Interest rates and credit spreads
- BAA corporate bond index 4.21% up +.02% w/w (1 yr range: 4.15 - 4.90)
- 10 year treasury bonds 2.44% up +0.04% w/w (2.05 - 2.62)
- Credit spread 1.79% up +0.01% w/w
- 0.50%, down -0.02% w/w (.50 - 1.30)
- 4.07%, up +0.01% w/w (3.84 - 4.39)
BAA Corporate bonds, having recently tied their expansion low, are now a positive, but only weakly so because AAA bonds did not confirm this low. Mortgage rates, however, have returned to a weak negative.
Yields on treasuries and mortgage rates made new 12 month highs one year ago and revisited that high early this year, but the trend for most of this year has been neutral. The yield curve flattened a little and remains weakly positive in the longer term context. Finally, the spread between corporate bonds and treasuries also recently made a new 10 year low and so is strongly positive.
Housing
Mortgage applications
- Purchase apps up +1% w/w
- Purchase apps up +3% YoY
- Refi down -7% w/w
- Unchanged w/w
- Up +3.8% YoY ( 3.6 - 6.5)
Purchase and refi mortgage applications will return next week. Purchase applications were strong almost all year, and refi dead. The growth rate of real estate loans remains neutral.
Money supply
M1
- -0.1% w/w
- -0.7% m/m
- +6.6% YoY Real M1
- -0.1% w/w
- +0.4% m/m
- +2.7% YoY Real M2
Since 2010, both real M1 and real M2 were resolutely positive. Both recently decelerated substantially. Real M1, however, is still very positive, while real M2 growth has decelerated to a neutral.
Credit conditions (from the Chicago Fed)
- Financial Conditions Index up +.03 to -0.89
- Adjusted Index (removing background economic conditions) unchanged at 0.74
- Leverage subindex up +0.02 to -0.59
Trade weighted US$
- Down -3.10 to 119.07 w/w -7.0% YoY (last week) (broad) (116.74 -128.62)
- Down -0.29 to 92.02 w/w, -10.0% 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 positive since this summer.
Commodity prices
JoC ECRI
- Up +1.04 to 110.96 w/w
- Up +7.45 YoY
- 135.92 down -2.59 w/w, up +29.13% YoY (108.00 - 138.81)
Stock prices S&P 500
- Up +2.9% w/w to 2743.15 (new all time high)
Regional Fed New Orders Indexes
(*indicates report this week) (no reports this week)
- Empire State down -1.2 to +19.5
- Philly up +8.4 to +29.8
- Richmond down -19 to +16
- Kansas City down -15 to +7
- Dallas up +10.1 to +30.1
- Month over month rolling average: down -2 to +20
Employment metrics
Initial jobless claims
- 250,000 up +5,000
- 4 week average 241,750 up +4,000
Initial claims remain well within the range of a normal economic expansion, and further, their YoY change shows no sign of substantial deceleration yet.
The American Staffing Association Index
- Down -5 to 95 w/w
- Up +0.45 YoY
This index was generally neutral from May 2016 until the end of last year, and has been positive with a few exceptions all this year. This number is subject to wide seasonal swings from Thanksgiving through New Year's Day.
Tax Withholding
- $230.4 B for the month of December 2017 vs. $216.0 B one year ago, up +$14.4 B or +6.7%
- $250.6 B for the last 20 reporting days vs. $231.0 B one year ago, up +$19.6 B or +8.5%
With the exception of the month of August and late November, this has been positive for almost all of 2017.
- Oil up +$1.45 to $61.45 w/w, up +13.8% YoY (2.5 year high)
- Gas prices up +$0.05 to $2.52 w/w, up +$0.14 YoY
- Usage 4 week average up +2.1% YoY
The price of gas bottomed nearly 2 years ago at $1.69. With the exception of July, prices generally went sideways with a slight increasing trend for the last year. Usage turned negative in the first half of this year, but subsequently improved, and in the last several months has been positive again.
Bank lending rates
- 0.330 TED spread up +0.010 w/w
- 1.555 LIBOR down =0.013 w/w
Both TED and LIBOR rose since the beginning of last year to the point where both were usually negatives, although there were some wild fluctuations. Of importance is that TED was above 0.50 before both the 2001 and 2008 recessions. The TED spread turned very positive for several months, but has given that back in the last month. Meanwhile LIBOR has generally turned more and more negative.
Consumer spending
- Johnson Redbook up +5.0% YoY
- Goldman Sachs Retail Economist -2.3% w/w, +3.9% YoY
Both the Goldman Sachs and Johnson Redbook Indexes progressively weakened in pulses during 2015, before improving somewhat in 2016, and more markedly so in the last several months. Redbook was positive again this week.
Transport
Railroad transport
- Carloads down -9.8% YoY
- Intermodal units down -3.7% YoY
- Total loads down -6.8% YoY
Shipping transport
- Harpex unchanged at 483
- Baltic Dry Index down -104 to 1262
Rail has been generally positive since November 2016. In the last several months, it first became more mixed, but then in the last month returned to being very positive.
Harpex declined earlier this year to repeated multi-year lows, then came back all the way to positive, declined again, and then came all the way back to positive again. BDI also surged back to being a positive, declined back to neutral earlier this year, but turned up again in the last few months and is now at 3 year highs. 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 -4.7% w/w
- Up +1.9% YoY
Steel production had generally been in a decelerating uptrend through early 2014, then gradually worsened through the end of 2015. It improved from negative to "less bad" to positive in 2016 and has generally remained positive this year, although during early summer, it alternated between positive and negative. It has been more positive in the last several months.
SUMMARY:
There was no meaningful change among the array of indicators this week.
Among the long leading indicators, spreads are very positive, joined by some corporate bonds, real M1 and the more leading Chicago Fed Financial Conditions Indexes. Neutrals include mortgage rates, real M2, treasury yields, and growth in real estate loans.
Among the short leading indicators, stock prices, industrial metals, the regional Fed new orders indexes, spreads, financial conditions, staffing, the US$, and gas prices and usage all remain positive. Oil prices and the ECRI commodity index are neutral. Jobless claims were slightly higher than one year ago, but that may have everything to do with seasonal noise.
Among the coincident indicators, positives included consumer spending, tax withholding, rail, steel, the TED spread, the Baltic Dry Index and Harpex. Only LIBOR remains negative.
Beginning 2018, the longer term forecast is modestly positive and has recently improved. Real M2 and the yield curve do bear watching. The nowcast and the near term forecast also remain very positive.
