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By New_Deal_democrat October 17, 2015 10:13 am
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Weekly Indicators: employment comes into sharp focus edition
Monthly data for September this week included producer and consumer prices, both deflating, improving U. Michigan consumer sentiment, positive nominal and real retail sales, a slight decline in broad business sales with no inventory accumulation, and negative measures of industrial production, capacity utilization, and the NY and Philly manufacturing indexes. JOLTs was also unimpressive, with a decline in job openings, and flat hires and quits.
 

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 am going in order of long leading indicators, then short leading indicators, then coincident indicators.

 

Interest rates and credit spreads

  • 5.33% BAA corporate bonds down -0.02%
  • 2.04% 10 year treasury bonds down -0.04%
  • 3.29% credit spread between corporates and treasuries up +0.02%
30 year conventional mortgage rate:
  • 3.83%, down -.06%

 

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%.  Spreads have widened further, and are very negative.

Mortgage rates which remain under 4% also remain a positive.

 

Housing

 

Mortgage applications

 

  • -34% w/w Purchase applications
  • -1% YoY Purchase applications
  • -23% w/w Refinance applications
Real Estate loans
  • unchanged 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 has turned positive, although this week's anomalous negative numbers took back last week's equally anomalously positive numbers.

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

 

Money supply

M1

  • +0.8% w/w
  • +0.8% m/m
  • +7.0% YoY Real M1
M2
  • Unchanged w/w
  • +0.2% m/m
  • +5.9% YoY Real M2

Real YoY money supply remains firmly positive.

 

Trade weighted US$ (Broad)

  • Down -1.78 to 118.42

 

The US$ appreciated about 20% against the Euro in particular late last year.  It made yet another new high two weeks ago.  As a result the US is importing deflation strongly, and exporting, not so much.

 

Commodity prices

JoC ECRI

  • Up +0.77 to 87.47 w/w 
  • Down -27.15 YoY
BBGt Industrial metals ETF
  • 100.54 down  -1.21 w/w
Commodity prices as measured by ECRI turned up from multi-year lows this week, and the YoY comparisons have stopped deteriorating. Industrial metals have risen slightly in the last few weeks as well.

 

Employment metrics

 Initial jobless claims

  • 255,000 down -8,000 (tied for 40 year low)
  • 4 week average 265,000 down -2,500 (40 year low)

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 100
  • Down -3.13 YoY

The YoY comparison had generally been positive to strongly positive since last spring. 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 during the last month, although it has improved slightly in the last couple of weeks.

 

Tax Withholding

  • $88.3 B for the first 10 days of October vs. $85.1 B one year ago, up +$3.2 B or +3.8%
  • $154.9 B for the last 20 reporting days ending Thursday vs. $155.7 B one year ago, down -$0.8 B or -0.5%

 

Beginning with the last half of 2014, with a few exceptions, virtually all readings have been positive. October started off negative but turned positive.  The 20 day rolling total, however, turned negative, so I am changing this from weak positive to neutral.

 

Oil prices and usage

  • Oil down -$2.24 to $47.26 w/w
  • Gas up +$.02 to $2.34 w/w 
  • Usage 4 week average up +3.4% YoY

 

The 2010-13 Oil choke collar remains broken.  The price of gas and oil bottomed at the end of January at $2.02.  They rose $0.80 to $2.82 in June, and have declined since then. 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 are 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, and have weakened further in the last month, probably as YoY gas price comparisons turn flatter.  Until the last 5 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 -5.8% YoY
  • loads ex-coal down -2.1% YoY
  • Intermodal units up +0.5% YoY
  • Total loads down -2.8% 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 has been at consistent, less negative YoY comparisons since, indicating that if we could seasonally adjust, we would probably find traffic increasing in the last few months.

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 -1.3% w/w
  • Down -7.3% 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 7 months ago.

 
 

SUMMARY: 

 

Among long leading indicators, interest rates for corporate bonds and treasuries  remained neutral.  Mortgage rates turned more positive, while purchase and refinance mortgage applications turned negative, taking back last week's anomalous huge gains. Real estate loans remain positive.  Money supply is positive.

 

Among short leading indicators, the interest rate spread between corporates and treasuries remains quite negative, as is the US$.  Positives included oil and gas prices, and gas usage.  Commodities remain a big global negative, but have rebounded off their lows.  Temporary staffing is negative for the 21st week in a row, and more intensely so for the 3rd straight week. The star of the show, however, have to be jobless claims, which on both a 1 weekly and 4 week average basis made or at least tied 40 year lows.

 

Among coincident indicators, steel production, shipping, rail transport ex-intermodal, the TED spread and LIBOR all are negative.  Consumer spending is weakly positive. Tax withholding turned mixed and so I am scoring it a neutral.

 

There are two developments going in opposite directions.  While industrial production is still in a shallow recession, inventory is no longer being accumulated, although it is not being disposed of yet.  This suggests weakness is not getting worse, although the weakness will continue. That, presumably, will include near term weakening of employment.

 

And employment is really coming into focus. Tax withholding has gotten much more mixed since the beginning of August. Temporary staffing has gotten worse.  Monthly payrolls have been weak for the last two months.  At the same time, new jobless claims are at historic lows.  Typically hiring slows down or stops before layoffs increase, and it seems that's where we are.  So I expect the weakness in employment to continue and maybe intensify until the inventory correction is worked through.

 

Have a nice weekend!

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