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By New_Deal_democrat January 2, 2016 8:56 am
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Weekly Indicators: are commodities bottoming? edition
Monthly data for November was light, but included an increase in house prices, a decline in pending home sales, and an increase in consumer confidence.  Sentiment about present conditions has been trending higher for the last 6 months, while expectations for the future have been trending lower.
 

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

 

Interest rates and credit spreads

  • 5.54% BAA corporate bonds up +.01%
  • 2.31% 10 year treasury bonds up +.04%
  • 3.23% credit spread between corporates and treasuries down -.03%
30 year conventional mortgage rate:
  • 4.09%, down -.01%

 

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.  Spreads remain very negative, although they had a little bounce this week.

 

Housing

 

Mortgage applications

 

  • No report this week
Real Estate loans
  • Up +0.4% w/w
  • +6.9% YoY 

Mortgage applications had been awful for several years, before turning up early this year in response to very low rates..

Real estate loans have been firmly positive for two years.

 

Money supply

M1

  • +0.6% w/w
  • -0.9% m/m 
  • +4.5% YoY Real M1
M2
  • +0.4% w/w
  • +0.3% m/m
  • +5.6% YoY Real M2 

Real YoY money supply remains firmly positive, although it has moderated a little in recent months.

 

Trade weighted US$ (Broad)

  • Down -0.28 to 122.67 (FRED)
  • Down -0.07 to 98.63 (Bloomberg)

 

Because the FRED's daily measure is delayed a week, I have added Bloomberg which is accurate as of Thursday (although I believe it does not measure the broad US$).  The US$ appreciated about 20% against the Euro in particular from July 2014 through February 2015.  It made yet another new high one week ago.  As a result the US is importing deflation strongly, and exports have declined. This has intensified since the beginning of October.  The YoY comparisons are going to get much more challenging beginning in one month.

 

Commodity prices

JoC ECRI

  • Up +1.59 to 80.76 w/w 
  • Down -23.92 YoY
BBG Industrial metals ETF
  • 90.43 up +0.8 w/w
Commodity prices as measured by ECRI and industrial metals have bounced off their bottoms in the last 2 weeks, and oil made a low in November.  The commodity bust intensified over the last 3 months, but may be in the process of bottoming. We'll see.

 

Employment metrics

 Initial jobless claims

  • 287,000 up 20,000 
  • 4 week average 277,000 up +4,500

 

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 103
  • Down -2.96 YoY

The YoY comparison in the last six months this turned neutral and then increasingly negative. The YoY comparison was significantly less bad this week, but may be an artifact of seasonality.

 

Tax Withholding

  • $203.3 B for the first 21 days of December vs. $194.9 B one year ago, up +$8.9 B or +4.3%
  • $188.9 B for the last 20 reporting days ending Wednesday vs. $185.8 B one year ago, up $3.1 B or +1.7%

Beginning with the last half of 2014, virtually all readings were positive, but turned more mixed and choppy in August and September.  In general they have remained positive, but a little more weakly so, in the last 45 days.

Oil prices and usage

  • Oil down -$1.05 to $37.07 w/w
  • Unchanged at $2.03 w/w 
  • Usage 4 week average up` +0.4% YoY

 

The 2010-13 Oil choke collar remains broken.  The price of gas and oil bottomed at the end of January at $2.02. It briefly went below $2 on GasBuddy last week, and has remained a skosh abouve $2 this week, so it may have bottomed for the season.  Usage is still slightly positive.

 

Bank lending rates

  • 0.460 TED spread up +0.050 w/w
  • 0.430 LIBOR up +0.010 w/w (near 6 year high)

 

Both TED and LIBOR were already rising since the beginning of this year to the point where both have usually been negatives, although there were some wild fluctuations.  Both TED and LIBOR spiked further to new 5 year highs this week.

 

Consumer spending

Both the Goldman Sachs and Johnson Redbook Indexes weakened after last Christmas, weakened further YoY beginning in May, and then weakened yet further in September, probably as YoY gas price comparisons turned flatter, before improving somewhat since the beginning of November.  Gallup has also turned positive in the last 3 weeks, and saved its best YoY comparison for all of 2015 until the very last week.

 

Transport

Railroad transport

  • Carloads down -17.9% YoY
  • loads ex-coal down -9.8% YoY
  • Intermodal units up +1.6% YoY
  • Total loads down -9.8% 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) declined further in May and June (off -8% to -10% YoY), and then were at consistent, less negative YoY comparisons through summer.  Since the beginning of October, comparisons have turned more negative than even earlier this year, and even more so in the last several weeks.

After declining sharply for several months, making a 3-year low in mid-February, the BDI surged higher, and then declined again to a multi-year low.  Meanwhile, Harpex (container shipping) turned up sharply for 3 months, peaking at 646 in July, before turning down again to another post-recession low again this week.

Steel production

 

  • Down -4.4% w/w
  • Down -18.9% YoY

Over the last several years steel production had generally been in a decelerating uptrend.  It begain to turn in spring 2014, turned negative beginning in February, and more intensely negative in the last 3 months. It also turned even more sharply lower in the last several weeks.

 
 

SUMMARY: 

 

Among long leading indicators, interest rates for treasuries, corporate bonds, and mortgages all are neutral.  Money supply and real estate loans are still positive.

 

Among short leading indicators, the interest rate spread between corporates and treasuries remains quite negative (although it improved a little this week), and the US$ even more.  Temporary staffing remains quite negative. Jobless claims trended a little higher, but are still quite positive. Oil and gas prices remain very positive, and usage is still slightly positive. Commodities remain a big global negative, but have rebounded in the last several weeks. . 

 

Among coincident indicators, steel production, shipping, and rail transport all remain very negative, and steel and rail had about their worst weeks all year. The TED spread and LIBOR both made stir more 5 year highs.  Tax withholding and all three measures of consumer spending are positive, with Gallup making its best showing in all of 2015 during the last week.

 

As noted just above, the US consumer seems to have come through yet again at the end of the holiday season.  Meanwhile, the YoY comparisons for commodities in general, and gasoline in particular, are trending significantly less negative than recently. My suspicion is that we are getting close to the longer term bottom in the commodity collapse. I'll be watching this closely over the next several weeks and months. Finally, I wonder if the further big pulse down in rail transport represents a beginning of inventory liquidation via a big downturn in new orders.  We'll see in 2016!

 

Have a nice weekend!

 
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