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By New_Deal_democrat June 4, 2016 9:30 am
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Weekly Indicators: again nearly green across the screen edition
May data started out with a resounding thud in the form of a poor jobs report, although the unemployment rate declined and wages increased a little.  Motor vehicle sales continued at a good rate.  ISM manufacturing improved and new orders held firm, while ISM services declined to a less positive reading. The Chicago PMI contracted slightly.
 
April data included very strong personal spending and increased income, positive factory orders, and an increase in house prices.
 

My usual note: I look at the high frequency weekly indicators because while they can be very noisy, they provide a good Now-cast of the economy, and will telegraph the maintenance or change in the economy well before monthly or quarterly data is available.  They are also an excellent way to "mark your beliefs to market."

 

In general I go in order of long leading indicators, then short leading indicators, then coincident indicators.

 

Interest rates and credit spreads

  • 4.67% BAA corporate bonds down -.02% (down -.82% since Jan 1)
  • 1.85% 10 year treasury bonds up +.02%
  • 2.82% credit spread between corporates and treasuries down -.04%
Yield curve, 10 year minus 2 year:
  • 0.94%, down -.02% w/w
30 year conventional mortgage rate:
  • 3.62%, down -.10% w/w

With the exception of BAA corporate bonds yields, which made a new 50+ year low in January 2015, yields for corporate bonds, treasuries, and mortgages have all failed to make new lows in 3 years, thus turning yellow (caution or neutral vs. positive) as a recession indicator -- although treasuries and mortgage rates both came very close to new all-time lows in February, and remain low enough to be short-term positives.  Spreads have improved enough in the last three months to go from negative to neutral. The yield curve has gone from extremely positive to normally positive.

 

Housing

 

Mortgage applications

 

  • purchase applications down -5% w/w
  • purchase applications up +28% YoY
  • refinance applications down -4% w/w
 
Real Estate loans
  • +0.2% w/w
  • +7.1% YoY 

Mortgage applications had been awful for several years, before turning up early last year in response to very low rates. They are now positive.

Real estate loans have been firmly positive for nearly 3 years.

 

Money supply

M1

  • +0.4% w/w
  • +2.7% m/m 
  • +7.5% YoY Real M1
M2
  • +0.2% w/w  
  • +0.7% m/m
  • +5.6% YoY Real M2 

Real M1 decelerated markedly in January to the point where it was a very weak positive, and has fluctuated since then.   Real M2 also decelerated, but has been more firmly positive.  Both were very positive this week.

 

Trade weighted US$

  • Down -.08 to 121.79 w/w, up +5.4% YoY (Broad)
  • Down - 1.59 to 93.93 w/w, down -2.47% YoY (major currencies)

 

The Broad measure is reported by the FRB on Mondays and so is delayed one week. Bloomberg's spot price against major currencies is accurate as of Friday.  The US$ appreciated about 20% from July 2014 through March 2015.  Afterward, the broad measure continued to appreciate, but at a relatively more moderate trend, while against major currencies the US$ has been flat.  l consider a YoY change of 5% or higher a negative. Against major currencies, the US$ is positive. The broad measure after several months of being neutral, has returned to being negative for the last 4 weeks.

 

Commodity prices

JoC ECRI

  • Up +1.32 to 90.11 w/w
  • Down -10.61 YoY
BBG Industrial metals ETF
  • 92.64 up +2.02 w/w 
Commodity prices as measured by industrial metals appear to have bottomed in November. ECRI and oil subsequently turned up as well. This is enough to score commodities as neutral.

 

 Stock prices S&P 500

 

  • Unchanged w/w 
  • Down -1.7% from high over 1 year ago
Stock prices made new 6 month lows in February, but also just made an intraday 6 month high in April. For forecasting purposes, I am scoring this as a neutral.
 

Regional Fed New Orders Indexes

(*indicates report this week) 

  • Empire State down -16.5 to -5.5
  • Philly down -1.5 to -1.5
  • Richmond down -18 to 0
  • Kansas City -3  to -3
  • *Dallas down -20.9 to -14.9
  • Month over month rolling average: -3 from -2 to -5
I inaugurated coverage of these indexes as an experiment to see if they helped forecast the ISM new orders index, which is an excellent short leading indicator for sales and industrial production roughly by 6 months.   In May there was a serious divergence between the two. In the regional indexes, the positive bounce in March and April has been taken back, but the average is less negative than in the previous year.

 

Employment metrics

 Initial jobless claims

  • 267,000  down -1,000
  • 4 week average 276,750 down -1,750

 

Initial claims remain well within the range of a normal economic expansion, as does the 4 week average. After weakening in January, they have since recovered.

