Today's Tidbits

Demand for Shipping Boxes Slipping – Not a Good Sign For Economy
From Merrill Lynch: “…shipments of paperboard containers…fell 1.7% in March, following a 1% slide in February and a 3.1% decline in January. Three strikes in a row in this particular component of the economy is pretty rare - having occurred just three other times in the past 10 years…We focus on "boxes" because there are few segments of the economy more "cyclical" than this - and activity here is down in 4 of the past 5 months. The year-on-year pace of shipments has moved into negative terrain (-1.5%), but the near-term trend is even deeper in the "red" - the three-month trend is now running at a -21% annual rate, which last happened when the economy was limping out of recession in Dec/01. But note that in the last cycle, shipments of paperboard containers sank at a 20%+ rate for the first time in June/00 and it led the economic downturn by little more than eight months (when jobless claims were also barely above the 300,000 mark). As an aside, this one metric leads industrial production by three months with a 63% correlation.”

Dow Stocks Gain From International Strength
From Merrill Lynch: “The Dow 30 companies are receiving a huge boost from their overseas operations: We managed to split out pre-tax income into foreign and domestic
sources for the Dow 30 companies and it tells quite a tale. Foreign income as a share of the total earnings pie has been steadily rising, and in three years has gone up 10 percentage points. Not only that, but we estimate that these megacaps now derive over half their earnings from abroad.”

Construction Employment Lags Housing Completions
From Merrill Lynch: “There is a 95% correlation between the two series [construction employment and housing completions], but actually, the highest correlation (97%) is with completions leading construction employment ahead by six months. Everyone is asking how it is that construction activity, as per the GDP accounts, could be down 17% over the past year with such a muted effect on employment in that sector. Well, it is because the job slide tends to occur after completions have hit their highs…residential construction jobs have to play some catch up. The last time completions were at today's level, which was in October/2002, construction employment was 810,000 which is a good 190,000 below current levels of one million+, so either way you slice it or dice it, we are talking about something in the order of a 200,000 employment decline by the end of the year. Now that is just the impact on direct residential construction payrolls - there are another 2.038 million of trades people and specialty contractors that will also feel the pain. And the last time completions were at current levels back in Oct/02, these payrolls were 1.906 million versus 2.317 million currently - that's another 411,000 potential job slice ahead, bringing the full force to over 600,000 payrolls.” [Note this combined loss of residential construction jobs is similar to the 500k Morgan Stanley’s economist said he was looking for this year, during his presentation today.]



MISC

From Dow Jones: “U.S. Treasury prices continued to lose ground [with the 2 year yield rising 5bp and thirty year yields rising 2bp as the curve continues to flatten]… The dollar was up… Stocks gained [modestly], with the S&P 500 breaching the 1500 level [for the first time since September 2000. The all-time high is 1527.5 set in March 2000.]… Crude oil futures were lower after the Department of Energy sad it was halting its purchases of oil for the Strategic Petroleum Reserve.”

From Morgan Stanley: “What strikes us most is the conflicting data surrounding jobs, incomes and taxes. On the one hand, we would expect weaker jobs data, given the slow 1Q growth, and more recently from the weak release of ADP. On the other hand, higher tax receipts and falling jobless claims make us think that traders will look past a weak jobs report on Friday in anticipation of job market strength based on expectations for Q2 growth to rebound. From a price action perspective, UST yields are trapped in a range with seemingly little impetus to break out.”

From JP Morgan: “The Euro area unemployment rate fell another notch to 7.2% in March, and is down a full percentage point over the past 12 months. With unemployment rates at cyclical lows in the United States, the Euro area and Japan, it is little surprise that our global unemployment rate proxy is making new lows, falling to 5.4% last month. This is the lowest unemployment rate in the history of our global series dating back to 1990.”

From Merrill Lynch: “Prices at the pump are now up almost 80 cents over the past three months and the rule of thumb is that every penny in the tank siphons $1.3 billion from household cash flow, which then makes this over a $100 billion drag at an annual rate or over a 2% pay cut for the average American worker.”

From Dow Jones: “Three Democrats on the Senate Banking Committee introduced
two bills that would provide $300 million to help stave off foreclosures on subprime loans and tighten the underwriting standards for brokers and lenders…The proposal is the first broad legislative attempt by Democrats to address the growing turbulence in the subprime market. It also breaks with the non-legislative approach that Senate Banking Committee Chairman Christopher Dodd, D-Conn., has urged. He has tried to prompt changes in industry practices through coalitions and agreements, not through law.”

From Citi: “Over the medium term…oil consumption is likely to bear some relationship
to economic growth. As such, non-OECD area countries, where economic growth
rates are stronger, increasingly dominate global oil demand changes…Oil demand growth rates outside the OECD have outpaced those inside the region in every year since 1994 and the share of incremental global oil demand from the non-OECD region has been in excess of 40% every year since 1995 and in excess of 70% since 2004. According to the IEA, oil consumption globally is set to grow by 1.5 m bls/day in 2007 or by around 1.8%. Of this, 1.2 m bls/day will come from non-OECD users.”