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By New_Deal_democrat September 6, 2014 10:02 am
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Weekly Indicators: Autumn carries over from strong summer edition

This week demonstrated why these high frequency indicators are so useful. In monthly data for August, jobs were less positive than almost anybody predicted, but the unemployment rate dropped. Average pay did increase by over +.2%.  Motor vehicles sales made another post-recession high.  July data was still being reported, however, as factory orders increased sharply and construction spending increased, but June construction spending was revised down by even more.  Meanwhile, in the distant rear view mirror, Q2 productivity and unit labor costs were revised downward.

 

In contrast, the high frequency weekly indicators provide an up-to-this-week snapshot of the economy.  The indicators will confirm a trend or indicate a switch in trend well before monthly reports, and are a way to mark one's opinions to market on a regular basis.

 

Let's start this week with treasuries and money supply, both of which recently showed signs of an international flight to safety:

 

Interest rates and credit spreads

  • 4.63% BAA corporate bonds down -0.07%
  • 2.38% 10 year treasury bonds down -0.03%
  • 2.25% credit spread between corporates and treasuries down -0.04%

Interest rates for corporate bonds made 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 rose to over 3% in late 2013.  This year interest rates have declined about .6% so far.  Spreads have widened since their expansion lows of a few months ago.

 

Money supply

M1 

  • +0.3% w/w
  • -2.7% m/m
  • +7.4% YoY Real M1

 M2 

  • +0.1% w/w
  • +0.1% m/m
  • +4.6% YoY Real M2

At the time of the last flight to safety (from Europe) in January 2012, YoY Real M1 made a high of about 20%, and YoY Real M2 made a high of about 10.5%.  Growth in both then decelerated.  Real M2 made a new 2 year low at the beginning of this year.  Both Real M1 and Real M2 improved substantially since.  After showing signs of the flight to safety once again two weeks ago, growth in Real M1 abated further, and significantly, this week, but was still very positive.

 

Employment metrics

 Initial jobless claims

  • 302,000 up +4,000
  • 4 week average 302,750 up +3,000

These have been in the normal range for an economic expansion for 4+ months.

 

The American Staffing Association Index was up 1 to 101.  It is up +4.54%YoY.

 

This Index made another seasonal all-time high for this week. The YoY comparison has been positive to strongly positive since early spring.

 

Tax Withholding

  • $160.9 B for the month of August vs. $154.6 B one year ago, up +$6.3 B or +4.1%.
  • $155.2 B for the last 20 days ending Thursday vs. $146.2 B for 20 days ending Thursday 1 year ago, up +$9.0 B or +6.2%.

 

After July's tax withholding turned negative, it was beginning to be a significant ground for concern.  August saw a return to a regular positive number.

 

Oil prices and usage

  • Oil down -$2.67 to $93.29 w/w
  • Gas up +$.01 to $3.46 w/w
  • Usage 4 week average YoY -0.7%

 

 

The price of gas has declined significantly in the last month.  It is below its prices of 1, 2, and 3 years ago.  The Oil choke collar has disengaged.

 

Consumer spending

Gallup's 14 day average of consumer spending averaged between $80 and $100 for most of 2013, with frequent YoY comparisons over $20, and few less than +$10.  In 2013 the YoY range for the ICSC declined to between +1.5% and +3.0%, while Johnson Redbook YoY was between from +2% to a high over +4%. Redbook and the ICSC surveys remain quite positive, and Gallup weakly so after being negative YoY in the early part of last month.

 

Steel production from the American Iron and Steel Institute 

  • -1.0% w/w
  • +3.0% YoY

Steel production over the last several years has generally been in a decelerating uptrend.  After a strongly positive move late in 2013, YoY comparisons turned negative again from January through early May, but have turned increasingly positive since then.

 

Transport

 Railroad transport from the AAR

  • +3,900 carloads up +1.3% YoY
  • +11,000 carloads ex-coal up +6.1% YoY
  • +13,900 intermodal units +5.3% YoY
  • +17,400 total loads +3.1% YoY

Shipping transport

Rail traffic has been generally strong since early spring, although has backed off a little in the last few weeks. The BDI declined substantially since the end of last year, but this week was close to a 5 month high. Harpex tends to correlate with intermodal traffic, and has been more positive, but generally flat for the last few months.  In the longer term, shipping rates bottomed about 2 years ago and have been in a slow and variable uptrend since.

 

Housing metrics

Mortgage applications from the Mortgage Bankers Association:

  • w/w purchase applications up -2%
  • YoY purchase applications down -12%
  • w/w refinance applications up +1%

Both refinance applications and purchase applications have flattened out near their recent post-recession lows. In the last month we have seen "less worse" readings in YoY financing. 

 

Real estate loans, from the FRB H8 report:

  • -0.3% w/w
  • +2.8% YoY
  • +5.7% from their bottom

Loans turned up at the end of 2011, but with higher interest rates, the comparisons rolled over and had been negative since April 2013.  They turned positive YoY in March 2014, and have remained positive to sharply positive since.

 

Bank lending rates

LIBOR has risen slightly from its post-recession low set in May. The TED spread has also been trending slightly upward since November of last year, although it is still lower on a YoY basis. 

 

JoC ECRI Commodity prices

  • Down -0.34 to 129.44 w/w
  • +4.81 YoY 
Strong commodity price gains come in a strong economy. Last week's swoon was reversed this week.
 

This week again literally every weekly indicator was positive with the exception of mortgage applications, which were negative (although they have gotten "less worse"), and gas prices and usage, which were slightly higher and lower, respectively.  The only other negative would be relative, in that Gallup consumer spending was only slightly positive.

 

Every other indicator, whether long or short leading or coincident, was positive, although a few had slight declines on the week while their YoY positive trend remained intact.

 

We've had a very big, positive, decline in interest rates this year.  If the decline in rates continues, housing will get a second wind, so watch August building permits when they are reported.  If rates reverse higher, then the outlook for 2015 becomes weaker.

 

Have a nice weekend!

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