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By New_Deal_democrat November 15, 2014 8:43 am
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Weekly Indicators: different segments moving at different speeds edition

The economic news this week included October retail sales, up 0.3% (even with a welcome decline in gasoline sales), a solid JOLTS report, and University of Michigan consumer sentiment, strongly positive in both the present conditions and expectations components.

My usual reminder that the high frequency weekly indicators 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.

Let's start with interest rates:

 Interest rates and credit spreads

  • 4.76% BAA corporate bonds up +0.04% 
  • 2.36% 10 year treasury bonds up +0.04% 
  • 2.40% credit spread between corporates and treasuries unchanged 

Interest rates for corporate bonds made a low of 4.46% in November 2012. Treasuries fell to a possible once-in-a-lifetime low of 1.47% in July 2012, but rose to over 3% in late 2013.  This year interest rates have declined over 0.8%, or more than 50% of that increase, at their lowest point.  Bond yields are now moving in the direction of stocks again, after moving in the opposite direction in the first half of this year.  Spreads rose significantly since their expansion lows of a few months ago, but have stabilized in the last few weeks.

Housing metrics

Home Sales and Prices from DataQuick:

  •  +0.3% sales YoY, up +0.9% (1 month rolling average) 
  •  +3.2% prices YoY, down -0.1% (1 month rolling average) 

YoY sales turned positive for the first time all year, while YoY median price comparison has been stable.

Mortgage applications from the Mortgage Bankers Association:

  • w/w purchase applications up +1%
  • YoY purchase applications down -11%
  • w/w refinance applications down -2%

Refinance applications have bounced off their recent multi-year lows,while purchase applications also improved slightly.

Real estate loans, from the FRB H8 report:

  • -0.2% w/w
  • +2.2% YoY
  • +5.5% from their bottom

Loans turned up at the end of 2011, but with higher interest rates, the comparisons rolled over and had been negative since April 2013.  They turned positive YoY in March 2014, and have remained positive to sharply positive since.

Money supply

  • +1.9% w/w
  • +0.9% m/m
  • +8.3% YoY Real M1


  • -0.6% w/w
  • +03% m/m
  • +3.9% 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 this year.  Both Real M1 and Real M2 improved substantially since.  In the last month, however, growth in especially M2 has declined somewhat.

Employment metrics
 Initial jobless claims

  • 290,000 up +12,000
  • 4 week average 285,000 up +6,000

These have been in the normal range for an economic expansion for 8 months.

The American Staffing Association Index was unhanged at 105.  It is up +3.41% YoY.

This Index made a new seasonal all-time high for this week. The YoY comparison has generally been positive to strongly positive since early spring.

Tax Withholding

  • $74.2 B for the first 8 days of November vs. $69.0 B one year ago, up +$5.2 B or +7.5%
  • $157.6 B for the last 20 days ending Thursday vs. $142.8 B one year ago, up +$14.8 B or +10.5%

When July's tax withholding turned negative, it was beginning to be a significant ground for concern.  With the exception of one week, however, since then all readings have been positive.

Oil prices and usage

  • Oil down -$2.82 to $75.82 w/w
  • Gas down -$0.05 to $2.94 w/w
  • Usage 4 week average YoY -0.8%

The price of gas has declined seasonally in the last 12 weeks, and is now at a 4 year low.  The Oil choke collar has disengaged.

Consumer spending

  • ICSC up +1.5% w/w.  +2.1% YoY
  • Johnson Redbook +3.8% YoY
  • Gallup daily consumer spending 14 day average at $87 down -$3 YoY

Gallup's 14 day average of consumer spending averaged between $80 and $100 for most of 2013, with frequent YoY comparisons over $20, and few less than +$10.  In 2013 the YoY range for the ICSC declined to between +1.5% and +3.0%, while Johnson Redbook YoY was between from +2% to a high over +4%. For the second week in a row, the ICSC joined Gallup with a mediocre or poor reading. For now, I will tag this as mediocre rather than poor, but it bears watching as the holiday shopping season begins to really kick in.

Steel production from the American Iron and Steel Institute 

  • +1.3% w/w
  • +0.7% YoY

Steel production over the last several years has generally been in a decelerating uptrend.  After a strongly positive move late in 2013, YoY comparisons turned negative again from January through early May, but then turned increasingly positive through August.  They then deteriorated and have alternated between slightly positive and slightly negative.

 Railroad transport from the AAR

  • +600 carloads up +0.2% YoY
  • +5,800 intermodal units +2.2% YoY
  • +6,200 total loads +1.1% YoY

Shipping transport

  • Harpex down -1 to 421
  • Baltic Dry Index down -181 to 1256

Rail traffic, rarely, was soft this week.  The BDI declined substantially since the end of last year, but is now back near an 8 month high. Harpex has been generally flat for the last few months up until a month ago, before making a 2 year high. It is slightly below that this week.  In the longer term, shipping rates bottomed about 2 years ago and have been in a slow and variable uptrend since.

Bank lending rates

  • 0.2271 TED spread up +0.0135 w/w
  • 0.155 LIBOR unchanged w/w

LIBOR has risen slightly from its post-recession low set in May. The TED spread has also moved generally sideways in the last 6 months after rising from its low of November of last year,

JoC ECRI Commodity prices

  • Down -1.93 to 117.11 w/w
  • -3.37 YoY

Commodity prices continued to decline this week, partly due to oil, and partly due to international weakness.

The long leading indicators are positive, although less so than a few months ago.  Bank lending rates and real estate loans remain quite positive, Home sales have also returned to being positive. Mortgage applications have returned to being "more worse," although refinancing has gotten up off the mat.  Corporate bond yields have risen, but not by very much, and remain close to their 2 year lows.  Real money supply is "less positive" than it had been.

The short leading indicators, with one exception, were almost blisteringly positive.  Initial jobless claims, while they rose off last week's post recession low, are extremely positive.  Temporary jobs made a new seasonal all time high.  The Oil choke collar has thoroughly disengaged.  Housing prices are still positive.  Credit spreads have stabilized below the threshold for concern.  Stocks also made new highs.

The coincident indicators, on the other hand, were mixed. Of the 3 measures of consumer spending, one was strong, one was mediocre, and one was negative.  Rail traffic and steel production were both just barely  positive.  Shipping was neutral. Tax withholding was positive.

Watching the three time bands of indicators move is something like watching a snake, or the movement of traffic.  Different segments are moving at different speeds.  The immediate present looks weak, although still positive.  Out a few months looks much stronger.  Out about a year is positive, albeit not so much as before.

While the big decline in commodities might be a very negative signal for the international economy, for the US economy it is going to power consumer and business buying and investing.

Have a nice weekend!

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