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By New_Deal_democrat October 12, 2013 10:57 am
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Weekly Indicators: consumer spending, sentiment, the TED spread, and tax withholding sound the alarm edition

  - by New Deal democrat

The government shutdown prevented the reporting of retail sales, producer prices, and business inventories. The only significant monthly data that was reported was the University of Michigan's consumer sentiment index. Sentiment about current conditions stayed steady, but future expectations dropped precipitously to a 2013 low. This is an element of the index of Leading Indicators.

Because of the lack of official federal government data, my weekly look at the high frequency weekly indicators takes on added significance, since none of the series I report on were affected by the shutdown. Two years ago, during the debt ceiling debacle, it was consumer spening holding up that told me that the economy would not tip back into recession. This time it's different:

Consumer spending

    ICSC -0.1% w/w 1.8% YoY
    Johnson Redbook +3.3% YoY
    Gallup daily consumer spending 14 day average at $83 up $5 YoY

This week, Gallup's 14 day average of consumer spending was the second poorest this year (it was worse last week). This was also the poorest week for absolute spending this year (although we need to be careful with that, since mid-autumn typically is weak). Last year the ICSC varied between +1.5% and +4.5% YoY in, while Johnson Redbook was generally below +3%. The ICSC is once again weak compared YoY and the rest of 2013. Johnson Redbook, however, remains near the high end of its range.

Steel production from the American Iron and Steel Institute

    +1.1% w/w
    +9.6% YoY

Steel production over the last several years has been, and appears to still be, in a decelerating uptrend.

Transport

Railroad transport from the AAR

    -4500 carloads down -1.6% YoY
    +6800 carloads or +3.9% ex-coal
    +15,600 or +6.2% intermodal units
    +11,200 or +2.1% YoY total loads

Shipping transport

    Harpex unchanged at 399
    Baltic Dry Index down -99 to 1985

Rail transport had been very mixed YoY during midyear, but this week was the ninth straight positive week since then. The Harpex index had been improving slowly from its January 1 low of 352, but flattened out for the last few months and now has declined slightly. The Baltic Dry Index made a near 3 year highmid-week this week, before backing off. In the larger picture, 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

    374,000 up +66,000
    4 week average 325,000 up 20,000

The American Staffing Association Index was unchanged at 100. It is up +5.1% YoY

Tax Withholding

    $56.3 B for the first 8 days of October vs. $61.5 B last year, down $5.2 B or -8.5%
    $149.4 B for the last 20 reporting days vs. $136.5 B last year, up +12.9 B or +9.5%

We can now estimate that after adjusting for California's reporting glitches, the 4 week average was approximately 312,500 last week. This week California's catching up on its backlog supposedly accounted for about half of the large increase.

Temporary staffing had been flat to negative YoY in spring, but broke out positively in the last two months, but has stalled in the last 3 weeks. Tax withholding got off to a very poor start in October and is near the low end of its 20 days average for the year.

Oil prices and usage

    Oil down +$1.82 to $102.02 w/w
    Gas down -$0.06 at $3.37 w/w
    Usage 4 week average YoY up +1.8%

The price of Oil has retreated from its recent 2 year high. The 4 week average for gas usage is slightly positive again. Gas is near its 2011 and 2012 lows.

Interest rates and credit spreads

    5.41% BAA corporate bonds up +0.04%
    2.64% 10 year treasury bonds -0.02%
    2.77% credit spread between corporates and treasuries up +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, and have decisively risen about 1.5% above that mark, although the flight to (relative) safety caused by the government shutdown has, paradoxically, caused their prices to fall somewhat again. Spreads are significantly back above a recent 2 year low. Their recent high was over 3.4% in June 2011.

Housing metrics

Mortgage applications from the Mortgage Bankers Association:

    -1% w/w purchase applications
    -6% YoY purchase applications
    +3% w/w refinance applications

Refinancing applications have decreased sharply in the last 5 months due to higher interest rates. Purchase applications have also declined from their multiyear highs in April, and for the second time in a row this week, were negative YoY.

Housing prices

    YoY this week +11.2%

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 increase remains near a 7 year record.

Real estate loans, from the FRB H8 report:

    -0.1 w/w
    -0.5% YoY
    +1.3% from its bottom

Loans turned up at the end of 2011 and averaged about 1% gains YoY through most of 2012.  Over the last few months, the comparisons stalled and now have turned negative.

Money supply

M1

    +1.2% w/w
    +0.5% m/m
    +7.6% YoY Real M1

M2

    +0.5% w/w
    +0.7% m/m
    +4.9% YoY Real M2

Real M1 made a YoY high of about 20% in January 2012 and decelerated since then. Earlier this year it increased again, and this week it rose slightly from a new 2 year low established last week (although it is still positive).  Real M2 also made a YoY high of about 10.5% in January 2012.  Its subsequent low was 4.5% in August 2012. It increased slightly in the first few months of this year, then stabilized, but has declined again in the past several months.

Bank lending rates

    0.181TED spread down -0.044 w/w
    0.174 LIBOR up +0.001 w/w

The TED spread fell off a cliff this week to a new 3 year low. LIBOR established yet another new 3 year low during this week.

JoC ECRI Commodity prices

    up +0.08 to 123.39 w/w
    +1.45 YoY

The effects of the US government shutdown, and the potential for actual default, are beginning to show up in the weekly numbers. Most importantly, consumer spending has nearly stalled as measured by Gallup, and has slowed significantly as measured by the ICSC. Consumer expectations cratered. Tax withholding since October 1 is miserable. The TED spread crashed lower.

The long leading indicator of interest rates improved due to a relative flight to safety. Mortgage refinance applications and real estate loans are still negative, and for the second week were joined by purchase mortgage applications. Money supply remains positive and seems to have stopped decelerating. Spreads between corporate bonds and treassries increased again this week.

The shorter leading indicators of initial jobless claims won't give us a real signal for another couple of weeks, once California catches up with pending applications. Temporary employment turned strongly positive in the last two months. The oil choke collar has disengaged. Commodities are neutral. Manufacturing is positive.

The coincident indicators of transportation -- rail traffic and shipping - remain positive. Steel production is positive. Bank lending rates are near or at record lows. House prices remain strongly positive.

The bottom line remains that, left to its own devices, the economy appeared to be picking up steam for the rest of the year. Increased interest rates and the decrease in mortgage applications remain a longer term concern. These are being overridden by the immediate effects of the government shutdown, and threatened default on US debt, now only days away.

Have a nice weekend.

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