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By New_Deal_democrat March 18, 2017 9:46 am
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Weekly Indicators: positivity spreads among short leading and coincident indicators edition
February data was almost all positive, including housing starts and single family permits, which led to another big positive jump in the index of leading indicators. Industrial production was flat, but only because utilities set off continued positive readings in manufacturing and mining. Retail sales were also positive, although they were flat on a real basis, given the increase in consumer prices. Producer prices also continued to rise. Sentiment as measured by the University of Michigan also continued to improve.
 

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.

 

Interest rates and credit spreads

  • Dow Jones corporate bond index 361.68 up +2.48 w/w (2016 high was 395.36, 2016 low was 341.41) 
  • 2.50% 10 year treasury bonds down -0.08%
  • BofA/ML B Credit spread down -0.4% to 3.78%
Yield curve, 10 year minus 2 year:
  • 1.18%, down -.03% w/w
30 year conventional mortgage rate
  • 4.26%, down -0.09% w/w (intraweek 1 year high of 4.39%)

Yields on treasuries and mortgage rates made new 12 month highs in December, but retreated since then until turning up one week ago into negative territory. Corporate bonds remain neutral. The yield curve and spreads are very positive.

 

Housing

 

Mortgage applications 

 

  • purchase applications +2% w/w
  • purchase applications +6% YoY
  • refinance applications +4% w/w
 
Real Estate loans
  • Unchanged w/w
  • Up +5.5% YoY

Mortgage applications turned outright negative for three weeks before tipping back to neutral and now - surprisingly - positive again. Refi applications remain near multi-year lows.

 

Real estate loans had been firmly positive for over 3 1/2 years, but the rate of growth (of this cumulative measure) declined sufficiently for the last month for loans to become a neutral.

 

Money supply

M1

  • -0.5% w/w
  • +0.6% m/m  
  • +5.9% YoY Real M1
M2
  • Unchanged w/w 
  • +0.5% m/m 
  • +3.6% YoY Real M2 

Both real M1 and real M2 were firmly positive almost all last year, although generally less so in the last several months, with real M2 showing substantial deceleration beginning last August. I will change M2 to a neutral if either the YoY measure decelerates below +3.0%, or if on a quarter over quarter basis it improves by +0.6% or less, but it isn't there yet.

 

Trade weighted US$

  • Down -0.01 to 126.27 w/w, up +3.3% YoY (one week ago) (Broad) 
  • Down -1.02 to 100.35 w/w, up +5.9% YoY (yesterday) (major currencies)

 

The US$ appreciated about 20% between mid-2014 and mid-2015.  It went mainly sideways since then until spiking higher after the US presidential election. It has been generally neutral for about 3 months, although for the last two weeks the broad measure turned negative again.

 

Commodiy prices

JoC ECRI

  • Down -0.27  to 106.00 w/w 
  • Up +25.18 YoY
BBG Industrial metals ETF
  • 113.20 up +0.09 w/w, up +22.8% YoY
Commodity prices bottomed near the end of 2015. After briefly turning negative, metals surged higher since the election, but have backed off a little in the last few weeks.

 

Stock prices S&P 500

 

  • Up +0.2% w/w to 2378.25
Stock prices are positive, having made a string of new all-time highs beginning last summer.
 

Regional Fed New Orders Indexes

(*indicates report this week)

  • *Empire State  +7.8 to +21.3
  • *Philly up +1 to +39
  • Richmond up +9 to +24
  • Kansas City up +6 to +26
  • Dallas down -4.1 to +11.6
  • Month over month rolling average: up +2 to +25 (2+ year high)
The regional average has been more volatile than the ISM manufacturing index, but has accurately forecast its month over month direction. These are screaming positive, and accurately forecast the multi-year high in ISM new orders for February.

 

Employment metrics

 Initial jobless claims

  • 241,000 down -2,000
  • 4 week average 237,250 up +750

 

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

 

The American Staffing Association Index

 

  • Unchanged at 93 w/w
  • Up +1.93 YoY

This index turned negative in May 2015, getting as bad as -4.30% late that year. In 2016 it became progressively "less bad," turning generally neutral since last May, and has now been positive for over the last two months.

