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.
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 1/3 of that range, negative in the bottom 1/3, 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 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 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.
For all series where a graph is available, I have provided a link to where the relevant graph can be found.
January data included a slight acceleration in house prices as measured by two indexes, positive personal income and slightly positive real personal spending, and a decline in overall durable goods orders, while consumer durables were slightly positive.
Important Note About Coronavirus Impacts: Outside of the financial markets, producer impacts ought to show up in shipping, rail, and steel. They may also show up in an upward spike in new orders, as manufacturers try to lock in supplies. Consumer impacts (as in, avoiding unnecessary personal contact) will likely show up in mortgage applications, real estate loans, and temporary staffing, and with a slightly longer delay in jobless claims.
Interest rates and credit spreads
(Graph at FRED Graph | FRED | St. Louis Fed )
(Graph at FRED Graph | FRED | St. Louis Fed )
30-Year conventional mortgage rate (from Mortgage News Daily) (graph at link)
BAA Corporate bonds and Treasury bonds turned positive several months ago. In particular, that corporate bonds have fallen to yet another new expansion low would ordinarily be extremely bullish into Q1 2021. The spread between corporate bonds and Treasuries has risen to negative. The yield curve worsened substantially again this week. Two of the three yield curve measures are negative; the third is neutral. Mortgage rates being at all time lows, however, is positive.
Mortgage applications (from the Mortgage Bankers Association)
(Graph courtesy of Dr. Edward Yardeni)
Real Estate Loans (from the FRB)
Purchase applications generally declined from expansion highs through neutral to negative from the beginning of summer to the end of 2018. With lower rates in 2019, their rating climbed back to positive. Meanwhile, lower rates have led to a spike near 6 year highs in refi, so this metric has become a positive.
For two weeks in 2019, the growth rate in loans fell below +3.25%, and so went back from positive to neutral, but then rebounded to positive and has generally stayed there since.
(Graph at FRED Graph | FRED | St. Louis Fed )
In 2018 and early in 2019, real M1 turned neutral and very briefly negative. Real M2 growth fell below 2.5% almost all during 2018 and early 2019, and so was rated negative. Last year, both continued to improve and for the past few months, both have turned and remained positive.
(Graph: P. 23 of this Factset report)
I initiated coverage of this metric last 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 expanded the "neutral" band to +/-3% as well as averaging the previous two quarters together, until at least 100 companies have actually reported.
Using the above method, since over 400 companies have reported, Q4 earnings make this metric very slightly negative. As a point of information, next week Q1 earnings, which as of today are projected to drop over -6% from Q4, will be averaged into the result.
Credit conditions (from the Chicago Fed) (graph at link)
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 in 2017, and again in autumn 2019, the leverage subindex turned up to near neutral, but remains positive. In the past, an inverted yield curve has led to a contraction in lending — but not this time, according to these measures.
Trade weighted US$
Both measures of the US$ were negative early in 2019. In late summer, both of improved to neutral on a YoY basis. The measure against major currencies took a major spill recently. After one week positive (a lower $ is an economic positive), it turned back to neutral. The broad measure is neutral as well.
Bloomberg Commodity Index
(Graph at Bloomberg Commodity Index )
Bloomberg Industrial metals ETF (from Bloomberg) (graph at link)
Commodity prices surged higher after the 2016 presidential election. Both industrial metals and the broader commodities indexes declined to very negative into 2019. Industrial metals briefly improved enough to be scored neutral and then positive, but both are back to )as of this week, extremely) negative.
Stock prices S&P 500 (from CNBC) (graph at link)
In 2019 stocks made repeated new 3-month and all-time highs, right up through one week ago. With this week’s crash, they made a new 3 month, and almost a. 6 month low. Since in the past three months there have been both new 3 month highs and lows, in my discipline - which does not know whether the next three months will be L-, V-, or some other shape, this makes this metric neutral.
Regional Fed New Orders Indexes
(*indicates report this week)
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. All during 2019 it had been waxing and waning between positive and flat, until five weeks ago, when it turned negative. In the weeks since it has rebounded all the way back to a strong positive.
It is possible, however, that the spike in new orders over the past month is manufacturers trying to lock in supplies in advance of what they anticipate will be major disruptions. If that is the case, this isn’t positive at all.
