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By New_Deal_democrat January 17, 2015 11:51 am
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Weekly Indicators: big positive mortgage news, but negative consumer and tax withholding news edition

Monthly December reports reported in the last week were mixed.  University of Michigan consumer sentiment rocketed to close to 40 year highs, ex- the late 90s tech boom. The JOLTS jobs report was positive.  Both PPI and CPI declined, which I am scoring as a significant positive due to the big decline in gas prices.  On the other hand, retail sales missed badly (not so bad taking inflation into account), and industrial production and capacity utilization were down slightly from upwardly revised November readings.

I look at the high frequency weekly indicators because while they can be very noisy, they 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.

As I have done recently, I am generally going in order of long leading, then short leading, then coincident indicators, but pay particular attention to Gallup consumer spending and tax withholding, in addition to the interest rate and housing data.

 Interest rates and credit spreads

  • 4.53% (1/9) 4.45% (1/15) BAA corporate bonds down -0.23% (1/15)
  • 2.00% (1/9) 1.87% (1/15) 10 year treasury bonds down -0.31% (1/15)
  • 2.53% (1/9) 2.58% credit spread between corporates and treasuries up +.08% (1/15)

I have changed how I report on this slightly to make it even more timely.  Weekly interest rates are posted by the St. Louis FRED on Monday, but that makes the data over a week old, and when there are big moves in interest rates, like this week, I want to include them right away, as I have above.  

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.  Since the beginning of 2014, Treasuries have moved about 75% of the way back down to their July 2012 lows. Corporate bonds have trended generally sideways since May 2014, although they too declined significantly in the last 2 weeks.  Spreads widened further above their expansion lows of a few months ago, a warning of near-term weakness.

Housing metrics

Home Sales and Prices from DataQuick:

  •  +4.0% sales YoY, up +0.9% (1 month rolling average) 
  •  +2.7% prices YoY, up +0.4% (1 month rolling average) 

YoY sales were positive for the ninth week in a row, making their best showing in over a year, while YoY median price comparisons have remained under 3% for the last seven weeks. Since prices typically follow sales with a lag, and sales had been down, it is possible that we will see prices turn negative YoY in the next month or so.

Mortgage applications from the Mortgage Bankers Association:

  • +24% w/w purchase applications 
  • +2% YoY purchase applications
  • +66% w/w refinance applications

The big news of the last few months has been that YoY purchase applications established a "less awful" trend, and this week, for the first time in 18 months, turned YoY positive. Refinance applications also made an 18 month high.

Real estate loans, from the FRB H8 report:

  • down -0.2% w/w
  • up +3.5% YoY

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.

Money supply
M1

  • -1.1% w/w
  • +0.7% m/m
  • +9.5% YoY Real M1

M2

  • -0.2% w/w
  • +0.3% m/m
  • +5.3% 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 2014.  Both Real M1 and Real M2 improved substantially since, and both remain firmly in positive territory.

Employment metrics
 Initial jobless claims

  • 316,000 up +22,000 
  • 4 week average 298,000 up +7,500

Although they spike this week, initial claims remain well within the range of a normal economic expansion, as does the 4 week average.  Reports for this time of year are prone to unresolved seasonal glitches, so take this with an extra grain of salt.

The American Staffing Association Index 

  •  Down seasonably-6 to 87.  
  •   Up +6.87% YoY.

This Index declined this week per its usual year-end seasonality. The YoY comparison has generally been positive to strongly positive since last spring.

Tax Withholding

  • $98.1 B for the first 10 days of January vs. $97.3 B one year ago, up +$0.8 B or +0.8%
  • $198.8 B for the last 20 reporting days ending Thursday vs. $197.7 B one year ago, up +$1.1 B or +0.6%

Since July all readings have been positive, except for two weeks, one of which was last week.  This week was barely positive.  This may be a seasonal quirk, but if it goes on another couple of weeks, it will have to be treated more seriously.

Oil prices and usage

  • Oil up +$0.33 to $48.69 w/w
  • Gas down -$0.07 to $2.14 w/w
  • Usage 4 week average YoY +7.1%

The price of gas is now well at a 9 year low, ex-the depths of the last recession.  The 2010-2013 Oil choke collar has been broken, and usage is responding in a big way.

