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By New_Deal_democrat April 18, 2015 9:31 am
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Weekly Indicators: the US consumer steps up to the plate edition

Monthly reports for March included the Index of Leading Indicators, up slightly. The Empire State survey showed a little contraction; the Philly Fed survey, a little expansion.  Wholesale inventories increased, while sales were flat.  Industrial production declined significantly. Housing starts rebounded, but by less than expected.  On the other hand, revised housing permits for February tied their November high. Both nominal and real retail sales also increased, taking back their February decline.  Consumer sentiment about the present and the future increased.  Producer and consumer prices increased as anticipated.

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.  The indicators will confirm a trend or indicate a switch in trend well before monthly reports.  For example, they forecast both the retail sales and industrial production numbers for March well before the monthly reports came out.

Coincident indicators remain front and center, but the biggest story of the week is in consumer spending, so let's put that at the very top:

Consumer spending

  • Johnson Redbook +1.1% YoY (1 year low)
  • Gallup daily consumer spending 14 day average at $92, up +$12 YoY

The Gallup report, which had been barely positive to outright negative since the beginning of this year, had its best week by far for the last 3+ months. This is only one week, of course, but this may finally be the signal that consumers are starting to spend their gas savings.

In the second half of 2014, Johnson Redbook was between +3.5% to +5%.  It has fallen out of that range in 11 of the last 13 weeks.  Last week's +3.4% and this week's +1.1%, the best and worst showings since the beginning of the year, are probably the result of the Easter holiday and  should be averaged, continuing their 2015 trend of being in the low 2%+ range.

Transport
 Railroad transport from the AAR

  • -7,500 carloads down -2.6% YoY 
  • +6,100 intermodal units up +2.3% YoY
  • -1,700 total loads down -0.3% YoY

Shipping transport

  • Harpex up +19 to 615 (4 year high)
  • Baltic Dry Index up +13 to 593

Rail traffic fell off a cliff six weeks ago. Intermodal traffic quickly turned positive again, but domestic carloads have remained generally negative.  After declining sharply for several months, making a 3 year low in mid-February, the BDI has rebounded mildly in the last eight weeks. Meanwhile, Harpex (container shipping) has turned up sharply for the last 3 months in a row, making continual new 4 year highs.  In the longer term, shipping rates bottomed about 3 years ago and have been in a slow and variable uptrend since, although the Baltic index did break that to the downside in the recent skid.

Steel production from the American Iron and Steel Institute 

  • +1.3%  w/w
  • -12.0% YoY

Steel production over the last several years had generally been in a decelerating uptrend.  Since  spring 2014, it turned mixed, and then cliff-dived in the two months. This may be the shipping and rail downturns feeding through the system, due to weak foreign economies and a strong dollar.

Commodity prices
JoC ECRI

  • Up +0.56 to 102.74 w/w
  • Down -20.14 YoY

BBG Industrial metals ETF

  • 119.42 up +1.60

Commodity prices as measured by ECRI remain close to their recent new low.  This is still probably due to international weakness, and mainly about oil.  Industrial metals have generally been declining for the last 3 years, made and retested a low in the last two months, have rebounded slightly and are bouncing sideways along that bottom.

 Interest rates and credit spreads

  • 4.45% BAA corporate bonds down -0.05%
  • 1.97% 10 year treasury bonds down -0.07%
  • 2.49% credit spread between corporates and treasuries up +0.02%

Interest rates for BAA corporate bonds made a 50+ year low 10 weeks ago. This was not confirmed by AAA corporate bonds.  After a possible once-in-a-lifetime low of 1.47% in July 2012, Treasuries rose to over 3% in late 2013, then fell through 2014 and into 2015 to back below 2%, rose back above 2%, and have now backed off again.  Spreads widened in recent months, a warning of near-term weakness, and in the last few weeks have wobbled back and forth near the neutral 2.50% range.

Housing metrics

Mortgage applications from the Mortgage Bankers Association:

  • -3% w/w purchase applications 
  • +7% YoY purchase applications
  • -2% w/w refinance applications

30 year conventional mortgage rate from Mortgage News Daily

  • 3.65%, down -0.05% w/w (low was 3.35% in December 2012)

YoY purchase applications established a "less awful" trend in the latter part of 2014.  They have turned positive for 8 of the last 9 weeks.  Mortgage rates are close to the bottom of their 12 month range, but have not made a new low in over two years.  As a result, mortgage refinancing remains relatively somnolent, although off its bottom.

