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 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.
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 is 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 one-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 is 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 is moving in the right direction and is close to making a new high.
Recap of monthly reports
April data started out with strong headline employment and unemployment rate in the jobs report. But auto sales and the ISM manufacturing and non-manufacturing indexes declined.
March data included a decline in construction spending, especially in residential spending. Personal spending also jumped, while February and March personal income was essentially flat.
In the rear view mirror, Q1 unit labor costs declined while productivity surged. The employment cost index rose at trend.
Long leading indicators
Interest rates and credit spreads
- BAA corporate bond index 4.67% down -.01% w/w (1-yr range: 4.15 - 5.29)
- 10-year treasury bonds 2.53% up +.03% w/w (2.40 - 3.24)
- Credit spread 2.14% down -.04% w/w (1.56 - 2.46)
Yield curve, 10-year minus 2-year:
- 0.19%, down -.03% w/w (0.04 - 1.30)
30-Year conventional mortgage rate (from Mortgage News Daily)
- 4.29%, unchanged w/w (4.03 - 5.05)
BAA Corporate bonds and treasury bonds remain neutral. The spread between corporate bonds and treasuries is still above 2.10%, and so remains negative. The 2 vs. 20-year yield curve is also neutral. Note that I will not change corporate ratings to positive unless they fall below 4.25%. Mortgage rates rose back above 4.2%, (one-half of the way to their post-Brexit low), so they return to neutral from positive.
Mortgage applications (from the Mortgage Bankers Association)
- Purchase apps -4% w/w to 257 (214 - 281)(SA)
- Purchase apps 4 wk avg. 271 (SA)
- Purchase apps YoY +1% (NSA)
- Purchase apps YoY 4 wk avg. +6% (NSA)
- Refi apps -5% w/w (SA)
*(SA) = seasonally adjusted, (NSA) = not seasonally adjusted
Real Estate Loans (from the FRB)
- Up +0.2% w/w 4479
- Up +3.2% 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 spike a month 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. For the past two weeks, it fell back below +3.25%, and so went back from positive to neutral.
- -0.3% w/w
- +2.3% m/m
- +1.4% YoY Real M1 (-0.7 - 3.8)
- -0.2% w/w
- +0.3% m/m
- +1.7% 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 with few exceptions stayed below that benchmark. Thus, it 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, then M1 was roughly zero YoY for one week. For the last two weeks, real M1 surged back again to positive.
- Q1 2019 estimated + actual, up +72 w/w to 38.53, down -6.8% q/q
- Total decline from Q3 2018 peak is -10.8%
I initiated coverage of this metric four 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. As a perfect example, Q1 earnings estimates have increased over 4% in the past three weeks. Most of these revisions should be done, as nearly 400 companies have reported for Q1.
Credit conditions (from the Chicago Fed)
- Financial Conditions Index unchanged at -0.88
- Adjusted Index (removing background economic conditions) down -.01 (looser) to -0.70
- Leverage subindex down -.02 (looser) to -0.41
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. Late last year, the leverage subindex turned up to near neutral, then turned more positive.
Short leading indicators
Trade weighted US$
- Up +0.46 to 127.41 w/w, +7.2% YoY (last week) (broad) (115.19 -129.13)
- Down -0.55 to 97.49 w/w, +5.3% YoY (major currencies)
The US$ 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 eight months ago, both are negative.
Bloomberg Commodity Index
- Down -0.92 to 79.84 (76.27 - 91.94)
- Down -11.3% YoY
Bloomberg Industrial metals ETF (from Bloomberg)
- 115.42 down -2.53 w/w, down -15.1% 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)
- Up +0.2% to 2945.64 (new all-time high intraweek)
At the end of 2018, having not made a new high in three months, while having made a new 52-week low on Christmas Eve, stocks' rating became negative. Since then, they have made repeated new 3-month and all-time highs, 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 -11 to -2
- Kansas City up +6 to +10
- *Dallas up +7.6 to +9.8
- Month-over-month rolling average: up +1 to +8
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 in April, it turned solidly positive.
Initial jobless claims
- 230,000 unchanged
- 4-week average 212,500 up +6,500
Initial claims had generally been very positive in 2017 and 2018. 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 made new 49-year lows since then, but jumped for the past two weeks. I suspect both the lows and the jump are residual seasonality due to the very late date for Easter this year.
Temporary staffing index (from the American Staffing Association)
- Unchanged at 93 w/w
- Down -2.1% 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 five months, it has gradually declined, turning neutral in January and fully negative since early February. They had their most negative reading yet this week.
Tax Withholding (from the Dept. of the Treasury)
- $187.1 B for the last 20 reporting days vs. $179.5 B one year ago, up +$7.6 B or +4.2%
- $213.8 B for the month of April vs. $195.7 B one year ago, up +$18.1 B or +9.2%
With 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 2018. Straight YoY comparisons have become valid again since this February and, with the exception of one week, have been positive.
Oil prices and usage (from the E.I.A.)
- Oil down -$3.72 to $61.94 w/w, down -0.5% YoY
- Gas prices up +$.05 to $2.89 w/w, up +$0.04 YoY
- Usage 4-week average up +1.5% YoY
The price of gas bottomed over 3 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 YoY, so is neutral. Usage was positive YoY during most of 2016, but has oscillated between negative and positive for the last several months. This week, once again, it was positive.
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, recently, has remained positive.
- Johnson Redbook up +6.0% YoY
- Retail Economist up +1.7% w/w, up +4.6% YoY
Both the Retail Economist and Johnson Redbook Indexes were positive all during 2018. The Retail Economist measure decelerated in the past few months, and with the exception of one week ago - and this week - turned neutral. Johnson Redbook did fall sharply from briefly being 9%+ 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 several weeks ago, and remaining positive this week.
Railroads (from the AAR)
- Carloads up +0.4% YoY
- Intermodal units down -6.7% YoY
- Total loads down -3.3% YoY
- Harpex unchanged at 586 (440 - 678)
- Baltic Dry Index up +163 to 1032 (610 - 1775)
In 2018 rail, 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 and 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 three weeks, it has rebounded enough to be neutral. BDI traced a similar trajectory and made 3-year highs near the end of 2017, and at midyear 2018 hit multiyear highs. Since then, it declined all the way to negative but has improved enough as of this week to rate neutral.
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 (from the American Iron and Steel Institute)
- Down -0.4% w/w
- Up +6.5% 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
There were few changes among the indicators this week.
Among long leading indicators, purchase mortgage applications, the Chicago Fed Adjusted Financial Conditions Index and Leverage subindex, and real M1 are positives. The yield curve, mortgage rates, real estate loans, corporate bonds and treasuries 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, oil prices, gas usage, and the regional Fed new orders indexes are positives. Gas prices are neutral. Both measures of the US$, the general commodity index, the spread between corporate and Treasury bonds, industrial metals, and temporary staffing are negative.
Among the coincident indicators, consumer spending, steel production, tax withholding, and the TED spread are positive. Harpex and the BDI are neutral. Rail is mixed. LIBOR is negative.
The long-term forecast remains slightly above neutral this week. The short-term forecast also improved to slightly above neutral this week. The nowcast further improved into positive territory. I continue to watch to see if the recent positive moves are just counter-trend moves, or whether they truly signal a renewed boom. My vote is that the tail does not wag the dog, but we'll see.
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.