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.
August data included a decline in housing permits and existing home sales, but an increase in housing starts.
30-Year conventional mortgage rate (from Mortgage News Daily) (graph at link)
Corporate bonds are at the top of their 10 year range, so negative. Treasury bonds and mortgage rates are also at 10 year peaks, so their rating is also negative.
The spread between corporate bonds and Treasuries remains positive. The yield curve at the important 2 to 10 year level remains inverted - at one of the worst levels since 2000 - so is negative. The 3 month-10 year spread has varied between neutral and positive for the last two months, and was positive again this week.
Mortgage applications (from the Mortgage Bankers Association)
*(SA) = seasonally adjusted, (NSA) = not seasonally adjusted
(Graph at Yardeni)
Real Estate Loans (from the FRB)
The highest mortgage rates in 12 years killed both purchase and refinance mortgage applications, the four week averages of which continue at or close to 6 and 20 year lows, respectively. We have seen this feed into all of the monthly housing sales and construction reports, and in the past several months, into prices, which very likely peaked during the summer.
From 2018 until late in 2020 real estate loans with few brief exceptions stayed positive. Earlier last year they varied between neutral and negative, but for the past several months have been very positive. This is being helped by inflation in house prices; thus the turn in the indicator will be when that cools.
The Federal Reserve has discontinued this weekly series. Data is now only released monthly. July data was released four weeks ago:
No recession has happened without a YoY real M1 negative, or YoY real M2 below +2.5%. Real M2 fell below that threshold in March. Real M1 also turned negative as of May.
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. Now that Q3 is included, the average is +1.7, which turns this indicator from positive to neutral.
In these indexes, lower = better for the economy. 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. Leverage is at its highest since the Great Recession, obviously very negative.
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 number fell below that threshold at the beginning of August 2021, so not only is it negative, but we are now in the "recession eligible" time period.
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 strong positive for the economy.
In early 2021, both the broad rating and the USD against major currencies turned higher YoY, and so changed to neutral. With both measures now well above +5% YoY, these ratings are negative.
Bloomberg Commodity Index
Bloomberg Industrial metals ETF (from Bloomberg) (graph at link)
During the Boom last year, commodity prices soared, and total commodities were very positive. This week total commodities (which include oil) declined to the middle 1/3rd of their range, so they remain turned neutral. The decline in industrial metals has put that indicator near the bottom 1/3rd of its 52 week range, so a negative.
Since January 3 of this year, there have been ongoing new 3 month and even 1 year lows, and no 3 month highs, so this indicator has been a negative - until four weeks ago, when stocks made a new 3 month high. Since in the past 3 months we have had both, this indicator has switched to neutral.
(*indicates report this week) (no reports this week)
The regional average is more volatile than the ISM manufacturing index, but usually correctly forecasts its month-over-month direction. These had usually been extremely positive ever since June 2020, but in the last several months have fallen, and precipitously so in the past three months. The indicator having fallen below -5, it turned negative.
Initial jobless claims
(Graph at St. Louis FRED)
New claims made new all-time lows on a 4 week average in April. Once this metric failed to make a new 3 month low, its rating has changed to neutral. It will not turn negative unless and until the 4 week average is higher YoY. In the past five weeks it reversed its recent negative trend.
Temporary staffing index (from the American Staffing Association) (graph at link)
This gradually improved to neutral at the beginning of 2021, and positive since then.
Tax Withholding (from the Dept. of the Treasury)
YoY comparisons turned positive in the beginning of 2021, and have remained that way almost every week since. The YoY% change fell below 5% several times in the past several months, making it a neutral, but then it once again rebounded. For last three weeks it has been negative YoY, but returned to neutral this week.
Gas prices are now in the bottom 1/3rd of their 3 year range, and so have turned all the way to positive. Oil has rebounded a little in the past several weeks, but is in the middle of its 3 year range, and so it remains neutral.
With the big decline in gas prices, I expect that at least in terms of mileage driven, usage will turn more neutral. It obviously hasn't yet, but the YoY comparisons have stopped deteriorating and have improved a little.
In the interest of transparency, note I have decided that with gas and oil prices so volatile in the past 12 months, the best measure is against their 3 year average. If I continued to measure by 1 year, they would both be positive.
TED was above 0.50 before both the 2001 and 2008 recessions. Since early 2019 the TED spread had remained positive, except the worst of the coronavirus downturn, until earlier this spring. Since a little over a month ago it has been generally declining towards or into the neutral range. Last week it has declined all the way back to positive, but increased to neutral again 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. After a very positive 2021, it declined to less than half its best YoY level, thus changing to neutral.
The comparison year for this metric is 2019 and not 2021. This year the metric gradually improved to neutral, and last week, went positive. But this week the comparison changes back to neutral.
Note I am now measuring its 7 day average to avoid daily whipsaws.
In April 2020 the bottom fell out in the Redbook index. It has remained positive almost without exception since the beginning of 2021.
Rail carloads turned positive early in 2021, before gradually fading to negative from August through the end of the year and the beginning of this year. The total loads index has been consistently negative for the past four months. In the past two months, with both carloads and total loads turning positive, rail turned neutral, and last week positive, but declined to neutral again this week.
Harpex increased to near record highs again earlier this year, but has since backed off. BDI has traced a similar trajectory, warranting a change to negative.
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.
Since the end of March 2021, against terrible comparisons, this metric had been positive, typically running at a double digits higher YoY percentage growth. This spring, after almost continuous deterioration, it turned negative, and has remained so.
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 Index||✓|
|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||✓|
All of the changes this week were among the coincident indicators, which were mixed. Overall interest rates continued to increase, while gas prices and commodities in general continued to fall.
The long leading forecast continues to be very negative. The short term forecast is only slightly negative. The nowcast has also turned negative.
I will repeat what I said last week: the consumer has been given a second wind by gas prices completely unwinding their Ukraine war spike. Once that ends, I anticipate that the underlying fundamentals - and they are quite negative - will reassert themselves.
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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.