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By New_Deal_democrat August 9, 2014 10:34 am
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Weekly Indicators: lazy dog days of August editioin

In the rear view mirror, 2Q productivity increased, but only reversed part of its Q1 decline. Unit labor costs were slightly higher, and Q1 unit labor costs were revised substantially higher.  June factory orders increased. July's ISM services index rose strongly to nearly a decade high.

 

The high frequency weekly indicators 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 to mark one's opinions to market on a regular basis.

 

Let's start again with employment metrics:

 

Employment metrics

 Initial jobless claims

  • 289,000 down -13,000
  • 4 week average 293,500 down -3,750

The 4 week average both made a new post-recession low, and a new 8 year low.These have been in the normal range for an economic expansion for 3+ months.

 

The American Staffing Association Index was up +1 to 99.  It is up +3.42%YoY.

 

This Index was slightly below its all-time high for this week. The YoY comparison has been positive to strongly positive since early spring.

 

Tax Withholding

  • $154.7 B for the last 20 days ending Thursday vs. $146.1 B for 20 days ending Thursday 1 year ago, up +$8.6 B or +5.9%.

 

After July's tax withholding turned negative, it was beginning to be a significant ground for concern.  This week saw a return to a regular reasonably strong positive number.

 

Oil prices and usage

  • Oil down -0.23 to $97.65 w/w
  • Gas down -$.02 at $3.52 w/w
  • Usage 4 week average YoY +0.3%

 

 

The price of gas has declined significantly in the last month.  It is below its prices of 1, 2, and 3 years ago.  The Oil choke collar has disengaged.

 

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%.  Gallup has now been weakly positive or negative YoY for about 3 months.

 

Steel production from the American Iron and Steel Institute 

  • -1.0% w/w
  • +2.4% 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 have turned positive since then.

 

Transport

 Railroad transport from the AAR

  •  carloads up +5.6% YoY
  •  +6.0% intermodal units
  •  +5.8% YoY total loads

Shipping transport

Rail traffic has been strong since early spring, but less so this week. The BDI has declined substantially since the end of last year. Harpex tends to correlate with intermodal traffic, and has been more positive, although it has declined slightly in the last few weeks.  In the longer term, shipping rates bottomed about 2 years ago and have been in a slow and variable uptrend since.

 

Interest rates and credit spreads

  • 4.72% BAA corporate bonds up +0.04%
  • 2.53% 10 year treasury bonds up +0.04%
  • 2.19% 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.  This year interest rates have declined since January, and for awhile this week, were under 2.5%. Spreads have widened slightly since their expansion lows of a few months ago.

 

Housing metrics

Mortgage applications from the Mortgage Bankers Association:

  • w/w purchase applications up +1%
  • YoY purchase applications down -14%
  • w/w refinance applications up +4%

Both refinance applications and purchase applications have flattened out near their recent post-recession lows. Recently applications appear to have been particularly sensitive to small changes in interest rates.

 

Housing prices

  • YoY this week +9.2% (75th percentile up +5.7% YoY)

Housing prices bottomed in November 2011 on Housing Tracker, and YoY comparisons rose to just shy of +12% in late 2013.  The comparison has fallen below +10% since early June.  High end housing prices, which were a harbinger of the top of the housing bubble a decade ago, and were as high as ~+8% YoY earlier this year, suggest a turn is again near.  The sharp YoY increase in prices in 2013 and early 2014 may have actually been a negative. 

 

Real estate loans, from the FRB H8 report:

  • unchanged w/w
  • +2.3% YoY
  • +5.6% from their bottom

Loans turned up at the end of 2011, but with higher interest rates, the comparisons rolled over and had been negative since April 2013.  They turned positive YoY in March 2014, and have remained positive to sharply positive since.

 

Money supply

M1 

  • -.3% w/w
  • +1.3% m/m
  • +9.4% YoY Real M1

 M2 

  • +0.3% w/w
  • +0.7% 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 since.

 

Bank lending rates

LIBOR has risen slightly from its post-recession low set in May. 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 -0.25 to 130.25 w/w
  • +5.24 YoY 
Strong commodity price gains come in a strong economy.
 

Summary:  There was no big change this week.  All of the long leading indicators,  excepting mortgage applications, were positive, including money supply, bank lending rates, real estate loans, corporate and treasury bonds.

 

The short leading indicators also all positive.  The 4 week average for Initial jobless claims is at a decade+ low. Credit spreads have widened slightly in the last few months but remain near their post-recession low. Temporary jobs were again close to their seasonal all-time high.  Commodities were positive. The Oil choke collar has seasonally disengaged. Housing prices still appear to be at or near an interim peak.

 

The coincident indicators were mixed.  Two measures of consumer spending was positive, but Gallup has turned negative again.  Steel production was positive, as was rail traffic although less so than recently. Shipping has declined recently but has stabilized.

 

Growth for the rest of 2014, and early 2015, looks intact.   But weakness in the housing market evident in the first part of this year may be spreading into the rest of the economy, suggesting that growth will slow down.

 

Have a nice weekend!

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