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By New_Deal_democrat September 9, 2017 9:09 am
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Weekly Indicators: brace for hurricane impacts edition
August data consisted of a positive ISM services index. July data included a decline in factory orders, but a rise in both sales and inventories at the wholesale level. The ratio of inventory to sales was flat.
 
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

  • BAA corporate bond index 4.27% +0.01% w/w (12 mo. high 4.90%. 12 mo. low 4.15%)
  • 10 year treasury bonds 2.05% -0.07% w/w 
  • Credit spread 2.22% up +0.08% w/w 
Yield curve, 10 year minus 2 year:
  • 0.80%, up +0.01% w/w
30 year conventional mortgage rate
  • 3.85%, down -0.05% w/w (1 year high was 4.39%, 1 year low 3.37%)

Yields on treasuries and mortgage rates made new 12 month highs in December, but subsequently retreated for several months, then rose for a brief period, but once again have declined to new nine month lows, and so are improving neutrals.  Corporate bonds remain neutral. Spreads remain very positive. The yield curve remains positive also.

 

Housing

 

Mortgage applications 

 

  • purchase applications up +1% w/w
  • purchase applications up +5% YoY
  • refinance applications up +5% w/w
 
Real Estate loans
  • Unchanged% w/w 
  • Up +4.1% YoY 

Mortgage applications turned outright negative for three weeks before tipping back to neutral and then surprisingly positive for most weeks in the last few months, including this week. Refi applications remain near 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 three months for loans to become a neutral.

 

Money supply

M1

  • -1.1% w/w 
  • +1.6% m/m 
  • +5.5% YoY Real M1 
M2
  • +0.1% w/w  
  • +0.4% m/m 
  • +3.6% YoY Real M2

Both real M1 and real M2 were positive almost all last year.  Both recently decelerated substantially, but have improved in the last few weeks, and remain positives.

 

Credit conditions (from the Chicago Fed) 

 

  • Financial Conditions Index up -0.01 to -0.88
  • Adjusted Index (removing background economic conditions) up +0.01 to -0.60
  • Leverage subindex unchanged at -0.54
The Chicago Fed updated and changed the Adjusted Index this week, and the new number is what I report above. The new Adjusted Index is less noisy, but also much more similar to the un-adjusted index. The break-even point for the new Adjusted Index appears to be -0.25.  In the leverage index, a negative number is good, a positive poor. The historical breakeven point has been -0.5 for the unadjusted Index. All three metrics presently show looseness and so are positives for the economy.
 

Trade weighted US$

  • Down -1.02 to 118.26 w/w, -2.7% YoY (one week ago) (Broad)
  • Down -1.51to 91.30 w/w, -4.2% 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. With a few exceptions as to major currencies, it has been generally neutral for about 5 months, and has turned into a positive as to major currencies for the last month, and has now been joined by the broad measure as well.

 

Commodiy prices

JoC ECRI

  • Up +1.34 to 108.55 w/w
  • Up +13.68 YoY
BBG Industrial metals ETF 
  • 128.01 down -3.75 w/w, up +31.6% YoY
Commodity prices bottomed near the end of 2015. After briefly turning negative, metals also surged higher after the election.  ECRI briefly turned down enough to be downgraded to neutral, but both are again positive.

 

Stock prices S&P 500

 

  • Down -0.6% w/w to 2461.43
Stock prices are positive, having made a string of new all-time highs beginning over one year ago.
 

Regional Fed New Orders Indexes

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

  • Empire State up +7.3  to +20.6
  • Philly up +18.3 to +20.4
  • Richmond down -1 to +17
  • Kansas City up +15 to +25
  • Dallas down -2.3 to +14.3
  • Month over month rolling average: down -1 to +19
The regional average has been more volatile than the ISM manufacturing index, but has accurately forecast its month over month direction. These have turned more positive in the last month.

 

Employment metrics

 Initial jobless claims

  • 298,000 up +62,000
  • 4 week average 250,250 up +13,500

 

Despite the Harvey-related surge this week, Initial claims remain well within the range of a normal economic expansion, as does the 4 week average. I will begin to adjust for the hurricane-affected states starting next week when the data becomes available.

 

The American Staffing Association Index

 

  • Unchanged at 96 w/w
  • Up +0.93 YoY

This index was generally neutral from May 2016 until the end of the year, and has been positive with a few exceptions since the beginning of this year.

 

Tax Withholding

  • $53.2 B for the first 4 days of September 2017 vs. $44.4 B one year ago, up +$8.8 B or +18.8%
  • $179.1 B for the last 20 reporting days vs. $169.4 B one year ago, up +$9.7 B or +5.7%

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.  With the exception of August, the last few months had shown marked improvement. that improvement returned this week.

 

Oil prices and usage

  • Oil up +$0.21 to $47.56 w/w,  down -9.4% YoY
  • Gas prices up +$0.28 to $2.68 w/w, up +$0.45 YoY
  • Usage 4 week average down -1.0% YoY

 

The price of gas bottomed about 20 months ago at $1.69.  With the exception of July, prices generally went sideways with a slight increasing trend for the last year.  Usage turned negative in the first half of this year, but subsequently improved, and for four of the last six weeks turned positive again. Usage was negative this week.

 

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 generally turned more and more negative.

 

Consumer spending 

  • Johnson Redbook up +4.4% YoY
  • Goldman Sachs up +0.6% w/w, up +0.7% YoY

 

Both the Goldman Sachs and Johnson Redbook Indexes progressively weakened in pulses during 2015, before improving somewhat in 2016, and more markedly so in the last several months.  Both were positive again this week, although Goldman Sachs just barely.

 

Transport

Railroad transport

  • Carloads down -5.9% YoY
  • loads ex-coal down -10.6% YoY
  • Intermodal units up +4.2% YoY
  • Total loads down -0.9% 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 - until eight weeks ago, when it turned mixed again. This week it was almost all negative, but this may be affected by comparisons with Labor Day last year.

Harpex recently declined to repeated multi-year lows, then came back all the way to positive, declined again, but in the last two months has come all the way back to positive again. BDI also surged back to being a positive before declining back to neutral earlier this year, but has turned up again in the last month.  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

 

  • Up +0.4% w/w
  • Up +8.6% 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 until recently remained positive since. In the last several months, it has alternated between positive and negative, but more positive in the last few weeks.

 
 

SUMMARY: 

 

Corporate bonds, Treasury yields, and mortgage rates all improved further and remain neutral, as does  growth in real estate loans. The yield curve, money supply, and purchase mortgages also remain positive, as are the two more leading Chicago Fed Financial Conditions Indexes. Refinance mortgage applications are the sole negative.

 

Short leading indicators, including stock prices, industrial metals, the regional Fed new orders indexes, spreads, financial conditions, staffing, the US$, oil and gas prices are all positive. Gas usage is negative, as are jobless claims (although those are almost certainly due to Harvey).

 

Among the coincident indicators, positives included consumer spending as measured by Johnson Redbook, steel, the TED spread, tax withholding, the Baltic Dry Index and Harpex.  LIBOR remains negative. All of rail except for intermodal was negative.

 

The threat of a voluntary US debt default has been taken away for the next three months. Left to its own devices, the economy appears in very good shape over the near term, and retains a positive tone, if more mutedly so, in the longer term. Housing and vehicle purchases are definite yellow flags about the health of the consumer, but may turn positive again if interest rates continue to decline for the next few months.

 

Have a nice weekend!

 

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