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By New_Deal_democrat July 12, 2017 1:17 pm
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Three of four original long leading indicators now negative

It was one year ago last week that the 10 year Treasury hit an all time low.  Although they came close, mortgage rates did not participate in that new low.  They last hit a new low 4 years ago, in 2013:

Which means that it is time to stop counting bond yields as either a positive, or even a neutral.  Unless and until Treasuries fall below 2%, or mortgage rates make a new low, the long leading indicator of interest rates must be counted as a negative.

In so doing, they join corporate profits deflated by unit labor costs as the second long leading indicator to flip:

Housing permits last made a high back in January, and the less volatile single family permits in February:

Because they tend to follow interest rates, I suspect they will stay at this neutral to negative level, if not head slightly lower, in the immediate future,

The final of Prof. Geoffrey Moore's original long leading indicators, real money supply, is still positive, although both real M1 and real M2 (minus 2.5%) are decelerating:

Real M1 has a ways to go before turning neutral, let alone negative, but if M2 were to remain at its recent nominal level over the next month, there is an excellent chance that it too would turn neutral.

Not every indicator has turned neutral or negative, but in general the suite of medium to long leading indicators is weakening. Although I won't show the graphs, other longer leading series like the Chicago Adjusted Financial Conditions Index, real retail sales per capita, and the Labor Market Conditions Index, while positive, are not far from the levels at which they would be neutrals or negatives.

Only the yield curve, on the back of increasing long rates, has turned more positive:

I'm not issuing a recession warning, or even going on a heightened "recession watch" yet, but the weakness is enough for me to downgrade the outlook past 12 months to neutral.  If the negative series rebound, I'll go back to being positive.  If there is continued decay, and several more series roll over, I will turn negative.


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