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 1/3 of that range, negative in the bottom 1/3, 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's less than 1/2 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
January started with a strong establishment jobs report but a weak household report (possibly due to the government shutdown). The ISM manufacturing index improved substantially. The two measures of consumer confidence moved in opposite directions.
Delayed reports for November, including new home sales, construction spending, and wholesale inventories, were positive, as was the Case Shiller housing index.
Also in the rear-view mirror, Q4 employment costs rose strongly.
Long leading indicators
Interest rates and credit spreads (as of noon Friday)
- BAA corporate bond index 5.01% down -.08% w/w (1-yr range: 4.15 - 5.29)
- 10-year treasury bonds 2.69% down -.06% w/w (2.44 - 3.24)
- Credit spread 2.32% down -.02% w/w (1.56 - 2.46)
Yield curve, 10-year minus two-year:
- 0.17%, up +0.02% w/w (0.04 - 1.30)
30-year conventional mortgage rate (from Mortgage News Daily)
- 4.43%, down -0.16% w/w (4.06 - 5.05)
BAA Corporate bonds and Treasury bonds are negative. The spread between corporate bonds and Treasuries has risen above 2.1%, and so also is negative. Mortgage rates fell below 4.6% and so are neutral, as is the yield curve.
Mortgage applications (from the Mortgage Bankers Association)
- Purchase apps -2% w/w to 258 (214 - 268)
- Purchase apps YoY -7% (NSA)
- Refi apps -6% w/w ((SA))
*(SA) =seasonally adjusted, (NYSE:NSA)) = not seasonally adjusted
Real Estate Loans (from the FRB) (as of last week)
- Up +0.2% w/w
- Up +3.4% YoY ( 2.7 - 6.5)
Refi has recently been at or near 20-year lows, although with a decline in mortgage rates, had a nice pop. Purchase applications made new expansion highs last spring. During summer they declined through neutral to negative, then rose into positive, before turning negative again in December. With lower rates, for three weeks applications had surged risen to positive YoY, bringing this indicator back up to positive. But this week, it returned to neutral.
With the re-benchmarking of the last year, the growth rate of real estate loans changed from neutral to positive. It went back above 3.25%, and so went back from neutral to positive.
- +1.1% w/w
- +0.6% m/m
- +1.9% YoY Real M1 (-0.7 - 3.8)
- Unchanged w/w
- +0.4% m/m
- +2.9% YoY Real M2 (0.9 - 3.1)
Since 2010, both real M1 and real M2 were resolutely positive. Both decelerated substantially in 2017. Real M2 growth fell below 2.5% earlier this year and has thus been rated negative. Real M1 briefly turned negative about two months ago, then rebounded, then was negative for two weeks. In the last month both M1 and M2 had a big pop and are thus securely positive.
Credit conditions (from the Chicago Fed)
- Financial Conditions Index down -.03 (looser) to -0.81
- Adjusted Index (removing background economic conditions) up +.01 (less loose) to -0.57
- Leverage subindex down -0.2 (looser) to -0.34
The Chicago Fed's Adjusted Index's real breakeven 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. Earlier this year, the leverage subindex turned up to near neutral, then turned more positive.
Short leading indicators
Trade weighted US Dollar
- Up +0.57 to 126.87 w/w, +8.8% YoY (last week) (broad) (115.19 -129.13)
- Down -0.24 to 95.51 w/w, +7.1% YoY (as of noon 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. As of three weeks ago, both are negative.
Bloomberg Commodity Index
- Down -0.08 to 80.99 (76.27 - 91.94)
- Down -9.12% YoY
Bloomberg Industrial metals ETF (from Bloomberg)
- 117.89 up +4.44 w/w, down -14.4% YoY (106.51 - 149.10)
Commodity prices surged higher after the 2016 presidential election. Both industrial metals and the broader commodities indexes have both declined to very negative in the past year.
Stock prices S&P 500 (from CNBC) (as of noon Friday)
- Up +1.6% to 2707.12
After being neutral for several months, stock prices made a new three-month high in mid-June and rose to a number of new all-time highs until three months ago. Having not made a new high in three months, while having made a new 52-week low a month ago, the rating has changed to negative.
Regional Fed New Orders Indexes
(*indicates report this week)
- Empire State down -9.9 to +3.5
- Philly up +8 to +21.3
- Richmond down -2 to -11
- Kansas City down -3 to +1
- *Dallas down -2.8 to +11.6
- Month-over-month rolling average: down -1 to +5
(Chicago PMI new orders also decelerated this week, but remained very strong).
