LONG THE TRIFECTA: Labor Market, Housing & Confidence All Accelerating

Takeaway: Improvement in the Housing & Labor markets should support consumption as the slope of recovery in household income and net worth accelerates

Labor Market, Housing, and (now) Confidence Trends all continue to accelerate.   Ongoing improvement in the Housing and Labor markets should further support consumption as the slope of recovery in household income and net worth accelerates. Moreover, ongoing improvement in the domestic macro data is supportive of our bullish view on the U.S. Dollar on both an absolute basis and on a relative basis as US fiscal and monetary policy expectations get tighter, on the margin, while ECB and BOJ fiscal/monetary policy expectations get looser, on the margin.  

 

Positive consumer related data in combination with expectations for further $USD appreciation keeps our Strong Dollar – Strong Domestic Consumption (Down Commodities) theme the predominant strategic framework driving our equity and asset class exposure. 

 

Below we summarize this morning’s claims data along with the consumer confidence and housing data of the last week. 

 

Initial Claims:  How Low Can We Go?

The positive acceleration in labor market trends continued this week with both the seasonally adjusted and non-seasonally adjusted Initial Jobless Claims series showing sharp sequential improvement.   The headline number fell 15K to 324K w/w versus the prior week’s unrevised number while the 4-week rolling average in SA claims fell -16.5K w/w to 342K.

 

The 4-week rolling average in NSA claims, our preferred judge of trend with respect to underlying conditions in the labor market, improved 240bps w/w with the year-over-year change in 4-wk rolling claims improving to -8.6% Y/Y from -6.2% Y/Y the week prior, and -3.8% two weeks prior.

 

Given the ongoing and marked improvement in the claims series, how much additional upside could we seen from current levels?  Our head of financials, Josh Steiner, answered that question in the context of the historical cycles observed over the period 1967-present:

 

Thinking longer term about the setup, rolling claims (SA) are currently at 342k with the most recent week at 324k. The first chart below shows the claims history (rolling SA) back to 1967. Every economic cycle since the late 1970s has seen claims trough at around 300k. To be precise, in prior cycles, claims bottomed at: 

 

* 312k  November, 1978

* 287k  January, 1989

* 266k  April, 2000

* 286k  February, 2006

 

This works out to an average of 288k with a standard deviation of 19k (on a very small sample). In other words, we're still 54k above historical cycle troughs or roughly 2.8 standard deviations, a pretty healthy margin of error for the bull case.

 

In short, rolling NSA claims are 8.6% lower than last year and the positive improvement is accelerating.  Moreover, the current, positive trend is overwhelming both the negative seasonal distortion currently present in the data and any negative sequestration related drag. 

 

Source: Hedgeye Financials 

LONG THE TRIFECTA: Labor Market, Housing & Confidence All Accelerating - JS 1

 

LONG THE TRIFECTA: Labor Market, Housing & Confidence All Accelerating - JS 2

 

LONG THE TRIFECTA: Labor Market, Housing & Confidence All Accelerating - JS 3

 

Consumer Confidence:  The Bloomberg Consumer Confidence Index made a new 5Y high two weeks ago with confidence measures across  age and income demographics showing broad improvement.  The index held those gains last week and made a new 5Y with this morning’s reading improving to -28.9 from -29.9 w/w.  The Conference Board Consumer Confidence as well as the University of Michigan Consumer Sentiment readings were confirmatory with the lastest, April readings accelerating sequentially to 68.1 and 76.4, respectively. 

 

For most of the last 4 years, historical relationships with economic data have broken down with correlations moving towards zero as confidence readings have largely tracked sideways.  Over the longer-term, consumer confidence has served as a decent to very good lead indicator for economic activity.  For example, on a 10Y basis, lagged correlations to New Manufacturing Orders, PCE Services, and M2 velocity are all > 0.85.  With consumer confidence readings beginning to break out here alongside ongoing improvement in the housing and labor markets, we’re monitoring for any re-tightening in the relevant confidence-econ activity correlations a little more closely

 

LONG THE TRIFECTA: Labor Market, Housing & Confidence All Accelerating - Bloomberg Consumer Comfort

 

LONG THE TRIFECTA: Labor Market, Housing & Confidence All Accelerating - Confidence vs M2   New Orders

 

Housing:  We provided a summary recap of the most recent housing data last week (HERE).  Incremental data over the past week has reflected more of the same as Mortgage Purchase Applications remained at their YTD highs while the Pending Home Sales and Case-Shiller HPI data both accelerated sequentially.  The Purchase application data and Pending Home sales numbers both suggest forward housing demand should remain strong. 

 

Additionally, President Obama’s likely nomination of Congressman Mel Watt to replace Ed DeMarco as head of the FHFA should be taken as a positive catalyst for housing.  DeMarco has opposed underwater principal forgiveness for GSE borrowers – a stance that may be lightened should Watt be confirmed.  

 

LONG THE TRIFECTA: Labor Market, Housing & Confidence All Accelerating - Case Shiller HPI

 

LONG THE TRIFECTA: Labor Market, Housing & Confidence All Accelerating - MBA Purchase Apps

 

Christian B. Drake

Senior Analyst 

 


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more