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By New_Deal_democrat November 29, 2014 10:00 am
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Weekly Indicators: sharp contrasts edition

The economic news this week was dominated by a crash in the price of oil, down about 15% in just this week.  The other big news came from the rear view mirror, where Q3 GDP was revised upward to nearly 4%.  Q3 Gross Domestic Income and corporate profits were also positive.

The only November monthly data was the Chicago PMI, which declined but was still very positive. In October data, two measures of consumer confidence differed sharply, one up sharply and another down sharply.  New home sales were up, matching their post recession high.  All 5 monthly measures of home sales were positive YoY for the first time since October 2013.  Case Shiller home prices rose slightly on a m/m basis, but are still lower from their April high.  Durable goods orders were negeative.  Personal income and spending were positive. 

My usual reminder that the high frequency weekly indicators 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.

I am generally going in order of long leading, then short leading, then coincident indicators:

 Interest rates and credit spreads

  • 4.84% BAA corporate bonds up +0.04% 
  • 2.33% 10 year treasury bonds down -0.03%
  • 2.51% credit spread between corporates and treasuries up +0.07%

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 interest rates have declined over 0.8%, or more than 50% of that increase, at their lowest point.  Bond yields are now moving in the direction of stocks again (generally a positive for the economy), after moving in the opposite direction in the first half of this year.  Spreads rose significantly since their expansion lows of a few months ago.  While the level of corporate bond yields and spreads are not concerning, their movements in the last few months compared with treasuries suggest at least a modest flight to safety, so this measure bears closer scrutiny going forward.

Housing metrics

Home Sales and Prices from DataQuick:

  •  +2.7% sales YoY, up +1.9% (1 month rolling average) 
  •  +3.3% prices YoY, up +0.1% (1 month rolling average) 

YoY sales turned positive for the second week in a row, while YoY median price comparison has been stable.

Mortgage applications from the Mortgage Bankers Association:

  • w/w purchase applications down -5%
  • YoY purchase applications down -10%
  • w/w refinance applications down -4%

Refinance and purchase applications are both back in the doldrums, at least this week.

Real estate loans, from the FRB H8 report:

  • +0.1% w/w
  • +2.7% YoY
  • +5.8% from their bottom

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 

  • -0.5% w/w
  • -0.1% m/m
  • +8.5% YoY Real M1

 M2 

  • +0.1% w/w
  • +0.5% m/m
  • +4.4% YoY Real M2

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 last month, however, growth in especially M2 has declined somewhat, although both remain firmly in positive territory.

Employment metrics
 Initial jobless claims

  • 313,000 up +22,000
  • 4 week average 294,000 up +6,500

While there was a spike in initial claims this week, it remains within the range of a normal economic expansioin.  If I started to see initial claims rise higher than 330,000, that would merit further concern. The 4 week average remains extremely positive.

The American Staffing Association Index rose 1 to 106.  It is up +3.17% YoY.

This Index made an all-time for the entire index this week. The YoY comparison has generally been positive to strongly positive since early spring.

Tax Withholding

  • $141.2 B for the first 17 days of November vs. $131.2 B one year ago, up +$10.0 B or +7.6%
  • $158.2 B for the last 20 days ending Wednesday vs. $158.1 B one year ago, up +$0.1 B or +0.1%

When July's tax withholding turned negative, it was beginning to be a significant ground for concern.  With the exception of one week, however, since then all readings have been positive.

Oil prices and usage

  • Oil up +$10.36 to $66.15 w/w
  • Gas down -$0.07 to $2.82 w/w
  • Usage 4 week average YoY +1.3%

The price of gas is at a 4 year low.  The 2010-2013 Oil choke collar has thoroughly disengaged.

Consumer spending

  • ICSC up +2.2% w/w.  +1.7% YoY
  • Johnson Redbook +4.2% YoY
  • Gallup daily consumer spending 14 day average at $97 up +$12 YoY

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.  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%. After two weeks of mediocre numbers, there was marked improvement again this week.

Steel production from the American Iron and Steel Institute 

  • +1.5% w/w
  • +3.1% 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 have alternated between slightly positive and slightly negative.  This was the best week in about two months.

Transport
 Railroad transport from the AAR

  • -900 carloads down -0.3% YoY
  • +1,900 intermodal units +0.7% YoY
  • +1,100 total loads +0.2% YoY

Shipping transport

  • Harpex unchanged at 422
  • Baltic Dry Index down -85to 1239

Rail traffic was soft this week, for the third week in a row - in fact just barely positive.  The BDI declined substantially since the end of last year, but is now back near an 8 month high. Harpex has been generally flat for the last few months up until a month ago, before making a 2 year high. It is slightly below that this week.  In the longer term, shipping rates bottomed about 2 years ago and have been in a slow and variable uptrend since.

Bank lending rates

  • 0.2256 TED spread down -0.0077 w/w
  • 0.156 LIBOR up +0.001w/w

LIBOR has risen slightly from its post-recession low set in May. The TED spread has also moved generally sideways in the last 6 months after rising from its low of November of last year,

JoC ECRI Commodity prices

  • Up +0.95 to 117.10 w/w
  • Down -4.70 YoY

Commodity prices, despite oil, rose this week.  Their recent slide is probably due to international weakness.

SUMMARY:

There was a little change in tone this week, as indicators were more sharply mixed.

One of the long leading indicators, corporate bonds, has backed up enough for me to consider it a negative.  Obviously we'll have to wait and see if this trend persists.  Mortgage applications, of course, remain poor.  On the other hand, real money supply is still quite positive, and in addition to housing permits, we found out this week that Q3 real corporate profits deflated by unit labor costs also made a new high.  Overall these are still quite positive, it's just that a crack may have appeared.

Short leading indicators also featured a negative in the widening of spreads between corporate bonds and treasuries.  Jobless claims (despite the jump this week), temp jobs, and the price of gas remain very positive, as are stock prices.

Coincident indicators featured positive consumer spending and tax withholding. Steel production was positive but not strongly so, and rail had its worst week in months, just barely positive at all.  Shipping was neutral.

For the moment, oil prices are collapsing, a strong positive.  Temp hiring made an all time high.  On the other hand, there were a few significant, if slight, new negatives.  I don't think Q4 is going to match the strong growth of Q2 and Q3 - although that's not saying much.  Barring a sharp reversal in gas prices, however, the first part of 2015 in particular looks like it will feature an increase in growth.

Have a nice weekend!

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