book P/E Utilities 4.1% I 1.3 1.5 19.0 Health Care 2.6% I 3.2 3.6 23.1 Information Technology 0.5% I 2.9 3.7 23.5 Financials -1.9% J 2.8 1.4 18.1 Materials -1.9% J 1.4 3.1 20.4 Average Median Median Median Sector Change P/Sales P/Book P/E Industrials -2.1% J 1.5 3.1 20.1 Consumer Discretionary -3.4% J 1.5 3.9 19.1 Consumer Staples -3.7% J 1.7 4.5 19.6 Energy -4.1% J 1.9 1.5 16.5 Telecommunications Services -4.9% J 1.0 2.5 35.1 The Laird Report Feb 08, 2014 Page 6
- 7. US Equity Valuations Akey valuation metric is Tobin’s q: the ratio between the market value of the entire US stock market versus US net assets at replacement cost (ie. what you pay versus what you get). Warren Buffet famously follows stock market value as a percentage of GNP, which is highly (93%) correlated to Tobin’s q. We can also take the reverse approach: assume the market has valuations correct, we can determine the required returns of future es- timated earnings. These are quoted for both debt (using BAA rated securities as a proxy) and equity premiums above the risk free rate (10 year US Treasuries). These figures are alternate approaches to under- standing the current market sentiment - higher premiums indicate a demand for greater returns for the same price and show the level of risk-aversion in the market. Tobin's q (Market Equity / Market Net Worth) and S&P500 Price/Sales 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 0.25 0.50 0.75 1.00 1.25 1.50 0.25 0.50 0.75 1.00 1.25 1.50 Buying assets at a discount Paying up for growth Tobin Q (median = 0.75, Sep = 0.98) S&P 500 Price/Sales (median = 1.40, Sep = 1.51) Equity and Debt Risk Premiums: Spread vs. Risk Free Rate (10−year US Treasury) 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 0% 2% 4% 6% 8% 10% 12% 0% 2% 4% 6% 8% 10% 12% Implied Equity Premium (median = 4.2%, Jan = 5.0%) Debt (BAA) Premium (median = 2.0%, Jan = 2.5%) The Laird Report Feb 08, 2014 Page 7
- 8. US Mutual FundFlows Fund flows describe the net investments in equity and bond mutual funds in the US market, as described in ICI’s “Trends in Mutual Fund Investing” report. Note however that this is only part of the story as it does not include ETF fund flows - part of the changes are investors entering or leaving the market, and part is investors shifting to ETF’s from mutual funds. US Net New Investment Cash Flow to Mutual Funds US$billions(monthly) 2007 2008 2009 2010 2011 2012 2013 2014 −40−2002040 Domestic Equity World Equity Taxable Bonds Municipal Bonds US Net New Investment Cash Flow to Mutual Funds US$billions(Monthly) 2007 2008 2009 2010 2011 2012 2013 2014 −60−40−200204060 Flows to Equity Flows to Bonds Net Market Flows The Laird Report Feb 08, 2014 Page 8
- 9. US Interest &Inflation Rates Yield Curve - US Treasuries US Treasury Yield Curves ForwardOvernightRates(%) 13 14 15 16 17 18 19 20 21 22 23 24 0.00.51.01.52.02.53.0 06 Feb 14 ( Today ) 06 Jan 14 ( 1 mo ago ) 06 Nov 13 ( 3 mo ago ) 06 Feb 13 ( 1 yr ago ) 3 Month & 10 Yr Treasury Yields 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 0% 1% 2% 3% 4% 5% 6% 7% 10 Yr Treasury 3 Mo Treasury Spread US Inflation measures 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 −1% 0% 1% 2% 3% 4% 5% 6% −1% 0% 1% 2% 3% 4% 5% 6% US Inflation Rate YoY% (Dec = 1.5%) US Inflation ex Food & Energy YoY% (Dec = 1.5%) Delta of Treasury vs. TIPS (Feb = 2.2%) The Laird Report Feb 08, 2014 Page 9
