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By New_Deal_democrat July 29, 2017 9:16 am
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Weekly indicators: what's ailing rail? edition
June data included an increase in new home sales, but a decrease in existing home sales. Median sales prices for both types of housing showed YoY deceleration. The Case-Shiller index, however, did not. Durable goods orders and the University of Michigan's consumer sentiment index both rose.   
 
In the rear view mirror, Q2 GDP came in close to 3%, although both long leading indicators in the release were negative. The employment cost index adjusted for inflation was also positive.
 
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, and will telegraph the maintenance or change in the economy well before monthly or quarterly data is available.  They are also an excellent way to "mark your beliefs to market."
 
In general I go in order of long leading indicators, then short leading indicators, then coincident indicators.

 

Interest rates and credit spreads

  • BAA corporate bond index 4.39% +0.07% w/w (12 mo. high 4.90%. 12 mo. low 4.15%)
  • 10 year treasury bonds 2.29% +0.05% w/w 
  • Credit spread 2.10% +0.02% w/w 
Yield curve, 10 year minus 2 year:
  • 0.93%, up +0.03% w/w
30 year conventional mortgage rate
  • 4.04%, up +0.04% w/w (1 year high was 4.39%)

Yields on treasuries and mortgage rates made new 12 month highs in December, but subsequently retreated, turning neutral for several months, rose enough again to score negative for two weeks, but have turned neutral again.  Corporate bonds remain neutral. Spreads remain very positive. The yield curve remains positive also.

 

Housing

 

Mortgage applications 

 

  • purchase applications down -2% w/w
  • purchase applications up +8% YoY
  • refinance applications up +3% w/w
 
Real Estate loans
  • Up +0.3% w/w 
  • Up +4.7% YoY 

Mortgage applications turned outright negative for three weeks before tipping back to neutral and then surprisingly positive for most weeks in the last few months, including this week. Refi applications remain near multi-year lows.

 

Real estate loans had been firmly positive for over 3 1/2 years, but the rate of growth (of this cumulative measure) declined sufficiently for the last three months for loans to become a neutral.

 

Money supply

M1

  • -0.6% w/w 3487
  • +1.1% m/m 
  • +6.2% YoY Real M1 
M2
  • Unchanged w/w 
  • +0.7% m/m 
  • +4.0% YoY Real M2 

Both real M1 and real M2 were positive almost all last year.  Both recently decelerated substantially, but have improved in the last few weeks, and remain positives.

 

Credit conditions (from the Chicago Fed) 

 

  • Financial Conditions Index down -0.03 to -0.93
  • Adjusted Index (removing background economic conditions) unchanged at-0.21
  • Leverage subindex unchanged at -0.66
In the adjusted and leverage indexes, which are more leading, a negative number is good, a positive poor. The historical breakeven point has been -0.5 for the unadjusted Index. All three metrics presently show looseness and so are positives for the economy, although the adjusted index is only a weak positive.
 

Trade weighted US$

  • Down -2.02 to 119.70 w/w, -2.3% YoY (one week ago) (Broad)
  • Down -0.55 to 93.31 w/w, -2.3% YoY (yesterday) (major currencies)

 

The US$ appreciated about 20% between mid-2014 and mid-2015.  It went mainly sideways since then until spiking higher after the US presidential election. With a few exceptions as to major currencies, it has been generally neutral for about 5 months, and has turned into a positive as to major currencies for the last month, and has now been joined by the broad measure as well.

 

Commodiy prices

JoC ECRI

  • Up +1.10 to 104.02 w/w
  • Up +11.11 YoY
BBG Industrial metals ETF 
  • 118.50 up +3.82 w/w, up +17.2% YoY
Commodity prices bottomed near the end of 2015. After briefly turning negative, metals also surged higher after the election.  ECRI briefly turned down enough to be downgraded to neutral, but both are again positive.

 

Stock prices S&P 500

 

  • Down less than -0.1% w/w to 2472.10 (intraweek new record high)
Stock prices are positive, having made a string of new all-time highs beginning one year ago.
 

