Saturday, September 7, 2013

Weekly Indicators: paradigm shift edition

 - by New Deal democrat

Month over month July and August data was actually quite positive. Jobs were up, the unemployment rate was down, average hours worked and average hourly pay were up. Vehicle sales made a new nearly 6 year high and returned to their pre-recession normal range. Both the manufacturing and services ISM indexes were positive and improved. Construction spending for all sectors except public construction was up. Productivity was up. Unit labor costs were unchanged. Only factory orders were negative, as were the significant downward revisions to the June and July jobs reports, and the fact that a significant increase in people simply left the labor market.

Given the decidely mixed message of the August jobs report, let's start this edition of the high frequency weekly indicators by looking at our other measures of employment:

Employment metrics

Initial jobless claims
  • 323,000 down -8,000

  • 4 week average 328,500 down -2750

The American Staffing Association Index was steady at 97. It is up +4.5% YoY

Tax Withholding
  • $154.6 B for the month of August vs. $145.5 B last year, up +9.1 B or +6.2%

  • $146.2 B for the last 20 reporting days vs. $131.4 B last year, up +15.8 B or +11.3%

Initial claims remain firmly in a normal expansionary mode. Like each of the last three years that this same, a good, downside breakout has occurred.

Temporary staffing had been flat to negative YoY for a few months, but has now also broken out positively. Tax withholding, on the other hand, had a relatively poor August.

Steel production from the American Iron and Steel Institute
  • -0.3% w/w

  • -2.2% YoY

Steel production over the last several years has been, and appears to still be, in a decelerating uptrend. Obviously there is some noise in the weekly numbers. It has been negative YoY for the last 3 weeks, and year to date, is running -4.0% YoY.

Consumer spending The impact of what I suspect was simply a bad sample group at Gallup appears to have receded. Its 14 day average of consumer spending is once again very positive. The ICSC varied between +1.5% and +4.5% YoY in 2012, while Johnson Redbook was generally below +3%. The ICSC has been weakening and this week was even weaker, but Johnson Redbook remains at the high end of its range, and has actually been improving.

Oil prices and usage
  • Oil up +2.88 to $110.53 w/w

  • Gas up +$0.06 at $3.61 w/w

  • Usage 4 week average YoY down -0.3%
The price of Oil hit a new 2 year high. The 4 week average for gas usage was negative, for the first time after eight straight weeks of being up YoY.

Interest rates and credit spreads
  • 5.40% BAA corporate bonds down -0.15%

  • 2.76% 10 year treasury bonds down -0.05%

  • 2.64% credit spread between corporates and treasuries down -0.02%
Interest rates for corporate bonds had been falling since being just above 6% in January 2011, hitting a low of 4.46% in November 2012. Treasuries fell to a possible once-in-a-lifetime low of 1.47% in July 2012, and have decisively risen more than 1% above that mark. Spreads, however, made a new 2 year low this week. Their recent high was over 3.4% in June 2011.

Housing metrics

Mortgage applications from the Mortgage Bankers Association:
  • -4% w/w purchase applications

  • +6% YoY purchase applications

  • +2% w/w refinance applications
Refinancing applications have decreased sharply in the last 4 months due to higher interest rates, declining by more than 50% in total, and are now just about as bad as they have been at any point in the last 7 years. Purchase applications have also declined from their multiyear highs in April, but are still slightly up YoY.

Housing prices
  • YoY this week +10.8%
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 remains near a 7 year record.

Real estate loans, from the FRB H8 report:
  • -3 or +0.1% w/w

  • unchanged YoY

  • +1.3% from its bottom
Loans turned up at the end of 2011 and averaged about 1% gains YoY through most of 2012.  Over the last few months, the comparisons have completely stalled.

Money supply

  • +1.1% w/w

  • -1.0% m/m

  • +7.0% YoY Real M1

  • +0.3% w/w

  • +0.2% m/m

  • +4.6% YoY Real M2
Real M1 made a YoY high of about 20% in January 2012 and decelerated since then. Earlier this year it increased again but this week remained near its new 2 year low established last week (although it is still positive).  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, then stabilized, but has declined again in the past several months.


Railroad transport from the AAR
  • +8900 carloads up +3.1% YoY

  • +8000 carloads or +4.9% ex-coal

  • +10,500 or +4.2% intermodal units

  • +19,500 or +3.6% YoY total loads
Shipping transport Rail transport had been both positive and negative YoY during midyear, but this week was the fourth positive week in a row since then, and the most positive showing in a long time. The Harpex index had been improving slowly from its January 1 low of 352, but then flattened out for 9 weeks before making a new 52 week high several weeks ago. The Baltic Dry Index has rebounded to make yet another 18 month high. In the larger picture, both the Baltic Dry Index and the Harpex declined sharply since the onset of the recession, and have been in a range near their bottom for about 2 years, but stopped falling earlier this year, and now seem to be in an uptrend.

Bank lending rates The TED spread is still near the low end of its 3 year range, although it has risen slightly in the last couple of months.  LIBOR established yet another new 3 year low intraweek at 0.180%.

JoC ECRI Commodity prices
  • down -0.56 to 123.50 w/w

  • +1.04 YoY

It helps to visualize the economy as moving like a snake or congested rush hour traffic. Different sections are stopped, or are moving forward, or are shifting directions, simultaneously, but all together create a coordinated movement. Similarly, in looking at the economy, the forward-most section is the long leading indicators, followed by the short leading indicators, followed by the coincident indicators, followed by the lagging indicators.

The long leading indicators look, frankly, like they want to roll over. Interest rates are negative, housing is turning negative, money supply is decelerating, and I suspect that despite their stellar Q2, corporate profits are decelerating as well.

Meanwhile the shorter leading indicators of initial jobless claims, vehicle sales, interest rate spreads, and the ISM manufacturing indexes all look positive, as does the ISM manufacturing index, although, contrarily, factory orders are negative. Temporary employment is up. The manufacturing workweek improved. Construction is positive. Stocks are neutral, however, and the choke collar of higher oil prices has engaged. Commodities as a whole have turned neutral.

The coincident indicators hit a soft patch, but some of these too look like they might break out positively. Rail traffic, which had been a real concern, has broken to the upside, as has shipping. Consumer spending is holding up well. Bank lending rates are at or near their lows. On the other hand, tax withholding is near its lows for the year. Steel production is negative.

Finally, the important lagging indicator of the unemployment rate is declining, but not for a good reason this month.

Putting the picture together, the economy may have nearly stalled in the last few months, but looks like it is ready to pick up steam again for the rest of the year, Washington willing. As we look further forward into 2014, much more caution is warranted.

Have a nice weekend.