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 strongly positive personal income and spending, and m/m increases in new home sales and durable goods spending. Sentiment as measured by the University of Michigan declined. The Index of Leading Indicators increased again.
Note: For most indicators I have now added both the weeks of the best and worst readings since the coronavirus crisis began in parentheses following this week’s number. This will tell us whether gains are continuing, leveling off, or whether we are starting to turn back down.
Vaccinations 7 day average: 1.51m/day down -0.11m/day w/w
Total Vaccinations: 70.5m, up +12.8m w/w
At least 1 dose administered: 46.1m (18% of population age 18+)
Both doses administered: 21.5m (8.4% of population age 18+)
At the request of several readers, I have changed the format of the above data, and added the CDC’s breakdown of 1 vs. both doses.
At the current rate, it will take about 8 more months to vaccinate the entire US population age 18 or over (about 210 million people, or 420m doses). The slowdown in the past week was primarily due to the electricity and frozen water supply issues in Texas.
(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)
Corporate bonds spiked to near 5 year highs early in 2020, but subsequently made a series of multi-decade lows. Despite increasing in the past several weeks, they remain close to that record.
Treasury bonds yields have made 1 year highs, but remain near lower end of their 5 year range. Typically it takes a 1% or more increase in rates to substantially impact the housing market. Enough has happened to change their rating from positive to neutral, but not enough to make them a negative. The same is true of mortgage rates.
The spread between corporate bonds and Treasuries turned very negative last March, but bounced back, and remains positive now. Two of the three measures of the yield curve remain solidly positive, while the Fed funds vs. 2 year spread is neutral.
Mortgage applications (from the Mortgage Bankers Association)
*(SA) = seasonally adjusted, (NSA) = not seasonally adjusted
(Graph at here)
Real Estate Loans (from the FRB)
(Graph at Real Estate Loans, All Commercial Banks | FRED | St. Louis Fed)
Purchase mortgage applications, after declining sharply last March and April, rebounded to repeated new decade highs. Between higher mortgage rates and likely weather related issues, they cratered last week. Refi also turned down. This is enough to change their ratings from positive to neutral, but unless the downturn continues, and the YoY metric turns negative, this is not enough to turn them into a negative at this point.
From 2018 until late in 2020 real estate loans with few brief exceptions stayed positive. Having decreased by more than 1/2 of their YoY peak in the past several months, they are now neutral, and indeed close to turning negative.
Very regrettably, the Federal Reserve has discontinued this weekly series. Data will only be released monthly.
FactSet estimates earnings, which are replaced by actual earnings as they are reported, and are updated weekly. The "neutral" band is +/-3%. I also average the previous two quarters together until at least 100 companies have actually reported.
Q4 earnings were up over 40% from their Q2 bottom so this indicator is positive.
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. In early April 2020 all turned negative, but both the adjusted and un-adjusted indexes quickly rebounded to positive, and have remained so since. Leverage is now neutral and will turn positive if the index turns below -0.10.
Both measures of the US$ were negative for 2 months right after the pandemic started in 2020. In late spring both improved to neutral, and then positive since last August.
Bloomberg Commodity Index
(Graph at BCOM | Bloomberg Commodity Index Overview | MarketWatch)
Bloomberg Industrial metals ETF (from Bloomberg) (graph at link)
Both industrial metals and the broader commodities indexes were negative in much of 2019, but rebounded considerably since April 2020. Both total and industrial commodities are now strongly positive.
Stock prices S&P 500 (from CNBC) (graph at link)
There have been repeated recent 3 month highs, including two weeks ago, so this metric remains positive.
(*indicates report this week)
The regional average is more volatile than the ISM manufacturing index, but usually correctly forecasts its month-over-month direction. In April the average was even more negative than at its worst reading of the Great Recession. It rebounded by more than half last May, and at the end of June, it rebounded all the way to positive. New orders pulled back in November and December, but the January reports showed a sharp rebound. So far February is backing off, but not substantially.
Initial jobless claims
(Graph at St. Louis FRED)
New claims made a pandemic low in November, rose through a month ago, and have since essentially leveled off. They are still above their worst levels of the Great Recession. Recent weakening turned this metric negative for one week. In the last three weeks it has reverted to neutral and this week, possibly due to weather issues, back to positive.
