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By New_Deal_democrat May 30, 2015 10:18 am
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Weekly Indicators: bifurcation intact edition
Monthly data for April included blowouts in new home permits and starts, which in turn lifted the index of Leading Indicators up strongly. Existing home sales disappointed somewhat.  Consumer prices increased slightly due mainly to shelter costs.  The Philly Fed manufacturing index was mildly positive.

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.

 

Since my current bete noir is the overly strong US$, let's start there again:

Trade weighted US$:

  • up +1.79 to 114.62

The US$ appreciated from a low of 101.67 last July 1 to a high of 117.92 on March 13, an increase of 16% in less than 9 months!  Since then, the US$ retreated before surging again this week.  Last October, just before the November industrial peak, the US$ was weighted at 106, so we have a long way to go before some sort of equilibrium is restored.

 Interest rates and credit spreads

  • 4.85% BAA corporate bonds down -008%
  • 2.14% 10 year treasury bonds down -0.05%
  • 2.71% credit spread between corporates and treasuries down -0.03%
30 year conventional mortgage rate:
  • 3.96%, up +0.03% w/w (low was 3.35% in December 2012)

Interest rates for BAA corporate bonds made a 50+ year low 16 weeks ago. This was not confirmed by AAA corporate bonds.  After a possible once-in-a-lifetime low of 1.47% in July 2012, Treasuries rose to over 3% in late 2013, then fell through 2014 and into 2015, where they had hovered at or below 2% before yields broke out to the upside in the last four weeks.  Spreads widened in recent months, a warning of near-term weakness, and had wobbled back and forth near the neutral 2.50% range before breaking decisively negative several weeks ago.

Mortgage rates remain just barely in the bottom half of their 12 month range, but have not made a new low in 2 1/2 years. 

Consumer spending

 The Gallup report, which had been barely positive to outright negative since the beginning of this year, had three weeks in a row of excellent YoY comparisons, the best in 2015 to date, before turning negative three weeks ago against more challenging YoY comparisons, and extremely so this week.

In the second half of 2014, Johnson Redbook was between +3.5% to +5%.  It has fallen out of that range in 16 of the last 18 weeks.

Transport

Railroad transport from the AAR

  • -24,900 carloads down -9.1% YoY 
  • -9,400 carloads ex-coal down -5.0% YoY
  • +10,800 intermodal units up +4.3% YoY
  • -15,000 total loads down -2.7% YoY

Shipping transport

Rail traffic fell off a cliff 14 weeks ago. Intermodal traffic quickly turned positive again, but domestic carloads, led by coal (for export) have remained generally negative.  After declining sharply for several months, making a 3 year low in mid-February, the BDI rebounded mildly and then has plauteaued. Meanwhile, Harpex (container shipping) has turned up sharply for the last 3 months in a row, making almost continual new 4 year highs.  In the longer term, shipping rates bottomed about 3 years ago and have been in a slow and variable uptrend since, although the Baltic index did break that to the downside in the recent skid.

Steel production from the American Iron and Steel Institute 

  • +1.6%  w/w
  • -6.9% YoY

Steel production over the last several years had generally been in a decelerating uptrend.  Since  spring 2014, it turned mixed, and then cliff-dived three months ago.  It has gotten "less worse" in the last month.

Commodity prices

JoC ECRI

  • Down -0.55 to 101.22 w/w
  • Down -21.81 YoY
BBG Industrial metals ETF
  • 116.59 down -2.28 w/w
Commodity prices as measured by ECRI remain close to their recent new low.  This is still probably due to international weakness, and mainly about oil.  Industrial metals generally declined in the last 3 years, then made and retested a low in the last three months, and have generally bounced near that bottom since.

Housing

Mortgage applications from the Mortgage Bankers Association:+1% w/w purchase applications

  • +1% purchase applications
  • +14% YoY purchase applications 
  • -4% w/w refinance applications

YoY purchase applications established a "less awful" trend in the latter part of 2014.  They have turned positive for 14 of the last 15 weeks.  Despite this bounce, the longer term comparisons of refinancing applications still shows them near their bottom.

