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State-level GDP: Down on the Farm with Energy Rising

During first quarter of 2017, economic growth declined in five of the seven Plains states. Within this region, only Missouri and North Dakota saw their economies grow during the quarter. North Dakota’s growth came from a reviving energy sector that contributed 1.7pp and offset almost the entire 1.9pp drop in its agriculture sector. Missouri’s agriculture sector declined by 0.8pp, but this was offset by relatively strong growth in durable goods manufacturing and wholesale trade.

The states that experienced the greatest declines in output were Nebraska (-4.0%), South Dakota (-3.8%), and Iowa (-3.2%). Lower prices for row crops likely explain the decline. During the first quarter of 2017 corn prices averaged 4.4% below the prior year and wheat prices were down 11.7%. Soybean prices were up somewhat compared to 2016 but were trending lower.

Nationwide the agriculture, forestry, fishing and hunting sector subtracted 0.41pp from the overall annualized growth, which totaled 1.1%. As the accompanying chart shows, absent the agriculture sector national GDP grew by 1.6% during the first quarter.

The fasted growing sector in Q1 was mining, which includes oil extraction. It was up 0.3%. As shown in the accompanying chart, excluding the mining sector national GDP would have only increased by 0.8%.

gdp-xag-xmin

Texas 3.9% gain was the strongest. Its mining sector increased by 2.1pp. West Virginia experienced the second highest rate of overall growth at 3.0% and its mining sector contributed 3.2pp. New Mexico had the third highest growth rate at 2.8% with its mining sector contributing 1.8pp. Other energy states also experienced increased growth. Oklahoma’s 1.9% growth in output ranked 11th and noisy Alaska’s 1.8% growth ranked 14th. (A revenue estimator from the state told us they basically don’t even try to forecast revenue growth in the state because the economy is so volatile.)

But other energy states did not fare as well. Lousiana’s economy grew by only 1.0% (ranked 28th). Growth in Wyoming clocked at just 0.9% (32nd), and Montana saw a 0.5% decline (45th)

Finally, a couple of standout states for the quarter were Washington and Wisconsin. Washington continued a pattern of strong performance from 2016 when it took the blue ribbon. Its economy grew at an annualized rate of 2.7% during the first quarter and by 3.8% for all of 2016. This growth was driven by its information sector, which accounted for 1.7pp, and durable goods manufacturing, which accounted for 0.7pp, of the overall growth. Wisconsin’s 2.1% annualized growth for the first quarter represents a reversal of fortune from 2016 during, when its economy grew by only 0.9%. The sectors that contributed the most to its first quarter 2017 growth were real estate (0.6pp), durable goods manufacturing (0.4pp) and nondurable goods manufacturing (0.4pp).

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What are transportation fuels telling us?

We follow transportation fuel sales volumes because they have a tight relationship with overall and manufacturing employment. The data are released with a lag, but they still provide a lead on the health of employment, especially manufacturing employment.

There’s been quite a bit of price action in the sector. Since bottoming out at $26.19 per barrel (bbl) on February 11th, the WTI price of crude has recovered to near $50; since mid-February the average price of regular gasoline has risen from $1.64 to $2.24 per gallon and the average price of diesel has increased from $1.98 to $2.36 per gallon.

Since the end of April, the nation’s crude oil inventory has decreased by almost 3 million bbls, or 0.1%. Domestic production has decreased by 11.5% since peaking during March 2015, shale oil production has decreased by 8.4% its March 2015 peak.

During December 2015 (most current data), diesel fuel sales increased by 82.5 million gallons (2.3%) nationwide over the year. During the prior 3-, 6-, and 12-months, increases were 2.5%, 3.1%, and 2.5%. This brought the 1-month diffusion index below 50 for the first time since May 2015, or from 52.9 to 47.1, as shown in this graph:

Diffusion

This next chart shows that the strongest diesel sales growth occurred in the Southeast, Great Lakes and Rocky Mountain regions during the past three months, while sales fell in the Southwest, Plains and Mideast regions.

Diesel yy

The 3-month-average growth rate for diesel sales bounced back from November’s 1.81% to 2.49% in December. During April, the relevant month, total employment growth rate decreased from 1.99% to 1.88%. The growth rate for manufacturing employment moved up from -0.20% to -0.16%, and remains near the lowest level since September 2010. Although other indicators imply some positive signs for growth in the manufacturing sector, diesel fuel sells imply growth in this sector will remain subdued through much of the remainder of 2016:

Employ diesel

Tracking the American Economy

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At Sightlines Bulletin we:

Provide businesspeople and long-term investors with concise data-driven monthly analyses of the direction of the American economy so they can successfully formulate their business plans and fine-tune their resource allocations;

Use unique indicators that have proven successful at flagging turns in the economy to provide early warnings of shifts in the economic outlook;

Test and debunk commonly held misperceptions about current conditions, often employing the histories of crucial economic indicators we have compiled over the years, some back to the 1800s.

