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By New_Deal_democrat January 16, 2016 9:15 am
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Weekly indicators: once again, in important way to mark your beliefs to reality edition
Monthly data was dominated by yesterday's quartet of releases: industrial production was down strongly, business sales and inventory both declined, producer prices declined again (although the YoY measure improved), and nominal retail sales declined slightly.  Earlier in the week, JOLTS data was mixed, with positive quits, sideways hires, and negative openings.
 

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.  That is particularly important now.

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

 

Interest rates and credit spreads

  • 5.46% BAA corporate bonds up +.02%
  • 2.10% 10 year treasury bonds down -.06%
  • 3.36% credit spread between corporates and treasuries up +.06%
30 year conventional mortgage rate:
  • 3.84%, down -.12%

With the exception of BAA corporate bonds yields, which made a new 50+ year low in January 2015,  yields for corporate bonds, treasuries, and mortgages have all failed to make new lows in 3 years, thus turning yellow (caution or neutral vs. positive) as a recession indicator.  Spreads are very negative.  Mortgage rates, however, have fallen enough to be positive again.

Housing

 

Mortgage applications

 

  • purchase applications up +4% w/w
  • purchase applications up +37% YoY
  • refinance applications up +11% w/w
 
Real Estate loans
  • Unchanged w/w
  • +6.6% YoY

Mortgage applications had been awful for several years, before turning up early last year in response to very low rates.

Real estate loans have been firmly positive for two years.

 

Money supply

M1

  • +4.5% w/w
  • +2.3% m/m
  • +7.5% YoY Real M1
M2
  • -0.1% w/w
  • +0.5% m/m
  • +5.6% YoY Real M2 

Real YoY money supply remains firmly positive, although it moderated a little in recent months, although M1 went through the roof this week!

 

Trade weighted US$ 

  • Up +0.31 to 122.98 w/w, up +11.4% YoY (Broad)
  • Up +0.51 to 98.89 w/w, up +7.0% YoY (major currencies)

 

The Broad measure is reported by the FRB on Mondays and so is delayed one week.  The Bloomberg is different, but is accurate as of Friday.  The US$ appreciated about 20% against the Euro in particular between 12 and 18 months ago. In 2015 it continued to appreciate, but at a relatively more moderate trend.  Until the YoY change declines below 5%, I am reporting its impact is strongly negative.

 

Commodity prices

JoC ECRI

  • Down -0.75 to 79.27 w/w 
  • Down -23.14 YoY
BBG Industrial metals ETF
  • 84.58 down -2.30 w/w
While oil prices made a new low, commodity prices as measured by ECRI and industrial metals had generally gone sideways since November, before falling again in the last 2 weeks.  Even so, the YoY comparisons are "less bad."

 

Employment metrics

 Initial jobless claims

  • 284,000 up 7,000 
  • 4 week average 278,750 up 3,000

 

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

 

The American Staffing Association Index

 

  • No report this week

Since last spring, the YoY comparison turned neutral and then increasingly negative. The YoY comparison was only slightly negative two weeks ago, but may be an artifact of seasonality.

 

Tax Withholding

  • $92.3 B for the first 9 days of January vs. $91.0 B one year ago, up +$1.3 B or +1.4%
  • $212.5 B for the last 20 reporting days ending Thursday vs. $199.8 B one year ago, up $12.7 B or +6.4%

Beginning with the last half of 2014, virtually all readings were positive, but turned more mixed and choppy in August and September.  In general they have remained positive, but a little more weakly so, in the last 45 days.

Oil prices and usage

  • Oil down -$3.24 to $29.64 w/w
  • Gas prices down $.03  to $2.00 w/w 
  • Usage 4 week average down` -4.3% YoY

 

The 2010-13 Oil choke collar remains broken.  The price of gas and oil bottomed at the end of January at $2.02. On Gas Buddy it has fallen almost $.10 in the last 8 days. Usage turned negative for the second week.

 

Bank lending rates

 

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 in the last few weeks have been at or near 5 year highs.

 

Consumer spending

Both the Goldman Sachs and Johnson Redbook Indexes progressively weakened in pulses during 2015, before improving somewhat since the beginning of November.  Gallup has also turned positive in the last 5 weeks.  Because Gallup, unlike the other two, includes gas purchases, the fact that it has turned positive strongly suggests that consumers have started to spend some of their gas savings on other things.

 

Transport

Railroad transport

  • Carloads down -13.5% YoY
  • loads ex-coal down -5.3% YoY
  • Intermodal units up +7.5% YoY
  • Total loads down -3.7% YoY

Shipping transport

Rail traffic also turned negative and then progressively worse in pulses throughout 2015. While intermodal traffic quickly turned positive, but domestic carloads, led by coal (for export) continued to deteriorate. While some (positive) seasonality may be going on this week, these remain recessionary readings. If it continues several more weeks, this will be a relative positive. They may signify that new orders for goods have turned down significantly, which is bad except insofar as it may mean the beginning of inventory liquidation.  

After rising briskly last spring, both the BDI and Harpex declined again to new multi-year lows.  

Steel production

 

  • Up +10.7% w/w
  • Down -11.8% YoY

Until spring 2014, steel production had generally been in a decelerating uptrend.  It then gradually rolled over and has gotten progressively worse in pulses since.  Last week was the worst yet, but this week there was a strong rebound.  Both may be a function of seasonality, so we need to see if this "less bad" pattern holds for several more weeks.

 
 

SUMMARY: 

 

Among long leading indicators, interest rates for treasuries, corporate bonds are neutral, while money supply, real estate loans, and mortgage applications are positive, and mortgage rates turned more positive. 

Among short leading indicators, the interest rate spread between corporates and treasuries got even more negative.  The US$ also remains quite negative. Jobless claims are still positive. Oil and gas prices remain very positive, while usage was negative for the second week in a row. Commodities remain a big global negative.

Among coincident indicators, steel production, shipping, and rail transport all remain very negative, although steel and rail rebounded strongly from their worst weeks since their downturn - which may reflect seasonality.  The TED spread and LIBOR both remain near 5 year highs.  Tax withholding and all three measures of consumer spending are positive.

 

These weekly indicators are an important way to mark your beliefs to reality.  The reality in the last quarter of 2015 was that the coincident indicators deteriorated badly.  Here are the YoY comparisons for rail and steel from the last weeks of September, October, November, and December:

Rail: -2.5%, -5.6%, -5.7%, -9.8%

Steel: -9.2%, -9.4%, -15.8%, -18.9%

Both were down much less significantly this week, but due to seasonality, let's give it a couple more weeks before coming to any conclusions.

 

On the other hand, Gallup consumer spending, which includes gas purchases, turned positive 4 weeks ago, and is now up from both 1 and 2 years ago, indicating that consumers are finally spending some of their gas savings on other purchases.

 

The economy is experiencing a very severe downturn in energy production and export-related goods production and transport. On the other hand, the manufacturing portion of industrial production is only flat, not down, and the 70% of the economy reflective of domestic consumption remains positive. Q4 GDP might even be negative, and Q1 perhaps more so as excess inventories undergo further liquidation.  But there simply is no broad, economy-wide downturn.

 

Have a nice weekend!

 
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