Saturday, November 26, 2016

Weekly Indicators for November 21 -25

 - by New Deal democrat

[N.B.: XE's blog is having a software glitch.  I am posting my Weekly column here until the issue is worked out.]

Monthly data for October was positive with the exception of new home sales, which declined. Durable goods orders increased. The advance reading of inventories showed a decline, which is good. Existing home sales set a new post-recession record high.  

My usual note: I look at the high frequency weekly indicators because while they can be very noisy, they provide a good Now-cast 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.

Interest rates and credit spreads
  • Dow Jones corporate bond index 358.16 up +0.12 w/w (2016 high is 395.36, 2016 low is 341.41)
  • 2.36% 10 year treasury bonds up +.02% (new 12 month high intraweek)
  • BofA/ML B Credit spread down -.22% to 4.70% (12 month low of 4.62% on Oct 22)
Yield curve, 10 year minus 2 year:
  • 1.24%, up +.32% w/w
30 year conventional mortgage rate
  • 4.19%, up +.07% w/w (52 week high)
Yields on treasuries and mortgage rates continued to spike to 12 month highs this week. They are now negatives. Corporate bonds are still neutral. Because rates made new lows after the Brexit vote in June, that nevertheless strongly suggests that the expansion will continue through mid-2017.  Yields are also still positive, but spreads are neutral.

Mortgage applications
  • purchase applications up +3% w/w
  • purchase applications up +11% YoY
  • refinance applications up +3% w/w

Real Estate loans
  • Down -0.1% w/w
  • Up +6.8% YoY
Mortgage applications briefly  spiked in response to low rates following the Brexit vote.  Purchase applications last made a new high at the beginning of June.  They have wobbled between being positive and neutral for the last 9 weeks. This week they turned higher. But withhold your cheers, because the same thing briefly happened in 2013 at the time of the "taper tantrum" as borrowers rushed to lock in rates before they got any higher.  Mortgage applications may go YoY negative within the next several weeks.  If so, they will flip to becoming an important negative. Refinance applications remain a mild positive for the moment.

Real estate loans have been firmly positive for over 3 years.

Money supply
  • +2.9% w/w
  • Unchanged m/m 
  • +8.0% YoY Real M1
  • _0.4% w/w    
  • +0.5% m/m 
  • +6.0% YoY Real M2 
Both real M1 and real M2 have been firmly positive almost all year, although less so in the last month. 

Trade weighted US$

  • Up +0.82 to 126.43 w/w, up +4.1% YoY (one week ago) (Broad)
  • Up +0.21 to 101.50 w/w, up +1.7% YoY (yesterday) (major currencies)
The US$ appreciated about 20% between mid-2014 and mid-2015.  It went mainly sideways since then until spiking higher after the US presidential election. It has been neutral for 7 of the last 8 weeks.

Commodiy prices
  • Up +2.13 to 98.06 w/w
  • Up +18.46 YoY
BBG Industrial metals ETF
  • 116.61 up +8.03 w/w, up +33.0% YoY
Commodity prices bottomed about one year ago.last November. Recently metals briefly turned negative, but have now resumed being positive, and surged higher in the last several weeks.
Stock prices S&P 500
  • Up +1.4% w/w (new record high)
Stock prices became a positive having made new all-time highs in summer, and made more new highs this week.

Regional Fed New Orders Indexes
(*indicates report this week)
  • Empire State up +8.7 to +3.1
  • Philly up +2.3 to +18.6
  • *Richmond up +19 to +7
  • Kansas City down -8 to +6
  • Dallas down -0.6 to -3.5
  • Month over month rolling average: up +4 to +6 (12 month high)
In the months since I started coverage of this metric, the regional average has been more negative than the ISM manufacturing index, but has accurately forecast its month over month direction. The average Fed readings are at their most positive this year as of now.

Employment metrics
 Initial jobless claims
  • 251,000 up +16,000
  • 4 week average 251,000 down -2,500
Initial claims remain well within the range of a normal economic expansion, as does the 4 week average. 

