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By New_Deal_democrat September 10, 2016 9:24 am
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Weekly Indicators: the wobbles again fluctuate edition

August data was sparse but included a decline in the ISM services index, which nevertheless was in expansion, a positive reading from JOLTS but a slight negative reading in the Labor Market Conditions Index, and flat wholesale inventories with a slight decline in sales.

 

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

  • 4.19% BAA corporate bonds unchanged
  • 1.54% 10 year treasury bonds down -.04%
  • 2.65% credit spread between corporates and treasuries up +.04%
Yield curve, 10 year minus 2 year:
  • 0.80%, up +.02% w/w
30 year conventional mortgage rate:
  • 3.46%, up +.04% w/w

Yields on corporate bonds and treasuries recently made new lows, strongly suggesting that the expansion will continue through mid-2017.  On the other hand, mortgages have failed to make a new low for over 3 years, thus turning yellow (caution or neutral vs. positive) as a recession indicator.  Spreads remain neutral. Yields tightened a little but are still positive.

 

Housing

 

Mortgage applications

 

  • purchase applications up +1% w/w
  • purchase applications up +7% YoY
  • refinance applications up +1% w/w
 
Real Estate loans
  • Up +0.1% w/w
  • Up +7.5% YoY 

Mortgage applications turned up early in 2015 in response to very low rates.  They briefly  spiked in response to low rates following the Brexit vote, but purchase applications have backed off since then enough to go from positive to neutral.

Real estate loans have been firmly positive for 3 years.

 

Money supply

M1

  • -0.7% w/w
  • +3.6% m/m 
  • +8.8% YoY Real M1
M2
  • +0.2% w/w   
  • +0.7% m/m 
  • +6.6% YoY Real M2 

Both real M1 and real M2 decelerated markedly in January to the point where they were very weak positives, but both have been more firmly positive since.

 

Trade weighted US$

  • Up +0.86 to 121.49 w/w, up +0.8% YoY (one week ago) (Broad) 
  • Down -0.56 to 95.32 w/w, down -0.1% YoY (yesterday) (major currencies) 

 

The US$ appreciated about 20% between mid-2014 and mid-2015.  It has gone mainly sideways since then, and for the last 7 months has generally been neutral or a positive.

 

Commodiy prices

JoC ECRI

  • Up +0.86 to 95.32 w/w
  • Up +3.93 YoY
BBG Industrial metals ETF
  • 97.28 down -0.19 w/w, down -5.6% YoY
Commodity prices as measured by industrial metals bottomed last November. ECRI subsequently turned up as well, enough so that both turned positive.  Industrial metals, however, have turned south and are now back to negative.

 

Stock prices S&P 500

 

  • Down -2.4% w/w
Stock prices became a positive having made new all-time highs during the last few months.
 

Regional Fed New Orders Indexes

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

  • Empire State up +2.9 to +1.0
  • Philly down -19.0 to -7.2
  • Richmond down -35 to -20
  • Kansas City down -2 to -7
  • Dallas up +13.3 to +5.3
  • Month over month rolling average: up +3 to -6
In March and April, the turning up of these indexes forecast the positive readings in the ISM.  Then in May and June there was a serious divergence between the two, but in July the regional indexes became on balance positive, again forecasting the positive ISM.  In August there was a serious downdraft which again forecast the poor ISM.

 

Employment metrics

 Initial jobless claims

  • 259,000 down -4,000
  • 4 week average 261,250 down -1,750

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 95 w/w
  • Down -1.07 YoY

This index turned negative in May 2015, getting as bad as -4.30% late last autumn.  Since the beginning of the year it became progressively "less bad" and for the last few months has been so close to positive YoY as to be a neutral.

 

Tax Withholding

  • $53.6 B for the first 5 days of September vs. $51.0 B one year ago, up +$2.6 B or +5.1%
  • $169.4 B for the last 20 reporting days vs. $162.5 B one year ago, up $6.9 B or +4.2%

Beginning with the last half of 2014, virtually all readings were positive, but turned more mixed and choppy, and occasionally even negative, since August 2015.  The last few months have shown a marked improvement.

 

Oil prices and usage

  • Oil up +$1.48 to  $44.20 w/w
  • Gas prices down -$.02 to $2.22 w/w 
  • Usage 4 week average up +3.2% YoY 

 

The price of gas bottomed last winter at $1.69.  Usage has been almost uniformly positive. Gas prices have risen slightly in the past three weeks, but are off their summer seasonal high.

 

Bank lending rates

 

Both TED and LIBOR were already rising since the beginning of last year to the point where both have usually been negatives, although there were some wild fluctuations.  Of importance is that TED was above 0.50 before both the 2001 and 2008 recessions.  Both have now reached that level.

 

Consumer spending

Both the Goldman Sachs and Johnson Redbook Indexes progressively weakened in pulses during 2015, before improving somewhat since the beginning of last November.  Redbook has recently turned very weak, while Goldman has turned more positive.  Gallup has been very positive for the vast majority of this year, but was negative last week and neutral this week.

 

Transport

Railroad transport

  • Carloads down -4.9% YoY
  • loads ex-coal up +0.7% YoY
  • Intermodal units down -5.0% YoY
  • Total loads down -5.0% YoY

Shipping transport

Rail traffic turned negative and then progressively worse in pulses throughout 2015. Rail loads became "less worse" in January and showed continued improvement until going over the proverbial cliff all spring (typically down -10% or more). It has been trending incrementally less awful except for the last three months, even scoring neutral 4 weeks ago and again this week.

Harpex has recently resumed its decline again to repeated multi-year lows. On the other hand, BDI has improved enough -- to near 12 month highs, and higher then 20 of the last 24 months -- to score as positive. 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 +0.9% w/w
  • Down -3.1% 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. This year it started out as "less worse" and turned positive a few months ago, but recently turned negative again.  This appears to be due to renewed global Chinese "dumping."

 
 

SUMMARY: 

 

Some of the wobbles from last week continued to fluctuate this week.

 

With one exception, all long leading indicators are either positive or neutral.  Interest rates for corporate bonds, treasuries, the yield curve, real money supply, real estate loans, mortgage rates, and refinance mortgage applications are positive. Purchase applications are neutral.  Since corporate and treasury interest rates made new lows, this resets the long leading indicator clock so far as they are concerned.  On the other hand, mortgage rates still have not made new lows for over 3 years, so this remains a big negative in the longer term forecast. 

 

Short leading indicators are almost all either positive or neutral.  Stock prices, jobless claims, oil and gas prices, gas usage, and the US$ against major currencies are positive. The spread between corporates and treasuries, and the broad US$ are neutral. This week industrial commodities joined the volatile regional Fed averages as a negative.

 

The coincident indicators remain mixed. Consumer spending as measured by Goldman Sachs was positive. Johnson Redbook went from negative to slightly positive, and Gallup from negative to neutral. Temp staffing is neutral.  The BDI turned positive.  Rail went back from negative to neutral.  Steel, the Harpex shipping index, and bank rates remain negative.

 

Last week I noted that the recent paradigm of positive leading and mixed to negative coincident indicators wobbled some.  In general, the coincident indicators, as anticipated, have followed the positive leading indicators.  But some of the leading indicators themselves -- in particular purchase mortgage applications and commodities -- have weakened.

 

This coming week retail sales and industrial production will hopefully give us more confirmation that the recent shallow industrial recession has passed.

 

Have a nice weekend!

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