Interest rates and credit spreads
- BAA corporate bond index 4.67% up +.04% w/w (1 yr range: 4.15 - 4.90)
- 10 year treasury bonds 2.82% down -02% w/w (2.05 - 2.93)
- Credit spread 1.85% up +.06% w/w (1.56 - 2.30)
- 0.56%, up +0.01% w/w (.50 - 1.30)
- 4.54%, up +0.02% w/w (3.84 - 4.58)
BAA Corporate bonds, having risen above 4.65%, are now neutral. Mortgage rates and treasury bonds are now both negatives. The trend for these for most of 2017 was neutral. The yield curve is positive, while the spread between corporate bonds and treasuries is strongly positive.
Housing
Mortgage applications
- Purchase apps up +1% w/w
- Purchase apps up +6% YoY
- Refi down -5% w/w
- Down -0.1% w/w
- Up +3.6% YoY ( 3.3 - 6.5)
Refi has been dead for some time. Purchase applications were strong almost all last year, but began to falter in late December, turning neutral and briefly even negative. They were less than +3% YoY for two weeks, and thus neutral, before rebounding to positive for the last two weeks.
The growth rate of real estate loans remains neutral.
Money supply
M1
- +0.3% w/w
- +0.4% m/m
- +4.8% YoY Real M1 (3.8 - 6.9)
- +0.1% w/w
- +0.4% m/m
- +1.6% YoY Real M2 (1.6 - 4.1)(new 7 year low)
Since 2010, both real M1 and real M2 were resolutely positive. Both decelerated substantially in 2017. Real M2 growth has fallen below 2.5% and is thus a negative.
Real M1 has improved in the last two weeks. Should real M1 YoY growth fall below 3.5% and turns negative on a 6 month basis, I will downgrade it to neutral.
Credit conditions (from the Chicago Fed)
- Financial Conditions Index down -0.01 -0.78
- Adjusted Index (removing background economic conditions) up +0.01 to -0.55
- Leverage subindex down -0.02 to -0.53
Trade weighted US$
- Up +0.50 to 118.57 w/w -4.9% YoY (last week) (broad) (116.74 -128.62)
- Down -0.73 to 89.48 w/w, -10.31% YoY (yesterday) (major currencies)
The US$ appreciated about 20% between mid-2014 and mid-2015. It went mainly sideways afterward until briefly spiking higher after the US presidential election. It has been a positive since last summer.
Commodity prices
JoC ECRI
- Down -1.28 to 110.30 w/w
- Up +4.25 YoY
- 128.55 down -3.98 w/w, up +10.97% YoY (108.00 - 140.86)
Stock prices S&P 500
- Down -5.9% w/w to 2588.26
Regional Fed New Orders Indexes
(*indicates report this week)
- Empire State up +3.3 to +16.8
- Philly up +11.2 to +35.7
- Richmond up +11 to +27
- *Kansas City down -17 to -1
- Dallas down -0.2 to +25.3
- Month over month rolling average: down -2 to +21
Employment metrics
Initial jobless claims
- 229,000 up +3,000
- 4 week average 223,750 up +2,250
Initial claims are near 40+ year lows and so are very positive. The YoY% change in these metrics had been decelerating but is now back on its multi-year pace.
The American Staffing Association Index
- Unchanged at 94 w/w
- Up +0.9% YoY
This index was generally neutral from May through December 2016, and then positive with a few exceptions all during 2017. It was negative for over a month, but returned to being weakly positive.
Tax Withholding
- $221.8 B for the last 20 reporting days vs. $223.7 B one year ago, down -$1.9 B or -0.8%
- 20 day rolling average adjusted for tax cut [+$4 B]: up +$2.1 B or +0.9%
With the exception of the month of August and late November, this was positive for almost all of 2017. It has generally been negative since the effects of the recent tax cuts started in February.
I am discontinuing the intramonth metric for the remainder of this year, since the kludge to guesstimate the impact of the recent tax cuts makes it too noisy to be of real use. Based on Treasury Dept. estimates, this is roughly $4 Billion over a 20 day period, so I am using that for a temporary adjustment this year, during which we have to take this measure with a big grain of salt.
- Oil up +$3.71 to $65.95 w/w, up +39.4% YoY
- Gas prices up +$0.04 to $2.60 w/w, up $0.28 YoY
- Usage 4 week average up +1.9% YoY
The price of gas bottomed 2 years ago at $1.69. With the exception of July, prices generally went sideways with a slight increasing trend in 2017. Usage turned negative in the first half of 2017, but has almost always been positive since then.
A 40% increase in gas prices YoY has usually meant a deceleration in YoY real GDP growth of roughly 1%, although as a share of disposable income gas prices are still low.
Bank lending rates
- 0.603 TED spread up +0.1603 w/w (new 18 month high)
- 1.870 LIBOR up +0.006 w/w
Both TED and LIBOR rose in 2016 to the point where both were usually negatives, with lots of fluctuation. Of importance is that TED was above 0.50 before both the 2001 and 2008 recessions. The TED spread was generally increasingly positive in 2017, while LIBOR was increasingly negative. This week the TED spread returned to being a negative.
Consumer spending
- Johnson Redbook up +3.2 YoY
- Goldman Sachs Retail Economist -1/2% w/w, +2.7% YoY
Both the Goldman Sachs and Johnson Redbook Indexes generally improved from weak to moderate or strong positives during 2017.
Transport
Railroad transport
- Carloads up +7.5% YoY
- Intermodal units up +12.7% YoY
- Total loads up +10.1% YoY
Shipping transport
- Harpex up +18 to 598 (440 - 598) (new 3 year high)
- Baltic Dry Index down -52 to 1117 (~700 - `1700)
Rail was generally positive since November 2016 and remained so during all of 2017 with the exception of a period during autumn when it was mixed. This year in January and February, carloads were usually negative, while intermodal (mainly imports) were positive. This has now resolved to positive.
Harpex made multi-year lows in early 2017, then improved, declined again, and then improved yet again to recent highs. BDI traced a similar trajectory, and made 3 year highs near the end of 2017, although it has since declined again. 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 +0.7% w/w
- Up +6.4% YoY
Steel production improved from negative to "less bad" to positive in 2016 and with the exception of early summer, remained generally positive in 2017. With one exception it had been negative since the beginning of this year, but has been positive for the last month.
SUMMARY:
The news this week among the long leading indicators is that corporate bond yields have risen enough to turn from a positive to neutral. Spreads are positive, as are the more leading Chicago Fed Financial Conditions Indexes, purchase mortgage applications, and Real M1. Growth in real estate loans remains neutral. Treasuries, mortgage rates, refinance applications, and real M2 are all negative.
Among the short leading indicators, industrial metals, the regional Fed new orders indexes, spreads, financial leverage, the US$, jobless claims, stocks, and gas prices and usage all remain positive. Staffing is weakly positive. Oil prices and the ECRI commodity index are neutral.
Among the coincident indicators, positives included consumer spending, Harpex, rail and steel. LIBOR remains negative. Adjusted tax withholding was negative again this week, but I am giving this measure very little weight. This week the TED spread turned negative, and the Baltic Dry Index declined enough to turn neutral.
The short term forecast is very positive, as corroborated by the recently very strong index of Leading Indicators, although gas and oil prices bear closer watching. The nowcast is also positive, despite weakening in several components.
The long term forecast remains weakly positive, with several indicators jumping in and out of neutral status from week to week, but the overall theme is slow deterioration.
Have a nice weekend!
