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 go in order of long leading indicators, then short leading indicators, then coincident indicators.
Interest rates and credit spreads
- 5.44% BAA corporate bonds unchanged
- 2.24% 10 year treasury bonds unchanged
- 3.20% credit spread between corporates and treasuries unchanged
- 4.00%, unchanged
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%. Mortgage rates have failed to make a new low in 3 years. All are neutrals at this point.
Housing
Mortgage applications
- -1% w/w Purchase applications
- +24% YoY Purchase applications
- -5% w/w Refinance applications
- +0.3% w/w
- +8.4% 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 turned positive, After several very volatile weeks, they have settled down, slightly positive, but very close to their lows.
Real estate loans have been firmly positive for close to two years.
Money supply
M1
- +0.3% w/w
- +0.7% m/m
- +6.5% YoY Real M1
- -0.1% w/w
- +0.9% m/m
- +6.2% YoY Real M2
Real YoY money supply remains firmly positive.
Trade weighted US$ (Broad)
- Down -0,32 to 121.18
The US$ appreciated about 20% against the Euro in particular late last year. It made yet another new high a month ago, and after declining, rose stoutly in the last four weeks. As a result the US is importing deflation strongly, and exports have declined. This has intensified in the last two months.
Commodity prices
JoC ECRI
- Down -0.48 to 80.50 w/w
- Down -31.26 YoY
- 87.68 down -0.06 w/w
Employment metrics
Initial jobless claims
- 271,000 down -11,000
- 4 week average 271,000 up +250
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 101
- Down -4.47 YoY
The YoY comparison 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 this week.
Tax Withholding
- $155.6 B for the first 17 days of November vs. $151.2 B one year ago, up +$4.4 B or +2.9%
- $173.6 B for the last 20 reporting days ending Wednesday vs. $168.2 B one year ago, up $5.4 B or +3.2%
Beginning with the last half of 2014, virtually all readings were positive, but turned more mixed and choppy since the end of July. October started off negative but ended positive, and November has also been positive.
- Oil up +$0.31 to $41.77 w/w
- Gas down -$.09 to $2.09 w/w
- Usage 4 week average down -0.2% YoY
The 2010-13 Oil choke collar remains broken. The price of gas and oil bottomed at the end of January at $2.02. Gas prices rose $0.80 to $2.82 in June, declined, stabilized, but in the last 5 weeks have (seasonally) declined further. Gas is below $2 in many states. Usage was negative this week for the first time in a long time.
Bank lending rates
- 0.232 TED spread down -0.058 w/w
- 0.231 LIBOR up +0.018 w/w
Both TED and LIBOR have risen since the beginning of this year to the point where both have usually been negatives, although there have been some wild fluctuations, as this week with the TED spread.
Consumer spending
- Johnson Redbook +1.5% YoY
- Goldman Sachs +2.3% w/w, +1.9% YoY
- Gallup daily consumer spending 14 day average at $92, down -$5 YoY
Both the Goldman Sachs and Johnson Redbook Indexes weakened after last Christmas, and weakened further YoY beginning in May, then weakened further in September, probably as YoY gas price comparisons turn flatter. In the last month, however, the YoY comparisons have gotten notably better. Gallup, which includes gas purchases, was negative earlier this year, but was generally been positive in the last several months until this week.
Transport
Railroad transport
- Carloads down -9.4% YoY
- loads ex-coal down -5.2% YoY
- Intermodal units down -1.7% YoY
- Total loads down -5.7% YoY
Shipping transport
- Harpex down -3 to 386
- Baltic Dry Index down +58 to 562
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 then were at consistent, less negative YoY comparisons since. For the last two months, intermodal traffic has turned increasingly negative, intensifying the overall negative number.
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 to a new post-recession low this week.
Steel production
- Down -2.4% w/w
- Down -15.8% 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 9 months ago, and has also had intensified negative YoY readings in the last two months.
SUMMARY:
There were several changes this week, almost all negative.
Among long leading indicators, interest rates for treasuries, corporate bonds, and mortgages all are neutral. Money supply, mortgage applications, and real estate loans are still positive.
Among short leading indicators, the interest rate spread between corporates and treasuries remains quite negative, and the US$ even more. Commodities remain a big global negative, making yet more new lows. Temporary staffing is negative for the 27th week in a row, and more intensely so for the 9th straight week. Jobless claims are still very positive, as are oil and gas prices. The change this week was gas usage, which turned negative.
Among coincident indicators, steel production, shipping, and rail transport have all turned more negative. The TED spread whipsawed back to positive, while the LIBOR became even more strongly negative. Tax withholding and two measures of consumer spending are both still positive, while Gallup's measure of consumer spending turned negative.
The intensified deflationary pulse of the last several months continues. These include increased downturns in rail, shipping, and steel - i.e., that part of the US economy most exposed to global weakness - which have been joined by renewed strength in the US$.
As a result, I anticipate further near term weakness in the US industrial economy. Consumers - 70% of the overall economy - have so far held their own, although the downturn in Gallup spending is a concern.
Have a nice weekend!
