- 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.
- While all three time frames remain positive, there are changes affecting interest rates, the US$ and commodity prices.
- Bond investors appear to be increasingly convinced that the Fed will be raising rates.
- Meanwhile, commodity prices are roiled in conflicting directions, and a newly stronger US$ can negatively impact trade.
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
November data began with a lackluster establishment jobs report, at less than 300,000 jobs added, but a blockbuster households jobs report, with unemployment falling to 4.2% and underemployment to 7.8%. Both the ISM manufacturing and non-manufacturing reports continued strongly positive.
October data included construction spending, which increased slightly, while the leading residential component decreased. Factory orders were positive. Consumer sentiment as measured by the Conference Board deteriorated further.
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.
Coronavirus Vaccinations and Cases
- At least 1 dose administered: 234.7m, up 3.3m w/w (83.1% of population age 18+)
- Fully vaccinated*: 198.2m, up +2.0m (71.4% of population age 18+)
- *not counting booster shots
Vaccinations of adults have been crawling up at a snail's pace for the last five months. The total percent of Americans has increased substantially only because teens and then younger children were cleared to take the vaccines.
Long leading indicators
Interest rates and credit spreads
- BAA corporate bond index 3.24%, down -0.16 w/w (1-yr range: 3.13-5.15)
- 10-year Treasury bonds 1.37%, down -0.09% w/w (0.52-1.74)
- Credit spread 1.87%, down -0.05% w/w (1.65-4.31)
(Graph at FRED Graph | FRED | St. Louis Fed)
- 10 year minus 2 year: +0.70%, down -0.27% w/w (0.12 - 1.58)
- 10 year minus 3 month: +1.32%, down -0.11% w/w (-0.20 - 1.72)
- 2 year minus Fed funds: +0.52%, up +0.09 w/w
(Graph at FRED Graph | FRED | St. Louis Fed)
30-Year conventional mortgage rate (from Mortgage News Daily) (graph at link)
- 3.21%, down -.03% w/w (2.75-3.45)
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. There remains no concern about corporate ability to honor bond payments ahead.
Treasury bonds yields made 1-year highs in May at 1.74%, near the middle of their 5-year range, but they have declined enough toward the bottom end of that range to change back to positive. Mortgage rates have varied between neutral and positive and also have declined back to positive again. Corporate, Treasury, and mortgage rates are all still somnolent, if at least slightly above their lows - with one exception, which became more apparent this week: 2 year Treasury yields have increased significantly, even as longer term yields have declined somewhat. This is not a negative or even a neutral signal - yet. It is roughly equivalent to the situation near the end of 2016, as more and more people saw that the Fed would be raising rates soon.
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 are neutral.
Mortgage applications (from the Mortgage Bankers Association)
- Purchase apps up +5% w/w to 311 (184-349) (SA)
- Purchase apps 4 wk avg. up +10 to 293 (SA) (341 high Jan 29, low 251 Aug 20)
- Purchase apps YoY -8% (NSA)
- Purchase apps YoY 4 wk avg. -5.5% (NSA) (least negative reading in over 6 months)
- Refi apps down -15% w/w (SA) (22 month low)
- Refi apps YoY down -41% (SA)
*(SA) = seasonally adjusted, (NSA) = not seasonally adjusted
(Graph at here)
Real Estate Loans (from the FRB)
- Up +0.1% w/w
- Up +2.4% YoY (-1.3 - 5.2)
After soaring last year, earlier this year purchase mortgage applications declined to 2-year lows due to higher interest rates (and probably housing unaffordability as well). All measures are still within the middle 1/3rd of their 52-week range, so the rating remains neutral - and the purchase measure is near the top of that range. Refi, at 22 months' lows, remain negative.
From 2018 until late in 2020 real estate loans with few brief exceptions stayed positive. Earlier this year they varied between neutral and negative, but for the past eight weeks have returned to positive.
The Federal Reserve has discontinued this weekly series. Data is now only released monthly. October data was released last week:
- M1 m/m up +1.1%, YoY up +15.8%
- M2 m/m up +0.9%, YoY up +13.0%
- Q3 2021 actual, up +0.06 to 53.86, up +2.0% q/q
- Q4 2021 estimated, 51.04, down -5.2%
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.
