Tuesday, July 3, 2018

Weekly Indicators for June 25 - 29


 - by New Deal democrat

May data included positive new home sales (with the second highest reading of the entire expansion), a very positive Chicago PMI, and positive personal income and spending. Real personal spending, however, was flat, and durable goods orders declined. Two measures of consumer confidence diverged, with the Conference Board's going higher, but the University of Michigan's going lower.
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.
NOTE that I include 12 month highs and lows in the data in parentheses to the right. All data taken from St. Louis FRED unless otherwise linked.
Interest rates and credit spreads
  • BAA corporate bond index 4.84% down -.01% w/w (1 yr range: 4.15 - 4.94) 
  • 10 year treasury bonds 2.86% down -.04% w/w (2.05 - 3.11) 
  • Credit spread 1.98% up +.03% w/w (1.56 - 2.30)
Yield curve, 10 year minus 2 year:
  • 0.33%, down -0.01% w/w (0.32 - 1.30) (new expansion low intraweek)
  • 4.66%, down -0.03% w/w (3.84 - 4.79) 
BAA Corporate bonds remain neutral. If these go above 5%, they will become a negative. Mortgage rates and treasury bonds are still both negatives. The spread between corporate bonds and treasuries has now gone above 1.85%, and so I have switched it from positive to neutral. The only remaining positive is the yield curve, and if that declines to +0.25%, that too will become a neutral.
Housing
  • Purchase apps down -6% to 242 w/w 
  • Purchase apps 4 week avg. unchanged at 250
  • Purchase apps YoY +1%, 4 week YoY avg. +3%
  • Refi app down -6% w/w
  • Up +.4% w/w
  • Up +3.8% YoY ( 3.3 - 6.5) (re-benchmarked, adding roughly +0.5% to prior comparisons) 
Refi has been dead for some time. Purchase applications were strong almost all last year, began to falter YoY in late December, but rebounded during spring, ultimately making new expansion highs. The 4 week average declined from the peak enough to qualify as neutral for the last several weeks, but for the last two weeks rebounded to positive.
With the re-benchmarking of the last year, the growth rate of real estate loans changed from neutral to positive. If the YoY rate falls below +3.25%, I will downgrade back to neutral.
Money supply
M1
  • -0.5% w/w 
  • -0.1% m/m 
  • -0.5% Real M1 last 6 months
  • +2.1% YoY Real M1 (1.6 - 6.9) 
M2
  • +0.1% w/w 
  • +0.7% m/m 
  • +1.6% YoY Real M2 (0.9 - 4.1)
Since 2010, both real M1 and real M2 were resolutely positive. Both decelerated substantially in 2017. Real M2 growth has fallen below 2.5% and is thus a negative. Real M1 growth this week was again below 3.5% YoY, and again on a 6 month basis was negative, so real M1 overall is scored as neutral.
Credit conditions (from the Chicago Fed)
  • Financial Conditions Index unchanged at -0.81
  • Adjusted Index (removing background economic conditions) down -.01 -0.53
  • Leverage subindex up +.03 to -0.31
The Chicago Fed's Adjusted Index's real break-even point is roughly -0.25. In the leverage index, a negative number is good, a positive poor. The historical breakeven point has been -0.5 for the unadjusted Index. All three metrics presently show looseness and so are positives for the economy.
Trade weighted US$ 
  • Up +0.05 to 123.97 w/w +1.5% YoY (last week) (broad) (116.42 -128.62) 
  • Down -0.06 to 94.49 w/w, -1.19% YoY (yesterday) (major currencies) 
The US$ appreciated about 20% between mid-2014 and mid-2015. It went mainly sideways afterward until briefly spiking higher after the US presidential election. Both measures had been positives since last summer, but in the last three weeks the broad measure turned neutral.

Commodity prices
  • Down -0.47 to 109.10 w/w
  • Up +5.53 YoY 
  • 130.04 down -3.16 w/w, up +14.06% YoY (112.03 - 149.10)
Commodity prices bottomed near the end of 2015. After briefly turning negative, metals also surged higher after the 2016 presidential election. With the exception of one week ago, ECRI has been neutral for many months. On the other hand, industrial metals have been strongly positive and recently made a new high.
  • Down -1.3% w/w at 2718.37 
After being neutral for several months, by an ever-so-slight margin stock prices made a new 3 month high on June 12, and so have returned to being positive.
Regional Fed New Orders Indexes
(*indicates report this week) 
The regional average has been more volatile than the ISM manufacturing index, but has accurately forecast its month over month direction. After being very positive for most of this year, it has moderated slightly in the last few weeks.
Employment metrics
Initial jobless claims
  • 227,000 up +9.000
  • 4 week average 222,000 up +1,000 
Initial claims have recently made several 40+ year lows and so are very positive. The YoY% change in these metrics had been decelerating but is now back on its multi-year pace. 

