by New Deal democrat
Monthly data for December included a slight decrease in building permits, but a new post-recession high in the less volatile single family permits, and an increase in housing starts. This factored into a flat Index of Leading Indicators. Industrial production and capacity utilization rebounded sharply, reversing November's sharp losses. Consumer inflation increased, and YoY inflation is now over 2%.
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, then coincident indicators.
Interest rates and credit spreads
- Dow Jones corporate bond index 360.63 down -1.58 w/w (2016 high was 395.36, 2016 low was 341.41)
- 2.47% 10 year treasury bonds up +.07%
- BofA/ML B Credit spread down -.07% to 3.87%
Yield curve, 10 year minus 2 year:
- 1.19%, up +.01% w/w
30 year conventional mortgage rate
- 4.25%, up +.09% w/w
Yields on treasuries and mortgage rates made new 12 month highs a month ago, but treasuries have retreated enough since to score neutral, while mortgage rates just tipped back to negative this week. Corporate bonds also remain neutral. The yield curve and spreads are very positive.
- purchase applications -5% w/w
- purchase applications -1% YoY
- refinance applications -7% w/w
Real Estate loans
- Up +0.3% w/w
- Up +6.6% YoY
Mortgage applications have now turned outright negative for the third 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.
- +1.7% w/w
- +0.3% m/m
- +7.0% YoY Real M1
- +0.3% w/w
- +0.4% m/m
- +5.1% YoY Real M2
Both real M1 and real M2 were firmly positive almost all last year, although generally less so in the last several months.
Trade weighted US$
- Up +0.10 to 128.28 w/w, up +2.9% YoY (one week ago) (Broad)
- Down -0.34 to 100.85 w/w, up +1.3% 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 +0.20 to 106.79 w/w
- Up +36.18 YoY
BBG Industrial metals ETF
- 113.70 down -1.92 w/w, up +33.6% 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)
- *Empire State -8.3 to +3.1
- *Philly up +11 to +25
- Richmond up +5 to +12
- Kansas City up +1 to +7
- Dallas up +8.7 to +7.3
- Month over month rolling average: up +1 to +12 (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
- 234,000 down -13,000
- 4 week average 246,750 down -9,750
Initial claims remain well within the range of a normal economic expansion, as does the 4 week average.
The American Staffing Association Index
- Up +7 to 91 w/w
- Up +0.09 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 for since last May has been so close to positive YoY as to be a neutral most weeks. This week it was positive for the third week in a row. Next week there will only be slight seasonality.
- $148.2 B for the first 12 days of January vs. $134.8 B one year ago, up +$13.4 B or +9.9%
- $226.3 B for the last 20 reporting days ending Thursday vs. $212.3 B one year ago, up +$14.0 B or +6.6%
Beginning with the last half of 2014, virtually all readings were positive, but turned more mixed and choppy, and occasionally even negative, in last 2015 through the first part of 2016. The last few months have with brief exceptions shown a marked improvement.
- Oil down -$0.20 to $52.33 w/w, up +$9.77 YoY
- Gas prices down -.03 to $2.36 w/w, up +$0.47 YoY
- Usage 4 week average down -2.4% 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 +0.3% YoY
- Goldman Sachs up +0.7% w/w, up +0.4% YoY
- Gallup daily consumer spending 14 day average $86, down -$2 YoY
Both the Goldman Sachs and Johnson Redbook Indexes progressively weakened in pulses during 2015, before improving somewhat in 2016. This week both were just barely positive. Gallup showed weaker holiday spending in December vs. one year ago, then rebounded sharply for two weeks before turning negative this week. In real terms all 3 readings are negative YoY. If this persists another week or two, I will score consumer spending a negative.
- Carloads up +4.4% YoY
- loads ex-coal up +0.4% YoY
- Intermodal units down -0.3% YoY
- Total loads up +2.2% YoY
Rail turned negative in 2015. It improved for a couple of months at the beginning of 2016 before falling sharply during the spring. Since June, generally rail was neutral and then turned positive for most weeks beginning in November. Seasonality should fade next week.
Harpex recently resumed its decline again to repeated multi-year lows. BDI recently turned very positive before declining again a month ago, but is positive this week. I am wary of reading too much into price indexes like this, since they are heavily influenced by supply (as in, a huge overbuilding of ships in the last decade) as well as demand.
- Up +1.9% w/w
- Up +6.8% YoY
Until spring 2014, steel production had generally been in a decelerating uptrend. It then gradually rolled over and got progressively worse in pulses through the end of 2015. It improved from negative to "less bad" to positive in 2016.
The interest rate components of the long leading indicators have improved enough to score neutral, except for mortgage rates which are slightly negative. The yield curve and money supply as well as real estate loans remain positive. Both purchase and refinance mortgage applications have turned negative.
Short leading indicators, including stock prices, jobless claims, industrial commodities, the regional Fed new orders indexes, spreads, and temp staffing are all positive. Oil and gas prices, and the US$ are neutral. Gas usage is negative.
The coincident indicators remain mixed. Steel, rail, the BDI, and tax withholding are positive. The Harpex shipping index, the TED spread and LIBOR remain negative. The big change this week was the consumer spending is just a hairbreadth above turning negative.
Seasonality is abating and should be nearly all gone next week. The shorter term 6 month forecast remains strongly positive (barring a trade war), although the flattening of real wages and consumer spending is concerning. The 12+ forecast is murky with mortgage interest rates and applications turning negative, but other interest rates have abated enough to move to neutral.
This coming week we will get more housing data, but the big number will be Q4 GDP, which I will be watching for real residential spending and proprietors' income, both long leading indicators. I will also be paying attention to the Q4 employment cost index for its take on median wage growth.