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Purpose
I have a look at the excessive frequency weekly indicators as a result of whereas they are often very noisy, they supply nowcast of the financial system, and can telegraph the upkeep or change within the financial system properly earlier than month-to-month or quarterly information is obtainable. They are also a wonderful strategy to “mark your beliefs to market.” In common, I am going so as of lengthy main indicators, then brief main indicators, then coincident indicators.
A Note on Methodology
Data is offered in a “just the facts, ma’am” format with a minimal of commentary in order that bias is minimized.
Where related, I embrace 12-month highs and lows within the information in parentheses to the correct. All information taken from St. Louis FRED except in any other case linked.
Just a few gadgets (e.g., monetary circumstances indexes, regional Fed indexes, stock costs, the yield curve) have their very own metrics primarily based on long-term research of their habits.
Where information is seasonally adjusted, usually it is scored positively if it is inside the prime 1/3 of that vary, unfavourable within the backside 1/3, and impartial in between. Where it is not seasonally adjusted, and there are seasonal points, ready for the year-over-year change to vary signal will lag the turning level. Thus I make use of a conference: Data is scored impartial if it is lower than 1/2 as constructive/unfavourable as at its 12-month excessive.
With lengthy main indicators, which by definition flip not less than 12 months earlier than a turning level within the financial system as a complete, there’s an extra rule: Data is mechanically unfavourable if, throughout an growth, it has not made a brand new peak up to now yr, with the only exception that it’s scored impartial if it is shifting in the correct course and is shut to creating a brand new excessive.
Recap of month-to-month reviews
November information included will increase in actual and nominal retail gross sales, industrial manufacturing, and capability utilization. October retail gross sales have been revised upward, manufacturing downward. The JOLTS report for October was all constructive.
Long main indicators
Interest charges and credit score spreads
Rates
- BAA company bond index 5.14% up +.07% w/w (one-year vary: 4.15 – 5.29)
- 10-year Treasury bonds 2.72% down -.06% w/w (2.05 – 3.24)
- Credit unfold 2.42% up +.13% w/w (1.56 – 2.42) (new one-year excessive)
Yield curve, 10-year minus two-year:
- 0.20%, up +0.05% w/w (0.12 – 1.30)
30-Year standard mortgage fee (from Mortgage News Daily)
- 4.64%, down -0.01% w/w (3.84 – 5.05)
BAA Corporate bonds are above 5%, and so have joined mortgage charges and tTreasury bonds as unfavourable. The unfold between company bonds and Treasuries has now risen above 2.10%, and so is also unfavourable. The yield curve stays the one rate of interest indicator that isn’t unfavourable (though the inversion unfold to the one-year vs. three-year yield immediately).
NOTE: If mortgage charges fall again beneath 4.5%, they are going to transfer from unfavourable to impartial.
Housing
Mortgage purposes (from the Mortgage Bankers Association)
(No report this week – reviews resume subsequent week)
- Purchase apps – w/w (214 – 262) (SA)
- Purchase apps YoY – (NSA)
- Purchase apps four-week avg. – (SA)
- 4 week YoY common – (NSA)
- Refi apps – w/w (SA)
*(SA) = seasonally adjusted, (NSA) = not seasonally adjusted
Real Estate Loans (from the FRB)
- Up +3.5% YoY ( 2.7 – 6.5) (re-benchmarked, including roughly +0.5% to prior comparisons)
Refi has lately been at or close to 20-year lows, though with a decline in mortgage charges, had a pleasant pop this week. Purchase purposes started to falter YoY final December, however rebounded throughout spring, in the end making new growth highs. During summer season they declined by way of impartial to unfavourable, then rose into constructive, earlier than turning unfavourable once more within the final month. Applications have risen to constructive YoY which is sufficient to deliver this indicator again as much as impartial. If it goes above +3% YoY on a four-week foundation, will probably be a constructive.
With the re-benchmarking of the final yr, the expansion fee of actual property loans modified from impartial to constructive. It was once more above +3.25% this week, and so stays constructive.
