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By New_Deal_democrat April 21, 2018 9:00 am
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Weekly Indicators: manufacturing growth decelerates, mortgage applications accelerate addition
March data was all positive, including the Index of Leading Indicators, buoyed particularly by the interest rate spread and ISM new orders, and also included building permits and starts, retail sales, industrial production and capacity utilization.
 
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, and will telegraph the maintenance or change in the economy well before monthly or quarterly data is available.  They are also an excellent way to "mark your beliefs to market."
 
In general I go in order of long leading indicators, then short leading indicators, then coincident indicators.
 
NOTE that I include 12 month highs and lows in the data in parentheses to the right.

 

Interest rates and credit spreads

  • BAA corporate bond index 4.69% up +.07% w/w (1 yr range: 4.15 - 4.69)
  • 10 year treasury bonds 2.96% up +.14% w/w  (2.05 - 2.96) 
  • Credit spread 1.73% down -.10% w/w (1.56 - 2.30)
Yield curve, 10 year minus 2 year:
  • 0.50%, up +0.04% w/w (.46 - 1.30) (new expansion low)
30 year conventional mortgage rate
  • 4.58%, up +0.08% 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 up +6% w/w
  • Purchase apps up +10% YoY (close to expansion high) ***SEE BELOW
  • Refi up +4% w/w
 
Real Estate loans
  • Up +0.2% w/w 
  • Up +4.6% 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, frequently turning neutral (under 3%). They were negative one week ago before rebounding strongly this week. ***NOTE: The four week moving average of the absolute reading of purchase mortgage applications is at its highest for the entire expansion.

 

With the re-benchmarking of the last year, the growth rate of real estate loans has changed from neutral to positive.

 

Money supply

M1

  • +0.3% w/w 
  • -1.0% m/m 
  • +3.9% YoY Real M1 (1.9 - 6.9) 
M2
  • -0.1% w/w  
  • +0.2% m/m 
  • +1.4% 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.  If real M1 YoY growth falls  below 3.5%, and also turns negative on a 6 month basis, I will downgrade it to neutral, It's not there yet, but it is now a weak positive.

 

Credit conditions (from the Chicago Fed) 

 

  • Financial Conditions Index down -0.02 to -0.75
  • Adjusted Index (removing background economic conditions) unchanged at -0.47
  • Leverage subindex up +.01 to -0.52
The Chicago Fed's Adjusted Index's real break-even point is roughly -0.25.  In the leverage index, a negative number is good, a positive poor. The historical breakeven point has been -0.5 for the unadjusted Index. All three metrics presently show looseness and so are positives for the economy.
 

Trade weighted US$

  • Down -0.45 to 117.44 w/w -5.2% YoY (last week) (broad) (116.74 -128.62) 
  • Up +0.52 to 90.30 w/w, -9.7% 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 +1.48 to 111.84 w/w
  • Up +5.64 YoY 
BBG Industrial metals ETF 
  • 141.28 up +6.45 w/w, up +26.30% YoY (108.00 - 149.10)
Commodity prices bottomed near the end of 2015. After briefly turning negative, metals also surged higher after the 2016 presidential election.  ECRI has decelerated enough to become neutral.  On the other hand, industrial metals have been strongly positive and recently made a new high.

 

Stock prices S&P 500

  • Up +0.5% w/w to 2670.14 
Despite coming close in recent selloffs, stock prices did not make a new 3 month low and so remain positive, If there is no new 3 month high by the end of April, this will change. They made a string of new all-time highs beginning in summer 2016.
 

Regional Fed New Orders Indexes

(*indicates report this week)

  • *Empire State down -7.8 to +9.0
  • *Philly down -17.3 to +18.4
  • Richmond down -10 to +17
  • Kansas City down -17 to -1
  • Dallas down -17 to +8.3
  • Month over month rolling average: down -6 to +10
The regional average has been more volatile than the ISM manufacturing index, but has accurately forecast its month over month direction, and remains positive. All five of the surveys have declined steeply in their last readings, enough so that I am downgrading manufacturing to a weak positive.

 

Employment metrics

 Initial jobless claims

  • 232,000 down -1,000 
  • 4 week average 231,250 up +1,250 

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

  • Up +1 to 95 w/w
  • Up +1.4% 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 

  • $186.2 B for the last 20 reporting days vs. $190.3 B one year ago, down -$4.1 B or -2.2%
  • 20 day rolling average adjusted for tax cut [+$4 B]: down -$0.1 B or -0.1%

With the exception of the month of August and late November, this was positive for almost all of 2017. Except for the last three 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.

I have been adjusting based on Treasury Dept. estimates of a decline of roughly $4 Billion over a 20 day period. 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. This week the Treasury Dept. also changed the way it accounts for corporate tax repatriations. In any event, until we have YoY comparisons, we have to take this measure with a big grain of salt.

 

Oil prices and usage 

  • Oil up +$0.73 to $68.10 w/w,  up +26.7% YoY 
  • Gas prices up +$0.05 to $2.74 w/w, up $0.31 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 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. I will not score oil prices negative unless they rise more than 40% YoY.

 

 Bank lending rates

 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. The TED spread has now also turned negative.

 

Consumer spending

  • Johnson Redbook up +3.0 YoY
  • Goldman Sachs Retail Economist +0.3% w/w, +3.8% 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 +1.6% YoY
  • Intermodal units up +6.9% YoY
  • Total loads up +4.3% YoY

Shipping transport

  • Harpex unchanged at 646 (440 - 646) (tied for new 3 year high)
  • Baltic Dry Index up +145 to 1124 (~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, 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 

  • Up -1.2% w/w
  • Up +3.7% 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 has been positive since then.

 
 

SUMMARY: 

 

Among the long leading indicators, corporate bond yields have fluctuated at the edge of being weakly positive vs. neutral, as they were this week. The yield curve became (slightly) more weakly positive this week, as did Real M1. Purchase mortgage applications rebounded sharply to a new four week average high for the expansion. The more leading Chicago Fed Financial Conditions Indexes and real estate loans all remain positives. 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, although the Fed indexes have slowed to weak positives. Oil prices and the ECRI commodity index remain neutral.

 

Among the coincident indicators, positives include consumer spending, Harpex, rail and steel. LIBOR and the TED spread remain negative, joined this week again by tax withholding. The Baltic Dry Index has turned neutral.

 

The nowcast remains positive. The slowdown in the Fed indexes argues that the short term forecast is decelerating from a strong positive.  The long term forecast keeps tiptoeing towards neutrality, but as of now remains weakly positive, with housing (exemplified by the new high in purchase mortgage applications) being the chief reason for continued positivity. 

 

Have a nice weekend!

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