By New Deal Democrat
Monthly data for February included a very slight increase in the Index of Leading Indicators, an increase in housing starts, and in both the Empire state and Philly Indexes. Both consumer and producer prices declined. Negative news included another decline in industrial production and capacity utilization, a decline in housing permits, and an increase in business inventories and the inventory to sales ratio. Retail sales declined, although after inflation they were flat.
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
- 5.11% BAA corporate bonds down -.19%
- 1.91% 10-year treasury bonds up +.01%
- 3.20% credit spread between corporates and treasuries down -.20%
30-year conventional mortgage rate:
- 3.75%, down -.07% w/w
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 - although treasuries and mortgage rates both came very close to new all-time lows in the last month, and remain low enough to be short-term positives. Spreads remain negative, although they have improved significantly in the last two months.
- Purchase applications up +0.3% w/w
- Purchase applications up +33% YoY
- Refinance applications down -6% w/w
Real Estate loans
- Up +0.1% w/w
- +6.4% YoY
Mortgage applications had been awful for several years, before turning up early last year in response to very low rates. They are now strongly positive.
Real estate loans have been firmly positive for two years.
- +2.3% w/w
- +2.4% m/m
- +2.1% YoY Real M1
- Unchanged w/w
- +0.5% m/m
- +4.2% YoY Real M2
Real M1 decelerated markedly in January to the point where it was a very weak positive, then improved, but this week showed more weakness. Real M2 has also decelerated, but is more firmly positive.
Trade weighted US Dollar
- Down -0.71 to 121.42 w/w, up +3.0% YoY (Broad)
- Down -1.15 to 95.09 w/w, Down -3.6% 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 is has been flat since March 2016. l consider a YoY change of 5% or higher a negative. The broad measure has now fallen below that mark, and against major currencies, the US$ turned outright positive.
- Up +1.30 to 84.68 w/w
- Down -15.03 YoY
BBG Industrial metals ETF
- 94.86 up +0.18 w/w
Commodity prices as measured by industrial metals appear to have bottomed in November. ECRI has gone basically sideways since then. Oil has also now turned up. The YoY comparisons are "less bad" enough for Industrial commodities, that they are now turned up scored as neutral.
Initial jobless claims
- 265,000 down -13,000
- 4-week average 268,000 up +500
Initial claims remain well within the range of a normal economic expansion, as does the 4-week average. After weakening in January, they have since recovered.
The American Staffing Association Index
- Unchanged at 93 w/w
- Down -2.84 YoY
Since last spring, the YoY comparison turned neutral and then increasingly negative, although since the beginning of the year it has become "less worse." I would need this series to be -2.15% YoY or less for me to believe it has bottomed.
- $143.7 B for the first 13 days of February vs. $155.6 B one year ago, down -$11.9 B or -7.6%
- $210.8 B for the last 20 reporting days ending Thursday vs. $205.9 B one year ago, up $4.9 B or +2.6%
The very large payments that typically happen on the first of each month took place on February 29th instead, so I would downplay the March monthly number for now.
Beginning with the last half of 2014, virtually all readings were positive, but turned more mixed and choppy, while still positive, since August. A month ago I said I would need this series on the 20-day basis to decline to less than +2% YoY for me to think it has reached a turning point, and it did so for 3 weeks in a row, thus becoming a major red flag. This week, however, it did improve.
- Oil up $3.02 to $39.35 w/w
- Gas prices up +$.12 to $1.96 w/w
- Usage 4-week average up +6.4% YoY
The price of gas and appears to have bottomed for this winter four weeks ago at $1.69. Usage turned briefly negative at the beginning of the year but has turned positive again.
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 several months, but both have improved in the last month or so.
- Johnson Redbook up +0.6% YoY
- Goldman Sachs up +1.4% w/w, up +2.7% YoY
- Gallup daily consumer spending 14-day average $88, up +$1 YoY
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 and has remained so for 11 of the last 13 weeks. 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. This is in complete contradiction to the weak monthly retail sales numbers for the last 2 months.
- Carloads down -12.8% YoY
- Loads ex-coal down -3.8% YoY
- Intermodal units down -10.3% YoY
- Total loads down -11.6% 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. Rail loads became "less worse" in January and showed continued improvement until going over the proverbial cliff this week. I am treating this as an outlier unless there is confirmation in the next week or two.
After rising briskly last spring, both the BDI and Harpex declined again to new multi-year lows, although both may have bottomed.
- Up +2.9% w/w
- Up +7.6% 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. In the last two months, these became "less worse" and has now turned positive.
Among long leading indicators, interest rates for corporate bonds are neutral and improving, while treasuries, real estate loans, mortgage applications, and mortgage rates are positive. Mortgage applications have become strongly positive. Real M1, meanwhile, faded again but is still within the positive range.
Among short leading indicators, the interest rate spread between corporates and treasuries remains negative, although it has improved significantly in the last several months. Jobless claims remain positive. Oil and gas prices, and usage, remain very positive. Commodities have been "less worse" on a YoY basis recently, and industrial commodities have improved enough to be scored as neutral. The US Dollar as against major currencies has turned outright positive, and on a broad basis, it has turned neutral.
Among coincident indicators, bank rates, staffing and shipping remain negative. Withholding taxes bounced back this week to be counted as a positive. Steel production has turned positive, consumer spending remains quite positive. Meanwhile, rail transport, which had turned positive, had an absolutely awful week.
The trends of 2015 appear to have been broken. The Dollar is neutral to positive, steel has rebounded, spreads are narrowing (with corporate bond yields declining vs. treasuries increasing). Rail derailed badly this week, but I want to see at least one more similar such week before becoming concerned. While the overwhelming tone is improvement, the monthly data is much more mixed. Industrial production is "less bad" on a YoY basis, and the regional indexes improved, but increasing inventories and decreasing business sales are cause for concern, as is the major downward revision to retail sales from one month ago. One of these is giving a false signal, and only time will tell.