Money provide
M1
- -2.1% w/w
- +2.1% m/m
- +1.6% YoY Real M1 (-0.7 – 6.9)
M2
- -0.1% w/w
- +1.2% m/m
- +1.9% YoY Real M2 (0.9 – 4.1)
Since 2010, each actual M1 and actual M2 have been resolutely constructive. Both decelerated considerably in 2017. Real M2 progress fell beneath 2.5% earlier this yr and has thus been rated unfavourable. Real M1 briefly turned unfavourable about two months in the past, then rebounded, then was unfavourable for 2 weeks. This week and final week it had an enormous pop and is thus securely constructive.
Credit circumstances (from the Chicago Fed)
- Financial Conditions Index up +.02 (much less free) to -0.73
- Adjusted Index (eradicating background financial circumstances) up +.01 (much less free) at -0.50
- Leverage subindex up +.04 (much less free) to -0.25
The Chicago Fed’s Adjusted Index’s actual breakeven level is roughly -0.25. In the leverage index, a unfavourable quantity is nice, a constructive poor. The historic breakeven level has been -0.5 for the unadjusted index. All three metrics presently present looseness and so are positives for the financial system. Earlier this yr, the leverage subindex turned as much as close to impartial, then turned extra constructive, however is now trending towards impartial.
Short main indicators
Trade weighted US Dollar
- Down -0.36 to 128.76 w/w, +7.2% YoY (final week) (broad) (116.42 -129.12)
- Down -0.68 to 96.35 w/w, +4.59% YoY (yesterday) (major currencies)
The US greenback briefly spiked greater after the US presidential election. Both measures had been positives since final summer season, however lately the broad measure turned impartial, adopted extra lately by the measure in opposition to main currencies, which has risen above +5% YoY and is thus unfavourable.
Commodity costs
Bloomberg Commodity Index
- Down -1.11 to 77.59 (77.59 – 91.94) (new one-year low)
- Down -11.59% YoY
Bloomberg Industrial metals ETF (from Bloomberg)
- 110.05 down -1.59 w/w, down -20.37% YoY (110.05 – 149.10) (new 52-week low)
Commodity costs surged greater after the 2016 presidential election. Both industrial metals, and the broader commodities indexes have each declined to very unfavourable up to now yr.
Stock costs S&P 500 (from CNBC)
- Up +2.8% to 2485.74 (new 52-week low intra-week)
After being impartial for a number of months, stock costs made a brand new three-month excessive in mid June and rose to a variety of new all-time highs till three months in the past. Having not made a brand new excessive in three months, whereas having made a brand new 52-week low earlier this week, the score adjustments to unfavourable.
Regional Fed New Orders Indexes
(*signifies report this week)
(Chicago PMI new orders additionally decelerated this week, however remained very robust).
The regional common has been extra unstable than the ISM manufacturing index, however has precisely forecast its month-over-month course. It was “very” constructive for many of this yr. More lately it has cooled to easily constructive within the final a number of months, and has continued cooling some extra to this point this month. It is now solely weakly constructive.
Employment metrics
Initial jobless claims
- 216,000 up +2,000
- Four-week common 218,000 down -4,000
Initial claims made 40-year-plus lows into September, however lately rose by slightly over 10%, earlier than falling again to close these prior lows, and so stay constructive.
Temporary staffing index (from the American Staffing Association)
- Unchanged at 101 w/w
- Up +2.4% YoY
This index was usually impartial from May by way of December 2016 after which constructive with a number of exceptions all throughout 2017. It was unfavourable for over a month at the start of this yr, however returned to constructive since then for a number of months, very constructive, though within the final month it has backed off. If the YoY comparability falls beneath +1.5% (contemplating the comparability was over +4% lately), the score will change to impartial.
Tax Withholding (from the Department of the Treasury)
- $207.7 B for the final 20 reporting days vs. $214.9 B one yr in the past, down -$7.2 B or -3.4%
- 20-day rolling common adjusted for tax reduce (+$4 B): down -$3.2 B or down -1.5%
With the exception of the month of August and late November, this was constructive for nearly all of 2017. It has usually been unfavourable for the reason that results of the current tax cuts started in February.
I’ve discontinued the intra-month metric for the rest of this yr, for the reason that kludge to guesstimate the influence of the current tax cuts makes it too noisy to be of actual use.
I’ve been adjusting primarily based on Treasury Department estimates of a decline of roughly $4 billion over a 20-day interval. Until we’ve YoY comparisons, we’ve to take this measure with an enormous grain of salt.
Oil costs and utilization (from the E.I.A.)
