By New Deal democrat
Interim May data started out this week with a surge in the Conference Board's consumer confidence index. April data included strong retail sales and a modest increase in producer prices. March data included a good JOLTs report, positive manufacturer and wholesaler sales, and an increase in all business inventories.
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. They are also an excellent way to "mark your beliefs to market."
In general I go in order of long leading indicators, then short leading indicators, then coincident indicators.
Interest rates and credit spreads
- 4.63% BAA corporate bonds down -.01% (down -.87% since Jan 1)
- 1.73% 10 year treasury bonds down -.06%
- 2.90% credit spread between corporates and treasuries up +.05%
Yield curve, 10 year minus 2 year:
- 1.04%, unchanged w/w
30 year conventional mortgage rate:
- 3.63%, unchanged 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 have improved enough in the last three months to go from negative to neutral, and the yield curve has narrowed from strongly to normally positive.
- purchase applications up +0.1% w/w
- purchase applications up +14% YoY
- refinance applications up +0.5% w/w
Real Estate loans
- +0.1% w/w
- +7.1% YoY
Mortgage applications had been awful for several years, before turning up early last year in response to very low rates. They are now positive.
Real estate loans have been firmly positive for nearly 3 years.
- +1.2% w/w
- +1.0% m/m
- +6.4% YoY Real M1
- +2.2% w/w
- +0.6% m/m
- +6.0% 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 also decelerated, but has been more firmly positive. Both were very positive this week.
Trade weighted US$
- Up +1.61 to 119.93 w/w, up +5.2% YoY (Broad)
- Up +0.72 to 94.61 w/w, up +1.1% 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$ 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$ has been flat. l consider a YoY change of 5% or higher a negative. Against major currencies, the US$ turned from positive to neutral this week, while the broad measure after several months of being neutral, went back to negative this week. I am discounting this because exactly one year ago was the weakest reading of the US$ for all of 2015.
- Up +0.77 to 89.68 w/w
- Down -13.50 YoY
BBG Industrial metals ETF
- 91.15 down -3.16 w/w
Commodity prices as measured by industrial metals appear to have bottomed in November. ECRI and oil have also now turned up. This is enough to move commodities from negative to neutral, although industrial metals stumbled this week.
Stock prices S&P 500
- Down -0.5% w/w
- Down -4.3% from high 1 year ago
Stock prices made new 6 month lows in February, but also just made an intraday 6 month high in April. For forecasting purposes, I am scoring this as a neutral.
Regional Fed New Orders Indexes
(*indicates report this week) (none this week)
- Empire State up +1 to +11
- Philly down -16 to 0
- Richmond down -6 to +18
- Kansas City unchanged at -2
- Dallas up +11 to +6
- Month over month rolling average: unchanged at +6
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? As in March, once again the April reports in the aggregate correctly forecast the strongly positive April ISM new orders reading.
Initial jobless claims
- 294,000 up +20,000
- 4 week average 268,250 up +10,250
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. I am discounting the spike in claims this week, as almost the entire increase was due to NYC schools' spring break, during which they allow their staff to file for unemployment. (BIG h/t to Across the Curve: http://acrossthecurve.com/?p=25871).
The American Staffing Association Index
- Up +1 to 96 w/w
- Down -1.98 YoY
Since last spring, the YoY comparison turned neutral and then increasingly negative, although since the beginning of the year it has generally been "less worse." For months I have said that I would need this series to be -2.15% YoY or less for me to believe it has bottomed. It got there this week. This metric turned south late last May. If the current trajectory continues for just two or three more weeks, this will turn outright positive.
- $83.0 B for the first 9 days of May vs. $81.8 B one year ago, up +$1.2 B or +1.5%
- $175.3 B for the last 20 reporting days ending Thursday vs. $158.1 B one year ago, up +$17.2 B or +10.9%
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, briefly becoming a major red flag. April collections, however, ran positive. Early May has been a little disappointing, but the 20 day sum is very positive.
- Oil up +$1.76 to $46.37 w/w
- Gas prices down -$.02 to $2.22 w/w
- Usage 4 week average up +5.1% 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 in the last 5 weeks the TED spread rose back close to that high. Of importance is that TED was above 0.50 before both the 2001 and 2008 recessions, so although it is a negative, it is not a strong one.
- Johnson Redbook up +1.1% YoY
- Goldman Sachs up -0.4% w/w, up +2.2% YoY
- Gallup daily consumer spending 14 day average $93, up +$4 YoY
Both the Goldman Sachs and Johnson Redbook Indexes progressively weakened in pulses during 2015, before improving somewhat since the beginning of November. JR was weakly positive again this week. Gallup has been positive almost every week so far this year which, because it includes gas purchases, strongly suggests that consumers have started to spend some of their gas savings on other things (which I suspect significantly includes soaring rents).
- Carloads down -14.8% YoY
- loads ex-coal down -7.4% YoY
- Intermodal units down -6.4% YoY
- Total loads down -10.6% YoY
Rail traffic turned negative and then progressively worse in pulses throughout 2015. While intermodal traffic quickly turned positive, domestic carloads, led by coal (for export) continued to deteriorate. Rail loads became "less worse" in January and showed continued improvement until going over the proverbial cliff 9 weeks ago, a big negative, but one that might be a symptom of inventory liquidation. Amid the sea of improving data, rail traffic stands out like a sore thumb.
After rising briskly last spring, both the BDI and Harpex recently declined again to new multi-year lows. Although it fell this week, BDI has improved enough to score a neutral.
- Up +2.2% w/w
- Up +2.6% YoY
Until spring 2014, steel production had generally been in a decelerating uptrend. It then gradually rolled over and got progressively worse in pulses through the end of 2015. This year it started out as "less worse" and turned positive several months ago.
While the broad US$ turned negative this week, it is against the very worst comparisons from last year, so I am discounting it for now. Industrial metals stumbled, but not enough to change their reading. The biggest news was that YoY temp staffing has gone from negative to neutral. That means that the only significant negatives left are bank lending rates and transport.
Among long leading indicators, interest rates for corporate bonds, treasuries, the yield curve, real money supply, real estate loans, mortgage applications, and mortgage rates are 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 only negative among short leading indicators is the broad US$, which is probably an anomaly for one week. The spread between corporates and treasuries has gone from negative to neutral. Commodities across the board have improved enough to be scored as neutral, as have stocks. The US$ against major currencies is neutral. Jobless claims, oil and gas prices, and usage, all remain very positive.
Among coincident indicators, rail transport continues to be awful, and shipping is also negative. Bank rates remain negative. Steel is positive as are withholding taxes. The significant change is temp staffing, which has improved enough to score as neutral.
The continuing news is the broad improvement to neutral or outright positive among a variety of indicators in the last six weeks. This coming week will be news-heavy. I will be paying particular attention to see if industrial production follows sales into positive territory, and whether new orders in the first two regional Feds to report remain strongly positive, accumulating evidence that the shallow industrial recession of the last 18 months is ending.