By New Deal Democrat
Most of the monthly data this week was pretty positive. Housing permits and starts were both up. Starts and single family permits made post-recession records. As a result, the index of leading indicators rose slightly. Retail sales were very positive, even after accounting for inflation, which was also up pretty strongly. Industrial production was flat, as were producer prices.
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
- Dow Jones corporate bond index 358.04 down -5.67 w/w (2016 high is 395.36, 2016 low is 341.41)
- 2.34% 10-year treasury bonds up +.27% (tied for 12-month high)
- BofA/ML B Credit spread down -.12% to 4.92% (12-month low of 4.62% on Oct. 22)
Yield curve, 10 year minus 2 year:
- 0.92%, down -.25% w/w
30-year conventional mortgage rate
- 4.12%, up +.27% w/w (52-week high)
Yields on treasuries and mortgage rates spiked to 12-month highs this week, enough to flip them all the way to negative. Corporate bonds are also getting close to 12-month lows, although they aren't there yet. Because they made new lows after the Brexit vote in June, that nevertheless strongly suggests that the expansion will continue through mid-2017. Yields are also still positive, but spreads are neutral.
- Purchase applications down -6% w/w
- Purchase applications up +3% YoY
- Refinance applications down -11% w/w
Real Estate loans
- Unchanged w/w
- Up +7.2% YoY
Mortgage applications turned up early in 2015 in response to very low rates. They briefly spiked in response to low rates following the Brexit vote. Purchase applications last made a new high at the beginning of June. They have wobbled between being positive and neutral for the last 8 weeks, and came very close to turning negative this week. They may go YoY negative in the next month. If so, they will flip to becoming an important negative. Refinance applications remain a mild positive for the moment.
Real estate loans have been firmly positive for over 3 years.
- -1.5% w/w
- -1.9% m/m
- +5.6% YoY Real M1
- -0.2% w/w
- +0.5% m/m
- +5.9% YoY Real M2
Both real M1 and real M2 have been firmly positive almost all year, although less so in the last month.
Trade weighted US dollar
- Up +2.50 to 125.61 w/w, up +3.7% YoY (one week ago) (Broad)
- Up +7.29 to 101.29 w/w, up +2.3% YoY (yesterday) (major currencies)
The US dollar appreciated about 20% between mid-2014 and mid-2015. It went mainly sideways since then until the presidential election last week. It has been neutral for 6 of the last 7 weeks.
- Down -0.63 to 95.93 w/w
- Up +18.46 YoY
BBG Industrial metals ETF
- 108.58 down -1.51 w/w, up +23.9% YoY
Commodity prices bottomed about one year ago, last November. Recently, metals briefly turned negative, but have now resumed being positive.
Stock prices S&P 500
- Up +0.8% w/w
Stock prices became a positive having made new all-time highs in summer. They have not made new 6-month lows, so they remain a positive. It will take a continued sideways move or a significant further decline for this to change in the immediate future. The S&P still did not quite make a new 6-month high this week.
Regional Fed New Orders Indexes
(*indicates report this week)
- *Empire State up +8.7 to +3.1
- *Philly up +2.3 to +18.6
- Richmond down -5 to -12
- *Kansas City down -8 to +6
- Dallas down -0.6 to -3.5
- Month-over-month rolling average: up +1 to +2
In the months since I started coverage of this metric, the regional average has been more negative that the ISM manufacturing index, but has accurately forecast its month-over-month direction. It has tipped positive in the last month.
Initial jobless claims
- 235,000 down -19,000 (new 40 year low)
- 4-week average 253,500 down -6,250 (new 40-year low)
Initial claims remain well within the range of a normal economic expansion, as does the 4-week average.
The American Staffing Association Index
- Up +1 to 99 w/w
- Down -0.04 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 few months has been so close to positive YoY as to be a neutral, as it was again this week - a hair below being a positive.
- $110.4 B for the first 12 days of November vs. $119.1 B one year ago, down -$8.7 B or -7.3%
- $170.9 B for the last 20 reporting days ending Thursday vs. $164.7 B one year ago, up +$6.2 B or +3.8%
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. The last few months have shown a marked improvement, although November has started out poorly.
- Oil up +$2.51 to $45.57 w/w, down -$3.37 YoY
- Gas prices down -$0.05 to $2.18 w/w, unchanged YoY
- Usage 4-week average down -0.3% YoY
The price of gas bottomed last winter at $1.69. Usage had been almost uniformly positive until several weeks ago. It turned negative, but is neutral this week. Gas prices are off their summer seasonal high, but have gone sideways for the last three months. After briefly turning up YoY, gas prices are neutral again. Oil prices have come down in the last month, so that has turned back to positive. In general, oil is no longer a tailwind for the economy, but it isn't a headwind either.
Bank lending rates
Both TED and LIBOR rose 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. Both recently reached that level. The TED spread has turned positive for the last two weeks.
- Johnson Redbook up +0.9% YoY
- Goldman Sachs up +0.3% w/w, up +1.5% YoY
- Gallup daily consumer spending 14-day average $92, unchanged YoY
Both the Goldman Sachs and Johnson Redbook Indexes progressively weakened in pulses during 2015, before improving somewhat since the beginning of last November. Redbook has recently turned very weak. Goldman and Gallup have both been generally more positive, although Gallup has been wobbly for a month. The results were a mild positive this week.
- Carloads up +0.5% YoY
- Loads ex-coal up +2.5% YoY
- Intermodal units down -1.4% YoY
- Total loads down -0.5% 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) in spring. It trended incrementally less awful since June, generally has scored neutral. For the last two weeks, it has turned positive.
Harpex has recently resumed its decline again to repeated multi-year lows. BDI recently turned positive, then neutral, and is now screamingly positive again. 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.
- Down1.4% w/w
- Up _5.3% 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 a few months ago, but recently turned negative again, until this week, when apparently tariffs finally caused a big turnaround.
The big spike in yields continued this week, enough so that some of the interest rate components of the long leading indicators flipped all the way to negative. Purchase mortgage applications are neutral, and just a hair above turning negative. The yield curve and money supply, however, both remain positive.
Short leading indicators are positive with the exception of spreads, gas prices and usage, and the US dollar, which are neutral. Stock prices, jobless claims, industrial commodities, the regional Fed new orders indexes, and oil prices are all positive.
The coincident indicators continue to tilt more positive. In particular, rail, the TED spread, the BDI, and for the first time in over a year, steel, are all positive now. Tax withholding remains slightly positive. Temp staffing is just a hair below being positive. Consumer spending is slightly. Only the Harpex shipping index and LIBOR are negative this week.
It is at times like this when the long leading/short leading/coincident ranking of indicators come in so handy. The prior positivity of the long leading indicators has fed through to both the short leading and now the coincident indicators. But we now see a potentially ominous turning of interest rates in the long leading indicators. If it persists, I expect it to feed through into housing and then other components of the economy as we progress through next year.