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By New_Deal_democrat December 3, 2016 9:14 am
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Weekly Indicators: the broad US$ joins interest rates as a negative edition
Almost all of the monthly data for November and October was positive, including job growth, a decline in the unemployment rate, ISM manufacturing, the Chicago PMI, consumer confidence, personal income and spending, and construction spending. Only motor vehicle sales declined slightly.  In the rear view mirror, Q3 corporate profits increased as well.
 

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

  • Dow Jones corporate bond index 358.66 up +0.50 w/w (2016 high is 395.36, 2016 low is 341.41)
  • 2.39% 10 year treasury bonds up +.03% (new 12 month high of 2.49% intraweek)
  • BofA/ML B Credit spread down -.18% to 4.52% (new 24 month low)
Yield curve, 10 year minus 2 year:
  • 1.26%, up +.02% w/w
30 year conventional mortgage rate
  • 4.13%, down -.06% w/w (52 week high of 4.24% intraweek)

Yields on treasuries and mortgage rates continued to spike to 12 month highs during this week. They are now negatives. Corporate bonds are still neutral. Because rates made new lows after the Brexit vote in June, that nevertheless strongly suggests that the expansion will continue through mid-2017.  The yield curve is also still positive, and spreads have turned positive as well.

 

Housing

 

Mortgage applications

 

  • purchase applications down -0.2% w/w
  • purchase applications up +3% YoY
  • refinance applications down -16% w/w
 
Real Estate loans
  • Up +0.1% w/w
  • Up +6.9% YoY 

Mortgage applications briefly  spiked in response to low rates following the Brexit vote.  Purchase applications last made a new high at the beginning of June.  They have wobbled between being positive and neutral for the last 10 weeks. This week they nearly turned negative, and I believe they will turn YoY negative within the next several weeks.  If so, they will flip to becoming an important negative. Refinance applications have turned south in a big way in the last few weeks and are near multiyear lows.

 

Real estate loans have been firmly positive for over 3 years.

 

Money supply

M1

  • +0.6% w/w
  • +2.1% m/m
  • +8.0% YoY Real M1
M2
  • -0.2% w/w    
  • +1.1% m/m
  • +6.3% YoY Real M2 

Both real M1 and real M2 have been firmly positive almost all year, although less so in the last month. 

 

Trade weighted US$

  • Up +1.43 to 127.86 w/w, up +5.2% YoY (one week ago) (Broad)
  • Down -0.85 to 100.65 w/w, up +3.1% 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. It has been neutral for 7 of the last 8 weeks, and this week the broad index turned negative.

 

Commodiy prices

JoC ECRI

  • Up +2.96 to 101.02 w/w
  • Up +24.70 YoY
BBG Industrial metals ETF
  • 113.43 down -3.18 w/w, up +27.1% YoY
Commodity prices bottomed about one year ago.last November. Recently metals briefly turned negative, but have now resumed being positive, and surged higher in the last month.

 

Stock prices S&P 500

 

  • Down -1.0% w/w
Stock prices became a positive having made new all-time highs in summer, and made more new highs last week.
 

Regional Fed New Orders Indexes

(*indicates report this week)

  • Empire State up +8.7 to +3.1
  • Philly up +2.3 to +18.6
  • Richmond up +19 to +7
  • Kansas City down -8 to +6
  • *Dallas up +2.1 to -1.4
  • Month over month rolling average: unchanged at +6 (12 month high)
In the months since I started coverage of this metric, the regional average has been more negative than the ISM manufacturing index, but has accurately forecast its month over month direction. The average Fed readings are now at their most positive this year,

 

Employment metrics

 Initial jobless claims

  • 268,000 up +17,000
  • 4 week average 251,500 up +500

 

Initial claims remain well within the range of a normal economic expansion, as does the 4 week average. 

 

The American Staffing Association Index

 

  • Up +1 to 99 w/w
  • Down -0.61 YoY

This index turned negative in May 2015, getting as bad as -4.30% late last autumn.  Since the beginning of the year it became progressively "less bad" and for the last few months has been so close to positive YoY as to be a neutral, as it was again this week.

 

Tax Withholding

  • $178.8 B for the month of November vs. $177.0 B one year ago, up +$1.8 B or +1.0%
  • $179.0 B for the last 20 reporting days ending Thursday vs. $172.8 B one year ago, up +$6.2 B or +3.6%

Beginning with the last half of 2014, virtually all readings were positive, but turned more mixed and choppy, and occasionally even negative, since August 2015.  The last few months have shown a marked improvement, although November was just barely positive.

 

Oil prices and usage

  • Oil up +$5.65 to  $51.61 w/w,  up +$5.66 YoY 
  • Gas prices unchanged at $2.15 w/w, up +$0.09 YoY
  • Usage 4 week average up +0.1% YoY

 

The price of gas bottomed last winter at $1.69.  Usage had been almost uniformly positive until several weeks ago.  It turned negative briefly, but is weakly positive this week.  Gas prices have gone sideways for the last three months, and are now higher YoY, making them a neutral, as were oil prices this week. In general oil is no longer a tailwind for the economy, but it hasn't turned into a headwind yet.

 

Bank lending rates

 

Both TED and LIBOR rose since the beginning of last year to the point where both have usually been negatives, although there were some wild fluctuations.  Of importance is that TED was above 0.50 before both the 2001 and 2008 recessions.  Both recently reached that level. The TED spread has turned positive for the last four weeks.

 

Consumer spending

 

Both the Goldman Sachs and Johnson Redbook Indexes progressively weakened in pulses during 2015, before improving somewhat over the last 12 months.  Redbook has recently turned very weak.  Goldman and Gallup have both been generally more positive, although Gallup was wobbly for a month before turning positive again. The results were all positive this week.

 

Transport

Railroad transport

  • Carloads down -0.4% YoY
  • loads ex-coal up +1.1% YoY
  • Intermodal units up +1.6% YoY
  • Total loads up +0.6% YoY

Shipping transport

After turning negative throughout 2015, rail loads became "less worse" in January and showed continued improvement until going over the proverbial cliff all spring (typically down -10% or more). Since June, generally rail was neutral. For the last four weeks it has turned positive.

Harpex has recently resumed its decline again to repeated multi-year lows. BDI recently turned positive, then neutral, and is now screamingly positive again.  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

 

  • Down -0.5% w/w
  • Up +6.5% 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. This year it started out as "less worse" and has been neutral to positive for the last few few months.

 
 

SUMMARY: 

 

Yields continued to increase intraweek. The interest rate components of the long leading indicators are negative, except for corporate bonds, which are neutral.  Purchase mortgage applications were neutral and just barely above turning negative. The yield curve and money supply as well as real estate loans remain positive.

 

Short leading indicators, including stock prices, jobless claims, industrial commodities, the regional Fed new orders indexes, are all positive. Spreads, oil and gas prices and usage, temp staffing, and the US$ against major currencies are neutral.  The broad US$ turned negative.

 

The coincident indicators continue their much more positive run.  Rail, the TED spread, the BDI, steel, tax withholding, and consumer spending are all positive now.  Only the Harpex shipping index and LIBOR remain negative.

 

In short, the present and the near term future including the next 6 months or so look quite positive. Beyond that we start to see some headwinds in the form of the stronger US$ and the turn upward, mild so far, in gas prices. In the further future, out over 12 months, housing and money are still quite positive, but interest rates are important negatives.

 

Have a nice weekend

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