Saturday, June 15, 2013

Weekly Indicators: interest rates warning edition

 - by New Deal democrat

May monthly data reported this past week included industrial production, which was flat, and capacity utilization, which declined. Retail sales, on the other hand, increased sharply again. Producer prices increased, due mainly to gasoline. Consumer confidence as to the present declined, but future expectations, a leading indicator, increased significantly.

Let's start this week's look at the high frequency weekly indicators with the recent activity in interest rates:

Interest rates and credit spreads
  •  4.99% BAA corporate bonds up +0.09%

  • 2.12% 10 year treasury bonds down -0.02%

  • 2.87% credit spread between corporates and treasuries up +0.11%
Interest rates for corporate bonds had generally been falling since being just above 6% in January 2011, hitting a low of 4.46% in November 2012. Treasuries established a 2% high in late 2011, falling to a low of 1.47% in July 2012. Spreads have varied between a high over 3.4% in June 2011 to a low under 2.75% in October 2012. In the last month interest rates have backed up steeply, but until the last two weeks spreads were falling to almost a new low.

Employment metrics

American Staffing Association Index
  • 92 unchanged w/w, down -0.1% YoY
Initial jobless claims
  •   334,000 down -12,000

  •   4 week average 345,250 down -7250
Tax Withholding
  • $70.7 B for the first 9 days of June vs. $67.0 B last year, up +3.7 B or +5.5%

  • $146.4 B for the last 20 reporting days vs. $136.9 B last year, up $9.5 B or +6.9%
In the last month, the ASA has deteriorated to being negative compared with last year. After having a great 20-day comparison two weeks ago, for the second time in a row this week tax withholding had close to its worst YoY comparison in several months. Initial claims remain within their recent range of between 325,000 to 375,000.


Railroad transport from the AAR
  • -7800 or -2.8% carloads YoY

  • +100 or +0.1% carloads ex-coal

  • +6300 or +2.5% intermodal units

  • -1600 or -0.3% YoY total loads
Shipping transport Rail transport has had four negative weeks in the last several months. This week was mixed.  The Harpex index has been improving slowly from its January 1 low of 352. The Baltic Dry Index remains above its recent low and increased smartly this week.

Consumer spending Gallup's YoY comparisons remain extremely positive, as they have been for the last half a year.  The ICSC varied between +1.5% and +4.5% YoY in 2012, while Johnson Redbook was generally below +3%.

Housing metrics

Housing prices
  • YoY this week +7.2%
Housing prices bottomed at the end of November 2011 on Housing Tracker, and averaged an increase of +2.0% to +2.5% YoY during 2012. This weeks's YoY increase made yet another 6 year record.

Real estate loans, from the FRB H8 report:
  • -0.2% w/w

  • up +0.1% YoY

  • +2.3% from its bottom
Loans turned up at the end of 2011 and averaged about 1% gains YoY through most of 2012.  In the last several months the comparisons have completely stalled.

Mortgage applications from the Mortgage Bankers Association:
  • +5% w/w purchase applications

  • +6% YoY purchase applications

  • +5% w/w refinance applications
Although they rose this week, refinancing applications have decreased sharply in the last month due to higher interest rates, but purchase applications continue their slightly rising trend established earlier this year.

Money supply

  • +3.4% w/w

  • +1.2% m/m

  • +12.6% YoY Real M1

  • +0.2% w/w

  • +0.3% m/m

  • +5.9% YoY Real M2
Real M1 made a YoY high of about 20% in January 2012 and had generally been easing off since, but recently has increased again.  Real M2 also made a YoY high of about 10.5% in January 2012.  Its subsequent low was 4.5% in August 2012. It has increased slightly in the last few months and has stabilized since.

Oil prices and usage
  •  Oil $97.85 up $1.82 w/w

  • Gas $3.66 up +$0.01 w/w

  • Usage 4 week average YoY -0.4%
The price of a gallon of gas, after declining sharply in March and April, rose again in May, and has steadied in the last couple of weeks. The 4 week average for gas usage remained slightly negative.

Bank lending rates The TED spread is still near the low end of its 3 year range.  LIBOR has made a 3 year low.

JoC ECRI Commodity prices
  • down -1.37 to 123.45 w/w

  • +7.03 YoY
This week we again have the pattern of gradual deterioration that began in February. But checking one year ago today, I see that we were in the midst of our summer swoon, nearly at contraction. This week indicators were certainly mixed but not flashing any imminent danger signs.

Once again temp staffing is becoming a larger concern as it declined again and remains below last year's rate. This week it was joined by the worst possible combination of interest rate moves - declining treasury rates vs. increasing corporate rates - which is what I would expect to see on the cusp of a recession. Because spreads were neear 12 month lows in the last few weeks, we don't have that signal yet. Real estate loans and commodities were neutral. Gas usage remains negative but may continue to reflect increased efficiency. Gas prices increased significantly but we haven't moved into a constrictive price range yet. This week like last week tax withholding had its worst comparison in months. Rail was mixed, up or down slightly depending on whether you include or exclude coal shipments.

The biggest positive remains very strong consumer spending. Jobless claims remain positive as well. More positives included house prices, YoY purchase mortgage applications, money supply, and overnight bank rates.

For the third week in a row, the message for me remains that if the data were actually rolling over, I would want to see a sustained increase in jobless claims and a sustained deterioration in consumer spending. That still isn't happening.

Have a nice weekend.