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By New_Deal_democrat February 21, 2015 9:36 am
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Weekly indicators: a Siberian chill to coincident indicators edition

Monthly January reports were highlighted by continued positive leading indicators, including an increase in housing permits. Housing starts declined.  Both the Empire and Philly manufacturing indexes were lower but still positive. Industrial production increased, and capacity utilization was flat, but December's reports were revised down. Producer prices were down significantly.

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.  I list the data and try to keep commentary sparse, so you can draw your own conclusion.

As I have done recently, I am generally going in order of long leading, then short leading, then coincident indicators.  

 Interest rates and credit spreads

  • 4.64% BAA corporate bonds up +0.11%
  • 2.11% 10 year treasury bonds up +0.10%
  • 2.53% credit spread between corporates and treasuries up +0.01%

Interest rates for corporate bonds rose further from their 50+ year low set three weeks ago.  After a possible once-in-a-lifetime low of 1.47% in July 2012, Treasuries rose to over 3% in late 2013, then fell through 2014 and into 2015 to back below 2%, before rising back above 2% this week. Corporate bond yields had trended generally sideways since May 2014, before breaking out to the downside 7 weeks ago.  Spreads widened in recent months, a warning of near-term weakness, but have narrowed in the last three weeks and are only slightly negative now.

Housing metrics

Home Sales and Prices from DataQuick:

  •  +4.2% sales YoY, up +0.2% (1 month rolling average)
  •  +3.0% prices YoY, down -0.5% (1 month rolling average) 

YoY sales were positive for the 14th week in a row, while prices appreciation has continued.

Mortgage applications from the Mortgage Bankers Association:

  • -7% w/w purchase applications 
  • +1% YoY purchase applications
  • -16% w/w refinance applications

YoY purchase applications established a "less awful" trend in the latter part of 2014, and after   four straight week of being positive, were negative again this week.

Real estate loans, from the FRB H8 report:

  • up +0.2% w/w
  • up +3.3% YoY

Loans turned up at the end of 2011, turned down in late 2013, but have remained positive to sharply positive since April 2014.

Money supply
M1

  • -0.4% w/w
  • +2.1% m/m
  • +8.5% YoY Real M1

M2

  • -0.1% w/w
  • +1.1% m/m
  • +5.5% 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 2014.  Both Real M1 and Real M2 improved substantially since, and both remain firmly in positive territory.

Employment metrics
 Initial jobless claims

  • 283,000 down -21,000
  • 4 week average 283,250 down -6,500

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

The American Staffing Association Index 

  • Down -1 to 96.  
  • Up +5.63% YoY.

The YoY comparison has generally been positive to strongly positive since last spring.

Tax Withholding

  • $138.7 B for the first 13 days of February vs. $130.7 B one year ago, up +$8.1 B or +6.2%
  • $193.1 B for the last 20 reporting days ending Thursday vs. $181.4 B one year ago, up +$11.9 B or +6.4%

In the last half of 2014, virtually all readings were positive.  The last 20 days are within the range of past positive readings.

Oil prices and usage

  • Oil down -$1.97 to $50.81 w/w
  • Gas up +$0.08 to $2.27 w/w
  • Usage 4 week average YoY +3.5%

The price of gas may have bottomed three weeks ago.  The 2010-2013 Oil choke collar has been broken, and usage has been responding in a big way.

Consumer spending

  • Johnson Redbook +3.2% YoY
  • Gallup daily consumer spending 14 day average at $81, down -$8 YoY

Once again, the Gallup report is negative, and increasingly so.  In 2013 and early 2014 the Johnson Redbook YoY was between from +2% to a high over +4%. In the second half of 2014, the range increased to +3.5% to +5%.  It has fallen out of that range in 4 of the last 5 weeks.  This is particularly concerning since YoY comparisons are a little suspect now, since one year ago was the worst of the "polar vortex" decline.

Steel production from the American Iron and Steel Institute 

  • -0.5% w/w
  • -3.5% YoY

Steel production over the last several years has generally been in a decelerating uptrend.  Since last spring, they have alternated between slightly positive and slightly negative.  This week was again particularly negative.

Transport
 Railroad transport from the AAR

  • +18,100 carloads up +6.7% YoY 
  • -200 intermodal units down -0.1% YoY
  • +17,800 total loads up +3.5% YoY

Shipping transport

  • Harpex up +6 to 484 (4 year high)
  • Baltic Dry Index down -17 to 513 (3 year low)

Rail traffic made a new all time high seven weeks ago. Three weeks ago it had rare negative comparisons, but has come back since.  The BDI has declined sharply in the several months. On the other hand, Harpex has turned up sharply in the 6 weeks.  In the longer term, shipping rates bottomed about 2 years ago and have been in a slow and variable uptrend since, although the Baltic index shows signs of breaking that to the downside. This is probably because Harpex is primarily container shipping, and the BDI is primarily single hull shipping (e.g., oil).

Bank lending rates

  • 0.249 TED spread down -0.01 w/w
  • 0.174 LIBOR up +0.02 w/w (1 year high)

LIBOR has risen sharply from its post-recession low set in May and made another new one-year high this week. The TED spread moved generally sideways with a slight upward trend in the last 6 months of 2014, rising off its November 2013 low.  It has risen further in the last month and made another 18 month high one week ago. While there has been enough of an increase for me to score these as negative, they need to be kept in perspective. The move in the last months (probably mainly due to the latest Euro-crisis) has been pale compared with the moves before the Great Recession.

Commodity prices
JoC ECRI

  • Down -0.27 to 100.64 w/w
  • Down -21.04 YoY

BBG Industrial metals ETF

  • 115.78 down -2.68 

Commodity prices rebounded off a possible long term low three weeks ago.  This is still probably due to international weakness, and mainly about oil.  Industrial metals were a component of ECRI's original short leading weekly index, and so can confirm or contrast with oil prices. Industrial metals have generally been declining for the last 3 years, and made a new low three weeks ago, and have moved generally sideways since.

SUMMARY:

Negative coincident indicators continued over from last week.

Among long leading indicators, yields on corporate bonds and treasuries increased slightly, reflecting an abatement of immediate deflationary concerns, but they are still positive. Money supply remains quite positive.  Real estate loans, and house sales as reported by DataQuick were positive.  Mortgage applications were back in negative territory again this week.

The short leading indicators were mixed.  Oil prices, industrial metal prices and commodities more broadly all declined slightly. Spreads between corporate bonds and treasuries also remained slightly negative.  Temporary staffing and gas prices and usage remained positive, and initial jobless claims remain within a very positive range.

Coincident readings were much more negative. Consumer spending as measured by Gallup was negative yet again, although Johnson Redbook had a more positive week.  Tax withholding, Rail, and Container shipping were all positive.  On the other hand, Steel production and single hull shipping were negative. The TED spread backed off slightly, while LIBOR was slightly negative.

The big negative is that we are seeing YoY negative comparisons with some of the worst readings last year.  Still, with the exception of commodities, generally the long and short leading indicators are positive

Have a nice weekend!

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