AAPL Looking Higher

After more than 5 weeks of consolidation, Apple Inc. (AAPL) looks like it may start another move toward new highs into the 135-150 range. Helped by a strong bounce in the overall market, AAPL already broke the 20-day moving average Monday and is moving toward the descending trend line at around 128.  If broken, this is likely to confirm […]

Fannie Mae: Mortgage Serious Delinquency rate declined in February, Lowest since September 2008

Fannie Mae reported today that the Single-Family Serious Delinquency rate declined slightly in February to 1.83% from 1.86% in January. The serious delinquency rate is down from 2.27% in February 2014, and this is the lowest level since September 2008.

The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.

Last week, Freddie Mac reported that the Single-Family serious delinquency rate was declined in February to 1.81%. Freddie's rate is down from 2.29% in February 2014, and is at the lowest level since December 2008. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

Note: These are mortgage loans that are "three monthly payments or more past due or in foreclosure".

Fannie Freddie Seriously Delinquent RateClick on graph for larger image

The Fannie Mae serious delinquency rate has fallen 0.44 percentage points over the last year - the pace of improvement has slowed - and at that pace the serious delinquency rate will be close to 1% in late 2016.

The "normal" serious delinquency rate is under 1%, so maybe serious delinquencies will be close to normal at the end of 2016.  This elevated delinquency rate is mostly related to older loans - the lenders are still working through the backlog, especially in judicial foreclosure states like Florida.

Downside Data Surprises in Canada; Bad Weather Up North? How About Recession?

The string of bad data reports not only applies to the US, economists up North appear to be no better at predicting the weather than US economists.

Variant Perception reports Downside Data Surprises Continue in Canada.
For the past 6 months, we have been alerting clients to the persistent decline in our Canada leading indicator. This is now showing up in numerous Canadian coincident data releases, with retail sales being the latest to miss expectations last Friday.  The economic surprise index is now declining sharply and there is little sign of immediate improvement ahead.

PMIs continue to fall whilst building permits and housing starts (some of the best leading indicators to watch), remain negative yoy (top chart). However one of our main themes this year has been that of cognitive dissonance, whereby growth disappoints, but higher excess liquidity supports asset prices.
Canada December Retail Sales

On February 20, the Huffington Post reported Canadian Retail Sales Post Biggest Drop Since April, 2010.
Retail sales in Canada in December posted their largest one-month drop since April 2010, as the cost to fill your gas tank plunged and holiday shoppers spent less.

Statistics Canada said Friday retail sales fell 2.0 per cent compared with November to $42.1 billion in December. That compared with a drop of 0.4 per cent that economists had expected, according to Thomson Reuters.

The drop in sales came as sales at gasoline stations fell 7.4 per cent in December due to lower gas prices, while sales at motor vehicle and parts dealers fell one per cent. Excluding motor vehicle and parts dealers, sales were down 2.3 per cent.

Despite the larger than-expected drop in sales, Bank of Montreal senior economist Benjamin Reitzes cautioned not to jump to conclusions based on the retail sales report. Reitzes noted the rise in popularity of Black Friday sales in Canada has pulled some holiday shopping into November.

Sales were down in nine of 11 subsectors, representing 71 per cent of retail trade.
Canada January Retail Sales

On March 20, the Statistics Canada Retail Trade, January 2015 report showed sales down for a second month.
Retail sales decreased for the second consecutive month in January, declining 1.7% to $41.4 billion. Sales were lower in 7 of 11 subsectors, representing 83% of retail trade.

Lower sales at gasoline stations represented the majority of the decline. Excluding sales at gasoline stations, retail sales were down 0.8%.

Retail Sales in Volume Terms Decreased 1.2%.

Gasoline Station Sales Down Seven Months in a Row

Sales at gasoline stations fell 8.8% in January, reflecting lower prices at the pump. This was the seventh straight monthly decrease and the largest monthly decline since November 2008.

Receipts at motor vehicle and parts dealers (-1.4%) decreased for the fourth consecutive month. The overall subsector decline was a result of weaker sales at new car dealers (-1.8%). Used car dealers (-0.9%) and other motor vehicle dealers (-0.5%) also registered declines. Sales at automotive parts, accessories and tire stores (+2.2%) advanced for the fourth time in five months.

Sales Down in Nine Provinces

Retail sales were down in nine provinces in January. Lower sales in Quebec, Ontario and Alberta accounted for most of the decrease.

Quebec (-2.4%) reported the largest decrease in dollar terms, with widespread declines across most store types.

The decline in Ontario (-1.4%) was mainly attributable to lower sales at gasoline stations.

Retail sales in Alberta (-2.8%) declined for the fourth consecutive month in January, reaching their lowest level since December 2013. The decline was largely a result of lower sales at gasoline stations and new car dealers.

Receipts in Nova Scotia fell to their lowest level since March 2013, decreasing for the sixth consecutive month.

Prince Edward Island (+0.5%) was the only province to register an increase in January.

Seasonally Adjusted Numbers

Economist's Theories on Gasoline

Hey wait a second. Didn't economists tell us consumers would take savings on gasoline and spend it elsewhere?

Yes they did. So there is only one possible explanation: Just as in the US, Canadian weather was much worse than economists initially thought.

GDP Decline in January

Please consider Canada's GDP Probably Down In January, CIBC Says After Disappointing Retail Data.
Canada’s economy likely shrank in January, CIBC said Friday following an unexpectedly negative reading on retail sales from Statistics Canada.

Retail sales fell 1.7 per cent in January, StatsCan reported, the second consecutive monthly decline. Analysts had been expecting a slowdown due to lower gas prices, but they weren’t expecting the broad-based declines that were actually seen: Seven of 11 retail sectors shrank in January, including autos, furniture and food and beverages.