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 was "very" positive for most of this year. More recently it has cooled to simply positive in the last several months, and has continued cooling some more so far this month. It is now only weakly positive.
Initial jobless claims
- 253,000 up +54,000 (1 year high)
- Four-week average 220,250 up +5,250
Initial claims, with the exception of several months ago — and this week! — have been very positive for over a year. This week’s sharp jump was probably connected to the government shutdown, particularly via contractors.
Temporary staffing index (from the American Staffing Association)
- Down -3 to 90 w/w
- Up +0.8% YoY
This index was positive with a few exceptions all during 2017. It was negative for over a month at the beginning of 2018, but returned to a positive since for most the year. In the last two months it backed off. This week, the YoY comparison fell below +1.5% (compared with readings over 4% in 2018), and so has turned neutral.
Tax Withholding (from the Department of the Treasury)
- $205.8 B for the last 20 reporting days vs. $191.1 B one year ago, up +$14.7 B or +7.7%
- 20-day rolling average adjusted for tax cut [+$4 B]: up +$18.7 B or up +9.8%
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. This week it remained very negative again.
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 Department estimates of a decline of roughly $4 billion during a 20-day period. Starting next week, I will begin to phase out this adjustment over a four week period, after which YoY comparisons should be valid again.
Oil prices and usage (from the E.I.A.)
- Oil up +$0.99 to $53.58 w/w, down -21.1% YoY (as of noon Friday)
- Gas prices up +$.01 to $2.26 w/w, down -$0.35 YoY
- Usage Four-week average up +1.4% YoY
The price of gas bottomed almost three years ago at $1.69. Generally prices went sideways with a slight increasing trend in 2017. In the last two months, however, prices have plummeted. This is a negative for the oil patch, but a positive for consumers, so the rating changes from neutral to positive. Usage was positive YoY during most of 2018, but turned negative again in the last two months, before turning positive again this week.
Bank lending rates
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. Earlier this year the TED spread has whipsawed between being positive or negative, but more recently was very positive. It has risen again recently, but is still positive.
- Johnson Redbook up +5.8% YoY
- Retail Economist up +2.5% w/w, up +2.1% YoY
Both the Retail Economist and Johnson Redbook Indexes generally improved from weak to moderate or strong positives during 2017 and have remained positive this year. A few months ago both were exceptionally positive, but the Retail Economist measure decelerated some since then, and this week, had the lowest YoY rating it has had during this entire expansion.
Railroads (from the AAR)
- Carloads down -4.7% YoY
- Intermodal units down -3.3% YoY
- Total loads down -4.0% YoY
Rail was generally positive during 2017 with the exception of some of autumn. In 2018, after some weakness in January and February, it remained positive until autumn, when it weakened precipitously, probably due to tariffs. It rebounded strongly in the last month, except for this week. This may be due to when the MLK holiday fell.
Harpex made multi-year lows in early 2017, and after oscillating improved to new multi-year highs earlier this year, but has now fallen enough to rate negative. BDI traced a similar trajectory and made three-year highs near the end of 2017, and at mid-year hit multi-year highs, but has since declined all the way to negative now.
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 +0.5% w/w
- Up +12.1% YoY
Steel production was generally positive in 2017. It turned negative in January and early February of 2018, but with the exception of three weeks recently has been positive since then.
Summary And Conclusion:
Among the long leading indexes, Real M1 and M2, real estate loans*, the Chicago Fed Adjusted Financial Conditions Index and the Leverage subindex are positives. The yield curve and mortgage rates are neutral, joined this week by purchase mortgage applications. Treasuries, corporate bonds, and refinance applications are negative. (*If there is any meaningful change by the close of business Friday, I will update in the comments).
Among the short leading indicators, the regional Fed new orders indexes, the Chicago National Conditions Index, and oil and gas prices are all positive, as is gas usage (note that I am weighting the benefit to consumers more than the distress to the oil patch). Staffing turned neutral. Both measures of the US dollar, both commodities indexes, the spread between corporate and Treasury bonds, and stock prices are negative, joined this week by jobless claims.
Among the coincident indicators, consumer spending, steel, the TED spread, and as of this week tax withholding, are positive. LIBOR, rail, the Baltic Dry Index, and Harpex are all negatives.
All three timeframes this week are close to neutrals. The long-term forecast and the nowcast are slightly to the positive side, while the short term forecast is slightly negative for the fourth week in a row. Some of this is due to the government shutdown, so we will have to wait several more weeks to see is the changes are real.
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.