March data started out with a weakly positive jobs gain and a flat unemployment rate. Wages improved overall, but did not gain YoY for non-managerial workers. Motor vehicle sales improved. Both ISM manufacturing and services indexes decelerated but remained strongly positive.
Interest rates and credit spreads
- BAA corporate bond index 4.67% up +.04% w/w (1 yr range: 4.15 - 4.90)
- 10 year treasury bonds 2.77% up +03% w/w (2.05 - 2.93)
- Credit spread 1.90% up +.01% w/w (1.56 - 2.30)
- 0.50%, up +0.03% w/w (.47 - 1.30) (new expansion low)
- 4.49%, down -0.02% w/w (3.84 - 4.58)
BAA Corporate bonds rose back above 4.65%, and so are neutral again. 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.
Housing
Mortgage applications
- Purchase apps down -2% w/w
- Purchase apps up +5% YoY
- Refi down -5% w/w
- Unchanged w/w
- Up +4.5% 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 in late December, turning neutral and briefly even negative. They were less than +3% YoY for two weeks, and thus neutral, before rebounding to positive for the last month.
With the re-benchmarking of the last year, the growth rate of real estate loans has changed from neutral to positive.
Money supply
M1
- Unchanged w/w
- +1.1% m/m
- +4.0% YoY Real M1 (3.7 - 6.9)
- +0.3% w/w
- +0.2% m/m
- +1.6% YoY Real M2 (1.4 - 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.
Should real M1 YoY growth fall below 3.5% and turn negative on a 6 month basis, I will downgrade it to neutral, but as of now it remains positive.
Credit conditions (from the Chicago Fed)
- Financial Conditions Index up +0.01 to -0.74
- Adjusted Index (removing background economic conditions) up +0.02 to -0.48
- Leverage subindex up +0.01 to -0.53
Trade weighted US$
- Down -0.35 to 117.57 w/w -5.3% YoY (last week) (broad) (116.74 -128.62)
- Up +0.10 to 90.11 w/w, -10.9% 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
- Up +0.72 to 110.06 w/w
- Up +1.63 YoY
- 130.16 up +0.78 w/w, up +12.39% YoY (108.00 - 140.86)
Stock prices S&P 500
- Down -1.4% w/w to 2604.47
Regional Fed New Orders Indexes
(*indicates report this week) (no reports this week)
- Empire State up +3.3 to +16.8
- Philly up +11.2 to +35.7
- Richmond down -10 to +17
- Kansas City down -17 to -1
- Dallas down -17 to +8.3
- Month over month rolling average: down -5 to +16
Employment metrics
Initial jobless claims
- 242,000 up +27,000
- 4 week average 227,250 up +3,750
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
- Unchanged at 94 w/w
- Up +1.6% 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
- $206.8 B for the last 20 reporting days vs. $205.6 B one year ago, up +$0.2 B or +0.1%
- 20 day rolling average adjusted for tax cut [+$4 B]: up +$2.2 B or +2.1%
With the exception of the month of August and late November, this was positive for almost all of 2017. Except for the last two weeks, 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.
NOTE: Matt Trivisonno of the Daily Jobs Update:
http://www.dailyjobsupdate.com/public/tax-cut-adjustments
has calculated that the recent tax law most likely took about a 7.4% bite out of tax collections. For now, based on Treasury Dept. estimates of a decline of roughly $4 Billion over a 20 day period, I am using that for a temporary adjustment, during which we have to take this measure with a big grain of salt.
- Oil down -$3.03 to $61.88 w/w, up +19.7% YoY
- Gas prices up +$0.05 to $2.70 w/w, up $0.34 YoY
- Usage 4 week average up +0.4% YoY
The price of gas bottomed over 2 years ago at $1.69. With the exception of 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.
Bank lending rates
- 0.656 TED spread up +0.014 w/w (new 2 year high)
- 1.900 LIBOR up +0.002 w/w
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. In the past few weeks the TED spread returned to being a negative.
Consumer spending
- Johnson Redbook up +4.4 YoY
- Goldman Sachs Retail Economist -1.9% w/w, +3.4% 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 +2.8% YoY
- Intermodal units up +2.8% YoY
- Total loads up +2.8% YoY
Shipping transport
- Harpex up +48 to 646 (440 - 646) (new 3 year high)
- Baltic Dry Index down -103 to 977 (~700 - `1700)
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 has now 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, although it has since declined 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
- Down -1.6% 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 has been positive since then.
SUMMARY:
Among the long leading indicators, corporate bond yields have returned to neutral. The yield curve remains positive if more weakly so, as are purchase mortgage applications, Real M1, the more leading Chicago Fed Financial Conditions Indexes, and real estate loans. Treasuries, 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, stocks, staffing, and gas prices and usage all remain positive. Oil prices and the ECRI commodity index are neutral.
Among the coincident indicators, positives include consumer spending, Harpex, rail and steel. and adjusted tax withholding. LIBOR and the TED spread remain negative. The Baltic Dry Index has declined enough to turn neutral.
Both the nowcast and the short term forecast remain very positive. The long term forecast also remains weakly positive.
Have a nice weekend!
