Weekly High Frequency Indicators: Will Explosive Growth In 2021 Hit A Wall In 2022?
Summary
- 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.
- The nowcast and the short term forecast for most of 2021 are "extremely" positive.
- But higher interest rates, plus explosive commodity and asset price growth, are becoming worrisome for 2022.
Purpose
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 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.
Recap of monthly reports
March data started out with blockbuster jobs and ISM manufacturing reports, the latter being the best in several decades in several important measures. Consumer confidence as measured by the Conference Board also turned up strongly.
February data included very sharp increases in several measures of house prices, while pending sales of existing homes declined. Construction spending, heavily affected by the Big Texas Freeze, also declined.
Note: I have discontinued comparisons with the "worst" readings since the onset of the coronavirus crisis began over one year ago, as they are no longer helpful. I will continue to post the best readings during the pandemic in parentheses following this week's number.
Coronavirus Vaccinations
- Vaccinations 7 day average: 2.90m/day up 0.39m/day w/w
- Total Vaccinations: 156.6m, up +20.3m w/w
- At least 1 dose administered: 101.3m, up 13.0m w/w (39.2% of population age 18+)
- Fully vaccinated: 57.9m, up +10.5m (22.4% of population age 18+)
At the current rate, it will take only 3 more months to vaccinate the entire US population age 18 or over (about 210 million people, or 420m doses)!
Long leading indicators
Interest rates and credit spreads
Rates
- BAA corporate bond index 3.77%, up +0.03% w/w (1-yr range: 3.13-5.15)
- 10-year Treasury bonds 1.71%, up +0.04% w/w (0.52-1.74)
- Credit spread 2.06%, down -0.01% w/w (1.97-4.31)
(Graph at FRED Graph | FRED | St. Louis Fed)
Yield curve
- 10 year minus 2 year: +1.53%, unchanged w/w (0.12-1.58)
- 10 year minus 3 month: +1.69%, up +0.04% w/w (-0.20-1.72)
- 2 year minus Fed funds: +0.13%, up +0.04% w/w
(Graph at FRED Graph | FRED | St. Louis Fed)
30-Year conventional mortgage rate (from Mortgage News Daily) (graph at link)
- 3.39%, up +0.08% w/w (2.75-4.15)
Corporate bonds spiked to near 5 year highs early in 2020, but subsequently made a series of multi-decade lows. As of several weeks ago, they have increased enough that they are in the middle of that range, and so have changed to neutral from positive.
Treasury bonds yields have made 1 year highs, and are near the middle of their 5 year range. Typically it takes a 1% or more increase in rates to substantially impact the housing market. Now that they have exceeded that limit, they are negative. Mortgage rates have not changed nearly so much, and are neutral.
The spread between corporate bonds and Treasuries turned very negative last March, but bounced back, and remains positive now. Meanwhile two of the three measures of the yield curve are "extremely" positive, while the Fed funds vs. 2 year spread is neutral.
Housing
Mortgage applications (from the Mortgage Bankers Association)
- Purchase apps down -2% w/w to 299 (184-349) (SA) ( high Jan 22)
- Purchase apps 4 wk avg. up +7 to 298 (SA) (341 high Jan 29)
- Purchase apps YoY +39% (NSA)
- Purchase apps YoY 4 wk avg. +18% (NSA)
- Refi apps down -3% w/w (SA)
*(SA) = seasonally adjusted, (NSA) = not seasonally adjusted
(Graph at here)
Real Estate Loans (from the FRB)
- Up less than +0.1% w/w
- Down -1.0% YoY (-1.0 - 5.2) (new one year low)
(Graph at Real Estate Loans, All Commercial Banks | FRED | St. Louis Fed)
Purchase mortgage applications made repeated new decade highs late last year. Between higher mortgage rates and likely weather related issues, they cratered briefly in February, but have rebounded. Refi is also down from recent highs. This is enough to change their ratings from positive to neutral, but unless the YoY metric turns negative, or below 290, this is not enough to turn them into a negative.
