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By New_Deal_democrat November 30, 2013 10:15 am
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Weekly Indicators: another strongly positive week, but caution for consumer spending and housing measures
Monthly reports in the last week for October included  the Index of Leading Economic Indicators, up, and accelerating on a YoY basis.  Housing permits, an important component of that index, rose to a 5+ year high.  The Chicago PMI index also rose to a near 3 year high.  On the other hand, durable goods declined, as did pending home sales.  Both the University of Michigan and Conference Board consumer sentiment indicators continued near lows established during the government shutdown.  By point of reference, in 2011 it took 4 months for these measures to recover from precipitous declines during the debt ceiling debacle.
 

The high frequency weekly indicators are an almost simultaneous "nowcast" of the economy, and although they can be noisy, taken together they will show a continuation or turning of a trend before it shows up in the monthly data. 

This week let's start with the long leading indicators again, as I have expressed concern about their recent weakness:

 

Interest rates and credit spreads

  • 5.40% BAA corporate bonds up -003%
  • 2.74% 10 year treasury bonds unchanged
  • 2.66% credit spread between corporates and treasuries down -0.03%

Interest rates for corporate bonds had been falling since being just above 6% in January 2011, hitting a low of 4.46% in November 2012. Treasuries fell to a possible once-in-a-lifetime low of 1.47% in July 2012, but decisively rose more than 1.5% above that mark by September, before  declining somewhat. They were basically steady this week. After declining to near 2 year lows, spreads also have increased in the last month. Their recent high was over 3.4% in June 2011.

 

Housing metrics

Mortgage applications from the Mortgage Bankers Association:

  • +6% w/w purchase applications
  • -3% YoY purchase applications
  • -7% w/w refinance applications

Refinancing applications decreased sharply since April due to higher interest rates, and remain near post-recession lows. Purchase applications also declined from their multiyear highs in April, and for the last six weeks also turned negative YoY. Applications have generally been mixed for the last several weeks.

 

Housing prices

  • YoY this week +11.1%

Housing prices bottomed at the end of November 2011 on Housing Tracker, and averaged an increase of +2.0% to +2.5% YoY during 2012. This weeks's YoY comparison retreated from last week's new 7 year record. 

Real estate loans, from the FRB H8 report:

  • -0.1% w/w
  • -1.1% YoY
  • +0.9% from its bottom

Loans turned up at the end of 2011 and averaged about 1% gains YoY through most of 2012.  Since April, with higher interest rates, the comparisons stalled and are now quite negative, retreating back to near their post recession lows.

Money supply

M

  • +0.5% w/w
  • -2.6% m/m
  • +7.2% YoY Real M1

 M2

  • Unchanged w/w
  • -0.3% m/m
  • +5.2% YoY Real M2

Real M1 made a YoY high of about 20% in January 2012 and decelerated since then.  Real M2 also made a YoY high of about 10.5% in January 2012.  Its subsequent low was 4.5% in August 2012. Earlier this year both moderated, then in the last month both accelerated again, but were a little more soft again this week. 

Consumer spending

Gallup's 14 day average of consumer spending now has very difficult YoY comparisons, and it has shown immediately.  Last year the ICSC varied between +1.5% and +4.5% YoY in, while Johnson Redbook was generally below +3%.  Johnson Redbook has also bounced back towards the high end of its range.  The ICSC this week also retreated from the middle of its 2013 range.

Steel production from the American Iron and Steel Institute 

  • -0.3% w/w
  • +6.0% YoY

 Steel production over the last several years has been, and appears to still be, in a decelerating uptrend,  but has been strongly positive in  the last several months.

 

Transport

 Railroad transport from the AAR 

  • +44,000 carloads up +17.4% YoY
  • +49,300 carloads up +37.3% ex-coal
  • +73,300 or +37.7% intermodal units
  • +117,100 or +26.2% YoY total loads

Shipping transport

Rail transport had been very mixed YoY during midyear, but has continuously improved since then and this week had its strongest reading yet.  The Harpex index had been improving slowly from its January 1 low of 352, but flattened out in the last half a year, and is now declining slightly. The Baltic Dry Index hit a 3 year high over several months ago, turned back down, but rebounded this week. In the larger picture, both the Baltic Dry Index and the Harpex declined sharply since the onset of the recession, and have been in a range near their bottom for about 2 years, but stopped falling earlier this year, and now are in uptrends.

Employment metrics

 Initial jobless claims

  • 316,000 down -7000
  • 4 week average 331,750 down -5750

The American Staffing Association Index rose 2 to 103. It is up +6.9% YoY

Tax Withholding 

  • $146.9 B for the first 18 days of November vs. $131.2 B last year, up +$15.7 B or +12.0%
  • $158.1 B for the last 20 reporting days vs. $142.1 B last year, up +16.4 B or +11.6%

 

Temporary staffing had been flat to negative YoY in spring, but broke out positively for the last four months. Tax withholding, after a strong September, was awful in October, presumably due to the federal government shutdown, but has now fully rebounded.  Initial claims have also returned to being positive. 

Oil prices and usage

  • Oil down -$2.06 to $92.78 w/w
  • Gas up +$0.07 at $3.29 w/w
  • Usage 4 week average YoY up +4.7%

The price of Oil fell to near its 52 week low. The 4 week average for gas usage is now strongly positive. In the larger picture, it looks like the Oil choke collar is finally loosening its hold on the economy. 

Bank lending rates

The TED spread remains close to the bottom of its 3 year range. LIBOR increased this week from its 3 year low. 

JoC ECRI Commodity prices

  • up +0.65 to 122.87 w/w
  • +1.15 YoY

 This was another very positive week.  The long leading indicator of interest rates were largely unchanged, but remain  a full 1% higher than they were in April.  Although housing permits were stellar, interest rates have significantly knocked back all of the other housing metrics, as real estate loans were even  more awful, and mortgage applications remain barely above their recent lows.  Money supply is positive and steady, but relatively soft compared with the last several years.  

The shorter leading indicators were all positive. Temporary employment rose to a new post-recession high this week and is still strongly positive as it has been in the last three months. The oil choke collar has disengaged, as gas prices, and are back near three year lows, and usage has increased.  Initial jobless claims improved, as the effects of the government shutdown ebbed. Commodities turned slightly positive, are also remain slightly higher than one year ago. 

Coincident indicators are positive or neutral. Rail traffic continues its recent strongly positive performance, while shipping was mixed. Steel production is positive. Bank lending rates remain at or near record lows. House prices remain strongly positive. Tax withholding, after an awful October, is having an excellent November so far. If there is a source of caution, it is that Gallup consumer spending is now only slightly positive, due to challenging YoY comparisons, Johnson Redbook remains strong, although this week the ICSC index retreated from the middle of its range.

In the beginning of 2013, based on leading indicators at that time, I thought the economy would bounce back in  the second half, and indeed the economy is doing quite well at the moment.  Housing and especially interest rates must be watched carefully for its message about late 2014.

Have a nice weekend.

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