Home > XE Currency Blog > Weekly Indicators: the move to positivity continues edition

AD

XE Currency Blog

Topics6741 Posts6786
By New_Deal_democrat July 16, 2016 9:36 am
  • XE Contributor
New_Deal_democrat's picture
New_Deal_democrat Posts: 547
Weekly Indicators: the move to positivity continues edition
Monthly June data included positive industrial production and retail sales, and a mild uptick in inflation.  An initial read on July consumer sentiment tumbled. Manufacturer and wholesaler sales rose, and wholesalers' inventories declined slightly.
 

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.

 

Interest rates and credit spreads

  • 4.23% BAA corporate bonds up +.04%
  • 1.53% 10 year treasury bonds up +.15%
  • 2.70% credit spread between corporates and treasuries down -.11%
Yield curve, 10 year minus 2 year:
  • 0.85%, up +.05% w/w
30 year conventional mortgage rate:
  • 3.42%, up +.05% w/w

Yields on corporate bonds and treasuries both made new lows last week, strongly suggesting that the expansion will continue at least one more year. On the other hand, mortgages have failed to make a new low for over 3 years, thus turning yellow (caution or neutral vs. positive) as a recession indicator.  Spreads remain neutral. Yields have tightened enough to go from strongly positive to normally positive.

 

Housing

 

Mortgage applications

 

  • purchase applications unchanged w/w
  • purchase applications down -5% YoY (affected by 4th of July week)
  • refinance applications up +11% w/w
 
Real Estate loans
  • Unchanged w/w
  • +7.0% YoY 

Mortgage applications had been awful for several years, before turning up early last year in response to very low rates. Purchase applications are very positive, while refinancing was moving more sideways with a slight positive trend earlier this year before spiking in the last few weeks in response to low rates.

Real estate loans have been firmly positive for nearly 3 years.

 

Money supply

M1

  • +.07% w/w
  • +1.3% m/m
  • +6.1% YoY Real M1
M2
  • -0.2% w/w  
  • +0.7% m/m
  • +5.7% YoY Real M2

Real M1 decelerated markedly in January to the point where it was a very weak positive, and has fluctuated since then.   Real M2 also decelerated, but has been more firmly positive.  Both have been very positive for the last three months.

 

Trade weighted US$

  • Up +0.10 to 121.64 w/w, up +4.6% YoY (one week ago) (Broad)
  • Up +0.28 to 96.58 w/w, down -1.3% YoY (yesterday) (major currencies)

 

The US$ appreciated about 20% from July 2014 through spring 2015, and has gone more or less sideways with a slight positive trend since then.  l consider a YoY change of 5% or higher a negative.  The broad measure has returned to being neutral this week, and against major currencies is back to positive.

 

Commodity prices

JoC ECRI

  • Up +1.85 to 94.57 w/w
  • Down -2.64 YoY
BBG Industrial metals ETF
  • 100.92 up +2.22 w/w 
Commodity prices as measured by industrial metals appear to have bottomed in November. ECRI and oil subsequently turned up as well. Both are at 6 month highs and have come back well over 50% from their most negative readings last autumn. This is enough to turn them all the way back to positive.

 

Stock prices S&P 500

 

  • Up +1.5% w/w (new all time high)
By making a new all time high, stock price have become a positive.
 

Regional Fed New Orders Indexes

(*indicates report this week)

  • *Empire State up -12.7 to -1.9
  • Philly down -1 to -2.9
  • Richmond down -14 to -14
  • Kansas City up +7 to +4
  • Dallas down -20.9 to -14.9
  • Month over month rolling average: -2 to -6
I inaugurated coverage of these indexes as an experiment to see if they helped forecast the ISM new orders index, which is an excellent short leading indicator for sales and industrial production roughly by 6 months.   In May and there was a serious divergence between the two, as in the regional indexes, the positive bounce in March and April has been taken back.

 

Employment metrics

 Initial jobless claims

  • 254,000 unchanged
  • 4 week average 259,000 down -5,750

 

Initial claims remain well within the range of a normal economic expansion, as does the 4 week average. 

 

The American Staffing Association Index

 

  • Down -1 to 93 w/w
  • Up +2.58!YoY

This index turned negative in May 2015, getting as bad as -4.30% late last autumn.  Since the beginning of the year it has been progressively "less bad" and for 5 of the last 6 weeks has been positive.