Consumer spending

  • Johnson Redbook +3.8% YoY
  • Gallup daily consumer spending 14 day average at $82, down -$2 YoY

The ICSC index has inexplicably been discontinued. This is a real loss. In 2013 the Johnson Redbook YoY was between from +2% to a high over +4%.  It remained positive this week, but Gallup declined sharply over the last two weeks.  I suspect this may be reflective of less spending on gasoline, and saving to pay off bills after the holiday season.

Steel production from the American Iron and Steel Institute 

  • +2.3% w/w
  • +4.1% 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 then turned increasingly positive through August.  They then deteriorated and alternated between slightly positive and slightly negative.  They have been positive for 5 of the last 6 weeks.

Transport
 Railroad transport from the AAR

  • +19,300 carloads up +7.5% YoY
  • +5,000 intermodal units up +2.1% YoY
  • +24,200 total loads up +4.9% YoY

Shipping transport

  • Harpex up + 12 to 435 (3 year high)
  • Baltic Dry Index up +32 to 741

Rail traffic remained positive, after making a new all time high four weeks ago.  The BDI declined substantially since the end of 2013, made an 8 month high, and  then declined for the last month before turning up slightly this week. On the other hand, Harpex turned up sharply in the last week, after having been generally flat for the last few months (storing commodities, perhaps?).  In the longer term, shipping rates bottomed about 2 years ago and have been in a slow and variable uptrend since.

Bank lending rates

  • 0.230 TED spread down -0.04 w/w
  • 0.168 LIBOR up +0.02 w/w

LIBOR has risen sharply from its post-recession low set in May to another one-year high. The TED spread has also moved generally sideways with a slight upward trend in the last 6 months after rising from its low of November of last year, it made a 1 year high last week. These need to be kept in perspective - compared to, e.g., 3 years ago, the needle has barely moved.
Commodity prices
JoC ECRI

  • Down -1.93 to 103.14 w/w
  • Down -18.76 YoY

BBG Industrial metals ETF

  • 118.70 down -2.88 to another 9 year low

Commodity prices continued cliff-diving for the seventh week in a row.  This is still probably due to international weakness, and mainly about oil.  Because of that, I have included an industrial metals index.  Industrial metals were a component of ECRI's original short leading weekly index, and so can confirm or contrast with oil prices. Industrial metals had been declining for the last 3 years, then bottomed in March of 2014.  They rose through July, but then started to decline again, and in the last six weeks fell below that March low.

SUMMARY:

We had two big positives this week: a big decline in interest rates, and a big increase in mortgage applications.  We also had two significant negatives: barely positive YoY tax withholding, and outright YoY negative Gallup consumer spending.

The long leading indicators were all positive this week.  Yields on corporate bonds and treasuries declined, reflecting immediate deflationary concerns, but a long positive. Money supply remains quite positive.  Real estate loans were positive.  House sales as reported by DataQuick were positive. Most significant of all, mortgage applications finally had a big positive week.

The short leading indicators weakened somewhat, particularly jobless claims (but that is likely to be mainly a glitch in seasonal adjustments).  Commodities, especially oil, but also including industrial metals, all continued to fall. Spreads between corporate bonds and treasuries also widened, another negative.  On the other hand, temporary staffing and gas prices and usage remained positive.

Coincident readings were very mixed. The two measures of consumer spending gave very opposite results. Tax withholding, which went negative one week ago, was barely positive this week.   There is also a slight new amount of stress reflected in LIBOR rates. Shipping, steel, and rail, however, were all positive. The TED spread was neutral.

One year ago we had decided weakness in some long leading indicators, especially housing and corporate profits. This looks like it has finally spread into some of the coincident indicators. I don't see any actual negative results, just a backing off from Q2 and Q3 strong growth.  Aside from that, the recent story of global weakness, but an advancing positive US economy remains the case. With the return of federal, state, and local government spending, and a big tailwind from low gas prices, I expect that to remain the case.

Have a nice weekend!

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