Saturday, June 29, 2013

Weekly Indicators: one year into ECRI's recession edition

 - by New Deal democrat

According to ECRI, tomorrow will mark the end of the first year of a recession. During that time, GDP, real consumer spending, real incomes, industrial production, and employment have all risen (perhaps explaining why there hasn't been an update to their "telltale chart" in over half a year). Turning to May monthly data, last week only the Chicago PMI was down, to a point just slightly into expansion. All the other monthy data was positive: personal income, spending, savings, durable goods, consumer sentiment, Case-Shiller house prices, and new home sales.

Turning to the high frequency weekly indicators, last week I noted that two of the long leading indicators, interest rates and mortgage applications, had turned negative, while money supply remained positive. That pattern modified a little this week:

Interest rates and credit spreads
  •  5.11% BAA corporate bonds up +0.12%

  • 2.33% 10 year treasury bonds up +0.13%

  • 2.90% credit spread between corporates and treasuries down -0.01%
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 previously were at a 2.4% high in late 2011, falling to a low of 1.47% in July 2012, but have retreated back to that high. Spreads have varied between a high over 3.4% in June 2011 to a low under 2.75% in October 2012. After being close to that low 6 weeks ago, interest rates have backed up significantly.

Housing metrics

Mortgage applications from the Mortgage Bankers Association:
  • +2% w/w purchase applications

  • +16% YoY purchase applications

  • -5% w/w refinance applications
Refinancing applications have decreased sharply in the last month due to higher interest rates. Purchase applications have also declined from recent highs, although they continue their slightly rising YoY trend established earlier this year.

Housing prices
  • YoY this week +7.9%
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 remained close to their new 6 year record.

Real estate loans, from the FRB H8 report:
  • unchanged w/w

  • up +0.9% YoY

  • +2.7% 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, although this week was positive.

Money supply

  • -0.6% w/w

  • +1.8% m/m

  • +8.9% YoY Real M1

  • unchanged w/w

  • -0.5% m/m

  • +5.4% 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 increased slightly in the first few months of this year and has stabilized since.

Employment metrics

American Staffing Association Index
  • 93 unchanged w/w, unchanged YoY
Initial jobless claims
  •   346,000 down -8,000

  •   4 week average 345,750 down -2500
Tax Withholding
  • $143.1 B for the first 19 days of June vs. $132.0 B last year, up +$11.1 B or +8.4%

  • $148.1 B for the last 20 reporting days vs. $139.4 B last year, up $8.7 B or +6.2
In the last two months, the ASA has deteriorated to being flat or negative compared with last year. Daily tax withholding was relatively weak compared with its YoY average comparison in the last 5 months, but has improved from early in June. Initial claims remain within their recent range of between 325,000 to 375,000, and have flattened out just as they have in the last 3 springs and summers.


Railroad transport from the AAR
  • unchanged carloads YoY

  • +3100 carloads or +1.8% ex-coal

  • +6600 or +2.7% intermodal units

  • +6400 or +1.2% YoY total loads
Shipping transport Rail transport has been both positive and negative YoY in the last several months. This week it was positive again. The Harpex index has been improving slowly from its January 1 low of 352, although it declined slightly this week. The Baltic Dry Index increased sharply for the second week in a row and is at a 52 week high.

Consumer spending Gallup's YoY comparisons have extremely positive, as they have been since last December. The were slightly weaker than usual this week compared to that standard, but still very positive.  The ICSC varied between +1.5% and +4.5% YoY in 2012, while Johnson Redbook was generally below +3%. The ICSC was below the lower part of that range this week, but Johnson Redbook has been close to the high end of its range.

Oil prices and usage
  •  Oil $96.56 up +$2.87 w/w

  • Gas $3.57 down -$0.06 w/w

  • Usage 4 week average YoY -0.3%
The price of a gallon of gas steadied in early June and has declined sharply for the last two weeks, although it is not as low as it was at the end of April. The 4 week average for gas usage remained slightly negative.

Bank lending rates The TED spread is still at the low end of its 3 year range.  LIBOR returned to its new 3 year low established two weeks ago.

JoC ECRI Commodity prices
  • down 0.53 to 120.75 w/w

  • +5.43 YoY
As indicated at the beginning of this article, this week saw the continuing spike in interest rates. Purchase mortgages were up for the week, but refinancing activity is dying. The third long leading indicator, real money supply remains positive. The only other outright negative indicator once again this week was temporary staffing, which has been problematic for going on two months.

Consumer spending remained positive, but less so than recently. More positives included house prices, YoY purchase mortgage applications, overnight bank rates, both rail and shipping transport. Weak positives included jobless claims, tax withholding, and real estate loans. Gas prices and commodity prices rate as neutrals this week.

My conclusion this week is the same as last week: the sharp rise in interest rates is definitely of concern, but it hasn't lasted long enough to seriously signal a recession next year. Housing is weakening but still positive. In terms of coincident indicators of the economy, consumer spending and initial jobless claims, while trending more weakly positve and sideways, respectively, for the last month or so, show no signs of rolling over.

Have a nice weekend.