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By New_Deal_democrat August 2, 2014 10:37 am
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Weekly Indicators: an economic Sharknado of news edition

In the rear view mirror, 2Q GDP came in at a strong +4%, better than almost all estimates, but in line with what these Weekly Indicators have suggested for several months.  Median wages rose, but the YoY rate remained subdued.  Monthly July data started off with a strong jobs report, but with a slight increase in the unemployment rate, and flat real hourly wages. Motor vehicle sales were in line with their 2014 average, although down from June. The ISM manufacturing index was positive. In June, Construction spending was down, the Case-Shiller housing index was up but at a decelerating rate, and pending home sales were down. Personal income and spending both rose.

 

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 again with employment metrics:

 

Employment metrics

 Initial jobless claims

  • 302,000 up +18,000
  • 4 week average 297,250 down -4,750

As revised, last week's reading was a 14 year low! The 4 week average both made a new post-recession low, and a new 7 year low.These have been in the normal range for an economic expansion for 3+ months.

 

The American Staffing Association Index was up +1 to 98.  It is up +3.12%YoY.

 

This Index was slightly below its all-time high for this week. The YoY comparison has been positive to strongly positive since early spring.

 

Tax Withholding

  • $164.9 B for the month of July vs. $165.2 B last year, down -$0.3 B or -0.2%
  • $140.4 B for the last 20 days ending Thursday vs. $141.1 B for 20 days ending Thursday 1 year ago, down -$0.7 B or -0.5%.

 

After an unusually strong June, July's tax withholding has been negative, and this week, even the 20 day rolling number rolled over to negative. If this continues, it will be a significant ground for concern.

 

Oil prices and usage

  • Oil down -4.21 to $97.88 w/w
  • Gas down -$.05 at $3.54 /w
  • Usage 4 week average YoY down -1.0%

 

 

The price of gas has declined significantly after being flat for almost three months.  It is slightly below its prices of 1, 2, and 3 years ago.  The 4 week average for gas usage turned slightly negative this week for the second week in a row. The Oil choke collar has disengaged.

 

Consumer spending

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%.  Atlhough all 3 were positive, Gallup was weakly so.

 

Steel production from the American Iron and Steel Institute 

  • +1.4% w/w
  • +3.7% 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 have turned positive again since.

 

Transport

 Railroad transport from the AAR

  • +12,700 carloads up +4.3% YoY
  • +18,300 carloads up +10.7% ex-coal
  • +8,500 or +3.3% intermodal units
  • +20,900 or +3.8% YoY total loads

Shipping transport

Rail traffic has been strong since early spring, but less so this week. The BDI has declined substantially since the end of last year. Harpex tends to correlate with intermodal traffic, and has been more positive, although it has declined slightly in the last few weeks.  In the longer term, shipping rates bottomed about 2 years ago and have been in a slow and variable uptrend since.

 

Interest rates and credit spreads

  • 4.68% BAA corporate bonds down -0.05%
  • 2.49% 10 year treasury bonds down -0.04%
  • 2.19% credit spread between corporates and treasuries down -0.01%

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 over 1.6% above that mark in late 2013.  This year interest rates declined from January through May, before rebounding slightly. They are now in a slow decline again. Spreads have widened slightly since their expansion lows of a few months ago.

 

Housing metrics

Mortgage applications from the Mortgage Bankers Association:

  • w/w purchase applications up +0.2%
  • YoY purchase applications down -12%
  • w/w refinance applications down -4%

Both refinance applications and purchase applications have flattened out near their recent post-recession lows. Recently applications appear to have been particularly sensitive to small changes in interest rates.

 

Housing prices

  • YoY this week +8.6% (75th percentile up +4.1% YoY)

Housing prices bottomed in November 2011 on Housing Tracker, and YoY comparisons rose to just shy of +12% in late 2013.  The comparison has fallen below +10% since early June.  High end housing prices, which were a harbinger of the top of the housing bubble a decade ago, and were as high as ~+8% YoY earlier this year, suggest a turn is again near.  The sharp YoY increase in prices in 2013 and early 2014 may have actually been a negative. 

 

Real estate loans, from the FRB H8 report:

  • +0.3% w/w
  • +1.3% YoY
  • +5.6% 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

M1 

  • +.6% w/w
  • +1.3% m/m
  • +9.5% YoY Real M1

 M2 

  • +0.2% w/w
  • +0.6% m/m
  • +4.6% YoY Real M2

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.

 

Bank lending rates

LIBOR has risen slightly from its post-recession low set in May. The TED spread has been trending slightly upward since November of last year, although it is still lower on a YoY basis. 

 

JoC ECRI Commodity prices

  • Down -0.67 to 130.50 w/w
  • +5.42 YoY 
Strong commodity price gains come in a strong economy.
 

Summary:  For the second week in a row, this week was a little weaker than the last few weeks. As has been usual for months, all of the long leading indicators,  excepting mortgage applications, were positive, including money supply, bank lending rates, real estate loans, corporate and treasury bonds.

 

The short leading indicators were positive.  Initial jobless claims and their 4 week are at or near decade lows. Credit spreads have widened slightly in the last few months but remain near their post-recession low. Temporary jobs were again close to their seasonal all-time high.  Commodities were positive. The Oil choke collar appears to have seasonally started to disengage. Housing prices look even more like they are at or near an interim peak.

 

The coincident indicators were neutral and mixed.  Consumer spending was positive.  Steel production was positive, as was rail traffic although less so than recently. Shipping has declined recently.

 

Growth for the remaining 5 months of 2014, and early 2015, looks intact.   At the same time, the weakness in the housing market evident in the first seven months of this year is likely to spread into the rest of the economy, suggesting that growth in the second half will not be as strong as in the second quarter, and I suspect the string of strong employment reports may end shortly.

 

Have a nice weekend!

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