Monthly data for December included strong nominal retail sales, and business sales as a whole were positive as well, but inventories and the inventory-to-sales ratio also increased. Producer prices increased m/m and YoY% as well. Preliminary January University of Michigan consumer sentiment was essentially unchanged.
My usual note: I look at the high frequency weekly indicators because while they can be very noisy, they provide a good Nowcast 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 +0.39 w/w (2016 high was 395.36, 2016 low was 341.41)
- 2.40% 10-year Treasury bonds down -.02%
- BofA/ML B Credit spread up +.04% to 3.94%
Yield curve, 10-year minus 2-year:
- 1.18%, down -.04% w/w
30-year conventional mortgage rate:
- 4.16%, up +.01% w/w
Yields on Treasuries and mortgage rates made new 12-month highs a month ago, but have retreated enough since to score neutral. Corporate bonds also remain neutral. The yield curve and spreads are very positive.
- Purchase applications +6% w/w
- Purchase applications -18% YoY
- Refinance applications +4% w/w
Real Estate loans
- Down -0.1% w/w
- Up +6.3% YoY
Mortgage applications have now turned outright negative for the second week in a row. 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.
- -0.3% w/w
- -0.7% m/m
- +3.5% YoY Real M1
- +0.1% w/w
- +0.1% m/m
- +6.0% YoY Real M2
Both real M1 and real M2 were firmly positive almost all last year, although less so in the last several months.
Trade weighted US$
- Down -0.03 to 128.18 w/w, up +2.8% YoY (one week ago) (Broad)
- Down -1.01 to 101.19 w/w, up +2.1% YoY (yesterday) (major currencies)
The US$ 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 +3.32 to 106.59 w/w
- Up +34.46 YoY
BBG Industrial metals ETF
- 115.62 up +5.82 w/w, up +36.3% 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
- Down -0.1% 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 in December.
Initial jobless claims:
- 247,000 up +12,000
- 4-week average 256,500 down -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 -10 to 84 w/w
- Up +2.68 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 for the second week in a row, but that is a quirk of seasonality that I expect to be repaid shortly.
- $94.2 billion for the first 8 days of January vs. $82.8 billion one year ago, up +$11.4 billion, or +13.8%
- $227.0 billion for the last 20 reporting days ending Thursday vs. $212.5 billion one year ago, up +$14.5 billion, or +6.8%
Beginning with the last half of 2014, virtually all readings were positive, but turned more mixed and choppy, and occasionally even negative, in end 2015 through the first part of 2016. The last few months have, with brief exceptions, shown a marked improvement.
- Oil down -$1.17 to $52.53 w/w, up +$13.02 YoY
- Gas prices up +.01 to $2.39 w/w, up +$0.39 YoY
- Usage 4-week average up +0.7% 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 neutral. 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 +0.9% YoY
- Goldman Sachs up +2.2% w/w, up +1.1% YoY
- Gallup daily consumer spending 14-day average $91, up +$5 YoY
Both the Goldman Sachs and Johnson Redbook Indexes progressively weakened in pulses during 2015, before improving somewhat in 2016. Gallup showed weaker holiday spending in December versus one year ago, but rebounded sharply in the last two weeks.
- Carloads down -7.7% YoY
- loads ex-coal down -10.0% YoY
- Intermodal units down -14.9% YoY
- Total loads down -11.4% YoY
Rail turned negative in 2015. It improved for a couple of months at the beginning of 2016, before falling sharply during the spring. Since June, generally rail was neutral, and then turned positive for most weeks beginning in November. Last week, it was slightly positive, before plummetting this week. Since these two weeks have the biggest seasonality of the entire year, I am discounting both. In two weeks, this seasonality should fade.
Harpex has recently resumed its decline again to repeated multi-year lows. BDI recently turned very positive, before declining again in the last month. I am wary of reading too much into price indexes like this, since they are heavily influenced by supply (as in, a huge overbuilding of ships in the last decade) as well as demand.
- Up +5.8% w/w
- Up +4.8% YoY
Until spring 2014, steel production had generally been in a decelerating uptrend. It then gradually rolled over and got progressively worse in pulses through the end of 2015. It improved from negative to "less bad" to positive in 2016.
The interest rate components of the long leading indicators have improved enough to score neutral. The yield curve and money supply as well as real estate loans remain positive. Both purchase and refinance mortgage applications, however, are now negative.
Short leading indicators, including stock prices, jobless claims, industrial commodities, the regional Fed new orders indexes, spreads, temp staffing, and gas usage are all positive. Oil and gas prices, and the US$ are neutral.
The coincident indicators remain mixed. Steel, consumer spending, and tax withholding are positive. The BDI is neutral. The Harpex shipping index, the TED spread and LIBOR remain negative, joined this week by rail.
Over the last several weeks the "Trump election effect" in interest rates and the US$ have abated, apparently because traders are beginning to doubt that a significant stimulus will actually be enacted. Meanwhile, seasonality should abate in the next week or two. This week, I am again discounting the strong staffing number as well as the bad rail number. The shorter-term 6-month forecast remains strongly positive (barring a trade war). The 12-month forecast is murky, with mortgage applications finally turning negative, but interest rates have abated enough to move to neutral.
This coming week, we will get housing permits and starts, which will help tell us how long the post-Brexit strength in the monthly housing numbers continues. We will also get consumer inflation - which, I suspect, will be a big number if it breaches 2% YoY.
Have a nice weekend!