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By New_Deal_democrat February 17, 2018 10:07 am
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Weekly Indicators: payroll tax withholding falls off a cliff edition
January data this week included very positive housing permits and starts, as well as very positive consumer confidence as measured by the U. of Michigan. Industrial production and capacity utilization were negative, as were retail sales. Consumer prices increased a significant +0.5%, and producer prices increased significantly as well. 
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. 
NOTE that I include 12 month highs and lows in the data in parentheses to the right.


Interest rates and credit spreads

  • BAA corporate bond index 4.53% up +.05% w/w (1 yr range: 4.15 - 4.90)
  • 10 year treasury bonds 2.87% up +.01% w/w  (2.05 - 2.92) (new 4 year high intraweek)
  • Credit spread 1.66% up +.04% w/w (1.56 - 2.30)
Yield curve, 10 year minus 2 year:
  • 0.68%, down -0.10% w/w (.50 - 1.30) 
30 year conventional mortgage rate
  • 4.53%, up +0.03% w/w (3.84 -  4.57) (new 4 year high intraweek)

BAA Corporate bonds, having recently tied their expansion low, are now a positive, but only weakly so because AAA bonds did not confirm this low. If they move above 4.65%, I will downgrade them to neutral.  Mortgage rates and treasury bonds are now both negatives. The trend for these for most of 2017 was neutral. The yield curve is positive, while the spread between corporate bonds and treasuries is strongly positive.




Mortgage applications  

  • Purchase apps up -6% w/w
  • Purchase apps up +4% YoY
  • Refi down -2% w/w
Real Estate loans
  • Down -0.1% w/w 
  • Up +3.8% YoY  ( 3.3 - 6.5) 

Purchase applications were strong almost all last year. Refi has been dead. In December, purchase applications turned neutral and then negative. In January they returned to positivity, and are still positive, but more weakly so, this week.


The growth rate of real estate loans remains neutral.


Money supply


  • -0.1% w/w 
  • +1.5% m/m 
  • +6.1% YoY Real M1 (4.6 - 6.9)
  • +0.1% w/w  
  • +0.2  m/m 
  • +2.1% YoY Real M2 (2.1 - 4.1)

Since 2010, both real M1 and real M2 were resolutely positive.  Both decelerated substantially in 2017.  Real M1 is still quite positive. Real M2 growth has fallen below 2.5% and is thus a negative.


Credit conditions (from the Chicago Fed) 


  • Financial Conditions Index up +0.06 -0.82
  • Adjusted Index (removing background economic conditions) up +.08 to 0.61
  • Leverage subindex up +.03 to -0.54
The Chicago Fed's Adjusted Index's real break-even point is roughly -0.25.  In the leverage index, a negative number is good, a positive poor. The historical breakeven point has been -0.5 for the unadjusted Index. All three metrics presently show looseness and so are positives for the economy.

Trade weighted US$

  • Up +2.51 to 118.36 w/w -5.8% YoY (last week) (broad) (116.74 -128.62) 
  • Down -1.24 to 89.11 w/w, -11.69% YoY (yesterday) (major currencies) 

 The US$ appreciated about 20% between mid-2014 and mid-2015.  It went mainly sideways afterward until briefly spiking higher after the US presidential election. It has been a positive since last summer.


Commodity prices


  • Up +0.18 to 112.08 w/w
  • Up +3.12 YoY 
BBG Industrial metals ETF 
  • 140.10 up +7.99 w/w, up +17.80% YoY (108.00 - 140.10)
Commodity prices bottomed near the end of 2015. After briefly turning negative, metals also surged higher after the 2016 presidential election.  ECRI has decelerated enough to become neutral.  On the other hand, industrial metals made a new one year high this week.


Stock prices S&P 500


  • Up +4.3% w/w to 2732.22
Despite the 10% correction last week, stock prices did not make a new 3 month low and so remain positive, They made a string of new all-time highs beginning in summer 2016.

Regional Fed New Orders Indexes

(*indicates report this week)

  • *Empire State up +1.6 to +13.5
  • *Philly up +14.4 to +24.5
  • Richmond unchanged at +16
  • Kansas City up +7 to +14
  • *Dallas down -4.6 to +25.5
  • Month over month rolling average: up +3 to +18
The regional average has been more volatile than the ISM manufacturing index, but has accurately forecast its month over month direction, and remains positive, but less so than the last few months.


