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By New_Deal_democrat May 7, 2016 9:07 am
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Weekly Indicators: commodities stumble edition
The biggest news of the week was the relatively weak April employment report. Job growth continues to slowly decelerate, as the unemployment measures go sideways.  On the other hand, the ISM reports were positive, and new orders had the second very good month in a row.  Vehicle sales rebounded into their 2015 range. March factory orders were up.  First quarter productivity declined, while unit labor costs were up.
 

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

  • 4.64% BAA corporate bonds down -.09% (down -.86% since Jan 1)
  • 1.79% 10 year treasury bonds down -.08%
  • 2.85% credit spread between corporates and treasuries down -.01%
Yield curve, 10 year minus 2 year:
  • 1.04%, up +.03% w/w
30 year conventional mortgage rate:
  • 3.63%, down -0.04% w/w

With the exception of BAA corporate bonds yields, which made a new 50+ year low in January 2015, yields for corporate bonds, treasuries, and mortgages have all failed to make new lows in 3 years, thus turning yellow (caution or neutral vs. positive) as a recession indicator -- although treasuries and mortgage rates both came very close to new all-time lows in February, and remain low enough to be short-term positives.  Spreads have improved enough in the last two months to go from negative to neutral.  The yield curve in the last few months has gone from strongly positive to normally positive.

Housing

 

Mortgage applications

 

  • purchase applications down -0.1% w/w
  • purchase applications up +13% YoY
  • refinance applications down -5% w/w
 
Real Estate loans
  • +0.2% w/w
  • +7.0% YoY

Mortgage applications had been awful for several years, before turning up early last year in response to very low rates. They are now strongly positive.

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

 

Money supply

M1

  • -1.0% w/w
  • -0.2% m/m
  • +4.8% YoY Real M1
M2
  • +0.5% w/w 
  • +0.4% m/m 
  • +5.5% YoY Real M2

Real M1 decelerated markedly in January to the point where it was a very weak positive, and has fluctuated since then.   Real M2 also decelerated, but has been more firmly positive.  Both were very positive this week.

 

Trade weighted US$

  • Down -1.47 to 118.32 w/w, up +4.4% YoY (Broad)
  • Up +0.81 to 93.89 w/w, Down -0.7% YoY (major currencies)

 

The Broad measure is reported by the FRB on Mondays and so is delayed one week. Bloomberg's spot price against major currencies is accurate as of Friday.  The US$ appreciated about 20% from July 2014 through March 2015.  Afterward, the broad measure continued to appreciate, but at a relatively more moderate trend, while against major currencies the US$ has been flat.  l consider a YoY change of 5% or higher a negative. The broad measure has fallen below that mark for several months, and against major currencies, the US$ is positive.

 

Commodity prices

JoC ECRI

  • Down -0.71 to 88.91 w/w 
  • Down -14.57 YoY
BBG Industrial metals ETF
  • 94.31 down -4.75 w/w 
Commodity prices as measured by industrial metals appear to have bottomed in November. ECRI and oil have also now turned up. This is enough to move commodities from negative to  neutral, although commodities did stumble this week.

 

 Stock prices S&P 500

 

  • Down -0.4% w/w
  • Down -3.5% from high 1 year ago
Stock prices made new 6 month lows in February, but also just made an intraday 6 month high in April. For forecasting purposes, I am scoring this as a neutral.
 

Regional Fed New Orders Indexes

(*indicates report this week) (none this week)

  • Empire State up +1 to +11
  • Philly down -16 to 0
  • Richmond down -6 to +18
  • Kansas City unchanged at -2
  • Dallas up +11 to +6
  • Month over month rolling average: unchanged at +6
I inaugurated coverage of these indexes as an experiment.  Since the ISM new orders index is an excellent short leading indicator for sales and industrial production (roughly by 6 months), can a rolling average of these regional indexes reasonably forecast the direction and intensity of moves in that monthly index?  As in March, once again the April reports in the aggregate correctly forecast the strongly positive April ISM new orders reading. 

 

Employment metrics

 Initial jobless claims

  • 274,000  up +17,000
  • 4 week average 258,000 up +2,000 (new 40 year low)

 

Initial claims remain well within the range of a normal economic expansion, as does the 4 week average. After weakening in January, they have since recovered.