  • Down -1 to 98 w/w
  • Down -0.61 YoY
This index turned negative in May 2015, getting as bad as -4.30% late last autumn.  Since the beginning of the year it became progressively "less bad" and for the last few months has been so close to positive YoY as to be a neutral, as it was again this week.

Tax Withholding
  • $147.6 B for the first 16 days of November vs. $146.3 B one year ago, up +$1.3 B or +0.9%
  • $181.0 B for the last 20 reporting days ending Wednesday vs. $173.6 B one year ago, up +$7.4 B or +4.3%
Beginning with the last half of 2014, virtually all readings were positive, but turned more mixed and choppy, and occasionally even negative, since August 2015.  The last few months have shown a marked improvement, although November has been poor so far.

  • Oil up +$0.39 to  $45.96 w/w,  down -$1.79 YoY
  • Gas prices down -$0.03 to $2.15 w/w, up +$0.06 YoY
  • Usage 4 week average up +0.6% YoY
The price of gas bottomed last winter at $1.69.  Usage had been almost uniformly positive until several weeks ago.  It turned negative briefly, but is weakly positive this week.  Gas prices are off their summer seasonal high, but have gone sideways for the last three months, and are now higher YoY, making them a neutral.  Oil prices have come down in the last month, so that has turned back to positive.  In general oil is no longer a tailwind for the economy, but it isn't a headwind either.

Bank lending rates
Both TED and LIBOR rose since the beginning of last year to the point where both have usually been negatives, although there were some wild fluctuations.  Of importance is that TED was above 0.50 before both the 2001 and 2008 recessions.  Both recently reached that level. The TED spread has turned positive for the last three weeks.

Consumer spending
Both the Goldman Sachs and Johnson Redbook Indexes progressively weakened in pulses during 2015, before improving somewhat over the last 12 months.  Redbook has recently turned very weak.  Goldman and Gallup have both been generally more positive, although Gallup was wobbly for a month before turning positive again. The results were a mixed positive this week.

Railroad transport
  • Carloads up +1.3% YoY
  • loads ex-coal up +1.1% YoY
  • Intermodal units up +4.4% YoY
  • Total loads up +2.8% YoY
Shipping transport
Rail traffic turned negative and then progressively worse in pulses throughout 2015. Rail loads became "less worse" in January and showed continued improvement until going over the proverbial cliff all spring (typically down -10% or more) in spring.  It trended incrementally less awful since June, generally has scored neutral. For the last three weeks it has turned positive.
Harpex has recently resumed its decline again to repeated multi-year lows. BDI recently turned positive, then neutral, and is now screamingly positive again.  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.
Steel production
  • Up +1.6% w/w
  • Up +7.1% YoY
Until spring 2014, steel production had generally been in a decelerating uptrend.  It then gradually rolled over and got progressively worse in pulses through the end of 2015. This year it started out as "less worse" and has been neutral to positive for the last few few months.


Yields continued to increase this week. As a result, the interest rate components of the long leading indicators are negative, except for corporate bonds, which are a neutral.  Purchase mortgage applications returned to being positive this week, but I am not expecting that to last. The yield curve and money supply as well as real estate loans remain positive.

Short leading indicators are positive with the exception of spreads, gas prices, and the US$, which are neutral.  Stock prices, jobless claims, industrial commodities, the regional Fed new orders indexes, and oil prices are all positive.

The coincident indicators have also become much more positive, including rail, the TED spread, the BDI, steel, are all positive now.  Tax withholding remains slightly positive, and consumer spending varies from strongly to just barely positive. Temp staffing is neutral.  Only the Harpex shipping index and LIBOR remain negative -- in fact, outside of some interest rates the only two negatives in the entire list of indicators.

In summary, positive readings predominate from long leading through short leading to coincident indicators. The present and the near future appear quite good. The big concern for the longer term is the continued increase in interest rates. If it persists, the weakness will feed through the rest of the economy over the next 18-24 months.

Have a nice weekend!
Sent from my iPad