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By New_Deal_democrat July 5, 2014 7:58 am
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Weekly Indicators: Q2 ends on a strong note edition

Monthly June data started out with a bang, as 288,000 jobs were added and the unemployment rate fell to 6.1%.  Average hourly wages increased slightly.  More vehicles were sold in June than in any time since before the Great Recession.  The ISM manufacturing and services indexes both were down slightly. In May, factory orders declined, but core factory orders excluding the military were up.  Construction spending increased slightly.

 

The high frequency weekly indicators 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.  This week's are the last for the 2nd quarter, and for the last 3 months have suggested a strongly positive GDP for the quarter.

 

The important recent concern has been the price of Oil, so let's start there again:

 

Oil prices and usage

  • Oil down -$1.96 to $103.78 w/w
  • Gas unchanged at $3.70 w/w
  • Usage 4 week average YoY up +0.5%

 

The price of gas has been flat for almost three months.  It is slightly above its price of 1 and 2 years ago, but less than its price of 3 years ago.  The 4 week average for gas usage has remained positive for a long time. Typically by now the year's high price for gas has been set. If so, this will be the third year in a row of a decline in that peak price.  It also means the Oil choke collar is disengaging, despite ongoing turmoil in Iraq.

 

Employment metrics

 Initial jobless claims

  • 315,000 up +3,000
  • 4 week average 315,000 up +3,250

Both initial claims and the 4 week average both remain near post-recession lows. These have been in the normal range for an economic expansion for 3+ months.

 

The American Staffing Association Index was unchanged at 98.It is up +5.03% YoY.

 

This Index was again close to its all-time high for this week. The YoY comparison faded in February but since then has stabilized and then rallied.

 

Tax Withholding 

  • $170.7 B for the month of June vs. $150.8 B last year, up +$19.9 B or +13.2%
  • $155.3 B for the last 20 days ending Thursday vs. $152.5 B for 20 days ending Wednesday 1 year ago, up +$2.8 B or +1.8%.

 

April was relatively poor and spilled over into May, but rallied through most of June. This year June had 21 reporting days vs. 20 last year, so the 20 day moving average is more reliable.  This week it was barely positive.

 

Consumer spending

Gallup's 14 day average of consumer spending averaged between $80 and $100 for most of 2013, with frequent YoY comparisons over $20, and few less than +$10.  In 2013 the YoY range for the ICSC declined to between +1.5% and +3.0%, while Johnson Redbook YoY was between from +2% to a high over +4%.  This week not only were the ICSC and JR measures again very positive, but Gallup also returned to positive territory.

 

Steel production from the American Iron and Steel Institute 

  • +1.6% w/w
  • +3.1% YoY

Steel production over the last several years has generally been in a decelerating uptrend.  After a strongly positive move late in 2013, YoY comparisons turned negative again from January through early May, but has turned positive again in the last month, and this week was a very strong reading. 

 

Transport

 Railroad transport from the AAR 

  • +17,700 carloads up +6.3% YoY
  • +12,500 carloads up +7.2% ex-coal
  • +15,000 or +6.0% intermodal units
  • +32,900 or +6.2% YoY total loads

Shipping transport

The Harpex index measures container shipping, and so should correlate quite well with intermodal rail traffic, and indeed both have been quite strong.  Rail traffic in general has been strong all quarter. The BDI has stabilized at lower levels in recent weeks.  BDI suggests international trade in some areas has turned soft.  In the longer term, shipping rates bottomed about 2 years ago and have been in a slow and variable uptrend since.

 

Interest rates and credit spreads

  • 4.76% BAA corporate bonds down -0.05%
  • 2.57% 10 year treasury bonds down -0.06%
  • 2.19% credit spread between corporates and treasuries up +0.01%

Interest rates for corporate bonds made a low of 4.46% in November 2012. Treasuries fell to a possible once-in-a-lifetime low of 1.47% in July 2012, but rose over 1.6% above that mark in late 2013.  This year interest rates declined from January through May, before rebounding slightly in June towards the middle of their 2014 range. Corporates have been improving, and as a result spreads are again near their expansion lows.

Housing metrics

Mortgage applications from the Mortgage Bankers Association:

  • w/w purchase applications down -1% (lowest since 5/13)
  • YoY purchase applications down -16%
  • w/w refinance applications up +0.1%

Both refinance applications and purchase applications are near or at their recent post-recession lows. Recently, with lower interest rates, the refinance index rebounded, but with the increases in the last three weeks, they are dead in the water again. Purchase applications have sunk even lower, despite favorable YoY interest rates.

 

Housing prices

  • YoY this week +10.2%

Housing prices bottomed in November 2011 on Housing Tracker, and YoY comparisons rose to just shy of +12% in late 2013.  The recent low in YoY comparisons was +10% earlier in June 2014.  The still sharp YoY increase in prices, which are now roughly halfway between their 2006 peak and 2012 trough, might actually be a negative. 

Real estate loans, from the FRB H8 report:

  • +0.1% w/w
  • +1.8% YoY
  • +5.3% from their bottom

Loans turned up at the end of 2011, but with higher interest rates, the comparisons rolled over and had been negative since April 2013, but turned positive YoY in March 2014, and have remained positive since, and sharply positive in the last month.

 

Money supply

M1 

  • -0.1% w/w
  • +1.9% m/m
  • +10.2% YoY Real M1

 M2 

  • +0.4% w/w
  • +0.4% m/m
  • +4.5% YoY Real M2

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 this year.  Both Real M1 and Real M2 improved substantially Real M1 has really picked up in the last several weeks, while Real M2 is still stable.

 

Bank lending rates

LIBOR is off its post-recession low. The TED spread has been trending slightly upward since November of last year, although it is still lower on a YoY basis.  David Kotok of Cumberland Advisors has suggested that this reflects an increase in international skepticism about America's creditworthiness, with a Tea Party House of Representatives ready to in effect kill the Highway Trust Fund, and another debt ceiling authorization coming up soon.

 

JoC ECRI Commodity prices

  • Up +0.13 to 129.74 w/w
  • +6.35 YoY 

The 2nd quarter high frequency data ends with only mortgage applications remain as a persistent negative.   Gas prices are a very slight negative, but the Oil price spike has abated.

 

As to the long leading indicators, money supply continued positive.  Bank lending rates remain low.  Real estate loans increased their recent positive bias. Only mortgage applications remained negative (and housing prices, while positive, may have overshot at this point).  The yield on corporate bonds declined, and treasury yields declined a little more.

 

The short leading indicators, ex-oil, have a positive bias.  Initial jobless claims and their 4 week moving average remain positive and near their expansion lows. Credit spreads remained near their post-recession low. Temporary jobs again tied their seasonal all-time high.  Commodities were very positive. The Oil choke collar has abated.

 

The coincident reports were mixed with a positive bias.  Gallup returned to being positive, and both ICSC and JR consumer spending were very positive.   Rail transport, steel production, and container shipping were quite strong.  Other shipping, as reflected on the BDI was neutral.  Tax withholding was slightly positive.

 

It will be interesting to see how all this strength we have seen for the last three months in these weekly columns translates into 2nd quarter GDP a few weeks from now.  Growth through the end of this year and into 2015 remains almost certain.

 

Have a nice weekend!

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