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By New_Deal_democrat August 19, 2017 11:40 am
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Weekly Indicators: another sea of green edition
July data featured another positive reading of the Index of Leading Indicators, despite a decline in both housing permits and starts. Industrial production and retail sales were also both positive, although manufacturing production was slightly negative and capacity utilization was flat. The preliminary August reading of the Michigan consumer sentiment survey was positive. June total business inventories rose more than sales, a negative. 
 
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

  • BAA corporate bond index 4.30% -0.03% w/w (12 mo. high 4.90%. 12 mo. low 4.15%)
  • 10 year treasury bonds 2.19% -0.05% w/w 
  • Credit spread 2.11% +0.02% w/w 
Yield curve, 10 year minus 2 year:
  • 0.87%, down -0.04% w/w
30 year conventional mortgage rate
  • 3.94%, down -0.02% w/w (1 year high was 4.39%)

Yields on treasuries and mortgage rates made new 12 month highs in December, but subsequently retreated, turning neutral for several months, rose enough again to score negative for two weeks, but have turned neutral again.  Corporate bonds remain neutral. Spreads remain very positive. The yield curve remains positive also.

 

Housing

 

Mortgage applications 

 

  • purchase applications down -2% w/w
  • purchase applications up +10% YoY
  • refinance applications up +2% w/w
 
Real Estate loans
  • Up +0.1% w/w 
  • Up +4.5% YoY

Mortgage applications turned outright negative for three weeks before tipping back to neutral and then surprisingly positive for most weeks in the last few months, including this week. Refi applications remain near multi-year lows.

 

Real estate loans had been firmly positive for over 3 1/2 years, but the rate of growth (of this cumulative measure) declined sufficiently for the last three months for loans to become a neutral.

 

Money supply

M1

  • -1.3% w/w 
  • -0.8% m/m 
  • +4.5% YoY Real M1 
M2
  • +0.1% w/w 
  • +0.3% m/m 
  • +3.6% YoY Real M2

Both real M1 and real M2 were positive almost all last year.  Both recently decelerated substantially, but have improved in the last few weeks, and remain positives.

 

Credit conditions (from the Chicago Fed) 

 

  • Financial Conditions Index up +0.01 to -0.89
  • Adjusted Index (removing background economic conditions) up +0.01 to -0.19
  • Leverage subindex unchanged at -0.64
In the adjusted and leverage indexes, which are more leading, a negative number is good, a positive poor. The historical breakeven point has been -0.5 for the unadjusted Index. All three metrics presently show looseness and so are positives for the economy, although the adjusted index is only a weak positive.
 

Trade weighted US$

  • Up +0.30 to 119.70 w/w, -1.3% YoY (one week ago) (Broad)
  • Up +0.34 to 93.42 w/w, -1.6% YoY (yesterday) (major currencies)

 

The US$ appreciated about 20% between mid-2014 and mid-2015.  It went mainly sideways since then until spiking higher after the US presidential election. With a few exceptions as to major currencies, it has been generally neutral for about 5 months, and has turned into a positive as to major currencies for the last month, and has now been joined by the broad measure as well.

 

Commodiy prices

JoC ECRI

  • Down -0.03 to 105.76 w/w
  • Up +11.44 YoY
BBG Industrial metals ETF 
  • 125.70 up +2.78 w/w, up +25.3% YoY
Commodity prices bottomed near the end of 2015. After briefly turning negative, metals also surged higher after the election.  ECRI briefly turned down enough to be downgraded to neutral, but both are again positive.

 

Stock prices S&P 500

 

  • Down -0.7% w/w to 2425.35 
Stock prices are positive, having made a string of new all-time highs beginning one year ago.
 

Regional Fed New Orders Indexes

(*indicates report this week)

  • *Empire State up +7.3  to +20.6
  • *Philly up +18.3 to +20.4
  • Richmond up +4 to +18
  • Kansas City up +5 to +10
  • Dallas up +7.0 to +16.6
  • Month over month rolling average: up +5 to +17
The regional average has been more volatile than the ISM manufacturing index, but has accurately forecast its month over month direction. These have turned more positive in the last month.

