Saturday, June 22, 2013

Weekly Indicators: 2 long leading indicators turn negative edition

 - by New Deal democrat

May monthly data reported this past week included the Index of Leading Indicators, up 0.1 and showing no imminent recession, the Empire State and Philly manufacturing indexes, both of which improved, consumer prices up slightly, housing starts and existing home sales up, and permits down. The 6 month trend in housing is up, but at a more muted pace than over the previous year.

Prof. Geoffrey Moore identified 4 long leading indicators, which take over a year to feed into the general economy: bond interest rates, real M2 money supply, housing permits, and corporate profits after taxes. Three of the four (using purchase mortgage applications as a reasonable proxy for permits) are updated in our look at the high frequency weekly indicators, so let's start with them:

Interest rates and credit spreads
  •  5.11% BAA corporate bonds up +0.12%

  • 2.20% 10 year treasury bonds up +0.08%

  • 2.91% credit spread between corporates and treasuries up +0.04%
Interest rates for corporate bonds had generally been falling since being just above 6% in January 2011, hitting a low of 4.46% in November 2012. Treasuries previously were at a 2.4% high in late 2011, falling to a low of 1.47% in July 2012, but in the last few days have retreated back to that high. Spreads have varied between a high over 3.4% in June 2011 to a low under 2.75% in October 2012. After being close to that low 6 weeks ago, interest rates have backed up significantly.

Housing metrics

Mortgage applications from the Mortgage Bankers Association:
  • -3% w/w purchase applications

  • +12% YoY purchase applications

  • -3% w/w refinance applications
Refinancing applications have decreased sharply in the last month due to higher interest rates. Purchase applications have also declined, although they continue their slightly rising YoY trend established earlier this year.

Housing prices
  • YoY this week +7.9%
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 made yet another 6 year record.

Real estate loans, from the FRB H8 report:
  • +0.4% w/w

  • up +1.1% YoY

  • +2.7% from its bottom
Loans turned up at the end of 2011 and averaged about 1% gains YoY through most of 2012.  In the last several months the comparisons have completely stalled, although this week was positive.

Money supply

  • -4.4% w/w

  • +1.8% m/m

  • +11.4% YoY Real M1

  • +0.1% w/w

  • +0.4% m/m

  • +5.6% YoY Real M2
Real M1 made a YoY high of about 20% in January 2012 and had generally been easing off since, but recently has increased again.  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 and has stabilized since.

Employment metrics

American Staffing Association Index
  • 93 up 1 w/w, down -0.5% YoY
Initial jobless claims
  •   354,000 up +20,000

  •   4 week average 348,250 up +3000
Tax Withholding
  • $111.9 B for the first 14 days of June vs. $103.5 B last year, up +8.4 B or +8.1%

  • $151.0 B for the last 20 reporting days vs. $140.1 B last year, up $10.9 B or +%7.8
In the 6 weeks month, the ASA has deteriorated to being negative compared with last year. After having a great 20-day comparison several weeks ago, for the third time in a row this week tax withholding had a relatively poor YoY comparison. Initial claims remain within their recent range of between 325,000 to 375,000, and have flattened out just as they have in the last 3 springs and summers.


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

  • +1900 or +1.1% carloads ex-coal

  • +4300 or +1.7% intermodal units

  • +5900 or +1.1% YoY total loads
Shipping transport Rail transport has been both positive and negative YoY in the last several months. This week it was positive. The Harpex index has been improving slowly from its January 1 low of 352. The Baltic Dry Index increased sharply this week and is close to a 52 week high.

Consumer spending Gallup's YoY comparisons remain extremely positive, as they have been for the last half a year.  The ICSC varied between +1.5% and +4.5% YoY in 2012, while Johnson Redbook was generally below +3%. The ICSC has trended towards the lower part of its range recently, but Johnson Redbook has been close to the high end of its range.

Oil prices and usage
  •  Oil $93.69 down -$4.16 w/w

  • Gas $3.63 down -$0.03 w/w

  • Usage 4 week average YoY -0.4%
The price of a gallon of gas, after declining sharply in March and April, rose again in May, steadied in early June, and has declined for the last week. The 4 week average for gas usage remained slightly negative.

Bank lending rates The TED spread is still near the low end of its 3 year range.  LIBOR rose slightly from its new 3 year low established last week.

JoC ECRI Commodity prices
  • down -1.88 to 121.33 w/w

  • +6.53 YoY
Noteworthy this week is the continuing spike in interest rates, as well as the decline in mortgage activity. Both of these are long leading indicators and so raise a warning flag for next year. The third long leading indicator, however, real money supply remains positive. The only other outright negative indicator is temporary staffing, which has been problematic for over a month.

Positives included strong consumer spending once again. More positives included house prices, YoY purchase mortgage applications, overnight bank rates, both rail and shipping transport, and gas prices. Jobless claims and commodity prices rate as neutrals this week.

The sharp rise in interest rates is definitely of concern, but it hasn't lasted long enough to seriously signal a recession next year. Housing is weakening but still positive. In terms of coincident indicators of the economy, consumer spending is still quite positive, and initial jobless claims, while trending sideways for the last month or so, show no signs of rolling over.

Have a nice weekend.