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By New_Deal_democrat June 28, 2014 8:01 am
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Weekly Indicators: sizzling start to summer edition

In the rear view mirror, Q1 GDP stunk even more than we thought before.  Extra caution is in order for this particular release, because it was the first time the BEA tried to quantify the impact of the ACA on spending.  The BEA itself acknowledged this difficulty. Health care costs accounted for -1.3% of the -3.0% adjustment in GDP from the advance estimate to this reading. 

 

In monthly data for May released this week, new home sales soared. Existing home sales increased modestly.  Personal income was up both nominally and in real terms. Personal spending was up nominally but flat when adjusted for inflaiton.  Durable goods orders fell.  Consumer sentiment as measured by the U. of Michigan rose, but as measured by the Conference Board fell.  As has been usual, it is the coincident present conditions index which rose while the forward looking expectations index has been flat.

 

A reminder that my weekly report on the high frequency weekly indicators is meant to 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 for you and me to mark our opinions to market on a regular basis.  While I have no pretension whatsoever to being able to measure GDP, these indicators if anything suggest that most estimates of the snapback in Q2 GDP may be too low.

 

The important recent concern has been the price of Oil, so let's start there again:

 

Oil prices and usage

  • Oil down -$1.52 to $105.74 w/w
  • Gas up +$.01 at $3.70 w/w
  • Usage 4 week average YoY up +1.5%

 

The price of gas has been flat for two months.  It is slightly above its price of 1 and 2 years ago, but less than its price of 3 years ago.  The 4 week average for gas usage has remained positive for a long time. The oil price spike due to Iraq has shown up at the gas pump.  The Oil choke collar remains slightly engaged.

 

Employment metrics

 Initial jobless claims

  • 312,000 unchanged
  • 4 week average 311,750 up +2,000

Both initial claims and the 4 week average both remain near post-recession lows.

 

The American Staffing Association Index was up 1 to 98.It is up +4.59% YoY.

 

This Index was again close to its all-time high for this week. The YoY comparison faded in February but since then has stabilized and then rallied.

 

Tax Withholding 

  • $150.6 B for the first 19 days of June vs. $143.1 B last year, up +$7.5 B or +5.2%
  • $151.1 B for the last 20 days ending Thursday vs. $151.1.0 B for 20 days ending Thursday 1 year ago, up +$6.7 B or +4.4%.

 

April was relatively poor and spilled over into May, but has rallied in the last month. 

 

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%.  While the ICSC and JR measures were again very positive, after showing outright YoY declines for two weeks Gallup was unchanged.

 

Steel production from the American Iron and Steel Institute 

  • +1.6% 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 has turned positive again in the last month, and this week was a very strong reading. 

 

Transport

 Railroad transport from the AAR 

  • +2,600 carloads up +0.9% YoY
  • +7,900 carloads up +4.6% ex-coal
  • +19,800 or +7.8% intermodal units
  • +22,700 or +4.2% YoY total loads

Shipping transport

This week is a good time to point out that, unlike the Baltic Dry Index, the Harpex index measures container shipping.  It thus should correlate quite well with intermodal rail traffic, and indeed both have been quite strong.  

 

Rail transport ended 2013 on a very positive note.  After a volatile winter, it rebounded sharply in spring, with another good week this week.  The Harpex index slowly rose, then stabilized, then slowly declined after July 2013, before rebounding to a new 1 year plus high in the last month. The Baltic Dry Index made a new 3 year high in December 2013, then fluctuated, and in the last several weeks has declined again.  Both the Baltic Dry Index and the Harpex Index were in a range near their bottom for about 2 years, but rose significantly above those ranges beginning in 2013.

 

Interest rates and credit spreads

  • 4.81% BAA corporate bonds down -0.01%
  • 2.63% 10 year treasury bonds unchanged
  • 2.18% credit spread between corporates and treasuries down-0.01%

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 over 1.6% above that mark in late 2013.  This year interest rates declilned from January through May, before rebounding slightly in June towards the middle of their 2014 range. Corporates have been improving, and as a result spreads are again near their expansion lows.

Housing metrics

Mortgage applications from the Mortgage Bankers Association:

  • w/w purchase applications down -1% (lowest since 5/13)
  • YoY purchase applications down -18%
  • w/w refinance applications down -1% (lowest since 5/13)

Both refinance applications and purchase applications are still near their recent post-recession lows, but as expected have begun to have less awful YoY comparisons now. Recently, with lower interest rates, the refinance index rebounded, but with the increases in the last three weeks, they are dead in the water again.

 

Housing prices

  • YoY this week +10.0%

Housing prices bottomed in November 2011 on Housing Tracker, and YoY comparisons rose to just shy of +12% in late 2013, and had remained above +10% YoY all during 2014, making this week's number a 1 year low increase.  The still sharp YoY increase in prices, which are now roughly halfway between their 2006 peak and 2012 trough, might actually be a negative, given higher mortgage rates. 

Real estate loans, from the FRB H8 report:

  • +0.4% w/w
  • +1.5% YoY
  • +5.2% 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, but turned positive YoY in March 2014, and have remained positive since.

 

Money supply

M1 

  • -0.1% w/w
  • +1.9% m/m
  • +10.5% YoY Real M1

 M2 

  • unchanged% w/w
  • +0.4% m/m
  • +4.5% YoY Real M2

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 Real M1 has really picked up in the last several weeks, while Real M2 is still stable.

 

Bank lending rates

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

 

JoC ECRI Commodity prices

  • Up +0.39 to 128.66 w/w
  • +6.04 YoY 

My summary is going to sound like a broken record, but if so it is a good broken record!  With only one more week of 2nd quarter high frequency data, mortgage applications remain the only persistent significant negative.   The other two negatives from last week:  the spike in the price of Oil, and Gallup spending, both abated somewhat.  Everything else was positive to strongly positive.

 

As to the long leading indicators, money supply continued positive.  Bank lending rates remain low.  Real estate loans maintained their recent positive bias. Only mortgage applications remained negative (and housing prices, while positive, may have overshot at this point).  The yield on corporate bonds declined, while treasuries rose from recent lows.

 

The short leading indicators, ex-oil, have a positive bias.  Initial jobless claims were positive ,and the 4 week average is again close to its expansion low. Credit spreads remained near their post-recession low. Temporary jobs were again near their seasonal all-time high.  Commodities were very positive. The Oil choke collar, however, is still slightly engaged.

 

The coincident reports were mixed with a positive bia.  While ICSC and JR consumer spending were quite positive, Gallup went from negative to unchanged. This may be payback for the two exceptionally strong weeks at the end of May, and may also reflect the lack of a major heat wave driving summer seasonal shopping.   Rail transport, steel production, and container shipping were quite strong.  Other shipping, as reflected on the BDI, has turned weak.  Tax withholding was positive.

 

The bottom line is that growth through the end of this year and into 2015 remains almost certain.

 

Have a nice weekend!

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