 

Employment metrics

 Initial jobless claims

  • 232,000 down -12,000
  • 4 week average 240.500 down -500

 

Initial claims remain well within the range of a normal economic expansion, as does the 4 week average.

 

The American Staffing Association Index

 

  • Unchanged at 96 w/w
  • Up +1.60 YoY

This index was generally neutral from May 2016 until the end of the year, and has been positive with a few exceptions since the beginning of this year.

 

Tax Withholding

  • $117.4 for the first 13 days of August 2017 vs. $123.5 B one year ago, down -$6.1 B or -4.9%
  • $178.4 B for the last 20 reporting days vs. $168.1 B one year ago, up +$10.3 B or +6.1%

Beginning with the last half of 2014, virtually all readings were positive, but turned more mixed and choppy, and occasionally even negative, in last 2015 through the first part of 2016.  The last few months have with brief exceptions (including this month so far) shown marked improvement.

 

Oil prices and usage

  • Oil down -$0.06 to $48.73 w/w,  down -8.0% YoY
  • Gas prices unchanged at $2.38 w/w, up +$0.23 YoY
  • Usage 4 week average up +0.9% YoY

 

The price of gas bottomed about 18 months ago at $1.69.  With the exception of last month, prices generally went sideways with a slight increasing trend for the last year.  Usage turned negative most of this year, but usage comparisons have been improving, and for three of the last four weeks finally turned positive.

 

Bank lending rates 

 

Both TED and LIBOR rose since the beginning of last year to the point where both were usually negatives, although there were some wild fluctuations.  Of importance is that TED was above 0.50 before both the 2001 and 2008 recessions.  The TED spread has turned very positive for the last several months. Meanwhile LIBOR has generally turned more and more negative.

 

Consumer spending 

  • Johnson Redbook up +2.5% YoY
  • Goldman Sachs down -1.6% w/w, up +1.1% YoY

 

Both the Goldman Sachs and Johnson Redbook Indexes progressively weakened in pulses during 2015, before improving somewhat in 2016, and more markedly so in the last several months.  Both were positive this week,

 

Transport

Railroad transport

  • Carloads up +0.3% YoY
  • loads ex-coal down -2.4% YoY
  • Intermodal units up +5.1% YoY
  • Total loads up +2.7% YoY

Shipping transport

Rail turned negative in 2015 and fell even more sharply in spring 2016. Since last June, rail improved to neutral, and then positive almost all weeks since the beginning of November - until six weeks ago, when it turned mixed again, as it was this week.

Harpex recently declined to repeated multi-year lows, then came back all the way to positive, declined again, but in the last month has come all the way back to positive again. BDI also surged back to being a positive before declining back to neutral earlier this year, but has turned up again in the last month.  I am wary of reading too much into price indexes like this, since they are heavily influenced by supply (as in, a huge overbuilding of ships in the last decade) as well as demand.

Steel production

 

  • Up +1.0% w/w
  • Up +7.6% 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. It improved from negative to "less bad" to positive in 2016 and until recently remained positive since. In the last several months, it has alternated between positive and negative.

 
 

SUMMARY: 

 

Almost every single indicator across the board was positive this week. The only negatives were mortgage refinance applications, rail loads ex-coal, and LIBOR. Interest rates were neutral, as were real estate loans. Everything else was positive. More specifically:

 

Corporate bonds, Treasury yields, mortgage rates, and growth in real estate loans remain neutral. The yield curve, money supply, and purchase mortgages also remain positive, as are the two more leading Chicago Fed Financial Conditions Indexes are both positive, although one has decelerated substantially. Refinance mortgage applications are the sole negative.

 

Short leading indicators, including stock prices, jobless claims, industrial metals, the regional Fed new orders indexes, spreads, financial conditions, staffing, the US$, and oil and gas prices are all positive. Gas usage, which had been negative, turned positive again. 

 

Among the coincident indicators, positives included rail, consumer spending, steel, and the TED spread, joined this week by the Baltic Dry Index. Harpex turned positive again.  LIBOR remains the sole negative.

 

This is simply an economy in very good shape. The only source of concern is that interest rates remain slightly elevated, and this has had a negative effect on the housing market. Thus the long leading forecast remains neutral to slightly positive.

 

Have a nice weekend!

 

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