Interest rates and credit spreads
- BAA corporate bond index 4.82% down -.12% w/w (1 yr range: 4.15 – 4.94)
- 10 year treasury bonds 2.93% down -.13% w/w (2.05 – 3.11) (new 7 year high intraweek)
- Credit spread 1.89% up +.01% w/w (1.56 – 2.30)
- 4.61%, down -0.17% w/w (3.84 – 4.79)
BAA Corporate bonds remain neutral. If these go above 5%, they will become a negative. Mortgage rates and treasury bonds are still both negatives. The spread between corporate bonds and treasuries has now gone above 1.85%, and so I have switched it from positive to neutral. The only remaining positive is the yield curve.
Mortgage applications
- Down -0.3% w/w
- Up +3.6% YoY ( 3.3 – 6.5) (re-benchmarked, adding roughly +0.5% to prior comparisons)
Refi has been dead for some time. Purchase applications were strong almost all last year, but began to falter YoY in late December, frequently turning neutral (under 3%) and even negative for one week. But they made new expansion highs one month ago.
With the re-benchmarking of the last year, the growth rate of real estate loans changed from neutral to positive. If the YoY rate falls below +3.25%, I will downgrade back to neutral.
Money supply
M1
- +1.0% w/w
- -0.4% m/m
- Up +0.7% Real M1 last 6 months
- +1.6% YoY Real M1 (1.6 – 6.9) (new multiyear low)
- +0.2% w/w
- +0.3% m/m
- +1.1% YoY Real M2 (0.9 – 4.1)
Since 2010, both real M1 and real M2 were resolutely positive. Both decelerated substantially in 2017. Real M2 growth has fallen below 2.5% and is thus a negative. Real M1 growth this week was again below 3.5% YoY, but returned to positive on a 6 month basis. I have thus upgraded it back to weakly positive. As I noted last week, I expect some whipsawing, but the decelerating trend seems clear.
Credit conditions (from the Chicago Fed)
- Financial Conditions Index down -0.02 to -0.83
- Adjusted Index (removing background economic conditions) down -.03 at -0.58
- Leverage subindex up +.02 to -0.47
Trade-weighted US$
- up +1.55 to 122.16 w/w -0.8% YoY (last week) (broad) (116.42 -128.62)
- Up +0.60 to 94.26 w/w, -3.23% YoY (yesterday) (major currencies)
The US$ appreciated about 20% between mid-2014 and mid-2015. It went mainly sideways afterward until briefly spiking higher after the US presidential election. It has been a positive since last summer.
Commodity prices
JoC ECRI
- Up +0.96 to 110.35 w/w
- Up +4.99 YoY
- 135.42 down -0.22 w/w, up +20.80% YoY (108.00 – 149.10)
Commodity prices bottomed near the end of 2015. After briefly turning negative, metals also surged higher after the 2016 presidential election. ECRI has been neutral for many months. On the other hand, industrial metals have been strongly positive and recently made a new high.Stock prices S&P 500
- Up +0.3% w/w at 2721.33
Regional Fed New Orders Indexes
(*indicates report this week)
- Empire State up +7.0 to +16.0
- Philly up +22.2 to +40.6
- *Richmond up +25 to +16
- *Kansas City up +1 to +38
- Dallas up +19.6 to +27.9
- Month over month rolling average: up +5 to +28
Employment metrics
Initial jobless claims
- 234,000 up +12,000
- 4 week average 219,750 up +6,500
Initial claims have recently made several 40+ year lows and so are very positive. The YoY% change in these metrics had been decelerating but is now back on its multi-year pace.
The American Staffing Association Index
- Up +1 to 97 w/w
- Up +2.3% YoY
This index was generally neutral from May through December 2016, and then positive with a few exceptions all during 2017. It was negative for over a month at the beginning of this year, but has returned to a positive.
Tax Withholding
- $176.3 B for the last 20 reporting days vs. $178.3 B one year ago, down -$2.0 B or -1.1%
- 20 day rolling average adjusted for tax cut [+$4 B]: up +$2.0 B or +1.1%
With the exception of the month of August and late November, this was positive for almost all of 2017. It has generally been negative since the effects of the recent tax cuts started in February.
