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By New_Deal_democrat December 21, 2013 9:37 am
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Weekly Indicators: coincident indicators soften in December edition
In the rear view mirror, 3rd quarter GDP was revised up to a strong +4.1%.  Productivity was up; unit labor costs were down (which I take as a negative).  Leading Economic Indicators for November were up sharply, suggesting good growth will continue through the first half of 2014.  Housing permits declined, but were over 1 million annualized for the second month in a row.  Housing starts also rose smartly over the last 3 months.  Industrial production was also up sharply.  Capacity utilization was up.   The NY and Philly manufacturing indexes were up slightly.  Consumer prices were unchanged.

I report on the high frequency weekly indicators because they are an almost simultaneous "nowcast" of the economy, and although they can be noisy, taken together they will show a continuation or turning of a trend before it shows up in the monthly data. 

As I've done recently, let's start with the long leading indicators, then we'll turn to shorter leading indicators and then coincident indicators:

Interest rates and credit spreads

  • 5.40% BAA corporate bonds down -0.04%
  • 2.86% 10 year treasury bonds up 0.02%
  • 2.54% credit spread between corporates and treasuries down -0.06%

Interest rates for corporate bonds had been falling since being just above 6% in January 2011, hitting 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 have decisively risen nearly 1.5% above that mark.  Spreads declined back to equal their 3 year low.  Their recent high was over 3.4% in June 2011.

Housing metrics

Mortgage applications from the Mortgage Bankers Association:

  • -6% w/w purchase applications
  • -12% YoY purchase applications
  • -4% w/w refinance applications

Refinancing applications decreased sharply since April due to higher interest rates, and remain near post-recession lows. Purchase applications also declined from their multiyear highs in April, and also turned negative YoY nine weeks ago.  This week both types of applications were once again at or near their worst levels since the absolute bottom in 2009.

Housing prices

  • YoY this week +11.0%

Housing prices bottomed at the end of November 2011 on Housing Tracker, and averaged an increase of +2.0% to +2.5% YoY during 2012. This weeks's YoY comparison remained below the new 7 year record set a month ago.

Real estate loans, from the FRB H8 report:

  • -0.1% w/w
  • -1.3% YoY
  • +1.0% from its bottom

Loans turned up at the end of 2011 and averaged about 1% gains YoY through most of 2012.  Since April, with higher interest rates, the comparisons stalled and are now quite negative, retreating back to near their post recession lows.

Money supply

M1 

  • +0.1% w/w
  • +1.3% m/m
  • +6.6% YoY Real M1

 M2 

  • +0.2% w/w
  • +0.5% m/m
  • +4.7% YoY Real M2

Real M1 made a YoY high of about 20% in January 2012 and decelerated since then.  Real M2 also made a YoY high of about 10.5% in January 2012.  Its subsequent low was 4.5% in August 2012. Both have continued to decelerate this year, but neither is close to turning negative.

Consumer spending

Gallup's 14 day average of consumer spending rose sharply in November 2012, and so now has very difficult YoY comparisons.  Nevertheless, this week was still strongly positive.  Last year the ICSC varied between +1.5% and +4.5% YoY in, while Johnson Redbook was generally below +3%.  The ICSC this week was at the bottom of its 2013 range, while Johnson Redbook was in the middle of its range. 

Steel production from the American Iron and Steel Institute 

  • -0.6% w/w
  • +1.8% YoY

 Steel production over the last several years has generally been in a decelerating uptrend.  After a strongly positive move for several months, in the last month YoY comparisons have weakened. 

Transport

 Railroad transport from the AAR 

  • -13,700 carloads down -4.7% YoY
  • -4,300 carloads down -2.5% ex-coal
  • +16,200 or +6.4% intermodal units
  • +1,600 or +0.3% YoY total loads

Shipping transport

Rail transport had been very mixed YoY during midyear, but has almost continuously improved since then.   This week remained positive.  The Harpex index had been improving slowly from its January 1 low of 352, but flattened out in the last half a year, and has recently declined slightly. The Baltic Dry Index declined from the new 3 year high it set last week.  Both the Baltic Dry Index and the Harpex declined sharply since the onset of the recession, and have been in a range near their bottom for about 2 years, but stopped falling earlier this year, and now are in uptrends

Employment metrics

 Initial jobless claims

  • 379,000 up +11,000
  • 4 week average 343,500 up +14,750

The American Staffing Association Index was up 4 to 103. It is up +9.3% YoY

Tax Withholding 

  • $117.6 B for the first 14 days of December vs. $115.6 B last year, up +$2.0 B or +1.7%
  • $163.7 B for the last 20 reporting days vs. $151.0 B last year, up $12.7 B or +8.4%

Temporary staffing had been flat to negative YoY in spring, but broke out positively for the last four months. It is in the midst of its traditional end of year swoon, but the YoY comparisons remain excellent.  Tax withholding was awful in October, presumably due to the federal government shutdown, rebounded fully in November, and now has softened slightly.  Initial claims are a total question mark at this point, but my guess is that we are mainly dealing with seasonality playing havoc with the numbers.

Oil prices and usage

  • Oil up +$2.72 to $99.32 w/w
  • Gas down -.03 to $3.24 w/w
  • Usage 4 week average YoY up +3.7%

The price of Oil appears to have made its yearly seasonal low several weeks ago, but remained near that low this week. The 4 week average for gas usage remains positive. 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 remains close to the bottom of its 3 year range. LIBOR tied its 3 year low.

JoC ECRI Commodity prices

  • Up +0.58 to 125.48 w/w
  • +0.73 YoY

 This week continued reinforcement of the trends I have noted ever since the bond market reacted strongly to the Fed's taper talk in April.  The long leading indicator of interest rates were largely unchanged, but they remain almost 1.5% higher than they were at their July 2012 lows.  Interest rates have knocked the stuffing out of all of the housing metrics, as real estate loans remain poor, and mortgage applications were absolutely awful, just barely above their recession lows.  Money supply remains positive, but relatively soft and slowly decelerating compared with the last several years. 

On the other hand, with one exception the shorter leading indicators were all positive. Temporary employment had its best YoY comparison all year.  The oil choke collar remains disengaged, as gas prices are back near three year lows, and usage has increased, although Oil prices look like they have made their annual low.  Initial jobless claims were awful, but per my analysis yesterday, were still probably mainly seasonal noise, although it looks like there may have been some weakening signal buried in that noise. Commodities were slightly positive, and also remain slightly higher than one year ago. 

Coincident indicators faded to weakly positive.  Steel production is positive albeit more muted. Bank lending rates remain at or near record lows. House prices remain strongly positive. Tax withholding is having a decidedly tepid December. Gallup consumer spending, with challenging YoY comparisons, was not nearly as strongly positive as it has been for most of this year.  Both the Johnson Redbook and the ICSC indexes were towards the low end of their positive range.

The year is drawing to a close with an economy that has bounced back strongly in the second half of this year, and all looks well for the first half of 2014.  Whether interest rates remain elevated from their likely generational lows, and if so, whether that elevation is enough to cause the housing market to actually turn negative is shaping up as one of the big economic stories for 2014.

Have a nice weekend and, if applicable, a very Merry Christmas!

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