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By New_Deal_democrat September 19, 2015 9:18 am
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Weekly Indicators: interest rates at center stage edition
 Monthly data for August included a slightly positive Index of Leading Indicators, positive housing permits and starts, positive retail sales, and with a slight deflationary decline in consumer prices, positive real retail sales as well.  The negative side of the ledger included a decline in industrial production, capacity utilization, and the Philly Fed index.
 

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 am going in order of long leading indicators, then short leading indicators, then coincident indicators.

 

 Interest rates and credit spreads

  • 5.39% BAA corporate bonds up +0.04%
  • 2.21% 10 year treasury bonds down -0.02%
  • 3.17% credit spread between corporates and treasuries up +0.06%
30 year conventional mortgage rate:
  • 3.93%, down -.06%

 

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 into 2015, where they had hovered at or below 2% before yields broke out to the upside.  Spreads have widened enough to become very negative.

Mortgage rates have backed off their recent highs, and as they are now back down below 4%, I am scoring them a positive.

 

Housing

 

Mortgage applications

 

  • -9% w/w Purchase applications
  • +5% YoY Purchase applications
  • -4% w/w Refinance applications
Real Estate loans
  • -0.1% w/w
  • +4.5% 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%, I expect this number to continue to be positive.  It was slightly positive this week.

Real estate loans have been firmly positive for close to two years.

 

Money supply

M1

  • -0.6% w/w
  • -1.6% m/m
  • +7.3% YoY Real M1
M2
  • Unchanged w/w
  • +0.8% m/m
  • +6.1% YoY Real M2

Real YoY money supply remains firmly positive.

 

Trade weighted US$ (Broad)

  • Down -0.41 to 120.16 

 

The US$ appreciated about 20% against the Euro in particular late last year.  It made yet another new high last week.

 

Commodity prices

JoC ECRI

  • Down -1.01 to 90.87 w/w 
  • Down -27.44 YoY
BBG Industrial metals ETF
  • 99.83 down -3.20 w/w
Commodity prices as measured by ECRI retreated near their multi-year lows this week, as did industrial metals.  I suspect the recent collapse is mainly driven by Chinese weakness, and is a net boon to the US economy.

 

Employment metrics

 Initial jobless claims

  • 264,000 down -11,000 
  • 4 week average 272,500 up -3,250

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

 

The American Staffing Association Index 

 

  • Down -1 to 8
  • Down -2.66 YoY

The YoY comparison had generally been positive to strongly positive since last spring. In the last four months this turned neutral and then increasingly negative. The YoY comparisons had become less negative in the last month, but increased in the last 3 weeks.

 

Tax Withholding

  • $107.0 B for the first 12 days of September vs. $113.7 B one year ago, down -$5.9 B or -5.9%
  • $162.7 B for the last 20 reporting days ending Thursday vs. $155.9 B one year ago, up +$6.8 B or +4.4%

 

Beginning with the last half of 2014, with a few exceptions, virtually all readings have been positive. So far September has been weak, although the 20 day rolling total is positive. I am scoring this as a neutral this week.  We'll see if the weakness continues.

 

Oil prices and usage

  • Oil up +$0.20 to $44.98 w/w
  • Gas down -$.06 to  $2.38 w/w 
  • Usage 4 week average up +3.8% YoY  9157 vs 8975

 

The 2010-13 Oil choke collar remains broken.  The price of gas and oil bottomed at the end of January at $2.02.  They rose $0.80 to $2.82 in June, and have declined since then. Gas is below $2 in many states.

 

Bank lending rates

  • 0.342 TED spread up +0.021 w/w (3 year high) 
  • 0.2160 LIBOR up +0.0096 w/w (3 year high)

 

LIBOR rose sharply from its post-recession low set in one year ago, and the TED spread was also in an uptrend since the last the middle of 2014, rising off its November 2013 low.  In the last few weeks, the TED spread has whipsawed violently.  This week both TED and LIBOR made new 3 year highs.

 

Consumer spending

Both the Goldman Sachs and Johnson Redbook Indexes weakened after last Christmas, and weakened further YoY beginning in May.  Until the last 3 weeks, with the exception of 3 weeks in April, the Gallup report had been negative since the beginning of this year.  The big difference appears to be that Gallup does not measure big, durable, purchases, but most importantly does include gas purchases. Gallup had yet another good week this week, so apparently consumers are spending some of their gas savings.

 

Transport

Railroad transport

  • Carloads up +0.4% YoY
  • loads ex-coal up +8.1% YoY
  • Intermodal units up +17.0% YoY
  • Total loads up +8.0% YoY

Shipping transport

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 had been less negative since, until this week.  This may be an aberration based on the timing of Labor Day, so take the good news with a healthy dose of skepticism.

After declining sharply for several months, making a 3-year low in mid-February, the BDI surged higher, and then declined again for several months, before turning back up this week.  Meanwhile, Harpex (container shipping) turned up sharply for 3 months, peaking at 646 in July, before turning down again. 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.

Steel production

 

  • Down -2.7% w/w
  • Down -9.8% 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 7 months ago.

 
 

SUMMARY: 

 

Among long leading indicators, interest rates for corporate bonds and treasuries  remained neutral.  Mortgage rates are positive, while purchase and refinance mortgage applications are slight positives. Real estate loans are positive.  Money supply is positive.

 

Among short leading indicators, the interest rate spread between corporates and treasuries is its  worst in 3 years.  The US$ also turned even more negative. Temporary staffing was negative for the 18th week in a row.  Positives included jobless claims, oil and gas prices, and gas usage.  Commodities remain a big global negative.

 

Coincident indicators fluctuated this week. Steel production, the TED spread and LIBOR all are negative.  Tax withholding turned neutral with the poor start to September.  Consumer spending is now uniformly positive if weakly so. Shipping was mixed. Rail transport turned strongly positive, although that may have to do with when Labor Day fell this year. 

 

Once again, those portions of the US economy most exposed to global forces have turned negative, while those most insulated from global problems are generally positive.  With housing and motor vehicles still quite positive, I remain positive on the US economy at least through the second quarter of next year, and increasingly so as to the third quarter as well.

 

Have a nice weekend!

 

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