 

The American Staffing Association Index

 

  • Unchanged at 96 w/w
  • Down -0.33 YoY

This index turned negative in May 2015, getting as bad as -4.30% late last autumn.  Since the beginning of the year it has been progressively "less bad" and this week was on the verge of turning outright positive.

 

Tax Withholding

  • $185.9 B for the month of May vs. $169.1 B one year ago, up +16.8 $ B or +9.9%
  • $169.7 B for the last 20 reporting days ending Thursday vs. $163.5 B one year ago, up +$6.2 B or +3.8% 

Beginning with the last half of 2014, virtually all readings were positive, but turned more mixed and choppy, while still positive, since August 2015. In February I said I would need this series on the 20 day basis to decline to less than +2% YoY for me to think it has reached a turning point, and it did so for 3 weeks in a row, briefly becoming a major red flag.  Both April and May collections ran positive again.

 

Oil prices and usage

  • Oil down -$0.76 to  $49.90 w/w
  • Gas prices up +$.04  to $2.34 w/w 
  • Usage 4 week average up +3.9% YoY 

 

The price of gas bottomed this winter at $1.69.  Usage turned briefly negative at the beginning of the year, but has been positive ever since.

 

Bank lending rates

 

Both TED and LIBOR were already rising since the beginning of last year to the point where both have usually been negatives, although there were some wild fluctuations.  Both TED and LIBOR were at or near 5 year highs in the past several months, but both have improved in the last several months, although in the last 5 weeks the TED spread rose back close to that high. Of importance is that TED was above 0.50 before both the 2001 and 2008 recessions, so although it is a negative, it is not a strong one.

 

Consumer spending

 

Both the Goldman Sachs and Johnson Redbook Indexes progressively weakened in pulses during 2015, before improving somewhat since the beginning of last November.  JR was weakly positive again this week.  Gallup has been positive almost every week so far this year.

 

Transport

Railroad transport

  • Carloads down -4.1% YoY
  • loads ex-coal down -3.5% YoY
  • Intermodal units up +8.0% YoY
  • Total loads up +1.9% YoY

Shipping transport

Rail traffic turned negative and then progressively worse in pulses throughout 2015. While intermodal traffic quickly turned positive, domestic carloads, led by coal (for export) continued to deteriorate.  Rail loads became "less worse" in January and showed continued improvement until going over the proverbial cliff 9 weeks ago, a big negative, but one that might be a symptom of inventory liquidation.  Amid the sea of improving data, rail traffic stands out like a sore thumb. I am discounting this week's big improvement because of Memorial Day falling during different weeks this year vs. last year.

After rising briskly last spring, both the BDI and Harpex recently declined again to new multi-year lows. Although it fell this week, BDI has improved enough to score a neutral.

Steel production

 

  • Up +1.1% w/w
  • Up +4.2% YoY

 

Until spring 2014, steel production had generally been in a decelerating uptrend.  It then gradually rolled over and got progressively worse in pulses through the end of 2015. This year it started out as "less worse" and turned positive several months ago. 

 
 

SUMMARY: 

 

The improvement from negative to neutral or positive among many indicators in the last several months remains the most notable story.  Here is the complete list of negatives:  the broad US$, new orders from the regional Fed banks, bank lending rates, and transport.

 

Among long leading indicators, interest rates for corporate bonds, treasuries, the yield curve, real money supply, real estate loans, mortgage applications, and mortgage rates are positive.  But since no interest rates have made new lows in at least a year, and mortgage rates have not made new lows for over 3 years, so while the "now-cast" is positive, this is a big negative in the longer term forecast.

 

The only negative among short leading indicators is the broad US$. The spread between corporates and treasuries has gone from negative to neutral.  Commodities across the board, and stocks, are neutral. The US$ against major currencies is positive. Jobless claims, oil and gas prices, and usage, all remain very positive.

 

Among coincident indicators, rail transport continues to be awful, and shipping is also negative.  Bank rates remain negative.  Steel is positive.  Temp staffing has improved enough to score as neutral. Consumer spending and tax withholding returned to the positive column this week.

 

As I indicated above, there is very little in the high frequency data that is outright negative.  In fact, the long leading indicators are about as positive as I have ever seen them.  With the Fed presumably on hold again after Friday's jobs report, perhaps the broad US$ will also fall back from negative to neutral.  Taking the K.I.S.S. approach of simply looking at the Index of Leading Indicators, they have been basically flat since last summer -- implying an economy limping along but not falling into outright recession this year.

 

That being said, the leading components of Friday's jobs report were generally negative.  This coming week will feature the Labor Market Conditions Index which will give us a good read on what to expect for jobs through Election Day.

 

Have a nice weekend!

 
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