Regional Fed New Orders Indexes

(*indicates report this week) (no reports this week)

  • Empire State down -.4.8  to +13.3
  • Philly down -23.8 to +2.1
  • *Richmond up +4 to +18
  • *Kansas City up +5 to +10
  • Dallas down -9.5 to +9.6
  • Month over month rolling average: up +2 to +11
The regional average has been more volatile than the ISM manufacturing index, but has accurately forecast its month over month direction. These continue to be positive - although more weakly so this month.

 

Employment metrics

 Initial jobless claims

  • 244,000 up +11,000
  • 4 week average 244,000 up +250

 

Initial claims remain well within the range of a normal economic expansion, as does the 4 week average.

 

The American Staffing Association Index

 

  • Up +4 to 95 w/w
  • Up +1.88 YoY

This index was generally neutral from May 2016 until the end of the year, and has been positive with a few exceptions since the beginning of this year.

 

Tax Withholding

  • $167.6 for the first 18 days of July 2017 vs. $164.7 B one year ago, up +$2.9 B or +1.8%
  • $181.4 B for the last 20 reporting days vs. $172.2 B one year ago, up +$9.2 B or +5.3%

Beginning with the last half of 2014, virtually all readings were positive, but turned more mixed and choppy, and occasionally even negative, in last 2015 through the first part of 2016.  The last few months have with brief exceptions shown marked improvement.

 

Oil prices and usage

  • Oil up +$4.19 to $49.79 w/w,  down -6.4% YoY 
  • Gas prices up +$0.03 to $2.31 w/w, up +$0.13 YoY
  • Usage 4 week average down -0.3% YoY

 

The price of gas bottomed about 18 months ago at $1.69.  Until the last month, prices generally went sideways with a slight increasing trend for the last year. In the last month, they turned negative YoY (which is a positive for the economy).  Usage faltered and has now turned negative most of this year, although usage comparisons have been improving in the last month.

 

Bank lending rates 

 

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 has turned very positive for the last several months. Meanwhile LIBOR has generally turned more and more negative.

 

Consumer spending 

 

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 remained very positive this week. Meanwhile with the exception of one week, for over four months Gallup has also been very positive.

 

Transport

Railroad transport

  • Carloads down -2.0% YoY
  • loads ex-coal down -5.3% YoY
  • Intermodal units up +1.1% YoY
  • Total loads up +4.1% YoY

Shipping transport

Rail turned negative in 2015 and fell even more sharply in spring 2016. Since last June, rail improved to neutral, and then positive almost all weeks since the beginning of November - until a  month ago, when it has turned mixed again. This week was particularly negative for carloads.

Harpex recently declined to repeated multi-year lows, but in the last three months came back all the way to positive, to the point where higher than during 4 of the last 5 years.  In the last several months it declined substantially, before turning up this week. BDI also surged back to being a positive before declining back to neutral in the last month.  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

 

  • Up +0.6% w/w
  • Up +6.4% YoY

Until spring 2014, steel production had generally been in a decelerating uptrend.  It then gradually rolled over and got progressively worse in pulses through the end of 2015. It improved from negative to "less bad" to positive in 2016 and until recently remained positive since. In the last several months, it has alternated between positive and negative.

 
 

SUMMARY: 

 

There were no significant changes this week.

Corporate bonds and growth in real estate loans remain neutral, joined again this week by  Treasury yields and mortgage rates. The yield curve, money supply, and purchase mortgages also remain positive, as are the two more leading Chicago Fed Financial Conditions Indexes are both positive, although one has decelerated substantially. Refinance mortgage applications are the sole negative.

 

Short leading indicators, including stock prices, jobless claims, industrial metals, the regional Fed new orders indexes, spreads, financial conditions, staffing, the US$, and oil and gas prices are all positive. Gas usage is the sole negative, and even that has almost completely abated 

 

Among the coincident indicators, positives included intermodal and total rail, consumer spending, steel, and the TED spread. The Baltic Dry Index and Harpex are neutral. LIBOR remains negative. The one significant change is  that railcars (not just ex-coal), which had been mixed in the last month, turned very negative this week.

 

Despite the downturn in rail carloads, with improvements in interest rates and money supply, this week all three categories of high frequency indicators - long leading, short leading, and coincident indicators - show positive. We did get two long leading negatives (proprietors' income and residential spending) in the Q2 GDP report. As a result, my overall 12 month + forecast remains neutral to weakly positive.

 

Have a nice weekend!

 

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