Saturday, October 5, 2013

Weekly Indicators: unaffected by government shutdown, but increasing concern about 2014 edition

 - by New Deal democrat

As we all know, the government shutdown prevented the reporting of nonfarm payrolls and the unemployment rate. The best we can do is extrapolate from the ADP report that in September probably enough jobs were added to account for the increase in population, plus a little more. The Chicago PMI and the ISM manufacturing index both improved. The ISM services index, however, decreased. Perhaps more significantly, motor vehicle sales decreased to a 5 month low.

Fortunately, none of the high frequency weekly indicators I report on were affected by the shutdown. Further, two years ago, during the debt ceiling debacle, it was consumer spening holding up that told me that the economy would not tip back into recession. Consumers may be behaving differently this time around, so let's start with that:

Consumer spending
This week, Gallup's 14 day average of consumer spending was the poorest this year. This was also the poorest week for absolute spending this year (although we need to be careful with that, since mid-autumn typically is weak). Last year the ICSC varied between +1.5% and +4.5% YoY in, while Johnson Redbook was generally below +3%. The ICSC improved this week vs. last week, but is still comparatively weak compared with the rest of 2013. Johnson Redbook, however, remains at the high end of its range, and has actually been improving.

Steel production from the American Iron and Steel Institute
  • -1.3%% w/w

  • +5.8%% YoY

Steel production over the last several years has been, and appears to still be, in a decelerating uptrend.


Railroad transport from the AAR
  • +1500 carloads down +0.5% YoY

  • +2800 carloads or +1.6% ex-coal

  • +7600 or +2.9% intermodal units

  • +7300 or +1.6% YoY total loads
Shipping transport
Rail transport had been very mixed YoY during midyear, but this week was the eighth straight positive week since then. The Harpex index had been improving slowly from its January 1 low of 352, but has generally flattened out for the last few months. The Baltic Dry Index has rebounded to a 3 year 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 are in uptrends.

Employment metrics

Initial jobless claims
  • 308,000 up +3,000

  • 4 week average 305,000 down -3000

The American Staffing Association Index was unchanged 100. It is up +5.8% YoY

Tax Withholding
  • $160.4 B for the month of September vs. $133.3 B last year, up +137.1 B or +20.3%

  • $148.5 B for the last 20 reporting days vs. $134.5 B last year, up +14.0 B or +10.4%

We can now estimate that after adjusting for state reporting glitches, the 4 week average was approximately 312,500. Jobless 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 in spring, but broke out positively for the last two months. The only time it has ever been higher was one week in 2006 and in the second half of 2007. Tax withholding, after a relatively poor August, is again posting better (but just average) comparisons.

Oil prices and usage
  • Oil up +$0.97 to $103.84 w/w

  • Gas down -$0.07 at $3.43 w/w

  • Usage 4 week average YoY up +0.8%
The price of Oil is still below its recent 2 year high. The 4 week average for gas usage is slightly positive again.

Interest rates and credit spreads
  • 5.37% BAA corporate bonds down -0.12%

  • 2.66% 10 year treasury bonds -0.13%

  • 2.71% credit spread between corporates and treasuries up +0.01%
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 about 1.5% above that mark. Spreads are slightly above a recent 2 year low. Their recent high was over 3.4% in June 2011.

Housing metrics

Mortgage applications from the Mortgage Bankers Association:
  • -6% w/w purchase applications

  • -3% YoY purchase applications

  • +3% w/w refinance applications
Refinancing applications have decreased sharply in the last 5 months due to higher interest rates. Purchase applications have also declined from their multiyear highs in April, and for the first time this week, turned negative YoY.

Housing prices
  • YoY this week +11.1%
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:
  • unchanged w/w

  • -0.2% YoY

  • +1.4% 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 stalled and now have turned negative.

Money supply

  • -0.6% w/w

  • +0.4% m/m

  • +6.8% YoY Real M1

  • +0.4% w/w

  • +0.5% m/m

  • +5.0% 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 it tied its new 2 year low from 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.

Bank lending rates
The TED spread decreased this week to near its 3 year range. LIBOR established yet another new 3 year low during this week.

JoC ECRI Commodity prices
  • down -0.45 to 123.31 w/w

  • -1.54 YoY

There were some slight changes in the overall story this week compared the last several months. The long leading indicator of interest rates improved, although mortgage refinance applications and real estate loans have all turned negative, and this week were joined by purchase mortgage applications. Money supply remains positive and seems to have stopped decelerating. Spreads between corporate bonds and treausries were slightly negative again this week.

The shorter leading indicators of initial jobless claims are very positive. Temporary employment has turned strongly positive in the last two months. The oil choke collar has disengaged. Commodities are neutral. Manufacturing is positive, but motor vehicle sales sagged to a 5 month low.

The coincident indicators of transportation -- rail traffic and shipping - remain positive. Steel production is positive. Bank lending rates are at or near or at record lows. Tax withholding has also improved in September. House prices remain strongly positive.

Given its crucial signal two years ago, the rapid deceleration of Gallup consumer spending is a real concern. The ICSC is relatively weak, although still positive. Johnson Redbook, on the other hand, is strongly positive. Left to its own devices, the economy appears to be picking up steam for the rest of the year, but the decline in auto sales add to the concern that increased interest rates may result in outright contraction in 2014. Do I really need to add that the government shutdown, let alone that the Congress may be about to turn deadbest on US debt obligations can only make the situation worse?

Have a nice weekend.