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By New_Deal_democrat November 5, 2016 10:32 am
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Weekly Indicators: the economy forecasts a narrow Clinton victory edition
In the rear view mirror, Q3 unit labor costs increased, a positive, while productivity also came in positive.
October data started out with a decent payrolls report in which nearly all of the components were positive, plus positive vehicle sales and more weakly positive ISM reports, and a positive but deceleration Chicago PMI.
September data included positive personal income and spending, but a decline in construction spending.

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

  • Dow Jones corporate bond index 369.20 up +0.17% w/w (near 395.36 high)
  • 1.81% 10 year treasury bonds up +.02%
  • BofA/ML B Credit spread up +.50% to 5.29% (12 month low of 4.62% on Oct 22)
Yield curve, 10 year minus 2 year:
  • 1.00%, up +.07% w/w
30 year conventional mortgage rate
  • 3.59%, down -.01% w/w

After nearly 100 years, Moody's has ceased making its corporate bond index available.  I have substituted other indexes which have very similar histories.


Yields on corporate bonds and treasuries made new lows after the Brexit vote, strongly suggesting that the expansion will continue through mid-2017.  On the other hand, mortgages have failed to make a new low for over 3 years, thus turning yellow (caution or neutral vs. positive) as a recession indicator.  Yields are also still positive, but spreads are neutral.




Mortgage applications


  • purchase applications down -2% w/w
  • purchase applications up +9% YoY
  • refinance applications down -2% w/w
Real Estate loans
  • Unchanged w/w
  • Up +7.6% YoY

Mortgage applications turned up early in 2015 in response to very low rates.  They briefly  spiked in response to low rates following the Brexit vote.  Purchase applications last made a new high at the beginning of June.  They have wobbled between being positive and neutral for the last 7 weeks. They may go YoY negative in the next month.  If so, they will flip to becoming an important negative. Refinance applications remain a positive.


Real estate loans have been firmly positive for over 3 years.


Money supply


  • +1.5% w/w 
  • +0.5% m/m
  • +8.4% YoY Real M1
  • -0.3% w/w    
  • +0.5% m/m
  • +6.2% YoY Real M2

Both real M1 and real M2 have been firmly positive almost all year.


Trade weighted US$


  • Up +0.22 to 123.58 w/w, down -0.8% YoY (one week ago) (Broad)
  • Down -1.37 to 96.93 w/w, up -1.0% YoY (yesterday) (major currencies)


The US$ appreciated about 20% between mid-2014 and mid-2015.  It has gone mainly sideways since then, and for the last 8 months has generally been neutral or a positive. After being neutral for 4 weeks, they resumed being positive this week.


Commodiy prices


  • Down -0.95 to 93.46 w/w
  • Up +12.12 YoY
BBG Industrial metals ETF
  • 104.02 up +1.79 w/w, up +8.4% YoY
Commodity prices as measured by industrial metals bottomed last November. ECRI subsequently turned up as well, enough so that both turned positive. Recently metals turned negative, but have now resumed being positive.


Stock prices S&P 500


  • Down -1.9% w/w
Stock prices became a positive having made new all-time highs in summer. They have not made new 6 month lows, so they remain a positive. It will take a continued sideways move or a significant further decline for this to change in the immediate future.

Regional Fed New Orders Indexes

(*indicates report this week)

  • Empire State up +1.9 to -5.6
  • Philly up +14.9 to +16.3
  • Richmond down -5 to -12
  • Kansas City up +2 to +14
  • *Dallas down -0.6 to -3.5
  • Month over month rolling average: unchanged at +1
In the 8 months since I started coverage of this metric, the regional average has been more negative that the ISM manufacturing index, but has accurately forecast its month over month direction.


Employment metrics

 Initial jobless claims

  • 265,000 up +7,000 
  • 4 week average 257,250 up +4,250


Initial claims remain well within the range of a normal economic expansion, as does the 4 week average. 


The American Staffing Association Index


  • Up +1 to 98 w/w
  • Down -1.39 YoY

This index turned negative in May 2015, getting as bad as -4.30% late last autumn.  Since the beginning of the year it became progressively "less bad" and for the last few months has been so close to positive YoY as to be a neutral, as it was again this week.


Tax Withholding

  • $182.8 B for the month of October vs. $168.9 B one year ago, up +$14.2 B or +8.4%
  • $168.9 B for the last 20 reporting days ending Thursday vs. $155.9 B one year ago, up +$13.0 B or +8.3%

Beginning with the last half of 2014, virtually all readings were positive, but turned more mixed and choppy, and occasionally even negative, since August 2015.  With one brief exception, the last few months have shown a marked improvement.


Oil prices and usage

  • Oil down -$4.65 to  $44.11 w/w 
  • Gas prices down -$.01 to $2.23 w/w
  • Usage 4 week average down -1.2% YoY


The price of gas bottomed last winter at $1.69.  Usage had been almost uniformly positive until one week ago. Gas prices are off their summer seasonal high, but have gone sideways for the last three months, and gas prices are now UP YoY. This has been enough to move them from positive to neutral. Oil is no longer a tailwind for the economy, but it isn't a headwind yet.


Bank lending rates


Both TED and LIBOR were already rising since the beginning of last year to the point where both have usually been negatives, although there were some wild fluctuations.  Of importance is that TED was above 0.50 before both the 2001 and 2008 recessions.  Both recently reached that level.


Consumer spending


Both the Goldman Sachs and Johnson Redbook Indexes progressively weakened in pulses during 2015, before improving somewhat since the beginning of last November.  Redbook has recently turned very weak.  Goldman and Gallup have both been generally more positive, although Gallup did wobble last month.



Railroad transport

  • Carloads down -2.8% YoY
  • loads ex-coal down -2.9% YoY
  • Intermodal units up +1.3% YoY
  • Total loads down -0.8% YoY

Shipping transport

Rail traffic turned negative and then progressively worse in pulses throughout 2015. Rail loads became "less worse" in January and showed continued improvement until going over the proverbial cliff all spring (typically down -10% or more) in spring.  It trended incrementally less awful since June, generally has scored neutral.

Harpex has recently resumed its decline again to repeated multi-year lows. BDI has backed off its recent 12 month highs, turning back from positive to neutral. 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 -1.4%  w/w
  • Down -3.3% 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. This year it started out as "less worse" and turned positive a few months ago, but recently turned negative again.




The story of long leading indicators remains the same as recently.  Interest rates for corporate bonds, treasuries, the yield curve, real money supply, real estate loans, mortgage rates, and refinance mortgage applications remain positive for now. A significant negative, however, is that mortgage rates have not made new lows for over 3 years. Purchase mortgage applications have turned neutral.


Short leading indicators are positive with the exception of gas prices, which are neutral, and gas usage, which is negative.  Stock prices, jobless claims, industrial commodities, the US$, the regional Fed new orders indexes, and oil prices are all positive.


The coincident indicators remain mixed. Rail, temp staffing, and the BDI are all neutral.  Steel, the Harpex shipping index, and bank rates remain negative. Tax withholding and consumer spending are positive.


The domestic part of the US economy has generally turned quite positive, while those aspects of the US economy most exposed to the downturn in global trade are still hurting. I have a longer term concern about mortgage applications and gas prices.  I'm not concerned about the downturn in stocks yet.


The senior loan officer survey is the next significant leading indicator, to be reported Monday afternoon.  I will report on it after Tuesday's election, and generally I will update all of the long leading indicators.


Have a nice weekend

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