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By New_Deal_democrat May 12, 2018 9:24 am
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Weekly Indicators: interest rates continue to deteriorate edition
April data included PPI and CPI, both up modestly m/m. University of Michigan's measure of consumer sentiment was unchanged. March wholesale sales and inventory were both up by the same percentage. The JOLTS report for March showed a spike in job openings, which are up roughly 20% YoY, but a decline in actual hires, which are virtually flat YoY. Voluntary quits increased, while total separations decreased.
 
In the rear view mirror, the Q1 Senior Loan Officer Survey showed a continued loosening of credit.  
 
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.
 
NOTE that I include 12 month highs and lows in the data in parentheses to the right.

 

Interest rates and credit spreads

  • BAA corporate bond index 4.81% up +.01% w/w (1 yr range: 4.15 - 4.86) (new 52 week high intraweek)
  • 10 year treasury bonds 2.97% up +.01 w/w  (2.05 - 3.03) 
  • Credit spread 1.84% unchanged w/w (1.56 - 2.30)
Yield curve, 10 year minus 2 year:
  • 0.43%, down -0.02% w/w (0.43 - 1.30) (new expansion low)
30 year conventional mortgage rate
  • 4.65%, up +0.03% w/w (3.84 -  4.69) 

BAA Corporate bonds remain neutral. If these go above 5%, they will become a negative. Mortgage rates and treasury bonds are still both negatives. The trend for these for most of 2017 was neutral. The yield curve remains positive if more weakly so, and the spread between corporate bonds and treasuries also remains positive, but if this measure goes above 1.85%, I will switch it to neutral.

 

Housing

 

Mortgage applications  

  • Purchase apps down -0.2% to 257 w/w 
  • Purchase apps 4 week avg. up +2 to 260 (new expansion high)
  • Purchase apps YoY up +3% , 4 week YoY avg 3.5%
  • Refi app down -1% w/w
 
Real Estate loans
  • Unchanged w/w 
  • Up +4.2% YoY ( 3.3 - 6.5) (re-benchmarked, adding roughly +0.5% to prior comparisons) 

Refi has been dead for some time. Purchase applications were strong almost all last year, but began to falter YoY in late December, frequently turning neutral (under 3%) and even negative for one week. But if momentum faded earlier this year, on an absolute scale they have been at expansion highs for the last few weeks.

 

With the re-benchmarking of the last year, the growth rate of real estate loans has changed from neutral to positive.

 

Money supply

M1

  • +0.2% w/w 
  • +0.9% m/m 
  • +2.0% Real M1 last 6 months 
  • +4.5% YoY Real M1 (1.9 - 6.9) 
M2
  • -0.1% w/w  
  • +0.1% m/m 
  • +0.9% YoY Real M2 (1.3 - 4.1)

Since 2010, both real M1 and real M2 were resolutely positive.  Both decelerated substantially in 2017. Real M2 growth has fallen below 2.5% and is thus a negative.  If real M1 growth falls  below 3.5% YoY, and also turns negative on a 6 month basis, I will downgrade it to neutral,

 

Credit conditions (from the Chicago Fed) 

 

  • Financial Conditions Index down -0.01 to -0.79
  • Adjusted Index (removing background economic conditions) up +.01 at -0.52
  • Leverage subindex up +.02 to -0.51
The Chicago Fed's Adjusted Index's real break-even point is roughly -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$

  • Up +2.13 to 120.62 w/w -2.9% YoY (last week) (broad) (116.42 -128.62) 
  • Down -0.05 to 92.55 w/w, -6.70% YoY (yesterday) (major currencies) 

 The US$ appreciated about 20% between mid-2014 and mid-2015.  It went mainly sideways afterward until briefly spiking higher after the US presidential election. It has been a positive since last summer.

 

Commodity prices

JoC ECRI 

  • Down -0.29 to 109.61 w/w
  • Up +4.19 YoY 
BBG Industrial metals ETF 
  • 135.29 down -0.60 w/w, up +23.89% YoY (108.00 - 149.10)
Commodity prices bottomed near the end of 2015. After briefly turning negative, metals also surged higher after the 2016 presidential election.  ECRI has been neutral for many months.  On the other hand, industrial metals have been strongly positive and recently made a new high.

 

Stock prices S&P 500

  • Up +2.4% w/w at 2727.72 
Stock prices are a neutral, having not made either a new 3 month high or low in the last three months.  They made a string of new all-time highs beginning in summer 2016.
 

