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By New_Deal_democrat November 7, 2015 8:31 am
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Weekly Indicators: dollar, commodity, and industrial trends all intensify edition
Monthly data for October began with a blowout jobs report, including declining unemployment rates and a nice increase in wage growth. Vehicle sales also had another blockbuster month. The ISM services index rose to very positive.  Only ISM manufacturing was flat at a barely positive number.  September factory orders were down, but construction spending was up.  In the rear view mirror, both Q3 productivity and labor costs were up - a good thing. 
 

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 go in order of long leading indicators, then short leading indicators, then coincident indicators.

 

Interest rates and credit spreads

  • 5.44% BAA corporate bonds up +0.04%
  • 2.26% 10 year treasury bonds up +0.07%
  • 3.18% credit spread between corporates and treasuries down -0.03%
30 year conventional mortgage rate:
  • 4.04%, up +0.13%

 

Interest rates for BAA corporate bonds made a 50+ year low in January. This was not confirmed by AAA corporate bonds.  Their one year low was 4.3%, and more recently their one year high was 5.3%.  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 in 2015 have averaged a little over 2%. After falling into positive territory last month, they are back to neutral again, as are mortgage rates.

 

Housing

 

Mortgage applications

 

  • -1% w/w Purchase applications
  • +20% YoY Purchase applications
  • -1% w/w Refinance applications
Real Estate loans
  • +0.1% w/w
  • +5.5% YoY

Mortgage applications had been awful for several years, before turning up early this year in response to very low rates.  With rates back below 4% recently, this number turned positive, After several very volatile weeks, they have settled down.

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

 

Money supply

M1

  • +0.3% w/w
  • -1.3% m/m
  • +5.4% YoY Real M1
M2
  • -0.2% w/w
  • -0.4% m/m
  • +5.3% YoY Real M2

Real YoY money supply remains firmly positive.

 

Trade weighted US$ (Broad)

  • Up +1.22 to 118.56

 

The US$ appreciated about 20% against the Euro in particular late last year.  It made yet another new high a month ago, and after declining, rose stoutly this week.  As a result the US is importing deflation strongly, and exports have declined. 

 

Commodity prices

JoC ECRI

  • Down -1.94 to 83.36 w/w 
  • Down -29.97 YoY
BBGt Industrial metals ETF
  • 94.40 down  -1.43 w/w
Commodity prices as measured by ECRI have made fresh new lows.  A similar pattern has played out with industrial metals. After a period of stabilization for a few months, the commodity bust is again intensifying.

 

The American Staffing Association Index 

 

  • Up +1 to 102
  • Down -3.06 YoY

The YoY comparison in the last five months this turned neutral and then increasingly negative. The YoY comparison blew out to its worst comparisons since the Great Recession a little over a month ago. 

 

Tax Withholding

  • $44.9 B for the first 4 days of November vs. $42.7 B one year ago, up +$2.2 B or +5.2%
  • $164.0 B for the last 20 reporting days ending Thursday vs. $155.9 B one year ago, up $8.1 B or +5.2%

 

Beginning with the last half of 2014, virtually all readings were positive, but turned more mixed and choppy since the end of July. October started off negative but ended positive, and November has started positively.

 

Oil prices and usage

  • Oil down -$1.91 to $44.52 w/w
  • Gas down -$.01 to $2.22 w/w 
  • Usage 4 week average up +2.5% YoY 

 

The 2010-13 Oil choke collar remains broken.  The price of gas and oil bottomed at the end of January at $2.02.  Gas prices rose $0.80 to $2.82 in June, declined, stabilized, but in the last 3 weeks have (seasonally) declined further. Gas is below $2 in many states. 

 

Bank lending rates

 

Both TED and LIBOR have risen since the beginning of this year to the point where both have usually been negatives, although there have been some wild fluctuations.

 

Consumer spending

Both the Goldman Sachs and Johnson Redbook Indexes weakened after last Christmas, and weakened further YoY beginning in May, then weakened further in September, probably as YoY gas price comparisons turn flatter.  In the last several weeks, however, the YoY comparisons have gotten notably better.  Until the last 7 weeks, with the exception of 3 weeks in April, the Gallup report had been negative since the beginning of this year.  The big difference appears to be that Gallup does not measure big, durable, purchases, but most importantly does include gas purchases. Gallup had yet another positive week this week.

 

Transport

Railroad transport

  • Carloads down -8.5% YoY
  • loads ex-coal down -4.6% YoY
  • Intermodal units down -3.4% YoY
  • Total loads down -6.0% 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) declined further in May and June (off -8% to -10% YoY), and then were at consistent, less negative YoY comparisons since.  For the last month, intermodal traffic has turned increasingly negative, intensifying the overall negative number.

After declining sharply for several months, making a 3-year low in mid-February, the BDI surged higher, and then declined again.  Meanwhile, Harpex (container shipping) turned up sharply for 3 months, peaking at 646 in July, before turning down again. 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

 

  • Down -1.6% w/w
  • Down -10.8% 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 8 months ago, and has also had intensified negative YoY readings in the last month.

 
 

SUMMARY: 

 

Among long leading indicators, interest rates for treasuries, corporate bonds, and mortgages all are back from positive to neutral.  Purchase and refinance mortgage applications are slightly positive. Real estate loans remain positive.  Money supply is positive.

 

Among short leading indicators, the interest rate spread between corporates and treasuries remains quite negative, and the US$ even more.  Positives included oil and gas prices, and gas usage.  Commodities remain a big global negative, and have now made new lows.  Temporary staffing is negative for the 24th week in a row, and more intensely so for the 6th straight week. The positive standout is again jobless claims.

 

Among coincident indicators, steel production, shipping, and rail transport have all turned more negative.  The TED spread and LIBOR had another volatile week and fell back to neutral.  Consumer spending, however, has turned more positive, and tax withholding is also positive.

 

Several intensified trends are emerging.  The positive trend is increased spending by US consumers as imported deflation finally teams up with a little improvement in wage growth. The negative trends are increased downturns in rail, shipping, and steel - i.e., that part of the US economy most exposed to global weakness - which have been joined by intensified strength in the US$ and a nascent upturn in interest rates courtesy of an anticipated December rate hike by the Fed.

 

I will boldly forecast that the more the Fed "normalizes," the worse the experiment will end, although we probably won't see that ending until 2017.

 

Have a nice weekend!

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