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By New_Deal_democrat April 8, 2017 9:19 am
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Weekly Indicators: bank lending indicators diverge sharply edition
March data started out with a miss on payrolls, but significant declines in both unemployment and underemployment. ISM manufacturing and services both decelerated but were both still very positive.  Motor vehicle sales declined significantly.  February data included an increase in factory orders and construction spending, while both wholesale sales and inventory increased.
 
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

  • Dow Jones corporate bond index 365.15 up +0.68 w/w (2016 high was 395.36, 2016 low was 341.41) 
  • 2.38% 10 year treasury bonds down -0.01%
  • BofA/ML B Credit spread up +0.17% to 3.89%
Yield curve, 10 year minus 2 year:
  • 1.10%, down -0.03% w/w
30 year conventional mortgage rate
  • 4.15%, down -0.04% 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 negative for two weeks before turning neutral again.  Corporate bonds remain neutral. Spreads are very positive, and the yield curve, while narrowing slightly also remains positive.

 

Housing

 

Mortgage applications 

 

  • purchase applications +1% w/w
  • purchase applications +8% YoY
  • refinance applications -4% w/w
 
Real Estate loans
  • Down -0.1% w/w
  • Up +5.3% YoY

Mortgage applications turned outright negative for three weeks before tipping back to neutral and then surprisingly positive again. Refi applications remain at 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 two months for loans to become a neutral.

 

Money supply

M1

  • -0.6% w/w
  • +1.0% m/m
  • +4.7% YoY Real M1 
M2
  • +0.1% w/w  
  • +0.6% m/m 
  • +3.4% YoY Real M2 

Both real M1 and real M2 were firmly positive almost all last year, although generally less so in the last several months, with real M2 showing substantial deceleration beginning last August. Real M2 weakened again this week and depending on March inflation, I may switch it to a neutral. We'll see.

 

Trade weighted US$

  • Down -0.53 to 124.35 w/w, up +3.9% YoY (one week ago) (Broad)
  • Up +0.57 to 101.10 w/w, up +7.3% 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. It has been generally neutral for about 4 months, but this week against major currencies it scores negative again.

 

Commodiy prices

JoC ECRI

  • Up +1.15 to 108.30 w/w 
  • Up +24.38YoY
BBG Industrial metals ETF
  • 115.63 down -0.53 w/w, up +28.25% YoY
Commodity prices bottomed near the end of 2015. After briefly turning negative, metals surged higher since the election, but have backed off a little in the last few weeks.

 

Stock prices S&P 500

 

  • Down -0.3% w/w to 2355.54
Stock prices are positive, having made a string of new all-time highs beginning last summer.
 

Regional Fed New Orders Indexes

(*indicates report this week)(No reports this week)

  • Empire State  +7.8 to +21.3
  • Philly up +1 to +39
  • Richmond up +2 to +26
  • Kansas City up +12 to +38
  • Dallas down -2.1 to +9.5
  • Month over month rolling average: unchanged at +27 (2+ year high)
The regional average has been more volatile than the ISM manufacturing index, but has accurately forecast its month over month direction. These continue to scream positive.

 

Employment metrics

 Initial jobless claims

  • 234,000 down -24,000
  • 4 week average 250,000 up +9,750

 

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 93 w/w
  • Up +2.27 YoY

This index turned negative in May 2015, getting as bad as -4.30% late that year. In 2016 it became progressively "less bad," turning generally neutral since last May, and has now been positive for over the last three months.

 

Tax Withholding

  • $234.9 B for the month of March vs. $216.7 B one year ago, up +$18.2 B or +8.4%
  • $205.6 B for the last 20 reporting days vs. $193.2 one year ago, up +$12.4 B or +6.4%

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 showed a marked improvement.

 

Oil prices and usage

  • Oil up +$1,40 to  $52.25 w/w,  up +$7.47 YoY
  • Gas prices up +$0.05 to $2.36 w/w, up +$0.28 YoY
  • Usage 4 week average down -0.6% YoY

 

The price of gas bottomed over one year ago at $1.69.  Prices went sideways since late last summer, then briefly moved higher making them neutrals, before easing in the last few weeks.  Usage  faltered and has now turned negative for several months. Historically, it has taken at least a 40% increase YoY for gas to turn into a headwind.  We got close a few weeks ago, but the YoY change in gas prices is back below 20% now.

 

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 turned more and more negative.  I am at a loss as to why the two lending measures have diverged so sharply.

 

Consumer spending

  • Johnson Redbook up +1.3% YoY
  • Goldman Sachs/Retail Economist down -1.7% w/w, up +0.3% YoY
  • Gallup daily consumer spending 14 day average $103, up +$9 YoY

 

Both the Goldman Sachs and Johnson Redbook Indexes progressively weakened in pulses during 2015, before improving somewhat in 2016.  This week Redbook was positive, while Goldman was just barely above negative. Meanwhile for over two months Gallup has absolutely screamed higher, and remained very positive this week.  I strongly suspect that the weakness in the first two measures is due to the impact of online shopping, whereas Gallup's consumer self-reports are not affected by this at all.

 

Transport

Railroad transport

  • Carloads up +9.1% YoY
  • loads ex-coal up +2.9% YoY
  • Intermodal units up +5.5% YoY
  • Total loads up +7.2% 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. It was very positive again this week.

Harpex recently declined to repeated multi-year lows, but in the last two months has come back, strongly so in the last four weeks, enough so that it is now higher than during 4 of the last 5 years. BDI recently turned very positive before declining several month ago, but has now also surged back to being a positive.  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

 

  • Down -1.9% w/w
  • Up +0.4% 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 except for one recent week remained positive since. This week it was weak enough to again score neutral.

 
 

SUMMARY: 

 

Negatives remain few and far between, once again only 4: mortgage refinancing, gas usage, LIBOR, and the US$ against major currencies. There were a few more neutrals.  Everything else was positive.

 

Among long leading indicators, Treasuries, corporate bonds, and mortgage rates remain neutral. The yield curve and money supply remain positive. Purchase mortgage applications remain positive, but refinance mortgage applications are still dead. Growth in real estate loans remains neutral.

 

Short leading indicators, including stock prices, jobless claims, industrial commodities, the regional Fed new orders indexes, spreads, temp staffing, and oil and gas prices are all positive.   The US$ is neutral against all currencies and negative against major currencies. Gas usage remains negative.

 

The coincident indicators are generally positive. Two measures of consumer spending, rail, the TED spread, and the BDI are all positive, joined this week by the Harpex shipping index as well. The only negative is LIBOR, while the Goldman Sachs measure of consumer spending was just barely above negative.  I am really at a loss as to why the TED spread and LIBOR have diverged so sharply over the last several months.

 

You can always find at least one sector that looks bad. One year ago it was manufacturing. Now it is brick and mortar retail sales. But the vast majority of indicators demonstrate that the outlook over the next 6 to 8 months remains very positive. The outlook for one year and further out  remains generally neutral with a slight positive tilt.

 

Have a nice weekend!

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