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By New_Deal_democrat June 20, 2015 10:19 am
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Weekly Indicators: new, "les bad" crosscurrents edition

Monthly data for May included strongly positive housing permits, which led to a strongly positive index of Leading Economic Indicators. Housing starts declined. Industrial production and capacity utilization declined further. Consumer prices increased due to gas prices.

 

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.

 

Let's start with the US$  again:

 

Trade weighted US$:

  • down -0.11 to 115.46

The US$ appreciated about 20% from midyear 2014 through early March, and the effects are still being felt, although it has backed off a little from that high.

 Interest rates and credit spreads

  • 5.08% BAA corporate bonds down -0.02%
  • 2.32% 10 year treasury bonds down -0.07%
  • 2.76% credit spread between corporates and treasuries up +0.05%
30 year conventional mortgage rate:
  • 4.08%, down -0.04% w/w (low was 3.35% in December 2012)

 

Interest rates for BAA corporate bonds made a 50+ year low in January. This was not confirmed by AAA corporate bonds.  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 widened in recent months, a warning of near-term weakness, and had wobbled back and forth near the neutral 2.50% range before breaking decisively negative.

Mortgage rates have risen to close to the top of their 12 month range, and have not made a new low in 2 1/2 years. 

Consumer spending

The former ICSC report has been reborn as the Goldman Sachs index.  Both it and the Johnson Redbook Index weakened after last Christmas, and weakened further YoY in May.  With the exception of 3 weeks in April, the Gallup report has been negative since the beginning of this year, but this week turned positive again.

 

Transport

Railroad transport from the AAR

  • -22,000 carloads down -8.1% YoY 
  • -5,100 carloads ex-coal down -2.7% YoY
  • +13,200 intermodal units up +4.9% YoY
  • -10,500 total loads down -1.9% 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.  After declining sharply for several months, making a 3 year low in mid-February, the BDI rebounded mildly, then plateaued, and surged higher this week. Meanwhile, Harpex (container shipping) has turned up sharply for the last 3 months in a row, making almost continual new 4 year highs.  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 from the American Iron and Steel Institute 

  • +1.5%  w/w
  • -7.5% YoY

Steel production over the last several years had generally been in a decelerating uptrend.  Since  spring 2014, it turned mixed, and then cliff-dived in February.  It has gotten "less worse" in the last month.

Commodity prices

JoC ECRI

  • Down -0.55 to 101.35 w/w
  • Down -21.23 YoY
BBG Industrial metals ETF
  • 111.37 down -4.10 w/w (new 5 year+ low)
Commodity prices as measured by ECRI remain close to their recent new low.  This is still probably due to international weakness, and mainly about oil.  Industrial metals generally declined in the last 3 years, bounced along the bottom since early this year, but this week made a fresh new multi-year low.

 

Housing

 

Mortgage applications from the Mortgage Bankers Association:+1% w/w purchase applications

  • -4% purchase applications
  • +15% YoY purchase applications 
  • -7% w/w refinance applications

YoY purchase applications established a "less awful" trend in the latter part of 2014.  They have turned positive since the beginning of this year.  Despite this bounce, the longer term comparisons of refinancing applications still shows them near their bottom.

 

Real estate loans, from the FRB H8 report:

  • up +2.8% w/w
  • up +3.9% 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

  • unchanged w/w
  • -1.6% m/m
  • +5.9% YoY Real M1
M2
  • -0.1% w/w
  • +0.3% m/m
  • +5.5% 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. This week they were slightly less positive.

 

Employment metrics

 Initial jobless claims

  • 267,000 down -12,000 
  • 4 week average 276,750 down -2,000

Initial claims remain well within the range of a normal economic expansion, as does the 4 week average, despite weakness in the Oil patch states.

 

The American Staffing Association Index 

 

  • Up +1 to 96.
  • Down -0.77 YoY

The YoY comparison had generally been positive to strongly positive since last spring. Two months ago, the YoY comparisons deteriorated, turned neutral, and in the last month have turned negative.

 

Tax Withholding

  • $120.6 B for the first 14 days of June vs. $118.5 B one year ago, up +$2.1 B or +1.8%
  • $163.5 B for the last 20 reporting days ending Thursday vs. $159.0 B one year ago, up +$4.5 B or +2.8%

 

Beginning with the last half of 2014, virtually all readings have been positive, although this week was relatively weak.

 

Oil prices and usage

  • Oil down -$0,45 to $59.94 w/w
  • Gas up +$.06 to  $2.84 w/w 
  • Usage 4 week average up +3.3% YoY

The price of gas and oil bottomed at the end of January.  The 2010-2013 Oil choke collar has been broken.  The interesting issue now is when and at what price we get the seasonal peak, as gas prices have risen $0.82 since then.  If they follow past seasonal patterns, their summer peak will be roughly $1 above their winter low.

 

Bank lending rates

LIBOR has risen sharply from its post-recession low set in one year ago, and the TED spread has been in an uptrend since the last the middle of 2014, rising off its November 2013 low.  LIBOR is also in an uptrend.

 

SUMMARY:

 

Specifically this week temporary staffing remained negative, while Gallup spending turned positive.  Industrial metals made a new multiyear low, but the BDI spiked higher.

 

Among long leading indicators, interest rates for treasuries, corporate bonds, and mortgage applications are now all neutral.  Refinancing, despite a recent boomlet, remains near its multi-year bottom..  Money supply and real estate loans remain positive. 

 

The short leading indicators remain extremely mixed.  The interest rate spread between corporates and treasuries widened again, further indicating short term weakness.  On the other hand, initial jobless claims remain very positive.  Temporary staffing was negative for the fifth week in a row.  While oil and gas prices have risen, both remain positives, as is gas usage.  Industrial metal prices turned still more negative, making a new multi-year bottom.

 

The coincident indicators were mixed, which is an improvement from recent weeks.  The disturbing uptrend in the TED spread and LIBOR is intact.  Steel production and rail transport are still negative, although both were slightly "less bad" this week. The positive side included tax withholding and shipping. Intermodal rail traffic remained a positive. Gallup turned positive, while Johnson Redbook and Goldman Sachs consumer spending are still in the low end of YoY comparisons.

 

In summary, we still have a generally good economy, but with a shallow industrial recession, due primarily to the strong US$ with an assist from the Oil patch.   I believe the expansion will continue through the next year, although interest rates are of concern beyond that.

 

Have a nice weekend!

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