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By New_Deal_democrat January 13, 2018 11:14 am
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Weekly Indicators: seasonality wreaks its usual havoc edition
December data included positive retail sales and muted consumer inflation. Producer prices actually declined slightly.
 
November data included business inventories, which increased slightly at all levels, but were outpaced by strong sales, meaning that the inventory to sales ratio declined to a 2.5 year low. Both openings and hires in the JOLTS report declined slightly from their record October readings. Quits and layoffs also declined slightly. 
 
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.
 
NOTE that I now included the prior 12 months highs and lows in the data in parentheses to the right.

 

Interest rates and credit spreads

  • BAA corporate bond index 4.23% up +.02% w/w (1 yr range: 4.15 - 4.90)
  • 10 year treasury bonds 2.55% up +0.11% w/w  (2.05 - 2.62)
  • Credit spread 1.68% down -0.09% w/w (1.68 - 2.30) (new 10 year low)
Yield curve, 10 year minus 2 year:
  • 0.55%, up +0.05% w/w (.50 - 1.30) 
30 year conventional mortgage rate
  • 4.14%, up +0.07% w/w (3.84 -  4.39)

BAA Corporate bonds, having recently tied their expansion low, are now a positive, but only weakly so because AAA bonds did not confirm this low. Mortgage rates, however, have returned to a weak negative.

 

Yields on treasuries and mortgage rates made new 12 month highs one year ago. The trend for most of 2017 was neutral. They are near their highs again. The yield curve flattened a little and remains weakly positive in the longer term context. Finally, the spread between corporate bonds and treasuries also recently made a new 10 year low and so is strongly positive.

 

Housing

 

Mortgage applications 

 

  • Purchase apps up +5% w/w
  • Purchase apps down -1% YoY
  • Refi up +11% w/w
 
Real Estate loans
  • Down -0.2% w/w 
  • Up +3.6% YoY  ( 3.6 - 6.5) 

Purchase applications were strong almost all last year, and refi dead.  In the last few weeks, purchase applications have turned neutral and this week negative. This may just be seasonality. Refi is still dead.

 

The growth rate of real estate loans remains neutral.

 

Money supply

M1

  • -1.4% w/w 
  • -1.8% m/m 
  • +5.2% YoY Real M1
M2
  • Unchanged w/w  
  • +0.3%  m/m 
  • +2.6% YoY Real M2 

Since 2010, both real M1 and real M2 were resolutely positive.  Both decelerated substantially in 2017.  Real M1 is still quite positive, however, while real M2 growth has decelerated to a neutral.

 

Credit conditions (from the Chicago Fed) 

 

  • Financial Conditions Index down -.02 to -0.91
  • Adjusted Index (removing background economic conditions) down -.02 to 0.76
  • Leverage subindex down -.02 to -0.61
The Chicago Fed's Adjusted Index's real break-even point is roughly -0.25.  In the leverage index, a negative number is good, a positive poor. The historical breakeven point has been -0.5 for the unadjusted Index. All three metrics presently show looseness and so are positives for the economy.
 

Trade weighted US$

  • Down -0.77 to 118.30 w/w -7.0% YoY (last week) (broad) (116.74 -128.62) 
  • Down -1.07 to 90.95 w/w, -10.1% YoY (yesterday) (major currencies) 

 

The US$ appreciated about 20% between mid-2014 and mid-2015.  It went mainly sideways afterward until briefly spiking higher after the US presidential election. It has been positive since last summer.

 

Commodity prices

JoC ECRI 

  • Up +2.05 to 113.01 w/w
  • Up +6.02 YoY 
BBG Industrial metals ETF 
  • 136.34 up +0.42 w/w, up +19.33% YoY (108.00 - 138.81)
Commodity prices bottomed near the end of 2015. After briefly turning negative, metals also surged higher after the 2016 presidential election.  ECRI has recently decelerated enough to become neutral.  Industrial metals remain a  positive.

 

Stock prices S&P 500

 

  • Up +1.6% w/w to 2786.24 (new all time high)
Stock prices are positive, having made a string of new all-time highs beginning in summer 2016.
 

