By New Deal Democrat
With the exception of a strongly positive jobs report, and a steady unemployment rate, all of the other monthly data decreased. ISM services decreased slightly, but was still in good expansion. ISM manufacturing contracted further. Vehicle sales were the lowest in 6 months. Construction spending declined. Factory orders declined. Wholesale inventories declined (which is good), but wholesale sales declined even more.
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. The indicators will confirm a trend or indicate a switch in trend well before monthly and quarterly reports.
In general, I go in order of long leading indicators, then short leading indicators, then coincident indicators.
Interest rates and credit spreads
- 5.44% BAA corporate bonds down -.10%
- 2.16% 10-year treasury bonds down -.15%
- 3.28% credit spread between corporates and treasuries up +.05%
30-year conventional mortgage rate:
- 3.96%, down -.13%
With the exception of BAA corporate bonds yields, which made a new 50+ year low in January 2015, yields for corporate bonds, treasuries, and mortgages have all failed to make new lows in 3 years, thus turning yellow (caution or neutral vs. positive) as a recession indicator. Spreads are very negative. Mortgage rates, however, fell enough to be scored a positive this week.
- Purchase applications down -17% w/w
- Purchase applications up +23% YoY
- Refinance applications -37% w/w
Real Estate loans
- Unchanged w/w
- +6.6% YoY
Mortgage applications had been awful for several years, before turning up early last year in response to very low rates. I am treating this week's report as an artifact of seasonality.
Real estate loans have been firmly positive for two years.
- -0.3% w/w
- -0.9% m/m
- +3.2% YoY Real M1
- -0.1% w/w
- +0.5% m/m
- +5.6% YoY Real M2
Real YoY money supply remains firmly positive, although it has moderated a little in recent months, and Real M1 growth decelerated to a 5-year low this past week!
Trade weighted US Dollar (Broad)
- Up +0.31 to 122.98 (NASDAQ:FRED)
- Down -0.25 to 98.38 (Bloomberg)
Because the FRED's daily measure is delayed a week, I have added Bloomberg which is accurate as of Thursday (although I believe it does not measure the broad US$). The US Dollar appreciated about 20% against the Euro, in particular, between 12 and 18 months ago. In 2015, it continued to appreciate, but at a relatively more moderate trend. Both measures show the US Dollar up nearly 10% YoY, which is still very negative. I want to see the YoY change decline below 5% before I can conclude that its impact is not strongly negative.
- Down -0.72 to 80.02 w/w
- Down -23.82 YoY
BBG Industrial metals ETF
- 86,88 down -3.55 w/w
While oil prices made a new low, commodity prices as measured by ECRI and industrial metals have generally gone sideways since November. The commodity bust intensified in autumn, but may be in the process of bottoming.
Initial jobless claims
- 277,000 down -10,000
- 4-week average 275,750 down -1,250
Initial claims remain well within the range of a normal economic expansion, as does the 4-week average.
The American Staffing Association Index
- Down -11 w/w to 92
- Down -0.90 YoY
Since last spring, the YoY comparison turned neutral and then increasingly negative. The YoY comparison was only slightly negative this week, but may be an artifact of seasonality.
- $216.3 B for the month of December vs. $210.3 B one year ago, up +$6.0 B or +2.9%
- $220.9 B for the last 20 reporting days ending Thursday vs. $203.5 B one year ago, up $17.4 B or +8.6%
Beginning with the last half of 2014, virtually all readings were positive, but turned more mixed and choppy in August and September. In general, they have remained positive, but a little more weakly so, in the last 45 days.
- Oil down -$4.18 to $32.88 w/w
- Unchanged at $2.03 w/w
- Usage 4-week average down -3.6% YoY
The 2010-13 Oil choke collar remains broken. The price of gas and oil bottomed at the end of January at $2.02. It briefly went below $2 on GasBuddy last week. It may have bottomed for the season. Usage turned negative for the first time in over a year.
Bank lending rates
Both TED and LIBOR were already rising since the beginning of this year to the point where both have usually been negatives, although there were some wild fluctuations. Both TED and LIBOR are at or near 5 year highs.
- Johnson Redbook +2.9% YoY
- Goldman Sachs -2.4% w/w
- Gallup daily consumer spending 14-day average at $90, up +$2 YoY
Both the Goldman Sachs and Johnson Redbook Indexes progressively weakened in pulses during 2015, before improving somewhat since the beginning of November. Gallup has also turned positive in the last 4 weeks.
- Carloads down -20.3% YoY
- Loads ex-coal down -11.7% YoY
- Intermodal units up +1.2% YoY
- Total loads down -11.3% YoY
Rail traffic also turned negative and then progressively worse in pulses throughout 2015. While intermodal traffic quickly turned positive, but domestic carloads, led by coal (for export), continued to deteriorate. While some seasonality may be going on this week, these remain recessionary readings. They may signify that new orders for goods have turned down significantly, which is bad except insofar as it may mean the beginning of inventory liquidation.
After rising briskly last spring, both the BDI and Harpex declined again to new multi-year lows.
- Down -1.1% w/w
- Down -19.9% YoY
Until spring 2014, steel production had generally been in a decelerating uptrend. It then gradually rolled over and has gotten progressively worse in pulses since. This week was the worst yet, although it may be partly a function of seasonality.
SUMMARY: While there was nothing dramatic this week, there is some interesting action at the margin, as a few of the indicators did slip a bit.
Among long leading indicators, interest rates for treasuries, corporate bonds are neutral, while mortgage rates fell enough to be scored a positive. Mortgage applications turned negative, but this may be a seasonality glitch. Money supply and real estate loans are still positive, although Real M1 decelerated significantly YoY.
Among short leading indicators, the interest rate spread between corporates and treasuries got even more negative. Surprisingly, the US Dollar, while negative, did not deteriorate significantly. Temporary staffing improved to slightly negative, but this may be a function of seasonality. Jobless claims are still quite positive. Oil and gas prices remain very positive, while usage turned negative for the first time in many months. Commodities remain a big global negative, but aside from oil, have not made new lows.
Among coincident indicators, steel production, shipping, and rail transport all remain very negative, and steel and rail had their worst weeks since their downturn. The TED spread and LIBOR both made still more 5-year highs. Tax withholding and all three measures of consumer spending are positive.
The bad news is, the downturn in coincident data is now so drastic that I suspect we are going to get a negative GDP print either for Q4 2015 or Q1 2016. Meanwhile, there are some interesting things happening at the margins of the data. My suspicion is that we are getting close to the longer term bottom in the commodity collapse, and it is interesting that aside from oil, industrial commodities did not make a new low this week. The decline in wholesale inventories is the first sign that a liquidation may be beginning (one reason why I think we may get a negative GDP print). The further big pulse down in rail transport may also be a sign of a beginning of inventory liquidation via a big downturn in new orders (also shown in the ISM manufacturing release). Tax withholding for December wobbled a little bit, and YoY Real M1 decelerated to a new 5-year low. On the other hand, lower mortgage rates will give a little boost to the housing market. I still see this as a global trade driven inventory correction rather than the onset of a recession. Housing permits and Q4 residential investment will be particularly important when they are released later this month.