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By New_Deal_democrat December 20, 2014 9:11 am
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Weekly Indicators: more international weakness, more US strength edition

Monthly November reports included strongly positive industrial production and capacity utilization, but the Empire State manufacturing index contracted and the Philly index showed less expansion.  The consumer price index fell -0.3%, a strong positive due to the reason.  Housing permits and starts were down from October.  Despite the slightly weak housing numbers, the November reading for the Index of Leading Indicators was up +0.6%.

The high frequency weekly indicators can be very noisy, but they 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.

As in the past few weeks, I am generally going in order of long leading, then short leading, then coincident indicators:

 Interest rates and credit spreads

  • 4.72% BAA corporate bonds down -0.07% 
  • 2.19% 10 year treasury bonds down -0.08%
  • 2.53% credit spread between corporates and treasuries up +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 started at just over 3% have declined over 0.8%, or more than 50% of that increase, at their lowest point.  Bond yields are now moving in the direction of stocks again, after moving in the opposite direction in the first half of this year. The decline in both again this week points to continued deflationary concerns.  Spreads rose further above their expansion lows of a few months ago, a sign of weakness meriting extra attention, especially since the general trend in corporate yields since May, unlike Treasuries, has been flat rather than down.

Housing metrics

Home Sales and Prices from DataQuick:

  •  +2.1% sales YoY, down -1.1% (1 month rolling average) 
  •  +2.7% prices YoY, up +0.4% (1 month rolling average) 

YoY sales were positive for the fifth week in a row, although less so, while YoY median price comparison has declined slightly in the last few weeks. Since prices typically follow sales with a lag, and sales had been down, it is possible that we will see prices turn negative YoY in the next month or so.

Mortgage applications from the Mortgage Bankers Association:

  • w/w purchase applications down -7%
  • YoY purchase applications down -5%
  • w/w refinance applications unchanged

The big news of the last few months has been that YoY purchase applications have established a "less awful" trend. Refinance applications have rebounded off a new post-recession low set a few weeks ago.  Although I have discounted this series a little bit, because there is evidence that the MBA survey is capturing a smaller percentage of originations, with significantly lower mortgage rates we really need to see the negative numbers finally end soon.

Real estate loans, from the FRB H8 report:

  • +0.1% w/w
  • +3.3% YoY
  • +5.8% 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 

  • +1.2% w/w
  • unchanged m/m
  • +7.8% YoY Real M1

 M2 

  • unchanged w/w
  • +0.7% m/m
  • +4.6% 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.  Both Real M1 and Real M2 improved substantially since.  In the month or two, growth in especially M2 has declined somewhat, although both remain firmly in positive territory.

Employment metrics

 

Initial jobless claims

  • 289,000 down -5,000
  • 4 week average 298,750 down -500

Initial claims remain well within the range of a normal economic expansion. The 4 week average remains very positive.

The American Staffing Association Index was seasonably up 5 to 107.  It is up +4.28% YoY.

This Index rebounded seasonably this week. The YoY comparison has generally been positive to strongly positive since early spring.

Tax Withholding

  • $121.6 B for the first 14 days of December vs. $117.6 B one year ago, up +$4.0 B or +3.4%
  • $170.2 B for the last 20 days ending Thursday vs. $163.7 B one year ago, up +$6.5 B or +4.0%

With the exception of one week, since July all readings have been positive.

Oil prices and usage

  • Oil down -$0.68 to $57.13 w/w
  • Gas down -$0.13 to $2.55 w/w
  • Usage 4 week average YoY +4.1%

The price of gas is now well past a 5 year low.  The 2010-2013 Oil choke collar has been broken.

Consumer spending

  • ICSC +3.0% w/w,  +1.1% YoY
  • Johnson Redbook +4.2% YoY
  • Gallup daily consumer spending 14 day average at $96 up +$5 YoY

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%.  After a negative week last week, Gallup resumed positivity (and rectified their data entry error), but the ICSC had a relatively poor week.  The average for the three is nevertheless quite positive.

Steel production from the American Iron and Steel Institute 

  • +0.2% w/w
  • +5.1% 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.  They then deteriorated and alternated between slightly positive and slightly negative.  This week continued the strong YoY reading of the prior two weeks.

Transport

 Railroad transport from the AAR 

  • +33,700 carloads up +12.1% YoY
  • +12,100 intermodal units up +4.5% YoY
  • +45,900 total loads up +8.4% YoY

Shipping transport

  • Harpex unchanged at 422
  • Baltic Dry Index down -60 to 803

Rail traffic is strongly positive again, and made a new all time high this week.  The BDI declined substantially since the end of last year, made an 8 month high, and for the last month has declined again. Harpex has been generally flat for the last few months. It remains slightly below that this week.  In the longer term, shipping rates bottomed about 2 years ago and have been in a slow and variable uptrend since.

Bank lending rates

  • 0.2141 TED spread down -0.0045 w/w
  • 0.166 LIBOR up +0.05 w/w

LIBOR has risen from its post-recession low set in May to a near one-year high. The TED spread has also moved generally sideways in the last 6 months after rising from its low of November of last year,

Commodity prices

JoC ECRI

  • Down -3.37 to 108.97 w/w
  • Down -13.16 YoY

BBG Industrial metals ETF

  • 125.80 down -4.58 to a 9 month low

Commodity prices continued cliff-diving for the third week in a row.  This is probably due to international weakness, and mainly about oil.  Because of that, I have included an industrial metals index.  Industrial metals were a component of ECRI's original short leading weekly index, and so can confirm or contrast with oil prices. Industrial metals had been declining for the last 3 years, then bottomed in March of 2014.  They rose through July, but then started to decline again, and in the last two weeks metals have fallen near their March low.

SUMMARY:

There were only four negatives this week: bond spreads, mortgage applications, shipping, and commodities.

This is the third week out of the last four in which we saw weakness appear in interest rates.  Treasury rates are falling, and the spread between treasuries and corporate widened further.  This is a pretty strong indicator of global weakness, especially since May the longer trend in corporate yields is flat rather than declining.  Money supply and housing sales remain positive, and even mortgage applications were much "less worse" than they have been in the last year.

The short leading indicators continue to look strong, including jobless claims and temporary staffing, as well as gas prices and usage.  Commodities, however, plunged - but this is mainly about oil, although Industrial metals also fell to a 9 month low.

Coincident readings tilted towards strength. Two out of three measures of consumer spending remain very positive, while the ICSC was less positive. Tax withholding was positive.  Steel and rail were both strongly positive.  Shipping was again slightly negative.

As I said last week, the significant negatives mainly tell s story of global weakness - a flight to treasury bonds vs. corporate bonds, shipping, and commodities.  US data, however, continues to tell a story of strength, as reflected in the LEI.

Have a nice weekend!

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