Saturday, March 2, 2013

Weekly Indicators: shifting closer to neutral edition

 - by New Deal democrat

In the rear view mirror, 4th quarter 2012 GDP was revised from slighly negative to slightly positive. Monthly data for January included a variety of housing data. New home sales and pending home sales were both up. The Case-Shiller index increasd again to its best YoY increase since 2006. Construction spending declined due to nonrsidential building. Residential construction was flat. Manufacturing as measured by both the ISM and the Chicago PMI both had their best months in over half a year. Core durable goods continued to rise and are now positive YoY, although the total index declined. Vehicle sales were up, but failed to surpass their November peak. Both the University of Michigan and Conference Board measures of consumer confidence both rose, but mainly due to present conditions. Expectations for the future, while up, are still very low. Personal income, as expected, declined sharply, but personal spending was up, as the savings rate declined to a new post-recession low.

Let me remind readers that this look at high frequency weekly data is not predictive, but attempts to capture the most up to the minute pulse of the economy in the present. As I've done for the last few weeks, due to the recent payroll tax increases, let's start again this look at the high frequency weekly indicators by checking what is happening with tax withholding:

Employment metrics
Daily Treasury Statement tax withholding
  • 164.0 B unadjusted was withheld this year in February compared with $158.3 B a year ago, a 1.4% increase

  • $146.8 B (adjusted for 2013 payroll tax withholding changes) vs. $154.1 B, -4.7% YoY for the last 20 days.  The unadjusted result was $168.9 B for a 9.6% increase.
Initial jobless claims
  •   344,000 down 18,000

  •   4 week average 355,000 down 6,750
American Staffing Association Index
  • unchanged at 89 w/w up 3.3% YoY
Employment metrics were again mixed this week.  Initial claims have established a new lower range of between 330,000 to 375,000.  The ASA is still running slighty below 2007, and slightly ahead of last year.

I am adjusting my YoY tax withholding figures to reflect the increase in personal withholding taxes. While the YoY collections are up substantially, they should be up over 15% to compensate for the tax increase.  Since I can think of no reason why employment itself should have fallen off a cliff in January, it is very possible that there is a lag in the payment of withholding taxes with the new increase.  If this hypothesis were correct, I would have expected tax withholding to be much more reliable by about now. So far, that isn't happening.

Consumer spending
  • ICSC +0.1% w/w +2.9% YoY

  • Johnson Redbook +2.7%YoY

  • Gallup daily consumer spending 14 day average at $80 up $15 YoY
Gallup has been very positive for 3 months, although less so in the 3 weeks.  The ICSC varied between +1.5% and +4.5% YoY in 2012. After spending several weeks near the bottom of this range, the ICSC has rebounded. The JR report for the last two weeks has also been very positive YoY.  Even in the worst case, it still looks like consumer spending has not collapsed due to the tax withholding increase. The rebound in the last several weeks may be due to tax refunds finally arriving in consumers' hands.

Housing metrics

Housing prices
  • YoY this week. +3.7%
Housing prices bottomed at the end of November 2011 on Housing Tracker, and have averaged an increase of +2.0% to +2.5% YoY for the last year. For the third week in a row, this week was the best YoY comparison in about 7 years.

Real estate loans, from the FRB H8 report:
  • -0.2% w.w

  •  +0.7% YoY

  • +2.2% from its bottom
Loans turned up at the end of 2011 and averaged about 1% gains YoY through most of 2012, but recently showed somewhat more YoY strength.  In the last few weeks have been less positive.

Mortgage applications
  • -5% w/w purchase applications

  • +14% YoY purchase applications

  • -3% w/w refinance applications
Purchase applications had been going sideways for 2 years. In recent weeks they finally broke out of that range to the upside, but this week declined back into that long term range.  Refinancing applications were very high for most of last year with record low mortgage rates, but these have recently decreased with the increase of mortgage rates.

Interest rates and credit spreads
  •  4.87% BAA corporate bonds up 0.01%

  • 2.00% 10 year treasury bonds down -0.01%

  • 2.87% credit spread between corporates and treasuries incrreased +0.02%
Interest rates for corporate bonds have generally been falling since being just above 6% two years ago in January 2011, hitting a low of 4.46% in November 2012.  Treasuries have fallen from about 2% in late 2011 to a low of 1.47% in July 2012. Spreads have varied between a high over 3.4% in June 2011 to a low under 2.75% in October 2012.  The  last several months have seen a marked increase in rates and credit spreads have widened slightly.

Money supply

  • -0.9% w/w

  • -0.2% m/m

  • +9.8% YoY Real M1

  • -0.2% w/w

  • +0.1% m/m

  • +5.3% YoY Real M2
Real M1 made a YoY high of about 20% in January 2012 and has generally been easing off since.  This week's YoY reading remained above a new low set several weeks ago.  Real M2 also made a YoY high of about 10.5% in January 2012.  Its subsequent low was 4.5% in August 2012.  It was weak once again this week.  Both are still quite positive in absolute terms.

Oil prices and usage
  •  Oil $90.68 down $2.45 w/w

  •   gas $3.78 up $0.03 w/w

  • Usage 4 week average YoY +2.0%
Although the price of a barrel of Oil has decreased in the last two weeks, Gas prices are increasing seasonally.  Unusually for the last year plus, the 4 week average for gas usage for the fourth week in a row was positive YoY.  This may be due to winter weather having been actually winter-like this year.


Railroad transport
  •  -3400 or -1.2% carloads YoY

  • +1700 or +1.0% carloads ex-coal

  • +23,600 or +11.0% intermodal units

  • +20,300 or +4.1% YoY total loads
Shipping transport
  • Harpex unchanged at 372

  • Baltic Dry Index up 36 to 776
Rail transport appears to have returned to its pattern from last year.  Traffic ex-coal has now returned to being positive for the third week in a row.  The Harpex index remains slightly off its 3 year low of 352, and the Baltic Dry Index remains above its recent low.

Bank lending rates
  • 0.18 TED spread down -0.01 w/w

  • 0.2000 LIBOR unchanged w/w
The TED spread made a new 18 month+ low.  LIBOR remained at its new 52 week low and is close to a 3 year low.

JoC ECRI Commodity prices
  • down 1.52 to 127.61 w/w

  • -0.41% YoY
While the monthly indicators involving housing and manufacturing were strong, weekly indicators were significantly more weakly positive than in the recent past. Further, it remains the case that the most important issue at the moment is whether the 2% increase in withholding tax rates is having an effect on consumers.  The austerity of budget sequestration is now official. The potential consequences of moving income and spending forward into 2012 from 2013 due to tax increases are also noteworthy.

Once again, by far the most negative data was tax withholdings adjusted for the payroll tax increase. Housing loans and mortgage applications were positive but less so. Temporary staffing is neutral. Credit spreads are neutral. Commodities have weakened. M2 money supply has declined since the first of the year.

Continuing positives once again include housing prices and mortgage applications, and surprisingly consumer spending. Bank lending rates were positive.  Gas usage has turned positive, and Oil prices are more accomodating. Initial claims are very positive. Rail traffic is also positive again ex-coal.

There are very few indicators that are outright negative -- commodities, coal hauling, and tax withholding adjusted for increased rates. Still, many of the others are less positive than they used to be, and are close to neutral. Ironically, consumer spending this week was among the most positive of metrics. This makes me more cautious than at any time since last summer.

Have a nice weekend.