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By New_Deal_democrat March 7, 2015 9:40 am
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Weekly Indicators: negativity spreads from coincident to short leading indicators edition

In the rear view mirror, Q4 unit labor costs increased, and productivity decreased, which I score as a positive.  Monthly reports for February started with a very positive jobs and unemployment numbers, but flat or slightly increased nominal wages depending on how you measure, which I score as a negative. Motor vehicle sales declined. ISM manufacturing was less positive. ISM services was more positive.  Turning to January data, factory orders declined, ascribed mainly to decreased costs for energy.  Personal Income increased, while spending decreased in nominal terms but increased in real terms. Construction spending decreased. In short, this was decidedly mixed monthly data.

In contrast to monthly data, I look at the high frequency weekly indicators because while they can be very noisy, 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.  I list the data and try to keep commentary sparse, so you can draw your own conclusion.

I am starting with coincident indicators again this week, because the negative news has largely continued.

Transport
 Railroad transport from the AAR

  • -17,700 carloads down -7.0% YoY 
  • -12,800 intermodal units down -5.3% YoY
  • -34,100 total loads down -6.7% YoY

Shipping transport

  • Harpex up +2 to 496 (4 year high)
  • Baltic Dry Index up +28 to 561 (rebound from 3 year low)

Rail traffic fell off a cliff last week, probably mainly due to the West Coast ports strike, with maybe some poor winter weather added in. Intermodal traffic was less awful this week.  The BDI declined sharply in the last several months, but has rebounded in the last two weeks. On the other hand, Harpex has turned up sharply for the last 8 weeks.  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.

Consumer spending

  • Johnson Redbook +2.7% YoY
  • Gallup daily consumer spending 14 day average at $81, down -$4 YoY

I am coming to the conclusion that the Gallup report, which has been barely positive to outright negative since the beginning of this year, primarily reflects consumers saving the money they are saving on gasoline.  The negative YoY readings have now stabilized, so I expect the month over month sales numbers to increase slightly.  When Gallup turns positive again YoY, that will be the signal that consumers are starting to spend their gas savings.

 In 2013 and early 2014 the Johnson Redbook YoY was between from +2% to a high over +4%. In the second half of 2014, the range increased to +3.5% to +5%.  It has fallen out of that range in 6 of the last 7 weeks.  This is particularly concerning since YoY comparisons are a little suspect now, since one year ago we were just coming off the "polar vortex" decline.

Steel production from the American Iron and Steel Institute 

  • -3.4% w/w
  • -9.2% YoY

Steel production over the last several years has generally been in a decelerating uptrend.  Since last spring, they have alternated between slightly positive and slightly negative, but in the last month have turned more intensely negative.

Commodity prices
JoC ECRI

  • Up +1.25 to 102.06 w/w
  • Down -20.68 YoY

BBG Industrial metals ETF

  • 116.01 down -2.43

Commodity prices rebounded off a possible long term low one month ago.  This is still probably due to international weakness, and mainly about oil.  Industrial metals were a component of ECRI's original short leading weekly index, and so can confirm or contrast with oil prices. Industrial metals have generally been declining for the last 3 years, made a new low one month ago, and this week retested that low.

 Interest rates and credit spreads

  • 4.58% BAA corporate bonds up +0.11%
  • 2.11% 10 year treasury bonds up +0.08%
  • 2.47% credit spread between corporates and treasuries down +0.03%

Interest rates for corporate bonds made a 50+ year low two months ago.  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 to back below 2%, before rising back above 2%.  Spreads widened in recent months, a warning of near-term weakness.

Housing metrics

Home Sales and Prices from DataQuick:

  •  +2.1% sales YoY, down -0.7% (1 month rolling average)
  •  +4.8% prices YoY, unchanged (1 month rolling average) 

Positive YoY sales and price appreciation have continued, although sales are slightly less positive than in the last several months.

