By New Deal Democrat
Monthly data for March started out with a blowout positive ISM manufacturing report, that all but precludes any imminent recession, vs. poor motor vehicle sales that would otherwise suggest a recession is near. The run of 200,000+ jobs reports continued, although both unemployment and underemployment rose - due to lots of people entering the workforce - and the more leading components of the report generally were negative. Two measures of consumer sentiment rose.
February data included a weak increase in both income and spending, an increase in house prices, and a decline in construction spending.
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.
In general, I go in order of long leading indicators, then short leading indicators, and then coincident indicators.
Interest rates and credit spreads
- 4.90% BAA corporate bonds down -.07% (down over -.50% since Jan. 1)
- 1.78% 10-year treasury bonds down -.13%
- 3.12% credit spread between corporates and treasuries up +.06%
Yield curve, 10-year minus 2-year:
- 1.05%, up +.03% w/w
30-year conventional mortgage rate:
- 3.71%, down -.08% 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 February, and remain low enough to be short-term positives. Spreads remain negative, although they have improved significantly in the last two months. The yield curve has gone from strongly positive to regularly positive.
- Purchase applications down +2% w/w
- Purchase applications up +21% YoY
- Refinance applications down -3% w/w
Real Estate loans
- Up +0.2% w/w
- +6.3% 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.
- +1.4% w/w
- +1.6% m/m
- +4.4% YoY Real M1
- +0.3% w/w
- +0.6% m/m
- +5.1% YoY Real M2
Real M1 decelerated markedly in January to the point where it was a very weak positive, and has fluctuated since then. Real M2 has also decelerated but is more firmly positive. Both were very positive this week.
Trade weighted US dollar
- Up +0.37 to 120.37 w/w, up +4.9% YoY (Broad)
- Down -1.68 to 94.59 w/w, down -2.03% 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% from July 2014 through March 2015. Afterward, the broad measure continued to appreciate, but at a relatively more moderate trend, while against major currencies the US dollar has been flat. 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 dollar turned outright positive.
- Up +0.17 to 85,30 w/w
- Down -16.59 YoY
BBG Industrial metals ETF
- 92.55 down -0.11 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.
Stock prices S&P 500
- Up +2.5% w/w
- Down -3.3% from 1-year high 10 months ago
Stock prices made new 6-month lows in February and are below their recent highs in November. For forecasting purposes, I am scoring this as a negative.
Regional Fed New Orders Indexes
(*indicates report this week)
- Empire State up +22 to +10
- Philly up +21 to +16
- Richmond up +30 to +24
- Kansas City up +5 to -2
- *Dallas up +13 to -5
- Month-over-month rolling average: up +18 to +9
I inaugurated coverage of these indexes as an experiment. Since the ISM new orders index is an excellent short leading indicator for sales and industrial production (roughly by 6 months), can a rolling average of these regional indexes reasonably forecast the direction and intensity of moves in that monthly index? They certainly did for the March ISM new orders index, which was reported yesterday up 6.8 to 58.3.
Initial jobless claims
- 276,000, up +11,000
- 4-week average 263,600, up +3,500
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 -4.13 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." This week it retreated to "more worse" again. I would need this series to be -2.15% YoY or less for me to believe it has bottomed.
- $216.7 B for the month of March vs. $217.9 B one year ago, down -$1.2 B or -0.6%
- $180.2 B for the last 20 reporting days ending Thursday vs. $190.4 B one year ago, down -$10.2 B or -5.4%
The very large payments that typically happen on the first of each month took place on February 29th instead, so I am downplaying the March monthly number. Similarly, this week the 20-day average does not include April 1, where last year's does, so I am downplaying that as well.
Beginning with the last half of 2014, virtually all readings were positive, but turned more mixed and choppy, while still positive, since August. In February, 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. That abate in March until this week.
- Oil down -$2.79 to $36.67 w/w
- Gas prices up +$.06 to $2.07 w/w
- Usage 4-week average up +5.0% YoY
The price of gas bottomed this winter at $1.69. Usage turned briefly negative at the beginning of the year, but is now 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 several months, although this week the TED spread rose back close to that high.
- Johnson Redbook up +1.5% YoY
- Goldman Sachs up +3.0% w/w, up +1.0% YoY
- Gallup daily consumer spending 14-day average $89, up +$4 YoY
Both the Goldman Sachs and Johnson Redbook Indexes progressively weakened in pulses during 2015, before improving somewhat since the beginning of November. On the other hand, Gallup has been positive almost every week so far this year which, because it includes gas purchases, 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 -18.5% YoY
- Loads ex-coal down -9.3% YoY
- Intermodal units down -14.5% YoY
- Total loads down -16.5% 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. Rail loads became "less worse" in January and showed continued improvement until going over the proverbial cliff last week. I read a good explanation, suggesting that this whipsawing has to do with YoY comparisons, including last year's West Coast ports strike, and the recovery thereafter. If so, this should end in a few weeks.
After rising briskly last spring, both the BDI and Harpex declined again to new multi-year lows, although both may have bottomed.
- Up +0.4% w/w
- Up +4.6% 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 three months, these became "less worse" and now positive.
Among long leading indicators, interest rates for corporate bonds are neutral and improving, while treasuries, the yield curve, real money supply, real estate loans, mortgage applications, and mortgage rates are positive. Mortgage applications have become strongly positive. At the same time, no interest rates have made new lows in at least a year, and mortgage rates have not made new lows for over 3 years. So while the "now-cast" is positive, this is a big negative in the longer term forecast.
The short leading indicators are mixed. Starting with the negatives, the interest rate spread between corporates and treasuries remains negative, although it has improved significantly in the last several months. Commodities have been "less worse" on a YoY basis recently, and industrial commodities have improved enough to be scored as neutral. Stocks tied recent lows in February but have not made a new 6-month high and have also failed to make a new overall high for 10 months, and so are also a negative. Turning to positives, the US dollar as against major currencies has turned outright positive, and on a broad basis, it has turned neutral. Jobless claims remain positive. Oil and gas prices, and usage, remain very positive. The new orders indexes from the regional Feds surged into positive territory.
Among coincident indicators, bank rates, staffing and shipping remain negative, Withholding taxes also turned negative this week, but I am discounting that due to calendar glitches. Steel production has turned positive. Consumer spending is also positive. Meanwhile, rail transport, which had turned positive, had an absolutely awful week for the 3rd week in a row.
As to the near term, the neutral to negative US dollar, and the surge in new orders in the regional Fed indexes (confirmed by the USM national index), the positive Gallup consumer spending, and the positive turn in steel production, are powerful evidence that the shallow industrial recession should be bottoming soon. The recent big decline in BAA corporate yields is also something that typically happens late in a recession. The two negatives, rail and tax withholding, both have special YoY calendar comparison issues, so I am discounting them for now.
As to the long term, the problem is that 2 of the long leading indicators, interest rates and corporate profits have failed to make new lows for a long enough time to be considered negatives, although they are close enough to those lows to be positive for the shorter term "now-cast." Additionally, the very positive weekly housing metrics are not correlating well with the stalled monthly housing measures. And the poor March vehicle sales don't help.
This coming week will be a light one for monthly data, but I will be watching wholesaler inventories and sales for February, which will be reported on Friday, to see if there are further signs that the shallow industrial recession is ending.