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By New_Deal_democrat September 12, 2015 8:51 am
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Weekly Indicators: same old US strength edition
 Monthly data for August included deflation in both import and export prices, a flat PPI, a flat inventory to sales ratio at elevated levels, and a decline in consumer sentiment as measured by the University of Michigan. Most analysts called the JOLTS report strong, focusing on the continued surge in job openings.  I demurred, noting that actual hires have turned negative YoY, and quits have been stalled for the last 10 months, a pattern last seen in summer 2006. Since we only have one complete economic cycle of JOLTS data, it is impossible to know how the inconsistency between openings and hires will resolve this time.
 

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.  The indicators will confirm a trend or indicate a switch in trend well before monthly and quarterly reports.

 

In general I am going in order of long leading indicators, then short leading indicators, then coincident indicators.

 

 Interest rates and credit spreads

  • 5.35% BAA corporate bonds down -0.02%
  • 2.23% 10 year treasury bonds up +0.03%
  • 3.12% credit spread between corporates and treasuries down -0.05%
30 year conventional mortgage rate:
  • 3.99%, up +.02%

 

Interest rates for BAA corporate bonds made a 50+ year low in January. This was not confirmed by AAA corporate bonds.  Their one year low was 4.3%, and more recently their one year high was 5.3%.  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, where they had hovered at or below 2% before yields broke out to the upside.  Spreads widened enough to become very negative, although they have improved in the last 2 weeks.

Mortgage rates have backed off their recent highs, and as they are now back down below 4%, I am scoring them a positive.

 

Housing

 

Mortgage applications

 

  • -1% w/w Purchase applications
  • +41% YoY Purchase applications
  • -10% w/w Refinance applications
Real Estate loans
  • Unchanged w/w
  • +4.5% YoY

Mortgage applications had been awful for several years, before turning up early this year in response to very low rates.  With rates back below 4%, I expect this number to continue to be positive. 

Real estate loans have been firmly positive for close to two years.

 

Money supply

M1

  • -0.4% w/w
  • -0.8% m/m
  • +8.3% YoY Real M1
M2
  • +0.1% w/w
  • +0.9% m/m
  • +6.0% YoY Real M2

Real YoY money supply remains firmly positive.

 

Trade weighted US$ (Broad)

  • Up +0.42 to 120.57 

 

The US$ appreciated about 20% against the Euro in particular late last year.  It made yet another new high early this week.

 

Commodity prices

JoC ECRI

  • Up +.02 to 91.88 w/w 
  • Down -27.72 YoY
BBG Industrial metals ETF
  • 103.03 up +3.88 w/w
Commodity prices as measured by ECRI continued their rebound off multi-year lows this week, as did industrial metals.  I suspect the recent collapse is mainly driven by Chinese weakness, and is a net boon to the US economy.

 

Employment metrics

 Initial jobless claims

  • 275,000 down -7,000 
  • 4 week average 275,750 up +250

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

 

The American Staffing Association Index 

 

  • Up +1 to 99
  • Down -2.10 YoY

The YoY comparison had generally been positive to strongly positive since last spring. In the last four months this turned neutral and then increasingly negative. The YoY comparisons had become less negative in the last month, but increased in the last 2 weeks.

 

Tax Withholding

  • $60.5 B for the first 7 days of September vs. $68.6 B one year ago, down -$8.1 B or -11.8%
  • $162.5 B for the last 20 reporting days ending Thursday vs. $154.8 B one year ago, up +$7.7 B or +5.0%

 

Beginning with the last half of 2014, with a few exceptions, virtually all readings have been positive. We started out September a little weak, but the more reliable 20 day rolling total is right in line with the aforesaid positivity.

 

Oil prices and usage

  • Oil down -$0.99 to $44.78 w/w
  • Gas down -$.07 to  $2.44 w/w 
  • Usage 4 week average up +3.8% YoY

 

The 2010-13 Oil choke collar remains broken.  The price of gas and oil bottomed at the end of January at $2.02.  They rose $0.80 to $2.82 in June, and have declined since then. Gas is below $2 in some states already.

 

Bank lending rates

 

LIBOR rose sharply from its post-recession low set in one year ago, and the TED spread was also in an uptrend since the last the middle of 2014, rising off its November 2013 low.  In the last few weeks, the TED spread has whipsawed violently.

 

Consumer spending

Both the Goldman Sachs and Johnson Redbook Indexes weakened after last Christmas, and weakened further YoY beginning in May.  Until the last two weeks, with the exception of 3 weeks in April, the Gallup report had been negative since the beginning of this year.  The big difference appears to be that Gallup does not measure big, durable, purchases, but most importantly does include gas purchases. Gallup had another good week this week, so apparently consumers are spending some of their gas savings.

 

Transport

Railroad transport

  • Carloads down -0.8% YoY
  • loads ex-coal up +0.6% YoY
  • Intermodal units up +15.7% YoY
  • Total loads up +6.6% YoY

Shipping transport

Rail traffic fell off a cliff in mid-February. Intermodal traffic quickly turned positive again, but domestic carloads, led by coal (for export) declined further in May and June (off -8% to -10% YoY), but have been less negative since.

After declining sharply for several months, making a 3-year low in mid-February, the BDI surged higher, but has been declining again for several months.  Meanwhile, Harpex (container shipping) turned up sharply for 3 months, making almost continual new 4-year highs, peaking at 646 nine weeks ago, before turning down again. 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.

Steel production

 

  • Down +2.2% w/w
  • Down -8.0% YoY

Over the last several years steel production had generally been in a decelerating uptrend.  Since  spring 2014, it turned mixed, and then cliff-dived 7 months ago.

 
 

SUMMARY: 

 

Among long leading indicators, interest rates for corporate bonds and treasuries  remained neutral.  Mortgage rates and purchase mortgage applications are positives.  Mortgage refinancing is neutral. Real estate loans are positive.  Money supply is positive.

 

Among short leading indicators, the interest rate spread between corporates and treasuries remains negative although a little less so than at its recent worst.  The US$ also turned even more negative. Temporary staffing was negative for the 17th week in a row.  Positives included jobless claims, oil and gas prices, and gas usage.  Commodities are a big global negative, but bounced a little more off their bottom this week.

 

Among coincident indicators, rail carloads, shipping, and steel production are all negatives, as are the TED spread and LIBOR.  Positives included tax withholding and consumer spending, with Gallup spending having a rare positive week, as less spending on gas apparently translated into bingeing on back to school purchases.

 

This week like last week highlighted the difference between those portions of the US economy most exposed to global forces, which have all turned negative, and those most insulated from global problems, which are all positive, and even strengthening.  I suspect that the globe, as a whole, is in recession.  With good numbers in housing and vehicle sales, and especially with gas prices declining again, the US is still positive, and although I believe we are past the midpoint of this expansion, I still remain positive through the first half of next year.

 

Have a nice weekend!

 

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