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By New_Deal_democrat April 22, 2017 10:05 am
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Weekly Indicators: purchase mortgage applications turn negative edition
March data included an increase in building permits, which helped lift the Index of Leading Indicators to a strong positive reading. Starts, however, declined. Industrial production and capacity utilization were up, although the manufacturing element of production had its first decline in six months. Existing home sales were the highest in ten years.
 
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 368.58 down -0.29 w/w (2016 high was 395.36, 2016 low was 341.41)
  • 2.24% 10 year treasury bonds up +0.01% (intraweek low at 2.12%)
  • BofA/ML B Credit spread down -0.07% to 3.95%
Yield curve, 10 year minus 2 year:
  • 1.02%, down -0.02% w/w
30 year conventional mortgage rate
  • 4.05%, up +0.01% w/w (1 year high was 4.39%)

Yields on treasuries and mortgage rates made new 12 month highs in December, but subsequently retreated, turning negative for two weeks before turning neutral again.  Corporate bonds remain neutral. Spreads are very positive, and the yield curve, while narrowing slightly also remains positive.

 

Housing

 

Mortgage applications 

 

  • purchase applications -3% w/w
  • purchase applications -1% YoY
  • refinance applications up +0.2% w/w
 
Real Estate loans
  • Unchanged w/w
  • Up +5.2% YoY 

Mortgage applications turned outright negative for three weeks before tipping back to neutral and then surprisingly positive for many weeks before turning negative again this week. Refi applications remain at 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 two months for loans to become a neutral.

 

Money supply

M1

  • -2.4% w/w
  • +1.4% m/m
  • +5.5% YoY Real M1 
M2
  • +0.3% w/w  
  • +0.2% m/m
  • +3.7% YoY Real M2 

Both real M1 and real M2 were positive almost all last year.  Real M2 has shown substantial deceleration beginning last August, and real M1 more recently. March's deflation brought Real M2 back up and so it remains positive.

 

Trade weighted US$

  • Up +0.23 to 124.61 w/w, up +4.2% YoY (one week ago) (Broad)
  • Down -0.61 to 99.89 w/w, up +5.6% 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 4 months, but this week against major currencies it scores negative again.

 

Commodiy prices

JoC ECRI

  • Down -0.37 to 105.87 w/w
  • Up +17.91 YoY
BBG Industrial metals ETF
  • 111.05 down -1.16 w/w, up +13.8% YoY
Commodity prices bottomed near the end of 2015. After briefly turning negative, metals surged higher since the election, but have backed off in the last month.

 

Stock prices S&P 500

 

  • Up +0.8% w/w to 2348.95
Stock prices are positive, having made a string of new all-time highs beginning last summer. I won't change this to neutral unless they continue to back off for several more weeks at least.
 

Regional Fed New Orders Indexes

(*indicates report this week)

  • *Empire State down -14.3 to +21.3
  • *Philly down -11.2 to +27.4
  • Richmond up +2 to +26
  • Kansas City up +12 to +38
  • Dallas down -2.1 to +9.5
  • Month over month rolling average: down -5 +22
The regional average has been more volatile than the ISM manufacturing index, but has accurately forecast its month over month direction. These continue to scream positive, although they have backed off from March's highs.

 

Employment metrics

 Initial jobless claims

  • 244,000 up +10,000
  • 4 week average 243,000 down -4,250

 

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 94 w/w
  • Up +1.80 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 been positive since the beginning of this year.

 

Tax Withholding

  • For the first 14 days of April - not available at time of publication 
  • For the last 20 reporting days vs. one year ago - not available at time of publication

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. NOTE: I will update if the information comes back online promptly.

 

Oil prices and usage

  • Oil down -$3.27 to  $49.64 w/w,  up +$0.76 YoY
  • Gas prices up +$0.02 to $2.44 w/w, up +$0.30 YoY
  • Usage 4 week average down -0.7% YoY

 

The price of gas bottomed over one year ago at $1.69.  Prices went 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.  We got close a few weeks ago, but the YoY change in gas prices is back below 20% now.

 

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 very positive for the last several months. Meanwhile LIBOR has turned more and more negative.  I am at a loss as to why the two lending measures have diverged so sharply.

 

Consumer spending

  • Johnson Redbook up +2.3% YoY
  • Goldman Sachs/Retail Economist up +0.7% w/w, up +0.8% YoY
  • Gallup daily consumer spending 14 day average $109, up +$15 YoY

 

Both the Goldman Sachs and Johnson Redbook Indexes progressively weakened in pulses during 2015, before improving somewhat in 2016.  This week Redbook was again positive, while Goldman was just barely above negative. Meanwhile for nearly three months Gallup has absolutely screamed higher, and remained very positive this week.  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 +6.2% YoY
  • loads ex-coal down -2.2% YoY
  • Intermodal units up +1.7% YoY
  • Total loads up +3.9% YoY

Shipping transport

Rail turned negative in 2015 and fell even more sharply in spring 2016. Since last June, rail improved to neutral, and then positive almost all weeks since the beginning of November. It was very positive again this week.

Harpex recently declined to repeated multi-year lows, but in the last two months came back all the way to positive. It is now higher than during 4 of the last 5 years. BDI has now also 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 +2.2% w/w
  • Up +2.5% 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 several recent weeks remained positive since, including this week.

 
 

SUMMARY: 

 

This week, purchase mortgage applications added 1 to the only 4 other outright negatives: mortgage refinancing, gas usage, LIBOR, and the US$ against major currencies. There were a few more neutrals, chiefly among long leading indicators.  Everything else was positive.

 

Among long leading indicators, Treasuries, corporate bonds, mortgage rates, and growth in real estate loans remain neutral. The yield curve and money supply remain positive, although the yield curve less so than before.  This week both purchase and refinance mortgage applications are negatives.

 

Short leading indicators, including stock prices, jobless claims, industrial commodities, the regional Fed new orders indexes, spreads, temp staffing, and oil and gas prices are all positive.   The US$ is neutral against all currencies and negative against major currencies. Gas usage remains negative.

 

The coincident indicators are generally positive, including Gallup and Johnson Redbook consumer spending, rail, the TED spread, and both measures of shipping. Goldman Sachs consumer spending was a little more positive than last week. The only negative is LIBOR.

 

With interest rates' recent decline, a number of long leading indicators moved back from negative to neutral. Several others, notably the yield curve spread and real M2, are weakening some but still positive. In sum, the nowcast is still positive and the longer term forecast is more gray.

 

Have a nice weekend!

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