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By New_Deal_democrat September 13, 2014 11:09 am
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Weekly Indicators: will housing get a second wind this week? edition

This was a sparse week for monthly data.  August retail sales were up strongly, and July sales were also revised strongly upward.  The revisions were enough to take this series from appearing to stall out, to making new highs.  The University of Michigan consumer sentiment index also improved, unusually due to the expectations component rather than present conditions, which declined.

 

The high frequency weekly indicators 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 have located a replacement data series for house prices from DataQuick.  It's not quite as timely as Housing Tracker was, as it measures sales rather than listing prices, and it doesn't give us quartiles, but it is updated weekly, so there will be a timely tracking of the trend.  So let's start this week with housing metrics:

 

Housing metrics

 

Home Sales and Prices from DataQuick:

 

  •  -3.3% sales YoY (1 month rolling average) 
  •  +3.1% prices YoY (1 month rolling average) 

Mortgage applications from the Mortgage Bankers Association:

  • w/w purchase applications up -3% (new 1 year low)
  • YoY purchase applications down -14%
  • w/w refinance applications down  -11% (to lowest since November 2008!)

Both refinance applications and purchase applications have flattened out near their recent post-recession lows. This week is an example of how sensitive they have been to changes in interest rates, where even a 0.2% uptick is enough to "turn off the tap."

 

Real estate loans, from the FRB H8 report:

  • -0.2% w/w
  • +2.7% YoY
  • +5.5% from their bottom

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.  These should be read as including commercial loans, which unlike home mortgage loans do not lead.

 

Interest rates and credit spreads

  • 4.69% BAA corporate bonds up +0.08%
  • 2.44% 10 year treasury bonds up +0.07%
  • 2.25% credit spread between corporates and treasuries up +0.01%

Interest rates for corporate bonds made a low of 4.46% in November 2012. Treasuries fell to a possible once-in-a-lifetime low of 1.47% in July 2012, but rose to over 3% in late 2013.  This year interest rates declined over .6%, or about 40% of that increase.  In the last two weeks they have increased significantly.  Spreads have widened since their expansion lows of a few months ago.

 

Money supply

M1 

  • +1.0% w/w
  • -2.2% m/m
  • +7.3% YoY Real M1

 M2 

  • unchanged w/w
  • +0.2% m/m
  • +4.4% 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 this year.  Both Real M1 and Real M2 improved substantially since.  After showing signs of the flight to safety once again three weeks ago, growth in Real M1 and Real M2 have abated significantly, but are still very positive.

 

Employment metrics

 Initial jobless claims

  • 315,000 up +13,000
  • 4 week average 304,000 up +1,250

These have been in the normal range for an economic expansion for 4+ months.

 

The American Staffing Association Index was unchanged at 101.  It is up +4.04%YoY.

 

This Index tied another seasonal all-time high for this week. The YoY comparison has been positive to strongly positive since early spring.

 

Tax Withholding

  • $71.4 B for the first 8 days of September vs. $67.3 B one year ago, up +$4.1 B or +6.1%.
  • $154.8 B for the last 20 days ending Thursday vs. $146.3 B for 20 days ending Thursday 1 year ago, up +$8.5 B or +8.5%.

 

After July's tax withholding turned negative, it was beginning to be a significant ground for concern.  August saw a return to a regular positive number, and that has continued into September.

 

Oil prices and usage

  • Oil down -$1.02 to $92.27 w/w
  • Gas unchanged $3.46 w/w
  • Usage 4 week average YoY +.01%

 

 

The price of gas has declined seasonally in the last month.  It is below its prices of 1, 2, and 3 years ago.  The Oil choke collar has disengaged.

 

Consumer spending

Gallup's 14 day average of consumer spending averaged between $80 and $100 for most of 2013, with frequent YoY comparisons over $20, and few less than +$10.  In 2013 the YoY range for the ICSC declined to between +1.5% and +3.0%, while Johnson Redbook YoY was between from +2% to a high over +4%. Redbook and the ICSC surveys remain quite positive, but Gallup has turned negative YoY again as it was in early August.

 

Steel production from the American Iron and Steel Institute 

  • -1.5% w/w
  • +0.5% 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 have turned and remained increasingly positive since then.

 

Transport

 Railroad transport from the AAR

  • +7,500 carloads up +2.7% YoY
  • +13,500 carloads ex-coal up +8.4% YoY
  • +10,500 intermodal units +4.6% YoY
  • +17,800 total loads +3.5% YoY

Shipping transport

Rail traffic has been generally strong since early spring, although has backed off a little in the last few weeks. The BDI declined substantially since the end of last year, but this week made a 5 month high. Harpex tends to correlate with intermodal traffic, and has been more positive, but generally flat for the last few months.  In the longer term, shipping rates bottomed about 2 years ago and have been in a slow and variable uptrend since.

 

Bank lending rates

LIBOR has risen slightly from its post-recession low set in May. The TED spread has also been trending slightly upward since November of last year, although it is still lower on a YoY basis. 

 

JoC ECRI Commodity prices

  • Down -2.32 to 127.12 w/w
  • +2.12 YoY 
Strong commodity price gains come in a strong economy. These reversed this week, partly due to oil, and partly due to international weakness.
 

Among the long leading indicators,  mortgage applications reacted negatively and strongly to an uptick in mortgage rates. Corporate bonds also were negative this week, but are near their post recession low in yields, which is quite positive.  Meanwhile money supply, bank lending rates, and real estate loans remain quite positive.

 

The short leading indicators were mixed but with a weakly positive bias.  The 4 week average for Initial jobless claim rose but are still very low. Credit spreads have widened slightly, but still remain near their post-recession low. Temporary jobs tied another seasonal all-time high.  Commodities were weakly positive, partly on geopolitical and international economic concerns. The Oil choke collar has seasonally disengaged. Housing prices appear to be at or near an interim peak.

 

The coincident indicators were positive, with one important exception.  Two measures of consumer spending was positive, but Gallup has turned negative again.  Steel production was positive, as was rail traffic although slightly less so than recently. Shipping has stabilized or increased. Tax withholding was decent.

 

We've had a very big, positive, decline in interest rates this year, although rates have increased significantly in the last several weeks  If the decline in rates continues, housing will get a second wind.  If rates reverse higher, then the outlook for 2015 becomes weaker.  Housing permits, always important, will be even moreso when they are reported this week.

 

Have a nice weekend!

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