Interest rates and credit spreads
- BAA corporate bond index 4.94% up +.11% w/w (1 yr range: 4.15 - 4.94) (new 52 week high)
- 10 year treasury bonds 3.06% up +.09% w/w (2.05 - 3.11) (new 7 year high intraweek)
- Credit spread 1.88% up +.02% w/w (1.56 - 2.30)
- 0.51%, up +0.08% w/w (0.43 - 1.30)
- 4.78%, up +0.13% w/w (3.84 - 4.79) (new 5 year high intraweek)
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 spread between corporate bonds and treasuries has now gone above 1.85%, and so I have switched it from positive to neutral. The only remaining positive is the yield curve.
Housing
Mortgage applications
- Purchase apps down -2% to 252 w/w
- Purchase apps 4 week avg. down -2 to 258
- Purchase apps YoY up +4%, 4 week YoY avg. +3%
- Refi app down -4% w/w
- Down -0.2% w/w
- Up +4.0% 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 they made new expansion highs in the 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
- -1.8% w/w
- +0.1% m/m
- Unchanged Real M1 last 6 months
- +1.9% YoY Real M1 (1.9 - 6.9) (tied for multiyear low)
- +0.1% w/w
- +0.2% m/m
- +1.2% YoY Real M2 (0.9 - 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. Real M1 growth this week fell below 3.5% YoY, and is also no longer positive on a 6 month basis. I have thus also downgraded it to neutral. It is worth noting that on a rolling 2 or 4 week basis, it is still positive, so I expect some whipsawing -- but the trend seems clear.
Credit conditions (from the Chicago Fed)
- Financial Conditions Index down -0.02 to -0.81
- Adjusted Index (removing background economic conditions) down -.03 at -0.55
- Leverage subindex up +.02 to -0.49
Trade weighted US$
- Down -0.01 to 120.61 w/w -2.5% YoY (last week) (broad) (116.42 -128.62)
- Up +1.11 to 93.66 w/w, -3.56% 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 -0.22 to 109.39 w/w
- Up +4.13 YoY
- 135.64 up +0.35 w/w, up +23.50% YoY (108.00 - 149.10)
Stock prices S&P 500
- Down -0.5% w/w at 2712.97
Regional Fed New Orders Indexes
(*indicates report this week)
- *Empire State up +7.0 to +16.0
- *Philly up +22.2 to +40.6
- Richmond down -26 to -9
- Kansas City up +38 to +37
- Dallas up +19.6 to +27.9
- Month over month rolling average: up +6 to +23
Employment metrics
Initial jobless claims
- 222,000 up +11,000
- 4 week average 213,250 down -2,750 (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
- Unchanged at 96 w/w
- Up +2.6% 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
- $175.2 B for the last 20 reporting days vs. $179.2 B one year ago, down -$4.0 B or -2.2%
- 20 day rolling average adjusted for tax cut [+$4 B]: Unchanged
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 up +$0.86 to $71.39 w/w, up +41.9% YoY (new 3 year high intraweek)
- Gas prices up +$.02 to $2.87 w/w, up $0.40 YoY
- Usage 4 week average up +0.7% 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 have become a negative. I suspect we won't get a consumer reaction, however, unless and until gas goes over $3/gallon.
Bank lending rates
- 0.468 TED spread down -0.042 w/w
- 1.950 LIBOR up +0.030 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. This year the TED spread has also turned negative, but this week it returned to being a positive.
Consumer spending
- Johnson Redbook up +4.9 YoY
- Goldman Sachs Retail Economist -0.8% w/w, +4.1% 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 +5.3 YoY
- Intermodal units up +6.3% YoY
- Total loads up +5.8% YoY
Shipping transport
- Harpex up +3 to 657 (440 - 657) (new 6 year high)
- Baltic Dry Index down -62 to 1403 (~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 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
- Down -1.8% w/w
- Up +1.7% 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 still more deterioration among the long leading indicators this week. Remaining positives include purchase mortgage applications, the more leading Chicago Fed Financial Conditions Indexes, and real estate loans. Corporate bonds are neutral, joined this week by Real M1. Mortgage rates, Treasuries, refinance applications, and real M2 are all negative.
Among the short leading indicators, industrial metals, the regional Fed new orders indexes, financial leverage, the US$, jobless claims, staffing, and gas prices and usage all remain positive (gas prices very weakly so). Stock prices and the ECRI commodity index remain neutral, joined this week by the spread between corporate and Treasury bonds. Oil prices have turned negative.
Among the coincident indicators, positives include consumer spending, Harpex, steel, and rail, joined this week by the TED spread. The Baltic Dry Index is neutral, joined this week by tax withholding. LIBOR remains negative.
Both the nowcast remains and the short term forecast remain positive.
The long term forecast has deteriorated further, with interest rates and money supply now both generally negative. Only the continued strength in housing and credit are keeping me from switching this from positive to neutral or even negative.
Have a nice weekend!