Canada’s GDP for January “now looks set for a modest drop,” CIBC economist Andrew Grantham wrote in a client note.

Economists had been expecting that lower gas prices would mean Canadians would spend more on other things, but that doesn't seem to be happening.

"The latest figures suggest that households are becoming more cautious in their spending habits," Grantham wrote, adding he doesn't think Canada will meet the modest 1.5-per-cent growth rate that the Bank of Canada is predicting for the first quarter of the year.

Consumers are showing signs of exhaustion, with household debt levels reaching yet another record high in the last months of 2014, up to 163.3 per cent of disposable income.
Canada in Recession

Flashback, January 31, 2015: Canada in Recession, US Will Follow in 2015
On January 21 when the Canadian Central Bank unexpected slashed interest rates, I wrote Canadian Recession Coming Up.

Following the rate cut, the yield curve in Canada inverted out to three years. Inversion means near-term interest rates are higher than long-term rates.

I saw no other person mention the inversion at the time. An inverted yield curve generally portends recession.

Nine days later, the Canadian yield curve is still inverted. Let's compare what I posted about the curve on January 21 vs. January 30.

Canadian Yield Curve January 21

  • 30-year: 2.044% (Today's Low 1.998%)
  • 10-Year: 1.426% (Today's Low 1.366%)
  • 05-Year: 0.791% (Down 19 basis points, an 18% decline)
  • 03-Year: 0.590% (Down 27 basis points, a 31% decline)
  • 02-Year: 0.560% (Down 29 basis points, a 34% decline)
  • 01-Year: 0.580% (Down 34 basis points, a 37% decline)
  • 01-Month: 0.640% (Down 22 basis points, a 26% decline)

Canadian Yield Curve January 30

  • 30-year: 1.834% (Down 21.0 basis points)
  • 10-Year: 1.250% (Down 17.6 basis points)
  • 05-Year: 0.603% (Down 18.8 basis points)
  • 03-Year: 0.386% (Down 20.4 basis points)
  • 02-Year: 0.392% (Down 16.8 basis points)
  • 01-Year: 0.490% (Down 9.0 basis points)
  • 01-Month: 0.580% (Down 6.0 basis points)

Not only did yields plunge across the board since then, the yield curve is still inverted all the way out to three years.

Recession Has Arrived

There is no point in waiting for further data. The Canadian recession has already arrived.
Canadian Yield Curve March 31

  • 30-year: 1.99%
  • 10-Year: 1.37%
  • 05-Year: 0.78%
  • 03-Year: 0.51%
  • 02-Year: 0.51%
  • 01-Year: 0.58%
  • 03-Month: 0.56%
  • 01-Month: 0.53%

The Canadian yield curve is still inverted albeit very slightly. Instead of attempting to predict the weather, something that is very difficult for economists to do (even in arrears!), perhaps they should watch the yield curve.

Isn't that what they should be doing?

Weather Predicting US Style

For more on weather predicting in the US, please see Economists Fail to Predict Weather Once Again: Chicago PMI Disappoints.

Mike "Mish" Shedlock

Restaurant Performance Index shows Expansion in February

Here is a minor indicator I follow from the National Restaurant Association: Softer sales offset by stronger optimism in February's RPI
Despite dampened sales and customer traffic levels as a result of extreme weather in parts of the country, the National Restaurant Association’s Restaurant Performance Index (RPI) held relatively steady in February. The RPI stood at 102.6 in February, down slightly from a level of 102.7 in January.

In addition, February marked the 24th consecutive month in which the RPI stood above 100, which signifies expansion in the index of key industry indicators.

“With same-store sales and customer traffic levels being impacted by challenging weather conditions in parts of the country, the Current Situation component of the RPI declined in February,” said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. “However, this was offset by a solid improvement in the Expectations component of the index, as restaurant operators are increasingly optimistic about business conditions in the months ahead. As a result, the overall RPI held relatively steady in February.”
emphasis added
Restaurant Performance Index Click on graph for larger image.

The index decreased to 102.6 in February, down from 102.7 in January. (above 100 indicates expansion).

Restaurant spending is discretionary, so even though this is "D-list" data, I like to check it every month. This is another solid reading - and it is likely restaurants are benefiting from lower gasoline prices and are having to raise wages - a little - to attract and retain workers.

Brad DeLong's Grasping Reality… 2015-03-31 20:09:07

Afternoon Must-Read: Umberto Eco: How to Write a Thesis: "You must overcome any shyness and have a conversation with the librarian...

...because he can offer you reliable advice that will save you much time. You must consider that the librarian (if not overworked or neurotic) is happy when he can demonstrate two things: the quality of his memory and erudition and the richness of his library, especially if it is small. The more isolated and disregarded the library, the more the librarian is consumed with sorrow for its underestimation. A person who asks for help makes the librarian happy..."

Brad DeLong's Grasping Reality… 2015-03-31 20:00:47

Afternoon Must-Read: Arindrajit Dube and and Ben Zipperer: Pooling Multiple Case Studies Using Synthetic Controls: An Application to Minimum Wage Policies: "We propose a simple, distribution-free method for pooling synthetic control case studies using the mean percentile rank...

...We also test for heterogeneous treatment effects using the distribution of estimated ranks, which has a known form. We propose a cross-validation based procedure for model selection. Using 29 cases of state minimum wage increases between 1979 and 2013, we find a sizable, positive and statistically significant effect on the average teen wage. We do detect heterogeneity in the wage elasticities, consistent with differential bites in the policy. In contrast, the employment estimates suggest a small constant effect not distinguishable from zero.


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