Saturday, July 20, 2013

Weekly Indicators: interest rate spike killing housing rebound edition

 - by New Deal democrat

Monthly data reported in the last week included big drops in housing permits and starts. Because permits are an element of the LEI, that came in flat. Retail sales grew 0.4%, but consumer inflation was up 0.5% due mainly to gas prices, so real retail sales declined slightly. Industrial production was up, as were both the Philly Fed and the Empire State manufacturing indexes.

Let's start this week's look at the high frequency weekly indicators by looking at the Oil choke collar:

Oil prices and usage
  • Oil $108.05 up +$2.10 w/w

  • Gas $3.64 up +0.15 w/w

  • Usage 4 week average YoY up +2.1%
The price of Oil increased further again this week to a new 52 week high. I am still unable to find any rational reason for this. The price of a gallon of gas rose sharply as a result. The 4 week average for gas usage was, for the second time in a long time, up YoY.

Interest rates and credit spreads
  •  5.41% BAA corporate bonds up +0.05%

  • 2.64% 10 year treasury bonds up +0.09%

  • 2.77% credit spread between corporates and treasuries down -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 have spiked back above that high. Spreads have varied between a high over 3.4% in June 2011 to a low under 2.75% in October 2012, and are very close to that low again.

Housing metrics

Mortgage applications from the Mortgage Bankers Association:
  • +1% w/w purchase applications

  • +5% YoY purchase applications

  • -4% w/w refinance applications
Refinancing applications have decreased sharply in the last 8 weeks due to higher interest rates to a two year low. Purchase applications have also declined from thier multiyear highs in April, and this week were again only slightly positive YoY.

Housing prices
  • YoY this week +8.5%
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 remained close to its 6 year record.

Real estate loans, from the FRB H8 report:
  • -0.1% w/w

  • +0.2% YoY

  • +2.1% 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.

Money supply

  • -0.7% w/w

  • -1.6% m/m

  • +8.1% YoY Real M1

  • -0.1% w/w

  • +0.6% m/m

  • +5.0% YoY Real M2
Real M1 made a YoY high of about 20% in January 2012 and eased off thereafter. Earlier this year it increased again but has backed off its highs significantly.  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 generally stabilized since.

Employment metrics

American Staffing Association Index
  • 88 down -6 w/w, down -0.3% YoY
Initial jobless claims
  •   334,000 down -26,000

  •   4 week average 346,000 down -5,750
Tax Withholding
  • $106.6 B for the first 13 days of the month of July vs. $97.5 B last year, up +$9.1 B or +9.3%

  • $147.6 B for the last 20 reporting days vs. $135.0 B last year, up +12.6 B or +9.3%
The ASA deteriorated to being flat or negative compared with last year in the last several months. This week's decline was seasonal in nature due to July 4. Daily tax withholding remained in the lower part of its YoY range compared with its YoY average comparison in the last 6 months. 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
  • -8600 carloads down -3.1% YoY

  • +800 carloads or +0.5% ex-coal

  • +2400 or +0.9% intermodal units

  • -6900 or -1.3% YoY total loads
Shipping transport Rail transport has been both positive and negative YoY in the last several months. This week it was negative once again. The Harpex index had been improving slowly from its January 1 low of 352, but has flattened out in the last 5 weeks. The Baltic Dry Index remained close to its 52 week high.

Consumer spending Gallup's YoY comparisons are still very positive. The ICSC varied between +1.5% and +4.5% YoY in 2012, while Johnson Redbook was generally below +3%. The ICSC has recently been relatively weak, but Johnson Redbook remains close to the high end of its range.

Bank lending rates The TED spread is still near the low end of its 3 year range.  LIBOR rose remains slightly above the new 3 year low it established four weeks ago.

JoC ECRI Commodity prices
  • down -0.25 to 122.88 w/w

  • +3.50 YoY

The sharp rise in interest rates and the sharp decrease in mortgage refinancing have now been joined by a big spike in Oil prices, which is now being felt at the pump. The decline in housing permits and starts show that it is already being impacted. Purchase mortgages have also backed off their earlier improvement. Temporary jobs are also negative YoY again, as are railroad shipments.

Positives include consumer spending, jobless claims, house prices, and bank and money rates. Spreads between corporate bonds and treasuries are also near their lows.

Once again the story remains that coincident indicators are holding up, while the long leading indicators of interest rates, housing, and corporate earnings have turned negative. The only long leading indicator still positive is Real M2. The Oil price spike and continuing sequestration certainly aren't helping.

Have a nice weekend.