Weekly High Frequency Indicators: Continued Volatility Among Long Leading Indicators

by: New Deal Democrat

High frequency indicators can give us a nearly up-to-the-moment view of the economy.

The metrics are divided into long leading, short leading, and coincident indicators.

The nowcast continues to be very positive. The short-term forecast (less than one year out) also remains positive.

The long leading indicators continue to fluctuate around the boundary of negativity and neutrality - this week winding up neutral.


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 also are 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.

A Note on Methodology

Data is presented in a "just the facts, ma'am" format with a minimum of commentary so that bias is minimized.

Where relevant, I include 12-month highs and lows in the data in parentheses to the right. All data taken from St. Louis FRED unless otherwise linked.

A few items (e.g., Financial Conditions indexes, regional Fed indexes, stock prices, the yield curve) have their own metrics based on long-term studies of their behavior.

Where data is seasonally adjusted, generally it's scored positively if it's within the top third of that range, negative in the bottom third, and neutral in between. Where it's not seasonally adjusted, and there are seasonal issues, waiting for the YoY change to change sign will lag the turning point. Thus I make use of a convention: Data is scored neutral if it is less than half as positive/negative as at its 12-month extreme.

With long leading indicators, which by definition turn at least 12 months before a turning point in the economy as a whole, there's an additional rule: Data is automatically negative if, during an expansion, it has not made a new peak in the past year, with the sole exception that it's scored neutral if it's moving in the right direction and is close to making a new high.

Recap of monthly reports

August data started out with another strong employment report, with an increase in YoY wage gains, although a few of the internals took back gains from July. The ISM manufacturing and services reports both were very positive. Auto sales, on the other hand, came in somewhat weak.

July data included a decline in factory orders, and a tiny increase in construction spending, although the residential component increased more.

Long leading indicators

Interest rates and credit spreads


  • BAA corporate bond index 4.81% up +.05% w/w (1-yr range: 4.15 - 4.94)
  • 10-year treasury bonds 2.94% up +.07% w/w (2.05 - 3.11)
  • Credit spread 1.87% down -.02% w/w (1.56 - 2.30)

Yield curve, 10-year minus two-year:

  • 0.23%, unchanged w/w (0.18 - 1.30)

30-Year conventional mortgage rate (from Mortgage News Daily)

  • 4.66%, up +0.03% w/w (3.84 - 4.79)

BAA Corporate bonds remain neutral. If these go above 5%, they will become a negative. Mortgage rates and Treasury bonds are still both negatives. The spread between corporate bonds and treasuries is above 1.85%, and remains neutral. The yield curve is less than 0.25%, so is neutral.


Mortgage applications (from the Mortgage Bankers Association)

  • Purchase apps up +1% to 231 w/w (225 - 262)
  • Purchase apps four-week average down -1% to 230
  • Purchase apps YoY up +2%, four-week YoY average up +1%
  • Refi apps down -1% w/w

Real Estate Loans (from the FRB)

  • Up +0.1% w/w to 4370
  • Up +3.4% YoY ( 2.7 - 6.5) (re-benchmarked, adding roughly +0.5% to prior comparisons)

Refi has been dead for some time. Purchase applications were strong almost all last year, began to falter YoY in late December, but rebounded during spring, ultimately making new expansion highs. Since then it has gradually declined, turning neutral, then negative for three weeks, and up to neutral again this week.

With the re-benchmarking of the last year, the growth rate of real estate loans changed from neutral to positive. If it falls below 3.25%, it will become neutral.

Money supply


  • +0.8% w/w
  • +0.6% m/m
  • +0.5% YoY Real M1 (-0.7 - 6.9)


  • +0.2% w/w
  • +0.5% m/m
  • +1.1% YoY Real M2 (0.9 - 4.1)

Since 2010, both real M1 and real M2 were resolutely positive. Both decelerated substantially in 2017. Real M2 growth has fallen below 2.5% and is thus a negative. Last week, for the first time since this expansion began, Real M1 turned negative, but this week it rebounded strongly, and since it's also up in real terms for the last six months, it became positive.

Credit conditions (from the Chicago Fed)

  • Financial Conditions Index up +0.02 to -0.85
  • Adjusted Index (removing background economic conditions) down -.01 to -0.69
  • Leverage subindex down -.02 to -0.33

The Chicago Fed's Adjusted Index's real break-even point is roughly -0.25. In the leverage index, 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. Two months ago, the leverage subindex turned up to near neutral, but has faded towards positive again since.

Short leading indicators

Trade weighted US$

  • Up +0.74 to 126.19 w/w +6.9% YoY (last week) (broad) (116.42 -128.62)
  • up +0.29 to 95.38 w/w, +4.41% YoY (yesterday) (major currencies)

The US dollar briefly spiked higher after the US presidential election. Both measures had been positives since last summer, but recently the broad measure turned neutral, followed more recently by the measure against major currencies, which has risen above +5% YoY and is thus negative.

Commodity prices

Bloomberg Commodity Index

  • Down -0.85 to 82.59 (82.00 - 91.94)
  • Down -3.59% YoY

Bloomberg Industrial metals ETF (from Bloomberg)

  • 115.33 down -2.80 w/w, down -12.31% YoY (112.03 - 149.10)

Commodity prices surged higher after the 2016 presidential election. Industrial metals had been strongly positive and recently made a new high, but have declined so much recently that they have turned negative, joined for the second week by the overall index.