From 2018 until late in 2020 real estate loans with few brief exceptions stayed positive. In the past several months they turned neutral, and last week turned negative.
Money supply
Very regrettably, the Federal Reserve has discontinued this weekly series. Data will only be released monthly. February data, released one week ago, indicated:
- M1 m/m up +1.6%, YoY up +357%!!!
- M2 m/m up +1.4%, YoY up +27.1%
Corporate profits (estimated and actual S&P 500 earnings from I/B/E/S via FactSet at p. 30)
- Q4 2020 unchanged at 42.32, up +7.4% q/q
- Q1 2021 estimated, up +0.12 to 39.86, down -5.8% q/q
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, while Q1 estimates have retreated from that peak enough to change this metric to neutral.
Credit conditions (from the Chicago Fed) (graph at link)
- Financial Conditions Index unchanged ( loose) at -0.63 (0.33 - -0.69)
- Adjusted Index (removing background economic conditions) down -.01 ( looser) to -0.57 (0.64 - -0.79)
- Leverage subindex down -.05 (looser) to -0.23 (0.66 - -0.24)
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 positive as well.
Short leading indicators
Trade weighted US$
- Up +0.79 to 114.05 w/w, -7.0% YoY (last week) (broad) (111.54-126.47) (Graph at Trade Weighted U.S. Dollar Index: Broad, Goods (DISCONTINUED) | FRED | St. Louis Fed)
- Up +0.28 to 93.01 w/w, down -7.5% YoY (major currencies) (graph at link) (89.68-102.82)
Both measures of the US$ were negative for 2 months right after the pandemic started in 2020. In late spring both of improved to neutral, and then positive since last August.
Commodity prices
Bloomberg Commodity Index
- Down -0.30 to 83.83 (58.87-85.96)
- Up +36.2% YoY (Best: +37.6% Mar 19)
(Graph at BCOM | Bloomberg Commodity Index Overview | MarketWatch)
Bloomberg Industrial metals ETF (from Bloomberg) (graph at link)
- 142.56, down -3.25 w/w (88.46-147.86)
- Up +55.0% YoY (Best +59.0% this week)
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)
- Up +3.8% to 4019.87
There have been repeated recent 3 month highs, including today, so this metric remains positive.
Regional Fed New Orders Indexes
(*indicates report this week)
- Empire State down -1.7 to +9.1
- Philly up +27.5 to +50.9
- Richmond unchanged at +10
- Kansas City up +21 to +37
- *Dallas up +17.5 to +30.5
- Month-over-month rolling average: up +3 to +27
The regional average is more volatile than the ISM manufacturing index, but usually correctly forecasts its month-over-month direction. By last June these had already rebounded all the way to positive. They pulled back in November and December, but have sharply rebound since, and are very positive now.
Employment metrics
Initial jobless claims
- 719,000, up +61,000 w/w (Best 684,000 March 26)
- 4-week average 719,000, down -10,500 w/w (Best 719,000 this week)
(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. After briefly weakening this winter to a negative, they have gradually reverted to neutral and for the past five weeks back to positive.
Temporary staffing index (from the American Staffing Association) (graph at link)
- Up +1 to 94 w/w
- Up +11.3% YoY (Best +8.8% this week)
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 since February. It is equal to its reading at this time in 2019.
Tax Withholding (from the Dept. of the Treasury)
- $286.6 B for the month of March vs. $255.6 B one year ago, up +$31.0 B or 12.1%
- $223.8 B for the last 20 reporting days vs. $260.0 B one year ago, down -$36.2 B or -13.9% (Best +18.4% Jan 8)
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. This report has been positive since the beginning of 2021. I suspect the 20 day reading is an aspect of tax payment on April 1, so I am not concerned yet.
Oil prices and usage (from the E.I.A.)
