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By New_Deal_democrat November 21, 2015 9:02 am
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Weekly Indicators: commodity decline, dollar surge continue edition
Monthly data for October included positive Leading Economic Indicators, in part due to positive housing permits. Housing starts were negative.  Industrial production and capacity utilization were negative. Consumer prices increased. November Empire manufacturing was negative, while the Philly index was positive.
 

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.  The indicators will confirm a trend or indicate a switch in trend well before monthly and quarterly reports.

In general I go in order of long leading indicators, then short leading indicators, then coincident indicators.

 

Interest rates and credit spreads

  • 5.44% BAA corporate bonds down -0.07%
  • 2.24% 10 year treasury bonds down-0.08%
  • 3.20% credit spread between corporates and treasuries up +0.01%
30 year conventional mortgage rate:
  • 4.00%, down -0.03%

 

Interest rates for BAA corporate bonds made a 50+ year low in January. This was not confirmed by AAA corporate bonds.  Their one year low was 4.3%, and more recently their one year high was 5.3%.  After a possible once-in-a-lifetime low of 1.47% in July 2012, Treasuries rose to over 3% in late 2013, then fell through 2014 and in 2015 have averaged a little over 2%. All are neutrals at this point.

 

Housing

 

Mortgage applications

 

  • +12% w/w Purchase applications
  • +10% YoY Purchase applications
  • +2% w/w Refinance applications
Real Estate loans
  • +0.1% w/w
  • +6.0% YoY

Mortgage applications had been awful for several years, before turning up early this year in response to very low rates.  With rates back below 4% recently, this number turned positive, After several very volatile weeks, they have settled down, slightly positive, but very close to their lows.

Real estate loans have been firmly positive for close to two years.

 

Money supply

M1

  • +0.2% w/w
  • +0.8% m/m
  • +5.8% YoY Real M1
M2
  • -0.1% w/w
  • +0.7% m/m 
  • +6.2% YoY Real M2

Real YoY money supply remains firmly positive.

 

Trade weighted US$ (Broad)

  • Up +0,49 to 121.50

 

The US$ appreciated about 20% against the Euro in particular late last year.  It made yet another new high a month ago, and after declining, rose stoutly in the last three weeks.  As a result the US is importing deflation strongly, and exports have declined. This has intensified in the last two months. 

 

Commodity prices

JoC ECRI

  • Down -0.70 to 80.98 w/w 
  • Down -30.28 YoY
BBGt Industrial metals ETF
  • 87.62 down  -4.24 w/w
Commodity prices as measured by ECRI have made fresh new lows.  A similar pattern has played out with industrial metals. After a period of stabilization for a few months, the commodity bust is again intensifying.

 

Employment metrics

 Initial jobless claims

  • 271,000 down -5,000 
  • 4 week average 270,750 up +3,000

 

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

 

The American Staffing Association Index 

 

  • Unchanged at 101
  • Down -4.13 YoY

The YoY comparison in the last five months this turned neutral and then increasingly negative. The YoY comparison blew out to its worst comparisons since the Great Recession within the last 2 months.

 

Tax Withholding

  • $121.2 B for the first 13 days of November vs. $117.3 B one year ago, up +$3.9 B or +3.8%
  • $164.7 B for the last 20 reporting days ending Thursday vs. $158.7 B one year ago, up $6.0 B or +6.0%

Beginning with the last half of 2014, virtually all readings were positive, but turned more mixed and choppy since the end of July. October started off negative but ended positive, and November has also been positive.

 

Oil prices and usage

  • Oil up +$0.73 to $41.46 w/w
  • Gas down -$.05 to $2.23 w/w 
  • Usage 4 week average up +2.0% YoY

 

The 2010-13 Oil choke collar remains broken.  The price of gas and oil bottomed at the end of January at $2.02.  Gas prices rose $0.80 to $2.82 in June, declined, stabilized, but in the last 4 weeks have (seasonally) declined further. Gas is below $2 in many states. 

 

Bank lending rates

 

Both TED and LIBOR have risen since the beginning of this year to the point where both have usually been negatives, although there have been some wild fluctuations.

 

Consumer spending

Both the Goldman Sachs and Johnson Redbook Indexes weakened after last Christmas, and weakened further YoY beginning in May, then weakened further in September, probably as YoY gas price comparisons turn flatter.  In the last month, however, the YoY comparisons have gotten notably better.  Gallup, which includes gas purchases, was negative earlier this year, but has generally been positive in the last several months.

 

Transport

Railroad transport

  • Carloads down -8.7% YoY
  • loads ex-coal down -5.3% YoY
  • Intermodal units down -0.3% YoY
  • Total loads down -4.7% YoY

Shipping transport

Rail traffic fell off a cliff in mid-February. Intermodal traffic quickly turned positive again, but domestic carloads, led by coal (for export) declined further in May and June (off -8% to -10% YoY), and then were at consistent, less negative YoY comparisons since.  For the last two months, intermodal traffic has turned increasingly negative, intensifying the overall negative number.

After declining sharply for several months, making a 3-year low in mid-February, the BDI surged higher, and then declined again.  Meanwhile, Harpex (container shipping) turned up sharply for 3 months, peaking at 646 in July, before turning down again. In the longer term, shipping rates bottomed about 3 years ago, and had been in a slow and variable uptrend, but now are back down near their post-recession lows.

Steel production

 

  • Down -1.1% w/w
  • Down -13.7% YoY

Over the last several years steel production had generally been in a decelerating uptrend.  Since  spring 2014, it turned mixed, and then cliff-dived 8 months ago, and has also had intensified negative YoY readings in the last two months.

 
 

SUMMARY: 

 

There were few changes this week.

 

Among long leading indicators, interest rates for treasuries, corporate bonds, and mortgages all are neutral.  Money supply, mortgage applications, and real estate loans are still positive.

 

Among short leading indicators, the interest rate spread between corporates and treasuries remains quite negative, and the US$ even more.  Positives included oil and gas prices, and gas usage.  Commodities remain a big global negative, making yet more new lows.  Temporary staffing is negative for the 26th week in a row, and more intensely so for the 8th straight week. Jobless claims are still very positive.

 

Among coincident indicators, steel production, shipping, and rail transport have all turned more negative.  The TED spread and LIBOR are back to negative.  Consumer spending and tax withholding are both still positive.

 

The intensified trends that I discussed in the last two weeks continue. These include increased downturns in rail, shipping, and steel - i.e., that part of the US economy most exposed to global weakness - which have been joined by intensified strength in the US$ and a nascent upturn in interest rates courtesy of an anticipated December rate hike by the Fed.

 

With a renewed global deflationary pulse, due in part to the anticipation of Fed tightening, I anticipate further weakness in the US industrial economy, while consumers - 70% of the overall economy - continue to hold their own.

 

Have a nice weekend!

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