Stock prices S&P 500 (from CNBC)

  • Down -1.0% w/w 2871.69

After being neutral for several months by an ever-so-slight margin, stock prices made a new three-month high on June 12 and have continued the positive run, ultimately rising to new all-time highs one week ago.

Regional Fed New Orders Indexes

(*indicates report this week) (no reports this week)

The regional average has been more volatile than the ISM manufacturing index, but has accurately forecast its month-over-month direction (but not this month!) It has generally been very positive for most of this year. It has cooled from white-hot to red-hot to simply positive in the last two months.

Employment metrics

Initial jobless claims

  • 203,000 down -10,000 (48-year low)
  • Four-week average 209,500 down -2,750 (48-year low)

Initial claims made yet another 40 year-plus lows, and so are very positive. The year-over-year percent change in these metrics had been decelerating but is now back on its multi-year pace.

Temporary staffing index (from the American Staffing Association)

  • Unchanged at 100 w/w
  • Up +3.7% YoY

This index was generally neutral from May through December 2016, and then positive with a few exceptions all during 2017. It was negative for over a month at the beginning of this year, but returned to a positive since then and in the last month, very positive.

Tax Withholding (from the Dept. of the Treasury)

  • $174.0 B for the last 20 reporting days vs. $176.9 B one year ago, down -$2.9 B or -1.6%
  • 20-day rolling average adjusted for tax cut (+$4 B): up +$1.1 B or +0.6%

With the exception of the month of August and late November, this was positive for almost all of 2017. It has generally been negative since the effects of the recent tax cuts started in February.

I have discontinued the intra-month metric for the remainder of this year, since the kludge to guesstimate the impact of the recent tax cuts makes it too noisy to be of real use.

I have been adjusting based on Treasury Dept. estimates of a decline of roughly $4 billion over a 20-day period. Until we have YoY comparisons, we have to take this measure with a big grain of salt.

Oil prices and usage (from the E.I.A.)

  • Oil down -2.07 to $67.84 w/w, up +43.6% YoY
  • Gas prices down -$0.01 to $2.82 w/w, up $0.14 YoY
  • Usage four-week average up +1.2% YoY

The price of gas bottomed 2 1/2 years ago at $1.69. Generally prices went sideways with a slight increasing trend in 2017. Usage turned negative in the first half of 2017, but has almost always been positive since then before turning slightly negative and then flat in the last two months. The YoY change went back above 40% recently, so the rating has turned negative.

Bank lending rates

  • 0.247 TED spread down -0.16 w/w
  • 2.133 LIBOR up +0.033 w/w (tied for expansion high)

Both TED and LIBOR rose in 2016 to the point where both were usually negatives, with lots of fluctuation. Of importance is that TED was above 0.50 before both the 2001 and 2008 recessions. The TED spread was generally increasingly positive in 2017, while LIBOR was increasingly negative. This year the TED spread has whipsawed between being positive or negative, most recently positive.

Coincident indicators

Consumer spending

  • Johnson Redbook up +6.5% YoY
  • Goldman Sachs Retail Economist up +0.8% w/w, up +3.3% YoY

Both the Goldman Sachs and Johnson Redbook Indexes generally improved from weak to moderate or strong positives during 2017 and have remained positive this year. Recently they have been exceptionally positive.


Railroads (from the AAR)

  • Carloads up +9.6 YoY
  • Intermodal units up +6.0% YoY
  • Total loads up +7.8% YoY

Shipping transport

Rail was generally positive since November 2016 and remained so during all of 2017 with the exception of a period during autumn when it was mixed. After some weakness in January and February this year, rail has been positive ever since, and was extremely positive this week.

Harpex made multi-year lows in early 2017, then improved, declined again, and then improved yet again to recent highs, and then declined somewhat again. BDI traced a similar trajectory, and made three-year highs near the end of 2017, and at midyear hit multiyear highs, but has declined in the last two months.

I'm 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 (from the American Iron and Steel Institute)

  • Up +0.6% w/w
  • Up +6.3% YoY

Steel production improved from negative to "less bad" to positive in 2016 and with the exception of early summer, remained generally positive in 2017. It turned negative in January and early February, but with the exception of three weeks recently has been positive since then.

Summary And Conclusion:

Among the coincident indicators, positives include consumer spending, rail, steel, the TED spread, and the Baltic Dry Index. Harpex has declined enough to become at neutral, as was tax withholding this week. LIBOR remains the sole negative.

Among the short leading indicators, the regional Fed new orders indexes, the Chicago National Conditions Index, jobless claims, stock prices, and staffing are all positive. Gas prices, one measure of the US dollar, and the spread between corporate and Treasury bonds are neutral. Oil prices, the broad trade weighted US dollar, and as of this week the overall commodities index as well as the industrial metals are negatives.

Thus the nowcast is strongly positive, and the short-term forecast also is positive, although less strongly so than recently.

Several of the long leading indicators continue to fluctuate between positive, neutral, and negative. This week the Chicago Fed Adjusted Financial Conditions Index and Leverage subindex were joined by real M1 as a positive, as are real estate loans. Corporate bonds remain neutral, as are the yield curve and this week, purchase mortgage applications. Treasuries, refinance applications, mortgage rates, and real M2 all remain negative.

Thus in the last four weeks the longer-term forecast has fluctuated between negative and neutral, as it was this week. I continue to expect week to week volatility, as real M1, purchase mortgage applications, the yield curve, and real estate loans are all near the levels where their ratings change. Because the biggest mistake made in forecasting has been demonstrated to be projecting current trends forwards, I encourage readers to wait for theses indicators - which after all are the most leading ones - to settle with some decisiveness.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.