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By New_Deal_democrat March 14, 2015 10:09 am
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Weekly Indicators: importing deflation edition

Monthly reports for February included import prices ex-oil and producer prices both showing deflation, export prices up slightly, a big decline in nominal retail sales, a slight increase in the JOLTS survey, and a continuing decline off January's highs in University of Michigan consumer confidence.  The unifying theme is the effect of basic commodity prices.

In contrast to monthly data, 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.

I am starting with coincident indicators again this week, where there has been negative news for the last few weeks.

 Railroad transport from the AAR

  • -4,600 carloads down -2.1% YoY 
  • +9,800 intermodal units up +4.0% YoY
  • +4,100 total loads up +0.8% YoY

Shipping transport

  • Harpex up +6 to 502 (4 year high)
  • Baltic Dry Index up +4 to 565 (rebound from 3 year low)

Rail traffic fell off a cliff two weeks ago. It turned "less awful" last week, and was mixed this week. It appears the effects of the West Coast ports strike are abating.  After declining sharply for several months, the BDI has rebounded in the last three weeks. Meanwhile, Harpex (container shipping) has turned up sharply for the last 9 weeks, making continual new 4 year highs.  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.

Consumer spending

  • Johnson Redbook +2.6% YoY
  • Gallup daily consumer spending 14 day average at $83, up +1YoY

Last week I indicated that I had concluded that the Gallup report, which has been barely positive to outright negative since the beginning of this year, primarily reflects consumers saving the money they are saving on gasoline.  Since the negative YoY readings stabilized, I expected the month over month sales numbers to increase slightly. Not yet in February!  I further suggested that, when Gallup turned positive again YoY, that would be the signal that consumers are starting to spend their gas savings. This week it did so - although the comparison week last year was particularly awful. I'll continue to give this close attention.

 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 7 of the last 8 weeks.  This is in accord with the poor YoY nominal retail sales numbers.

Steel production from the American Iron and Steel Institute 

  • -0.7%  w/w
  • -11.9% YoY

Steel production over the last several years has generally been in a decelerating uptrend.  Since  spring 2014, it turned mixed, and then in the last month has performed a cliff-dive. This may be the shipping and rail downturns, which are now abating, feeding through the system.

Commodity prices

  • Down -1.79 to 100.27 w/w
  • Down -19.70 YoY

BBG Industrial metals ETF

  • 116.57 up +0.56

Commodity prices rebounded off a possible long term low 6 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, made a new low one month ago, and have retested but not broken through that low in the last two weeks.  Oil also has exactly retested its January low, without breaking through.

 Interest rates and credit spreads

  • 4.56%BAA corporate bonds down -0.02%
  • 2.11% 10 year treasury bonds unchanged
  • 2.45% credit spread between corporates and treasuries down -0.02%

Interest rates for corporate bonds made a 50+ year low two months 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%.  Spreads have widened in recent months, a warning of near-term weakness, but have never turned decisively negative.

Housing metrics

Home Sales and Prices from DataQuick:

  •  +2.6% sales YoY, up +0.5% (1 month rolling average)
  •  +4.8% prices YoY, unchanged (1 month rolling average) 

Positive YoY sales and price appreciation have continued, although sales are slightly less positive than in the last several months.

Mortgage applications from the Mortgage Bankers Association:

  • +2% w/w purchase applications 
  • +2% YoY purchase applications
  • -3% w/w refinance applications

YoY purchase applications established a "less awful" trend in the latter part of 2014.  After four straight weeks of being positive, they turned negative for several weeks, and were mixed this week.

Real estate loans, from the FRB H8 report:

  • down -0.2% w/w
  • up +4.1% 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

  • -0.2% w/w
  • +1.2% m/m
  • +9.8% YoY Real M1


  • -0.1% w/w
  • +0.9% m/m
  • +6.7% YoY Real M2

Between actual deflation and possibly a mild European flight to safety, real YoY money supply is firmly positive.  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.

Employment metrics
 Initial jobless claims

  • 289,000 down -31,000
  • 4 week average 302,250 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 

  • Up +1 to 96
  • Up +3.71% YoY.

The YoY comparison has generally been positive to strongly positive since last spring, with the sole exception of one week ago.

Tax Withholding

  • $93.4 B for the first 9 days of March vs. $90.6 B one year ago, up +2.8 B or +3.1%
  • $199.5 B for the last 20 reporting days ending Thursday vs. $189.9 B one year ago, up +$9.6 B or +5.1%

Beginning with the last half of 2014, virtually all readings have been positive.

Oil prices and usage

  • Oil down -$4.45 to $45.16 w/w (tying Jan 26 low)
  • Gas up +$0.02 to $2.49 w/w
  • Usage 4 week average YoY +2.8%

The price of gas probably bottomed 6 weeks ago. Oil has exactly retested that low this week.  The 2010-2013 Oil choke collar has been broken, and usage has been responding in a big way.

Bank lending rates

  • 0.253 TED spread down -0.008 w/w
  • 0.175 LIBOR unchanged w/w

LIBOR has risen sharply from its post-recession low set in May and tied last week's 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 an 18 month high one week ago. The move in the last months (probably mainly due to the latest Euro-crisis), while a negative, still pales in comparison with the moves before the Great Recession.


Negative coincident indicators have generally abated, with the big exception of Steel.

Among long leading indicators, yields on corporate bonds and treasuries are still positive although less so.  Money supply is even more positive.  Real estate loans, and house sales as reported by DataQuick were positive.  Mortgage applications were mixed 

The short leading indicators also returned to generally positive readings.  Oil prices fell back to their January low.   Industrial metal prices rose slightly, but were still close to their recent low. Spreads between corporate bonds and treasuries improved slightly and I scoring them a slightly positive.  Temporary staffing also returned to being positive.  Gas prices and usage remained positive, and initial jobless claims improved within their positive range.

As indicated above, coincident readings largely abated from being quite negative.  Rail, which had been awful, was mixed.  Consumer spending as measured by Gallup was just barely positive yet for the first time in weeks, while Johnson Redbook was again only weakly positive.  The TED spread and LIBOR have leveled off as barely negative. Shipping turned more positive, and tax withholding was positive as well. Only steel production was negative, and in a big way.

Last week the weakness in the high frequency data spread from coincident to short leading indicators. I remained positive, since this is not the order in which I would expect the economy to turn.  This week's data bears that out.  In particular I said, "I will be paying particular attention to rail and to Gallup consumer spending to see if they turn positive in the next several weeks, and to see if the temporary staffing downturn was just one week of noise."  This week all three were positive.

Nominal Q1 GDP is likely to be very weak.  The big question is going to be, how much deflation has the US imported?

Have a nice weekend!

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