Initial jobless claims
(Graph at FRED Graph | FRED | St. Louis Fed )
In November 2018 initial claims briefly spiked, and did so again at the end of January 2019 (probably connected to the government shutdown). They made new 49-year lows in April. The numbers weakened recently, but the last six weeks there was a strong positive reversal, taking this metric back to positive. If coronavirus hits hard, I expect this metric will turn more negative only after sales suffer.
Temporary staffing index (from the American Staffing Association) (graph at link)
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 it has generally had its worst YoY readings since 2016, and finally exceeded them to the downside five months ago. There was no appreciable worsening this week. If coronavirus takes hold, I would expect the YoY comparisons to worsen (below -7%) as people avoid the workplace.
Tax Withholding (from the Dept. of the Treasury)
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 three weeks have been positive.
Oil prices and usage (from the E.I.A.)
(Graphs at This Week In Petroleum Gasoline Section )
After bottoming in 2016, generally prices went sideways with a slight increasing trend in 2017 and 2018. Prices bottomed in January 2019, peaked at the end of April and slowly declined through the rest of the year. At the beginning of this year they went higher YoY, but since have abruptly turned lower; thus they have turned positive. Gas prices made their seasonal high for this year in spring. Usage was positive YoY during most of 2016, but has oscillated between negative and positive for the last several months. Recently it was positive for past six weeks, then negative for two weeks, 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. After being whipsawed between being positive or negative in 2018, since early 2019 it has remained positive.
Both the Retail Economist and Johnson Redbook Indexes were positive all during 2018. The Retail Economist measure decelerated early in 2019. Since last May, it has varied between neutral and weakly positive. This week is positive again. Johnson Redbook fell sharply at the beginning of this year before improving to positive beginning in spring and remaining there since. Sharp deterioration in these two metrics would be the surest sign that coronavirus is causing consumers to alter their behavior.
Railroads (from the AAR)
In autumn 2018 rail started to weaken precipitously, probably due to tariffs. It rebounded strongly in January 2019, but in the year since then, it has been almost uniformly negative. In the last few months of 2019 the YoY comparisons were generally even worse. Two weeks ago several of the comparisons turned back positive YoY, but are back to negative. A disruption in the supply chain might only result in YoY comparisons remaining negative, but any intensification in the YoY downturn would be a sign of supply chain disruption. It isn’t apparent yet.
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 few months, it rebounded all the way back to positive. BDI traced a similar trajectory, and made three-year highs near the end of 2017, and again at midyear 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 month, enough to be scored neutral, and now negative. International shipping disruptions due to coronavirus should result in new lows in prices in these two measures.
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)
Beginning in spring 2018, this was positive. In 2019 the YoY comparison abruptly declined to less than 1/2 of its top range over 10% YoY, and was neutral generally during summer 2019. By autumn, it was almost exclusively negative. Since the beginning of this year. it has been positive again, until one week ago. If coronavirus disrupts production, I would expect continued negative YoY comparisons.
Among the long leading indicators, corporate bonds, Treasuries, mortgage rates, purchase mortgage applications, the Chicago Fed Adjusted Financial Conditions Index and Leverage subindex, real M1 and real M2, real estate loans, and mortgage refinancing are all positives. One measure of the yield curve is neutral. Corporate profits are negative, as are two measures of the yield curve.
Among the short leading indicators, the Chicago Financial Conditions Index, initial claims, the spread between corporate and Treasury bonds, oil prices, and the Fed new orders indexes are positive. The spread between corporate and Treasury bonds, stock prices, the US$ and gas prices and usage are neutral. Temporary staffing, and both industrial and overall commodities are negative.
Among the coincident indicators, consumer spending, tax withholding, Harpex and the TED spread are positive. The Baltic Dry Index, rail, steel, and LIBOR are negative.
Coronavirus impacts are not yet evident, except potentially for the upward spike in new orders, which may represent manufacturers trying to lock in supplies.
The long term forecast remains strongly positive. The short term forecast is also positive. The nowcast improves to neutral. On the consumer side, redbook consumer spending, and on the producer side shipping and rail, look like the best and quickest proxies for the impact of a coronavirus panic or pandemic.
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