- 10. AAA vs. BAACorporate Bond Spreads 4% 5% 6% 7% 8% 9% 4% 5% 6% 7% 8% 9% Percent AAA BAA 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 median: 91.00 Jan 2014: 65.00 0 100 200 300 0 100 200 300 Spread(bps) TED Spread (LIBOR vs. Fedfunds Rate) 0% 1% 2% 3% 4% 5% 6% 7% 0% 1% 2% 3% 4% 5% 6% 7% Percent 3 mos t−bill LIBOR 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 median: 37.50 Jan 2014: 21.66 0 100 200 300 0 100 200 300 Spread(bps) The Laird Report Feb 08, 2014 Page 10
- 11. QE Taper Tracker TheUS has been using the program of Quantitative Easing to pro- vide monetary stimulous to its economy. The Fed has engaged in a series of programs (QE1, QE2 & QE3) designed to drive down long term rates and improve liquidity though purchases of treasuries, mor- gage backed securites and other debt from banks. The higher demand for long maturity securities would drive up their price, but as these securities have a fixed coupon, their yield would be decreased (yield ≈ coupon / price) thus driving down long term rates. In 2011-2012, “Operation Twist” attempted to reduce rates without increasing liquidity. They went back to QE in 2013. The Fed chairman suggested in June 2013 the economy was recover- ing enough that they could start slowing down purchases (“tapering”). The Fed backed off after a brief market panic. The Fed announced in Dec 2013 that it was starting the taper, a decision partly driven by seeing key targets of inflation around 2% and unemployment being less than 6.5%. These charts track that progress. Note - in the US Banking charts, repos have spiked recently - not sure what that means. QE Asset Purchases to Date (Treasury & Mortgage Backed Securities) Trillions 0.01.02.0 0.01.02.0 QE1 QE2 Operation Twist QE3Treasuries Mortgage Backed Securities Total Monthly Asset Purchases (Treasury + Mortgage Backed Securities) Billions −1000100 −1000100 Month to date Feb 05: $9.8 Inflation and Unemployment − Relative to Targets Percent 02468 02468 Target Unemployment 6.5% Target Inflation 2% U.S. 10 Year and 3 Month Treasury Constant Maturity Yields Percent 024 024 2008 2009 2010 2011 2012 2013 Short Term Rates: Once at zero, Fed moved to QE Long Term Rates: Moving up in anticipation of Taper? The Laird Report Feb 08, 2014 Page 11
- 12. Exchange Rates 10 WeekMoving Average CAD Exchange Rates 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 0.620.710.810.901.001.09 USA/CAD 0.550.610.660.720.770.82 Euro/CAD 59.1674.7190.26105.81121.36136.91 Japan/CAD 0.380.440.490.550.610.67 U.K./CAD 0.590.981.361.742.122.51 Brazil/CAD CAD Appreciating CAD Depreciating 1 Month Change in Rates versus Average −3.0% −1.5% 1.5% 3.0% Euro −0.8% UK −2.0% Japan −1.7% South Korea 0.6% China −2.1% India −1.2% Brazil 1.7% Mexico 0.3% Canada 3.3% USA 1.6% % Change over 3 months vs. Canada <−10.0% −8.0% −6.0% −4.0% −2.0% 0.0% 2.0% 4.0% 6.0% 8.0% >10.0% CAD depreciatingCAD appreciating ARG −20.1% AUS −0.2% BRA 1.0% CHN 6.6% IND 5.9% RUS −1.1% USA 6.0% EUR 6.4% JPY 2.9% KRW 4.3% MXN 5.1% ZAR −2.2% The Laird Report Feb 08, 2014 Page 12
- 13. US Banking Indicators Thebanking and finance industry is a key indicator of the health of the US economy. It provides crucial liquidity to the economy in the form of credit, and the breakdown of that system is one of the exac- erbating factors of the 2008 recession. Key figures to track are the Net Interest Margins which determine profitability (ie. the difference between what a bank pays to depositors versus what the bank is paid by creditors), along with levels of non-performing loans (i.e. loan loss reserves and actual deliquency rates). US Banks Net Interest Margin Percent 3.54.04.5 median: 3.95 2013 Q3: 3.20 Repos Outstanding with Fed. Reserve BillionsofDollars 