 

The American Staffing Association Index

 

  • Unchanged at 95 w/w
  • Down -2.80 YoY

Since last spring, the YoY comparison turned neutral and then increasingly negative, although since the beginning of the year it has generally been "less worse."  I would need this series to be -2.15% YoY or less for me to believe it has bottomed. It almost but not quite got there this week.  This metric turned south late last May.  If the current trajectory continues, this will turn positive in a few weeks.  We'll see.

 

Tax Withholding

  • $182.4 B for the month of April vs. $178.0 B one year ago, up +$4.4 B or +2.5%
  • $175.0 B for the last 20 reporting days ending Thursday vs. $166.4 B one year ago, up +$8.6 B or +5.1% 

Beginning with the last half of 2014, virtually all readings were positive, but turned more mixed and choppy, while still positive, since August. In February I said I would need this series on the 20 day basis to decline to less than +2% YoY for me to think it has reached a turning point, and it did so for 3 weeks in a row, briefly becoming a major red flag.  April collections, however, ran  positive.

 

Oil prices and usage

  • Oil down -$1.40 to  $44.61 w/w
  • Gas prices up +$.08  to $2.24 w/w 
  • Usage 4 week average up +5.8% YoY

 

The price of gas bottomed this winter at $1.69.  Usage turned briefly negative at the beginning of the year, but is now positive again.

 

Bank lending rates

 

Both TED and LIBOR were already rising since the beginning of last year to the point where both have usually been negatives, although there were some wild fluctuations.  Both TED and LIBOR were at or near 5 year highs in the past several months, but both have improved in the last several months, although in the last 5 weeks the TED spread rose back close to that high.

 

Consumer spending

 

Both the Goldman Sachs and Johnson Redbook Indexes progressively weakened in pulses during 2015, before improving somewhat since the beginning of November.  JR was just barely positive this week.  Gallup has been positive almost every week so far this year which, because it includes gas purchases, strongly suggests that consumers have started to spend some of their gas savings on other things (which I suspect significantly includes soaring rents).

 

Transport

Railroad transport

  • Carloads down -14.1% YoY
  • loads ex-coal down -9.4% YoY
  • Intermodal units down -8.6% YoY
  • Total loads down -11.3% YoY

Shipping transport

Rail traffic turned negative and then progressively worse in pulses throughout 2015. While intermodal traffic quickly turned positive, domestic carloads, led by coal (for export) continued to deteriorate.  Rail loads became "less worse" in January and showed continued improvement until going over the proverbial cliff 8 weeks ago, a big negative, but one that might be a symptom of inventory liquidation.

After rising briskly last spring, both the BDI and Harpex recently declined again to new multi-year lows.  In the last few weeks, the BDI has rebounded enough for it to be scored a neutral.

Steel production

 

  • Up +1.6% w/w
  • Up +3.8% 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 turned positive several months ago. 

 
 

SUMMARY: 

 

There were virtually no changes this week.  There was a little stumble in commodities, and Johnson Redbook looks pretty punk, but that's basically it.

 

Among long leading indicators, interest rates for corporate bonds, treasuries, the yield curve, real money supply, real estate loans, mortgage applications, and mortgage rates are positive.  At the same time, no interest rates have made new lows in at least a year, and mortgage rates have not made new lows for over 3 years, so while the "now-cast" is positive, this is a big negative in the longer term forecast.

 

There are no more negatives among short leading indicators. The spread between corporates and treasuries has gone from negative to neutral.  Commodities across the board have improved enough to be scored as neutral, as have stocks. The broad US$ is also neutral, while against major currencies it is positive. Jobless claims, oil and gas prices, and usage, all remain very positive.

 

Among coincident indicators, rail transport had an absolutely awful week for the 8th week in a row.  Bank rates and staffing also remain negative.  Shipping is mixed, with Harpex negative and the Baltic Index improved enough to be scored a neutral.  Steel is positive as are withholding taxes.

 

The has been a broad improvement to neutral or outright positive among a number of a variety of indicators in the last month or so.  The negatives are reduced to rail, Harpex, and bank lending rates, with even staffing turning less negative - and staffing is coming up to an important negative inflection point from late last May.

 

This coming week I will be especially paying attention to wholesale and business sales and inventories (for March), as the inventory to sales ratio has been the most negative datapoint this year.  I will be looking to see if sales turn as did new orders that month (it may be a little too soon), and does the inventory liquidation intensify.  Retail sales will also be important as always.

 

Have a nice weekend!

 
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