By New Deal Democrat
Monthly May data included an downtick in U. Michigan's consumer expectations, with an uptick in sentiment about current conditions.
April data included the JOLTS report, with a bid increase in openings, but sideways movement in actual hires and a slight decline in quits. Wholesale inventories increased, but sales increased even more, a net positive.
In the rear view mirror, Q1 unit labor costs jumped higher, and productivity was lower.
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
- 4.56% BAA corporate bonds down -.11% (down -.93% since Jan 1)
- 1.71% 10-year treasury bonds down -.14%
- 2.85% credit spread between corporates and treasuries up +.03%
Yield curve, 10-year minus 2-year:
- 0.93%, down -.01% w/w
30-year conventional mortgage rate:
- 3.59%, down -.03% 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 this year to go from negative to neutral. The yield curve was gone from extremely positive to just normally positive.
- Purchase applications up +12% w/w
- Purchase applications down -6% YoY
- Refinance applications up +7% w/w
Real Estate loans
- -0.1% 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 near 5-year highs, 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.
- -1.2% w/w
- +0.9% m/m
- +7.2% YoY Real M1
- -0.1% w/w
- +0.4% m/m
- +5.6% 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 month.
Trade weighted US dollar
- Down -.69 to 121.10 w/w, up +4.3% YoY (one week ago) (Broad)
- Up +0.64 to 94.57 w/w, down -0.4% 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. Against major currencies, the US dollar is positive. The broad measure returned to being negative for 4 weeks in response to a very hawkish Fed, but is now back to neutral as the Fed is considered on hold again. Against major currencies it is a positive.
- Up +0.15 to 90.26 w/w
- Down -11.42 YoY
BBG Industrial metals ETF
- 92.92 up +0.28 w/w
Commodity prices as measured by industrial metals appear to have bottomed in November. ECRI and oil subsequently turned up as well. This is enough to score commodities as neutral.
Stock prices S&P 500
- Down -0.1% w/w
- Down -1.8% 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. For forecasting purposes, I am scoring this as a neutral.
Regional Fed New Orders Indexes
(*indicates report this week) (none this week)
- Empire State down -16.5 to -5.5
- Philly down -1.5 to -1.5
- Richmond down -18 to 0
- Kansas City -3 to -3
- Dallas down -20.9 to -14.9
- Month-over-month rolling average: -3 from -2 to -5
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. There were no reports this week.
Initial jobless claims
- 264,000 down -3,000
- 4-week average 269,500 down -7,250
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.
The American Staffing Association Index
- Unchanged at 96 w/w
- Up +1.47 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 this week finally turned outright positive.
- $64.3 B for the first 7 days of June vs. $67.8 B one year ago, down -$3.5 B or -5.2%
- $170.0 B for the last 20 reporting days ending Thursday vs. $165.4 B one year ago, up +$4.6 B or +2.8%
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. Both April and May collections ran positive again. Early June has been disappointing, but only after an extremely strong end of May. The less volatile 20-day average remains positive.
- Oil down -$0.98 to $48.92 w/w
- Gas prices up +$.04 to $2.38 w/w
- Usage 4-week average up +2.6% 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.
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 up -5.9% w/w, up +1.1% YoY
- Gallup daily consumer spending 14-day average $100, 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. Both Goldman Sachs and JR were weakly positive this week, possibly due to the fact that Memorial Day came one week earlier last year. Gallup has been positive almost every week so far this year, and strongly so in the last 2 weeks. It is also possible that Gallup, unlike the other two measures, is picking up an increase in online spending.
- Carloads down -16.6% YoY
- Loads ex-coal down -12.1% YoY
- Intermodal units down -17.9% YoY
- Total loads down -17.3% 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 nearly 3 months ago, a big negative. Amid the sea of improving data, rail traffic stands out like a sore thumb. I discounted last week's big improvement because of Memorial Day falling during different weeks this year vs. last year - and that turned out to be the right call.
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.
- Down -0.8% w/w
- Up +0.9% 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. This week's weakly positive YoY reading may just be noise, but we'll see in the next week or two.
There was further improvement this week, as the broad US dollar moved from negative to neutral, and temp staffing moved to outright positive. Here is the remaining list of negatives: new orders from the regional Fed banks, bank lending rates, and especially transport. Meanwhile, the YoY change in the week of Memorial Day affected consumer spending, rail, and probably the last 2 weeks of tax withholding, giving them better readings last week and worse readings 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 no interest rates have made new lows in at least a year, and mortgage rates have not made new lows for over 3 years, while the "now-cast" is positive, this remains a big negative in the longer term forecast.
Among short leading indicators, the spread between corporates and treasuries has gone from negative to neutral. Commodities across the board, and stocks, are neutral. The US dollar against major currencies is positive, and against all 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 indicated above, temp staffing has improved all the way to positive. Gallup consumer spending is positive, while Johnson Redbook and Goldman Sachs are neutral.
When all but one of the few negatives are among coincident indicators and both long and short leading indicators are uniformly positive to neutral, we should expect improvement in the months ahead. The week ahead will be a very busy one for data. I will be especially watching for new orders from the Empire State and Philly Fed indexes, and to see if industrial production at very least holds its March low, if not continues higher.