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By New_Deal_democrat January 11, 2014 10:40 am
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Weekly Indicators: Real M2 and consumer spending weaken edition
The big monthly news for December was the unexpectedly poor payrolls report, but there is evidence that this was mainly a fluke due to poor weather.  The workweek declined, which is a negative for the LEI. The unemployment rate declined, as the labor force declined.  Wages increased, but probably not by enough to outpace inflation. In other news, factory orders improved. Consumer credit increased.  The ISM services report was positive, but less so compared with previous months.

A reminded: if my weekly reports on the high frequency weekly indicators seem boringly repetitive, that's because they are designed that way.  I want you to have raw access to the data so you can make up your own mind.  I keep the commentary separate, and try to minimize it except to provide context.  My purpose is to provide an up-to-this-week snapshot of the economy. This week I fully updated the commentary to focus on comparisons with 2013.

As I've done recently, let's start with the long leading indicators, then we'll turn to shorter leading indicators and then coincident indicators:

Interest rates and credit spreads

  • 5.35% BAA corporate bonds unchanged
  • 2.99% 10 year treasury bonds up 0.02%
  • 2.34% credit spread between corporates and treasuries down -0.02%

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 have decisively risen over 1.6% above that mark.  Spreads, however, declined to yet another new 3 year low.  Their recent high was over 3.4% in June 2011.

Housing metrics

Mortgage applications from the Mortgage Bankers Association:

  • w/w purchase applications down -1%, up +2% in prior week
  • YoY purchase applications down -20%
  • w/w refinance applications up +5%, down -9% in prior week

The MBA reported for the last two weeks.  Refinance applications made another post-recession low.  Purchase applications are near their post-recession low set in 2011. 

Housing prices

  • YoY this week +10.7%

Housing prices bottomed in November 2011 on Housing Tracker, and YoY comparisons rose to just shy of +12% in late 2013. This weeks's YoY comparison continued to back off slightly from that comparison.

Real estate loans, from the FRB H8 report:

  • -0.1% w/w
  • -1.3% YoY
  • +1.3% from their bottom

Loans turned up at the end of 2011, but since April 2013, with higher interest rates, the comparisons rolled over and are now consistently negative, retreating back to near their post recession lows.  It appears that the only thing maintaining the housing recovery is cash purchases.

Money supply


  • -0.1% w/w
  • +0.9% m/m
  • +6.8% YoY Real M1


  • -0.9% w/w
  • +0.5% m/m
  • +3.8% 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 has decelerated since then.  This week's Real M2 reading is the lowest since then.  If its present deceleration continues, then at some point Real M2 will drop into its "red zone" of below +2.5% YoY.

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.  This week was obviously a weak week.  In 2013 the YoY range for the ICSC declined to between +1.5% and +3.0%, while Johnson Redbook YoY rallied from +2% to a high over +4%, which continued this week.

Steel production from the American Iron and Steel Institute 

  • +2.8% w/w
  • +0.6% 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 weakened and briefly turned negative. The comparison rallied this week. 


 Railroad transport from the AAR 

  • +5,100 carloads up 2.1% YoY
  • +6,500 carloads up 4.7% ex-coal
  • +8,600 or +4.8% intermodal units
  • +13,400 or +3.2% YoY total loads

Shipping transport

Rail transport had been very mixed YoY during midyear, but almost continuously improved since then, ending 2013 on a very positive note.  The Harpex index slowly rose, then stabilized, then fell slightly in 2013, ending at a low of 390. The Baltic Dry Index made a new 3 year high in December 2013, and seasonally has retreated sharply since then.  Both the Baltic Dry Index and the Harpex Index were in a range near their bottom for about 2 years, but rose significantly above those ranges in 2013.

Employment metrics

 Initial jobless claims

  • 330,000 down -9,000
  • 4 week average 349,000 down - 8,250

Initial claims continue to gyrate with seasonality, although there does seem to be some slight comparative weakness in signal coming through the noise.

The American Staffing Association Index plummeted by -17 seasonally to 86. It is up +9.3% YoY.  Seasonality should dissipate within 2 weeks. Only late 2007 and early 2008 were better than 2013.

Tax Withholding 

  • $66.2 B for the first 6 days of January vs. $64.8 last year, up +$1.4 B or +2.1%
  • Reporting for the last 20 days omitted.

In January 2013, tax withholding increased 2%.  The last 2012 weeks will go out of the comparison period by the end of this month, making YoY Tax withholding comparisons clean.

Oil prices and usage

  • Oil down -$2.72 to $92.72 w/w
  • Gas unchanged at $3.33 w/w
  • Usage 4 week average YoY up +4.8%

The price of Oil made its yearly seasonal low one month ago, but declined this week. The 4 week average for gas usage remains positive. In the larger picture, it looks like in 2013  the Oil choke collar finally loosened its hold on the economy slightly.

Bank lending rates

The TED spread rose somewhat from near the bottom of its 3 year range this week. LIBOR made yet another 3 year low.

JoC ECRI Commodity prices

  • Down -1.59 to 124.89 w/w
  • -1.70 YoY

2014 started with a continuation of trends from the second half of 2013. The longer leading indicators continue to decelerate or to turn outright negative.  Interest rates were largely unchanged this week. Housing has taken a big hit, although this has yet to show up in permits or starts (probably due to an unusual amount of cash purchases).  Money supply is still a positive, but has continued its deceleration.  If its current trend continues, Real M2 will become a negative within the next several months, becoming the second of the 4 long leading indicators to flash red.

Shorter leading indicators remain mainly positive, but more weakly so. Temporary employment still had an excellent YoY comparison.  The oil choke collar is still disengaged.  Initial jobless claims look a little weak, but this is obscured and may just be seasonal noise.  Commodities have turned negative.

The coincident data of consumer spending turned soft, but still positive.  Rail transport remained positive, although shipping made a seasonal downturn.  December tax withholding set an all-time record, although its YoY change is fading. House prices were still strongly positive.  Bank lending rates remain near their record lows.  Steel production turned positive again. I will withhold comment on tax withholding until YoY comparisons are clean in a couple of weeks.

Whether the 2013 increase in interest rates is enough to cause the housing market to actually turn negative is shaping up as one of the big economic stories for 2014.  

Whether Q4 corporate earnings stall is also an important data point.  There is some evidence as we close out the year that the deceleration in the long leading indicators has spread to the shorter term indicators, although at this point the general tone , including stock prices, is still positive. 

Have a nice weekend!

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