Sightlines Bulletin is published mid-month when the prior month’s important data points have been released. Each issue includes the results of our monthly surveys of state-level withheld and sales tax receipts (see Reference for more detail), our breakdown of important labor market and domestic consumption developments, a rundown of trends in fuel/electric usage and what they mean for coming months, comments on the direction of interest rates, and a two-page summary of important economic indicators, all in historical perspective.

For Sightlines Bulletin, we have developed proprietary data series based on monthly surveys of state revenue agencies and state fuel/ energy sales reports. These series provide the basis for the analysis of economic turning points and growth trends using diffusion indices, historical trend correlations, and forecasts. Analysis is done for the nation, regions, and states. In addition to guiding business planners and investors, including those who manage municipal debt portfolios, we believe the detail offered by these data series will help our clients create new jobs and better understand the advantages of returning jobs to the United States.

Additionally, each month we highlight a data series we follow, for example the Quit Rate or the Insured Unemployment Rate, so our readers become more fluent with our ongoing analysis and with the often ignored but rich data sources that offer our subscribers an edge over their competition.

Finally, we issue Special Bulletins as necessary to alert our subscribers to one-off developments like changes and biases in data collection methods, and other subtle but important signals missed by the mainstream media likely to affect employment, consumption, and interest rates.

Philippa and Doug have collected and analyzed state-level tax receipts since the early mid-1990s, and are widely respected for their ability to parse out the importance of trends in those revenue flows. Mike was, for many years, a state revenue contact in this work. His expertise in successfully developing off-beat indicators, like diesel fuel usage, spurred the development of Sightlines Bulletin.

We came together to provide a monthly forward-looking summary of current economic conditions, supported by our proprietary data, to fill a void in what is currently available to the business world. Financial professionals have long relied on the insights of The Liscio Report, a newsletter specifically tailored for traders. Sightlines Bulletin presents a broader perspective, based on these same insights and our combined experience, for decision-makers with a longer time frame.

 

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SAMPLE RESEARCH: Bulletins, Domestic Regions, and Special Reports

We offer two subscriptions: Sightlines Bulletin itself, which is released monthly and includes information gleaned from our ongoing discussions with revenue officials around the country, analysis of macro-economic data, indexes of special fuel usage and what the trend portends for future growth, and a round-up of financial and real indicators. The subscription includes our Special Reports, released whenever we come across information between reports that we believe you need to know immediately. Additionally, we are developing forward looking regional and state indexes, available as a separate subscription. You can read through some samples of the three categories, Bulletins, Domestic Regions, and Special Reports using the links below.

SAMPLE BULLETINS

A NEW YEAR: SNAPSHOTS OF OUR PROGRESS, AND STATE DETAIL January 2015

After a shaky start, 2015 ended on a positive note, with payrolls up, unemployment down, and the long-term unemployed coming back into the labor force. Our updated spider, or radar, graphs spin an uneven, but encouraging tale; and the OECD recently ranked the U.S. pretty low on the financial vulnerability scale. Even so, we continue to face risks, both at homr and from abroad.

To read full report, click here: SL 1-15

TIME TO FRET ABOUT CORPORATE DEBT AND STOCK PRICES? June 2014

While the job market looked strong in May, consumption seems to be slowing. Worrywarts to the contrary, the labor market is far from tight, but some other indicators are looking a bit late cycle-ish. The Federal Open Market Committee lowered their projections for 2014 in their June meeting, a smart move given the most recent downward revision to Q1 GDP. Diesel fuel sales rose 5.1% over the year for the November-January period, an encouraging signal for future job growth.

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SAMPLE DOMESTIC REGIONS

Diesel Fuel Update
The three BEA regions showing the strongest growth in diesel fuel usage, the Northeast, the Midwest, and the Southwest, were the same as in September. Weakness in the Great Lakes might be thought to reflect a slowdown in auto production, but on closer look, much of the sag comes from Wisconsin. The Plains are the laggard, but they did go positive.

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SAMPLE SPECIAL REPORTS

How Much Has the Job Market Recovered?
We just updated our Jobs Spider, a graph taken from the work of James Bullard, President of the St. Louis Fed, who collected about a dozen takes on the health of the job market. The leading indicators are still a bit ahead of reality, but the distance has narrowed in recent months.

read more

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