Regional Fed New Orders Indexes

(*indicates report this week) (no reports this week)

  • Empire State down -7.8 to +9.0
  • Philly down -17.3 to +18.4
  • Richmond down -26 to -9
  • Kansas City up +38 to +37
  • Dallas up +19.6 to +27.9
  • Month over month rolling average: up +4 to +17
The regional average has been more volatile than the ISM manufacturing index, but has accurately forecast its month over month direction, and remains positive.

 

Employment metrics

 Initial jobless claims

  • 211,000 unchanged
  • 4 week average 216,000 down -5,500 (new 48 year low)

Initial claims have recently made several 40+ year lows and so are very positive. The YoY% change in these metrics had been decelerating but is now back on its multi-year pace. 

 

The American Staffing Association Index

  • Up +1 to 96 w/w
  • Up +2.1% YoY

This index was generally neutral from May through December 2016, and then positive with a few exceptions all during 2017. It was negative for over a month at the beginning of this year, but has returned to a positive.

 

Tax Withholding 

  • $182.2 B for the last 20 reporting days vs. $185.8 B one year ago, down -$3.6 B or -1.9%
  • 20 day rolling average adjusted for tax cut [+$4 B]: up +$0.4 B or +0.2%

With the exception of the month of August and late November, this was positive for almost all of 2017. It has generally been negative since the effects of the recent tax cuts started in February.

 

I have discontinued the intramonth metric for the remainder of this year, since the kludge to guesstimate the impact of the recent tax cuts makes it too noisy to be of real use.

I have been adjusting based on Treasury Dept. estimates of a decline of roughly $4 Billion over a 20 day period. Until we have YoY comparisons, we have to take this measure with a big grain of salt.

 

Oil prices and usage 

  • Oil up +$0.71 to $70.53 w/w,  up +41.8% YoY (new 3 year high intraweek)
  • Gas prices unchanged at $2.85 w/w, up $0.47 YoY 
  • Usage 4 week average unchanged YoY

 The price of gas bottomed over 2 years ago at $1.69.  With the exception of last July, prices generally went sideways with a slight increasing trend in 2017.  Usage turned negative in the first half of 2017, but has almost always been positive since then. Oil prices have now risen more than 40% YoY, and so as of last week they became a negative. I suspect we won't get a consumer reaction, however, unless and until gas goes over $3/gallon.

 

 Bank lending rates

 Both TED and LIBOR rose in 2016 to the point where both were usually negatives, with lots of fluctuation.  Of importance is that TED was above 0.50 before both the 2001 and 2008 recessions.  The TED spread was generally increasingly positive in 2017, while LIBOR was increasingly negative. This year the TED spread has also turned negative.

 

Consumer spending

  • Johnson Redbook up +4.2 YoY
  • Goldman Sachs Retail Economist +0.6% w/w, +3.8% YoY

 Both the Goldman Sachs and Johnson Redbook Indexes generally improved from weak to moderate or strong positives during 2017 and have remained positive this year.

 

Transport

Railroad transport

  • Carloads up +6.4 YoY
  • Intermodal units up +8.5% YoY
  • Total loads up +7.5% YoY

Shipping transport

Rail was generally positive since November 2016 and remained so during all of 2017 with the exception of a period during autumn when it was mixed. This year in January and February, carloads were usually negative, while intermodal (mainly imports) were positive. This resolved to positive.

Harpex made multi-year lows in early 2017, then improved, declined again, and then improved  yet again to recent highs. BDI traced a similar trajectory, and made 3 year highs near the end of 2017. Early this year it declined, but has reversed course again.  

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 

  • Up +1.4% w/w
  • Up +3.5% YoY

Steel production improved from negative to "less bad" to positive in 2016 and with the exception of early summer, remained generally positive in 2017. It turned negative in January and early February, but with the exception of one week has been positive since then.

 
 

SUMMARY: 

 

The was some further deterioration among the long leading indicators, but not enough to change any ratings. Purchase mortgage applications are again at a new four week average high for the expansion. The more leading Chicago Fed Financial Conditions Indexes and real estate loans also remain positives. The yield curve and Real M1 Treasuries are weak positives. Corporate bonds are neutral. Mortgage rates, refinance applications, and real M2 are all negative.

 

Among the short leading indicators, industrial metals, the regional Fed new orders indexes, spreads, financial leverage, the US$, jobless claims, staffing, and gas prices and usage all remain positive (spreads and gas prices very weakly so). Stock prices and the ECRI commodity index remain neutral. Oil prices have turned negative.

 

Among the coincident indicators, positives include consumer spending, Harpex, steel, and rail. The Baltic Dry Index is neutral. LIBOR and the TED spread remain negative. So is tax withholding, although that reading is very suspect.

 

Both the nowcast remains and the short term forecast remain positive. The long term forecast continues to deteriorate, but as of now remains weakly positive.

 

Have a nice weekend!

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