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By New_Deal_democrat October 1, 2016 9:06 am
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Weekly Indicators: good riddance to lousy August monthly data edition
 In the rear view mirror, Q2 real GDP was revised slightly more positive. Real GDI was slightly negative.  September Chicago PMI was more positive.  Final Michigan consumer sentiment about the future improved, and about the present declined. The balance was positive. 
 
The generally lousy August data ended with included a decline in new home sales (to the second best reading in almost 10 years).  The Case Shiller price index increased. Durable goods were unchanged, but "core" capital goods declined. Nominal personal income and spending increased, but in real terms income was flat and spending declined.
 

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

  • 4.26% BAA corporate bonds down -.10%
  • 1.57% 10 year treasury bonds down -.09%
  • 2.69% credit spread between corporates and treasuries down -.01%
Yield curve, 10 year minus 2 year:
  • 0.82%, down -0.4% w/w
30 year conventional mortgage rate
  • 3.39%, down -.03% w/w

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.

 

Housing

 

Mortgage applications

 

  • purchase applications up +1% w/w
  • purchase applications up +10% YoY
  • refinance applications down -2% w/w
 
Real Estate loans
  • Up +0.3% 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 improved just enough this week to turn positive again.

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

 

Money supply

M1

  • -0.8% w/w
  • -0.6%% m/m
  • +6.3% YoY Real M1 
M2
  • +0.1% w/w    
  • +0.6% m/m
  • +6.4% YoY Real M2

Both real M1 and real M2 decelerated markedly in January to the point where they were very weak positives, but both have been more firmly positive since.

 

Trade weighted US$

 

  • Down -0.55 to 122.07 w/w, up +1.0% YoY (one week ago) (Broad)
  • Down -0.03 to 95.46 w/w, up +0.3% 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 7 months has generally been neutral or a positive. This week the major currencies measure moved back from positive to neutral.

 

Commodiy prices

JoC ECRI

  • Up +0.02 to 95.99 w/w
  • Up +9.23 YoY
BBG Industrial metals ETF
  • 101.95 up +1.45 w/w, up +4.6% YoY
Commodity prices as measured by industrial metals bottomed last November. ECRI subsequently turned up as well, enough so that both turned positive.  After briefly turning down enough to be negative, industrial metals turned back positive this week.

 

Stock prices S&P 500

 

  • Up +0.2% w/w
Stock prices became a positive having made new all-time highs during the last few months.
 

Regional Fed New Orders Indexes

(*indicates report this week)

  • Empire State down -8 to -7.5
  • Philly up +8.6 to +1.4
  • *Richmond up +13 to -7
  • Kansas City up +19 to +12
  • *Dallas down -8.2 to -2.9
  • Month over month rolling average: up +1 to -1
In March and April, the turning up of these indexes forecast the positive readings in the ISM.  Then in May and June there was a serious divergence between the two, but in July the regional indexes became on balance positive, again forecasting the positive ISM.  In August there was a serious downdraft which again forecast the poor ISM. September turned better, forecasting a positive ISM manufacturing reading this week.

 

Employment metrics

 Initial jobless claims

  • 254,000 up +2,000
  • 4 week average 256,000 down -2,500

 

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

 

The American Staffing Association Index

 

  • Unchanged at 95 w/w
  • Down -2.32 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.  This week, however, it is bad enough to be negative again.

 

Tax Withholding 

  • $170.0 B for the first 20 days of September vs. $161.4 B one year ago, up +$8.6 B or +5.3%
  • $170.0 B for the last 20 reporting days ending Thursday vs. $161.0 B one year ago, up +$9.0 B or +5.6%

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 the sole exception of 2 weeks ago, the last few months have shown a marked improvement.

 

Oil prices and usage 

  • Oil up +$3.46 to  $48.05 w/w 
  • Gas prices unchanged at $2.22 w/w 
  • Usage 4 week average up +3.6% YoY

 

The price of gas bottomed last winter at $1.69.  Usage has been almost uniformly positive. Gas prices are off their summer seasonal high.

 

Importantly, however, for the first time since mid-2014, YoY Oil prices are virtually unchanged. This is enough to move them from positive to neutral.  In short, Oil is no longer a tailwind for the economy.

 

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 have now 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, but Gallup has turned negative for the last 2 weeks.

 

Transport

Railroad transport 

  • Carloads down -6.1% YoY
  • loads ex-coal down -2.2% YoY
  • Intermodal units down -3.5% YoY
  • Total loads down -4.8% 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, even scoring neutral 3 times in the last 7 weeks, including this week.

Harpex has recently resumed its decline again to repeated multi-year lows. On the other hand, BDI has improved to a 12 month high, and higher then 20 of the last 24 months, and so has become positive. 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 -1.7% w/w
  • Down -4.9% 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.

 
 

SUMMARY: 

 

The recent wobbling continues. While long leading indicators remain almost universally positive, different short leading and coincident indicators have been fluctuating from week to week.  For example, this week oil broke its long positive streak, and temp staffing turned negative, while rail and the Regional Fed indexes improved enough to score neutral.

 

Among long leading indicators, interest rates for corporate bonds, treasuries, the yield curve, real money supply, real estate loans, mortgage rates, and mortgage applications are positive. A significant negative, however, is that mortgage rates have not made new lows for over 3 years.

 

Among short leading indicators, stock prices, jobless claims, gas prices, gas usage, and industrial commodities, are all positive. Oil prices, however, have turned neutral from being positive for over 2 years. Both readings of the US$ are now neutral.  The volatile regional Fed average have improved enough to score as neutral. 

 

The coincident indicators remain mixed. Rail has improved enough again this week to score neutral. Consumer spending remains neutral to negative.  The BDI is now positive. Steel, the Harpex shipping index, and bank rates remain negative. Tax withholding is positive. Temp staffing turned from neutral to negative.

 

This coming week will give us our first important September reads, on jobs, manufacturing, and vehicle sales.

 

Have a nice weekend!

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