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.
A special note: most of these indicators are not seasonally adjusted, and are reported as YoY% changes. Since this will miss turning points if you wait for the YoY comparison to turn negative/positive, my rule of thumb for a non-seasonally adjusted series is that it has reached a turning point when the YoY% change is less than 1/2 of its maximum. That is particularly important now.
In general I go in order of long leading indicators, then short leading indicators, then coincident indicators.
Interest rates and credit spreads
- 5.26% BAA corporate bonds down -.14%
- 1.63% 10 year treasury bonds down -.21%
- 3.63% credit spread between corporates and treasuries up +.07%
- 3.66%, down -.10% (was at 3.55% Thursday, only 0.25% above all-time 2013 lows)
With the exception of BAA corporate bonds yields, which made a new 50+ year low in January 2015, yields for corporate bonds, treasuries, and mortgages have all failed to make new lows in 3 years, thus turning yellow (caution or neutral vs. positive) as a recession indicator -- although treasuries and mortgage rates both came very close to new all-time lows this week, and thus are strong positives. Spreads remain very negative.
Housing
Mortgage applications
- purchase applications up +0.2%% w/w
- purchase applications up +25% YoY
- refinance applications up +16% w/w
- +0.1% w/w
- +7.3% YoY
Mortgage applications had been awful for several years, before turning up early last year in response to very low rates.
Real estate loans have been firmly positive for two years.
Money supply
M1
- -0.7% w/w
- -1.3% m/m
- +3.2% YoY Real M1
- Unchanged w/w
- +1.3% m/m
- +5.3% YoY Real M2
Real YoY money supply remains firmly positive, although it moderated a little in recent months, and moderated some more this week.
Trade weighted US$
- Down -1.22 to 124.11 w/w, up +8.6% YoY (Broad)
- Down -0.97 to 95.98 w/w, up +1.9% YoY (major currencies)
The Broad measure is reported by the FRB on Mondays and so is delayed one week. Bloomberg's spot price against major currencies is accurate as of Friday. The US$ appreciated about 20% between 12 and 18 months ago. In 2015 the broad measure continued to appreciate, but at a relatively more moderate trend, while against major currencies is has been flat since March 2016. l consider a YoY change of 5% or higher a negative. The broad measure is still strongly negative, although this week it fell further below 10% for the first time in well over a year. Against major currencies it is approaching parity, so has become a neutral.
Commodity prices
JoC ECRI
- Down -1.38 to 80.44 w/w
- Down -21.65 YoY
- 87.55 down -1.66 w/w
Employment metrics
Initial jobless claims
- 269,000 down -16,000
- 4 week average 281,250 down -3,500
Initial claims remain well within the range of a normal economic expansion, as does the 4 week average, although there has been some weakening since the beginning of the year.
The American Staffing Association Index
- Unchanged at 94 w/w
- Down -3.19 YoY
Since last spring, the YoY comparison turned neutral and then increasingly negative, although in the last month it has become "less worse." I would need this series to be -2.15% YoY or less for me to believe it has bottomed.
Tax Withholding
- $86.9 B for the first 9 days of February vs. $85.5 B one year ago, up +$1.4 B or +1.6%
- $188.1 B for the last 20 reporting days ending Thursday vs. $184.0 B one year ago, up $4.1 B or +2.2%
Beginning with the last half of 2014, virtually all readings were positive, but turned more mixed and choppy in August and September. In general they have remained positive, but a little more weakly so, in the last four months. I would need this series on the 20 day basis to decline to less than +2% YoY for me to think it has reached a turning point.
- Oil down -$1.81 to $29.16 w/w
- Gas prices down -$.06 to $1.76 w/w
- Usage 4 week average up +2.6% YoY
The price of gas and oil bottomed at the end of January 2015 at $2.02. It broke through that bottom 4 weeks ago. Usage turned negative for five weeks, but has returned to positive.
Bank lending rates
- 0.340 TED spread unchanged w/w
- 0.430 LIBOR unchanged w/w
Both TED and LIBOR were already rising since the beginning of last year to the point where both have usually been negatives, although there were some wild fluctuations. Both TED and LIBOR were at or near 5 year highs in the past several months, but TED has improved considerably in the last several weeks.
Consumer spending
- Johnson Redbook up +0.6% YoY
- Goldman Sachs down -2.6% w/w, up +2.9% YoY
- Gallup daily consumer spending 14 day average $82, up +$2 YoY
Both the Goldman Sachs and Johnson Redbook Indexes progressively weakened in pulses during 2015, before improving somewhat since the beginning of November. Gallup turned positive for 7 weeks, before falling off a cliff for 5 days after the big Northeastern blizzard three weekends ago. It has now returned to being positive also. Because Gallup includes gas purchases, the fact that it turned positive strongly suggests that consumers have started to spend some of their gas savings on other things.
Transport
Railroad transport
- Carloads down -11.7% YoY
- loads ex-coal down -3.5% YoY
- Intermodal units up +10.5% YoY
- Total loads down -1.4% YoY
Shipping transport
- Harpex unchanged at 364 (just above 3 year low)
- Baltic Dry Index down -8 to 290
Rail traffic turned negative and then progressively worse in pulses throughout 2015. While intermodal traffic quickly turned positive, domestic carloads, led by coal (for export) continued to deteriorate. These remain recessionary readings, but may signify that new orders for goods have turned down significantly, which is bad except insofar as it may mean the beginning of inventory liquidation. Rail loads have become much "less worse," but I need carloads to be less than -10% off YoY for me to believe rail has bottomed.
After rising briskly last spring, both the BDI and Harpex declined again to new multi-year lows. Harpex has bottomed. BDI is still sliding.
Steel production
- Up +1.7% w/w
- Down -1.2% YoY
Until spring 2014, steel production had generally been in a decelerating uptrend. It then gradually rolled over and has gotten progressively worse in pulses since. Four weeks ago was the worst yet, but since then these too have gotten "less worse." If steel production remains less than -4% off YoY, that will cause me to think it has made a bottom.
SUMMARY:
Among long leading indicators, interest rates for corporate bonds are neutral, while treasuries, money supply, real estate loans, mortgage applications, and mortgage rates are positive. In fact, mortgage rates and applications are now strongly positive.
Among short leading indicators, the interest rate spread between corporates and treasuries got even more negative. Jobless claims remain positive. Oil and gas prices remain very positive, while usage, which was negative for 5 weeks, turned positive. Commodities remain a big global negative, although they appear "less worse" on a YoY basis. The big story this week, however, was that the US$ as against major currencies turned from negative to neutral. The broad US$ remains quite negative, but is also rapidly becoming "less worse."
Among coincident indicators, steel production, shipping, staffing, and rail transport all remain negative, but all of these except for shipping have turned much "less bad. " Consumer spending remains positive.
It is a little over one year since the downturn in coincident indicators began. The bifurcation of decent consumer economy, poor industrial economy remains. Yesterday retail sales confirmed what the weekly consumer spending measures have shown: the US consumer is alright. Meanwhile heightened inventory to sales ratios show that producers and sellers as a whole have a backlog to be worked off. But the big news is that the majority of coincident indicators have become significantly "less worse," although none enough so for me to declare that they have bottomed.
The big release I am watching this week is industrial production. I am expecting it to be negative. The question will be whether the decline remains limited to mining and utilities, or whether it spreads to manufacturing production, which so far has not declined.
Have a nice weekend!