Real estate loans, from the FRB H8 report:

  • up +0.5% w/w
  • up +3.9% YoY

Loans turned up at the end of 2011, turned down in late 2013, but have remained positive to sharply positive since April 2014.

Money supply

M1

  • -0.3% w/w
  • -0.2% m/m
  • +7.1% YoY Real M1
M2
  • +0.2% w/w
  • -0.1% m/m
  • +6.1% YoY Real M2

Between actual deflation and possibly a mild European flight to safety, real YoY money supply is firmly positive.  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 2014.  Both Real M1 and Real M2 improved substantially since.

 

Employment metrics

 Initial jobless claims

  • 282,000 up +8,000 
  • 4 week average 271,500 up +5,250

Initial claims remain well within the range of a normal economic expansion, as does the 4 week average.  This is particularly interesting since the 10 Oil patch states still have higher jobless claims in the last few months, but they have been overmatched by lower claims elsewhere.

 

The American Staffing Association Index 

Unchanged at 97

Up +0.24  YoY.

 

The YoY comparison had generally been positive to strongly positive since last spring.  One month ago, the YoY comparisons started to deteriorate, and this week for the second week in a row were virtually unchanged.

 

Tax Withholding

  • $161.8 B for the first 19 days of May vs. $148.97 B one year ago, up +$12.9 B or +8.7%
  • $166.4 B for the last 20 reporting days ending Thursday vs. $155.1 B one year ago, up +$11.3 B or +7.3%

 

Beginning with the last half of 2014, virtually all readings have been positive.

 

Oil prices and usage

  • Oil up +$0.24 to $60.23 w/w
  • Gas up +$.03 to $2.77 w/w 
  • Usage 4 week average up +1.6% YoY

The price of gas and oil bottomed 17 weeks ago.  The 2010-2013 Oil choke collar has been broken.  The interesting issue now is when and at what price we get the seasonal peak, as gas prices have risen about $0.75 off their January bottom.  If they follow past seasonal patterns, their summer peak will be roughly $1 above their winter low.

Bank lending rates

LIBOR has risen sharply from its post-recession low set in one year ago, and the TED spread has been in an uptrend since the last the middle of 2014, rising off its November 2013 low.  LIBOR is also in an uptrend.

 

SUMMARY:

 

The story from the last few months is still firmly intact.

 

Among long leading indicators, interest rates for corporate bonds remained neutral, while treasuries and mortgage applications remained positive, although refinancing, despite a recent boomlet, remains near its multi-year bottom..  Money supply and real estate loans were positive. 

 

The short leading indicators remain extremely mixed.  The recent upward spike in interest rates with widening spreads, a classic short leading indicator for recession, was "less negative" this week.  Meanwhile initial jobless claims remain very positive.  Temporary staffing was slightly negative for the second week in a row.  While oil and gas prices have risen, both remain positives, as is gas usage.  Industrial metal prices turned more negative.

 

All but two of the coincident indicators were again negative.  The positives were tax withholding and  container shipping.  Steel production and rail transport are still very negative, although intermodal traffic remained a positive. The Baltic Dry Index is a slight negative.  The disturbing uptrend in the TED spread and LIBOR is intact.  Johnson Redbook consumer spending is still in the low end of YoY comparisons, while Gallup's negative reading was the worst this year against extremely challenging comparisons with last May.

 

The US economy remains in a shallow industrial recession, driven by the overly strong US$, which in turn has been driven by this bout of Eurocrisis, plus the contrast between the Fed's steady drumbeat about raising rates in contrast with ECB easing.  This is augmented by relatively poor consumer spending, probably driven by a steep downturn in the Oil patch outweighing improvement elsewhere.  The remainder of the economy, as shown by housing and initial jobless claims, remains positive.  I remain positive on the economy for the rest of the year, expecting a USD/EUR rebalancing.  

Have a nice weekend!

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