Monthly data for April included a decline in industrial production and capacity utilization; declining producer, import, and export prices; an increase in business inventories; and a decline to 6-month lows in consumer sentiment about both the present and the future. Retail sales were flat, although in real terms they probably increased slightly. Job openings and quits data was mixed.

My usual note: I look at the high frequency weekly indicators because while they can be very noisy, they provide a good Now-cast of the economy. The indicators will confirm a trend or indicate a switch in trend well before monthly and quarterly reports.

I have identified the overly strong US dollar as the primary culprit behind the shallow industrial recession, so let’s start there:

Trade-weighted US Dollar

  • -0.73 w/w

I am going to track the broad trade-weighted US dollar at least temporarily. The US dollar appreciated from a low of 101.67 last July 1 to a high of 117.92 on March 13, an increase of 16% in less than 9 months! Since then, the US dollar has retreated by -3.6%. This only takes us back to mid-February, when US industrial production was already getting killed. Last October, just before the November industrial peak, the US dollar was weighted at 106, so we have a long way to go before some sort of equilibrium is restored.

Interest rates and credit spreads

  • 4.97% BAA corporate bonds up +0.15% (1-year high)
  • 2.23% 10-year Treasury bonds up +0.05%
  • 2.74% credit spread between corporates and Treasuries up +0.10%

30-year conventional mortgage rate from Mortgage News Daily

  • 3.93%, up +0.06% w/w (low was 3.35% in December 2012)

Interest rates for BAA corporate bonds made a 50+ year low 13 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, where they had hovered at or below 2% before yields broke out to the upside in the last two weeks. Spreads widened in recent months, a warning of near-term weakness, and had wobbled back and forth near the neutral 2.50% range before breaking decisively negative last week, and even more so this week.