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By New_Deal_democrat August 1, 2015 10:50 am
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Weekly Indicators: almost all coincident indicators turn soft or negative edition

In the rear view mirror, Q2 GDP was reported at +2.3%, in line with expectations. Median wages and benefits just barely increased. Monthly data for July started out with the best Chicago PMI reading in 6 months.  Monthly data for June included positive durable goods, positive house prices, but negative pending home sales. Both measures of consumer confidence were down, one (Michigan) slightly, the other (Conference Board) significantly. 

 

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.  The indicators will confirm a trend or indicate a switch in trend well before monthly and quarterly reports.

 

In general I am going in order of long leading indicators, then short leading indicators, then coincident indicators. The big changes this week were in two of the coincident indicators: tax withholding, which was unusually weak, and consumer spending, which weakened further, although both remain positive.

 

 Interest rates and credit spreads

  • 5.16% BAA corporate bonds up +0.03%
  • 2.28% 10 year treasury bonds unchanged
  • 2.88% credit spread between corporates and treasuries up +0.03%
30 year conventional mortgage rate:
  • 4.03%, up +.01%

 

Interest rates for BAA corporate bonds made a 50+ year low in January. This was not confirmed by AAA corporate bonds.  Their one year low was 4.3%, and more recently their one year high was 5.3%.  After a possible once-in-a-lifetime low of 1.47% in July 2012, Treasuries rose to over 3% in late 2013, then fell through 2014 and into 2015, where they had hovered at or below 2% before yields broke out to the upside.  Spreads widened in recent months, and recently broke decisively negative.

Mortgage rates have risen to close to the top of their 12 month range, and have not made a new low in over 2 1/2 years. 

 

Housing

 

Mortgage applications

 

  • -1% w/w Purchase applications
  • +18% YoY Purchase applications
  • +2% w/w Refinance applications
Real Estate loans
  • +0.4% w/w
  • +4.2% YoY

Mortgage applications had been awful for several years, before turning up early this year in response to very low rates.  With rates rising again, there has been some rush to lock in rates for purchase mortgages, fearing even higher rates soon, while refinancing has declined to near its housing bust lows. 

Real estate loans have been firmly positive for close to two years.

 

Money supply

M1

  • +0.2% w/w
  • +0.2% m/m
  • +5.7% YoY Real M1
M2
  • +0.2 w/w
  • +06% m/m
  • +5.7% YoY Real M2

Real YoY money supply remains firmly positive.

 

Trade weighted US$:

  • Up +0.54 to 118.11

 

The US$ appreciated about 20% against the Euro in particular late last year.  After retreating a little, it made a new high this week.

 

Commodity prices

JoC ECRI

  • Down -0.23 to 96.02 w/w 
  • Down -26.42 YoY
BBG Industrial metals ETF
  • 102.83 down -1.38 w/w (new post-recession low)
Both commodity prices as measured by ECRI and industrial metals generally this week made a fresh multi-year low. I suspect this is mainly driven by Chinese weakness, and is a net boon to the US economy.

 

Employment metrics

 Initial jobless claims

  • 267,000 up +12,000 
  • 4 week average 274,750 down -7,750

Initial claims remain well within the range of a normal economic expansion, as does the 4 week average. They made a new 40 year low this week, and an all-time low as a population-adjusted basis.

 

The American Staffing Association Index 

 

  • Up +2 to 96
  • Down -2.26 YoY

The YoY comparison had generally been positive to strongly positive since last spring. In the last two months have turned neutral and then increasingly negative.

 

Tax Withholding

  • $169.5 B for the first 22 days of July vs. $164.9 B one year ago, up +$4.4 B or +2.8%
  • $141.7 B for the last 20 reporting days ending Thursday vs. $140.3 B one year ago, up +$1.3 B or +0.9%

 

Beginning with the last half of 2014, virtually all readings have been positive. This week was unusually soft. It may reflect the fact that the first of the month (when the biggest deposits are made) is the only day not included.  Hopefully this will resolve more positively next week.

