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By New_Deal_democrat July 25, 2015 11:30 am
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Weekly Indicators: coomidity collapse continues edition

Monthly data for June included the Index of Leading Indicators, up based in large part on housing permits, and forecasting further growth at least through the end of this year. Existing home sales made a new post-recession high. New home sales, which are quite noisy and significantly revised, made a new 7 month low.

 

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 am going in order of long leading indicators, then short leading indicators, then coincident indicators:

 

 Interest rates and credit spreads

  • 5.13% BAA corporate bonds down -0.11%
  • 2.28% 10 year treasury bonds down -0.04%
  • 2.85% credit spread between corporates and treasuries down -0.07%
30 year conventional mortgage rate:
  • 4.02%, down -.06%

 

Interest rates for BAA corporate bonds made a 50+ year low in January. This was not confirmed by AAA corporate bonds.  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 into 2015, where they had hovered at or below 2% before yields broke out to the upside.  Spreads widened in recent months, and recently broke decisively negative.

Mortgage rates have risen to close to the top of their 12 month range, and have not made a new low in over 2 1/2 years. 

 

Housing

 

Mortgage applications

 

  • +1% w/w Purchase applications
  • +1% YoY Purchase applications
  • -1% w/w Refinance applications
Real Estate loans
  • +0.1% w/w
  • +4.1% YoY

Mortgage applications had been awful for several years, before turning up early this year in response to very low rates.  With rates rising again, there has been some rush to lock in rates for purchase mortgages, fearing even higher rates soon, while refinancing has declined to near its housing bust lows. 

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

 

Money supply

M1

  • -0.7% w/w
  • +1.5% m/m
  • +7.0% YoY Real M1
M2
  • unchanged w/w
  • +0.7% m/m
  • +5.9% YoY Real M2

Real YoY money supply remains firmly positive.

 

Trade weighted US$:

  • Up +1.33 to 117.57

 

The US$ appreciated about 20% against the Euro in particular late last year.  While it has retreated a little, it remains near the top of that range, and rose significantly this week.

 

Commodity prices

JoC ECRI

  • Down -0.88 to 96.25 w/w 
  • Down -26.62 YoY
BBG Industrial metals ETF
  • 104.21 down -4.41 w/w (new post-recession low)
Both commodity prices as measured by ECRI and industrial metals generally this week made a fresh multi-year low. I suspect this is mainly driven by Chinese weakness, and is a net boon to the US economy.

 

Employment metrics

 Initial jobless claims

  • 255,000 down -26,000 
  • 4 week average 282,500 down -4,000

Initial claims remain well within the range of a normal economic expansion, as does the 4 week average. They made a new 40 year low this week, and an all-time low as a population-adjusted basis.

 

The American Staffing Association Index 

 

  • Up +1 to 94
  • Down -2.99 YoY

The YoY comparison had generally been positive to strongly positive since last spring. In the last two months have turned neutral and then increasingly negative.

 

Tax Withholding

  • $138.8 B for the first 17 days of July vs. $133.7 B one year ago, up +$4.1 B or +4.2%
  • $162.7 B for the last 20 reporting days ending Thursday vs. $156.6 B one year ago, up +$6.1 B or +3.9%

 

Beginning with the last half of 2014, virtually all readings have been positive.

 

Oil prices and usage

  • Oil down -$2.81 to $47.97 w/w
  • Gas down -$.03 to  $2.80 w/w 
  • Usage 4 week average up +6.9% YoY

 

The price of gas and oil bottomed at the end of January.  The 2010-2013 Oil choke collar has been broken.  Gas prices rose $0.80 since then, before backing off in the last five weeks.  It appears increasingly likely that we have already seen the seasonal peak.

 

Bank lending rates

LIBOR rose sharply from its post-recession low set in one year ago, and the TED spread was also in an uptrend since the last the middle of 2014, rising off its November 2013 low.  In the last few weeks, however, both have plateaued, and the TED spread declined significantly this week.

 

Consumer spending

Both the Goldman Sachs and Johnson Redbook Indexes weakened after last Christmas, and weakened further YoY beginning in May.  With the exception of 3 weeks in April, the Gallup report has been negative since the beginning of this year.  It had two positive weeks, then turned negative again for the last four weeks.

 

Transport

Railroad transport

  • Carloads down -7.3% YoY
  • Intermodal units up +2.3% YoY
  • Total loads down -2.8% 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) have remained negative. 

After declining sharply for several months, making a 3-year low in mid-February, the BDI surged higher. Meanwhile, Harpex (container shipping) turned up sharply for 3 months, making almost continual new 4-year highs, peaking at 646 five weeks ago. In the longer term, shipping rates bottomed about 3 years ago and have been in a slow and variable uptrend since, although the Baltic index did break that to the downside in the recent skid.

Steel production

 

  • Up +0.7% w/w
  • Down -8.4% 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 five months ago.

 
 

SUMMARY: 

 

The three items of most interest this week were the continuing collapse of commodities across the board, the renewed strengthening of the US$, and the increasing weakness of temporary staffing.

 

Among long leading indicators, interest rates for corporate bonds, treasuries and mortgages are all neutral. Refinancing is bouncing along its multi-year bottom.  Money supply, purchase mortgage applications, and real estate loans remain positive. 

 

The short leading indicators remain extremely mixed.  The interest rate spread between corporates and treasuries declined but is still a negative.  The strong US$ is a negative. Temporary staffing was negative for the tenth week in a row, and remains in a downtrend.  On the other hand, jobless claims are extremely positive. Oil and gas prices may are declining from their likely high for the year.  Both remain positives, as is gas usage.  Commodities are a big negative for (global) manufacturing, having made a yet another multi-year low this week, but are probably a big boon for consumers.

 

The coincident indicators were mixed, with the important note that none of the negative trends have worsened recently.  The uptrend in the TED spread and LIBOR appears to have reached a plateau, and TED declined to a 3 month low.  Steel production and rail carloads (led by coal and industrial metals) are still negative.  The positive side included tax withholding, shipping, and intermodal rail traffic. Gallup spending remains negative, while Johnson Redbook and Goldman Sachs were weak positives.

 

There were no big changes again this week. The strong US$ is having a negative effect on exports. On the other hand, the commodity collapse is probably a net positive for the US. Consumer spending is weak again. The positive side of the poor YoY readings is that they have not worsened for several months, meaning that the m/m readings are probably improving. 

 

I remain positive through the first half of next year, with a wary eye on the 3 year anniversary of the low in mortgage rates which will pass this November if there is no new low. If that happens, and there is no significant improvement in real wages, it becomes an important negative.

 

Have a nice weekend!

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