Weekly Indicators: A Rebound To 'Less Bad' Edition

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Includes: DIA, QQQ, SPY
by: Hale Stewart

By New Deal democrat

Monthly data included mixed housing starts and permits, a decline in the leading economic indicators, but a strong rebound in existing home sales. Consumer prices declined slightly.

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. That is particularly important now.

In general I go in order of long leading indicators, then short leading indicators, then coincident indicators.

Interest rates and credit spreads

  • 5.41% BAA corporate bonds down -.05%
  • 2.01% 10 year treasury bonds down -.09%
  • 3.40% credit spread between corporates and treasuries up +.04%

30-year conventional mortgage rate:

  • 3.88%, up +.04%

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, are now positive.

Housing

Mortgage applications

  • purchase applications up -2% w/w
  • purchase applications up +17% YoY
  • refinance applications up +19% 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.

Real estate loans have been firmly positive for two years.

Money supply

M1

  • -4.1% w/w
  • +3.1% m/m
  • +7.2% YoY Real M1

M2

  • +1.1% w/w
  • +0.8% m/m
  • +5.6% YoY Real M2

Real YoY money supply remains firmly positive, although it moderated a little in recent months.

Trade weighted US$

  • Up +2.62 to 125.60 w/w, up +12.1% YoY (Broad)
  • Up +0.68 to 99.57 w/w, up +5.0% YoY (major currencies)

The Broad measure is reported by the FRB on Mondays and so is delayed one week. The Bloomberg is different, but is accurate as of Friday. The US$ 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. Until the YoY change declines below 5%, I am reporting its impact is strongly negative. The spot index hasn't quite gotten there yet.

Commodity prices

JoC ECRI

  • Down -0.85 to 78.42 w/w
  • Down -23.88 YoY

BBG Industrial metals ETF

  • 86.56 up +1.98 w/w

While oil prices made a new low, commodity prices as measured by ECRI and industrial metals had generally gone sideways since November, before falling again in the last 2 weeks. Even so, the YoY comparisons are "less bad," especially for industrial commodities.

Employment metrics

Initial jobless claims

  • 293,000 up 9,000
  • 4 week average 285,000 up 6,250

Initial claims remain well within the range of a normal economic expansion, as does the 4 week average, although there has been some weakening in the last month.

The American Staffing Association Index

  • 93
  • up +7.06 YoY

Since last spring, the YoY comparison turned neutral and then increasingly negative. The YoY comparison was only slightly negative three weeks ago, and turned positive this week, but may be an artifact of seasonality.

Tax Withholding

  • $144.6 B for the first 13 days of January vs. $135.1 B one year ago, up +$9.5 B or +7.0%
  • $212.3 B for the last 20 reporting days ending Thursday vs. $202.2 B one year ago, up $10.1 B or +5.0%

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 two months.

Oil prices and usage

  • Oil up +$2.61 to $32.25 w/w
  • Gas prices down -$.09 to $1.91 w/w
  • Usage 4 week average down -2.8% YoY

The price of gas and oil bottomed at the end of January 2015 at $2.02. It broke through that bottom 2 weeks ago. Usage turned negative for the third week.

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. Both TED and LIBOR in the last few weeks have been at or near 5 year highs.

Consumer spending

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 6 weeks. Because Gallup, unlike the other two, includes gas purchases, the fact that it has turned positive strongly suggests that consumers have started to spend some of their gas savings on other things.

Transport

Railroad transport

  • Carloads down -16.6% YoY
  • loads ex-coal down -11.1% YoY
  • Intermodal units up +1.2% YoY
  • Total loads down -8.2% YoY

Shipping transport

Rail traffic turned negative and then progressively worse in pulses throughout 2015. While intermodal traffic quickly turned positive, domestic carloads, led by coal (for export) continued to deteriorate. These remain recessionary readings, but 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. Harpex has bottomed. BDI is still sliding.

Steel production

  • Up +3.6% w/w
  • Down -8.6% 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. Two weeks ago was the worst yet, but since then there has been a rebound. Both may be a function of seasonality, so we need to see if this "less bad" pattern holds for several more weeks.

SUMMARY:

Among long leading indicators, interest rates for treasuries, corporate bonds are neutral, while money supply, real estate loans and mortgage applications, and mortgage rates are positive.

Among short leading indicators, the interest rate spread between corporates and treasuries got even more negative. The US$ also remains negative. Jobless claims are still positive although less so. Oil and gas prices remain very positive, while usage was negative for the third week in a row. Commodities remain a big global negative.

Among coincident indicators, steel production, shipping, and rail transport all remain very negative, although steel and rail have rebounded, as has temporary staffing. Consumer spending is still positive, and Gallup has turned strongly positive.

The economy is experiencing a very severe downturn in energy production and export-related goods production and transport. On the other hand, the manufacturing portion of industrial production is only flat, not down, and the 70% of the economy reflective of domestic consumption remains positive.

There has been a bounce to "less bad" readings in a number of commodity related indicators in the last few weeks, but due to seasonality, let's give it another couple of weeks before arriving at any conclusions.

New Deal democrat, XE.com