Saturday, September 14, 2013

Weekly Indicators: Manufacturing and transport break out to the upside edition

 - by New Deal democrat

Month over month August data included a rise in real retail sales (and July revised positively), a decline in consumer sentiment, an increase in the PPI, a decrease in import and export prices, and falling business and wholesale inventories.

Let's start this edition of the high frequency weekly indicators by looking at the real economic version of the Dow signal, i.e., comparing manufacturing with transport:

Steel production from the American Iron and Steel Institute
  • +0.9% w/w

  • +6.9% YoY

Steel production over the last several years has been, and appears to still be, in a decelerating uptrend. It had been negative YoY for last 3 weeks, but turned positive this week.


Railroad transport from the AAR
  • +6000 carloads up +2.2% YoY

  • +7200 carloads or +4.7% ex-coal

  • +14,400 or +6.7% intermodal units

  • +20,500 or +4.2% YoY total loads
Shipping transport Rail transport had been both positive and negative YoY during midyear, but this week was the fifth positive week in a row since then, and equals its most positive showing in a long time. The Harpex index had been improving slowly from its January 1 low of 352, but then flattened out for 9 weeks before making a new 52 week high several weeks ago. The Baltic Dry Index has rebounded to make yet another 18 month high. In the larger picture, both the Baltic Dry Index and the Harpex declined sharply since the onset of the recession, and have been in a range near their bottom for about 2 years, but stopped falling earlier this year, and now seem to be in an uptrend.

Employment metrics

Initial jobless claims
  • 292,000 down -21,000

  • 4 week average 321,250 down -7250

The American Staffing Association Index was steady at 97. It is up +5.5% YoY

Tax Withholding
  • $67.3 B for the first 8 days of September vs. $60.4 B last year, up +6.9 B or +11.5%

  • $146.3 B for the last 20 reporting days vs. $129.4 B last year, up +16.9 B or +13.1%

Initial claims made a new 6 year low this past week, due to state reporting glitches. Next week's numbers will average out to the real story. In any event, they remain firmly in a normal expansionary mode. Like each of the last three years that this same, a good, downside breakout has occurred.

Temporary staffing had been flat to negative YoY in spring, but has broken out positively in the last two months. Tax withholding, after a relatively poor August, is again posting better comparisons.

Consumer spending Gallup's 14 day average of consumer spending is positive, but less so than earlier this year. The ICSC varied between +1.5% and +4.5% YoY in 2012, while Johnson Redbook was generally below +3%. The ICSC has been weakening but improved this week, and Johnson Redbook remains at the high end of its range, and has actually been improving.

Oil prices and usage
  • Oil down -2.32 to $108.21 w/w

  • Gas down -$0.02 at $3.59 w/w

  • Usage 4 week average YoY down -0.1%
The price of Oil retreated slightly from its new 2 year high last week. The 4 week average for gas usage was negative, for the second week after eight straight weeks of being up YoY.

Interest rates and credit spreads
  • 5.49% BAA corporate bonds up +0.09%

  • 2.92% 10 year treasury bonds up +0.16%

  • 2.57% credit spread between corporates and treasuries down -0.07%
Interest rates for corporate bonds had been falling since being just above 6% in January 2011, hitting a low of 4.46% in November 2012. Treasuries fell to a possible once-in-a-lifetime low of 1.47% in July 2012, and have decisively risen about 1.5% above that mark. Spreads, however, made another new 2 year low this week. Their recent high was over 3.4% in June 2011.

Housing metrics

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

  • +7% YoY purchase applications

  • -20% w/w refinance applications!
Refinancing applications have decreased sharply -- 71%!! -- in the last 4 months due to higher interest rates, and are now lower than they have been since June 2009. Purchase applications have also declined from their multiyear highs in April, but are still slightly up YoY.

Housing prices
  • YoY this week +10.6%
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 remains near a 7 year record.

Real estate loans, from the FRB H8 report:
  • -2 or -0.1% w/w

  • -0.1% YoY

  • +1.2% from its bottom
Loans turned up at the end of 2011 and averaged about 1% gains YoY through most of 2012.  Over the last few months, the comparisons have completely stalled.

Money supply

  • +0.5% w/w

  • -0.1% m/m

  • +8.7% YoY Real M1

  • +0.1% w/w

  • +0.1% m/m

  • +4.6% YoY Real M2
Real M1 made a YoY high of about 20% in January 2012 and decelerated since then. Earlier this year it increased again but this week remained near its new 2 year low established last week (although it is still positive).  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, then stabilized, but has declined again in the past several months.

Bank lending rates The TED spread is still near the low end of its 3 year range, although it has risen slightly in the last couple of months.  LIBOR established yet another new 3 year low one week ago.

JoC ECRI Commodity prices
  • down -0.23 to 123.27 w/w

  • -1.10 YoY

This week was generally positive, with the same concerns about the long leading indicators as I've had for the past several months. Interest rates are negative, mortgage applications and real estate loans have turned negative (although purchase mortgage applications are still steadily positive YoY), and money supply is decelerating although still positive.

The shorter leading indicators of initial jobless claims and interest rate spreads are positive, although we need to see how jobless claims are revised next week. Temporary employment has turned strongly positive in the last two months. The oil choke collar is engaged but has eased off a bit, although commodities have turned negative.

The coincident indicators look like they have broken out positively. Rail traffic, which had been a real concern, has broken to the upside strongly for several weeks in a row, as has shipping. Steel production broke out to the upside this week as well. Consumer spending is holding up reasonably well. Bank lending rates are at or near their lows. Tax withholding has also improved moderately in the last couple of weeks. House prices remain strongly positive.

Barring Debt Ceiling Debacle part Deux in Washington, or a further oil price shock, the economy appears ready to pick up steam again for the rest of the year. I remain much more cautious about 2014.

Have a nice weekend.