- Oil up +$0.40 to $61.24 w/w, up +77.2% YoY
- Gas prices down -$0.01 to $2.85 w/w, up $0.80 YoY
- Usage 4-week average up +0.1% YoY (Best +0.1% this week)
(Graphs at
This Week In Petroleum Gasoline Section - U.S. Energy Information Administration ((EIA)))Oil prices and gas prices are now both solidly in the upper portion of their 5 year range, and so have turned into a slight negative. 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. Usage improved to better than 8.5 million this week, so it changed to a positive.
Bank lending rates
- 0.1920 TED spread up +0.014 w/w (0.12-1.92) (graph at link)
- 0.1091 LIBOR up +0.0013 w/w (0.13-1.70) (graph at link)
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.
Coincident indicators
St. Louis FRED Weekly Economic Index
- Up +2.74 to +7.25 w/w (Best +7.25 this week)
In the 5 years before the onset of the pandemic, this Index varied between +.67 and roughly +3.00. Just after the Great Recession, its best comparison was +4.63. The big positive number this week is in comparison to the pandemic shutdown one year ago.
Restaurant reservations YoY (from Open Table)
- Mar 25 -31%
- April 1 -20% (Best -20% this week)
The comparisons gradually improved each week from spring into summer, enough so that they turned neutral. In late autumn and winter there was a retrenchment, enough to change the rating to negative, but in the past month there has been a recovery back to neutral, and for the past three weeks very slightly to positive.
Consumer spending
- Johnson Redbook up +9.8% YoY (Best +9.8% this week)
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.
Transport
Railroads (from the AAR)
- Carloads up +6.0% YoY (Best this week)
- Intermodal units up +25.8% YoY (Best this week)
- Total loads up +16.1% YoY (Best this week)
(Graph at Railfax Report - North American Rail Freight Traffic Carloading Report)
Shipping transport
- Harpex up +38 to 1,492 (412-1492) (new 10 year high) Harper Petersen & Co
- Baltic Dry Index down -100 to 2072 (393-2,215) (graph at link)
Since the pandemic started, rail carloads have turned positive several times, including this week. Intermodal has generally been positive for several months. Total rail carloads has also been generally positive for about 4 months. Total rail traffic is also exceeding 2019's pre-pandemic levels.
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. Ten 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 ( American Iron and Steel Institute) (no report this week)
- Down -0.5% w/w
- Up +0.7% YoY (Best this week)
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. In the last two reports, for the first time since one year ago, it is positive.
Summary And Conclusion
Note that YoY comparisons are now against the worst ones of the pandemic, making straight YoY comparisons, although frequently unavoidable, of little use. As much as possible I am relying on seasonally adjusted measurements, or comparisons with 2019.
Among coincident indicators, "everything" - the un-adjusted Chicago Fed Financial Index, the TED spread, LIBOR, Redbook consumer spending, tax withholding, Harpex, rail traffic, the BDI, restaurant reservations, steel, and the Fed Weekly Economic Index - remained positive for the second week in a row. There are no neutrals or negatives.
Among the short leading indicators, staffing, stock prices, the regional Fed new orders indexes, weekly jobless claims, 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 gas usage. Gas and oil prices have turned negative.
Interest rates remain the story among the long leading indicators. Nevertheless two out of three measures of the yield curve, the Adjusted Chicago Financial Conditions Index and Leverage subindex remain positives. Mortgage rates, purchase mortgage applications and refinancing, the 2 year Treasury minus Fed funds yield spread, corporate profits, and corporate bonds are neutral. US Treasuries and real estate loans are negative.
The story of 2021 is that the most extreme monetary and fiscal environment since LBJ's "guns and butter" policy of 1966, plus now over 100 million American adults having been at least partially vaccinated, has set the stage for explosive growth in the short term.
The forecasting story for 2022 so far is that higher interest rates and steep rises in commodity and asset prices, particularly housing but also gasoline, may cause that growth to hit a wall, or at least to pause.
This article was written by
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