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By New_Deal_democrat September 16, 2017 9:00 am
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Weekly Indicators: Harvey hits the data edition
August data was all affected by Harvey, and included declines in both industrial production and retail sales, but an increase in whole business sales and inventories. YoY PPI and CPI both rose. 
 
JOLTS for July showed increases in openings, hires, and quits, with a decline in overall discharges. 
 
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

  • BAA corporate bond index 4.31% +0.04% w/w (12 mo. high 4.90%. 12 mo. low 4.15%)
  • 10 year treasury bonds 2.20% +0.15% w/w 
  • Credit spread 2.11% down -0.11% w/w 
Yield curve, 10 year minus 2 year:
  • 0.83%, up +0.03% w/w
30 year conventional mortgage rate
  • 3.94%, up +0.09% w/w (1 year high was 4.39%, 1 year low 3.37%)

Yields on treasuries and mortgage rates made new 12 month highs in December, but subsequently retreated for several months, then rose for a brief period, but once again have declined to new nine month lows, and so are improving neutrals.  Corporate bonds remain neutral. Spreads remain very positive. The yield curve remains positive also.

 

Housing

 

Mortgage applications 

 

  • purchase applications up +11% w/w
  • purchase applications up +7% YoY
  • refinance applications up +9% w/w
 
Real Estate loans
  • Down -0.1%% w/w 
  • Up +4.0% YoY

Mortgage applications turned outright negative for three weeks before tipping back to neutral and then surprisingly positive for most weeks in the last few months, including this week. Refi applications remain near multi-year lows.

 

Real estate loans had been firmly positive for over 3 1/2 years, but the rate of growth (of this cumulative measure) declined sufficiently for the last three months for loans to become a neutral.

 

Money supply

M1

  • -0.4% w/w 
  • +1.5% m/m 
  • +5.7% YoY Real M1
M2
  • -0.1% w/w  
  • +0.4% m/m 
  • +3.3% YoY Real M2 

Both real M1 and real M2 were positive almost all last year.  Both recently decelerated substantially, but have steadied or improved in the last few weeks, and remain positives.

 

Credit conditions (from the Chicago Fed) 

 

  • Financial Conditions Index up +0.03 to -0.85
  • Adjusted Index (removing background economic conditions) up +0.02 to -0.58
  • Leverage subindex up +0.04 to -0.50
The Chicago Fed updated and changed the Adjusted Index last week. The new Adjusted Index is less noisy.  Its break-even point appears to be -0.25.  In the leverage index, a negative number is good, a positive poor. The historical breakeven point has been -0.5 for the unadjusted Index. All three metrics presently show looseness and so are positives for the economy.
 

Trade weighted US$

  • Down -0.08 to 118.18 w/w, -2.3% YoY (one week ago) (Broad)
  • Up +0.52to 91.82 w/w, -4.1% YoY (yesterday) (major currencies)

 

The US$ appreciated about 20% between mid-2014 and mid-2015.  It went mainly sideways since then until spiking higher after the US presidential election. With a few exceptions as to major currencies, it was neutral for about 5 months before turning positive several months ago.

 

Commodiy prices

JoC ECRI

  • Down -0.07 to 108.48 w/w
  • Up +15.21 YoY
BBG Industrial metals ETF 
  • 125.23 down -2.78 w/w, up +27.1% YoY
Commodity prices bottomed near the end of 2015. After briefly turning negative, metals also surged higher after the election.  ECRI briefly turned down enough to be downgraded to neutral, but both are again positive.

 

Stock prices S&P 500

 

  • Up +1.6% w/w to 2500.23 (new all time high)
Stock prices are positive, having made a string of new all-time highs beginning over one year ago.
 

Regional Fed New Orders Indexes

(*indicates report this week) 

  • Empire State up +4.3  to +24.9
  • Philly up +18.3 to +20.4
  • Richmond down -1 to +17
  • Kansas City up +15 to +25
  • Dallas down -2.3 to +14.3
  • Month over month rolling average: up +1 to +20
The regional average has been more volatile than the ISM manufacturing index, but has accurately forecast its month over month direction. These have turned more positive in the last two month.

