Monthly reports for February included new home sales, which set a new post-recession high, and existing home sales, also higher, and a higher CPI, Durable goods were down for the 4th time in 6 months, and the University of Michigan sentiment indicator improved from its first March reading, but has continued to back off its January post-recession high.
In contrast to monthly data, I look at the high frequency weekly indicators because while they can be very noisy, they provide an up-to-this-week snapshot of the economy. The indicators will confirm a trend or indicate a switch in trend well before monthly reports, and are a way to mark one’s opinions to market on a regular basis. I list the data and try to keep commentary sparse, so you can draw your own conclusion.
I am introducing two new series this week. First, I am adding mortgage rates to the housing reports, since consumer refinancing of debt at lower interest rates has played such an important role in economic expansions since 1982. Secondly, the Billion Price Project inflation data has been picked up by the St. Louis FRED, and this gives us a daily update on inflation. I’ll start with that.
Inflation from the Billion Price Project
- 0.7% m/m rolling 7 day average (not seasonally adjusted)
- 0.2% YoY
The increase in gas prices off their bottom is showing up in inflation.
Railroad transport from the AAR
- -6,800 carloads down -2.4% YoY
- +17,500 intermodal units up +6.7% YoY
- +10,500 total loads up +1.9% YoY
- Harpex up +18 to 522 (4 year high)
- Baltic Dry Index up +12 to 596
Rail traffic fell off a cliff three weeks ago. It has improved each week since then. After declining sharply for several months, making a 3 year low in mid-February, the BDI has rebounded in the last five weeks. Meanwhile, Harpex (container shipping) has turned up sharply for the last 11 weeks, making continual new 4 year highs. In the longer term, shipping rates bottomed about 3 years ago and have been in a slow and variable uptrend since, although the Baltic index did break that to the downside in the recent skid.
- Johnson Redbook +2.8% YoY
- Gallup daily consumer spending 14 day average at $ 87, down -$ 1 YoY
Three weeks ago I indicated that I had concluded that the Gallup report, which has been barely positive to outright negative since the beginning of this year, primarily reflects consumers saving the money they are saving on gasoline, and that, when Gallup turned positive again YoY, that would be the signal that consumers are starting to spend their gas savings. After two weeks of doing so, it turned slightly negative again this week.
In the second half of 2014, Johnson Redbook was between +3.5% to +5%. It has fallen out of that range in 8 of the last 10 weeks. This is in accord with the poor YoY nominal retail sales numbers, but since it has stabilized in the last month, this suggests positive m/m retail sales have returned.
Steel production from the American Iron and Steel Institute
Steel production over the last several years has generally been in a decelerating uptrend. Since spring 2014, it turned mixed, and then cliff-dived in the last month. This may be the shipping and rail downturns, which are now abating, feeding through the system, although I read an article indicating that the culprit is dumping by Chinese mills, which are still producing at full tilt despite and apparent domestic downturn there.
- Up +2.40 to 102.06 w/w
- Down -18.19 YoY
BBG Industrial metals ETF
Commodity prices as measured by ECRI rebounded from last week’s new low. This is still probably due to international weakness, and mainly about oil. Industrial metals were a component of ECRI’s original short leading weekly index, and so can confirm or contrast with oil prices. Industrial metals have generally been declining for the last 3 years, made and retested a low in the last two months, and have rebounded slightly.
Interest rates and credit spreads
- 4.56% BAA corporate bonds up +0.08%
- 2.01% 10 year treasury bonds up +0.03%
- 2.55% credit spread between corporates and treasuries up +0.05%
Interest rates for BAA corporate bonds made a 50+ year low 7 weeks ago. This was not confirmed by AAA corporate bonds. After a possible once-in-a-lifetime low of 1.47% in July 2012, Treasuries rose to over 3% in late 2013, then fell through 2014 and into 2015 to back below 2%, before rising back above 2%. Spreads have widened in recent months, a warning of near-term weakness.
Home Sales and Prices from DataQuick:
- +3.5% sales YoY, up +0.1% (1 month rolling average)
- +5.2% prices YoY, up +0.4% (1 month rolling average)
Positive YoY sales and price appreciation have continued.
