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By New_Deal_democrat November 8, 2014 9:26 am
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Weekly Indicators: US growth intact but global weakness shows edition

The economic news this week was dominated by the October jobs report, a solid report showing another 200,000+ jobs added, and the unemployment rate fell 01% to 5.8%. Nominal wages rose slightly.  The only bad item was an additional 200,000 persons who want a job dropped out of the labor force entirely.  In other news for October, both ISM manufacturing and nonmanufacturing indexes remained very positive. Auto sales were flat.

September factory orders and construction spending both fell.  In the rear view mirror, 3Q productivity was up smartly, and unit labor costs up slightly.

My usual reminder that the high frequency weekly indicators 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 to mark one's opinions to market on a regular basis.

Let's start with interest rates:

 Interest rates and credit spreads

  • 4.72% BAA corporate bonds up +0.04% 
  • 2.32% 10 year treasury bonds up +0.07% 
  • 2.40% credit spread between corporates and treasuries down -0.03% 

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 to over 3% in late 2013.  This year interest rates have declined over 0.8%, or more than 50% of that increase, at their lowest point.  Bond yields are now moving in the direction of stocks again, after moving in the opposite direction in the first half of this year.  Spreads have risen significantly since their expansion lows of a few months ago.

Housing metrics

Home Sales and Prices from DataQuick:

  •  -0.6% sales YoY, down -0.1% (1 month rolling average) 
  •  +3.3% prices YoY, down -0.8% (1 month rolling average) 

YoY sales have been negative for some time, but his week was the best YoY comparison in sales for the last 10 weeks, while YoY median price comparison has been stable.

Mortgage applications from the Mortgage Bankers Association:

  • w/w purchase applications up +3%
  • YoY purchase applications down -13%
  • w/w refinance applications down -6%

Refinance applications bounced sharply off their multi-year lows,while purchase applications also improved slightly.

Real estate loans, from the FRB H8 report:

  • -0.4% w/w
  • +3.0% YoY
  • +5.7%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.  They turned positive YoY in March 2014, and have remained positive to sharply positive since.  These should be read as including commercial loans, which unlike home mortgage loans do not lead.

Money supply

  • -0.5% w/w
  • +0.3% m/m
  • +6.9% YoY Real M1


  • +0.3% w/w
  • +0.6% m/m
  • +3.7% YoY Real M2

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 this year.  Both Real M1 and Real M2 improved substantially since.  In the last month, however, growth in both M1 and M2 has declined somewhat.

Employment metrics

  •  Initial jobless claims 279,000 down -9,000
  • 4 week average 279,000 down -2,000

These have been in the normal range for an economic expansion for 8 months.  The 4 week average made yet another 14 year low.

The American Staffing Association Index was unhanged 105.  It is up +4.5% YoY.

This Index was equal to its 2007 all-time high for this week. The YoY comparison has generally been positive to strongly positive since early spring.

Tax Withholding

  • $168.6 B for the month of October vs. $156.7 B one year ago, up +$11.9 B or +7.6%
  • $155.9 B for the last 20 days ending Thursday vs. $148.0 B one year ago, up +$7.9 B or +5.3%

When July's tax withholding turned negative, it was beginning to be a significant ground for concern.  With the exception of one week, however, since then all readings have been positive.

Oil prices and usage

  • Oil down -$1.89 to $78.65 w/w
  • Gas down -$0.07 to $2.99 w/w
  • Usage 4 week average YoY -0.9%

The price of gas has declined seasonally in the last 11 weeks, and is now at a 4 year low.  The Oil choke collar has disengaged.

Consumer spending

  • ICSC up -0.6% w/w.  +1.8% YoY
  • Johnson Redbook +3.9% YoY
  • Gallup daily consumer spending 14 day average at $88 down -$1 YoY

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%. All three had good readings last week,but this week the ICSC joined Gallup with a poor reading. For now, I am going to put this down to statistical noise, since most data suggests a good holiday shopping season. Another week or two should tell.

Steel production from the American Iron and Steel Institute 

  • -1.1% w/w
  • -0.9% 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 then turned increasingly positive through August.  They then deteriorated and in the last month, they have generally been negative.

 Railroad transport from the AAR

  • +12,600 carloads up +4.3% YoY
  • +15,600 intermodal units +5.9% YoY
  • +28,400 total loads +5.1% YoY

Shipping transport

  • Harpex up +1 to 422
  • Baltic Dry Index up +9 to 1437

Rail traffic remained very positive reading this week.  The BDI declined substantially since the end of last year, but is now back near an 8 month high. Harpex has been generally flat for the last few months up until a month ago, before making a 2 year high. It is slightly below that this week.  In the longer term, shipping rates bottomed about 2 years ago and have been in a slow and variable uptrend since.

Bank lending rates

  • 0.2136 TED spread down -0.0158 w/w
  • 0.155 LIBOR down -0.002 w/w

LIBOR has risen slightly from its post-recession low set in May. The TED spread has also moved generally sideways in the last 6 months after rising from its low of November of last year,

JoC ECRI Commodity prices

  • Down -1.44 to 119.04 w/w
  • -1.51 YoY 

Commodity prices continued to decline this week, partly due to oil, and partly due to international weakness.

There has been some slight weakening among the long leading indicators.  While bank lending rates and real estate loans remain quite positive, Mortgage applications have returned to being "more worse," although refinancing has gotten up off the mat.  On the other hand, home sales have almost turned positive.  Corporate bond yields have risen, a negative, but not by very much.  Real money supply is "less positive" than it had been.

The short leading indicators remained positive, with one continuing exception.  The 4 week average of jobless claims tied its new post-recession low.  Temporary jobs remain positive.  The Oil choke collar has thoroughly disengaged.  Housing prices are still positive.  Credit spreads have widened recently, but this week dropped back below a threshold of concern.

The coincident indicators were mixed.  Two of the 3 measures of consumer spending were either only slightly positive or actually negative.  Rail traffic returned to being very positive.  Shipping was neutral. Tax withholding was positive.  Steel production turned negative again.

The areas of weakness appear to be those most exposed to the general global economy.  Domestic US indicators continue to signal growth, although Q4 may be a relative weak patch compared with the last 2 quarters.

Have a nice weekend!

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