By New Deal Democrat
January 2016 reports started out with a continuation of job gains, including big positive moves in hours, hourly wages, and participation. Vehicle sales were positive, although still below their late 2015 peak. ISM manufacturing was less negative (but new orders turned positive), and ISM services were less positive. Meanwhile December factory orders declined, construction spending improved slightly, personal income improved, and real personal spending was slightly positive. In the rear view mirror, Q4 productivity was negative and unit labor costs were positive.
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
- 5.40% BAA corporate bonds down -.08%
- 1.84% 10-year treasury bonds down -.13%
- 3.53% credit spread between corporates and treasuries up +.05%
30-year conventional mortgage rate:
- 3.76%, down -.06%
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 and treasuries, however, have declined enough to be positive on a weekly basis.
- Purchase applications down -7% w/w
- Purchase applications up +17% YoY
- Refinance applications up +0.3% w/w
Real Estate loans
- +0.2% 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.
- +0.8% w/w
- Unchanged m/m
- +4.7% YoY Real M1
- +0.5% w/w
- +0.9% m/m
- +5.5% YoY Real M2
Real YoY money supply remains firmly positive, although it moderated a little in recent months.
Trade weighted US Dollar
- Down -0.25 to 125.33 w/w, up +9.3% YoY (Broad)
- Down -2.59 to 96.95 w/w, up +2.5% YoY (major currencies)
The broad measure is reported by the FRB on Mondays and so is delayed one week. Bloomberg's spot price against major currencies is accurate as of Friday. The US Dollar appreciated about 20% between 12 and 18 months ago. In 2015, the broad measure continued to appreciate, but at a relatively more moderate trend, while against major currencies it has been flat since March 2016. l consider a YoY change of 5% or higher a negative. The broad measure is still strongly negative, although this week it fell below 10% for the first time in well over a year. Against major currencies it is approaching parity, so it has become a neutral.
- Up +0.71 to 80.44 w/w
- Down -21.81 YoY
BBG Industrial metals ETF
- 89.21 up +0.05 w/w
While oil had continued to decline, commodity prices as measured by ECRI and industrial metals had generally gone sideways since November, before falling again in the first 3 weeks of January. Even so, the YoY comparisons are "less bad," especially for industrial commodities.
Initial jobless claims
- 285,000 up +7,000
- 4-week average 284,750 up +1,750
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
- Unchanged at 94 w/w
- Down -2.65 YoY
Since last spring, the YoY comparison turned neutral and then increasingly negative, although in the last month it has become "less worse."
- $191.1 B for the month of January vs. $189.5 B one year ago, up +$1.6 B or +0.8%
- $185.7 B for the last 20 reporting days ending Thursday vs. $180.0 B one year ago, up $5.7 B or +3.2%
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 four months.
- Oil down -$2.69 to $31.00 w/w
- Gas prices down -$.04 to $1.82 w/w
- Usage 4-week average down -0.9% YoY
The price of gas and oil bottomed at the end of January 2015 at $2.02. It broke through that bottom 4 weeks ago. Usage turned negative five weeks ago, but moved close to neutral this 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 were at or near 5-year highs in the past month, but TED has improved considerably in the last several weeks.
- Johnson Redbook -0.8% YoY
- Goldman Sachs +1.3% w/w, +2.3% YoY
- Gallup daily consumer spending 14-day average $76, down -$7 YoY (NE blizzard)
Both the Goldman Sachs and Johnson Redbook Indexes progressively weakened in pulses during 2015, before improving somewhat since the beginning of November. Gallup turned positive for 7 weeks, before falling off a cliff for 5 days after the big Northeastern blizzard two weekends ago. For now I am discounting this, since the shorter 3-day average returned to positive in the last week. Because Gallup includes gas purchases, the fact that it turned positive strongly suggests that consumers have started to spend some of their gas savings on other things.
- Carloads down -16.6% YoY
- Loads ex-coal down -8.0% YoY
- Intermodal units up +5.5% YoY
- Total loads down -6.5% YoY
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. Total rail loads show some signs of turning "less bad."
After rising briskly last spring, both the BDI and Harpex declined again to new multi-year lows. Harpex has bottomed. BDI is still sliding.
- Down -0.8% w/w
- Down -8.3% 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. Four weeks ago was the worst yet, but since then these too have gotten "less worse."
Among long leading indicators, interest rates for corporate bonds are neutral, while treasuries, money supply, real estate loans, mortgage applications, and mortgage rates are positive.
Among short leading indicators, the interest rate spread between corporates and treasuries got even more negative. Jobless claims remain positive. Oil and gas prices remain very positive, while usage was negative for the fifth week in a row. Commodities remain a big global negative, although they appear "less worse" on a YoY basis. The big story this week, however, was that the US Dollar as against major currencies turned from negative to neutral. The broad US Dollar remains quite negative, although less so compared with the last year.
Among coincident indicators, steel production, shipping, and rail transport all remain very negative, although steel and temporary staffing have rebounded somewhat, and rail also shows faint signs of a pulse. Consumer spending is positive, except for the two-week average of Gallup, which has a very good excuse in the Northeast blizzard of two weekends ago.
The bifurcation of decent consumer economy, poor industrial economy remains. Last week I said that the two releases I would be paying a lot of attention to were personal spending and vehicle sales, to see if they confirm that consumers have opened their wallets a little more. They did just a tiny bit, with real spending up +0.1%, and vehicle sales up over December, but below August through November. All things considered this was disappointing.
But the big news this past week was the US Dollar. *If* it continues to slide towards parity, the big weight sitting on exports will be lifted, although it will take at least a quarter for the relief to show up.