Temporary staffing index (from the American Staffing Association) (graph at link)
This index turned negative in February 2019, worsened in the second half of the year, and plummeted beginning in March 2020. It gradually improved to “less awful,” then neutral 5 months ago, and positive for the past month.
Tax Withholding (from the Dept. of the Treasury)
YoY comparisons turned firmly negative in the second week of April. The comparative YoY readings, except for one week, have generally improved to less than 1/2 of their worst, making this indicator neutral. For the 10th week in a row, the report is now positive.
(Graphs at This Week In Petroleum Gasoline Section - U.S. Energy Information Administration (EIA))
Oil prices are now solidly in the upper portion of their 5 year range, and so have turned into a slight negative. Gas prices have turned higher as well, but are still in the middle of their neutral range for the past 5 years. Usage turned very negative last April, but since rebounded by much more than half since its low point, and so has become neutral. The YoY comparisons have weakened or steadied in the past few months near the -10% YoY range.
TED was above 0.50 before both the 2001 and 2008 recessions. Since early 2019 the TED spread has remained positive, except the worst of the coronavirus downturn. Both TED and LIBOR have declined far enough after that to turn back positive.
Restaurant reservations YoY (from Open Table)
The comparisons gradually improved each week from spring into summer, enough so that they turned neutral. In the past four months there has been a retrenchment, enough to change the rating to negative, then a slight recovery back to neutral.
Last April the bottom fell out in the Redbook index. It turned positive for two weeks before turning neutral and then positive, and has remained so since.
Railroads (from the AAR)
(Graph at Railfax Report - North American Rail Freight Traffic Carloading Report)
Since January 2019 rail had been almost uniformly negative, and worsened last April, but has gradually improved ever since. Carloads have turned positive several times, but were negative again this week. Intermodal has generally been positive for several months. Total rail carloads had also been positive for about 3 months. The steep decline this week was likely weather-related.
Harpex declined to a new one year low earlier this year, then improved gradually. In the past month it has repeatedly spiked to new multiyear highs. 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. In summer the BDI improved enough to warrant changing its rating from negative to neutral, and for a few weeks to positive. Nine weeks ago it fell back again to neutral, but has improved enough to go back to positive.
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 beginning American Iron and Steel Institute)
The bottom in production fell out in April. There has been slow but continuing improvement since then, and finally three months ago it improved enough to be rated neutral.
Until the pandemic is brought under control, the coincident indicators are the most important. Among them, the un-adjusted Chicago Fed Financial Index, the TED spread, LIBOR, Redbook consumer spending, tax withholding, Harpex, intermodal and total rail traffic, and the BDI are positive. The Fed Weekly Economic Index, steel, and restaurant reservations are neutral. The rail are all very negative, likely due to transient weather issues.
Among the short leading indicators, staffing, stock prices, the regional Fed new orders indexes, the US$ both broadly and against major currencies, industrial and total commodities, and the spread between corporate and Treasury bonds are positives, joined this week by initial jobless claims (possibly affected by weather issues). On the other hand, gas prices and usage are neutral. Oil prices are negative.
There were a number of changes among the long leading indicators, all due to interest rates. While corporate bonds and two out of three measures of the yield curve, corporate profits, and the Adjusted Chicago Financial Conditions Index remained positives, US Treasuries, mortgage rates, purchase mortgage applications and refinancing turned from positive to neutral, and the 2 year Treasury minus Fed funds yield spread, real estate loans, and the Chicago Financial Leverage subindex remained neutral. I will not change the various interest rate indicators negative unless they are higher YoY, more than 1% higher than their lows of the past year, and at least in the middle of their 5 year range. None of them have met all of these criteria.
Vaccinations against COVID-19 remain the most important metric of all, but slowed in the past week, again due to weather issues.
Broadly speaking, here is what I see:
(1) The economy is primed for strong takeoff once the pandemic is brought under control, as housing, manufacturing, and more generally production are strong, and commodities are red hot.
(2) The pandemic appears to finally be being brought somewhat under control, as about half of people in the high risk groups have received at least one dose, nursing home deaths are already down sharply, and with a third vaccine being approved, we are on track for herd immunity probably by the end of the summer.
(3) Seeing all this, together with the likely approval of a large new stimulus bill by Congress, the bond market has reacted by pushing rates higher. This is a "bullish" reaction, as the yield curve is very positive.
(4) The weather issues affecting some of the data series are transient and likely to last only one or two more weeks at most.
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