By New Deal Democrat
February data started out with a strong ISM manufacturing report, and also a positive non-manufacturing report. The Chicago PMI was also very positive. Motor vehicle sales were stable. Consumer confidence made a new high.
January data included positive overall durable goods orders, but a small decline in the core measure. Personal income and spending both rose, but spending rose less than inflation. Private residential construction spending rose, while nonresidential was flat, and public construction spending fell.
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 363.07 down -2.85 w/w (2016 high was 395.36, 2016 low was 341.41)
- 2.49% 10-year treasury bonds up +0.16%
- BofA/ML B Credit spread down -.27% to 3.43%
Yield curve, 10 year minus 2 year:
- 1.17%, down -.03% w/w
30-year conventional mortgage rate
- 4.25%, up +0.13% w/w
Yields on treasuries and mortgage rates made new 12-month highs in December, but both have retreated since then. Both were neutral again this week. Corporate bonds also remain neutral. The yield curve and spreads are very positive.
- Purchase applications +7% w/w
- Purchase applications -5% YoY
- Refinance applications +5% w/w
Real Estate loans
- Up +0.1% w/w
- Up +5.5% YoY
Mortgage applications turned outright negative for three weeks before tipping back to neutral for the last month. Purchase mortgages were affected by seasonality this week, balancing last week's big increase. Refi applications remain near multi-year lows.
Real estate loans had been firmly positive for over 3 1/2 years, but the rate of growth (of this cumulative measure) has declined sufficiently for the last several weeks for loans to become a neutral.
- +2.0% w/w
- +1.2% m/m
- +6.9% YoY Real M1
- +0.6% w/w
- +1.9% m/m
- +4.1% 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, with real M2 showing substantial deceleration. I will change M2 to a neutral if either the YoY measure decelerates below +3.0%, or if on a quarter-over-quarter basis it improves by +0.6% or less. Both measures had good increases this week.
Trade weighted US dollar
- Down -0.10 to 125.95 w/w, up +2.0% YoY (one week ago) (Broad)
- Up +0.45 to 101.54 w/w, up +4.3% 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 3 months.
- Up +0.07 to 106.71 w/w
- Up +31.77 YoY
BBG Industrial metals ETF
- 117.46 down -0.05 w/w, up +21.2% YoY
Commodity prices bottomed near the end of 2015. After briefly turning negative, metals surged higher since the election.
Stock prices S&P 500
- Up +0.7% 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)
- Empire State +10.4 to +13.5
- Philly up +12 to +38
- *Richmond up +9 to +24
- Kansas City up +6 to +26
- *Dallas down -4.1 to +11.6
- Month-over-month rolling average: up +1 to +23 (2+ year high)
The regional average has been more volatile than the ISM manufacturing index, but has accurately forecast its month-over-month direction. These are screaming positive.
Initial jobless claims
- 222,000 down -22,000
- 4-week average 234,250 down -6,750
Initial claims remain well within the range of a normal economic expansion, as does the 4-week average. This week both were again near or at 40-year lows.
The American Staffing Association Index
- Down -1 to 93 w/w
- Up +3.39 YoY
This index turned negative in May 2015, getting as bad as -4.30% late that year. In 2016, it became progressively "less bad," turning generally neutral since last May, and has now been positive for the last two months.
Not available this week
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 showed a marked improvement. February started out poor, but returned to positive territory one week ago.
- Oil down -$0.82 to $53.20 w/w, up +$8.47 YoY
- Gas prices up +$.01 to $2.31 w/w, up +$0.54 YoY
- Usage 4-week average down -6.2% 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 faltered and has now turned negative for several months. Historically, it has taken at least a 40% increase YoY for gas to turn into a headwind. We're not there yet.
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. The TED spread turned positive for five weeks recently, and did so again this week.
- Johnson Redbook up +1.4% YoY
- Goldman Sachs/Retail Economist down -0.3% w/w, up +0.5% YoY
- Gallup daily consumer spending 14-day average $95, up +$11 YoY
Both the Goldman Sachs and Johnson Redbook Indexes progressively weakened in pulses during 2015, before improving somewhat in 2016. This week both were barely even neutral. Gallup showed weaker holiday spending in December vs. one year ago, then rebounded sharply for two weeks before turning negative for two weeks, but for the last month has absolutely screamed higher, and remained very positive this week.
- Carloads up +3.5% YoYs
- Loads ex-coal down -1.0% YoY
- Intermodal units down -3.0% YoY
- Total loads up +0.1% 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 last June, rail was neutral and has been positive for most weeks beginning in November. This week it was neutral.
Harpex recently declined to repeated multi-year lows. BDI recently turned very positive before declining over a month ago, but improved from negative to neutral in the last several 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 +0.2% w/w
- Up +3.6% 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 and except for one week ago has remained positive since.
The interest rate components of the long leading indicators have improved enough to be neutral. The yield curve and money supply remain positive, although real money supply has decelerated significantly, and real M2 is close to turning neutral (but money supply was quite positive this week). Purchase mortgage applications remain positive, but refinance mortgage applications remain quite negative. Growth in real estate loans has decelerated enough to turn neutral.
Short leading indicators, including stock prices, jobless claims, industrial commodities, the regional Fed new orders indexes, spreads, and temp staffing are all positive. The US dollar, oil and gas prices are neutral. Gas usage remains negative.
The coincident indicators are mixed but primarily in the neutral range. Neutral readings include rail, the BDI, and two consumer spending measures. Gallup consumer spending and steel are positive, joined this week by the TED spread. Harpex shipping and LIBOR remain negative.
The outlook over the next 6 to 8 months continues to look strong. The 12 month+ forecast is primarily neutral with a few positive and negative elements, but with a slight declining trend.