  • Unchanged at 97 w/w
  • Up +1.3% YoY
This index was generally neutral from May through December 2016, and then positive with a few exceptions all during 2017. It was negative for over a month at the beginning of this year, but returned to a positive since then.
  • $175.5 B for the last 20 reporting days vs. $164.0 B one year ago, up +$11.5 B or +7.0%
  • 20 day rolling average adjusted for tax cut [+$4 B]: up +$15.5 B or +9.5%
With the exception of the month of August and late November, this was positive for almost all of 2017. It has generally been negative -- but not this week! -- since the effects of the recent tax cuts started in February.
I have discontinued the intramonth metric for the remainder of this year, since the kludge to guesstimate the impact of the recent tax cuts makes it too noisy to be of real use.
I have been adjusting based on Treasury Dept. estimates of a decline of roughly $4 Billion over a 20 day period. Until we have YoY comparisons, we have to take this measure with a big grain of salt.
  • Oil up +$5.21 to $74.39 w/w, up +61.6% YoY (new 1 year high)
  • Gas prices down -$.04 to $2.83 w/w, up $0.54 YoY 
  • Usage 4 week average down -0.1% YoY 
The price of gas bottomed over 2 years ago at $1.69. With the exception of last July, prices generally went sideways with a slight increasing trend in 2017. Usage turned negative in the first half of 2017, but has almost always been positive since then. About a month ago, the YoY change went back above 40%, so the rating turned negative.
Bank lending rates
  • 0.457 TED spread up +0.005 w/w 
  • 2.090 LIBOR unchanged w/w (tied for new expansion high)
Both TED and LIBOR rose in 2016 to the point where both were usually negatives, with lots of fluctuation. Of importance is that TED was above 0.50 before both the 2001 and 2008 recessions. The TED spread was generally increasingly positive in 2017, while LIBOR was increasingly negative. This year the TED spread has whipsawed between being positive or negative. This week it was positve.
Consumer spending 
Both the Goldman Sachs and Johnson Redbook Indexes generally improved from weak to moderate or strong positives during 2017 and have remained positive this year.
Transport
  • Carloads up +2/5 YoY
  • Intermodal units up +4.9% YoY
  • Total loads up +3.7% YoY
Shipping transport
Rail was generally positive since November 2016 and remained so during all of 2017 with the exception of a period during autumn when it was mixed. After some weakness in January and February this year, rail has returned to positive.
Harpex made multi-year lows in early 2017, then improved, declined again, and then improved yet again to recent highs. BDI traced a similar trajectory, and made 3 year highs near the end of 2017, declined early this year, but recently has hit multiyear highs.
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.
  • Up +1.8% w/w
  • Up +1.4% YoY
Steel production improved from negative to "less bad" to positive in 2016 and with the exception of early summer, remained generally positive in 2017. It turned negative in January and early February, but with the exception of three weeks (including two weeks earlier this month) has been positive since then. 
SUMMARY: 
Among the long leading indicators, the more leading Chicago Fed Financial Conditions Indexes,  real estate loans, and purchase mortgage applications, and the yield curve remain positives -- but the last two a very close to turning neutral. Corporate bonds, mortgage rates, and real M1 are neutral. Treasuries, refinance applications, and real M2 are all negative.
Among the short leading indicators, industrial metals, the regional Fed new orders indexes, financial leverage, jobless claims, and staffing are all positive, rejoined for the last two weeks by stock prices (just barely). Gas prices, the ECRI commodities index and the spread between corporate and Treasury bonds are neutral. the US$ is mixed. Oil prices are strongly negative.
Among the coincident indicators, positives include consumer spending, Harpex, and rail, steel, the TED spread, and tax withholding. The Baltic Dry Index is neutral. LIBOR remains negative.

As has been the case for many months, both the nowcast and the short term forecast remain positive. Manufacturing in particular is doing very well. The longer term forecast crossed the line ever so slightly from positive to neutral several weeks ago, and deteriorated again very slightly this week.  Only strong credit supply and housing data is keeping this from turning outright negative.
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