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By New_Deal_democrat September 20, 2014 9:42 am
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Weekly Indicators: signs of deceleration edition

The monthly data for August reported this week was mainly downbeat.  Housing permits and starts were down, which impacted the Index of Leading Economic Indicators, up a modest +0.2.  Industrial production and capacity utilization both declined.  The Empire Manufacturing index improved, while the Philly Manufacturing index was less positive.  Producer prices were flat, while consumer prices were down (actually a plus, since the main reason was a decline in the price of gasoline).

 

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.

 

Since I think the biggest question in the economy right now is whether and how much this year's decline in interest rates will positively impact housing, let's start there again: 

 

Housing metrics

 

Home Sales and Prices from DataQuick:

 

  •  -3.4% sales YoY (1 month rolling average) 
  •  +3.5% prices YoY (1 month rolling average) 
YoY sales have been negative and deteriorating for the last 6 weeks, while YoY median price comparison has been stable.
 

Mortgage applications from the Mortgage Bankers Association:

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

Both refinance applications and purchase applications have flattened out near their recent post-recession lows. This week, like last week, is an example of how sensitive they have been to relatively small changes in interest rates.

 

Real estate loans, from the FRB H8 report:

  • -0.1% w/w
  • +2.6% YoY
  • +5.4% 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.  These should be read as including commercial loans, which unlike home mortgage loans do not lead.

 

Interest rates and credit spreads

  • 4.79% BAA corporate bonds up +0.10%
  • 2.54% 10 year treasury bonds up +0.10%
  • 2.25% credit spread between corporates and treasuries unchanged

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 declined over .6%, or about 40% of that increase.  In the last several weeks they have increased significantly.  Spreads have widened since their expansion lows of a few months ago.

 

Money supply

M1 

  • +1.2% w/w
  • -0.4% m/m
  • +8.7% YoY Real M1

 M2 

  • +0.2% w/w
  • +0.4% m/m
  • +4.7% 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.  With some variation, both Real M1 and Real M2 improved substantially since.

 

Employment metrics

 Initial jobless claims

  • 280,000 down -35,000
  • 4 week average 299,500 down -4,500

These have been in the normal range for an economic expansion for 4+ months.

 

The American Staffing Association Index was unchanged at 101.  It is up +3.27%YoY.

 

This Index tied another seasonal all-time high for this week. The YoY comparison has been positive to strongly positive since early spring.

 

Tax Withholding

  • $118.0 B for the first 13 days of September vs. $111.2 B one year ago, up +$6.8 B or +6.1%.
  • $145.9 B for the last 20 days ending Thursday vs. $148.5 B for 20 days ending Thursday 1 year ago, down -$2.6 B or -1.8%.

 

After July's tax withholding turned negative, it was beginning to be a significant ground for concern.  August saw a return to a regular positive number, which continued into September - until this week.  We'll see if this continues next week.

 

Oil prices and usage

  • Oil up +$0.14 to $92.41 w/w
  • Gas down $-0.05 $3.41 w/w
  • Usage 4 week average YoY +.4%

 

The price of gas has declined seasonally in the last 6 weeks.  It remains below its prices of 1, 2, and 3 years ago.  The Oil choke collar has disengaged.

 

Consumer spending

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%. Redbook and the ICSC surveys remain quite positive, but Gallup turned negative YoY again in early August, then positive for a month, but last week it was negative again and this week barely positive.

 

Steel production from the American Iron and Steel Institute 

  • -0.2% w/w
  • +0.4% 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.  In the last several weeks, they have become more weakly positive.

 

Transport

 Railroad transport from the AAR

  • +4,400 carloads up +1.4% YoY
  • +8,700 carloads ex-coal up +4.9% YoY
  • +13,300 intermodal units +5.0% YoY
  • +17,400 total loads +3.1% YoY

Shipping transport

Rail traffic has been generally strong since early spring, although has backed off a little in the last few weeks. The BDI declined substantially since the end of last year, then week made a 5 month high earlier this month. Harpex has been generally flat for the last few months.  In the longer term, shipping rates bottomed about 2 years ago and have been in a slow and variable uptrend since.

 

Bank lending rates

LIBOR has risen slightly from its post-recession low set in May. The TED spread has also been trending slightly upward since November of last year, although it is still lower on a YoY basis. 

 

JoC ECRI Commodity prices

  • Down -2.88 to 124.24 w/w
  • +0.60 YoY 
Strong commodity price gains come in a strong economy. These continued to decline this week, partly due to oil, and partly due to international weakness.
 

SUMMARY:

Among the long leading indicators,  corporate bonds also were again negative this week, but are still near their post recession low in yields, which remains positive.  Meanwhile money supply, bank lending rates, and real estate loans remain quite positive. Mortgage applications improved last week with the downtick in interest rates.  The YoY comparisons in applications have been "less bad." Sales are also still negative.

 

The short leading indicators were generally positive.  The 4 week average for jobless claims fell back near its post-recession low. Credit spreads have recently widened slightly, but also remain near their post-recession low. Temporary jobs made another seasonal all-time high.  Commodities remain very weakly positive, partly on geopolitical and international economic concerns. The Oil choke collar has seasonally disengaged. Housing prices are still positive, although they are probably constraining sales at this point.

 

The coincident indicators were mixed.  Consumer spending was positive, but Gallup was once  again weak.  Steel production has declined in the last several weeks, although it is still positive YoY. Rail traffic was also again positive, but less so than recently. Shipping decreased slightly this week. Tax withholding for September was positive, but negative including the latter part of August.

 

The high frequency indicators have remained generally positive, but less so than during the summer months.  At the beginning of this year, based on the relative weakness of the long leading indicators at that time, I forecast deceleration in the second half of 2014.  The unusually severe winter, and accounting for the Affordable Care Act, together with the rebound from both in the second quarter, have played havoc with that forecast.  Still, I suspect the weakness in the long leading indicators at the end of last year is feeding through into some deceleration in the economy now, although I still see growth.  For now, the first part of 2015 also looks positive.

 

Have a nice weekend!

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