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 is scored positively if it is within the top one-third of that range, negative in the bottom one-third, and neutral in between. Where it's not seasonally adjusted, and there are seasonal issues, waiting for the year-over-year 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 is scored neutral if it's moving in the right direction and is close to making a new high.
Recap of monthly reports
March data included a decline in both housing permits and starts. Despite this, the index of leading indicators rose. Industrial production and capacity utilization also declined. Retail sales rose strongly.
In February, total business sales rose slightly, but inventories rose even more.
Long leading indicators
Interest rates and credit spreads
- BAA corporate bond index 4.69% down -.02% w/w (1-yr range: 4.15 - 5.29)
- 10-year treasury bonds 2.56% unchanged w/w (2.40 - 3.24)
- Credit spread 2.13% down -.02% w/w (1.56 - 2.46)
Yield curve, 10-year minus two-year:
- 0.18%, up +.01% w/w (0.04 - 1.30)
30-Year conventional mortgage rate (from Mortgage News Daily)
- 4.34%, up +0.15% w/w (4.03 - 5.05)
BAA Corporate bonds and Treasury bonds remain neutral. The spread between corporate bonds and treasuries is still above 2.1%, and so remains negative. The 2- vs. 20-year yield curve also is neutral. Note that I will not change corporate ratings to positive unless they fall below 4.25%. Mortgage rates rose back above 4.2%, (1/2 of the way to their post-Brexit low), so they return to neutral from positive.
Mortgage applications (from the Mortgage Bankers Association)
- Purchase apps +1% w/w to 281 (214 - 278) (SA) (new one-year high)
- Purchase apps four-week average 272 (SA)
- Purchase apps YoY +7% (NSA)
- Purchase apps YoY 4 wk avg. +8% (NSA)
- Refi apps -8% w/w (SA)
*(SA) = seasonally adjusted, (NSA) = not seasonally adjusted
Real Estate Loans (from the FRB)
- Up less than +0.1% w/w
- Up +3.3% YoY (2.7 - 6.5)
Purchase applications made new expansion highs one year ago. With considerable variation, they generally declined through neutral to negative, during the remainder of 2018. With lower rates this year, in most weeks, applications have been positive YoY, and the entire rating has climbed back to positive. Meanwhile, after lower rates caused a huge spike several weeks ago, refi is back to near its 20-year lows and so is a negative again.
With the re-benchmarking of the last year, the growth rate of real estate loans turned from neutral to positive. This week, it rose back above 3.25%, and so improved from neutral to positive.
- +0.4% w/w
- -0.9% m/m
- +0.2% YoY Real M1 (-0.7 - 3.8)
- -0.2% w/w
- -0.3% m/m
- +1.9% 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% almost all last year and has thus been rated negative. Real M1 briefly turned negative about three months ago. Both real M1 and M2 then improved all the way to positive for one month. But now, M1 has been roughly zero YoY, so is neutral, and real M2 is less than +2.5% YoY, and so scores as a negative.
Corporate profits (estimated and actual S&P 500 earnings from I/B/E/S via FactSet.com)
- Q4 2018 actual, unchanged w/w at 41.33, down -3.6% q/q
- Q1 2019 estimated, up +32 w/w to 37.41, down -9.5% q/q
I initiated coverage of this metric two weeks ago on an experimental basis. FactSet estimates earnings, which are replaced by actual earnings as they are reported and are updated weekly. Because estimates are revised as earnings come in and, in any given quarter, tend to be revised down over all timeframes by an average of -3%, I am treating any q/q change in "estimates" of +/-2% as neutral. Further, until 100 companies have reported in any given quarter, I'm only incorporating 1/2 of the quarterly change.
Using this metric, averaged Q4 and Q1 corporate earnings are down -6.6% and are negative.
Credit conditions (from the Chicago Fed)
- Financial Conditions Index down -.02 (looser) to -0.86
- Adjusted Index (removing background economic conditions) down -.01 (looser) to -0.68
- Leverage subindex down -.02 (looser) to -0.37
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. Late last year, the leverage subindex turned up to near neutral, then turned more positive.
Short leading indicators
Trade weighted US Dollar
- Down -0.34 to 127.14 w/w, +8.1% YoY (last week) (broad) (115.19 -129.13)
- Up +0.44 to 97.40 w/w, +7.8% YoY (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 roughly three months ago, both are negative.
Bloomberg Commodity Index
- Down -0.66 to 81.71 (76.27 - 91.94)
- Down -9.1% YoY
Bloomberg Industrial metals ETF (from Bloomberg)
- 119.86 down -0.56 w/w, down -15.2% YoY (106.51 - 149.10)
Commodity prices surged higher after the 2016 presidential election. Both industrial metals and the broader commodities indexes both declined to very negative in the past year. Industrial metals had briefly improved enough to be scored neutral for one week, but are back to negative.
Stock prices S&P 500 (from CNBC)
- Down less than -0.1% to 2905.03
Stock prices last made a new all-time high at the end of September last year. As of the end of 2018, having not made a new high in three months, while having made a new 52-week low on Christmas Eve, their rating changed to negative. Several weeks ago, they made several new three-month highs, but made no new three-month lows in the last three months, and thus their rating returned to positive.