 

Tax Withholding

  • $86.5 B for the first 9 days of July vs. $81.1 B one year ago, up +$5.4 B or +6.7%
  • $169.5 B for the last 20 reporting days ending Thursday vs. $163.1 B one year ago, up +$6.4 B or +3.9% 

Beginning with the last half of 2014, virtually all readings were positive, but turned more mixed and choppy, while still positive, since August 2015. In February I said I would need this series on the 20 day basis to decline to less than +2% YoY for me to think it has reached a turning point, and it did so for 3 weeks in a row, briefly becoming a major red flag.  April collections ran positive, and May strongly so. June was poor. But July has started out positive again.

 

Oil prices and usage

  • Oil up +$1.08 to  $46.28 w/w
  • Gas prices down -$.04  to $2.25 w/w 
  • Usage 4 week average up +1.6% YoY

 

The price of gas bottomed this winter at $1.69.  Usage turned briefly negative at the beginning of the year, but has been positive ever since.  Gas prices probably made their summer high 4 weeks ago.

 

Bank lending rates

  • 0.380 TED spread down -0.010 w/w
  • 0.482 LIBOR up +.0.008 w/w (new 3 year high)

 

Both TED and LIBOR were already rising since the beginning of last year to the point where both have usually been negatives, although there were some wild fluctuations.  Both TED and LIBOR were at or near 5 year highs in the past several months.  Of importance is that TED was above 0.50 before both the 2001 and 2008 recessions, so although it is a negative, it is not a strong one.

 

Consumer spending

 

Both the Goldman Sachs and Johnson Redbook Indexes progressively weakened in pulses during 2015, before improving somewhat since the beginning of last November.  Both Goldman Sachs and Gallup were very positive this week, but JR was very weak.

 

Transport

Railroad transport 

  • Carloads down -16.5% YoY
  • loads ex-coal down -11.7% YoY
  • Intermodal units down -17.9% YoY
  • Total loads down -17.2% YoY

Shipping transport

Rail traffic turned negative and then progressively worse in pulses throughout 2015. Rail loads became "less worse" in January and showed continued improvement until going over the proverbial cliff in March. They have been trending incrementally less awful, until this week - but I suspect this is due to the change of week for the July 4 holiday, so it may not last.

After rising briskly last spring, both the BDI and Harpex recently declined again to new multi-year lows. BDI has improved enough since then to score a neutral, while Harpex has recently resumed a slight decline. 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 -1.4% w/w
  • Down -2.2% YoY

 

Until spring 2014, steel production had generally been in a decelerating uptrend.  It then gradually rolled over and got progressively worse in pulses through the end of 2015. This year it started out as "less worse" and turned positive several months ago, but for the last 4 weeks has turned negative again.

 
 

SUMMARY: 

 

Among long leading indicators, interest rates for corporate bonds, treasuries, the yield curve, real money supply, real estate loans, purchase mortgage applications, and mortgage rates are positive. Refinance applications are neutral.  Since corporate and treasury interest rates made new lows, this resets the long leading indicator clock so far as they are concerned.  *However,* mortgage rates, despite a big decline, still have not made new lows for over 3 years, so this remains a big negative in the longer term forecast.

 

The significant change to positive among short leading indicators continued.  For the 3rd straight week, commodities across the board have improved so much that I am now scoring them a positive.  Stock prices turned positive.  The spread between corporates and treasuries remained neutral.  The US$ against major currencies changed back to positive, and against all currencies to neutral. Jobless claims, oil and gas prices, and usage, all remain very positive.

 

The coincident indicators were mixed to negative.  On the positive side, temp staffing was positive again for the 4th time in the last 5 weeks.  Consumer spending was improved.  Steel was negative again for the 4th week in a row.  Tax withholding turned back to positive. Shipping and bank rates remain negative, and rail turned awful again, but that was mainly an artifact of the change in the July 4 holiday week.

 

There has developed a sharp bifurcation in the indicators.  In general, the long and short leading indicators either remain have turned positive.  Meanwhile the coincident indicators with the exception of some measures of consumer spending, are negative.

 

Have a nice weekend!

 
Paste link in email or IM