- 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.
- Unsurprisingly, the short leading and coincident indicators remain awful.
- But almost all are no "more" awful year-over-year than they were last week. They may have found a level at the bottom of the cliff.
- When weekly May data starts to be reported in one more week, we should be able to begin to see if there's true stabilization, or if there are worsening second-order effects.
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 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's scored neutral if it's 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.
Recap of monthly reports
April data started out with a plunge in the ISM manufacturing index.
March data included personal income and spending, the Confidence Board’s measure of consumer confidence, and pending home sales, all of which plummeted. Residential construction spending, however, increased, while nonresidential declined.
In the rearview mirror, Q1 GDP also fell off a cliff, while the employment cost index, in a last hurrah, increased to a new high for the expansion (wage growth is a long lagging indicator).
Long leading indicators
Interest rates and credit spreads
- BAA corporate bond index 3.87%, unchanged w/w (1-year range: 3.29-5.18)
- 10-year Treasury bonds 0.62%, up +0.03% w/w (0.54-2.79)
- Credit spread 3.25%, down -0.03% w/w (1.96-4.31)
(Graph at FRED Graph | FRED | St. Louis Fed )
- 10 year minus 2 year: +0.42%, up +0.04% w/w (-0.04 - 0.55)
- 10 year minus 3 month: +0.50%, up +0.03% w/w (-0.52 - 0.70)
- 2 year minus Fed funds: +0.15%, down -0.03% w/w
(Graph at FRED Graph | FRED | St. Louis Fed )
30-Year conventional mortgage rate (from Mortgage News Daily) (graph at link)
- 3.19%, down -.06% w/w (3.13-4.63)
BAA Corporate bonds and Treasury bonds turned positive several months ago. That corporate bonds recently fell to yet another new expansion low would ordinarily be extremely bullish into Q1 2021, but the more recent spike to nearly five-year highs would ordinarily mean this is a negative. In the past several weeks bonds have bounced back into positive territory near their lows.
The spread between corporate bonds and Treasuries recently turned very negative, but also has bounced back significantly. Two of the three measures of the yield curve remain solidly positive, while the Fed funds vs. two-year spread turned neutral. Mortgage rates remain a positive.
Mortgage applications (from the Mortgage Bankers Association)
- Purchase apps +12% w/w to 209 (184-315) (SA)
- Purchase apps 4 wk avg. -1 to 192 (SA)
- Purchase apps YoY -20% (NSA)
- Purchase apps YoY 4 wk avg. -30% (NSA)
- Refi apps -7% w/w (SA)
*(SA) = seasonally adjusted, (NSA) = not seasonally adjusted
Real Estate Loans (from the FRB)
- Down -0.2% w/w
- Up +4.5% YoY (2.8-5.2)
With lower rates since early 2019, purchase mortgage applications were solidly positive. When the crisis started, they reverted back to negative. On the other hand, lower rates also recently led to a decadal high in refi, and were close again this week.
With the exception of several weeks in 2019, real estate loans generally stayed positive for the past several years.
- +2.8% w/w
- +8.8% m/m
- +27.2% YoY Real M1 (-0.1 to 13.9) (new one year high)
- +2.2% w/w
- +6.2% m/m
- +17.0% YoY Real M2 (2.0-13.1) (new one year high)
(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. Fed actions to combat the economic crash have only amplified that.
- Q1 2020 55% actual + 45% estimated, down -0.16 to 32.96, down -21.1% q/q, down -23.1% from Q4 2018 peak
(Graph: P. 24 here)
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.
Q1 earnings have been downgraded over -15% since March. Needless to say, this metric is negative.
Credit conditions (from the Chicago Fed) (graph at link)
- Financial Conditions Index down -0.08 (looser) to -0.23
- Adjusted Index (removing background economic conditions) down -0.02 (less tight) to +0.04
- Leverage subindex unchanged (tight) at +0.62
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. Four weeks ago all turned negative. In the past two weeks, there has been a bit of a rebound.