 

Tax Withholding 

  • $150.7 B for the first 12 days of March vs. $140.7 B one year ago, up +$10.0 B or +7.1%
  • $242.7 B for the last 20 reporting days vs. $210.8 one year ago, up +$31.9 B or +15.1%

Beginning with the last half of 2014, virtually all readings were positive, but turned more mixed and choppy, and occasionally even negative, in last 2015 through the first part of 2016.  The last few months have with brief exceptions showed a marked improvement.

 

Oil prices and usage

  • Oil up +$0.32 to  $48.70 w/w,  up +$4.36 YoY
  • Gas prices down -$.02 to $2.32 w/w, up +$0.36 YoY
  • Usage 4 week average down -4.6% YoY

 

The price of gas bottomed over one year ago at $1.69.  Prices have gone sideways since late last summer, then briefly moved higher making them neutrals, before easing in the last few weeks.  Usage  faltered and has now turned negative for several months. Historically, it has taken at least a 40% increase YoY for gas to turn into a headwind. That hasn't happened and the YoY changes are starting to abate.

 

Bank lending rates

 

Both TED and LIBOR rose since the beginning of last year to the point where both were usually negatives, although there were some wild fluctuations.  Of importance is that TED was above 0.50 before both the 2001 and 2008 recessions.  The TED spread has turned generally positive for the last several months. Meanwhile LIBOR has turned more negative.

 

Consumer spending

  • Johnson Redbook up +1.3% YoY
  • Goldman Sachs/Retail Economist down -0.3% w/w, up +0.3% YoY
  • Gallup daily consumer spending 14 day average $97, up +$9 YoY

 

Both the Goldman Sachs and Johnson Redbook Indexes progressively weakened in pulses during 2015, before improving somewhat in 2016.  This week both remained barely neutral. Gallup showed weaker holiday spending in December vs. one year ago, then rebounded sharply for two weeks before turning negative for two weeks, but for over the last month has absolutely screamed higher, and remained very positive this week.

 

On an interesting secular note, I strongly suspect that the weakness in the first two measures is due to the impact of online shopping, whereas Gallup's consumer self-reports are not affected by this at all.

 

Transport

Railroad transport

  • Carloads up +4.3% YoY
  • loads ex-coal up +1.2% YoY
  • Intermodal units up +4.5% YoY
  • Total loads up +4.4% YoY

Shipping transport

Rail turned negative in 2015. It improved for a couple of months at the beginning of 2016 before falling sharply during the spring. Since last June, rail first was neutral, and then has been positive for most weeks beginning in November.

Harpex recently declined to repeated multi-year lows, but in the last few weeks - and especially this week - has come back. BDI recently turned very positive before declining several month ago, but has now surged back to being a positive.  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

  • Up +1.8% w/w
  • Up +6.3% YoY

Until spring 2014, steel production had generally been in a decelerating uptrend.  It then gradually rolled over and got progressively worse in pulses through the end of 2015. It improved from negative to "less bad" to positive in 2016 and except for one recent week has remained positive since.

 
 

SUMMARY: 

 

The interest rate components of two of the long leading indicators, Treasuries and mortgages, remained negative this week.  Corporate bonds remain neutral. The yield curve and money supply remain positive. Purchase mortgage applications remain positive, but refinance mortgage applications remain quite negative. Growth in real estate loans remains neutral.

 

Short leading indicators, including stock prices, jobless claims, industrial commodities, the regional Fed new orders indexes, spreads, and temp staffing are all positive, joined this week by oil and gas prices.  The broad US$ remains neutral, while against major currencies it has turned negative. Gas usage remains negative.

 

The coincident indicators continue to improve. Gallup consumer spending, rail, the TED spread, BDI, and steel are all  positive. Harpex shipping has improved enough to turn from negative to neutral. The two store-based measures of consumer spending are neutral. The only negative is LIBOR.

 

If anything, the outlook over the next 6 to 8 months has only gotten stronger. The outlook for one year and more out 12 month is generally neutral and has not been worsening materially recently.

 

There are three big metrics I have been watching this year. Two of the three are more positive than I had anticipated so far.  Gas and oil price hikes appear to be abating. Housing continues to be positive, and has not been weakened by increased mortgage rates (yet). The only negative is that the Fed is hiking rates a little more aggressively than most people anticipated. 

Have a nice weekend!

 

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