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By New_Deal_democrat June 14, 2014 9:27 am
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Weekly Indicators: Iraq insurgency engages the Oil choke collar edition

There was little monthly data for May released this week.  Retail sales rose, and April's surge in retail sales was revised to be even stronger.  Producer prices fell.  Import and export prices were flat.  Business and wholesale inventories rose.  Consumer sentiment was down slightly.

 

My weekly report on the high frequency weekly indicators is meant to 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 for you and me to mark our opinions to market on a regular basis.  With just a few weeks left in the second quarter, GDP estimates between +3% and +4% are the norm, but if you've been reading my weekly updates, you've seen the strong GDP number developing in real time.

 

The important move this week was the price of Oil, so let's start there:

 

Oil prices and usage

  • Oil up +$4.35 to $106.91 w/w
  • Gas down -$.02 at $3.67 w/w
  • Usage 4 week average YoY up +2.8%

 

The price of gas has been flat for nearly two months.  It is at or below its price of 1, 2, and 3 years ago.  The 4 week average for gas usage was again positive this week.  HOWEVER, oil prices spiked this week to the highest in a year on the Sunni and Kurdish insurgencies that possibly herald the virtual breakup of Iraq.  This will beed through to gas at the pump in the next  few weeks.  The Oil choke collar is re-engaging, and if Iraq falls apart, or if its oil exports are disrupted, there will be economic consequences here.

 

Employment metrics

 Initial jobless claims

  • 317,000 up +5,000
  • 4 week average 315,250 up +5,000

Despite the uptick this week, both initial claims and the 4 week average both remain near post-recession lows.

 

The American Staffing Association Index was unchanged at 96.It is up +3.99% YoY.

 

This Index remained close to its all-time high for this week. The YoY comparison faded in February but since then has stabilized and then rallied.

 

Tax Withholding 

  • $74.1 B for the first 9 days of June vs. $70.1 B last year, up +$3.4 B or +4.8%
  • $156.8 B for the last 20 days ending Thursday vs. $146.5 B for 20 days ending Thursday 1 year ago, up +$10.3 B or +7.0%.

 

April was relatively poor and spilled over into May, but has rallied in the last several weeks. 

 

Consumer spending

Gallup's 14 day average of consumer spending averaged between $80 and $100 for most of 2013, with frequent YoY comparisons over $20, and few less than +$10.  In 2013 the YoY range for the ICSC declined to between +1.5% and +3.0%, while Johnson Redbook YoY was between from +2% to a high over +4%.  While the ICSC and JR measures were again very positive, Gallup suddenly declined this week from an exceptionally strong several prior weeks, and may just be payback for those.

 

Steel production from the American Iron and Steel Institute 

  • -2.6% w/w
  • +1.2% YoY

Steel production over the last several years has generally been in a decelerating uptrend.  After a strongly positive move late in 2013, YoY comparisons turned negative again from January through early May, but has turned positive again in the last month. 

 

Transport

 Railroad transport from the AAR 

  • +20,500 carloads up 5.3% YoY
  • +11,800 carloads up 6.9% ex-coal
  • +17,200 or +6.8% intermodal units
  • +31,900 or +6.0% YoY total loads

Shipping transport

Rail transport ended 2013 on a very positive note.  After a volatile winter, it rebounded sharply in spring, with another strong week this week.  The Harpex index slowly rose, then stabilized, then slowly declined after July 2013, before rebounding to a new 1 year plus high in the last month. The Baltic Dry Index made a new 3 year high in December 2013, has more or less fluctuated since.  Both the Baltic Dry Index and the Harpex Index were in a range near their bottom for about 2 years, but rose significantly above those ranges beginning in 2013.

 

Interest rates and credit spreads

  • 4.82% BAA corporate bonds up +0.12%
  • 2.59% 10 year treasury bonds up +0.12%
  • 2.23% credit spread between corporates and treasuries unchanged

Interest rates for corporate bonds made a low of 4.46% in November 2012. Treasuries fell to a possible once-in-a-lifetime low of 1.47% in July 2012, but rose over 1.6% above that mark in late 2013.  Yields declined significantly since the beginning of January, and this week remained at the bottom of that range. Treasuries hit a one year low a couple of weeks ago, and are still close to that low.

Housing metrics

Mortgage applications from the Mortgage Bankers Association:

  • w/w purchase applications up +9%
  • YoY purchase applications down -13%
  • w/w refinance applications up +11%

Both refinance applications and purchase applications are still near their recent post-recession lows, but as expected have begun to have less awful YoY comparisons now. With lower interest rates, the refinance index has rebounded sharply from recent lows on a percentage, but not absolute, basis.

 

Housing prices

  • YoY this week +11.8%

Housing prices bottomed in November 2011 on Housing Tracker, and YoY comparisons rose to just shy of +12% in late 2013, and has remained above +10% YoY all during 2014.  The still sharp YoY increase in prices, which are now roughly halfway between their 2006 peak and 2012 trough, might actually be a negative, given higher mortgage rates. 

Real estate loans, from the FRB H8 report:

  • Unchanged% w/w
  • +1.3% YoY
  • +4.6% from their bottom

Loans turned up at the end of 2011, but with higher interest rates, the comparisons rolled over and had been almost consistently negative since April 2013, but have turned positive YoY since March.

 

Money supply

M1 

  • +2.1% w/w
  • +0.4% m/m
  • +7.8% YoY Real M1

 M2 

  • +0.1% w/w
  • +0.6% m/m
  • +4.6% YoY Real M2

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 this year.  Both Real M1 and Real M2 improved substantially and their growth rate has recently  stabilized.

 

Bank lending rates

LIBOR is slightly off its post-recession low. The TED spread has been trending slightly upward since November of last year, although it is still lower on a YoY basis.

 

JoC ECRI Commodity prices

  • Down -0.33 to 128.27 w/w
  • +3.90 YoY 

There are less than three weeks to go in the 2nd quarter, and the Spring spring has continued. The only persistent significant negative remains mortgage applications.   The spike in the price of Oil, however, is significant.  If it continues or intensifies, it will negatively impact the economy.

 

As to the long leading indicators, money supply continued positive.  Bank lending rates remain low.  Real estate loans maintained their recent positive bias. Only mortgage applications remained negative (and housing prices, while positive, may have overshot at this point).  The slight fade in treasury interest rates this year suggests short term weakness, but are a longer term positive. especially since corporates have also declined.

 

The short leading indicators, ex-oil, have a positive bias.  Initial jobless claims rose but were still good,and the 4 week average was near its expansion low. Credit spreads remained near their post-recession low. Temporary jobs remain near their seasonal all-time high.  Commodities were positive. The engaging of the Oil choke collar is a big negative, depending on how long it lasts.

 

The coincident reports were also generally positive.  Consumer spending was generally positive, and I am inclined to disregard the one week fall in Gallup as payback for two exceptionally strong weeks, but will of course watch it next week.  Rail transport is still strongly positive. Steel production was also positive.  Shipping was mixed. Tax withholding has returned to positive territory.

 

This week serves as a reminder that non-economic events can affect the numbers.  Aside from the events in Iraq, we continue to have a strong positive trend heading into summer.   But the world's most vital modern resource is located in the world's most incendiary region.  The Iraq insurgency could wind up being a blip, or could wind up being big.  We'll just have to wait and see.

 

Have a nice weekend!

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