Regional Fed New Orders Indexes

(*indicates report this week) (no reports this week)

  • Empire State down -1.2 to +19.5
  • Philly up +8.4 to +29.8
  • Richmond down -19 to +16
  • Kansas City down -15 to +7
  • Dallas up +10.1 to +30.1
  • Month over month rolling average: down -2 to +20
The regional average has been more volatile than the ISM manufacturing index, but has accurately forecast its month over month direction, and remains very positive.

 

Employment metrics

 Initial jobless claims

  • 261,000 up +11,000
  • 4 week average 250,750 up +9,000

 

Initial claims remain well within the range of a normal economic expansion. They turned negative YoY in the last two weeks, but this could just be seasonality.

 

The American Staffing Association Index

 

  • Down -1 to 94 w/w
  • Down -0.1 YoY

This index was generally neutral from May through December 2016, and then positive with a few exceptions all during 2017. This number is subject to wide seasonal swings from Thanksgiving through New Year's Day, so I am discounting the negative YoY comparisons of the last two weeks.

 

Tax Withholding

  • $102.2 B for the first 8 days of January 2018 vs. $94.2 B one year ago, up +$8.0 B or +8.5%
  • $246.4 B for the last 20 reporting days vs. $227.0 B one year ago, up +$19.4 B or +8.5%

With the exception of the month of August and late November, this was positive for almost all of 2017.

 

Oil prices and usage 

  • Oil up +$3.02 to $64.47 w/w,  up +23.1% YoY (2.5 year high)
  • Gas prices unchanged at $2.52 w/w, up +$0.13 YoY 
  • Usage 4 week average up +2.5% YoY 

 

The price of gas bottomed 2 years ago at $1.69.  With the exception of July, prices generally went sideways with a slight increasing trend in 2017.  Usage turned negative in the first half of 2017, but has almost always been positive since then.

 

 Bank lending rates

 

Both TED and LIBOR rose in 2016 to the point where both were usually negatives, with lots of fluctuation.  Of importance is that TED was above 0.50 before both the 2001 and 2008 recessions.  The TED spread was generally increasingly positive in 2017, while LIBOR was increasingly negative.

 

Consumer spending

  • Johnson Redbook up +3.4% YoY
  • Goldman Sachs Retail Economist +2.0% w/w, +3.8% YoY

 

Both the Goldman Sachs and Johnson Redbook Indexes generally improved from weak to moderate or strong positives during 2017.

 

Transport

Railroad transport

  • Carloads down -5.2% YoY
  • Intermodal units down -3.9% YoY
  • Total loads down -4.6% YoY

Shipping transport

Rail has been generally positive since November 2016 and remained so during all of 2017 with the exception of a period during autumn when it was mixed.

Harpex made multi-year lows in early 2017, then improved, declined again, and then improved  yet again to recent highs. BDI traced a similar trajectory, and made 3 year highs near the end of 2017. 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 +0.7% w/w
  • Down -5.0% YoY

Steel production improved from negative to "less bad" to positive in 2016 and with the exception of early summer, remained generally positive in 2017. I am discounting this week's reading due to seasonality.

 
 

SUMMARY: 

 

Among the long leading indicators, spreads are very positive, joined by some corporate bonds, real M1 and the more leading Chicago Fed Financial Conditions Indexes. Neutrals include real M2, treasury yields, and growth in real estate loans. This week purchase applications were negative.

 

Among the short leading indicators, stock prices, industrial metals, the regional Fed new orders indexes, spreads, financial conditions, the US$, and gas prices and usage all remain positive. Oil prices and the ECRI commodity index are neutral. Jobless claims were again a negative, and were joined by staffing, but that may have everything to do with seasonal noise.

 

Among the coincident indicators, positives included consumer spending, tax withholding, the TED spread, the Baltic Dry Index and Harpex. LIBOR remains negative, joined this week by both rail and steel.

 

Seasonality likely affected a bunch of indicators this week, including mortgage applications, jobless claims, staffing, rail, and steel. If the downturn persists several more weeks, I'll begin to take it seriously. Until then, both the nowcast and the near term forecast remain very positive. The longer term forecast is also modestly positive for now.

 

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