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
- 5.27% BAA corporate bonds down -,10%
- 1.71% 10 year treasury bonds down -.04%
- 3.56% credit spread between corporates and treasuries down -.06%
- 3.67%, up +.03% 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 two weeks ago, and remain low enough to be short-term positives. Spreads remain very negative, although they have improved slightly.
Housing
Mortgage applications
- purchase applications up +2% w/w
- purchase applications up +27% YoY
- refinance applications down -8% w/w
- +0.4% w/w
- +6.2% YoY
Mortgage applications had been awful for several years, before turning up early last year in response to very low rates. They are now strongly positive.
Real estate loans have been firmly positive for two years.
Money supply
M1
- +2.1% w/w
- +0.3% m/m
- +1.9% YoY Real M1
- +0.5% w/w
- +0.3% m/m
- +4.2% YoY Real M2
Real M1 decelerated markedly in the last few weeks to the point where it is a very weak positive. Real M2 has also decelerated, but is more firmly positive.
Trade weighted US$
- Down -0.01 to 123.98 w/w, up +8.7% YoY (Broad)
- Up +1.55 to 98.15 w/w, up +2.69% YoY (major currencies)
The Broad measure is reported by the FRB on Mondays and so is delayed one week. Bloomberg's spot price against major currencies is accurate as of Friday. The US$ appreciated about 20% between 12 and 18 months ago. In 2015 the broad measure continued to appreciate, but at a relatively more moderate trend, while against major currencies is has been flat since March 2016. l consider a YoY change of 5% or higher a negative. The broad measure is still strongly negative, although it is moderating. Against major currencies it is approaching parity, so has become a neutral.
Commodity prices
JoC ECRI
- Up +0.25 to 79.72 w/w
- Down -21.04 YoY
- 91.70 up +0.98 w/w
Employment metrics
Initial jobless claims
- 262,000 up +10,000
- 4 week average 272,000 down -1,250
Initial claims remain well within the range of a normal economic expansion, as does the 4 week average, although there had been some weakening in January, which has since reversed.
The American Staffing Association Index
- Unchanged 93 w/w
- Down -3.31 YoY
Since last spring, the YoY comparison turned neutral and then increasingly negative, although since the beginning of the year it has become "less worse." I would need this series to be -2.15% YoY or less for me to believe it has bottomed.
Tax Withholding
- $176.4 B for the first 18 days of February vs. $175.7 B one year ago, up +$0.7 B or +0.4%
- $189.4 B for the last 20 reporting days ending Thursday vs. $188.2 B one year ago, up $1.2 B or +0.6%
Beginning with the last half of 2014, virtually all readings were positive, but turned more mixed and choppy, while still positive, since August. Two weeks ago 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 has now done so for 2 weeks in a row. Should this continue several more weeks, it will be a major red flag.
- Oil up $3.12 to $32.84 w/w
- Gas prices up +$.01 to $1.73 w/w
- Usage 4 week average up +5.2% YoY
The price of gas and oil bottomed at the end of January 2015 at $2.02, and appears to have bottomed for this winter two weeks ago at $1.69. Usage turned negative for five weeks, but has returned to positive in the last 2 weeks.
Bank lending rates
- 0.320 TED spread down -0.10 w/w
- 0.440 LIBOR up +.01 w/w
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 TED has improved considerably in the last month.
Consumer spending
- Johnson Redbook up +1.2% YoY
- Goldman Sachs up +0.1% w/w, up +3.4% YoY
- Gallup daily consumer spending 14 day average $84, down -$1 YoY
Both the Goldman Sachs and Johnson Redbook Indexes progressively weakened in pulses during 2015, before improving somewhat since the beginning of November. Gallup turned positive and has remained so for 8 of the last 10 weeks, although it was negative this week. Because Gallup includes gas purchases, the fact that it turned positive strongly suggests that consumers have started to spend some of their gas savings on other things.
Transport
Railroad transport
- Carloads down -5.7% YoY
- loads ex-coal up +0.1% YoY
- Intermodal units up +18.2% YoY
- Total loads up +5.1% YoY
Shipping transport
- Harpex up +1 to 364
- Baltic Dry Index up +12 to 327
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 this week for the first time carloads were less than -10% YoY, which if it continues suggests that rail has bottomed.
After rising briskly last spring, both the BDI and Harpex declined again to new multi-year lows, although both may have bottomed.
Steel production
- Down -0.2% w/w
- Down -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. In the last two months these too have gotten "less worse." Two weeks ago I wrote that if steel production turned less than -4% off YoY for several weeks, that would suggest it has bottomed - and it has done exactly that.
SUMMARY:
Several recent reversals intensified this week. Real M1 has decelerated to the point where it is barely positive. Withheld taxes also decelerated even further to less than +1% YoY, suggesting payrolls have turned negative. On the other hand, both rail carloads and steel production YoY have turned positive or almost positive, strongly suggesting they have bottomed.
Among long leading indicators, interest rates for corporate bonds are neutral, while treasuries, real estate loans, mortgage applications, Real M2, and mortgage rates are positive. In fact, mortgage rates and applications are now strongly positive. Real M1 has decelerated to the point of being only slightly positive.
Among short leading indicators, the interest rate spread between corporates and treasuries remains very negative, although it has improved in recent weeks. Jobless claims remain positive. Oil and gas prices, and usage, remain very positive. Commodities, while negative, appear "less worse" on a YoY basis. The US$ as against major currencies has turned neutral while on a broad basis it remains quite negative.
Among coincident indicators, bank rates, staffing and shipping remain negative, Consumer spending was positive although Gallup was down slightly this week. The big news here is that withholding taxes have deteriorated badly, suggesting that payrolls, or at least hours worked, have turned negative. On the other hand, steel production has almost turned positive, and rail transport actually positive on a YoY basis, suggesting these have bottomed.
The bifurcation of decent consumer economy, poor industrial economy (at least that portion tied to commodity extraction and exports) that began one year ago, looks to be changing. Negatives have spread to withholding taxes, and money supply has weakened. But commodity production and transportation look like they have turned positive.
Have a nice weekend!
