By New Deal Democrat
July data started with an excellent jobs report, a surprisingly positive motor vehicle sales report, and positive ISM manufacturing and services reports. Monthly June data included positive personal income and spending, but negative construction spending and factory orders.
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, and then coincident indicators.
Interest rates and credit spreads
- 4.31% BAA corporate bonds up +.12%
- 1.55% 10-year treasury bonds up +.03%
- 2.76% credit spread between corporates and treasuries up +.09%
Yield curve, 10-year minus 2-year:
- 0.88%, up +.09% w/w
30-year conventional mortgage rate:
- 3.38%, up +.01% w/w
Yields on corporate bonds and treasuries both made new lows two weeks ago, strongly suggesting that the expansion will continue at least one more year. On the other hand, mortgages have 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 are still normally positive, although they continue to tighten.
- Purchase applications -2% w/w
- Purchase applications up +6% YoY
- Refinance applications down -4% w/w
Real Estate loans
- Up +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. Purchase applications are very positive, while refinancing was moving more sideways with a slight positive trend earlier this year before spiking in the last month in response to low rates.
Real estate loans have been firmly positive for 3 years.
- +0.2% w/w
- Unchanged m/m
- +5.9% YoY Real M1
- +0.4% w/w
- +0.6% m/m
- +6.1% 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 also decelerated but has been more firmly positive. Both have been very positive for the last three months.
Trade weighted US dollar
- Up +0.6% w/w, up +3.9% YoY (one week ago) (Broad)
- Down -2.28 to 92.26 w/w, down -4.2% YoY (yesterday) (major currencies)
The US dollar appreciated about 20% from mid-2014 to mid-2015, but since then has gone sideways or only appreciating slightly depending on the measure. This means that for about the last 6 months, it has been generally neutral to a positive.
- Up +0.10 to 93.72 w/w
- Up +0.77 YoY
BBG Industrial metals ETF
- 100.09 down -1.02 w/w
Commodity prices as measured by industrial metals appear to have bottomed last November. ECRI subsequently turned up as well. They have now come all the way back to positive.
Stock prices S&P 500
- Up 0.4% w/w (all-time high)
Stock prices have become a positive since making new all-time highs in the last month.
Regional Fed New Orders Indexes
(*indicates report this week) (no reports this week)
- Empire State up -12.7 to -1.9
- Philly up +14.8 to +11.8
- Richmond up +32 to +15
- Kansas City unchanged at -5
- Dallas up +6 to -8
- Month-over-month rolling average: unchanged at +2
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 and June, there was a serious divergence between the two, but in July the regional indexes became on balance positive.
Initial jobless claims
- 269,000 up +3,000
- 4-week average 260,250 up +3,750
Initial claims remain well within the range of a normal economic expansion, as does the 4-week average.
The American Staffing Association Index
- Up +2 to 95 w/w
- Down -0.45 YoY
This index turned negative in May 2015, getting as bad as -4.30% late last autumn. Since the beginning of the year it became progressively "less bad" and for the last 9 weeks has either been positive YoY, or so close as to be a neutral.
- $177.5 B for the month of July vs. $179.3 B one year ago, down -$1.8 B or -1.0%*
- $170.4 B for the last 20 reporting days vs. $162.7 B one year ago, up $7.7 B or +4.7%
Beginning with the last half of 2014, virtually all readings were positive, but turned more mixed and choppy, and occasionally even negative, since August 2015. For me to think it has reached a turning point, it should show less than +2% growth YoY on a consistent basis.
*I am discounting the monthly reading for July because this year there were 20 reporting days vs. 23 reporting days last year.
- Oil up +$0.54 to $41.98 w/w
- Gas prices down -$.02 to $2.16 w/w
- Usage 4-week average up +2.2% 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 probably made their summer high 7 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. Of importance is that TED was above 0.50 before both the 2001 and 2008 recessions. TED has now reached that level, and LIBOR almost so.
- Johnson Redbook up +0.3% YoY
- Goldman Sachs up +0.3% w/w, up +2.4% YoY
- Gallup daily consumer spending 14-day average $103, up +$11 YoY
Both the Goldman Sachs and Johnson Redbook Indexes progressively weakened in pulses during 2015, before improving somewhat since the beginning of last November. Gallup was very positive this week, with GS a positive but JR very weak.
- Carloads down -5.3% YoY
- Loads ex-coal down -1.9% YoY
- Intermodal units down -2.6% YoY
- Total loads down -4.0% 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 all spring (typically down -10% or more). It has been trending incrementally less awful except for the last two months, and this week has come back enough to score as neutral.
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 -1.3% w/w
- Down -3.9% 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 7 weeks has turned negative again. This appears to be due to renewed global Chinese "dumping."
With one exception, all long leading indicators are either positive or neutral. 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. On the other hand, mortgage rates still have not made new lows for over 3 years, so this remains a big negative in the longer term forecast.
Short leading indicators are all also either positive or neutral. Commodities across the board have improved so much that they are now a positive. Stock prices are positive. The US dollar against major currencies is positive, and against all currencies neutral. Jobless claims, oil and gas prices, and usage, all remain very positive. Only the spread between corporates and treasuries is a neutral.
Even the coincident indicators appear to be improving a little. Consumer spending as measured by Gallup and Goldman Sachs are positive, while Johnson Redbook is a neutral. Temp staffing is neutral. Rail has now also improved enough to score as neutral. Only steel, shipping, and bank rates remain negative.
With one exception, the long and short leading indicators are either positive or neutral, while the coincident indicators have improved to mixed.
This coming week I'll be paying particular attention to retail sales, and to wholesale and manufacturing sales and inventories, to see if they add confirmation that the shallow industrial recession bottomed earlier this year.