Short leading indicators
Trade weighted US$
- Up +1.43 to 124.51 w/w, +7.9% YoY (last week) (broad) (113.48 - 125.23) (Graph at Trade Weighted U.S. Dollar Index: Broad, Goods (DISCONTINUED) | FRED | St. Louis Fed )
- Down -1.20 to 99.03 w/w, +1.6% YoY (major currencies) (graph at link)
Both measures of the US dollar 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. Both measures had recently been neutral. This week, the broad measure remained negative, while against major currencies it remained neutral.
Bloomberg Commodity Index
- Up +0.47 to 60.71 (58.87-83.08) (new one year low intraweek)
- Down -24.5% YoY
(Graph at Bloomberg Commodity Index )
Bloomberg Industrial metals ETF (from Bloomberg) (graph at link)
- 94.01, down -0.99 w/w (88.46-124.03)
- Down -19.1% YoY
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 now extremely negative.
Stock prices S&P 500 (from CNBC) (graph at link)
- Down -0.2% to 2830.71
In 2019 stocks made repeated new three-month and all-time highs, right up into February. With the recent crash, they made a new three-month and one-year lows. They are now roughly halfway between those two extremes. Since in the past three months there have been both new three-month highs and lows, this metric is scored neutral.
Regional Fed New Orders Indexes
(*indicates report this week)
- Empire State down -57.0 to -66.3
- Philly down -55.4 to -70.9
- *Richmond down -61 to -61
- Kansas City down -26 to -64
- *Dallas down -25.7 to -67
- Month-over-month rolling average: down -18 to -66
The regional average is more volatile than the ISM manufacturing index, but usually correctly forecasts its month-over-month direction. All during 2019 it had been waxing and waning between positive and flat, until it turned negative in January. In February there was a strong positive spike, but in March this fell apart and the average is now even more negative than during the Great Recession.
Initial jobless claims
- 3,839,000, down -588,000 w/w
- 4-week average 5,033,250, down -753,250 w/w
(Graph at FRED Graph | FRED | St. Louis Fed )
Initial claims made new 49-year lows in April 2019. Needless to say, that has all gone out the window.
Temporary staffing index (from the American Staffing Association) (graph at link)
- Down -6 to 64 w/w
- Down -31.1% YoY
This index turned negative in February 2019, worsened in the second half of the year, and has worsened still in the last two months, and badly so in the past month.
Tax Withholding (from the Dept. of the Treasury)
- $178.3 B for the last 20 reporting days vs. $187.1 B one year ago, down -$8.8 B or -4.7%
Year-over-year comparisons were almost uniformly positive since February 2019, until three weeks ago. One week ago they turned firmly negative.
Oil prices and usage (from the E.I.A.)
- Oil up +$2.61 to $19.69 w/w, down -67.6% YoY (new 18 year low)
- Gas prices down -$.04 to $1.77 w/w, down -$1.12 YoY (four year low)
- Usage 4-week average down -43.7% YoY
(Graphs at This Week In Petroleum Gasoline Section )
At the beginning of this year they went higher YoY, but since have abruptly turned lower, thus they have turned positive. Gas prices have are near 20-year lows. Usage was positive YoY during most of 2019, and had oscillated between negative and positive for the last several months. It turned decisively negative in the past month.
Bank lending rates
- 0.470 TED spread down -0.43 w/w (0.21-1.51) (graph at link)
- 0.330 LIBOR down -0.16 w/w (0.33-2.50) (graph at link) (new one year low)
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. After being whipsawed between being positive or negative in 2018, since early 2019 the TED spread remained positive — until three weeks ago, when it turned negative again. But both TED LIBOR have now declined far enough to turn positive.
