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By New_Deal_democrat August 20, 2016 11:09 am
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Weekly Indicators: slight weakening contrasts with strong industrial production edition
July data was all positive or unchanged.  The Index of Leading Indicators increased smartly for the third time in four months.  Both industrial production and capacity utilization had big increases.  Housing starts also increased, although permits were essentially unchanged. Consumer prices were also unchanged.
 

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

  • 4.23% BAA corporate bonds up +.02%
  • 1.53% 10 year treasury bonds up +.03%
  • 2.70% credit spread between corporates and treasuries down -.01%
Yield curve, 10 year minus 2 year:
  • 0.82%, up.01% w/w
30 year conventional mortgage rate:
  • 3.42%, up +.05% w/w

Yields on corporate bonds and treasuries recently made new lows, strongly suggesting that the expansion will continue through mid-2017.  On the other hand, mortgages have failed to make a new low for over 3 years, thus turning yellow (caution or neutral vs. positive) as a recession indicator.  Spreads remain neutral. Yields are still normally positive.

 

Housing

 

Mortgage applications

 

  • purchase applications down -4% w/w
  • purchase applications up +10% YoY
  • refinance applications down -4% w/w
 
Real Estate loans
  • Up +0.1% w/w
  • Up +7.1% YoY 

Mortgage applications turned up early in 2015 in response to very low rates. Purchase applications are very positive, while refinancing was moving more sideways with a slight positive trend earlier this year before spiking in response to low rates following the Brexit vote.

Real estate loans have been firmly positive for 3 years.

 

Money supply

M1

  • +2.2% w/w
  • -0.2% m/m 
  • +5.2% YoY Real M1
M2
  • Unchanged w/w  
  • +1.0% m/m 
  • +6.7% YoY Real M2

Real M1 decelerated markedly in January to the point where it was a very weak positive, and has fluctuated since then.   Real M2 also decelerated, but has been more firmly positive.  Both have been very positive for the last three months.

 

Trade weighted US$

  • Down -1.0% to 120.48 w/w, up +0.9% YoY (one week ago) (Broad)
  • Down -1.22 to 94.50 w/w, down -1.5% YoY (yesterday) (major currencies)

 

The US$ appreciated about 20% between mid-2014 and mid-2015.  It has gone mainly sideways since then, and for the last 6 months has generally been neutral or a positive.

 

Commodity prices

JoC ECRI

  • Up +1.13 to 94.90 w/w
  • Up +4.25 YoY
BBG Industrial metals ETF
  • 100.31 up +1.15 w/w, up +0.9% YoY
Commodity prices as measured by industrial metals bottomed last November. ECRI subsequently turned up as well. Both have now turned positive.

 

Stock prices S&P 500

 

  • Unchanged w/w (all time high intraweek) 
Stock price have become a positive since making new all-time highs in the last two months.
 

Regional Fed New Orders Indexes

(*indicates report this week)

  • *Empire State up +2.9 to +1.0
  • *Philly down -19.0 to -7.2
  • Richmond up +32 to +15
  • Kansas City unchanged at -5
  • Dallas up +6 to -8
  • Month over month rolling average: down -3 to -1
I inaugurated coverage of these indexes as an experiment to see if they helped forecast the ISM new orders index, which is an excellent short leading indicator for sales and industrial production roughly by 6 months.   In May and June there was a serious divergence between the two, but in July the regional indexes became on balance positive.

 

Employment metrics

 Initial jobless claims

  • 262,000 down -4,000
  • 4 week average 265,250 up +2,500

 

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 95 w/w
  • Down -0.39 YoY

This index turned negative in May 2015, getting as bad as -4.30% late last autumn.  Since the beginning of the year it became progressively "less bad" and for the last 10 weeks has either been positive YoY, or so close as to be a neutral.

 

Tax Withholding

  • $125.7 B for the first 14 days of August vs. $122.6 B one year ago, up +$3.1 B or +2.5%
  • $168.1 B for the last 20 reporting days vs. $163.1 B one year ago, up $5.0 B or +3.1%

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.  For me to think it has reached a turning point, it should show less than +2% growth YoY on a consistent basis.   

 

Oil prices and usage

  • Oil up +$6.59 to  $48.57 w/w
  • Gas prices unchanged at $2.15 w/w 
  • Usage 4 week average up +1.7% YoY

 

The price of gas bottomed last winter at $1.69.  Usage turned briefly negative at the beginning of the year, but has been positive ever since.  Gas prices are now seasonally declining from their 2016 high.

 

Bank lending rates

  • 0.530 TED spread down -0.010 w/w (down from 5 year high)
  • 0.512 LIBOR up +.0.004 w/w (new 5 year high)

 

Both TED and LIBOR were already rising 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.  Both have now reached that level.

 

Consumer spending

 

Both the Goldman Sachs and Johnson Redbook Indexes progressively weakened in pulses during 2015, before improving somewhat since the beginning of last November.  Redbook has recently turned very weak (reflecting a secular decline in brick-and-morter sales?) while Goldman has turned more positive.  Gallup has been very positive for the vast majority of this year.

 

Transport

Railroad transport

  • Carloads down -7.1% YoY
  • loads ex-coal down -2.6% YoY 
  • Intermodal units down -2.4% YoY
  • Total loads down -5.3% YoY

Shipping transport

Rail traffic turned negative and then progressively worse in pulses 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). It has been trending incrementally less awful except for the last two months, even scoring neutral two weeks ago.

After rising briskly last spring, both the BDI and Harpex recently declined again to new multi-year lows. BDI has improved enough since then to score a neutral, while Harpex has recently resumed a slight decline. 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

  • Down -0.5% w/w
  • Down -2.4% 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 turned positive several months ago, but recently turned negative again.  This appears to be due to renewed global Chinese "dumping."

 
 

SUMMARY: 

 

With one exception, all long leading indicators are either positive or neutral.  Interest rates for corporate bonds, treasuries, the yield curve, real money supply, real estate loans, purchase mortgage applications, and mortgage rates are positive. Refinance applications are neutral.  Since corporate and treasury interest rates made new lows, this resets the long leading indicator clock so far as they are concerned.  On the other hand, mortgage rates still have not made new lows for over 3 years, so this remains a big negative in the longer term forecast.

 

Short leading indicators are all also either positive or neutral.  Commodities across the board have improved so much that they are now a positive.  Stock prices are positive.  The US$ against major currencies is positive, and against all currencies neutral. Jobless claims, oil and gas prices, and usage, all remain very positive. Only the spread between corporates and treasuries is a neutral. The volatile regional Fed average turned back to negative this week.

 

The coincident indicators turned a little more mixed this week. Consumer spending as measured by Gallup and Goldman Sachs are positive, while Johnson Redbook was negative this week. Temp staffing is neutral.  Steel, rail, shipping, and bank rates remain negative.  Rail and the BDI have been getting "less bad" while bank lending rates have been getting a little worse.

 

The recent paradigm is intact.  With one exception, the long and short leading indicators are either positive or neutral, while the coincident indicators are mainly negative.  Importantly, I would like to see the recent apparently decisive turn upward in industrial production and the index of leading indicators reflected more in temp staffing and rail.

 

This coming week I'll be paying particular attention to new home sales, the Richmond and Kansas City Fed surveys, and Q2 corporate profits from the revised GDP report.

 

Have a nice weekend!

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