Mortgage applications from the Mortgage Bankers Association:

  • -0.2% w/w purchase applications 
  • -0.2% YoY purchase applications
  • +1% w/w refinance applications

YoY purchase applications established a "less awful" trend in the latter part of 2014, but after   four straight weeks of being positive, were slightly negative again this week.

Real estate loans, from the FRB H8 report:

  • up +0.7% w/w
  • up +4.4% YoY

Loans turned up at the end of 2011, turned down in late 2013, but have remained positive to sharply positive since April 2014.

Money supply
M1

  • +0.1% w/w
  • +2.5% m/m
  • +10.6% YoY Real M1

M2

  • +0.4% w/w
  • +1.1% m/m
  • +6.5% YoY Real M2

Between actual deflation and possibly a mild European flight to safety, real YoY money supply is firmly positive.  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 2014.  Both Real M1 and Real M2 improved substantially since, and even more this week.

Employment metrics
 Initial jobless claims

  • 320,000 up +7,000
  • 4 week average 304,750 up +10,250

Although they rose back above 300,000 this week, 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 95  
  • Up +3.72% YoY.

The YoY comparison has generally been positive to strongly positive since last spring.

Tax Withholding

  • $186.7 B for the month of February vs. $177.1 B one year ago, up +9.7 B or +5.5%
  • $193.5 B for the last 20 reporting days ending Thursday vs. $184.8 B one year ago, up +$8.7 B or +4.7%

Beginning with the last half of 2014, virtually all readings have been positive.

Oil prices and usage

  • Oil down -$0.15 to $49.61 w/w
  • Gas up +$0.15 to $2.47 w/w
  • Usage 4 week average YoY +4.0%

The price of gas probably bottomed 5 weeks ago.  The 2010-2013 Oil choke collar has been broken, and usage has been responding in a big way.

Bank lending rates

  • 0.261 TED spread up +0.012 w/w
  • 0.175 LIBOR up +0.03 w/w

LIBOR has risen sharply from its post-recession low set in May and made another new one-year high this week. The TED spread moved generally sideways with a slight upward trend in the last 6 months of 2014, rising off its November 2013 low.  It has risen further in the last month and  has made another 18 month high. The move in the last months (probably mainly due to the latest Euro-crisis), while a negative, still pales in comparison with the moves before the Great Recession.

SUMMARY:

Negative coincident indicators have continued for the last three weeks, with the intensification last week probably primarily due to the now-settled West Coast ports strike appearing to abate somewhat.

Among long leading indicators, yields on corporate bonds and treasuries are still positive although less so.  Money supply is even more positive.  Real estate loans, and house sales as reported by DataQuick were positive.  Only mortgage applications remain in negative territory.

For the first time in a long time, the short leading indicators were generally negative.  Oil prices fell slightly, while industrial metal prices fell more, almost to a new low. Spreads between corporate bonds and treasuries increased slightly and I am now scoring them slightly negative again.  Temporary staffing turned negative for the first time in many months (as did temporary jobs as reported in yesterday's jobs report).  Gas prices and usage remained positive, and initial jobless claims, although significantly higher, remain within a positive range.

As indicated above, coincident readings were much more negative.  Rail was again awful, although less awful than last week.  Consumer spending as measured by Gallup was negative yet again, and Johnson Redbook was only weakly positive.  Steel production was even more negative. The TED spread and LIBOR have increased enough that both are now negatives. On the bright side, shipping was positive, as was tax withholding.

The weakness in the high frequency data has spread from coincident to short leading indicators. While some of the effects are probably transitory, that we are seeing YoY negative comparisons with some of the worst readings last year does not bode well for Q1 GDP.

The long leading indicators remain positive, and it will take more than one week of negativity in the short leading indicators to cause me to become more concerned.  I will be paying particular attention to rail and to Gallup consumer spending to see if they turn positive in the next several weeks, and to see if the temporary staffing downturn was just one week of noise.

Have a nice weekend!

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