Regional Fed New Orders Indexes
(*indicates report this week)
- *Empire State up +4.5 to +7.5
- *Philly up +13.8 to +14.7
- Richmond down -10 to +9
- Kansas City up +14 to +4
- Dallas down -4.5 to +2.4
Month-over-month rolling average: up +4 to +10
The regional average is more volatile than the ISM manufacturing index, but usually correctly forecasts its month-over-month direction. It was "very" positive for most of last year. Since last summer, it gradually cooled to weakly positive. For five weeks, it has alternated between neutral and weakly positive, but with the first April reports, it is solidly positive.
Initial jobless claims
- 192,000 down -4,000, new 49-year low
- Four-week average 201,250 down -5,750 (new 49-year low)
Initial claims had generally been very positive for over a year. In November, they briefly spiked, and did so again at the end of January, the worst of which was probably connected to the government shutdown. They have recovered since then, and this week made yet another new 49-plus year low.
Temporary staffing index (from the American Staffing Association)
- Unchanged at 93 w/w
- Down -1.7% Yo
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 five months, it has gradually declined, turning neutral in January and fully negative since early February.
Tax withholding (from the Department of the Treasury)
- $195.6B for the last 20 reporting days vs. $183.8 B one year ago, up +$11.8 B or +6.4%
The exception of the month of August and late November, this was positive for almost all of 2017. It was generally negative last year once the effects of the tax cuts started in February.
I have been now phased out the tax law adjustments. Straight YoY comparisons should be valid again. They turned negative for one week last week but returned to positive this week.
Oil prices and usage (from the E.I.A.)
- Oil up +$0.19 to $64.00 w/w, up +2.8% YoY
- Gas prices up +$.08 to $2.83 w/w, up +$0.08 YoY
- Usage 4-week average down -0.2% YoY
The price of gas bottomed over three years ago at $1.69. Generally, prices went sideways with a slight increasing trend in 2017 and 2018. While at the end of last year, prices plummeted, oil has now gone up year-over-year, so is neutral. Usage was positive year-over-year during most of 2016, but has oscillated between negative and positive for the last two months. This week, once again, it was negative.
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. Early last 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 +7.0% YoY
- Retail Economist up +2.0% w/w, up +3.3% YoY
Both the Retail Economist and Johnson Redbook Indexes generally improved from weak to moderate or strong positives during 2017 and remained positive all last year. The Retail Economist measure decelerated in the past few months, declining for five weeks recently to neutral, before rebounding strongly to positive this week. Johnson Redbook did fall sharply from briefly being 9%-plus at the beginning of this year, improved enough for several weeks to return positive, then fell back to neutral for two weeks, before also rebounding strongly to positive this week.
Railroads (from the AAR)
- Carloads up +1.0% YoY
- Intermodal units down -3.2% YoY
- Total loads down -1.2% 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 January, but since then, it has turned neutral or negative. Except for carloads, it was negative again this week. Note that rail traffic, particularly in the western US, is likely impacted by the widening of the Panama Canal, which has allowed ships to bypass West Coast ports and proceed directly to Gulf and East Coast ports.
Harpex made multi-year lows in early 2017, and after oscillating improved to new multi-year highs earlier in 2018, but recently enough to rate negative. In the past two weeks, it has rebounded enough to be neutral. BDI traced a similar trajectory and made three-year highs near the end of 2017, and at mid-year 2018 hit multi-year highs. Since then, it declined all the way to negative.
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)
- Down -0.7% w/w
- Up +7.6% 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. Recently, the YoY comparison abruptly declined to less than half of its recent range over 10% YoY, and was neutral, and has been varying between neutral and positive since, as it was this week.
Summary and conclusion:
Among long leading indicators, purchase mortgage applications, real estate loans, and the Chicago Fed Adjusted Financial Conditions Index and Leverage subindex are positives. The yield curve, mortgage rates, corporate bonds and treasuries, and real M1 are neutral. Corporate profits, real M2, and mortgage refinancing are negative.
Among the short leading indicators, stock prices, the Chicago National Conditions Index, initial jobless claims, and the regional Fed new orders indexes are positives. Oil and gas prices are neutral. Both measures of the US dollar, the general commodity index, the spread between corporate and Treasury bonds, industrial metals, gas usage, and temporary staffing are negative.
Among the coincident indicators, consumer spending, steel production, tax withholding, and the TED spread are positive. Harpex is neutral. Rail was mixed. LIBOR and the Baltic Dry Index are negative.
After twice briefly turning positive, the long-term forecast is back to just above neutral. The short-term forecast remains negative, despite several very positive components. The nowcast rose turned positive this week.
The data has been very mixed in the past few weeks. Either the slowdown is already over, or else this is a rebound from a "mini-recession" caused by the government shutdown, after which the slowdown will be resumed. The poor March housing construction report yesterday morning indicates to me that the latter view is more likely. But we'll see!