Q3 earnings have so far come in well ahead of estimates, but are less than 3% above Q2, and the average of Q3 and Q4 is less than a 3% decline, so this metric is a neutral.
Credit conditions (from the Chicago Fed) (graph at link)
- Financial Conditions Index up +0.04 (less loose) to -0.59 (0.33 - -0.73)
- Adjusted Index (removing background economic conditions) up +.03 (less loose) to -0.64 (0.58 - -0.79)
- Leverage subindex unchanged (loose) at -0.18 (+0.66 - -0.36)
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 has been so close to zero now as to have changed from positive to neutral. If it declines below -0.25, it will change back to a positive.
Short leading indicators
Economic Indicators from the late Jeff Miller's "Weighing the Week Ahead"
- Miller Score (formerly "C-Score"): 293, up +8 w/w, down -43 m/m (278 on 11/19/21 - 1207 on 12/11/20)
- St. Louis Fed Financial Stress Index: up +0.2184 to -0.6440 (-1.1357 10/29.21)
- BCIp from Georg Vrba: unchanged at 100.0 iM's Business Cycle Index (100 is max value, below 25 is recession signal)
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. With this number having fallen below that threshold several months ago, this metric is now negative.
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$
- Up +1.30 to 116.93 w/w, +2.9% YoY (last week) (broad) (111.02 - 126.47) (Graph at Nominal Broad U.S. Dollar Index)
- Up +0.15 to 96.17 w/w, up +6.0% 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 2020, both improved to neutral, and then positive since last August. Over the past couple of months, both the broad rating and the USD against major currencies turned higher YoY, and so changed to neutral. This week the broad USD went above +5% YoY, and so has changed to negative.
Bloomberg Commodity Index
- Down -4.31 to 95.79 (78.29-106.44)
- Up +28.9% YoY (Best: +52.3% June 4)
Bloomberg Industrial metals ETF (from Bloomberg) (graph at link)
- 162.10, down -0.44 w/w (88.46-184.18)
- Up +22.4% YoY (Best +69.0% May 7)
Since April 2020 both industrial metals and the broader commodities indexes rebounded sharply. Both total and industrial commodities are extremely positive, with total commodities making new one-year highs within the past two months, before retreating in the past month. The broad commodity index has fallen enough to change to a neutral rating.
Stock prices S&P 500 (from CNBC) (graph at link)
- Down -1.2% to 4538.43
There have been repeated all-time highs, including four weeks ago, so this metric remains positive. (It would take a failure to make a new high within 90 days for this indicator to turn neutral).
Regional Fed New Orders Indexes
(*indicates report this week)
- Empire State up +4.5 to +28.8
- Philly up +16.6 to +47.4
- Richmond down -5 to +5
- Kansas City down -31 to -4
- *Dallas up +4.7 to +19.6
- Month-over-month rolling average: up +1 to +19
The regional average is more volatile than the ISM manufacturing index, but usually correctly forecasts its month-over-month direction. Until the past several months, these had been extremely positive since June 2020. But continued excellent surveys reversed that to very positive again.
Initial jobless claims
- 222,000, up +28,000 w/w
- 4-week average 238,750, down -12,250 w/w (new pandemic low)
(Graph at St. Louis FRED)
New claims have declined to repeated new pandemic lows since February. They remain very positive.
Temporary staffing index (from the American Staffing Association) (graph at link)
- Unchanged at 107 w/w
- Up +21.8% YoY (Best +57.4% May 21)
This index 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 10% higher than its reading at this time in 2019.
Tax Withholding (from the Dept. of the Treasury)
- $233.3 B for the last 20 reporting days vs. $190.8 B one year ago, up +$42.5 B or +22.3% (Best +37.6% April 30)
- $243.7 B for the month of November vs. $194.7 B one year ago, up +$49.0 B or +25.2%
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.)
