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By New_Deal_democrat November 18, 2017 9:47 am
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Weekly Indicators: yield curve flatter but still positive edition
October data was almost all positive, including significant increases in housing permits and starts, a big jump in industrial production and capacity utilization, and increase in both nominal and real retail sales, and subdued consumer inflation. Producer prices did jump more than expected.
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 4.29% up +0.03% w/w (12 mo. high/low 4.90% vs. 4.23%)
  • 10 year treasury bonds 2.34% down -0.06% w/w 
  • Credit spread 1.95% up +0.09% w/w
Yield curve, 10 year minus 2 year:
  • 0.65%, down -0.02% w/w (expansion low)
30 year conventional mortgage rate
  • 3.97%, down -0.04% w/w (1 year high was 4.39%, 1 year low 3.37%)

I have changed corporate bonds to a mild positive from neutral, because they are close to their 12 month low. Should they fall below 4.15%, which was the low for this entire expansion, that will be a major positive. Mortgage rates fell back from negative to neutral.


Yields on treasuries and mortgage rates made new 12 month highs in December and revisited that high earlier this year, but the trend for most of this year has been a decline to improving neutrals. The yield curve is at its most narrow for this expansion, but remains positive in the longer term context. The spread between corporate bonds and treasuries retreated further from  its recent10 year low.




Mortgage applications 


  • purchase applications up +0.4% w/w 
  • purchase applications up +17% YoY
  • refinance applications up +6% w/w
Real Estate loans
  • Unchanged w/w 
  • Up +3.7% YoY

Purchase mortgage applications have turned even more positive, while refi applications  remain near 15 year lows.  Meanwhile, the growth rate of real estate loans declined sufficiently this year to become a neutral.


Money supply


  • -0.4% w/w
  • -0.2% m/m 
  • +6.2% YoY Real M1
  • +0.1% w/w  
  • Unchanged m/m
  • +2.9% YoY Real M2

Since 2010, both real M1 and real M2 were resolutely positive.  Both have recently decelerated substantially.  Real M1 is still very positive. Real M2, however, has declined to a neutral.


Credit conditions (from the Chicago Fed) 


  • Financial Conditions Index down -0.02 to -0.93
  • Adjusted Index (removing background economic conditions) down -0.01 to -0.75
  • Leverage subindex unchanged at -0.67
The Chicago Fed updated and changed the Adjusted Index recently, so that its break-even point appears to be -0.25.  In the leverage index, 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.

Trade weighted US$

  • Down -0.11 to 120.91 w/w, -1.8% YoY (one week ago) (Broad) 
  • Down -0.71 to 93.68 w/w, -7.6% YoY (yesterday) (major currencies) 


The US$ appreciated about 20% between mid-2014 and mid-2015.  It went mainly sideways afterward until briefly spiking higher after the US presidential election. It has been positive since this summer.


Commodity prices


  • Down -0.81 to 107.32 w/w
  • Up +11.87 YoY
BBG Industrial metals ETF 
  • 129.40 down -4.14 w/w, up +18.26% YoY
Commodity prices bottomed near the end of 2015. After briefly turning negative, metals also surged higher after the election.  Earlier this year ECRI briefly turned down enough to be downgraded to neutral, but both are positive now.


Stock prices S&P 500


  • Down -0.1% w/w to 2578.85
Stock prices are positive, having made a string of new all-time highs beginning over one year ago.

Regional Fed New Orders Indexes

(*indicates report this week)

  • *Empire State up +2.7 to +20.7
  • *Philly up +1.8 to +21.4
  • Richmond down -3 to +17
  • *Kansas City down -5 to +22
  • Dallas up +4.3 to +18.6
  • Month over month rolling average: unchanged at +20
The regional average has been more volatile than the ISM manufacturing index, but has accurately forecast its month over month direction. These turned more positive in the previous two months, foreshadowing the very positive ISM manufacturing reports.


Employment metrics

 Initial jobless claims

  • 249,000 up +10,000
  • 4 week average 237,750 up +6,500


Initial claims remain well within the range of a normal economic expansion.


The American Staffing Association Index


  • Unchanged at 100 w/w
  • Up +1.42 YoY

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


Tax Withholding 

  • $114.3 B for the first 12 days of November 2017 vs. $110.4 B one year ago, up +$3.9 B or +3.5%
  • $176.5 B for the last 20 reporting days vs. $170.9 B one year ago, up +$5.6 B or +3.3%

After being positive through most of 2014, these decelerated and even occasionally were  negative, in late 2015 through the first part of 2016.  With the exception of August, 2017 has shown marked improvement.


Oil prices and usage

  • Oil down -$0.20 to $56.68 w/w,  up +13.6% YoY
  • Gas prices up +$0.03 to $2.59 w/w, up +$0.41 YoY
  • Usage 4 week average up +1.6% YoY 


The price of gas bottomed about 21 months ago at $1.69.  With the exception of July, prices generally went sideways with a slight increasing trend for the last year.  Usage turned negative in the first half of this year, but subsequently improved, and for most of the last two months turned positive again.


 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

  • Johnson Redbook up +2.3% YoY
  • Goldman Sachs down -0.6% w/w, up +2.6% YoY


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.  Both were positive again this week.



Railroad transport

  • Carloads down -3.3% YoY
  • loads ex-coal down -1.4% YoY 
  • Intermodal units up +5.6% YoY
  • Total loads up +1.2% YoY

Shipping transport

Rail turned negative in 2015 and fell even more sharply in spring 2016. Since summer 2016, rail improved to neutral and then generally positive since November 2016. Over the last several months, it has been more mixed.

Harpex recently declined to repeated multi-year lows, then came back all the way to positive, declined again, but in the last several months has come all the way back to positive again. BDI also surged back to being a positive, declined back to neutral earlier this year, but recently turned up again. 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 +1.4% w/w
  • Up +9.3% YoY

Steel production had generally been in a decelerating uptrend through early 2014, then gradually worsened through the end of 2015. It improved from negative to "less bad" to positive in 2016 and has generally remained positive this year, although during early summer, it alternated between positive and negative.  It has been more positive in the last several months.




Although it is flatter than before, the yield curve remains positive, as do corporate bonds, M1 money supply, purchase mortgage applications, and the two more leading Chicago Fed Financial Conditions Indexes. Treasury yields, real M2, mortgage rates, and growth in real estate loans remain neutral.  Refinance mortgage applications are the only negative.


All of the short leading indicators, including stock prices, industrial metals, the regional Fed new orders indexes, spreads, financial conditions, staffing, the US$, initial jobless claims,and  oil and gas prices and usage, remain positive.


Among the coincident indicators, positives included consumer spending, steel, the TED spread, tax withholding, the Baltic Dry Index and Harpex. Only LIBOR remains negative. Rail was again mixed this week.


The near term forecast remains very strong, and the nowcast is also quite positive.  There has been generally gradual deterioration this year among long leading indicators. On net, my 12 month plus forecast remains neutral.


Have a nice weekend!


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