Mortgage applications from the Mortgage Bankers Association:
- +5% w/w purchase applications
- +3% YoY purchase applications
- +12% w/w refinance applications
30 year conventional mortgage rate from Mortgage News Daily
- 3.79% (low was 3.35% in December 2012)
YoY purchase applications established a “less awful” trend in the latter part of 2014. They have turned positive for five of the last six weeks. Mortgage rates are close to the bottom of their 12 month range, but have not made a new low in over two years. As a result, mortgage refinancing remains somnolent, although off its bottom.
Real estate loans, from the FRB H8 report:
- up +0.4% w/w
- up +4.1% YoY
Loans turned up at the end of 2011, turned down in late 2013, but have remained positive to sharply positive since April 2014.
- -0.2% w/w
- -0.2% m/m
- +8.7% YoY Real M1
- +0.1% w/w
- +0.3% m/m
- +6.3% YoY Real M2
Between actual deflation and possibly a mild European flight to safety, real YoY money supply is firmly positive. At the time of the last flight to safety (from Europe) in January 2012, YoY Real M1 made a high of about 20%, and YoY Real M2 made a high of about 10.5%. Growth in both then decelerated. Real M2 made a new 2 year low at the beginning of 2014. Both Real M1 and Real M2 improved substantially since.
Initial jobless claims
- 282,000 down -7,000
- 4 week average 297,000 down -7,750
Initial claims remain well within the range of a normal economic expansion, as does the 4 week average.
The American Staffing Association Index
- Unchanged at 96
- Up +2.83% YoY.
The YoY comparison has generally been positive to strongly positive since last spring. In the last several weeks, however, the YoY comparisons, while still positive, have declined significantly.
- $ 189.7 B for the first 19 days of March vs. $ 180.4 B one year ago, up +9.3 B or +5.2%
- $ 200.8 B for the last 20 reporting days ending Thursday vs. $ 191.1 B one year ago, up +$ 9.7 B or +5.1%
Beginning with the last half of 2014, virtually all readings have been positive.
Oil prices and usage
- Oil up +$ 2.30 to $ 48.87 w/w
- Gas up +$ 0.01 to $ 2.46 w/w
- Usage 4 week average YoY +0.4%
The price of gas probably bottomed 7 weeks ago. Oil briefly made a new low one week ago. The 2010-2013 Oil choke collar has been broken. Interestingly, usage was much less positive this past week than in the last several months.
Bank lending rates
- 0.245 TED spread down -0.08 w/w
- 0.178 LIBOR up +0.05 w/w
LIBOR has risen sharply from its post-recession low set in May and recently made a one-year high. The TED spread moved generally sideways with a slight upward trend in the last 6 months of 2014, rising off its November 2013 low. It has risen further in the last month and made an 18 month high two weeks ago. The move in the last months (probably mainly due to the latest Euro-crisis), while a negative, still pales in comparison with the moves before the Great Recession.
Among long leading indicators, yields on corporate bonds and treasuries, money supply, real estate loans, and house sales were all positive. Mortgage applications were uniformly positive for the first time in a long time. In the larger picture, however, refinancing is still very close to its multi-year bottom.
The short leading indicators were again mixed but more positive than not. Oil prices rose, but are still near their bottom. Industrial metal prices, however, declined slightly and also remain near their bottom. Spreads between corporate bonds and treasuries rose into negative territory. Temporary staffing was positive, although less so than in the past year. Gas prices and usage remained positive, and initial jobless claims remained within their positive range.
Coincident indicators were also mixed but with a slightly negative bias. Steel production rose slightly on a weekly basis, but was still over 10% down from a year ago. Rail was again mixed although slightly more positive. Consumer spending as measured by Gallup turned negative again after two positive weeks, while Johnson Redbook was again only weakly positive. The TED spread and LIBOR have leveled off as barely negative. On the other hand, shipping turned more positive, and tax withholding was very positive as well.
We are now at the end of the first quarter. I am expecting a poor GDP print. Production and transport have been generally negative or at best mixed for the last 2 months, and consumer spending has been negative since the First of the year.
At the beginning of this year, I forecast positive growth for the year, subject to the corporate profits report for the 4th quarter of 2014. The decline in corporate profits means I cannot rule out the economy rolling over in the final quarter of this year, although the positivity of the other long leading indicators in the 4th quarter of 2014 make that unlikely. Still, as the housing improvement from late last year and the decline in gas prices feed through into the economy this year, I still am positive on the next 6 months.
Have a nice weekend!