- Oil down -$2.08 to $66.09 w/w, up +47.4% YoY (high of $84.65 Oct 26)
- Gas prices down -$.01 to $3.38 w/w, up $1.26 YoY ($3.41 6 year high Nov 11)
- Usage 4-week average up +10.6% YoY (Best +67.5% April 30)
- Usage down -0.3% vs. 2019 (Best +3.0% July 8)
While gas prices remain a firm negative, oil prices have declined to the middle part of their one year range, and so are now a neutral. As to gas usage, both 2020 and 2019 comparisons continue to be useful.
Bank lending rates
- 0.137 TED spread up +0.007 w/w (0.074-1.92) (graph at link)
- 0.104 LIBOR up +0.012 w/w (0.073-1.70) (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 declined precipitously, and although both have risen somewhat in the past several months, both are still positive.
St. Louis FRED Weekly Economic Index
- Up +0.68 to +7.65 w/w (Best +12.30 April 29)
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 numbers earlier this year were in comparison to the pandemic shutdown of March and April 2020. This metric is gradually becoming more meaningful now. Should it decline to less than half its best YoY level, or 6.15, this would trigger a rating change to neutral.
Restaurant reservations YoY (from Open Table)
- Nov 25 seven day average -3% YoY (Best +31% Oct 21)
- Dec 2 seven day average -9% YoY
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).
This was the very first weekly indicator to signal collapse when COVID and the ensuing lockdowns started in March 2020. For the past two days, it has been strongly positive. Note I am now measuring its 7-day average to avoid daily whipsaws. If this falls to -10 or below, that would make it a negative again.
- Johnson Redbook up +16.9% YoY (Best +19.4% July 8)
In April 2020 the bottom fell out in the Redbook index. It has remained positive almost without exception since the beginning of this year. There was never any perceptible change at all due to the Delta wave.
Railroads (from the AAR)
- Carloads up +1.6% YoY (Best +35.3% June 4)
- Intermodal units down -10.1% YoY (Best +38.3% April 23)
- Total loads down -4.8% YoY (Best +34.0% April 23)
- Harpex up +6 to 3751 (412-3999)
- Baltic Dry Index up +448 to 3115 (393-5650) (graph at link) (down almost -60% in the past 5 weeks)
Rail carloads turned positive earlier this year. Intermodal, reflecting trans-ocean shipping concerns, had generally been positive for several months, before turning back negative. After being generally positive for about 4 months, total traffic has also turned back negative. With the exception of July and August, in which it was better, total rail traffic has been roughly even compared with 2019's pre-pandemic levels for the same week; and it was so again this week. It has generally weakened vs. 2020 comparisons in the past 5 months.
Earlier this year, Harpex repeatedly rose to new multiyear highs, before leveling off in October. In the past few weeks, it has declined from that peak. Meanwhile, BDI traced a similar trajectory, repeatedly making new multi-year highs. But seven weeks ago it peaked, and fell over 50% since then, before stabilizing and then rebounding at a lower level in the past three weeks.
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)
- Down -1.3% w/w
- Up +13.3% YoY
The bottom in production fell out in April 2020. Since the end of March this year, against terrible comparisons, it has been positive.
Summary And Conclusion
Below are this week's spreadsheets of the long leading, short leading, and coincident readings. Checkmarks 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||X||✓|
|Regional Fed New Orders||✓|
|Initial jobless claims||✓|
|Weekly Econ. Index||✓|
|Financial Cond. Index||✓|
The long leading forecast remains positive, as low interest rates put a floor under housing, and credit provision is very accommodative. What has begun to change is that the 2-year Treasury yield is increasing, indicating investors expect the Fed to begin to raise rates (the Miller score has been suggesting this for months).
The short leading forecast also remains positive, but commodity prices and the strength of the US$ are in flux. Commodity prices have been weakening, suggesting the economy will follow, but the decline in oil prices offsets that. The US$ meanwhile is getting close to the point where it will negatively affect international US trade.
The coincident index remains generally strong, although it will be interesting to see if the new Omicron variant affects dining reservations. Seasonality is also very much in play from now until mid-January.
This article was written by
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