- Five-week average down -24.5% YoY (Census bureau Business Formation Statistics)
Prof. Geoffrey Moore included net formations minus bankruptcies as measured by Dun and Bradstreet among his 11 short leading indicators. This statistic, which isn’t exactly the same and is only 15-years-old, is a similar measure. There's marked seasonality and considerable variance week to week, but a five-week average cuts down on most of that noise while retaining at least a short leading signal that appears to turn 1-3 months before the cycle.
This turned negative year-over-year six weeks ago as soon as coronavirus turned into a real issue.
Special note:The St. Louis FRED has initiated a Weekly Economic Index consisting of many of the same components as I track below, plus the weekly Rasmussen consumer index, electricity usage, plus initial and continued jobless claims and the Staffing Index I track above. You can find it here.
Restaurant reservations YoY (from Open Table)
- Apr 16 -100%
- Apr 23 -100%
I will update this for the duration of the coronavirus outbreak. The last day that restaurant reservations were positive YoY was Feb. 24. The sharp break downward began on March 9.
- Johnson Redbook down -8.1% YoY
- Retail Economist +1.4% w/w, -20.4% YoY
Three weeks ago the bottom fell out below the Retail Economist reading. Redbook finally turned negative one week ago, and worsened this week.
Railroads (from the AAR)
- Carloads down -28.2% YoY
- Intermodal units down -16.5% YoY
- Total loads down -22.4% YoY
- Harpex down -21 to 529 (474-727) Harper Petersen & Co
- Baltic Dry Index down -37 to 635 (411-2499) (graph at link)
Since January 2019 rail has been almost uniformly negative and worsened beginning late in the year. YoY comparisons have continued to worsen in the last month.
Harpex made new three-year highs in mid-2019, and remained near those highs until the beginning of this year. It has declined about 165 points. BDI traced a similar trajectory, making new three year highs into September 2019, then declining to new three year lows at the beginning of February. It remains above those lows, but is still a negative. With the recovery in China, these measures may begin to improve.
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 -2.1% w/w
- Down -33.9% YoY
By autumn of 2019, the YoY comparisons were almost exclusively negative. It was generally positive since the beginning of this year, but in March it turned negative again. The bottom fell out three weeks ago.
Summary and Conclusion
Among the coincident indicators, everything except for the TED spread and LIBOR - consumer spending, tax withholding, the Baltic Dry Index, rail, steel, restaurant reservations, Harpex and the BDI - is negative.
There were no changes among the short leading indicators. Gas and oil prices are positives. The broad US dollar and stock prices and the spread between corporate and Treasury bonds are neutral. Temporary staffing, the US dollar against major currencies, initial claims, the regional Fed new orders indexes, the Chicago Financial Conditions Index, gas usage, business formations, and both industrial and overall commodities are negative.
Among the long leading indicators, corporate bonds, Treasuries, mortgage rates, two out of three measures of the yield curve, real M1 and real M2, real estate loans, and mortgage refinancing as positives are all positives. The two-year Treasury minus Fed funds yield spread turned neutral. Corporate profits are negative, as are purchase mortgage applications, the Adjusted Chicago Financial Conditions Index and its Leverage subindex.
In the data the story is the same this week as it has been since the public health crisis started: Both the nowcast and the short-term forecast remain awful, while the long-term forecast is weakly positive, laying the groundwork for the eventual recovery.
The important news this week is that while the comparisons are awful, almost all aren’t any "more" awful than they were a week ago. A few have even rebounded slightly. The weekly and then monthly data for May will begin to tell us whether the data, while awful, has at least stabilized, or whether there are even worse second-order effects to come.
To reiterate what I have said for the past few weeks, the economy will be determined in the near future by the quality of political public health decisions at the federal and state levels, and by whether a “miracle cure” or treatment should suddenly appear. As the states are now taking widely divergent and in some cases opposing measures for dealing with the crisis, a “natural experiment” has been set up with 52 separate Petri dishes including DC and Puerto Rico. The results should begin to become apparent by the end of May.
This article was written by
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