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By New_Deal_democrat December 17, 2016 10:44 am
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Weekly Indicators: short term indicators falter edition
Monthly data for November included a decline in housing permits and starts, increases in both producer and consumer prices, and a slight increase in retail sales, meaning that real retail sales actually declined.  
 

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. 

 

Interest rates and credit spreads

  • Dow Jones corporate bond index 356.17 down -1.34 w/w (2016 high is 395.36, 2016 low is 341.41) 
  • 2.57% 10 year treasury bonds up +.10% (intraweek 2 year high of 2.63%)
  • BofA/ML B Credit spread down -.19% to 4.09% (new 24 month low)
Yield curve, 10 year minus 2 year:
  • 1.27%, down -.01% w/w
30 year conventional mortgage rate
  • 4.38%, up +.18% w/w (52 week high)

Yields on treasuries and mortgage rates made new 12 month highs this week, and remain negatives. Corporate bonds are still neutral. Because rates made new lows after the Brexit vote in June, that nevertheless strongly suggests that the expansion will continue through mid-2017.  The yield curve is also still positive, and spreads have turned positive as well.

 

Housing

 

Mortgage applications

 

  • purchase applications down -3% w/w
  • purchase applications up +2% YoY
  • refinance applications down -4% w/w
 
Real Estate loans
  • Unchanged w/w
  • Up +6.7% YoY 

Mortgage applications briefly  spiked in response to low rates following the Brexit vote.  Purchase applications last made a new high at the beginning of June.  They have wobbled between being positive and neutral for nearly 3 months. This week they were again nearly negative, and I believe they will turn YoY negative within the next several weeks.  If so, they will flip to becoming an important negative. Refinance applications have turned south in a big way in the last few weeks and are near multiyear lows.

 

Real estate loans have been firmly positive for over 3 years.

 

Money supply

M1

  • -0.9% w/w
  • +0.4% m/m
  • +7.7% YoY Real M1
M2
  • +0.2% w/w
  • +0.5% m/m
  • +6.0% YoY Real M2 

Both real M1 and real M2 have been firmly positive almost all year, although less so in the last month. 

 

Trade weighted US$

  • Down -0.03 to 127.11 w/w, up +4.0% YoY (one week ago) (Broad)
  • Up +1.22 to 102.81 w/w, up +3.6% YoY (yesterday) (major currencies)

 

The US$ appreciated about 20% between mid-2014 and mid-2015.  It went mainly sideways since then until spiking higher after the US presidential election. It has been generally neutral for about 2 months.

 

Commodiy prices

JoC ECRI

  • Up +0.85 to 103.83 w/w
  • Up +32.66 YoY
BBG Industrial metals ETF
  • 113.43 down -1.35 w/w, up +25.9% YoY
Commodity prices bottomed about one year ago. After briefly turning negative, metals have now surged higher since the election.

 

Stock prices S&P 500

 

  • Down -0.1% w/w
Stock prices became a positive having made new all-time highs in summer, and made more new highs one week ago.
 

Regional Fed New Orders Indexes

(*indicates report this week)

  • *Empire State up +8.3 to +11.4
  • *Philly down -4.7 to +13.9
  • Richmond up +19 to +7
  • Kansas City down -8 to +6
  • Dallas up +2.1 to -1.4
  • Month over month rolling average: up +2 to +8 (12 month high)
In the months since I started coverage of this metric, the regional average has been more negative than the ISM manufacturing index, but has accurately forecast its month over month direction. The average Fed readings made yet another 12 month high this week,

 

Employment metrics

 Initial jobless claims

  • 254,000 down -4,000
  • 4 week average 257,250 up +5,250

 

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

 

The American Staffing Association Index

 

  • Unchanged at 96 w/w
  • Down -0.32 YoY

This index turned negative in May 2015, getting as bad as -4.30% late one year ago.  Since the beginning of the year it became progressively "less bad" and for since May has been so close to positive YoY as to be a neutral most weeks, as it was again this week.

