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By New_Deal_democrat August 12, 2017 9:31 am
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Weekly Indicators: dog days edition
July data consisted of a weakly positive CPI plus a weakly negative PPI. June data included a rise in both wholesale sales and inventories, a slight decline in the JOLTS measures of hires and quits, but a one year high in layoffs and discharges, and a new all-time high in openings. In the rear view mirror, Q2 productivity and unit labor costs both rose slightly.
 
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, and will telegraph the maintenance or change in the economy well before monthly or quarterly data is available.  They are also an excellent way to "mark your beliefs to market."
 
In general I go in order of long leading indicators, then short leading indicators, then coincident indicators.  

 

Interest rates and credit spreads

  • BAA corporate bond index 4.33% +0.04% w/w (12 mo. high 4.90%. 12 mo. low 4.15%)
  • 10 year treasury bonds 2.24% unchhanged w/w 
  • Credit spread 2.09% +0.04% w/w 
Yield curve, 10 year minus 2 year:
  • 0.91%, up +0.01% w/w
30 year conventional mortgage rate
  • 3.96%, down -0.03% w/w (1 year high was 4.39%)

Yields on treasuries and mortgage rates made new 12 month highs in December, but subsequently retreated, turning neutral for several months, rose enough again to score negative for two weeks, but have turned neutral again.  Corporate bonds remain neutral. Spreads remain very positive. The yield curve remains positive also.

 

Housing

 

Mortgage applications 

 

  • purchase applications up +1% w/w
  • purchase applications up +7% YoY
  • refinance applications up +5% w/w
 
Real Estate loans
  • Down -0.1% w/w 
  • Up +4.5% YoY

Mortgage applications turned outright negative for three weeks before tipping back to neutral and then surprisingly positive for most weeks in the last few months, including this week. Refi applications remain near multi-year lows.

 

Real estate loans had been firmly positive for over 3 1/2 years, but the rate of growth (of this cumulative measure) declined sufficiently for the last three months for loans to become a neutral.

 

Money supply

M1

  • -0.1% w/w 
  • +0.2% m/m
  • +7.7% YoY Real M1 
M2
  • -0.1% w/w 
  • +0.6% m/m
  • +3.5% YoY Real M2

Both real M1 and real M2 were positive almost all last year.  Both recently decelerated substantially, but have improved in the last few weeks, and remain positives.

 

Credit conditions (from the Chicago Fed) 

 

  • Financial Conditions Index up +0.04 to -0.90
  • Adjusted Index (removing background economic conditions) up +0.04 to -0.20
  • Leverage subindex up +0.01 to -0.64
In the adjusted and leverage indexes, which are more leading, a negative number is good, a positive poor. The historical breakeven point has been -0.5 for the unadjusted Index. All three metrics presently show looseness and so are positives for the economy, although the adjusted index is only a weak positive.
 

Trade weighted US$

  • Down -0.37 to 119.40 w/w, -1.7% YoY (one week ago) (Broad)
  • Down -0.46 to 93.08 w/w, -2.9% YoY (yesterday) (major currencies)

 

The US$ appreciated about 20% between mid-2014 and mid-2015.  It went mainly sideways since then until spiking higher after the US presidential election. With a few exceptions as to major currencies, it has been generally neutral for about 5 months, and has turned into a positive as to major currencies for the last month, and has now been joined by the broad measure as well.

 

Commodiy prices

JoC ECRI

  • Up +1.76 to 105.79 w/w
  • Up +12.82 YoY
BBG Industrial metals ETF 
  • 122.92 up +3.91 w/w, up +24.0% YoY
Commodity prices bottomed near the end of 2015. After briefly turning negative, metals also surged higher after the election.  ECRI briefly turned down enough to be downgraded to neutral, but both are again positive.

 

Stock prices S&P 500

 

  • Down -1.4% w/w to 2442.32
Stock prices are positive, having made a string of new all-time highs beginning one year ago.
 

Regional Fed New Orders Indexes

(*indicates report this week) (no reports this week)

  • Empire State down -.4.8  to +13.3
  • Philly down -23.8 to +2.1
  • Richmond up +4 to +18
  • Kansas City up +5 to +10
  • Dallas up +7.0 to +16.6
  • Month over month rolling average: up +1 to +12
The regional average has been more volatile than the ISM manufacturing index, but has accurately forecast its month over month direction. These continue to be positive - although more weakly so this month.

