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By New_Deal_democrat January 24, 2015 11:11 am
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Weekly Indicators: weakness spreads in coincident indicators, but corporate bond prices make 50+ year high edition

Monthly December reports reported in the last week were highlighted by the index of Leading Indicators, up +0.5. Housing starts were up slightly, while housing permits were down slightly.  Existing home sales were up.  All three housing reports were positive YoY.  

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.

As I have done recently, I am generally going in order of long leading, then short leading, then coincident indicators.  Last week I wrote that particular attention should be paid to Gallup consumer spending and to tax withholding.  This week one was confirmed, while one reversed.

 Interest rates and credit spreads

  • 4.49% BAA corporate bonds down -0.04%
  • 1.90% 10 year treasury bonds down -0.10%
  • 2.59% credit spread between corporates and treasuries up +.06%

Interest rates for corporate bonds made a new 50+ year low of 4.45% in the last week. Treasuries fell to a possible once-in-a-lifetime low of 1.47% in July 2012, but rose to over 3% in late 2013.  Since the beginning of 2014, Treasuries have moved about 75% of the way back down to their July 2012 lows. Corporate bond yields had trended generally sideways since May 2014, before breaking out to the downside in the last 3 weeks.  Despite that, spreads widened further above their expansion lows of a few months ago, a warning of near-term weakness.

Housing metrics

Home Sales and Prices from DataQuick:

  •  +3.7% sales YoY, down -0.3% (1 month rolling average) 
  •  +2.7% prices YoY, unchanged (1 month rolling average) 

YoY sales were positive for the tenth week in a row, while YoY median price comparisons have remained under 3% for the last eight weeks.

Mortgage applications from the Mortgage Bankers Association:

  • -3% w/w purchase applications 
  • +3% YoY purchase applications
  • +22% w/w refinance applications

The big news of the last few months has been that YoY purchase applications established a "less awful" trend, and this week, for the second time in 18 months, were positive. Refinance applications also made another 18 month high.

Real estate loans, from the FRB H8 report:

  • up +0.2% w/w
  • up +3.4% YoY

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.

Money supply
M1

  • +0.8% w/w
  • +0.2% m/m
  • +8.7% YoY Real M1

M2

  • +0.6% w/w
  • +0.5% m/m
  • +5.3% 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 2014.  Both Real M1 and Real M2 improved substantially since, and both remain firmly in positive territory.

Employment metrics
 Initial jobless claims

  • 307,000 -9,000
  • 4 week average 306,500 up +8,500

Although they spiked last week, initial claims remain well within the range of a normal economic expansion, as does the 4 week average.

The American Staffing Association Index 

  •  Up seasonably by 8 to 95.  
  •   Up +5.36% YoY.

This Index rose this week per its usual year-end seasonality. The YoY comparison has generally been positive to strongly positive since last spring.

Tax Withholding

  • $143.7 B for the first 14 days of January vs. $134.1 B one year ago, up +$9.6 B or +7.2%
  • $202.2 B for the last 20 reporting days ending Thursday vs. $190.8 B one year ago, up +$11.4 B or +6.0%

Since July all readings had been positive until two weeks ago.  Last week was barely positive.  This week saw a strong rebound.

Oil prices and usage

  • Oil down -$3.10 to $45.59 w/w
  • Gas down -$0.07 to $2.07 w/w
  • Usage 4 week average YoY +8.7%

The price of gas is now at a 9 year low, ex-the depths of the last recession.  The 2010-2013 Oil choke collar has been broken, and usage is responding in a big way.

Consumer spending

  • Johnson Redbook +3.0% YoY
  • Gallup daily consumer spending 14 day average at $78, down -$2 YoY

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 fell out of that range this week, and Gallup, which had already declined sharply for two weeks, was negative again this week.  Clearly consumers have pulled back, even adjusted for seasonality, this month.

Steel production from the American Iron and Steel Institute 

  • -4.9% w/w
  • -1.0% 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 alternated between slightly positive and slightly negative.  They had been positive for 5 of the last 6 weeks, before turning negative again this week.

Transport
 Railroad transport from the AAR

  • +900 carloads up +0.3% YoY
  • -6,300 intermodal units down -2.4% YoY
  • -5,500 total loads down -1.0% YoY

Shipping transport

  • Harpex up + 7 to 442 (3 year high)
  • Baltic Dry Index down -21 to 720

Rail traffic turned negative, after making a new all time high five weeks ago.  The BDI declined substantially since the end of 2013, made an 8 month high, and  then has declined for the last six weeks. On the other hand, Harpex turned up sharply again last week, after having been generally flat for the last few months (storing commodities, perhaps?).  In the longer term, shipping rates bottomed about 2 years ago and have been in a slow and variable uptrend since.

Bank lending rates

  • 0.241 TED spread up +0.11 w/w
  • 0.168 LIBOR unchanged w/w

LIBOR has risen sharply from its post-recession low set in May and tied its one-year high set one week ago. The TED spread has also moved generally sideways with a slight upward trend in the last 6 months after rising from its low of November of last year, it made a 1 year high last week. These need to be kept in perspective - compared to, e.g., 3 years ago, the needle has barely moved.
Commodity prices
JoC ECRI

  • Down -0.12 to 103.02 w/w
  • Down -19.48 YoY

BBG Industrial metals ETF

  • 115.60 down -3.10 to another 9 year low

Commodity prices continued to decline for the eighth week in a row.  This is still probably due to international weakness, and mainly about oil, but also includes industrial metals.  Industrial metals were a component of ECRI's original short leading weekly index, and so can confirm or contrast with oil prices. Industrial metals had been declining for the last 3 years, then bottomed in March of 2014.  They rose through July, but then started to decline again, and in the last seven weeks fell below that March low.

SUMMARY:

The long leading indicators were all positive this week.  Yields on corporate bonds and treasuries declined, reflecting immediate deflationary concerns, but a long positive. Money supply remains quite positive.  All of the housing indicators were positive:  Real estate loans,  house sales as reported by DataQuick, and most significant of all, mortgage applications, which  had their second positive week in a row

The short leading indicators were mixed.  Commodities, including both oil and industrial metals, continued to decline. Spreads between corporate bonds and treasuries also widened, another negative.  On the other hand, temporary staffing and gas prices and usage remained positive, and initial jobless claims improved w/w and remained within a very positive range.

Coincident readings were also very mixed. The two measures of consumer spending gave very opposite results. Tax withholding, which went negative two weeks ago, and was barely positive last week, was strongly positive this week.  Shipping, steel, and rail, all turned negative. The TED spread and LIBOR were neutral.

One year ago we had decided weakness in some long leading indicators, especially housing and corporate profits. This looks like it has finally spread into some of the coincident indicators.
Of note, last week's big increase in mortgage applications continued this week.  While last week's negative tax withholding reversed itself, this is the 3rd week in a row of unchanged or outright negative Gallup consumer spending, meaning that a real signal of consumer weakness is likely.   Together with negative steel and mixed shipping and rail measures, we have hit a little air pocket in the US economy. I still do not see anything outright negative in the big picture, just relative weakness compared with Q2 and Q3 of last year.

Have a nice weekend!

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