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By New_Deal_democrat November 12, 2016 11:42 am
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Weekly Indicators: the spike in interest rates and stocks is the story edition

In the rear view mirror, in Q3 bank lending standards loosened up a little bit.

The September JOLTS survey was mixed, with higher quits and lower job openings and hires.  The October Labor Market Conditions Index was positive, and Michigan consumer sentiment also registered improvement.

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

  • Dow Jones corporate bond index 363.71 down -5.49% w/w (2016 high is 395.36, 2016 low is 341.41)
  • 2.07% 10 year treasury bonds up +.26%
  • BofA/ML B Credit spread down -.24% to 5.04% (12 month low of 4.62% on Oct 22)
Yield curve, 10 year minus 2 year:
  • 1.17%, up +.17% w/w
30 year conventional mortgage rate
  • 3.85%, up +.26% w/w

After nearly 100 years, last month Moody's ceased making its corporate bond index available.  I have substituted other indexes which have very similar histories.


Yields on corporate bonds and treasuries spiked to six month highs this week, as did mortgage rates, enough to score them as neutral vs. positive. They last made new lows after the Brexit vote in June, 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.  Yields are also still positive, but spreads are neutral.




Mortgage applications


  • purchase applications down -1% w/w
  • purchase applications up +11% YoY
  • refinance applications down -3% w/w
Real Estate loans
  • Up +0.1% w/w
  • Up +7.3% YoY

Mortgage applications turned up early in 2015 in response to very low rates.  They briefly  spiked in response to low rates following the Brexit vote.  Purchase applications last made a new high at the beginning of June.  They have wobbled between being positive and neutral for the last 8 weeks, and were positive this week. They may go YoY negative in the next month.  If so, they will flip to becoming an important negative. Refinance applications remain a positive.


Real estate loans have been firmly positive for over 3 years.


Money supply


  • +0.4% w/w
  • Unchanged m/m
  • +7.4% YoY Real M1
  • +0.2% w/w    
  • +0.6% m/m
  • +6.1% YoY Real M2

Both real M1 and real M2 have been firmly positive almost all year.


Trade weighted US$


  • Down -0.47 to 123.11 w/w, up +1.8% YoY (one week ago) (Broad)
  • Up +1.99 to 99.06 w/w, up +0.1% 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 8 months has generally been neutral or a positive. They have been neutral for 5 of the last 6 weeks.


Commodiy prices


  • Up +3.10 to 96.56 w/w
  • Up +18.22 YoY
BBG Industrial metals ETF
  • 110.09 up +6.07 w/w, up +19.8% YoY
Commodity prices bottomed about one year ago.last November. Recently metals turned negative, but have now resumed being positive, with a big positive move this week.


Stock prices S&P 500


  • Up +3.8% w/w
Stock prices became a positive having made new all-time highs in summer. They have not made new 6 month lows, so they remain a positive. It will take a continued sideways move or a significant further decline for this to change in the immediate future. The S&P did not quite make a new 6 month high this week.

Regional Fed New Orders Indexes

(*indicates report this week)(none this week)

  • Empire State up +1.9 to -5.6
  • Philly up +14.9 to +16.3
  • Richmond down -5 to -12
  • Kansas City up +2 to +14
  • Dallas down -0.6 to -3.5
  • Month over month rolling average: unchanged at +1
In the months since I started coverage of this metric, the regional average has been more negative that the ISM manufacturing index, but has accurately forecast its month over month direction.


Employment metrics

 Initial jobless claims

  • 254,000 down -11,000 
  • 4 week average 259,750 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


  • Up +1 to 98 w/w
  • Down -1.13 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 few months has been so close to positive YoY as to be a neutral, as it was again this week.


Tax Withholding

  • $64.1 B for the first 7 days of November vs. $68.9 B one year ago, down -$1.8 B or -1.8%
  • $173.5 B for the last 20 reporting days ending Wednesday vs. $163.7 B one year ago, up +$9.8 B or +6.0%

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.  With one brief exception, the last few months have shown a marked improvement.


Oil prices and usage

  • Oil down -$0.97 to  $43.14 w/w,  down -$5.08 YoY
  • Gas prices unchanged at $2.23 w/w, unchanged YoY
  • Usage 4 week average down -2.1% YoY


The price of gas bottomed last winter at $1.69.  Usage had been almost uniformly positive until several weeks ago.  It is now a negative.  Gas prices are off their summer seasonal high, but have gone sideways for the last three months. After briefly turning UP YoY, gas prices are neutral again.  Oil is no longer a tailwind for the economy, but it isn't a headwind yet.


Bank lending rates

  • 0.444 TED spread down -0.79 w/w (back to positive)
  • 0.540 LIBOR up +0.1 w/w


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 recently reached that level. Note that the TED spread dipped back into positive territory this week.


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.  Goldman and Gallup have both been generally more positive, although Gallup did wobble last month. The results were thoroughly mixed this week.



Railroad transport

  • Carloads down -0.4% YoY
  • loads ex-coal up +0.6% YoY
  • Intermodal units up +1.7% YoY
  • Total loads up +0.7% 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) in spring.  It trended incrementally less awful since June, generally has scored neutral.  This week it turned positive.

Harpex has recently resumed its decline again to repeated multi-year lows. BDI recently turned positive, then neutral, and is now positive 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 +1.7% w/w
  • Down -4.2% 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 a few months ago, but recently turned negative again.




The big spike in yields this week is enough to move most of the interest rate components of the long leading indicators from positive to neutral. A significant negative remains that mortgage rates have not made new lows for over 3 years. Although positive this week, purchase mortgage applications have been generally neutral for several months, and I suspect will turn negative shortly. The yield curve, on the other hand, has turned more positive, and money supply also remains positive.


Short leading indicators are positive with the exception of gas prices and the US$, which are neutral.  Stock prices, jobless claims, industrial commodities, the regional Fed new orders indexes, and oil prices are all positive.


The coincident indicators remain mixed but have tilted more positive. In particular rail, the TED spread, and the BDI are all positive now.  Tax withholding remains positive. Temp staffing and consumer spending are neutral.  Steel, the Harpex shipping index, LIBOR, and gas usage remain negative.


The big news this week was obviously the spike in interest rates as well as stock prices. Presumably this was about the US elections, although interestingly, the move started Monday, not Wednesday (did big investing outfits know something poll aggregators and pundits didn't?).  I caution you in the strongest terms, no matter what your politics are, not to leap to any conclusion about the immediate future for the economy as a result of those ideological feelings.


The recent weakness in the coincident indicators has largely abated. Further, there is literally nothing in either the long or short leading indicators which is outright negative now. Indian Summer for the expansion remains the story.  On the other hand, if the spike higher in interest rates persists, this will have major ramifications for the long leading indicators going forward.


Have a nice weekend!

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