 

Employment metrics

 Initial jobless claims

  • 244,000 up +4,000
  • 4 week average 241,000 down -750

 

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 96 w/w
  • Up +1.30 YoY

This index was generally neutral from May 2016 until the end of the year, and has been positive with a few exceptions since the beginning of this year.

 

Tax Withholding

  • $62.8 for the first 8 days of August 2017 vs. $77.0 B one year ago, down -$10.2 B or -13.2%
  • $177.8 B for the last 20 reporting days vs. $170.9 B one year ago, up +$6.9 B or +4.0%

Beginning with the last half of 2014, virtually all readings were positive, but turned more mixed and choppy, and occasionally even negative, in last 2015 through the first part of 2016.  The last few months have with brief exceptions (including this month so far) shown marked improvement.

 

Oil prices and usage

  • Oil down -$0.73 to $48.79 w/w,  down -0.2% YoY
  • Gas prices up +$0.03 to $2.38 w/w, up +$0.23 YoY
  • Usage 4 week average down -0.1% YoY

 

The price of gas bottomed about 18 months ago at $1.69.  With the exception of last month, prices generally went sideways with a slight increasing trend for the last year.  Usage turned negative most of this year, but usage comparisons have been improving, and for two of the last three weeks finally turned positive.

 

Bank lending rates 

 

Both TED and LIBOR rose since the beginning of last year to the point where both were usually negatives, although there were some wild fluctuations.  Of importance is that TED was above 0.50 before both the 2001 and 2008 recessions.  The TED spread has turned very positive for the last several months. Meanwhile LIBOR has generally turned more and more negative.

 

Consumer spending 

  • Johnson Redbook up +2.7% YoY
  • Goldman Sachs up +2.4% w/w, up +1.1% YoY

 

Both the Goldman Sachs and Johnson Redbook Indexes progressively weakened in pulses during 2015, before improving somewhat in 2016, and more markedly so in the last several months.  Redbook remained very positive this week, Goldman more weakly so.

 

Unfortunately, as of last week Gallup has discontinued its consumer spending report, as well as cutting back several other indexes.  This is a real loss, especially since it proved its worth during the last debt ceiling debacle, and another episode looks nearly imminent.

 

Transport

Railroad transport

  • Carloads up +1.9% YoY
  • loads ex-coal up +1.2% YoY
  • Intermodal units up +6.8% YoY
  • Total loads up +4.3% YoY

Shipping transport

Rail turned negative in 2015 and fell even more sharply in spring 2016. Since last June, rail improved to neutral, and then positive almost all weeks since the beginning of November - until six weeks ago, when it turned mixed again. This week it was fully positive.

Harpex recently declined to repeated multi-year lows, then came back all the way to positive, declined again, but in the last three weeks improved to neutral. BDI also surged back to being a positive before declining back to neutral in the last several months, but has turned up again in the last several weeks.  I am wary of reading too much into price indexes like this, since they are heavily influenced by supply (as in, a huge overbuilding of ships in the last decade) as well as demand.

Steel production

  • Down -0.4% w/w
  • Up +6.3% YoY

Until spring 2014, steel production had generally been in a decelerating uptrend.  It then gradually rolled over and got progressively worse in pulses through the end of 2015. It improved from negative to "less bad" to positive in 2016 and until recently remained positive since. In the last several months, it has alternated between positive and negative.

 
 

SUMMARY: 

 

Once again there were no significant changes this week, although there was a little improvement in several coincident readings.

 

Corporate bonds, Treasury yields, mortgage rates, and growth in real estate loans remain neutral. The yield curve, money supply, and purchase mortgages also remain positive, as are the two more leading Chicago Fed Financial Conditions Indexes are both positive, although one has decelerated substantially. Refinance mortgage applications are the sole negative.

 

Short leading indicators, including stock prices, jobless claims, industrial metals, the regional Fed new orders indexes, spreads, financial conditions, staffing, the US$, and oil and gas prices are all positive. Gas usage is the sole negative, and even that has almost completely abated 

 

Among the coincident indicators, positives included rail, consumer spending, steel, and the TED spread, joined this week by the Baltic Dry Index. Harpex is still neutral.  LIBOR remains negative.

 

All three categories of high frequency indicators - long leading, short leading, and coincident indicators - show positive. My overall 12 month + forecast remains neutral to weakly positive, based on the input from monthly and quarterly data.

 

Have a nice weekend!

 

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