By New Deal Democrat
Monthly data for November included a flat index of Leading Indicators, positive new and existing home sales, an increase in consumer sentiment as measured by the University of Michigan, positive personal spending but flat income, and negative durable goods orders, but positive ex-Boeing (NYSE:BA).
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 358.63 up +2.46 w/w (2016 high is 395.36, 2016 low is 341.41)
- 2.54% 10-year treasury bonds down -.03%
- BofA/ML B Credit spread down -.04% to 4.05% (near 24-month low)
Yield curve, 10 year minus 2 year:
- 1.34%, up +.07% w/w
30-year conventional mortgage rate
- 4.33%, down -.05% w/w
Yields on treasuries and mortgage rates made new 12-month highs one week ago and remain negatives. Corporate bonds are still neutral. Because rates made new lows after the Brexit vote in June, that nevertheless strongly suggests that the expansion will continue through mid-2017. The yield curve and spreads are very positive.
- Purchase applications down -0.1% w/w
- Purchase applications up +1% YoY
- Refinance applications up +3% w/w
Real Estate loans
- Down -0.1% w/w
- Up +6.6% YoY
Mortgage applications briefly spiked in response to low rates following the Brexit vote. Purchase applications last made a new high at the beginning of June. They wobbled between being positive and neutral and have remained just barely above turning negative for a month. Refinance applications have turned south in a big way in the last month and are near multiyear lows.
Real estate loans have been firmly positive for over 3 years.
- +0.2% w/w
- Unchanged m/m
- +7.1% YoY Real M1
- Unchanged w/w
- +0.3% m/m
- +5.3% 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 +1.14 to 128.25 w/w, up +3.4% YoY (one week ago) (Broad)
- Up +0.20 to 103.01 w/w, up +5.2% YoY (yesterday) (major currencies)
The US dollar appreciated about 20% between mid-2014 and mid-2015. It went mainly sideways since then until spiking higher after the US presidential election. It has been generally neutral for about 2 months, but against major currencies it turned negative this week.
- Down -1.09 to 102.74 w/w
- Up +29.77 YoY
BBG Industrial metals ETF
- 108.62 down -4.81 w/w, up +24.9% YoY
Commodity prices bottomed about one year ago. After briefly turning negative, metals have now surged higher since the election.
Stock prices S&P 500
- Up +0.3% w/w
Stock prices became a positive having made new all-time highs in summer, and more new highs since.
Regional Fed New Orders Indexes
(*indicates report this week)
- Empire State up +8.3 to +11.4
- Philly down -4.7 to +13.9
- Richmond up +19 to +7
- *Kansas City up +1 to +7
- Dallas up +2.1 to -1.4
- Month-over-month rolling average: unchanged at +8 (12-month high)
The regional average has generally been lower than the ISM manufacturing index, but has accurately forecast its month-over-month direction. The average Fed readings made yet another 12-month high this week,
Initial jobless claims
- 275,000 up +21,000
- 4-week average 263,500 up + 6,250
Initial claims remain well within the range of a normal economic expansion, as does the 4-week average.
The American Staffing Association Index
- Up +4 to 100 w/w
- Down -1.48 YoY
This index turned negative in May 2015, getting as bad as -4.30% late last year. Since the beginning of the year, it became progressively "less bad" and for since May has been so close to positive YoY as to be a neutral most weeks, as it was again this week.
- $158.0 B for the first 16 days of December vs. $152.2 B one year ago, up +$5.8 B or +3.8%
- $189.1 B for the last 20 reporting days ending Thursday vs. $192.8 B one year ago, down -$3.7 B or -1.9%
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 generally shown a marked improvement. This week for the second week in a row the longer average was negative. I am discounting it for now due to strong seasonality, but obviously if the negative trend continues, that is not good.
- Oil up +$1.31 to $53.25 w/w, up +$8.66 YoY
- Gas prices up +.02 to $2.26 w/w, up +$0.24 YoY
- Usage 4-week average down -3.0% YoY
The price of gas bottomed last winter at $1.69. Usage had been almost uniformly positive until one month ago, when it turned negative. Gas prices have gone sideways for the last three months, and are now higher YoY, making them a neutral, as were oil prices this week. In general, oil is no longer a tailwind for the economy, but it hasn't quite turned into a headwind yet - although it is getting closer.
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. While the TED spread turned positive for five weeks recently, this week both were again negatives.
- Johnson Redbook up +1.5% YoY
- Goldman Sachs up +3.1% w/w, up +1.0% YoY
- Gallup daily consumer spending 14-day average $105, down -$2 YoY
Both the Goldman Sachs and Johnson Redbook Indexes progressively weakened in pulses during 2015, before improving somewhat over the last 12 months. Redbook has recently turned very weak. Goldman and Gallup have both been generally more positive, although Gallup was wobbly for a month before turning positive again. Gallup is showing weaker holiday spending this year than last year, an important negative if it persists.
- Carloads down -2.8% YoY
- Loads ex-coal down -5.2% YoY
- Intermodal units up +2.2% YoY
- Total loads down -0.3% YoY
After turning negative 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). Since June, generally rail was neutral. For four of the last six weeks it was positive, but was neutral again this week.
Harpex has recently resumed its decline again to repeated multi-year lows. BDI recently turned very positive before declining again in the last few weeks. 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.
- Up +1.2% w/w
- Up +14.1% 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 has been neutral to positive for the last few few months.
The interest rate components of the long leading indicators remain negative, except for corporate bonds, which are neutral. Purchase mortgage applications were neutral and just barely above turning negative. Refinance applications are negative. The yield curve and money supply as well as real estate loans remain positive.
Short leading indicators, including stock prices, jobless claims, industrial commodities, the regional Fed new orders indexes, and spreads, are all positive. Temp staffing, oil and gas prices, and the broad US dollar are neutral. Gas usage remained negative, and the US dollar against major currencies turned negative this week.
The coincident indicators faltered from their recent positive run. Only steel was unambiguously positive this week. Rail, the BDI, consumer spending, and tax withholding are neutral or mixed. The Harpex shipping index, the TED spread and LIBOR remain negative.
Seasonality continues to be a huge factor in the volatility of the data at this time of year. Thus, I am discounting, e.g., the poor tax withholding result and gas usage for now. The shorter term 6-month forecast remains positive (barring a trade war). The 12+ forecast is bolstered by housing's continued strength, but the post-election increase in interest rates in particular are likely to put an end to that. I remain wary of a negative trifecta of increased interest rates, gas prices, and the US dollar, but it has not fully emerged.
Have a Merry Christmas or at least a nice holiday weekend!