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By New_Deal_democrat February 14, 2015 9:52 am
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Weekly Indicators: Gallup earns its bones again, possible inventory correction edition

Monthly January reports included retail sales down significantly but flat ex-gas, JOLTS job openings were up, both export and import prices declined, and Michigan consumer sentiment declined back towards its December levels. 

I look at the high frequency weekly indicators because while they can be very noisy, they 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.  I list the data and try to keep commentary sparse, so you can draw your own conclusion.

As I have done recently, I am generally going in order of long leading, then short leading, then coincident indicators.  

 Interest rates and credit spreads

  • 4.53% BAA corporate bonds up +0.10%
  • 2.01% 10 year treasury bonds up +0.18%
  • 2.52% credit spread between corporates and treasuries down -0.08%

Interest rates for corporate bonds rose further from their 50+ year low set two weeks ago.  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 into 2015 to back below 2%, before rising back above 2% this week. Corporate bond yields had trended generally sideways since May 2014, before breaking out to the downside in the last 6 weeks.  Spreads widened in recent months, a warning of near-term weakness, but have narrowed in the last two weeks and are only slightly negative now.

Housing metrics

Home Sales and Prices from DataQuick:

  •  +4.0% sales YoY, up +1.3% (1 month rolling average)
  •  +3.7% prices YoY, up +3.5% (1 month rolling average) 

YoY sales were positive for the 13th week in a row, while prices appreciation has accelerated slightly.

Mortgage applications from the Mortgage Bankers Association:

  • -7% w/w purchase applications 
  • +1% YoY purchase applications
  • -10% w/w refinance applications

YoY purchase applications established a "less awful" trend in the last few months, and after   four straight week of being positive, turned slightly negative again this week.

Real estate loans, from the FRB H8 report:

  • down -0.4% w/w
  • up +3.4% YoY

Loans turned up at the end of 2011, turned down in late 2013, but have remained positive to sharply positive since April 2014.

Money supply

  • +1.8% w/w
  • +1.9% m/m
  • +12.4% YoY Real M1


  • +0.6% w/w
  • +0.8% m/m
  • +5.2% YoY Real M2

At the time of the last flight to safety (from Europe) 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 2014.  Both Real M1 and Real M2 improved substantially since, and both remain firmly in positive territory.

Employment metrics
 Initial jobless claims

  • 304,000 up +36,000
  • 4 week average 289,750 down -3,000

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 97.  
  • Up +5.8% YoY.

The YoY comparison has generally been positive to strongly positive since last spring.

Tax Withholding

  • $85.5 B for the first 9 days of February vs. $80.1 B one year ago, up +$5.4 B or +6.7%
  • $184.0 B for the last 20 reporting days ending Thursday vs. $178.8 B one year ago, up +$5.2 B or +2.9%

In the last half of 2014, virtually all readings were positive.  The last 20 days are within the range of past positive readings, although towards the low end.

Oil prices and usage

  • Oil up +$1.09 to $52.78 w/w
  • Gas up +$0.12 to $2.19 w/w
  • Usage 4 week average YoY +3.5%

The price of gas may have bottomed two weeks ago.  The 2010-2013 Oil choke collar has been broken, and usage has been responding in a big way.

Consumer spending

  • Johnson Redbook +2.1% YoY
  • Gallup daily consumer spending 14 day average at $80, down -$3 YoY

Once again, the Gallup report in particular has earned its bones, accurately forecasting the continued decline in retail sales in January.

In 2013 and early 2014 the Johnson Redbook YoY was between from +2% to a high over +4%. In the second half of 2014, the range increased to +3.5% to +5%.  It has fallen out of that range in 3 of the last 4 weeks.  Gallup declined sharply for two weeks and then turned negative three weeks ago, before rebounding for two weeks. This week it was negative again.  Clearly consumers pulled back, even adjusted for seasonality, in January, and have continued into February.  This is particularly concerning since YoY comparisons are a little suspect now, since exactly one year ago was the worst of the "polar vortex" decline.

Steel production from the American Iron and Steel Institute 

  • -0.7% w/w
  • -3.0% YoY

Steel production over the last several years has generally been in a decelerating uptrend.  Since last spring, they have alternated between slightly positive and slightly negative.  This week was particularly negative.

 Railroad transport from the AAR

  • +12,300 carloads up +4.7% YoY 
  • -8,100 intermodal units down -3.3% YoY
  • +4,100 total loads up +0.8% YoY

Shipping transport

  • Harpex up + 17 to 478 (4 year high)
  • Baltic Dry Index down -29 to 530 (3 year low)

Rail traffic made a new all time high six weeks ago. Two weeks ago it had rare negative comparisons.  The BDI has declined sharply in the last eight weeks. On the other hand, Harpex has turned up sharply in the 5 weeks.  In the longer term, shipping rates bottomed about 2 years ago and have been in a slow and variable uptrend since, although the Baltic index shows signs of breaking that to the downside. This is probably because Harpex is primarily container shipping, and the BDI is primarily single hull shipping (e.g., oil).

Bank lending rates

  • 0.250 TED spread up +0.02 w/w (18 month high)
  • 0.172 LIBOR up +0.01 w/w (1 year high)

LIBOR has risen sharply from its post-recession low set in May and made a new one-year high this week. The TED spread moved generally sideways with a slight upward trend in the last 6 months of 2014, rising off its November 2013 low.  It has risen further in the last month and made another 18 month high this week. While there has been enough of an increase for me to score these as negative, they need to be kept in perspective. The move in the last months (probably mainly due to the latest Euro-crisis) has been pale compared with the moves before the Great Recession.

Commodity prices

  • Down -1.97 to 100.91 w/w
  • Down -19.75 YoY

BBG Industrial metals ETF

  • 118.46 down -0.96 

Commodity prices rebounded off a possible long term low two weeks ago.  This is still probably due to international weakness, and mainly about oil.  Industrial metals were a component of ECRI's original short leading weekly index, and so can confirm or contrast with oil prices. Industrial metals have generally been declining for the last 3 years, and made a new low two weeks ago.


Negative coincident indicators increased significantly this week.

Among long leading indicators, yields on corporate bonds and treasuries increased slightly, reflecting an abatement of immediate deflationary concerns, but they are still very positive. Money supply remains quite positive.  Real estate loans, and house sales as reported by DataQuick were positive.  Mortgage applications slipped back into negative territory this week.

The short leading indicators were mixed.  Oil prices increased slightly while industrial metal prices and commodities more broadly declined slightly. Spreads between corporate bonds and treasuries improved again, but remained slightly negative.  Temporary staffing and gas prices and usage remained positive, and initial jobless claims remain within a very positive range even though they increased last week.

Coincident readings were much more negative. Consumer spending as measured by Gallup was negative again, and Johnson Redbook had its least positive week in many months.  Tax withholding were positive.  Rail was mixed.  Container shipping was positive. Steel production and single hull shipping were negative. The TED spread increased enough to be a slight negative, while LIBOR was slightly negative also.

Tne significant weakness in some long leading indicators 12 - 15 months ago has finally spread into the coincident indicators.  While interest rates and gas prices have risen off their recent lows, they are still very positive for housing and for consumer balance sheets. While we may have started an inventory correction, this remains very positive going forward.

Have a nice weekend!

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