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By New_Deal_democrat August 8, 2015 8:51 am
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Weekly Indicators: most coincident indicators still weak edition

Monthly data for July included a positive jobs report with lackluster wage growth, excellent motor vehicle sales, and a very positive ISM services report.  June data included positive personal income, positive factory orders, flat personal spending, and positive construction spending.

 

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.

 

In general I am going in order of long leading indicators, then short leading indicators, then coincident indicators.

 

 Interest rates and credit spreads

  • 5.15% BAA corporate bonds down -0.01%
  • 2.23% 10 year treasury bonds down -0.05%
  • 2.92% credit spread between corporates and treasuries up +0.04%
30 year conventional mortgage rate:
  • 4.00%, down -.03%

 

Interest rates for BAA corporate bonds made a 50+ year low in January. This was not confirmed by AAA corporate bonds.  Their one year low was 4.3%, and more recently their one year high was 5.3%.  After a possible once-in-a-lifetime low of 1.47% in July 2012, Treasuries rose to over 3% in late 2013, then fell through 2014 and into 2015, where they had hovered at or below 2% before yields broke out to the upside.  Spreads have widened enough to become very negative.

Mortgage rates have backed off from the top of their 12 month range, but have not made a new low in over 2 3/4 years. 

 

Housing

 

Mortgage applications

 

  • +3% w/w Purchase applications
  • +23% YoY Purchase applications
  • +6% w/w Refinance applications
Real Estate loans
  • Unchanged w/w
  • +4.2% YoY

Mortgage applications had been awful for several years, before turning up early this year in response to very low rates.  With rates rising again, there has been some rush to lock in rates for purchase mortgages, fearing even higher rates soon, while refinancing declined to near its housing bust lows, although it had a good week this week.

Real estate loans have been firmly positive for close to two years.

 

Money supply

M1

  • +0.3% w/w
  • -0.4% m/m
  • +5.8% YoY Real M1
M2
  • +0.1 w/w
  • +0.4% m/m
  • +5.4% YoY Real M2

Real YoY money supply remains firmly positive.

 

Trade weighted US$:

  • Down -0.15 to 117.97

 

The US$ appreciated about 20% against the Euro in particular late last year.  After making a new high last week, it retreated a little this week.

 

Commodity prices

JoC ECRI

  • Down -3.02 to 93.00 w/w 
  • Down -28.60 YoY
BBG Industrial metals ETF
  • 100.97 down -1.86 w/w (new post-recession low)
Both commodity prices as measured by ECRI and industrial metals both fell sharply this week to fresh multi-year lows. I suspect this is mainly driven by Chinese weakness, and is a net boon to the US economy.

 

Employment metrics

 Initial jobless claims

  • 270,000 up +3,000 
  • 4 week average 268,250 down -6,50

Initial claims remain well within the range of a normal economic expansion, as does the 4 week average. They made a new 40 year low this week, and an all-time low as a population-adjusted basis.

 

The American Staffing Association Index 

 

  • Up +1 to 97
  • Down -1.98 YoY

The YoY comparison had generally been positive to strongly positive since last spring. In the last two months turned neutral and then increasingly negative. The YoY comparisons have become less negative in the last few weeks.

 

Tax Withholding

  • $179.3 B for the month of July vs. $164.9 B one year ago, up +$14.4 B or +8.7%
  • $162.7 B for the last 20 reporting days ending Thursday vs. $154.7 B one year ago, up +$8.0 B or +5.2%

 

Beginning with the last half of 2014, virtually all readings have been positive. Last week was unusually soft., but appears to have been an aberration reflecting the fact that the first of the month (when the biggest deposits are made) was the only day not included.

 

Oil prices and usage

  • Oil down -$2.89 to $43.88 w/w
  • Gas down -$.06 to  $2.69 w/w 
  • Usage 4 week average up +5.4% YoY 

 

The 2010-13 Oil choke collar remains broken.  The price of gas and oil bottomed at the end of January at $2.02.  They rose $0.80 to $2.82 in June, before backing off in the last two months.  It appears very likely that we have already seen the seasonal peak.

 

Bank lending rates

LIBOR rose sharply from its post-recession low set in one year ago, and the TED spread was also in an uptrend since the last the middle of 2014, rising off its November 2013 low.  In the last month, however, both appeared to plateau. The TED spread has declined precipitously to a four month low, but then bounced back completely late this week.

 

Consumer spending

Both the Goldman Sachs and Johnson Redbook Indexes weakened after last Christmas, and weakened further YoY beginning in May.  With the exception of 3 weeks in April, the Gallup report has been negative since the beginning of this year.  It had two positive weeks, then turned negative again for the last 5 weeks.

 

Transport

Railroad transport

  • Carloads down -4.8% YoY
  • loads ex-coal down -0.9% YoY
  • Intermodal units down -0.3% YoY
  • Total loads down -2.7% YoY

Shipping transport

Rail traffic fell off a cliff in mid-February. Intermodal traffic quickly turned positive again, but domestic carloads, led by coal (for export) have remained negative, although less so in the last several weeks.

After declining sharply for several months, making a 3-year low in mid-February, the BDI surged higher. Meanwhile, Harpex (container shipping) turned up sharply for 3 months, making almost continual new 4-year highs, peaking at 646 six weeks ago, before turning down again. In the longer term, shipping rates bottomed about 3 years ago and have been in a slow and variable uptrend since, although the Baltic index did break that to the downside in the recent skid.

Steel production

 

  • Up +1.1% w/w
  • Down -8.0% YoY

Over the last several years steel production had generally been in a decelerating uptrend.  Since  spring 2014, it turned mixed, and then cliff-dived 6 months ago.

 
 

SUMMARY: 

 

Among long leading indicators, interest rates for corporate bonds, treasuries and mortgages are all neutral. Refinancing is slightly improved from its multi-year bottom.  Money supply, purchase mortgage applications, and real estate loans remain positive. 

 

The short leading indicators turned more positive this week.  The interest rate spread between corporates and treasuries turned more negative.  The US$ is also still negative. Temporary staffing was negative for the 12th week in a row, although the downtrend has ended.  On the other hand, jobless claims are extremely positive. Oil and gas prices continue to decline from their likely high for the year.  Both remain positives, as is gas usage.  Commodities are a big negative for (global) manufacturing, having made a yet another multi-year low this week, but are probably a big boon for consumers.

 

With one exception, all of the coincident indicators range from just barely positive to strongly negative.  Tax withholding returned to its normal positive reading this week. On the other hand,  the uptrend in LIBOR resumed slightly this week, and the TED spread zoomed back to its highs.  Steel production and rail carloads (led by coal) are still negative, although rail looks considerably "less worse."  Gallup spending remains negative, while Johnson Redbook and Goldman Sachs have been just barely positive for the last month.

 

The continuing deceleration of consumer spending - now well established over several months - is a new, significant concern.  I also have a wary eye on the 3 year anniversary of the low in mortgage rates which will pass this November.  There are increasing signs that we are in the latter part of this economic expansion.  Despite this, with good numbers in housing and vehicle sales, and especially with gas prices declining again, I still remain positive through the first half of next year.

 

Have a nice weekend!

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