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.
June data included the biggest increase in CPI in over a decade, plus a big increase in PPI as well. Industrial production and capacity utilization both increased. Nominal retail sales increased, but real sales after inflation decreased. Consumer sentiment and expectations as measured by the U. of Michigan both decreased.
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 am continuing to post the best readings during the pandemic in parentheses after the current week's number.
Regrettably, I have had to restart measuring the increase in new cases, now more than doubled from their low of 11,300 only 25 days ago. This is unchecked exponential spread among the unvaccinated 40%+ of the US population. I will have further comments in the conclusion section below.
Hospitalizations and deaths have also increased. Progress in newly vaccinated people has all but stopped, and full vaccinations have also slowed greatly. The 7-day average of vaccinations dropped by 3/4s from its peak in April.
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 made a series of multi-decade lows in 2020. Early this year, they increased to the middle of that range, and so changed to neutral, but have declined back to positive.
Treasury bonds yields recently made 1 year highs and were near the middle of their 5 year range. Typically it takes a 1% or more increase in rates to substantially impact the housing market. After doing so for many months, a month ago they declined enough to warrant a change of rating to neutral. This week they declined further, out of the middle of their range sufficiently to warrant a change of rating to positive. Mortgage rates have varied between neutral and positive, and also declined back to positive again this week.
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 remain very 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)
After soaring last year, purchase mortgage applications have declined to 2 year lows due to higher interest rates (and probably housing unaffordability as well). With applications below 290, their rating has changed to negative. Refi is also down substantially from recent highs, and recently made a 24 month low, and is also enough to turn them negative.
From 2018 until late in 2020 real estate loans with few brief exceptions stayed positive. Since early this year they turned neutral, and then negative.
The Federal Reserve has discontinued this weekly series. Data is now only released monthly. May data was released three weeks ago:
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 big upturn in Q1, earnings were solidly positive. Anticipated Q2 earnings are still sufficiently negative to change the averaged reading to 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.
Economic Indicators from Jeff Miller's "Weighing the Week Ahead"
The Miller Score is designed to look 52 weeks ahead for whether or not a recession is possible. Any score over 500 means no recession. This week's number is therefore a positive.
The St. Louis Financial Stress index is one where a negative score is a positive for the economy, and during its limited existence, has risen above zero before a recession by less than one year. Thus the present reading is also a positive for the economy.
Trade weighted US$
Both measures of the US$ were negative for 2 months right after the pandemic started in 2020. In late spring 2020 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 extremely positive.
Stock prices S&P 500 (from CNBC) (graph at link)
There have been repeated all time highs, including earlier this week, so this metric is 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. These have been extremely positive since June 2020 with the exception of last November and December, and are still very positive although not as high as several months ago.
Initial jobless claims
(Graph at St. Louis FRED)
New claims made a pandemic low in November, rose through February, but have declined to repeated new pandemic lows since then, including this week, and are thus very positive.
Temporary staffing index (from the American Staffing Association) (graph at link)
This index turned plummeted beginning in March 2020. It gradually improved to "less awful," then neutral at the turn of the year, and positive since February. It is about 9% higher than its reading at this time in 2019, which included the July 4 holiday.
Tax Withholding (from the Dept. of the Treasury)
YoY comparisons turned firmly negative in April 2020. The report turned positive in the beginning of 2021. Unfortunately, like many other reports, the YoY comparisons have temporarily been much less reliable. They are gradually becoming more reliable again.
Oil prices and usage (from the E.I.A.)
(Graphs at This Week In Petroleum Gasoline Section - U.S. Energy Information Administration (EIA))
At 6+ year highs, gas prices are a firm negative. Oil prices are also now in the upper portion of their 5 year range, and so have turned into a slight negative. Usage turned very negative in April 2020, 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 are gradually becoming more useful. Usage has improved to better than 8.5 million, and hit a record over 10 million this week, so is 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 precipitously, and are now very 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 recent big positive numbers were in comparison to the pandemic shutdown of March and April 2020. This metric is gradually becoming more meaningful now that we are into the third quarter.
Restaurant reservations YoY (from Open Table)
The comparison year for this metric is 2019 and not 2020. Compared with the depths of the pandemic, in the past five months there has been a recovery back to neutral, and since the beginning of spring, positive (note: a slightly negative rating YoY qualifies as positive, since the measure is the range of readings in the past year).
In April 2020 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 about 15% lower than 2019's pre-pandemic levels for the same week, which did not include July 4. It is slightly "higher" than the prior week in 2019, which did include July 4.
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) (no report this week)
The bottom in production fell out in April 2020. There was slow but continuing improvement since then, and finally five months ago it improved enough to be rated neutral. Since the end of March, against terrible comparisons, it has been positive.
Below are this week's spreadsheets of the long leading, short leading, and coincident readings. Check marks indicate the present reading. If there has been a change this week, the prior reading is marked with an X:
|Long leading Indicators||Positive||Neutral||Negative|
|10 year Treasury||✓|
|10 yr-2 yr Treasury||✓|
|10 yr-3mo Treasury||✓|
|2 Yr Treasury-Fedfunds||✓|
|Purchase Mtg. Apps.||✓|
|Refi Mtg Apps.||✓|
|Real Estate Loans||✓|
|Adj. Fin. Conditions Ind.||✓|
|Short Leading Indicators||Positive||Neutral||Negative|
|St. L. Fin. Stress Index||✓|
|US$ Major currencies||✓|
|Regional Fed New Orders||✓|
|Initial jobless claims||✓|
|Weekly Econ. Index||✓|
|Financial Cond. Index||✓|
The decline in interest rates has made the long term forecast more positive than recently while the short term forecast and coincident nowcast remain very positive. The picture painted by the indicators remains that of a supply-constrained Boom, including the inflation caused by those constrictions.
But the indicators can be swept aside by an outside force - as exemplified by the pandemic and the lockdowns instituted in response in March and April 2020. I believe I must now sound the alarm that, for the first time since then, we again have uncontrolled exponential spread of the "Delta variant" of the virus. On the one hand, this variant is more infectious than the original virus and strikes harder at younger people. On the other hand, over 1/2 of the population has been vaccinated, including 80% of the most vulnerable age group, senior citizens.
Using the UK as a bellwether, it appears likely that, if the spread continues unchecked, we will average something like 70,000 cases per day within a month, and deaths will increase back to near 1,000 per day. But while the virus - essentially a parasitic copy machine - is not difficult for specialists to model, human reactions to the virus - and human reactions to the forecasts of modelers themselves - are fiendishly difficult to model.
Today Los Angeles and Las Vegas reinstituted mask mandates. How many more restrictions will be reintroduced, and how quickly? Since the group most at risk is the group that most distrusts experts, how much will they respond? Last year panic set in in spring, in late summer, and during the winter outbreaks. At some point even without new restrictions, panic will set in sufficiently that economic activity by the 40%+ of unvaccinated Americans will slow down or reverse.
So I am sounding the alarm that the economic situation looks likely to change very rapidly. But just how quickly and how drastically it changes is almost impossible to guess.
This article was written by
Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.