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.
All time frames remain positive, and the short-term forecast has improved slightly.
This week I’ve added links to graphs of all data series where available.
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
October data included continuing rebounds in housing permits and starts and existing home sales. Despite this, the Index of Leading Indicators declined slightly, and is now only 0.3% higher YoY. Home price appreciation accelerated. The consumer outlook as measured by the University of Michigan improved, while sentiment about the present declined.
Important Note: A number of commenters have suggested that graphs would be a helpful addition to this weekly update. Time constraints make creating and attaching a large number of graphs each week not practical. But, beginning this week, for all series where a graph is available, I have provided a link to the page where an up to date graph can be found.
Long leading indicators
Interest rates and credit spreads
- BAA corporate bond index 3.92%, down -0.03% w/w (1-yr range: 3.73-5.29)
- 10-year Treasury bonds 1.77%, down -0.06% w/w (1.47-3.24)
- Credit spread 2.15%, up +0.03% w/w (1.56-2.48).
(Graph at FRED Graph | FRED | St. Louis Fed )
- 10 year minus 2 year: +0.14%, down -0.08% w/w (-0.01-1.30)
- 10 year minus 3 month: +0.18%, down -0.08% w/w (-0.44 - +1.00)
- 2 year minus Fed funds: +0.04%, unchanged (-1.0% required for recession signal)
(Graph: FRED Graph | FRED | St. Louis Fed )
30-Year conventional mortgage rate (from Mortgage News Daily) (graph at link)
- 3.74%, down -0.04% w/w (3.46-5.05)
BAA Corporate bonds and Treasury bonds turned positive several months ago. In particular, that corporate bonds recently fell to yet another new expansion low is extremely bullish into Q3 2020. The spread between corporate bonds and Treasuries, after one week being negative, is back to neutral this week. The year yield curve is generally neutral. Mortgage rates are still not too far from their post-Brexit low, so they remain positive.
Mortgage applications (from the Mortgage Bankers Association)
- Purchase apps +7% w/w to 272 (214-281) (SA)
- Purchase apps 4 wk avg. up +7 to 253 (SA)
- Purchase apps YoY +7% (NSA)
- Purchase apps YoY 4 wk avg. +10% (NSA)
- Refi apps -8% w/w (SA)
*(SA) = seasonally adjusted, (NSA) = not seasonally adjusted
Real Estate Loans (from the FRB)
- Down -0.1% w/w
- Up +3.8% YoY (2.7-6.5)
Purchase applications generally declined from expansion highs through neutral to negative from the beginning of summer to the end of 2018. With lower rates this year, their rating has climbed back to positive. Meanwhile, lower rates once again caused a spike upward in refi, returning it to neutral.
With the re-benchmarking of the last year, the growth rate of real estate loans turned from neutral to positive. For two weeks it fell back below +3.25%, and so went back from positive to neutral, then rebounded to positive and has generally stayed there since. For two weeks declined back to negative, but returned to positive one month ago.
- -0.1% w/w
- +1.6% m/m
- +6.1% YoY Real M1 (-0.7 to 5.8) (NEW ONE YEAR HIGH)
- +0.1% w/w
- +0.9% m/m
- +5.6% YoY Real M2 (0.9-5.4) (NEW ONE YEAR HIGH)
(Graph: FRED Graph | FRED | St. Louis Fed )
In 2018 and early this year, real M1 turned neutral and very briefly negative. Real M2 growth fell below 2.5% almost all last year and earlier this year, and so was rated negative. In the past six months, both have continued to improve and for the past few months, both have turned and remained positive.
- Q3 2019 actual (96%) + estimated (04%) earnings, down -0.11 w/w to 42.15, up +1.6% q/q, down -1.7% from Q4 2018 peak
(Graph: here at P. 23)
I initiated coverage of this metric earlier this year on an experimental basis. FactSet estimates earnings, which are replaced by actual earnings as they are reported, and are updated weekly. Based on the preliminary results, I have expanded the "neutral" band to +/-3% as well as averaging the previous two quarters together, until at least 100 companies have actually reported.
Because Q3 projected earnings have risen strongly compared with the bottom two quarters ago, and are now close to their Q4 2018 peak, this series is now firmly positive again.
Credit conditions (from the Chicago Fed) (graph at link)
- Financial Conditions Index down -.01 (looser) to -0.77
- Adjusted Index (removing background economic conditions) up +.02 (less loose) to -0.61
- Leverage subindex down -.02 (looser) at -0.32
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 earlier this year, but is now back to close to its least loose reading from one year ago. In the past, an inverted yield curve has led to a contraction in lending — but apparently not this time!
Short leading indicators
Trade weighted US Dollar
- Up +0.50 to 129.75 w/w, +1.0% YoY (last week) (broad) (115.19-131.58) (Graph: Trade Weighted U.S. Dollar Index: Broad, Goods | FRED | St. Louis Fed )
- Up +0.26 to 98.26 w/w, +1.4% YoY (major currencies) (graph at link)
Both measures of the US dollar had been positives in the summer of 2018, but by last autumn, the broad measure turned neutral, followed more recently by the measure against major currencies. As of roughly nine months ago, both were negative. In late summer, both of improved to neutral on a YoY basis. The measure against major currencies took a major spill four weeks ago, but is still neutral.
Bloomberg Commodity Index
- Down -0.36 to 78.73 (76.07-91.94)
- Down -3.4% YoY
(Graph: Bloomberg Commodity Index)
Bloomberg Industrial metals ETF (from Bloomberg) (graph at link)
- 112.53, down -1.23 w/w, down -2.6% YoY (107.87-123.18)
Commodity prices surged higher after the 2016 presidential election. Both industrial metals and the broader commodities indexes declined to very negative last year. Industrial metals improved enough to be scored neutral recently. This week they declined further.