Real estate loans, from the FRB H8 report:

  • -0.2% w/w
  • up +4.2% YoY

Loans turned up at the end of 2011, turned down in late 2013, but have remained positive to sharply positive since April 2014.

Money supply
M1

  • +1.9% w/w
  • +0.7% m/m
  • +9.8% YoY Real M1

M2

  • +0.7% w/w
  • +0.4% m/m
  • +6.3% YoY Real M2

Between actual deflation and possibly a mild European flight to safety, real YoY money supply is firmly positive.  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 2014.  Both Real M1 and Real M2 improved substantially since.

Employment metrics
 Initial jobless claims

  • 294,000 up +13,000
  • 4 week average 282,750 up +500

Initial claims remain well within the range of a normal economic expansion, as does the 4 week average.

The American Staffing Association Index 

  • Down -2 to 96
  • Up +1.3% YoY.

The YoY comparison had generally been positive to strongly positive since last spring.  After the YoY comparisons, while still positive, have generally declined significantly one month ago, and this week's significant weekly decline made them barely positive YoY.  This is a significant negative.

Tax Withholding

  • $103.9 B for the first 12 days of April vs. $96.5 B one year ago, up +$7.4 B or +7.7%
  • $163.9 B for the last 20 reporting days ending Thursday vs. $160.8 B one year ago, up +$3.1 B or +1.9%

Beginning with the last half of 2014, virtually all readings have been positive.

Oil prices and usage

  • Oil up +$4.37 to $56.14 w/w
  • Gas unchanged at $2.41 w/w
  • Usage 4 week average YoY +0.7%

The price of gas probably bottomed 10 weeks ago. Oil briefly made a new low two weeks ago.  The 2010-2013 Oil choke collar has been broken.  The interesting issue now is whether we are getting near the seasonal peak, even though gas prices have only risen about $0.45 off their January bottom.

Bank lending rates

  • 0.265 TED spread up +0.009 w/w
  • 0.1806 LIBOR up +0.006 w/w

LIBOR has risen sharply from its post-recession low set in May and recently made a one-year high. The TED spread moved generally sideways with a slight upward trend in the last 6 months of 2014, rising off its November 2013 low.  It made an 18 month high five weeks ago. The move in the last months (probably mainly due to the latest Euro-crisis), while a negative, still pales in comparison with the moves before the Great Recession. The trend remains, however, drifting slightly higher.

SUMMARY:

Among long leading indicators, yields on corporate bonds and treasuries, money supply, and real estate loans were all positive.  Purchase mortgage applications were positive for the fourth straight week, while refinancing is negative and still very close to its multi-year bottom. 

The short leading indicators were mixed.  Oil prices remain near their bottom.   Gas prices and usage remained positive, and initial jobless claims remained positive. Industrial metals were slightly positive.  Spreads between corporate bonds and treasuries increased slightly enough to be neutral. The surprise negative was in temporary staffing, which had a significant decline and was barely positive YoY.

Coincident indicators were mixed, but still with a negative bias.  Steel production is still over 10% down from a year ago.  Rail was again mixed although less negative than last week.  The TED spread and LIBOR remain barely negative.   Johnson Redbook consumer spending had its least positive week in a year, after last week having its best week in 3+ months. These two are probably due to Easter, and should be averaged for a slight positive reading.  On the other hand, there were three real positives: Tax withholding, shipping, and best of all, Gallup consumer spending.

This week modulated what has been the dominant theme of the last several months:  poor coincident indicators with positive long and short leading indicators. The big positive change was Gallup consumer spending.  This measure has consistently earned its bones ever since it correctly showed that consumers were not pulling in their horns during the "debt ceiling debacle" of 2011. Hopefully the improvement is not a one-week wonder.  On the other hand, there was a significant new negative in short leading indicators, as temporary staffing unexpectedly declined, which may mean that current industrial weakness is showing up in employment, remembering that hiring leads firing.

In summary, there is a shallow industrial recession, but a resilient consumer economy.

Have a nice weekend!

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