 

Oil prices and usage

  • Oil down -$1.20 to $46.77 w/w
  • Gas down -$.05 to  $2.75 w/w 
  • Usage 4 week average up +6.2% YoY

 

The price of gas and oil bottomed at the end of January.  The 2010-2013 Oil choke collar has been broken.  Gas prices rose $0.80 since then, before backing off in the last five weeks.  It appears increasingly likely that we have already seen the seasonal peak.

 

Bank lending rates

LIBOR rose sharply from its post-recession low set in one year ago, and the TED spread was also in an uptrend since the last the middle of 2014, rising off its November 2013 low.  In the last month, however, both plateaued, and the TED spread has now declined precipitously to a four month low.

Consumer spending

Both the Goldman Sachs and Johnson Redbook Indexes weakened after last Christmas, and weakened further YoY beginning in May.  With the exception of 3 weeks in April, the Gallup report has been negative since the beginning of this year.  It had two positive weeks, then turned negative again for the last four weeks.

 

Transport

Railroad transport

  • Carloads down -6.7% YoY
  • loads ex-coal down -4.1% YoY
  • Intermodal units up +2.3% YoY
  • Total loads down -2.5% YoY

Shipping transport

Rail traffic fell off a cliff in mid-February. Intermodal traffic quickly turned positive again, but domestic carloads, led by coal (for export) have remained negative. 

After declining sharply for several months, making a 3-year low in mid-February, the BDI surged higher. Meanwhile, Harpex (container shipping) turned up sharply for 3 months, making almost continual new 4-year highs, peaking at 646 five weeks ago. In the longer term, shipping rates bottomed about 3 years ago and have been in a slow and variable uptrend since, although the Baltic index did break that to the downside in the recent skid.

Steel production

  • Down -0.7% w/w
  • Down -9.1% YoY

Over the last several years steel production had generally been in a decelerating uptrend.  Since  spring 2014, it turned mixed, and then cliff-dived five months ago.

 
 

SUMMARY: 

 

Six items were of most interest this week, five of them negative: the continuing collapse of commodities across the board, the renewed strengthening of the US$, the continued weakness of temporary staffing, the softening of tax withholding, and the further softening of consumer spending. The positive was the sudden decline in the TED spread.

 

Among long leading indicators, interest rates for corporate bonds, treasuries and mortgages are all neutral. Refinancing is bouncing along its multi-year bottom.  Money supply, purchase mortgage applications, and real estate loans remain positive. 

 

The short leading indicators remain extremely mixed.  The interest rate spread between corporates and treasuries and the even stronger US$ are negatives. Temporary staffing was negative for the eleventh week in a row, although the downtrend has ended.  On the other hand, jobless claims are extremely positive. Oil and gas prices continue to decline from their likely high for the year.  Both remain positives, as is gas usage.  Commodities are a big negative for (global) manufacturing, having made a yet another multi-year low this week, but are probably a big boon for consumers.

 

Right now there is only one really positive coincident indicator: the TED spread fell precipitously to a 4 month low. All of the others range from just barely positive to strongly negative.  The uptrend in LIBOR appears to have reached a plateau.  Steel production and rail carloads (led by coal and industrial metals) are still negative, although rail looks "less worse," and intermodal remains positive. Gallup spending remains negative, while Johnson Redbook and Goldman Sachs have fallen to just barely positive.  Tax withholding was also positive, but the weakest this year.

 

Hopefully the weakly positive tax withholding reading is just for this week.  The continuing deceleration of consumer spending - now well established over several months - is a new, significant concern. I suspect part of that is that, unlike last year, gas prices continued to rise through almost the entire second quarter this year. A related, important, and surprising point (when I graphed it yesterday) is that real aggregate hourly earnings have completely flatlined so far this year:

Despite this, especially with gas prices declining again, I still remain positive through the first half of next year, with a wary eye on the 3 year anniversary of the low in mortgage rates which will pass this November if there is no new low. If that happens, and there is no significant improvement in real wages, it becomes an important negative.

 

Have a nice weekend!

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