50150250 median: 42.40 Feb 2014: 196.11 Bank ROE − Assets between $300M−$1B Percent 051015 median: 12.89 2013 Q3: 9.06 Consumer Credit Outstanding %YearlyChange −505101520 median: 7.08 Dec 2013: 5.63 Total Business Loans %YearlyChange −2001020 median: 7.81 Dec 2013: 6.48 US Nonperforming Loans Percent 12345 median: 2.31 2013 Q3: 2.89 St. Louis Fed Financial Stress Index Index 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 0246 median: −0.17 Jan 2014: −0.87 Commercial Paper Outstanding TrillionsofDollars 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 1.01.41.82.2 median: 1.36 Feb 2014: 0.99 Residential Morgage Delinquency Rate Percent 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 246810 median: 2.30 2013 Q3: 8.59 The Laird Report Feb 08, 2014 Page 13
- 14. US Employment Indicators UnemploymentRate Percent 45678910 median: 5.70 Jan 2014: 6.60 Ave. Duration of Unemployment Weeks 152025303540 median: 17.40 Jan 2014: 35.40 Index: Employment, Hours Index −1.5−0.50.51.5 median: 0.00 Dec 2013: 0.10above ave growth below ave growth Total Nonfarm Hires Rate 3.03.54.0 median: 3.60 Nov 2013: 3.30 Services: Temp Help ThousandsofPersons 150020002500 median: 2220.90 Jan 2014: 2779.80 Employment Ratio Percent 606570758085 All civilian Bachelor Degree 25+ Aged 25−54 Some college 25+ (U6) Unemployed + PT + Marginally Attached Percent 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 810121416 median: 9.60 Jan 2014: 12.70 4−week moving average of Initial Claims Jan1995=100 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 50100150200 median: 108.80 Feb 2014: 102.69 Small, Med, Lrg Nonfarm Emp (ADP) Jan2005=100 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 8090100110 Firm Size 1−49 50−499 500+ The Laird Report Feb 08, 2014 Page 14
- 15. US Business ActivityIndicators Business activity is split between manufacturing activity and non- manufacturing activity. We are focusing on forward looking business indicators like new order and inventory levels to give a sense of the current business environment. Manufacturing Sector: Real Output YoYPercentChange −15−5515 median: 6.67 2013 Q4: 9.95 ISM Manufacturing: PMI Composite Index Index 3040506070 Jan 2014: 51.30 manufac. expanding manufac. contracting ISM Manufacturing: New Orders Index Index 304050607080 Jan 2014: 51.20 Increase in new orders Decrease in new orders Non−Manufac. New Orders: Capital Goods BillionsofDollars 35455565 median: 56.91 Dec 2013: 68.38 Average Weekly Hours: Manufacturing Hours 3940414243 median: 41.10 Jan 2014: 41.70 Industrial Production: Manufacturing YoYPercentChange −15−50510 median: 3.27 Dec 2013: 2.77 Total Business: Inventories to Sales Ratio Ratio 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 1.11.21.31.41.51.6 median: 1.37 Nov 2013: 1.29 Chicago Fed: Sales, Orders & Inventory Index 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 −0.50.00.5 Dec 2013: 0.06Above ave growth Below ave growth ISM Non−Manufacturing Bus. Activity Index Index 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 35455565 Jan 2014: 56.30 Growth Contraction The Laird Report Feb 08, 2014 Page 15