 

Tax Withholding

  • $100.1 B for the first 11 days of December vs. $96.1 B one year ago, up +$4.0 B or +4.2%
  • $171.3 B for the last 20 reporting days ending Thursday vs. $176.3 B one year ago, down -$5.0 B or -2.8%

Beginning with the last half of 2014, virtually all readings were positive, but turned more mixed and choppy, and occasionally even negative, since August 2015.  The last few months have generally shown a marked improvement. This week the longer average turned negative.  I am discounting it for now due to strong seasonality, but obviously if the negative trend continues, that is not good.

 

Oil prices and usage

  • Oil up +$0.46 to  $51.94 w/w,  up +$7.53 YoY 
  • Gas prices up +.03 to $2.24 w/w, up +$0.20 YoY 
  • Usage 4 week average down -3.0% YoY

 

The price of gas bottomed last winter at $1.69.  Usage had been almost uniformly positive until several weeks ago.  It has turned negative in 3 of the last 4 weeks.  Gas prices have gone sideways for the last three months, and are now higher YoY, making them a neutral, as were oil prices this week. In general oil is no longer a tailwind for the economy, but it hasn't quite turned into a headwind yet -- although it is getting closer.

 

Bank lending rates

 

Both TED and LIBOR rose since the beginning of last year to the point where both have usually been negatives, although there were some wild fluctuations.  Of importance is that TED was above 0.50 before both the 2001 and 2008 recessions.  While the TED spread turned positive for the previous five weeks, this week both were negatives.

 

Consumer spending

 

Both the Goldman Sachs and Johnson Redbook Indexes progressively weakened in pulses during 2015, before improving somewhat over the last 12 months.  Redbook has recently turned very weak.  Goldman and Gallup have both been generally more positive, although Gallup was wobbly for a month before turning positive again. The results were all positive this week.

 

Transport

Railroad transport

  • Carloads down -4.3% YoY
  • loads ex-coal down -3.6% YoY
  • Intermodal units up +2.1% YoY
  • Total loads down -1.1% YoY

Shipping transport

After turning negative throughout 2015, rail loads became "less worse" in January and showed continued improvement until going over the proverbial cliff all spring (typically down -10% or more). Since June, generally rail was neutral. For four of the last five weeks it was positive, before turning neutral again this week.

Harpex has recently resumed its decline again to repeated multi-year lows. BDI recently turned very positive before declining again in the last few weeks.  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 +2.4% w/w
  • Up +12.7% YoY

Until spring 2014, steel production had generally been in a decelerating uptrend.  It then gradually rolled over and got progressively worse in pulses through the end of 2015. This year it started out as "less worse" and has been neutral to positive for the last few few months.

 
 

SUMMARY: 

 

The interest rate components of the long leading indicators remain negative, except for corporate bonds, which are neutral.  Purchase mortgage applications were neutral and just barely above turning negative.  Refinance applications are negative. The yield curve and money supply as well as real estate loans remain positive.

 

Short leading indicators, including stock prices, jobless claims, industrial commodities, and the regional Fed new orders indexes, are all positive, joined this week by spreads.  Temp staffing, oil and gas prices, and the US$ are neutral.  Gas usage remained negative.

 

The coincident indicators faltered from their recent positive run.  Only consumer spending and steel were positives this week.  Rail, the BDI, and tax withholding are neutral or mixed.  The Harpex shipping index and LIBOR remain negative, this week joined by the TED spread.

 

Seasonality is a huge factor in the numbers at this time of year, and they are much more volatile than usual.  Thus I am discounting, e.g., the poor tax withholding result and gas usage for now. The shorter term 6 month forecast remains positive. While the US$ eased a little, bank rates turned negative again, which is a longer term concern.  Thus the 12+ forecast is bolstered by housing's continued strength, but the post-election increase in interest rates in particular are likely to put an end to that.

 

This coming week will be light, but I'll be paying attention to new and existing home sales, and I continue to expect mortgage applications to turn negative.

 

Have a nice weekend!

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