Stock prices S&P 500 (from CNBC) (graph at link)
- Down -0.1% to 3110.29 (New all time high intraweek)
At the end of 2018, stocks' rating became negative. This year, they made repeated new 3-month and several all-time highs.
Regional Fed New Orders Indexes
(*indicates report this week)
- Empire State up +2.0 to +5.5
- *Philly down -17.8 to +8.4
- Richmond up +21 to +7
- *Kansas City up +10 to -3
- Dallas down -11.3 to -4.2
- Month-over-month rolling average: down -1 to +3
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 2018, but cooled beginning late last year. This year it has been waxing and waning between positive and flat. In July and earlier in August it was flat, then rebounded to positive, and has remained there since.
Initial jobless claims
- 225,000, up +2,000
- Four-week average 217,000, up +4,000
(Graph: FRED Graph | FRED | St. Louis Fed )
In November 2018 initial claims briefly spiked, and did so again at the end of January (probably connected to the government shutdown). They made new 49-year lows in April. Even though last and this week’s numbers were the worst since midyear, the overall trend is still (very) weakly positive.
Temporary staffing index (from the American Staffing Association) (graph at link)
- Unchanged at 97 w/w
- Down -6.4% YoY (Worst year-over-year reading in nearly 10 years)
Beginning in November 2018, this index gradually declined to neutral in January and has been negative since February. Since the beginning of the third quarter has progressively had its worst YoY readings since 2016, and finally exceeded them to the downside three weeks ago, and once again had its worst reading since the Great Recession this week.
Tax Withholding (from the Department of the Treasury)
- $194.2 B for the last 20 reporting days vs. $185.2 B one year ago, up +$9.0 B or +4.9%
This 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 up +$0.17 to $57.79 w/w, up +6.1% YoY
- Gas prices down -$.03 to $2.59 w/w, down -$0.02 YoY
- Usage four-week average up +1.9% YoY
(Graphs: This Week In Petroleum Gasoline Section )
After bottoming in 2016, generally prices went sideways with a slight increasing trend in 2017 and 2018. Prices fell sharply late last year and bottomed at the beginning of this year. This week for the first time they went positive YoY. Gas prices made their seasonal high for this year four months ago. Usage was positive YoY during most of 2016, but has oscillated between negative and positive for the last several months. For the last three weeks it turned negative, before turning positive again three weeks ago.
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. After being whipsawed between being positive or negative last year, this year it has remained positive.
- Johnson Redbook up +4.1% YoY
- Retail Economist up +0.5% w/w, up +2.8% YoY
Both the Retail Economist and Johnson Redbook Indexes were positive all during 2018. The Retail Economist measure decelerated earlier this year, turning neutral, but improved enough to score positive in April and May. It has been varying between neutral and weakly positive until this week’s very positive reading. Johnson Redbook fell sharply at the beginning of this year before improving to positive beginning in spring.
Railroads (from the AAR)
- Carloads down -8.9% YoY
- Intermodal units down -7.9% YoY
- Total loads down -8.4% YoY
- Harpex up +1 to 717 (440-727) Harper Petersen & Co
- Baltic Dry Index down -104 to 1260 (610-2499) (graph at link)
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 almost uniformly negative, suggesting that the trade war with China is having a major impact. In the last two months (except this week), the YoY comparisons have gotten even worse. By contrast, truck traffic remains slightly positive YoY - the trend there is neutral to slightly positive.
Harpex made multi-year lows in early 2017, and after oscillating improved to new multi-year highs earlier in 2018, but earlier this year turned negative. In the past three months, it rebounded enough to be neutral, and now is positive. BDI traced a similar trajectory, and made three-year highs near the end of 2017, and again at mid-year 2018, before declining all the way back to negative. In the past three months it made repeated three-year highs, before backing off in the past few weeks, enough to be scored neutral.
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 +0.8% w/w
- Down -1.4% 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 1/2 of its recent range over 10% YoY, and was neutral, and had been varying between neutral and positive since. In the summer, it varied between neutral and negative, but for two months has been almost exclusively negative.
Summary And Conclusion
First of all, I’d appreciate feedback from readers who have clicked through on the links to the graphs. Did the links work, and send you to the correct page? Were these kind of graphs what you were looking for?
Among the long leading indicators, corporate bonds, Treasuries, purchase mortgage applications, mortgage rates, corporate profits, the Chicago Fed Adjusted Financial Conditions Index and Leverage subindex, real M1 and real M2, and real estate loans, are all positives. The yield curve and mortgage refinancing is neutral. There are no negatives.
Among the short leading indicators, the Chicago National Conditions Index, regional Fed new orders, gas prices and usage, stock prices, and initial claims are positive. The US dollar, oil prices, the spread between corporate and Treasury bonds, and industrial commodities are neutral. Total commodities and temporary staffing are negative.
Among the coincident indicators, consumer spending, tax withholding, Harpex, and the TED spread are positive. The Baltic Dry Index is neutral. Rail, steel, and LIBOR are negative.
The long leading forecast remains positive, as does the short-term forecast, which improved this week. Coincident indicators also remain positive. Barring new and worsening public policy, while we are in the teeth of a slowdown, recession risk continues to recede.
My bottom line comment remains the same: the important issue is whether weakness spreads from manufacturing to other areas. With the exception of temporary staffing, that simply has not happened.
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.