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By New_Deal_democrat May 21, 2016 10:54 am
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Weekly Indicators: an appearance by the ghosts of 2015 edition
April data reported this week included a "hot" CPI reading of +0.4%. All of the other reports were positive, including a pop in the Leading Indicators, an increase in industrial production and capacity utilization, an increase in housing permits and starts, and existing home sales.
 

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

  • 4.70% BAA corporate bonds up +.07% (down -.80% since Jan 1)
  • 1.85% 10 year treasury bonds up +.12%
  • 2.85% credit spread between corporates and treasuries down -.05%
Yield curve, 10 year minus 2 year:
  • 0.96%, down -.03% w/w
30 year conventional mortgage rate:
  • 3.73%, up +.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 is still within the range of its long-term positive readings.

 

Housing

 

Mortgage applications

 

  • purchase applications down -6% w/w
  • purchase applications up +12% YoY
  • refinance applications up +1% w/w
 
Real Estate loans
  • +0.3% w/w
  • +7.4% 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, although they have retreated slightly in the last month.

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

 

Money supply

M1

  • +0.5% w/w
  • +1.8% m/m
  • +6.9% YoY Real M1
M2
  • -0.1% w/w  
  • +0.8% m/m
  • +5.7% 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$

  • Up +0.92 to 120.85 w/w, up +6.8% YoY (Broad) (1 week delay)
  • Up +0.72 to 94.61 w/w, down -0.7% YoY (major currencies)

 

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$ returned to being positive this week, while the broad measure after several months of being neutral, was negative again this week.  Exactly one year ago during this last week was the weakest reading of the US$ for all of 2015, so this may be an anomaly.

 

Commodity prices

JoC ECRI

  • Down -0.86 to 88.82 w/w
  • Down -12.72 YoY
BBG Industrial metals ETF
  • 90.62 down -0.53 w/w 
Commodity prices as measured by industrial metals appear to have bottomed in November, although they have declined again in the last month.  ECRI and oil also retreated after turning up earlier this year. This is enough to move commodities from neutral back to negative.

 

 Stock prices S&P 500

 

  • Up +0.3% w/w
  • Down -4.0% from high 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 -6 to +18
  • Kansas City unchanged at -2
  • Dallas up +11 to +6
  • Month over month rolling average: -3 from +6 to +3
Since the ISM new orders index is an excellent short leading indicator for sales and industrial production (roughly by 6 months), I am experimenting to see if a rolling average of these regional indexes reasonably forecast the direction and intensity of moves in that monthly index.  Both the Empire State and Philly Indexes returned to negative May readings, although as the graphs below from the respective Feds show, the trend is still improving compared with last year:
 
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Employment metrics

 Initial jobless claims

  • 278,000  down -16,000
  • 4 week average 275,750 up +7,500

 

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. Last week's spike was almost completely taken back this week.

 

The American Staffing Association Index

 

  • Unchanged at  96 w/w
  • Down -0.82 YoY

Since last spring, the YoY comparison turned neutral and then increasingly negative, although since the beginning of the year it has generally been "less worse."  For months I have said that I would need this series to be -2.15% YoY or less for me to believe it has bottomed. It got there one week ago.  This metric turned south late last May.  If the current trajectory continues for just one or two more weeks, this will turn outright positive.

 

Tax Withholding

  • $127.4 B for the first 14 days of May vs. $126.2 B one year ago, up +$1.2 B or +1.0%
  • $171.7 B for the last 20 reporting days ending Thursday vs. $165.4 B one year ago, up +$6.3 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. 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.  April collections, however, ran  positive.  May has been a little disappointing so far, but the 20 day sum is positive.

 

Oil prices and usage

  • Oil up +$1.30 to  $46.67 w/w
  • Gas prices up +$.02  to $2.24 w/w 
  • Usage 4 week average up +5.7% YoY

 

The price of gas bottomed this winter at $1.69.  Usage turned briefly negative at the beginning of the year, but is now positive again.

 

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 November.  JR was weakly positive again this week.  Gallup has been positive almost every week so far this year which, because it includes gas purchases, strongly suggests that consumers have started to spend some of their gas savings on other things (which I suspect significantly includes soaring rents). With a very weak JR and a negative Gallup, consumer spending has moved to neutral this week.

 

Transport

Railroad transport

  • Carloads down -11.4% YoY
  • loads ex-coal down -4.0% YoY
  • Intermodal units down -7.2% YoY
  • Total loads down -9.2% 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.

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

Steel production

 

  • Down -1.2% w/w
  • Up +1.3% 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: 

 

There was no change among the 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.  At the same time, 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.

 

Among short leading indicators, negatives include the broad US$, which was joined this week by commodities. The spread between corporates and treasuries has gone from negative to neutral.  Stocks and regional new orders retreated to neutral, as is the US$ against major currencies. 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 as are withholding taxes. Temp staffing, which had been negative, is on the verge of turning positive. Consumer spending was weak enough to score as only neutral this week.

 

After broad improvement to neutral or outright positive among a variety of indicators in the last two months, this week saw several of them retreating to neutral or negative readings as like last year - most significantly an uptick in treasury yields, a negative move in the broad US$, and sinking commodities. Both regional new orders indexes turned back to negative, although as the two graphs below from the NY and Philly Feds show, the trend remains improving:

 

Hopefully we don't continue to revert to 2015's negative readings. With a newly hawkish Fed, we'll soon see.

 

Have a nice weekend!

 
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