- 16. US Consumption Indicators Variationsin consumer activity are a leading indicator of the strength of the economy. We track consumer sentiment (their expec- tations about the future), consumer loan activity (indicator of new purchase activity), and new orders and sales of consumer goods. U. Michigan: Consumer Sentiment Index1966Q1=100 5060708090110 median: 88.40 Jan 2014: 81.20 Consumer Loans (All banks) YoY%Change 0102030 median: 7.16 Dec 2013: 2.37 Accounting Change Deliquency Rate on Consumer Loans Percent 2.53.03.54.04.5 median: 3.49 2013 Q3: 2.40 New Orders: Durable Consumer Goods YoY%Change −30−101030 median: 3.84 Dec 2013: 5.85 New Orders: Non−durable Consumer Goods YoY%Change −2001020 median: 3.96 Dec 2013: 0.90 Personal Consumption & Housing Index Index −0.40.00.2 median: 0.02 Dec 2013: −0.15above ave growth below ave growth Light Cars and Trucks Sales MillionsofUnits 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 10121416182022 median: 14.71 Dec 2013: 15.30 Personal Saving Rate Percent 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 246810 median: 5.50 Dec 2013: 3.90 Real Retail and Food Services Sales YoY%Change 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 −10−505 median: 2.52 Dec 2013: 2.54 The Laird Report Feb 08, 2014 Page 16
- 17. US Housing Housing constructionis only about 5-8% of the US economy, how- ever a house is typically the largest asset owned by a household. Since personal consumption is about 70% of the US economy and house val- ues directly impact household wealth, housing is an important indicator in the health of the overall economy. In particular, housing investment was an important driver of the economy getting out of the last few recessions (though not this one so far). Here we track housing prices and especially indicators which show the current state of the housing market. 20 City Housing Prices: 1991 − present Atlanta Boston Charlotte Chicago Cleveland Dallas Denver Detroit Las Vegas Los Angeles Miami Minneapolis New York Phoenix Portland San Diego San Francisco Seattle Tampa WASHINGTON Lowest value (1991−) Highest value (1991−) Current Value (Nov 2013) Bubble Peak (Jan 2007) New Housing Units Permits Authorized MillionsofUnits 0.51.01.52.02.5 median: 1.36 Dec 2013: 0.99 New Home Median Sale Price SalePrice$000's 100150200250 Dec 2013: 270.20 15 20 25 30 35 150200250300 Disposable Income Per Capita (000's) NewHomePrice(000's) (Real) Personal Income vs. Housing Prices Dec 2013 r2 : 88.9% Range: Jan 1963 − Dec 2013 New Homes: Median Months on the Market Months 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 468101214 median: 5.00 Dec 2013: 3.20 US Monthly Supply of Homes MonthsSupply 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 4681012 median: 6.00 Dec 2013: 5.00 The Laird Report Feb 08, 2014 Page 17
- 18. Global Business Indicators GlobalPMI Reports The Purchasing Managers’ Index (PMI) is an indicator reflecting purchasing managers’ acquisition of goods and services. An index read- ing of 50.0 means that business conditions are unchanged, a number over 50.0 indicates an improvement while anything below 50.0 suggests a decline. The further away from 50.0 the index is, the stronger the change over the month. The chart at the bottom shows a moving av- erage of a number of PMI’s, along with standard deviation bands to show a global average. Global PMI − January 2014 <40.0 42.0 44.0 46.0 48.0 50.0 52.0 54.0 56.0 58.0 >60.0 Steady ExpandingContracting Eurozone 54.0 Global PMI 52.9 TWN 55.5MEX 54.0 KOR 50.9 JPN 56.6 VNM 52.1 IDN 51.0 ZAF 50.3 AUS 46.7 BRA 50.8 CAN 51.7 CHN 49.5 IND 51.4 RUS 48.0 SAU 59.7 USA 53.7 Global PMI Monthly Change <−5.0 −4.0 −3.0 −2.0 −1.0 0.0 1.0 2.0 3.0 4.0 >5.0 PMI Change ImprovingDeteriorating Eurozone 1.3 Global PMI −0.4 TWN 0.3MEX 1.4 KOR 0.1 JPN 1.4 VNM 0.3 IDN 0.1 ZAF −0.2 AUS −0.9 BRA 0.3 CAN −1.8 CHN −1.0 IND 0.7 RUS −0.8 SAU 1.0 USA −1.3 Purchase Managers Index (Manufacturing) − China, Japan, USA, Canada, France, Germany, Italy, UK, Australia 04 05 06 07 08 09 10 11 12 13 14 3040506070 3040506070 Business Conditions Contracting Business Conditions Expanding The Laird Report Feb 08, 2014 Page 18