Employment metrics

 Initial jobless claims

  • 230,000 up +9,000
  • 4 week average 228,500 down -6,000 (new 40 year low)

 Initial claims remain well within the range of a normal economic expansion. The YoY% change in these metrics has been decelerating but is still a positive as well. 


The American Staffing Association Index

  • Up +2 to 94 w/w
  • Up +0.6% YoY

This index was generally neutral from May through December 2016, and then positive with a few exceptions all during 2017. It was negative for over a month, but has returned to being positive this week.


Tax Withholding

  • $104.5 B for the first 11 days of February 2018 vs. $111.8 B one year ago, down -$7.3 B or -6.5%
  • $184.0 B for the last 20 reporting days vs. $196.1 B one year ago, down -$12.1 B or -6.2%

With the exception of the month of August and late November, this was positive for almost all of 2017. In the last several weeks, however, this metric has all but fallen off a cliff. I am at a loss as to why, as payroll withholding taxes should not have been affected by the recent tax cut.


Oil prices and usage 

  • Oil up +$2.59 to $61.64 w/w,  up +15.4% YoY 
  • Gas prices down -0.03 to $2.61 w/w, up $0.30 YoY 
  • Usage 4 week average up +6.5 YoY 

 The price of gas bottomed 2 years ago at $1.69.  With the exception of July, prices generally went sideways with a slight increasing trend in 2017.  Usage turned negative in the first half of 2017, but has almost always been positive since then.


 Bank lending rates

 Both TED and LIBOR rose in 2016 to the point where both were usually negatives, with lots of fluctuation.  Of importance is that TED was above 0.50 before both the 2001 and 2008 recessions.  The TED spread was generally increasingly positive in 2017, while LIBOR was increasingly negative.


Consumer spending

  • Johnson Redbook up +2.8 YoY
  • Goldman Sachs Retail Economist +1.8% w/w, +1.5% YoY

 Both the Goldman Sachs and Johnson Redbook Indexes generally improved from weak to moderate or strong positives during 2017. Goldman Sachs was a little soft this week.



Railroad transport

  • Carloads down -0.5% YoY
  • Intermodal units up +3.7% YoY
  • Total loads up +1.6% YoY

Shipping transport

Rail has been generally positive since November 2016 and remained so during all of 2017 with the exception of a period during autumn when it was mixed, and at the beginning of this year, when it was negative for a few weeks. It was positive two weeks ago, but mixed again since then.

Harpex made multi-year lows in early 2017, then improved, declined again, and then improved  yet again to recent highs. BDI traced a similar trajectory, and made 3 year highs near the end of 2017. 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 -0.6% w/w
  • Down -1.9% YoY

Steel production improved from negative to "less bad" to positive in 2016 and with the exception of early summer, remained generally positive in 2017. Except for one week, it has been negative for the last 7 weeks.




Among the long leading indicators, spreads are positive, as are real M1, and the more leading Chicago Fed Financial Conditions Indexes. Purchase mortgage applications and corporate bonds are weakly positive. Growth in real estate loans is neutral. Treasuries, mortgage rates, refinance applications, and real M2 are all negative.


Among the short leading indicators, industrial metals, the regional Fed new orders indexes, spreads, financial leverage, the US$, jobless claims, and gas prices and usage all remain positive. Staffing has turned weakly positive, and stocks remain a positive. Oil prices and the ECRI commodity index are neutral.


Among the coincident indicators, positives included consumer spending, the TED spread, the Baltic Dry Index and Harpex. LIBOR remains negative.  Rail and steel have been mixed or negative since the beginning of the year with the exception of one week. Tax withholding has fallen off a cliff this month, and is a big negative. (These are payroll taxes and should not have been affected by the recent corporate tax cuts).


The short term forecast remains very positive. The long term forecast remains weakly positive, as higher interest rates have not spilled over into housing.


Because the mixed to negative numbers in several coincident indicators have persisted, and have spread to yet another one, I am downgrading the nowcast to neutral. But because the coincident tail does not wag the leading dog, I still expect this to resolve higher.


Update: the line in question from the Daily Treasury Statement reads "Withheld Income and Employment Taxes." If this is only, e.g., Social Security and Medicare, it should not be affected by the recent tax cut. If it includes standard and individual claimed deduction, it would be. I have a couple of feelers out, and hopefully will know by next week.


Have a nice weekend!




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