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By New_Deal_democrat January 31, 2015 10:04 am
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Weekly Indicators: consumer confidence soars, housing improves edition

In the rear view mirror, Q4 GDP grew at +2.6% annualized, a deceleration from Q2 and Q3.  Monthly December reports reported in the last week included two series showing soaring consumer confidence, improved new home sales, a moderation in the increase in home prices,  positive and increased Chicago manufacturing, and a significant increase in unit labor costs.  The one big negative was a decline in durable goods orders.

I look at the high frequency weekly indicators because while they can be very noisy, they provide an up-to-this-week snapshot of the economy.  The indicators will confirm a trend or indicate a switch in trend well before monthly reports, and are a way to mark one's opinions to market on a regular basis.

As I have done recently, I am generally going in order of long leading, then short leading, then coincident indicators.  Last week I wrote that particular attention should be paid to Gallup consumer spending and to tax withholding.  This week one was confirmed, while one reversed.

 Interest rates and credit spreads

  • 4.32% BAA corporate bonds down -0.17%
  • 1.73% 10 year treasury bonds down -0.17%
  • 2.59% credit spread between corporates and treasuries unchanged

Interest rates for corporate bonds made another new 50+ year low this week. Treasuries fell to a possible once-in-a-lifetime low of 1.47% in July 2012, but rose to over 3% in late 2013.  Since the beginning of 2014, they have moved about 80% of the way back down to their July 2012 lows. Corporate bond yields had trended generally sideways since May 2014, before breaking out to the downside in the last 4 weeks.  Spreads widened in recent months, a warning of near-term weakness, but were unchanged this week.

Housing metrics

Home Sales and Prices from DataQuick:

  •  +4.1% sales YoY, down +0.4% (1 month rolling average)(new 1 yr high) 
  •  +3.2% prices YoY, up +0.5% (1 month rolling average) 

YoY sales were positive for the eleventh week in a row.

Mortgage applications from the Mortgage Bankers Association:

  • -4% w/w purchase applications 
  • +1% YoY purchase applications
  • -5% w/w refinance applications

YoY purchase applications established a "less awful" trend in the last few months, and this week, for the third time in 18 months, were positive. Refinance applications fell, but remained close to an 18 month high.

Real estate loans, from the FRB H8 report:

  • up +0.4% w/w
  • up +3.4% YoY

Loans turned up at the end of 2011, turned down in late 2013, but have remained positive to sharply positive since April 2014.

Money supply

  • -0.7% w/w
  • -0.6% m/m
  • +8.2% YoY Real M1


  • +0.1% w/w
  • +0.6% m/m
  • +5.5% YoY Real M2

At the time of the last flight to safety (from Europe) in January 2012, YoY Real M1 made a high of about 20%, and YoY Real M2 made a high of about 10.5%.  Growth in both then decelerated.  Real M2 made a new 2 year low at the beginning of 2014.  Both Real M1 and Real M2 improved substantially since, and both remain firmly in positive territory.

Employment metrics
 Initial jobless claims

  • 265,000 -42,000
  • 4 week average 298,500 down -8,000

Initial claims remain well within the range of a normal economic expansion, as does the 4 week average. Claims fell to a 5 year low this 

The American Staffing Association Index 

  •  Up 1 to 96.  
  •   Up +5.41% YoY.

This Index rose this week per its usual year-end seasonality. The YoY comparison has generally been positive to strongly positive since last spring.

Tax Withholding

  • $179.7 B for the first 19 days of January vs. $172.5 B one year ago, up +$7.2 B or +4.2%
  • $195.1 B for the last 20 reporting days ending Thursday vs. $174.8 B one year ago, up +$20.3 B or +11.6%

Since July all readings but one have been positive.

Oil prices and usage

  • Oil up +$2.20 to $47.79 w/w
  • Gas down -$0.03 to $2.04 w/w
  • Usage 4 week average YoY +7.9%

The price of gas is at a 9 year low, ex-the depths of the last recession.  The 2010-2013 Oil choke collar has been broken, and usage is responding in a big way.

Consumer spending

  • Johnson Redbook +3.2% YoY
  • Gallup daily consumer spending 14 day average at $78, up +$3 YoY

In 2013 and early 2014 the Johnson Redbook YoY was between from +2% to a high over +4%. In the second half of 2014, the range increased to +3.5% to +5%.  It fell out of that range this week for the second week in a row.  Gallup declined sharply for two weeks and then turned negative last week.  This week it rebounded.  Clearly consumers have pulled back, even adjusted for seasonality, in January.

Steel production from the American Iron and Steel Institute 

  • +1.1% w/w
  • +0.1% YoY

Steel production over the last several years has generally been in a decelerating uptrend.  Since last spring, they have alternated between slightly positive and slightly negative.  They have been positive for 6 of the last 7 weeks.

 Railroad transport from the AAR

  • +14,000 carloads up +5.0% YoY 
  • +7,400 intermodal units up +3.0% YoY
  • +17,600 total loads up +4.1% YoY

Shipping transport

  • Harpex up + 13 to 455 (3 year high)
  • Baltic Dry Index down -88 to 632 (3 year low)

After turning negative last week, rail traffic rebounded this week. Traffic made a new all time high five weeks ago.  The BDI has declined sharply in the last seven weeks. On the other hand, Harpex turned up sharply again last week, after having been generally flat for the last few months.  In the longer term, shipping rates bottomed about 2 years ago and have been in a slow and variable uptrend since, although the Baltic index shows signs of breaking that to the downside.

Bank lending rates

  • 0.245 TED spread up +0.04 w/w
  • 0.171 LIBOR up +.003 w/w

LIBOR has risen sharply from its post-recession low set in May and made a new one-year high. The TED spread has also moved generally sideways with a slight upward trend in the last 6 months after rising from its low of November of last year, it made another 1 year high this week. These need to be kept in perspective - compared to, e.g., 3 years ago, the needle has barely moved.

Commodity prices

  • Down -1.37 to 101.65 w/w
  • Down -19.70 YoY

BBG Industrial metals ETF

  • 117.12 up +1.54 

Commodity prices continued to decline for the ninth week in a row.  This is still probably due to international weakness, and mainly about oil, but also includes industrial metals.  Industrial metals were a component of ECRI's original short leading weekly index, and so can confirm or contrast with oil prices. Industrial metals have generally been declining for the last 3 years, and made a new low one week ago.


The only outright negatives this week were commodity prices and the Baltic Dry Index. Bond spreads were neutral. Everything else was slightly to strongly positive.

Among long leading indicators, yields on corporate bonds and treasuries declined, reflecting immediate deflationary concerns, but a long positive. Money supply remains quite positive.  All of the housing indicators were positive:  Real estate loans,  house sales as reported by DataQuick, and most significant of all, mortgage applications, which  had their third positive week in a row.

The short leading indicators were also generally positive.  While oil continued to decline, industrial metal prices increased slightly. Spreads between corporate bonds and treasuries were neutral.  Temporary staffing and gas prices and usage remained positive, and initial jobless claims improved w/w and remained within a very positive range.

Coincident readings were mixed. Consumer spending was weakly positive. Tax withholding was strongly positive this week.  Steel and rail were positive, while the two measures of shipping diverged sharply. The TED spread and LIBOR were weakly negative.

One year ago we had decided weakness in some long leading indicators, especially housing and corporate profits. This looks like it has finally spread into some of the coincident indicators.
But the big story right now has to be oil and housing. Not only is consumer sentiment soaring, but low interest rates are starting to show up in a rebound in housing.  This is very positive going forward. 

Have a nice weekend!

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