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 and 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.
March data included a rebound in new home sales, but a decline in existing home sales. Based primarily on big positive moves in the ISM manufacturing index and initial jobless claims, the Index of Leading Indicators jumped by more than 1%.
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.
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)
Corporate bonds spiked to near 5 year highs early in 2020, but subsequently made a series of multi-decade lows. Several weeks ago, they increased to the middle of that range, and so changed to neutral, but they have now declined back enough to become positive again.
Treasury bonds yields have recently 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.
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 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. With applications returning above 290, their rating changes back from negative to neutral. Refi is also down substantially from recent highs to 12 month+ lows and is also enough to turn them 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 several weeks ago turned negative.
Very regrettably, the Federal Reserve has discontinued this weekly series. Data will only be released monthly. February data, released three weeks ago, indicated:
Corporate profits (estimated and actual S&P 500 earnings from I/B/E/S via FactSet at p. 25)
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.
With the slight downturn in Q1, earnings are neutral.
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. 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.
Trade weighted US$
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 extremely positive.
Stock prices S&P 500 (from CNBC) (graph at link)
There have been repeated recent 3 month highs, including one week ago, so this metric remains positive.
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. 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.
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. After briefly weakening this winter to negative, they gradually reverted to neutral and then positive, and are now very 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 since February. It is about -1 below its reading at this time in 2019.
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. This report has been positive since the beginning of 2021. Unfortunately, like many other reports, the YoY comparisons are temporarily much less reliable. They should become more reliable again once we get into June.
Oil prices and usage (from the E.I.A.)
(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 earlier this year were near the -10% YoY range. YoY comparisons will not become useful again until June. Usage has improved to better than 8.5 million, so has become positive.
Bank lending rates
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.
St. Louis FRED Weekly Economic Index
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. This metric will become more meaningful once we get into the third quarter.
Restaurant reservations YoY (from Open Table)
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 four weeks, very slightly to positive.
Last April the bottom fell out in the Redbook index. It has remained positive almost without exception since the beginning of this year.
Railroads (from the AAR)
(Graph at Railfax Report - North American Rail Freight Traffic Carloading Report)
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 slightly lower (by about 2%) 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. Early this year it fell back to neutral, but needless to say now is very 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)
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 month, for the first time since one year ago, it has been positive.
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 - are positive for the fifth 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, gas usage, and the spread between corporate and Treasury bonds are positives. Gas and oil prices are negative (whereas big positive YoY comparisons in commodities generally mean strength, in gas prices they mean that consumers are going to be "relatively" pinched).
Due to increased interest rates, among the long leading indicators, refinancing, US Treasuries, and real estate loans are negative. Two out of three measures of the yield curve, the Adjusted Chicago Financial Conditions Index and Leverage subindex, and corporate bonds are positive. Corporate profits, mortgage rates, mortgage applications, and the 2 year Treasury minus Fed funds yield spread are neutral.
Next week I expect the Q1 GDP report to confirm that we are in a Boom, fueled by mass vaccinations, plus the most extreme monetary and fiscal environment since LBJ's "guns and butter" policy of 1966. The very positive short leading indicators suggest this torrid growth will likely continue for several more quarters.
The question for 2022 is whether and by how much higher interest rates and steep rises house prices and gasoline will bring that growth down. So far the long leading indicators suggest that at least in the first part of the year, any slowdown will not be enough to halt growth.
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