- Oil down -0.28 to $45.11 w/w, down -20.9% YoY
- Gas costs down -$.05 to $2.32 w/w, down -$0.15 YoY
- Usage four-week common down -1.7% YoY
The value of gasoline bottomed nearly three years in the past at $1.69. Generally costs went sideways with a slight rising development in 2017. In the final two months, nevertheless, costs have plummeted. This is a unfavourable for the oil patch, however a constructive for shoppers, so the score adjustments from impartial to constructive. Usage turned unfavourable within the first half of 2017, then turned constructive, however turned unfavourable once more for many of the final two months.
Bank lending charges
Both TED and LIBOR rose in 2016 to the purpose the place each have been normally negatives, with a number of fluctuation. Of significance is that TED was above 0.50 earlier than each the 2001 and 2008 recessions. The TED unfold was usually more and more constructive in 2017, whereas LIBOR was more and more unfavourable. Earlier this yr the TED unfold has whipsawed between being constructive or unfavourable, however extra lately was very constructive. It has risen once more within the final month, however remains to be constructive.
Coincident indicators
Consumer spending
Both the Retail Economist and Johnson Redbook Indexes usually improved from weak to average or robust positives throughout 2017 and have remained constructive this yr. Just a few months in the past each have been exceptionally constructive, however the Retail Economist measure decelerated some since then.
Transport
Railroads (from the AAR)
- Carloads up +3.1% YoY
- Intermodal models up +5.3% YoY
- Total hundreds up +4.2% YoY
Shipping transport
Rail was usually constructive since November 2016 and remained so throughout all of 2017 apart from a interval throughout autumn when it was combined. After some weak spot in January and February this yr, rail had been constructive ever since – till about two months in the past. Since then, aside from one week final month, and the final two weeks, it has weakened practically precipitously, in all probability because of tariffs. For three weeks lately it was unfavourable or impartial. This week, nevertheless, it was once more constructive.
Harpex made multi-year lows in early 2017, and after oscillating improved to new multi-year highs earlier this yr, however has now fallen sufficient to fee unfavourable. BDI traced an identical trajectory and made three-year highs close to the top of 2017, and at mid-year hit multi-year highs, however has since declined sufficiently to be listed as a impartial now.
I’m cautious of studying an excessive amount of into value indexes like this, since they’re closely influenced by provide (as in, an enormous overbuilding of ships within the final decade) in addition to demand.
Steel manufacturing (from the American Iron and Steel Institute)
- Down -1.1% w/w
- Up +11.6% YoY
Steel manufacturing improved from unfavourable to “less bad” to constructive in 2016 and apart from early summer season, remained usually constructive in 2017. It turned unfavourable in January and early February, however apart from three weeks lately has been constructive since then.
Summary And Conclusion:
Among the lengthy main indexes, Real M1, the Chicago Fed Adjusted Financial Conditions Index and the Leverage subindex, and actual property loans are positives, Purchase mortgage purposes and the yield curve are neutrals. Treasuries, company bonds, refinance purposes, mortgage charges, and actual M2 are all unfavourable.
Among the brief main indicators, the regional Fed new orders indexes, the Chicago National Conditions Index, jobless claims, staffing, and oil and gasoline costs are all constructive (word that I’m weighting the profit to shoppers greater than the misery to the Oil Patch). One measure of the US greenback is impartial. The broad trade-weighted US greenback, each commodities indexes, and the unfold between company and Treasury bonds are unfavourable, joined this week by gasoline utilization, and extra notably, stock costs.
Among the coincident indicators, shopper spending, metal, rail, and the TED unfold are constructive. The BDI is impartial. Tax withholding, LIBOR, and Harpex are negatives.
The lengthy main indicators remained impartial once more this week. The nowcast remained constructive. The motion continues to be within the short-term forecast, which weakened sufficient this week to change from constructive to impartial. The 2019 slowdown that started displaying up within the lengthy main indicators over six months in the past is now changing into pervasive among the many shorter main indicators.
Disclosure: I/we’ve no positions in any shares talked about, and no plans to provoke any positions inside the subsequent 72 hours. I wrote this text myself, and it expresses my very own opinions. I’m not receiving compensation for it (apart from from Seeking Alpha). I’ve no enterprise relationship with any firm whose stock is talked about on this article.
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