By New Deal Democrat
Monthly June data was dominated by a strongly positive jobs report, which balanced out the abysmal May. ISM services also was strongly positive. Factory orders for May, however, were negative.
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
- 4.19% BAA corporate bonds down -.19% (down -1.28% since Jan. 1) (New all-time low)
- 1.38% 10-year treasury bonds down -.12% (new all-time low)
- 2.81% credit spread between corporates and treasuries down -.07%
Yield curve, 10-year minus 2-year:
- 0.80%, down -.06% w/w
30-year conventional mortgage rate:
- 3.37%, down -.03% w/w (new 1-year low)
Yields on corporate bonds and treasuries both made new lows this week, strongly suggesting that the expansion will continue at least one more year. On the other hand, mortgages have still failed to make a new low for over 3 years, thus turning yellow (caution or neutral vs. positive) as a recession indicator. Spreads remain neutral. Yields have tightened enough to go from strongly positive to normally positive.
- Purchase applications up +4% w/w
- Purchase applications up +23% YoY
- Refinance applications up +31% w/w
Real Estate loans
- Up +0.3 w/w
- +7.0% YoY
Mortgage applications had been awful for several years, before turning up early last year in response to very low rates. Purchase applications are very positive, while refinancing has been moving more sideways with a slight positive trend in the last few months.
Real estate loans have been firmly positive for nearly 3 years.
- -0.8% w/w
- +0.5% m/m
- +6.1% YoY Real M1
- +0.2% w/w
- +0.7% m/m
- +5.8% 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 have been very positive for the last three months.
Trade weighted US dollar
- Up +0.65 to 121.43 w/w, up +5.2% YoY (one week ago) (Broad)
- Up +2.09 to 96.30 w/w, up +0.3% YoY (yesterday) (major currencies)
The US dollar appreciated about 20% from July 2014 through spring 2015, and has gone more or less sideways with a slight positive trend since then. l consider a YoY change of 5% or higher a negative. The broad measure has returned to being negative for 8 of the last 9 weeks, and against major currencies is back to neutral.
- Down -0.13 to 92.72 w/w
- Down -4.38 YoY
BBG Industrial metals ETF
- 98.70 down -1.12 w/w
Commodity prices as measured by industrial metals appear to have bottomed in November. ECRI and oil subsequently turned up as well. Both are at 6-month highs and have come back well over 50% from their most negative readings last autumn. This is enough to turn them all the way back to positive.
Stock prices S&P 500
- Up +1.3% w/w
- Down -0.2% from high over 1 year ago
Stock prices made new 6-month lows in February, but also made a number of 6-month highs since April - but not quite new all time highs. 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 +16.4 to +10.9
- Philly down -1 to -2.9
- Richmond down -14 to -14
- Kansas City up +7 to +4
- Dallas down -20.9 to -14.9
- Month over month rolling average: -2 to -4
I inaugurated coverage of these indexes as an experiment to see if they helped forecast the ISM new orders index, which is an excellent short leading indicator for sales and industrial production roughly by 6 months. In May, there was a serious divergence between the two. In the regional indexes, the positive bounce in March and April has been taken back, but the average is less negative than in the previous year.
Initial jobless claims
- 254,000 down -14,000
- 4-week average 264,750 down -2,000
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 94 w/w
- Up +0.75 YoY
This index turned negative in May 2015, getting as bad as -4.30% late last autumn. Since the beginning of the year it has been progressively "less bad" and for 4 of the last 5 weeks ago has turned positive.
- $55.3 B for the first 4 days of July vs. $50.8 B one year ago, up +$4.5 B or +8.9%
- $173.8 B for the last 20 reporting days ending Thursday vs. $164.5 B one year ago, up +$9.3 B or +5.7%
Beginning with the last half of 2014, virtually all readings were positive, but turned more mixed and choppy, while still positive, since August 2015. 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 ran positive, and May strongly so. June was poor. But July has started out positive again.
- Oil down -$4.04 to $45.20 w/w
- Gas prices down -$.02 to $2.29 w/w
- Usage 4-week average up +2.5% YoY
The price of gas bottomed this winter at $1.69. Usage turned briefly negative at the beginning of the year, but has been positive ever since. Gas prices may have made their summer high 3 weeks ago.
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 +0.6% YoY
- Goldman Sachs down -0.1% w/w, up +2.6% YoY
- Gallup daily consumer spending 14-day average $87, up +$5 YoY
Both the Goldman Sachs and Johnson Redbook Indexes progressively weakened in pulses during 2015, before improving somewhat since the beginning of last November. Both Goldman Sachs and Gallup were positive this week, but JR was very weak. Gallup has been positive almost every week so far this year. As a result, I am scoring consumer spending as mixed.
- Carloads up +4.9% YoY
- Loads ex-coal down -4.7% YoY
- Intermodal units up +4.0% YoY
- Total loads up +4.9% YoY
Rail traffic turned negative and then progressively worse in pulses throughout 2015. Rail loads became "less worse" in January and showed continued improvement until going over the proverbial cliff in March. They have been trending incrementally less awful, and this week improved enough to score positive - but I suspect this is due to the change of week for the July 4 holiday, so it may not last.
After rising briskly last spring, both the BDI and Harpex recently declined again to new multi-year lows. BDI has improved enough since then to score a neutral, while Harpex has recently resumed a slight decline. I am wary of reading too much into price indexes like this, since they are heavily influenced by supply (as in, a huge overbuilding of ships in the last decade) as well as demand.
- Down -1.1% w/w
- Down -1.2% 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, but for the last 3 weeks has turned negative again.
The pattern changes that I noted last week generally intensified this week.
Among long leading indicators, interest rates for corporate bonds, treasuries, the yield curve, real money supply, real estate loans, purchase mortgage applications, and mortgage rates are positive. Refinance applications are neutral. Since corporate and treasury interest rates made new lows, this resets the long leading indicator clock so far as they are concerned. *However,* mortgage rates, despite a big decline, still have not made new lows for over 3 years, so this remains a big negative in the longer term forecast.
The significant change among short leading indicators continued. For the 2nd straight week, commodities across the board have improved so much that I am now scoring them a positive. The spread between corporates and treasuries, and stock prices, remain neutral. The US dollar against major currencies changed back from positive to neutral, and against all currencies remains negative. Jobless claims, oil and gas prices, and usage, all remain very positive.
The coincident indicators have become mixed. On the positive side, for the second week in a row, rail transport improved just barely enough to score as neutral, although this may be an artifact of the July 4 holiday week. Temp staffing was positive again for the 4th time in the last 5 weeks. Consumer spending was mixed again for the 3rd week in a row. Steel was negative again for the 3rd week in a row. Tax withholding turned back to positive. Shipping and bank rates remain negative.
There has developed a sharp bifurcation in the indicators. In general, the long and short leading indicators either remain positive or are turning positive, with the significant exception of the broad US dollar. Meanwhile, the coincident indicators, with the exception of some measures of consumer spending, are negative.
I continue to believe that the coincident tail is not going to wag the leading dog, which just got several big tailwinds this week. I will be particularly watching industrial production and the Empire State Manufacturing Index this coming week for their reading on the ending of the shallow industrial recession.