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By New_Deal_democrat December 27, 2014 9:44 am
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Weekly Indicators: Saudi Claus gifts US consumers with spending edition

Monthly November reports included New and Existing home sales, both down, and New sales down YoY as well.  Durable goods were also negative. Consumer sentiment declined slightly from its recent high level.  On the other hand, consumer income and spending both rose strongly, and the Chicago national activity index rose to its best level since the recession.  In the rear view mirror, Q3 GDP was revised even higher.

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.

As in the past few weeks, I am generally going in order of long leading, then short leading, then coincident indicators:

 Interest rates and credit spreads

  • 4.72% BAA corporate bonds unchanged
  • 2.14% 10 year treasury bonds down -0.05%
  • 2.58% credit spread between corporates and treasuries up +0.05%

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 to over 3% in late 2013.  This year Treasuries started at just over 3% have declined over 0.8%, or more than 50% of that increase, at their lowest point. The decline in both again this week points to continued deflationary expectations.  Spreads rose further above their expansion lows of a few months ago, a sign of weakness meriting extra attention, especially since the general trend in corporate yields since May, unlike Treasuries, has been flat rather than down.

Housing metrics

Home Sales and Prices from DataQuick:

  •  +2.4% sales YoY, up +0.3% (1 month rolling average) 
  •  +2.3% prices YoY, down +0.4% (1 month rolling average) 

YoY sales were positive for the sixth week in a row, although less so, while YoY median price comparison has declined slightly in the last few weeks. Since prices typically follow sales with a lag, and sales had been down, it is possible that we will see prices turn negative YoY in the next month or so.

Mortgage applications from the Mortgage Bankers Association:

  • w/w purchase applications up +1%
  • YoY purchase applications down -1%
  • w/w refinance applications up +1%

The big news of the last few months has been that YoY purchase applications have established a "less awful" trend. Refinance applications have rebounded off a new post-recession low set a few weeks ago.  Although I have discounted this series a little bit, because there is evidence that the MBA survey is capturing a smaller percentage of originations, with significantly lower mortgage rates we really need to see the negative numbers finally end soon - and this week they almost did.

Real estate loans, from the FRB H8 report:

  • No release this week

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

Money supply
M1 and M2

  • No release this week (really, nice holiday policy!)

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 this year.  Both Real M1 and Real M2 improved substantially since.  In the month or two, growth in especially M2 has declined somewhat, although both remain firmly in positive territory.

Employment metrics
 Initial jobless claims

  • 289,000 down -9,000
  • 4 week average 290,250 down -8,500

Initial claims remain well within the range of a normal economic expansion. The 4 week average remains very positive.

The American Staffing Association Index was seasonably unchanged at 107.  It is up +4.18% YoY.

This Index remained unusually high this week, but is strongly affected by seasonality. The YoY comparison has generally been positive to strongly positive since early spring.

Tax Withholding

  • $166.4 B for the first 18 days of December vs. $160.8 B one year ago, up +$5.6 B or +3.5%
  • $189.8 B for the last 20 days ending Wednesday vs. $175.7 B one year ago, up +$14.1 B or +8.0%

With the exception of one week, since July all readings have been positive.

Oil prices and usage

  • Oil down -$2.40 to $54,73 w/w
  • Gas down -$0.13 to $2.27 w/w
  • Usage 4 week average YoY +4.1%

The price of gas is now well past a 5 year low.  The 2010-2013 Oil choke collar has been broken.

Consumer spending

  • ICSC +3.3% w/w,  +3.1% YoY
  • Johnson Redbook +5.3% YoY
  • Gallup daily consumer spending 14 day average at $106 up +$10 YoY

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%.  All three were quite positive this week.Steel production from the American Iron and Steel Institute 

  • -1.7% w/w
  • +3.4% 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 then turned increasingly positive through August.  They then deteriorated and alternated between slightly positive and slightly negative.  This week continued the strong YoY reading of the prior three weeks.

Transport
 Railroad transport from the AAR

  • +17,400 carloads up +6.0% YoY
  • +17,400 intermodal units up +6.8% YoY
  • +34,900 total loads up +6.4% YoY

Shipping transport

  • Harpex up +1 to 423
  • Baltic Dry Index down -21 to 782

Rail traffic is strongly positive again, and is just off its new all time high set last week.  The BDI declined substantially since the end of last year, made an 8 month high, and for the last month has declined again. Harpex has been generally flat for the last few months.  In the longer term, shipping rates bottomed about 2 years ago and have been in a slow and variable uptrend since.

Bank lending rates

  • 0.2141 TED spread up +0.0225 w/w
  • 0.169 LIBOR up +0.03 w/w

LIBOR has risen from its post-recession low set in May to another one-year high. The TED spread has also moved generally sideways with a slight upward trend in the last 6 months after rising from its low of November of last year, it made a 1 year high this week. These need to be kept in perspective - compared to, e.g., 3 years ago, the needle has barely moved.

Commodity prices

JoC ECRI

  • Down -2.81 to 106.16 w/w
  • Down -16.44 YoY

BBG Industrial metals ETF

  • 123.80 down -2.00 to a 9 year low

Commodity prices continued cliff-diving for the fourth week in a row.  This is probably due to international weakness, and mainly about oil.  Because of that, I have included an industrial metals index.  Industrial metals were a component of ECRI's original short leading weekly index, and so can confirm or contrast with oil prices. Industrial metals had been declining for the last 3 years, then bottomed in March of 2014.  They rose through July, but then started to decline again, and in the last three weeks metals have fallen near their March low.

SUMMARY:

For the second week in a row, there were only four negatives this week: bond spreads, mortgage applications (just barely!), shipping, and commodities.

This is the fourth week out of the last five in which we saw weakness appear in interest rates.  Treasury rates are falling, and the spread between treasuries and corporate widened further.  This is a pretty strong indicator of global weakness, especially since May the longer trend in corporate yields is flat rather than declining.  Mortgage applications almost turned positive YoY this week! The Fed did not report on money supply or real estate loans, due to the Christmas holiday.

The short leading indicators continue to look strong, including jobless claims and temporary staffing, as well as gas prices and usage.  Commodities, however, continued to plunge - but this is mainly about oil, although Industrial metals also fell to a new 9 month low.

Coincident readings tilted towards strength. All three measures of consumer spending were very positive. Tax withholding was also positive.  Steel and rail were both strongly positive.  Shipping was again slightly negative.

With just a few days to go in 2014, the significant negatives mainly tell s story of global weakness - a flight to treasury bonds vs. corporate bonds, shipping, and commodities.  US data, however, continues to tell a story of increased strength, as low gas prices appear to be boosting consumption.  The just-barely-positive advance of housing this year stands out as a contrary caution on a surge of economic activity in 2015. 

Have a nice weekend!

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