Saturday, April 27, 2013

Weekly Indicators: Railroad red flag edition

 - by New Deal democrat

In the rear view window, Q1 GDP was initially reported at +2.5% annualized. Once again, private growth was depressed by government austerity. March monthly data included a sharp decline in durable goods orders, which are now basically flat for a full year. New home sales increased slightly; existing home sales declined slightly. The University of Michigan confidence index increased in the second half of April, but is down month over month.

Let's start this week's look at the high frequency weekly indicators by looking at transports and consumer spending, which are the most significant changes:


Railroad transport from the AAR
  • -5600 or -2.0% carloads YoY

  • -1100 or -2.6% carloads ex-coal

  • +1400 or +0.6% intermodal units

  • -4200 or -0.8% YoY total loads
Shipping transport Rail transport went negative for the second time in a month, even excluding coal. This simply has to be regarded as a real warning of the beginning of a slump.  The Harpex index remains slightly off its 3 year low of 352, and the Baltic Dry Index remains above its recent low.

Consumer spending Gallup's YoY comparisons have been very positive since last December. They got less positive in the early part of April, but have rebounded again.  The ICSC varied between +1.5% and +4.5% YoY in 2012. In the last month or so it has been near or even below the bottom of this range. The JR report this week was back in the lower part of its typical YoY range for the last year.

Employment metrics

Initial jobless claims
  •   339,000 down 13,000

  •   4 week average 357,500 down 3,750
American Staffing Association Index
  • 92 up 1 w/w, up 1.2% YoY
Initial claims remain in their new lower range of between 330,000 to 375,000 this year. As in the past two springs, we now seem to be moving sideways in the new range.  The ASA is still running slighty below 2007, and slightly ahead of last year, although the comparison is continuing to deteriorate on a YoY basis.

Daily Treasury Statement tax withholding
  • $129.5 B (adjusted for 2013 payroll tax withholding changes) vs. $136.9 B, -5.4% YoY for the last 20 days.  The unadjusted result was $150.8 B for a 10.1% increase.

  • $139.9 B was collected during the first 19 days of April vs. $129.1 B unadjusted in 2012, a $10.8 B or a +8.3% increase YoY.
These are still relatively good YoY comparisons compared with the last three months. While my best estimate is that collections should be up 15% due to the payroll tax increases that took effect on January 1, since that may not be accurate, now that we have enough data from this year I am making comparisons with earlier this year, and those comparisons did improve in April, although not so much this week.

Housing metrics

Housing prices
  • YoY this week +5.8%
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 ties the record increase in March this year.

Real estate loans, from the FRB H8 report:
  • down 15 or -0.4% w/w

  • up 3 or +0.1% YoY

  • +2.2% from its bottom
Loans turned up at the end of 2011 and averaged about 1% gains YoY through most of 2012.  In the last two months the comparisons have softened significantly.

Mortgage applications from the Mortgage Bankers Association:
  • +0.3% w/w purchase applications

  • +18% YoY purchase applications

  • +0.3% w/w refinance applications
Purchase applications had been going sideways for 2 years. In the last three months they have finally broken out of that range slightly to the upside, and this week saw the highest number in almost 3 years.  Refinancing applications were very high for most of last year with record low mortgage rates, but have decreased slightly recently.

Interest rates and credit spreads
  •  4.54% BAA corporate bonds down -0.08%

  • 1.73% 10 year treasury bonds down -0.06%

  • 2.81% credit spread between corporates and treasuries down -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 saw a marked increase in rates and credit spreads have widening, followed by a positive reversal in the last several weeks.

Money supply

  • +2.9% w/w

  • +2.3% m/m

  • +8.9% YoY Real M1

  • +0.4% w/w

  • +0.9% m/m

  • +5.6% 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 two months 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 has increased slightly in the last month.

Oil prices and usage
  •  Oil $93.00 up +$4.99 w/w

  • Gas $3.54 down -$0.01 w/w

  • Usage 4 week average YoY -1.7%
The price of a gallon of gas has declined sharply since the end of February, and is down about 10% YoY. The 4 week average for gas usage remained negative after nine weeks in a row of being positive YoY.

Bank lending rates The TED spread recently increased slightly off its 18 month+ low.  LIBOR remained at its new 52 week low and is close to a 3 year low.

JoC ECRI Commodity prices
  • up 0.25 to 127.12 w/w

  • +1.73 YoY
The weekly indicators have shown evidence that the economy was beginning to soften starting from the first week of February, and the high frequency indicators became more neutral in the weeks since then. After a two week whipsaw, last week we returned to the prior pattern of generally very mildly positive data. That softened even further this week.

The most significant indicator this week was the negative comparisons from rail loadings, even excluding coal. This was simply a very poor week, and raises a red flag. Temporary jobs, while still positive, are showing deteriorating comparisons YoY. Consumer spending as measured by the ICSC and Johnson Redbook were also quite weak. Gallup consumer spending did remain strongly positive, however.

The positives include housing prices and mortgage applications, gas prices lower than one or two years ago, an improvement in initial jobless claims, and money supply remaining positive. Credit spreads and corporate bond rates also improved.

Basically neutral indicators include shipping rates and overnight banking loans, which haven't budged, and commodities.

Tax withholding remains a question mark. It is negative after my best estimated adjustment, but relative to the last few months, this past week was relatively good.

This remains the same lukewarmly positive data we have seen since the beginning of this year, but rails and consumer spending as measured by same store sales have to be a concern that payroll tax hikes and the Sequester, as well as global weakness, are finally taking a toll. Aside from next Friday's employment report, I will be especially watching the personal savings rate (have consumers exhausted their savings?) and auto sales (will they remain below last November's peak?) in the coming week.

Have a nice weekend.