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By New_Deal_democrat October 4, 2014 9:31 am
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Weekly Indicators: more deceleration edition

Monthly data for September started out with a strong jobs report, and declining unemployment, but flat wages.  Motor vehicle sales declined from August.  ISM manufacturing and services both declined, but were still quite positive. Consumer confidence declined. August data included positive personal income and spending, but negative construction spending and factory orders.

 

My usual reminder that 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 with housing again: 

 

Housing metrics

 

Home Sales and Prices from DataQuick:

 

  •  -1.8% sales YoY, up +0.7% (1 month rolling average) 
  •  +3.3% prices YoY, unchanged (1 month rolling average) 
YoY sales have been negative for some time, but his week was the best YoY comparison in sales for the last 7 weeks, while YoY median price comparison has been stable.
 

Mortgage applications from the Mortgage Bankers Association:

  • w/w purchase applications up +1.3%
  • YoY purchase applications down -11%
  • w/w refinance applications down  -0.3%

Both refinance applications and purchase applications have flattened out near their recent post-recession lows. The only real change this week is the "less bad" YoY purchase mortgage readings reversed.

 

Real estate loans, from the FRB H8 report:

  • +0.4% w/w
  • +3.0% YoY
  • +6.0% 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.  These should be read as including commercial loans, which unlike home mortgage loans do not lead.

 

Interest rates and credit spreads

  • 4.82% BAA corporate bonds down -0.07%
  • 2.55% 10 year treasury bonds down -0.06%
  • 2.27% credit spread between corporates and treasuries down -0.01%

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 to over 3% in late 2013.  This year interest rates declined over .6%, or about 40% of that increase.  In the last several weeks they increased significantly (although they fell during this week after the above report).  Spreads have risen slightly since their expansion lows of a few months ago.

 

Money supply

M1 

  • -1.1% w/w
  • +2.7% m/m
  • +9.7% YoY Real M1

 M2 

  • -0.1% w/w
  • +0.2% m/m
  • +4.9% YoY Real M2

At the time of the last flight to safety (from Europe) 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.  With some variation, both Real M1 and Real M2 improved substantially since.

 

Employment metrics

 Initial jobless claims

  • 287,000 down -6,000
  • 4 week average 294,750 down -3,750

These have been in the normal range for an economic expansion for 6 months.  The 4 week average is only 500 above its post-recession low.

 

The American Staffing Association Index was up +1 to 104.  It is up +3.03%YoY.

 

This Index was just below its 2007 seasonal all-time high for this week. The YoY comparison has generally been positive to strongly positive since early spring.

 

Tax Withholding

  • $170.6 B for the month of September vs. $160.4 B one year ago, up +$10.2 B or +6.4%.
  • $154.2 B for the last 20 days ending Thursday vs. $148.5 B for 20 days ending Thursday 1 year ago, up $5.7 B or +3.8%.

 

After July's tax withholding turned negative, it was beginning to be a significant ground for concern.  August saw a return to a regular positive number, which with the exception of one week, continued through September.

 

Oil prices and usage

  • Oil down -$3.80 to $93.54 w/w
  • Gas unchanged at $3.35 w/w
  • Usage 4 week average YoY -0.7%

 

 

The price of gas has declined seasonally in the last 7 weeks.  It remains below its prices of 1, 2, and 3 years ago.  The Oil choke collar has disengaged, and gas is already near its annual lows for 2011 and 2012.

 

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%. Redbook and the ICSC surveys remain quite positive, but Gallup turned negative YoY again in early August, before recovering into weak positive territory throughout September.

 

Steel production from the American Iron and Steel Institute 

  • -2.4% w/w
  • -1.5% 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 then turned increasingly positive through August.  In the last several weeks, they became more weakly positive, and this week turned negative.

 

Transport

 Railroad transport from the AAR

  • +4,800 carloads up +1.6% YoY
  • +1,800 carloads ex-coal up +1.0% YoY
  • +5,400 intermodal units +2.0% YoY
  • +10,200 total loads +1.8% YoY

Shipping transport

Rail traffic had been generally strong since early spring, but this week saw it barely positive YoY.  If there were a seasonal adjustment to the rail data, I suspect we would see that it turned negative this week.  The BDI declined substantially since the end of last year, then made a 5 month high last month. Harpex has been generally flat for the last few months up until last week.  It is now at a 2 year high.  In the longer term, shipping rates bottomed about 2 years ago and have been in a slow and variable uptrend since.

 

Bank lending rates

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

 

JoC ECRI Commodity prices

  • Down -1.17 to 123.00 w/w
  • -0.25 YoY 
Strong commodity price gains come in a strong economy. These continued to decline further this week, turning YoY negative, partly due to oil, and partly due to international weakness.
 

SUMMARY:

Among the long leading indicators,  corporate bond yields improved, and money supply, bank lending rates, and real estate loans remain quite positive. Mortgage applications returned to being "less bad" this week, although they remain near post-recession lows. Home sales were also less negative.

 

The short leading indicators were generally positive, with one big exception.  Jobless claims fell and the 4 week average is near its post-recession low. Credit spreads have recently widened, but are still near their post-recession low. Temporary jobs are strongly positive.  The Oil choke collar has seasonally disengaged, and may be pointing to a new 3 year low. Housing prices are still mildly positive.  The exception is commodity prices, indicating a falloff in global demand.

 

The coincident indicators were mixed.  Consumer spending was positive, but Gallup was once  again weak.  Rail traffic was only slightly positive YoY.  If we had a good seasonal adjustment for rail traffic, it would almost certainly have turned negative.  Steel production also turned negative. Shipping was mixed. On the other hand, tax withholding for September was positive.

 

In the last 3 weeks, the high frequency indicators, while still positive, have decelerated sharply from the summer months. Outside of the jobs report, most of the monthly data was also in retreat. The bright spot is the continuing decline in Oil prices.  As I said last week, I suspect the weakness in the long leading indicators at the end of last year (housing!) is feeding through into some deceleration in the economy now, although I still see growth, and a GDP print of over 3% for the 3rd quarter would not be a surprise.

 

Have a nice weekend!

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