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By New_Deal_democrat October 31, 2015 8:30 am
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Weekly Indicators: weak but steady edition
In the rear view mirror, Q3 GDP came in at +1.6%. Excluding inventory reductions, it was over +3%! The Employment Cost Index rose +0.6%.
 
Monthly data for September included positive real personal income and spending, positive Chicago PMI, but declines in consumer sentiment and durable goods orders. New home sales fell off a cliff - but this very volatile and heavily revised series should always be taken with a grain of salt.
 

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 and quarterly reports.

In general I am going in order of long leading indicators, then short leading indicators, then coincident indicators.

 

Interest rates and credit spreads

  • 5.40% BAA corporate bonds up +0.10%
  • 2.19% 10 year treasury bonds up +0.15%
  • 3.21% credit spread between corporates and treasuries down -0.05%
30 year conventional mortgage rate:
  • 3.91%, up +0.08%

 

Interest rates for BAA corporate bonds made a 50+ year low in January. This was not confirmed by AAA corporate bonds.  Their one year low was 4.3%, and more recently their one year high was 5.3%.  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 in 2015 have averaged a little over 2%. After falling into positive territory last week, they rose back to neutral this week.

 

Housing

 

Mortgage applications

 

  • -3% w/w Purchase applications
  • +23% YoY Purchase applications
  • +4% w/w Refinance applications
Real Estate loans
  • +0.3% w/w
  • +4.9% YoY

Mortgage applications had been awful for several years, before turning up early this year in response to very low rates.  With rates back below 4% recently, this number has turned positive, After several very volatile weeks, they have settled down.

Real estate loans have been firmly positive for close to two years.

 

Money supply

M1

  • -0.4% w/w
  • -1.4% m/m
  • +5.4% YoY Real M1
M2
  • +0.1% w/w
  • -0.4% m/m
  • +5.7% YoY Real M2

Real YoY money supply remains firmly positive.

 

Trade weighted US$ (Broad)

  • Up +1.45 to 118.34

 

The US$ appreciated about 20% against the Euro in particular late last year.  It made yet another new high 4 weeks ago.  As a result the US is importing deflation strongly, and exports have declined. 

 

Commodity prices

JoC ECRI

  • Down -1.07 to 85.30 w/w 
  • Down -29.20 YoY
BBGt Industrial metals ETF
  • 95.83 down  -1.80 w/w
Commodity prices as measured by ECRI turned up about a month ago, but since have gone back to their lows.  A similar pattern has played out with industrial metals.  It is noteworthy that the absolute numbers have been bouncing along the bottom for a few months now.  In other words, the commodity bust hasn't been getting significantly worse, although the YoY numbers haven't improved yet.

 

The American Staffing Association Index 

 

  • Unchanged at 101
  • Down -4.02 YoY

The YoY comparison had generally been positive to strongly positive since last spring. In the last five months this turned neutral and then increasingly negative. The YoY comparison blew out to its worst comparisons since the Great Recession a little over a month ago. Like commodities, the silver lining is that the YoY comparisons aren't getting significantly worse.

 

Tax Withholding

  • $160.4 B for the first 20 days of October vs. $158.0 B one year ago, up +$2.4 B or +1.5%
  • $160.4 B for the last 20 reporting days ending Thursday vs. $140.8 B one year ago, up $19.6 B or +13.9%

 

Beginning with the last half of 2014, virtually all readings were positive, but turned more mixed and choppy since the end of July. October started off negative but ended positive.

 

Oil prices and usage

  • Oil up +$1.78 to $46.43 w/w
  • Gas down -$.05 to $2.23 w/w 
  • Usage 4 week average up +3.4% YoY 

 

The 2010-13 Oil choke collar remains broken.  The price of gas and oil bottomed at the end of January at $2.02.  They rose $0.80 to $2.82 in June, declined, stabilized, but in the last 2 weeks have (seasonally) declined further. Gas is below $2 in many states. 

 

Bank lending rates

 

Both TED and LIBOR have risen since the beginning of this year to the point where both have usually been negatives, although there have been some wild fluctuations, including this week, enough to score them as neutral.

 

Consumer spending

Both the Goldman Sachs and Johnson Redbook Indexes weakened after last Christmas, and weakened further YoY beginning in May, and have weakened further in the last month, probably as YoY gas price comparisons turn flatter.  Until the last 6 weeks, with the exception of 3 weeks in April, the Gallup report had been negative since the beginning of this year.  The big difference appears to be that Gallup does not measure big, durable, purchases, but most importantly does include gas purchases. Gallup had yet another positive week this week.

 

Transport

Railroad transport

  • Carloads down -7.4% YoY
  • loads ex-coal down -4.3% YoY
  • Intermodal units down -3.7% YoY
  • Total loads down -5.6% YoY

Shipping transport

Rail traffic fell off a cliff in mid-February. Intermodal traffic quickly turned positive again, but domestic carloads, led by coal (for export) declined further in May and June (off -8% to -10% YoY), and has been at consistent, less negative YoY comparisons since, indicating that if we could seasonally adjust, we would probably find traffic increasing in the last few months. At the same time, intermodal loads have weakened in the last month.

After declining sharply for several months, making a 3-year low in mid-February, the BDI surged higher, and then declined again.  Meanwhile, Harpex (container shipping) turned up sharply for 3 months, peaking at 646 in July, before turning down again. 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

 

  • Down -0.5% w/w
  • Down -9.4% YoY

Over the last several years steel production had generally been in a decelerating uptrend.  Since  spring 2014, it turned mixed, and then cliff-dived 8 months ago.

 
 

SUMMARY: 

 

Among long leading indicators, interest rates for corporate bonds remained neutral, and treasury yields rose back into the neutral range.  Mortgage rates remain positive, while purchase and refinance mortgage applications are slightly positive. Real estate loans remain positive.  Money supply is positive.

 

Among short leading indicators, the interest rate spread between corporates and treasuries remains quite negative, as is the US$.  Positives included oil and gas prices, and gas usage.  Commodities remain a big global negative, and are back at their lows.  Temporary staffing is negative for the 23rd week in a row, and more intensely so for the 5th straight week. The star of the show is again jobless claims, the 4 week average of which made yet another 40 year low.

 

Among coincident indicators, steel production, shipping, and rail transport are all negative.  The TED spread and LIBOR had another volatile week and fell back to neutral.  Consumer spending is weakly positive, and tax withholding is also positive.

 

Aside from treasuries yields rising from positive to neutral, there were no other big noteworthy moves this week.

 

There is no doubt that the US economy has weakened, partly due to the Oil patch, but mainly due to the US$.  The situation will abate once we see the YoY changes get much closer to zero, and the business inventory backlog declines, which the Q3 GDP number suggests is happening.  I still do not see the US tipping into recession although at least one more quarter of weakness looks likely, before recent interest rate declines feed through into more housing and consumer strength.

 

Have a nice weekend!

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