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By New_Deal_democrat February 8, 2014 10:11 am
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Weekly Indicators: The Big Chill edition
In the rear view mirror, 4th quarter productivity rose, but unit labor costs fell.  December construction spending rose slightly, but factory orders fell.  January data was dominated by the unexpectedly weak but positive employment report, and the non-upward revision of December's even poorer but positive number.  Unemployment fell slightly, and wages rose even adjusted for inflation.  The ISM services report improved slightly, but the ISM manufacturing report fell sharply to just barely positive.  Auto sales also declined, and went negative YoY.
 

A reminder that the purpose of my weekly reports on the high frequency weekly indicators is to provide an up-to-this-week snapshot of the economy, a way to "mark to market" my own opinions and a vehicle for you to do so with yours as well.

 

Weakness in these indicators spread like wildfire this week, but the better analogy is whether the weather is responsible at least in part for the big chill:

 

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.  This week Gallup went negative for the second straight week in many months.  In 2013 the YoY range for the ICSC declined to between +1.5% and +3.0%, while Johnson Redbook YoY rallied from +2% to a high over +4%.  While the Johnson Redbook was back in the lower part of that range, the ICSC had the poorest week in several years.

 

Steel production from the American Iron and Steel Institute 

  • +1.1% w/w
  • -1.9% 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 weakened and briefly turned negative, and was negative again this week.

 

Transport

 Railroad transport from the AAR 

  • -4,100 carloads down -1.5% YoY
  • -1,500 carloads down -0.9% ex-coal
  • -2,000 or -0.8% intermodal units
  • -6,200 or -1.2% YoY total loads

Shipping transport

Rail transport had been very mixed YoY during midyear, but almost continuously improved after that, ending 2013 on a very positive note.  After rebounding from January's polar vortex, rail traffic turned negative again this week.  The Harpex index slowly rose, then stabilized, but has slowly declined since July 2013. The Baltic Dry Index made a new 3 year high in December 2013, and seasonally has retreated sharply since then.  Both the Baltic Dry Index and the Harpex Index were in a range near their bottom for about 2 years, but rose significantly above those ranges in 2013.

 

Interest rates and credit spreads

  • 5.10% BAA corporate bonds down -0.03%
  • 2.73% 10 year treasury bonds down -0.09%
  • 2.37% credit spread between corporates and treasuries up +0.06%

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 over 1.6% above that mark.  Yields have declined ever since the relatively poor December employment report one month ago.  Spreads increased slightly from a new 3 year low set last week.  Their recent high was over 3.4% in June 2011.

Housing metrics

Mortgage applications from the Mortgage Bankers Association:

  • w/w purchase applications down -4%
  • YoY purchase applications down -17%
  • w/w refinance applications up +3%

Refinance applications are still near their post-recession low set several weeks ago.  Purchase applications are also still near their post-recession low set in 2011. 

Housing prices

  • YoY this week +11.0%

Housing prices bottomed in November 2011 on Housing Tracker, and YoY comparisons rose to just shy of +12% in late 2013. This weeks's YoY comparison continued slightly below that comparison.  The continuation of the sharp YoY increase in prices might actually be a negative, given the pasting that housing has taken due to higher mortgage rates.

Real estate loans, from the FRB H8 report:

  • -0.1% w/w
  • -1.0% YoY
  • +1.7% from their bottom

Loans turned up at the end of 2011, but since April 2013, with higher interest rates, the comparisons rolled over and are now consistently negative, having retreated back to near their post recession lows.

Money supply

M1 

  • +0.3% w/w
  • +1.3% m/m
  • +7.1% YoY Real M1

 M2 

  • +0.2% w/w
  • +0.5% m/m
  • +4.2% YoY Real M2

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 has decelerated since then.  Real M2 reading made a new 2 year low three weeks ago, but has improved since, as has Real M1.

 

Employment metrics

 Initial jobless claims

  • 331,000 down -17,000
  • 4 week average 334,000 up +1,000

Initial claims seem to have stabilized at their autumn levels, although there does seem to be some slight comparative weakness.

 

The American Staffing Association Index was unchanged at 91. It is up +2.52% YoY.

 

 Seasonality has now dissipated. Only late 2007 and early 2008 were better than 2013.

 

Tax Withholding 

  • $185.0 B for the month of January 2014  vs. $172.0 last year, up +$13.0 B or +7.6%
  • $169.3 B for the last 20 days ending Thursday vs. $158.1 B for 20 days ending Thursday 1 year ago, up +11.2 B +7.1%.

YoY Tax withholding comparisons are now clean.  Both show improvement YoY.

 

Oil prices and usage

  • Oil up +$2.39 to $99.88 w/w
  • Gas down $0.01 to $3.29 w/w
  • Usage 4 week average YoY down -1.6%

The price of Oil made its yearly seasonal low almost three months ago, but has been generally holding steady. The 4 week average for gas usage was negative this week for the second week in a long time, and is probably the result of the particularly nasty winter weather.  In the larger picture, it looks like in 2013 the Oil choke collar finally loosened its hold on the economy slightly.

Bank lending rates

The TED spread reversed last week's upward spike, and is back near the bottom of its 3 year range set several months ago. LIBOR made yet another new 3 year low this week.

 

JoC ECRI Commodity prices

  • Up +1.70 to 128.29 w/w
  • -0.48 YoY 

Almost the only significantly positive indicators this week were the long leading indicators of interest rates (which fell with recent coincident economic weakness) and money supply, which has rebounded significantly in the last several weeks.  Bank lending rates also made new lows.  Mortgage applications and real estate loans, however, remained poor.

 

The only other significantly positive indicators were temporary staffing, tax withholding, and commodity prices.  Even house prices, strongly positive YoY, might now actually be a negative considering signs of flagging demand.

 

Aside from temporary jobs, the other shorter leading indicators were mixed.  The oil choke collar is still disengaged.  Initial jobless claims declined, but are still in last autumn's range.

 

The coincident reports were almost all negative.  Consumer spending was poor.  Rail traffic was nagitve.  Shipping was negative.  Steel production was negative.  YoY comparisons of gas usage are negative again.reports took big hits two weeks ago.  As noted above, the bright spot is that YoY tax withholding was positive.

 

If it weren't for the positive turn in several of the long leading indicators in the last few weeks, and that 4th quarter corporate profits look like they will be a positive, I would look at this report as indicating the start of an economic downturn.  Weakness has spread throughout the indicators with few exceptions. The decline in monthly auto sales, factory orders, and the ISM manufacturing index taken together also indicate weakness. The decline in unit labor costs in the fourth quarter is also unwelcome, indicating corporations continued to refuse to share gains with employees. 

 

Winter, of course, happens every year, but this winter has been the coldest for about a decade in much of the northeast and midwest.  The YoY decline in gas usage is the "tell."  So I *do* think there is some validity to the "weather excuse."  Nevertheless, if this poor showing continues after the winter weather breaks, then I will have to do some serious re-evaluation.

 

Have a nice weekend!

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