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By New_Deal_democrat April 4, 2015 9:18 am
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Weekly Indicators: production, rail transport, and spending still poor edition

Monthly reports for March started out with a poor jobs report, with almost all internals, and revisions, down.  On the other hand, March auto sales were at near post-recession highs. ISM manufacturing was less positive than previously.  February reports included personal income and spending, both up, but spending less than income, pending home sales up sharply, factory orders up, but with a big downward revision to January, and construction spending down slightly.

My usual note: I look at the high frequency weekly indicators because while they can be very noisy, they 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.  I list the data and try to keep commentary sparse, so you can draw your own conclusion.

Transport
 Railroad transport from the AAR

  • -16,000 carloads down -5.6% YoY 
  • +13,300 intermodal units up +5.0% YoY
  • -3,900 total loads down -0.7% YoY

Shipping transport

  • Harpex up +40 to 562 (4 year high)
  • Baltic Dry Index down -8 to 588

Rail traffic fell off a cliff four weeks ago. It has improved somewhat since then.  After declining sharply for several months, making a 3 year low in mid-February, the BDI rebounded in the last six weeks. Meanwhile, Harpex (container shipping) has turned up sharply for the last 12 weeks in a row, making 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.

Consumer spending

  • Johnson Redbook +3.0% YoY
  • Gallup daily consumer spending 14 day average at $85, down -$5 YoY

Three weeks ago I indicated that I had concluded that the Gallup report, which has been barely positive to outright negative since the beginning of this year, primarily reflects consumers saving the money they are saving on gasoline, and that, when Gallup turned positive again YoY, that would be the signal that consumers are starting to spend their gas savings. After two weeks of doing so, it has turned negative again for the last 2 weeks.

In the second half of 2014, Johnson Redbook was between +3.5% to +5%.  It has fallen out of that range in 9 of the last 11 weeks.  This is in accord with the poor YoY nominal retail sales numbers, but since it has improved somewhat in the last month, this suggests positive m/m retail sales have returned.

Steel production from the American Iron and Steel Institute 

  • -0.7%  w/w
  • -12.8% 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 the two months. This may be the shipping and rail downturns feeding through the system, due to weak foreign economies and a strong dollar.

Commodity prices
JoC ECRI

  • Down -1.27 to 100.79 w/w
  • Down -19.63 YoY

BBG Industrial metals ETF

  • 118.01 down -0.55

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 were a component of ECRI's original short leading weekly index, and so can confirm or contrast with oil prices. Industrial metals have generally been declining for the last 3 years, made and retested a low in the last two months, and have rebounded slightly.

 Interest rates and credit spreads

  • 4.56% BAA corporate bonds down -0.09%
  • 1.92% 10 year treasury bonds down -0.09%
  • 2.55% credit spread between corporates and treasuries unchanged

Interest rates for BAA corporate bonds made a 50+ year low 8 weeks ago. 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 to back below 2%, rose back above 2%, and have now backed off again.  Spreads have widened in recent months, a warning of near-term weakness.

Housing metrics

Home Sales and Prices from DataQuick:

  •  +4.8% sales YoY, up +1.3% (1 month rolling average)
  •  +4.7% prices YoY, down -0.5% (1 month rolling average) 

Positive YoY sales and price appreciation have continued and strengthened.

Mortgage applications from the Mortgage Bankers Association:

  • +6% w/w purchase applications 
  • +8% YoY purchase applications
  • +4% w/w refinance applications

30 year conventional mortgage rate from Mortgage News Daily

  • 3.62%, down -0.17% w/w (low was 3.35% in December 2012)

YoY purchase applications established a "less awful" trend in the latter part of 2014.  They have turned positive for six of the last seven weeks.  Mortgage rates are close to the bottom of their 12 month range, but have not made a new low in over two years.  As a result, mortgage refinancing remains relatively somnolent, although off its bottom.

Real estate loans, from the FRB H8 report:

  • unchanged w/w
  • up +4.2% 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

  • +0.2% w/w
  • -0.4% m/m
  • +8.9% YoY Real M1

M2

  • unchanged w/w
  • unchanged m/m
  • +6.2% 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.

Employment metrics
 Initial jobless claims

  • 268,000 down -14,000
  • 4 week average 285,500 down -11,500

Initial claims remain well within the range of a normal economic expansion, as does the 4 week average, and this week was particularly good.

The American Staffing Association Index 

  • Up 1 to 97
  • Up +3.25% YoY.

The YoY comparison has generally been positive to strongly positive since last spring.  After the YoY comparisons, while still positive, declined significantly in the last month, this week there was a rebound.

Tax Withholding

  • $217.9 B for the month of March vs. $204.0 B one year ago, up +13.9 B or +6.8%
  • $190.4 B for the last 20 reporting days ending Thursday vs. $179.3 B one year ago, up +$11.1 B or +6.2%

Beginning with the last half of 2014, virtually all readings have been positive.

Oil prices and usage

  • Oil up +$0.27 to $49.14 w/w
  • Gas down -$0.01 to $2.45 w/w
  • Usage 4 week average YoY +1.9%

The price of gas probably bottomed 8 weeks ago. Oil briefly made a new low two weeks ago.  The 2010-2013 Oil choke collar has been broken.

Bank lending rates

  • 0.238 TED spread down -0.07 w/w
  • 0.1776 LIBOR down -0.014 w/w

LIBOR has risen sharply from its post-recession low set in May and recently made a one-year high. The TED spread moved generally sideways with a slight upward trend in the last 6 months of 2014, rising off its November 2013 low.  It made an 18 month high three weeks ago. The move in the last months (probably mainly due to the latest Euro-crisis), while a negative, still pales in comparison with the moves before the Great Recession.

SUMMARY:

This week repeated the dominant theme of the last several months:  poor coincident indicators with positive long and short leading indicators.

Among long leading indicators, yields on corporate bonds and treasuries, money supply, real estate loans, and house sales were all positive.  Mortgage applications were uniformly positive for the second straight week.  In the larger picture, however, refinancing is still very close to its multi-year bottom. 

The short leading indicators were generally positive.  Oil prices remain near their bottom.   Industrial metal prices declined slightly and also remain near their bottom.  Temporary staffing was positive.  Gas prices and usage remained positive, and initial jobless claims were very positive. The only real negative is that spreads between corporate bonds and treasuries remained in slight negative territory. 

Coincident indicators were also mixed but with a more negative bias.  Steel production is still over 10% down from a year ago.  Rail was again mixed but turned more negative.  Consumer spending as measured by Gallup was now significantly negative again, while Johnson Redbook was a little more positive.  The TED spread and LIBOR remain barely negative. Shipping was mixed.  Tax withholding was very positive.

The decline in steel and rail is likely associated with the strong dollar and weak global economy, boosting imports (of. e.g., cheap Chinese steel) and hurting exports. Similarly, the continuing Eurostress probably explains the slightly negative bank rates and spreads.  The worsening Gallup spending numbers are a real anomaly. I have no proof, but wonder if the spending decline is concentrated in the oil patch.

With housing and vehicle sales remaining strong, along with things like good consumer confidence and initial jobless claims, I do not think the US is importing a recession. But I still anticipate a poor March industrial production number, and a poor Q1 GDP.

Have a nice weekend!

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