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By New_Deal_democrat October 11, 2014 9:49 am
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Weekly Indicators: no immediate worries for the US domestic economy edition

Monthly data for September was sparse.  Both export and import prices declined m/m, and are slightly negative YoY.  Jolts jobs data was mixed. There is exactly one business cycle top in this data series.  In that top, hires turned down first, about 2 years before the recession (hires were down this month), then quits, about 1 year before (quits were essentially unchanged this month), then job openings, about 8 months before (openings have been surging all year), and  layoffs increase, also about 8 months before (down this month).  Based on that limited data, I would watch hires to see if this was a one month blip.

 

My usual reminder that the high frequency weekly indicators 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.

 

Let's start with interest rates:

 

 Interest rates and credit spreads

  • 4.76% BAA corporate bonds down -0.06%
  • 2.47% 10 year treasury bonds down -0.08%
  • 2.29% credit spread between corporates and treasuries up +0.02%

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 have declined almost .7%, or close to 50% of that increase. Bond yields are now moving in the direction of stocks, meaning that market participants expect weakness ahead.  Spreads have risen slightly since their expansion lows of a few months ago.

 

Housing metrics

 

Home Sales and Prices from DataQuick:

 

  •  -1.9% sales YoY, down -0.1% (1 month rolling average) 
  •  +2.2% prices YoY, -1.1% (1 month rolling average) 
YoY sales have been negative for some time, but his week was only slightly below last week's best YoY comparison in sales for the last 8 weeks, while YoY median price comparison, which had been stable, declined significantly.
 

Mortgage applications from the Mortgage Bankers Association:

  • w/w purchase applications up +2%
  • YoY purchase applications down -8%
  • w/w refinance applications up +5 %

Both refinance applications and purchase applications have flattened out near their recent post-recession lows. On a YoY basis, however, purchase applications had their "least worst" week in over a year.

 

Real estate loans, from the FRB H8 report:

  • -0.4% w/w
  • +2.6% YoY
  • +5.6% 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.  These should be read as including commercial loans, which unlike home mortgage loans do not lead.

 

Money supply

M1 

  • +0.1% w/w
  • +1.4% m/m
  • +8.2% YoY Real M1

 M2 

  • -0.1% w/w
  • +0.1% m/m
  • +4.1% 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.  With some variation, both Real M1 and Real M2 improved substantially since, although M2 had its least positive reading in months this week.

 

Employment metrics

 Initial jobless claims

  • 287,000 unchanged
  • 4 week average 287,750 down -7,000

These have been in the normal range for an economic expansion for 6 months.  The 4 week average made a new post-recession low, and is only 1500 above a 14 year low.

 

The American Staffing Association Index was unchanged 104.  It is up +0.45%YoY.

 

This Index was just below its 2007 seasonal all-time high for this week. The YoY comparison has generally been positive to strongly positive since early spring.

 

Tax Withholding

  • $57.2 B for the first 7 days of October vs. $54.0 B one year ago, up +$3.2 B or +5.9%.
  • $157.4 B for the last 20 days ending Thursday vs. $149.3 B for 20 days ending Thursday 1 year ago, up $8.1 B or +5.4%.

 

After July's tax withholding turned negative, it was beginning to be a significant ground for concern.  August saw a return to a regular positive number, which with the exception of one week, continued through September and now into October.

 

Oil prices and usage

  • Oil down -$7.72 to $85.82 w/w
  • Gas down -$0.05 $3.30 w/w
  • Usage 4 week average YoY -1.3%

 

 

The price of gas has declined seasonally in the last 8 weeks.  It remains below its prices of 1, 2, and 3 years ago, and is less than 10 cents from a 3+ year low.  The Oil choke collar has disengaged.

 

Consumer spending

Gallup's 14 day average of consumer spending averaged between $80 and $100 for most of 2013, with frequent YoY comparisons over $20, and few less than +$10.  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%. Redbook and the ICSC surveys remain quite positive, but Gallup turned negative YoY again in early August, before recovering into weak positive territory throughout September and now into October.  Johnson Redbook, on the contrary, made a YoY% multi-year high.

 

Steel production from the American Iron and Steel Institute 

  • -1.4% w/w
  • -1.1% 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.  In the last several weeks, they became more weakly positive, and this week were negative for the second week in a row.

 

Transport

 Railroad transport from the AAR

  • +20,600 carloads up +7.4% YoY
  • +11,800 carloads ex-coal up +6.6% YoY
  • +9,900 intermodal units +3.7% YoY
  • +30,600 total loads +5.6% YoY

Shipping transport

Rail traffic had been generally strong since early spring, but this week saw it barely positive YoY.  If there were a seasonal adjustment to the rail data, I suspect we would see that it turned negative this week.  The BDI declined substantially since the end of last year, then made a 5 month high last month, and now has retreated again. Harpex has been generally flat for the last few months up until a month ago.  It is now tied at a 2 year high.  In the longer term, shipping rates bottomed about 2 years ago and have been in a slow and variable uptrend since.

 

Bank lending rates

LIBOR has risen slightly from its post-recession low set in May. The TED spread has also been trending slightly upward since November of last year, although it is still lower on a YoY basis. 

 

JoC ECRI Commodity prices

  • Down -0.84 to 122.16 w/w
  • -1.00 YoY 
Strong commodity price gains come in a strong economy. These continued to decline further this week, turning YoY negative, partly due to oil, and partly due to international weakness.
 

SUMMARY:

Among the long leading indicators,  corporate bond yields improved, and money supply, bank lending rates, and real estate loans remain quite positive. Mortgage applications  had their best "least worst" report this week, although they remain near post-recession lows. Home sales were also less negative.

 

The short leading indicators remained positive, with one continuing exception.  The 4 week average of jobless claims made a new post-recession low. Credit spreads have recently widened, but are still near their post-recession low. Temporary jobs remain positive.  The Oil choke collar has strongly disengaged, and may make a new 3 year low within a week or two. Housing prices are just barely positive.  The continuing exception is commodity prices, indicating a falloff in global demand.

 

The coincident indicators were mixed.  Consumer spending was positive, Redbook strongly so, but Gallup was once  again weak.  Rail traffic bounced back and had a big positive week. Shipping was mixed. Tax withholding was positive.  Steel production, however, was once again negative

 

I suspect that weak commodity prices and negative steel production are about weakness in Europe and China.  I see no signs for concern about the US domestic economy in the immediate future.  Again, there has been deceleration, but at this point it only means positive, but less so, in the months ahead.

 

Have a nice weekend!

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