INITIAL CLAIMS & 3Q13 GDP: GOBBLE GOBBLE

3Q13 GDP (1st Revision): Juiced by inventories. Rising probability of a sequential slowdown

 

3Q13 GDP was revised +0.8 higher to 3.6%, marking the best growth number since 1Q12.  Under the hood, the component dynamics that characterized the advance estimate – namely, inventory accumulation alongside middling consumption/real final sales – were further exaggerated in this first revision.

 

Inventory Accumulation contributed +1.68 to GDP while consumption (services) growth slowed 40bps sequentially and real final sales (GDP less Inventory change) and real final sales to domestic consumers  (GDP less exports less inventory change) both came in sub 2%. 

 

While backlogs are growing and vendors remain largely unconcerned with inventory levels according to the ISM survey data, the positive impact to GDP should reverse as inventory drawdown will be challenged by final demand still constrained by flagging personal income growth. 

 

In short, the strong headline print belied a moderately more vapid reality.   While momentum in the manufacturing base remains ongoing and disposable personal income growth comps ease through 2014, a sequential slowdown in growth is increasingly probable. We’ll get a first look at personal income and spending data for 4Q13 tomorrow alongside the payroll report. 

 

On the employment side, despite sizeable fluctuations in the absolute number of non-farm payroll gains the last few month, the rate of growth on a 2Y basis has held relatively consistent at ~+1.66% - a phenomenon largely stemming from seasonality.  Consensus is basically sitting right on this growth number with the current NFP estimate for November at +185K.  As a reminder, seasonality will build as a positive support to both the NFP and jobless claims figures through 1Q14.

 

From a policy perspective, today's growth data is probably another non-catalyst with inflation still holding below target, service consumption growth flagging and sustained acceleration in the aggregate labor market data still absent. 

 

But at the same time, if you can’t taper at 3.6% GDP, when can you taper?

 

- Hedgeye Macro

 

INITIAL CLAIMS & 3Q13 GDP:  GOBBLE GOBBLE - GDP 3Q13 Prelim

 

INITIAL CLAIMS & 3Q13 GDP:  GOBBLE GOBBLE - UNITED STATES

 

 

 

INITIAL CLAIMS:  The Fed needs to bury its head further into the sand to reconcile its policy on purchases with the realities of the labor market.


Rising Rates Love Falling Claims

It's getting harder to ignore the improvement in the labor market, unless, of course, you're the Fed.

 

Increasingly, however, it seems as though the bond market is taking fewer cues from the Fed and more from the labor market. True, seasonally-adjusted initial claims have a 2-handle on them principally because of the Thanksgiving mismatch this week vs last year (a week later this year), but adjusting for that and all the other recent turbulence in the data reveals one unmistakable fact. The data continues to strengthen and the bond market is taking notice. 

 

Aside from the obvious, which is that this is more good news for credit quality, the upward pressure being exerted on rates is ferreting out clear winners and losers, i.e. good for banks and online brokers, and bad for homebuilders and mortgage REITs. For more details, see our note from 11/22 "#Rates-Rising: A Current Look at Rate Sensitivity Across Financials", a link to which can be found here.

 

Next week should be the first week in a long time where we get a clean print on the labor market, so stay tuned.

 

Nuts & Bolts

Prior to revision, initial jobless claims fell 18k to 298k from 316k WoW, as the prior week's number was revised up by 5k to 321k.

 

The headline (unrevised) number shows claims were lower by 23k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -10.75k WoW to 322.25k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -21.2% lower YoY, which is a sequential improvement versus the previous week's YoY change of -13.3%

 

INITIAL CLAIMS & 3Q13 GDP:  GOBBLE GOBBLE - JS 1

 

INITIAL CLAIMS & 3Q13 GDP:  GOBBLE GOBBLE - JS 2

 

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 

 

 


Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more

A 'Toxic Cocktail' Brewing for A Best Idea Short

The first quarter earnings pre-announcement today is not the end of the story for Mednax (MD). Rising labor costs and slowing volume is a toxic cocktail...

read more

Energy Stocks: Time to Buy? Here's What You Need to Know

If you're heavily-invested in Energy stocks it's been a heck of a year. Energy is the worst-performing sector in the S&P 500 year-to-date and value investors are now hunting for bargains in the oil patch. Before you buy, here's what you need to know.

read more

McCullough: ‘My 1-Minute Summary of My Institutional Meetings in NYC Yesterday’

What are even some of the smartest investors in the world missing right now?

read more

Cartoon of the Day: Political Portfolio Positioning

Leave your politics out of your portfolio.

read more

Jim Rickards Answers the Hedgeye 21

Bestselling author Jim Rickards says if he could be any animal he’d be a T-Rex. He also loves bonds and hates equities. Check out all of his answers to the Hedgeye 21.

read more

Amazon's New 'Big Idea': Ignore It At Your Own Peril

"We all see another ‘big idea’ out of Amazon (or the press making one up) just about every day," writes Retail Sector Head Brian McGough. "But whatever you do, DON’T ignore this one!"

read more