- 19. Global Trade Indicators TheBDI is often described as a leading indicator of economic ac- tivity; it’s offered as evidence that global manufacturers are re-stocking on material inventories. However, the BDI is highly volatile, and de- pendent on the available shipping capacity as well as demand. If there are 50 ships and only enough bulk cargoes to fill 49 of them, shipping rates can fall by 20%. If 51 cargoes are competing for the same ships, rates can rise 20%. So a 4% change in demand can cause a 40% change in shipping costs. While the BDI measures bulk cargo transport - ore, crude oil, coal, grain, etc. HARPEX measures container transport - electronics from Taiwan, toys from China, textiles from Italy, etc. The HARPEX is a good indicator of global consumer activity and in a high value-added conversion economy like the US, it is a critical indicator. Global Shipping Indices 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 2000600010000 BalticShippingIndex 400600800 HARPEXIndex Shipping Demand Exceeds Supply Shipping Supply Exceeds Demand Germany − Exports YoY%Change 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 −40−2002040 median: 7.49 2013 Q3: −1.10 South Korea − Exports YoY%Change 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 −40−2002040 median: 16.77 2013 Q3: −0.34 Japan − Exports YoY%Change 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 −40−2002040 median: 5.96 2013 Q3: 14.54 The Laird Report Feb 08, 2014 Page 19
- 20. Canadian Indicators Unemployment rate Percent 67891011 median:7.40 Jan 2014: 7.00 Permits issued for Dwelling YoYPercentChange −50050100 Jan 2014: NA Retail Sales YoYPercentChange −50510 median: 4.30 Nov 2013: 5.48 Inflation rate YoYPercentChangeinCPI −1012345 median: 1.68 Dec 2013: 1.15 Consumer Confidence 60708090100 median: 94.60 Jan 2014: 80.70 Housing Prices YoYPercentChange −5051015 median: 1.87 Nov 2013: 1.19 Money Supply (M2) YoYPercentChange 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 051015 median: 5.88 Dec 2013: 6.81 PMI: Manufacturing 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 40506070 median: 56.70 Jan 2014: 51.70 Retail Sales Performance YoYPercentChange 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 −50510 median: 4.30 Nov 2013: 5.48 The Laird Report Feb 08, 2014 Page 20
- 21. European Indicators Unemployment Rates Percentage 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 05101520 BusinessEmployment Expectations Index 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 −40−20010 Volume of Retail Sales (ex−cars) Index(Jan2010=100) 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 60708090110130 Manufacturing Turnover Index(Jan2010=100) 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 60708090110130 Building Permits Index(Jan2010=100) 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 0100200300400500 Industrial Orderbook Levels Index 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 −60−40−20020 Country Employment Expecta- tions Unempl. (%) Bond Yields (%) Retail Turnover Manufacturing Turnover Building Permits Industry Orderbook PMI Series Dates Jan 2014 Dec 2013 Jan 2014 Dec 2013 Dec 2013 Dec 2013 Jan 2014 Jan 2014 France -14.3 10.8 2.33 103.5 109.4 77.44 -20.6 49.3 Germany 1.5 5.1 1.8 99 111.9 131.21 -9.3 56.5 United Kingdom 12.1 7.2 2.5 103.99 102.39 NA 3.1 56.7 Italy -8.4 12.7 4.11 92.27 98.66 NA -26.9 53.1 Greece -7.3 27.8 8.66 73.77 98.72 17.9 -32 51.2 Spain -3.3 25.8 4.13 79.7 99.99 47.07 -16.4 52.2 Eurozone -2 10.7 3.02 97.68 109.11 NA -15.2 NA The Laird Report Feb 08, 2014 Page 21
