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)
- 0.55%, up +0.05% w/w (.50 - 1.30)
- 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
- 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
- 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
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
- 136.34 up +0.42 w/w, up +19.33% YoY (108.00 - 138.81)
Stock prices S&P 500
- Up +1.6% w/w to 2786.24 (new all time high)
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
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 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
- 0.320 TED spread down -0.010 w/w
- 1.559 LIBOR up +0.004 w/w
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
- Harpex up +2 to 485 (440 - 531)
- Baltic Dry Index up +41 to 1303 (~700 - `1700)
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.
