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By New_Deal_democrat February 28, 2015 11:57 am
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Weekly Indicators: warning of a poor Q1 GDP edition

In the rear view mirror, 4th quarter GDP was revised down slightly, mainly due to less inventory accumulation than initially reported. Monthly January reports included CPI, down big, two consumer confidence measures, one up and one down, but both down slightly from their highs last month (presumably due to increasing gas prices). Durable goods orders rose. New home sales were essentially unchanged from their post-recession high in December, while Case Shiller showed that house prices continued to rise.

I look at the high frequency weekly indicators because while they can be very noisy, they 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.  I list the data and try to keep commentary sparse, so you can draw your own conclusion.

I am starting with coincident indicators this month, because that is where the action is.

Transport

 Railroad transport from the AAR

  • -22,100 carloads down -7.8% YoY 
  • -39,500 intermodal units down -15.7% YoY
  • -62,100 total loads down -11.6% YoY

Shipping transport

  • Harpex up +10 to 494 (4 year high)
  • Baltic Dry Index up +20 to 533 (rebound from 3 year low)

Rail traffic fell off a cliff this week, probably mainly due to the West Coast ports strike, with maybe some poor winter weather added in. It made a new all time high eight weeks ago.  The BDI has declined sharply in the last several months. On the other hand, Harpex has turned up sharply for the last 7 weeks.  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 has now broken that to the downside. This is probably because Harpex is primarily container shipping, and the BDI is primarily single hull shipping (e.g., oil).

Consumer spending

  • Johnson Redbook +2.8% YoY
  • Gallup daily consumer spending 14 day average at $85, down -$1 YoY

The Gallup report has been barely positive to outright negative since the beginning of this year.  In 2013 and early 2014 the Johnson Redbook YoY was between from +2% to a high over +4%. In the second half of 2014, the range increased to +3.5% to +5%.  It has fallen out of that range in 5 of the last 6 weeks.  This is particularly concerning since YoY comparisons are a little suspect now, since one year ago was still in the "polar vortex" decline.

Steel production from the American Iron and Steel Institute 

  • -2.5% w/w
  • -5.9% YoY

Steel production over the last several years has generally been in a decelerating uptrend.  Since last spring, they have alternated between slightly positive and slightly negative.  This week was again particularly negative.

 Interest rates and credit spreads

  • 4.47% BAA corporate bonds down -0.17%
  • 2.03% 10 year treasury bonds down -0.08%
  • 2.44% credit spread between corporates and treasuries down -0.09%

Interest rates for corporate bonds made a 50+ year low one month ago.  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%, before rising back above 2%.  Spreads widened in recent months, a warning of near-term weakness, but have narrowed in the last four weeks and I am scoring them as slightly positive now.

Housing metrics

Home Sales and Prices from DataQuick:

  •  +2.8% sales YoY, down -1.4% (1 month rolling average)
  •  +4.8% prices YoY, up +1.8% (1 month rolling average) 

Positive YoY sales and price appreciation have continued.

Mortgage applications from the Mortgage Bankers Association:

  • +5% w/w purchase applications 
  • -2% YoY purchase applications
  • -8% w/w refinance applications

YoY purchase applications established a "less awful" trend in the latter part of 2014, but after   four straight weeks of being positive, were slightly negative again this week.

Real estate loans, from the FRB H8 report:

  • up +0.3% w/w
  • up +3.2% 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

  • +0.4% w/w
  • +2.5% m/m
  • +10.4% YoY Real M1

M2

  • +0.3% w/w
  • +0.9% 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

  • 313,000 up +30,000
  • 4 week average 294,500 up +11,250

Although they rose back above 300,000 this week, initial claims remain well within the range of a normal economic expansion, as does the 4 week average.

The American Staffing Association Index 

  • Unchanged at 96.  
  • Up +5.59% YoY.

The YoY comparison has generally been positive to strongly positive since last spring.

Tax Withholding

  • $175.7 B for the first 18 days of February vs. $166.4 B one year ago, up +9.3 B or +5.6%
  • $188.2 B for the last 20 reporting days ending Thursday vs. $178.8 B one year ago, up +$9.4 B or +5.3%

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

Oil prices and usage

  • Oil down -$1.05 to $49.76 w/w
  • Gas up +$0.11 to $2.44 w/w
  • Usage 4 week average YoY +3.3%

The price of gas probably bottomed one month ago.  The 2010-2013 Oil choke collar has been broken, and usage has been responding in a big way.

Bank lending rates

  • 0.249 TED spread unchanged w/w
  • 0.172 LIBOR down -0.02 w/w

LIBOR has risen sharply from its post-recession low set in May and made another new one-year high this week. 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 has risen further in the last month and made another 18 month high one week ago. While there has been enough of an increase for me to score these as neutral to slightly negative, they need to be kept in perspective. The move in the last months (probably mainly due to the latest Euro-crisis) has been pale compared with the moves before the Great Recession.

Commodity prices
JoC ECRI

  • Up +0.17 to 100.81 w/w
  • Down -21.33 YoY

BBG Industrial metals ETF

  • 118.44 up +2.66 

Commodity prices rebounded off a possible long term low one month ago.  This is still probably due to international weakness, and mainly about oil.  Industrial metals were a component of ECRI's original short leading weekly index, and so can confirm or contrast with oil prices. Industrial metals have generally been declining for the last 3 years, after have rebounded from a new low one month ago.

SUMMARY:

Negative coincident indicators continued over from the last two weeks, and intensified probably primarily due to the now-settled West Coast ports strike.

Among long leading indicators, yields on corporate bonds and treasuries are still positive. Money supply remains quite positive.  Real estate loans, and house sales as reported by DataQuick were positive.  Only mortgage applications were back in negative territory again this week.

The short leading indicators were generally positive with the exception of commodities.  Oil prices fell slightly, while industrial metal prices rose slightly . Spreads between corporate bonds and treasuries improved and I am now scoring them slightly positive.  Temporary staffing and gas prices and usage remained positive, and initial jobless claims, although higher, remain within a very positive range.

As indicated above, coincident readings were much more negative. Consumer spending as measured by Gallup was negative yet again, and Johnson Redbook was only weakly positive.   Tax withholding and container shipping were positive.  On the other hand, Steel production and single hull shipping were negative. The TED spread and LIBOR backed off slightly into more neutral readings. On the other hand, steel production, single hull shipping, and especially rail were all negative.

While some of the effects are probably transitory, that we are seeing YoY negative comparisons with some of the worst readings last year does not bode well for Q1 GDP.  The Atlanta Fed's GDPNow estimate, shown below, is now in the 1%+ range:

Still, with the exception of commodities, generally the long and short leading indicators are positive, and so am I.

Have a nice weekend!

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