By New Deal Democrat
Monthly data for December started out with very strong vehicle sales and ISM manufacturing and services numbers. Job growth was decent, and while unemployment ticked up a bit, underemployment continued its recent strong decline. November construction spending was very positive, while November factor orders declined.
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 362.21 up +3.58 w/w (2016 high was 395.36, 2016 low was 341.41)
- 2.42% 10-year treasury bonds down -.05%
- BofA/ML B Credit spread down -0.17% to 3.90% (near 24-month low)
Yield curve, 10 year minus 2 year:
- 1.22%, down -.093% w/w
30-year conventional mortgage rate
- 4.15%, down -.06% w/w
Yields on treasuries and mortgage rates made new 12-month highs three weeks ago, but retreated enough to score neutral this week. Corporate bonds are still neutral. The yield curve and spreads are very positive.
- Purchase applications -2% w/w
- Purchase applications -1% YoY
- Refinance applications -22% w/w
Real Estate loans
- Up +0.1% w/w
- Up +6.4% YoY
The big news this week, however, is that mortgage applications have now turned outright negative, something I have been expected for over a month. Their last high was last June. Refi applications are near multi-year lows. I expect this to bleed into the monthly housing numbers at some point in the next few months.
Real estate loans have been firmly positive for over 3 years, but if the rate of growth declines enough, that could become a neutral. We're not there yet.
- +0.8% w/w
- -2.1% m/m
- +6.3% YoY Real M1
- +0.2% w/w
- -0.1% m/m
- +5.8% YoY Real M2
Both real M1 and real M2 were firmly positive almost all last year, although less so in the last month or so.
Trade weighted US dollar
- Up +1.44 to 128.21 w/w, up +4.7% YoY (one week ago) (Broad)
- Down -0.15 to 102.20 w/w, up +3.7% 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.
- Up +.44 to 103.27 w/w
- Up +29.02 YoY
BBG Industrial metals ETF
- 109.80 up +1.70 w/w, up +26.4% YoY
Commodity prices bottomed over one year ago. After briefly turning negative, metals have now surged higher since the election.
Stock prices S&P 500
- Up +1.7% w/w
Stock prices are positive, having made a string of new all-time highs beginning last summer.
Regional Fed New Orders Indexes
(*indicates report this week)(no reports this week)
- Empire State up +8.3 to +11.4
- Philly down -4.7 to +13.9
- *Richmond up +5 to +12
- Kansas City up +1 to +7
- *Dallas up +8.7 to +7.3
- Month-over-month rolling average: up +3 to +11 (18-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 one week ago, and that was reflected in a very strong ISM manufacturing report.
Initial jobless claims
- 235,000 down -30,000
- 4-week average 256,750 down -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
- Down -5 to 94 w/w
- Up +4.63 YoY
This index turned negative in May 2015, getting as bad as -4.30% late that year. In 2016, it became progressively "less bad" and since last May has been so close to positive YoY as to be a neutral most weeks. This week it was strongly positive, but that is a quirk of seasonality, that I expect to be repaid next week.
- $216.0 B for the first 20 days of December vs. $216.3 B one year ago, down -0.3 B or -0.1%
- $231.0 B for the last 20 reporting days ending Thursday vs. $220.9 B one year ago, up +$10.1 B or +4.6%
Beginning with the last half of 2014, virtually all readings were positive, but turned more mixed and choppy, and occasionally even negative, in the last part of 2015 through the first part of 2016. The last few months have with brief exceptions shown a marked improvement. I am discounting the negative December monthly reading because there was one extra day in 2015 vs. 2016.
- Oil down -$0.13 to $53.70 w/w, up +$16.70 YoY
- Gas prices up +.07 to $2.38 w/w, up +$0.35 YoY
- Usage 4-week average up +0.1% YoY
The price of gas bottomed one year ago at $1.69. Prices have gone sideways since late last summer and moved higher in the last month, making them, and oil prices, neutrals. Usage has been faltering, and even negative, for the last two months. 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 +2.2% YoY
- Goldman Sachs down -2.9% w/w, up +1.3% YoY
- Gallup daily consumer spending 14-day average $104, up +$11 YoY
Both the Goldman Sachs and Johnson Redbook Indexes progressively weakened in pulses during 2015, before improving somewhat in 2016. Gallup showed weaker holiday spending in December vs. one year ago, but rebounded sharply this week.
- Carloads up +4.0% YoY
- Loads ex-coal down -4.1% YoY
- Intermodal units up +11.8% YoY
- Total loads up +7.7% YoY
Rail turned negative in 2015. It improved for a couple of months at the beginning of 2016 before falling sharply during the spring. Since June, generally rail was neutral and then turned positive for most weeks beginning in November. This week it was slightly positive, given the ex-coal negative result.
Harpex has recently resumed its decline again to repeated multi-year lows. BDI recently turned very positive before declining again in the last month. 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 -2.7% w/w
- Up +7.2% 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. It improved from negative to "less bad" to positive in 2016.
The interest rate components of the long leading indicators improved enough in the last two weeks to score neutral. The yield curve and money supply as well as real estate loans remain positive. The big news, however, is that both purchase and refinance mortgage applications have now turned negative.
Short leading indicators, including stock prices, jobless claims, industrial commodities, the regional Fed new orders indexes, spreads, and temp staffing are all positive. Oil and gas prices, and the US dollar are neutral. Gas usage turned neutral.
The coincident indicators remain mixed. Steel, consumer spending, and tax withholding are positive, and rail mildly so. The BDI is neutral. The Harpex shipping index, the TED spread and LIBOR remain negative.
Seasonality will continue for one more week to be a huge factor in the volatility of the data. This week I am particularly discounting the strong staffing number. That being said, the shorter term 6-month forecast remains strongly positive (barring a trade war). The 12+ forecast is murkier now with mortgage applications finally turning negative. How long the post-Brexit strength in the monthly housing numbers continues will be important to watch.