 

Employment metrics

 Initial jobless claims

  • 284,000 down -14,000
  • 4 week average 250,250 up +13,500
  • Hurricane-adjusted (one week ago) 239,000

 

Despite the Harvey-related surge in the last two weeks, 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 96 w/w
  • Up +0.06 YoY

This index was generally neutral from May 2016 until the end of the year, and has been positive with a few exceptions since the beginning of this year.

 

Tax Withholding

  • $91.8 B for the first 9 days of September 2017 vs. $86.0 B one year ago, up +$4.8 B or +5.6%
  • $163.9 B for the last 20 reporting days vs. $162.0 B one year ago, up +$1.9 B or +1.2%

Beginning with the last half of 2014, virtually all readings were positive, but turned more mixed and choppy, and occasionally even negative, in last 2015 through the first part of 2016.  With the exception of August, the last few months had shown marked improvement.

 

Oil prices and usage

  • Oil up +$2.27 to $49.83 w/w,  down -0.4% YoY
  • Gas prices unchanged at $2.68 w/w, up +$0.49 YoY
  • Usage 4 week average up +0.2% YoY

 

The price of gas bottomed about 20 months ago at $1.69.  With the exception of July, prices generally went sideways with a slight increasing trend for the last year.  Usage turned negative in the first half of this year, but subsequently improved, and for five of the last seven weeks turned positive again.

 

Bank lending rates

 

Both TED and LIBOR rose since the beginning of last year to the point where both were usually negatives, although there were some wild fluctuations.  Of importance is that TED was above 0.50 before both the 2001 and 2008 recessions.  The TED spread has turned very positive for the last several months. Meanwhile LIBOR has generally turned more and more negative.

 

Consumer spending 

  • Johnson Redbook up +4.5% YoY
  • Goldman Sachs down -0.3% w/w, up +2.3% YoY

 

Both the Goldman Sachs and Johnson Redbook Indexes progressively weakened in pulses during 2015, before improving somewhat in 2016, and more markedly so in the last several months.  Both were positive again this week.

 

Transport

Railroad transport

  • Carloads down -1.9% YoY
  • loads ex-coal down -6.0% YoY
  • Intermodal units up +3.6% YoY
  • Total loads up +0.8% YoY

Shipping transport

Rail turned negative in 2015 and fell even more sharply in spring 2016. Since summer 2016, rail improved to neutral and then generally positive since November 2016. Over the last two months, it has been more mixed.

Harpex recently declined to repeated multi-year lows, then came back all the way to positive, declined again, but in the last several months has come all the way back to positive again. BDI also surged back to being a positive before declining back to neutral earlier this year, but has turned up again in the last month.  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 -0.8% w/w
  • Up +8.9% 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. It improved from negative to "less bad" to positive in 2016 and until recently remained positive since. In the last several months, it has alternated between positive and negative, but more positive in the last two months.

 
 

SUMMARY: 

 

Corporate bonds, Treasury yields, and mortgage rates have all improved enough to remain neutral, as does  growth in real estate loans. The yield curve, money supply, and purchase mortgages also remain positive, as are the two more leading Chicago Fed Financial Conditions Indexes. Refinance mortgage applications are the sole negative.

 

Short leading indicators, including stock prices, industrial metals, the regional Fed new orders indexes, spreads, financial conditions, staffing, the US$, oil and gas prices and usage are all positive. Jobless claims nominally are neutral, but adjusted for the impact of Harvey remain very positive.

 

Among the coincident indicators, positives included consumer spending as measured by Johnson Redbook, steel, the TED spread, tax withholding, the Baltic Dry Index and Harpex.  LIBOR remains negative. Rail was positive except for carloads ex-coal.

 

Despite the hurricane impacts, the economy appears in very good shape over the near term, and retains a positive tone, if more mutedly so, in the longer term.

 

Have a nice weekend!

 

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