- 22. Government Bond YieldsLongTermYields% 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 0246810 EconomicSentiment Index 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 60708090110130 Consumer Confidence Index 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 −100−60−20020 Production of Total Industry: Nov 2013 <−10.0%−7.5%−5.0%−2.5% 0.0% 2.5% 5.0% 7.5%>10.0% YoY % Difference increasingdecreasing AUT −0.8% DEU 4.8% ESP 2.6% FIN −1.4% FRA 1.5% GBR 2.5% GRC −5.1% HUN 6.0% IRL 12.8% ITA 0.9% NOR −1.9% POL 4.4% RUS −0.7% SWE −6.5% Inflation: Dec 2013 AUT 1.9% DEU 1.4% ESP 0.3% FIN 1.6% FRA 0.7% GBR 2.0% GRC −1.7% HUN 0.4% IRL 0.2% ITA 0.7% NOR 2.0% POL 0.7% SWE 0.1% <−1.0%0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% >7.0% YoY % Change in Prices PMI: January 2014 <40.042.0 44.0 46.0 48.0 50.0 52.0 54.0 56.0 58.0>60.0 Steady ExpandingContracting BRA 50.8 CAN 51.7 DEU 56.5 ESP 52.2 FRA 49.3 GBR 56.7 GRC 51.2 IRL 52.8 ITA 53.1 MEX 54.0 POL 55.4 SAU 59.7 TUR 52.7 USA 53.7 PMI Change: Dec − Jan <−5.0−4.0 −3.0 −2.0 −1.0 0.0 1.0 2.0 3.0 4.0 >5.0 PMI Change ImprovingDeteriorating CAN −1.8 DEU 2.2 ESP 1.4 FRA 2.3 GBR −0.6 GRC 1.6 IRL −0.7 ITA −0.2 POL 2.2 TUR −0.8 USA −1.3 The Laird Report Feb 08, 2014 Page 22
- 23. Chinese Indicators Tracking theChinese economy is a tricky. As reported in the Finan- cial Times, Premier Li Keqiang, confided to US officials in 2007 that gross domestic product was “man made” and “for reference only”. In- stead, he suggested that it was much more useful to focus on three alter- native indicators: electricity consumption, rail cargo volumes and bank lending (still tracking down that last one). We also include the PMI - which is an official version put out by the Chinese government and differs slightly from an HSBC version. Finally we include the Shanghai Composite Index as a measure of stock performance. Manufacturing PMI 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 4045505560 Jan 2014: 49.50 Shanghai Composite Index IndexValue(MonthlyHigh/Low) 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 100020003000400050006000 Jan 2014: 2033.08 Electricity Usage 100MillionKWH(logscale) 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 1000200030005000 Dec 2013: 4780.00 Consumer Confidence Index Index 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 98100102104106108 median: 102.75 Dec 2013: 102.30 Exports YoYPercentChange 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 −20020406080 median: 20.30 Dec 2013: 4.30 Retail Sales Change YoYPercentChange 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 101520 median: 13.20 Dec 2013: 13.60 The Laird Report Feb 08, 2014 Page 23
- 24. Global Climate Change Temperatureand precipitation data are taken from the US National Climatic Data Center and presented as the average monthly anomaly for the previous 6 months from December 2013. Anomalies are defined as the difference from the average value over the period from 1961-1990 for precipitation and 1971-2000 for temperature. Trailing 6 month Temperature Anomalies from December 2013 <−4.0 −3.0 −2.0 −1.0 0.0 1.0 2.0 3.0 >4.0 Anomalies in Celcius WarmerCooler Anomalies in Celcius −4 −2 0 2 4 Trailing 6 month Precipitation Anomalies from December 2013 <−40.0 −30.0 −20.0 −10.0 0.0 10.0 20.0 30.0 >40.0 Anomalies in millimeters WetterDrier Anomalies in millimeters −40 −20 0 20 40 The Laird Report Feb 08, 2014 Page 24