I have discontinued the intramonth metric for the remainder of this year, since the kludge to guesstimate the impact of the recent tax cuts makes it too noisy to be of real use.
I have been adjusting based on Treasury Dept. estimates of a decline of roughly $4 Billion over a 20 day period. Until we have YoY comparisons, we have to take this measure with a big grain of salt.
- Oil down -$3.89 to $67.50 w/w, up +39.0% YoY
- Gas prices up +$.05 to $2.92 w/w, up $0.52 YoY
- Usage 4 week average up +1.0% YoY
The price of gas bottomed over 2 years ago at $1.69. With the exception of last July, prices generally went sideways with a slight increasing trend in 2017. Usage turned negative in the first half of 2017, but has almost always been positive since then. I suspect we won’t get a consumer reaction, however, until gas goes over $3/gallon, a mark it reached by some measures on Friday. Because the YoY change has gone back down to under 40%, the rating has changed from negative to neutral.
Bank lending rates
- 0.459 TED spread down -0.009 w/w
- 1.970 LIBOR up +0.020 w/w
Both TED and LIBOR rose in 2016 to the point where both were usually negatives, with lots of fluctuation. Of importance is that TED was above 0.50 before both the 2001 and 2008 recessions. The TED spread was generally increasingly positive in 2017, while LIBOR was increasingly negative. This year the TED spread has also turned negative, but in the past few weeks it returned to being a positive.
- Johnson Redbook up +3.2 YoY
Both the Goldman Sachs and Johnson Redbook Indexes generally improved from weak to moderate or strong positives during 2017 and have remained positive this year.
Transport
Railroad transport
- Carloads up +1.2 YoY
- Intermodal units up +5.9% YoY
- Total loads up +3.6% YoY
Shipping transport
- Harpex up +10 to 671 (440 – 671) (new 6 year high)
- Baltic Dry Index down -241 to 1162 (~700 – 1700)
Rail was generally positive since November 2016 and remained so during all of 2017 with the exception of a period during autumn when it was mixed. After some weakness in January and February this year, rail has returned to positive.
Harpex made multi-year lows in early 2017, then improved, declined again, and then improved yet again to recent highs. BDI traced a similar trajectory and made 3 year highs near the end of 2017. Early this year it declined but has reversed course again.
I am wary of reading too much into price indexes like this since they are heavily influenced by supply (as in, a huge overbuilding of ships in the last decade) as well as demand.
Steel production
- Up +1.6% w/w
- Up +3.3% YoY
Steel production improved from negative to “less bad” to positive in 2016 and with the exception of early summer, remained generally positive in 2017. It turned negative in January and early February, but with the exception of one week has been positive since then.
The was a little rebound among the long leading indicators this week. Positives include purchase mortgage applications, the more leading Chicago Fed Financial Conditions Indexes, and real estate loans, rejoined this week by real M1. Corporate bonds are neutral. Mortgage rates, Treasuries, refinance applications, and real M2 are all negative.
Among the short leading indicators, industrial metals, the regional Fed new orders indexes, financial leverage, the US$, jobless claims, staffing, and gas prices and usage all remain positive (gas prices very weakly so). Stock prices, the ECRI commodity index, and the spread between corporate and Treasury bonds are all neutral, rejoined this week by oil prices.
Among the coincident indicators, positives include consumer spending, Harpex, steel, rail, tax withholding, and the TED spread. The Baltic Dry Index is neutral. LIBOR remains negative.
Both the nowcast remains and the short-term forecast remains positive. Manufacturing appears particularly strong. This appears primarily as a rebound in the Oil patch as revealed by the Kansas City and Texas regional Fed surveys.
Although the long-term indicators rebounded a little this week based primarily on a retreat in bond yields, several housing indicators — purchase mortgage applications and real estate loans — edged closer to neutrality, so while the forecast remains slightly positive, the slow trend towards at very least neutrality has continued.
