Weekly Indicators: Long-Term Forecast Remains Neutral Edition
By New Deal Democrat
June data included a flat CPI, and a very slight increase in PPI. Industrial production was positive, but retail sales were negative. Preliminary consumer sentiment by the University of Michigan declined.
May data included a weakly positive Labor Market Conditions Index, and a mixed JOLTS report. Wholesale and overall business inventories increased. Overall business sales 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, then coincident indicators.
Interest rates and credit spreads
BAA corporate bond index 4.44% unchanged w/w (12 mo. high 4.90%. 12 mo. low 4.15%)
10-year treasury bonds 2.33% -0.06% w/w
Credit spread 2.11% +0.06% w/w
Yield curve, 10 year minus 2 year:
0.98%, up +0.06% w/w
30-year conventional mortgage rate
4.06%, down -0.07% w/w (1-year high was 4.39%)
Yields on treasuries and mortgage rates made new 12-month highs in December, but subsequently retreated, turning neutral for several months, before rising enough again to score negative for the last two weeks. Corporate bonds remain neutral. Spreads remain very positive. The yield curve became more positive, primarily due to increasing longer-term bond rates.
Housing
Mortgage applications
Purchase applications down -3% w/w
Purchase applications up +3% YoY
Refinance applications down -13% w/w
Real Estate loans
Down -0.1% w/w
Up +4.5% YoY
Mortgage applications turned outright negative for three weeks before tipping back to neutral and then surprisingly positive for most weeks in the last few months, including this week. 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) declined sufficiently for the last three months for loans to become a neutral.
Money supply
M1
+1.3% w/w
+1.0% m/m
+7.8% YoY Real M1
M2
-0.2% w/w
+0.1% m/m
+3.7% YoY Real M2
Both real M1 and real M2 were positive almost all last year. Both have recently shown substantial deceleration, but both remain positives.
Credit conditions (from the Chicago Fed)
Financial Conditions Index down -0.01 -0.88
Adjusted Index (removing background economic conditions) down -0.03 to -0.24
Leverage subindex unchanged at -0.66
In the adjusted and leverage indexes, which are more leading, a negative number is good, a positive poor. The historical breakeven point has been -0.5 for the unadjusted Index. All three metrics presently show looseness and so are positives for the economy, although the adjusted index was remained substantially weaker this week.
Trade weighted US Dollar
Down -0.36 to 121.87 w/w, up +0.2% YoY (one week ago) (Broad)
Down -0.88 to 95.11 w/w, -1.5% 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. With a few exceptions as to major currencies, it has been generally neutral for about 5 months and has turned into a positive as to major currencies for the last two weeks.
Commodity prices
JoC ECRI
Down -0.39 to 102.62 w/w
Up +8.51 YoY
BBG Industrial metals ETF
114.63 up +1.65 w/w, up +13.6% YoY
Commodity prices bottomed near the end of 2015. After briefly turning negative, metals also surged higher after the election. ECRI has turned down enough to be downgraded to neutral, but industrial metals remain positive.
Stock prices S&P 500
Up +1.4% w/w to 2459.27 (new record high)
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 +22.5 to +18.1
Philly up +0.5 to +25.9
Richmond up +6 to +6
Kansas City down -4 to +5
Dallas down -9.5 to +9.6
Month-over-month rolling average: down -1 to +12
The regional average has been more volatile than the ISM manufacturing index, but has accurately forecast its month-over-month direction. These continue to be positive, although they have backed well off from March's highs.
Employment metrics
Initial jobless claims
247,000 down -1,000
4-week average 245,750 up +2,750
Initial claims remain well within the range of a normal economic expansion, as does the 4-week average.
The American Staffing Association Index
Down -2 to 94 w/w
Up +0.19 YoY
This index was generally neutral from May 2016 until the end of the year, and has been positive with a few exceptions since the beginning of this year. This week was affected by July 4 seasonality.
Tax Withholding
$83.8 for the first 8 days of July 2017 vs. $83.6 B one year ago, up +$0.2 B or +0.2%
$183.4 B for the last 20 reporting days vs. $169.5 B one year ago, up +$13.9 B or +8.2%
Beginning with the last half of 2014, virtually all readings were positive, but turned more mixed and choppy, and occasionally even negative, in last part of 2015 through the first part of 2016. The last few months have with brief exceptions shown marked improvement.
Oil up +$2.30 to $46.68 w/w, down -7.2% YoY
Gas prices up +$0.04 to $2.30 w/w, up +$0.05 YoY
Usage 4-week average down -0.3% YoY
The price of gas bottomed about 18 months ago at $1.69. Until the last month, prices generally went sideways with a slight increasing trend for the last year. In the last month, they turned negative YoY (which is a positive for the economy). Usage faltered and has now turned negative for several months.
Bank lending rates
0.291 TED spread down -0.005 w/w
1.1226 LIBOR up +0.0002 w/w
Both TED and LIBOR rose since the beginning of last year to the point where both were usually 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 has turned very positive for the last several months. Meanwhile, LIBOR has generally turned more and more negative.
Consumer spending
Johnson Redbook up +2.4% YoY
Retail Economist/Goldman Sachs -0.2% w/w, up +2.9% YoY
Gallup daily consumer spending 14-day average $116, up +$17 YoY
Both the Goldman Sachs and Johnson Redbook Indexes progressively weakened in pulses during 2015, before improving somewhat in 2016, and more markedly so in the last several months. Redbook and Goldman Sachs were both very positive this week. Meanwhile, with the exception of one week, for over four months Gallup has been very positive.
Transport
Railroad transport
Carloads up +1.1% YoY
Loads ex-coal down -1.0% YoY
Intermodal units up +3.7% YoY
Total loads up +2.4% YoY
Shipping transport
Harpex down -4 to 436
Baltic Dry Index up +12 to 859
Rail turned negative in 2015 and fell even more sharply in spring 2016. Since last June, rail improved to neutral, and then positive almost all weeks since the beginning of November. For the third week in a row, however, it was mixed this week.
Harpex recently declined to repeated multi-year lows, but in the last three months came back all the way to positive, to the point where higher than during 4 of the last 5 years. In the last few weeks, it has declined substantially. BDI also surged back to being a positive before declining back to neutral 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.
Steel production
Up +0.9% w/w
Up +4.0% 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 until recently remained positive since. In the last several months, it has alternated between positive and negative.
SUMMARY:
While corporate bonds and growth in real estate loans remain neutral, Treasury yields and mortgage rates have increased sufficiently to score negative. With increasing longer yields, the yield curve did become more positive. Money supply remains positive, although more weakly so. Purchase mortgages also remain positive, while refinance mortgage applications remain negative. The two more leading Chicago Fed Financial Conditions Indexes are both positive, although one has decelerated substantially.
Short leading indicators, including stock prices, jobless claims, industrial metals, the regional Fed new orders indexes, spreads, financial conditions, staffing, and oil and gas prices are all positive. This week the more broad measure of commodities declined to neutral. The US Dollar is positive against major currencies, but still neutral broadly. Gas usage remains negative.
Among the coincident indicators, which were again mixed this week, positives included most measures of rail, consumer spending, and the TED spread, joined this week by steel. The Baltic Dry Index and Harpex are neutral. LIBOR remains negative, joined by railcars ex-coal for the second week in a row.
For the first time in years, one week ago I downgraded the longer term forecast from positive to neutral, as corporate profits, housing, and interest rates are all now neutral or negative, with money supply and the yield curve remaining positive. Thus, this coming week I will be particularly watching housing starts and permits. The nearer term forecast along with the nowcast both remain positive.
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