Monthly January reports started with the near-blockbuster employment report, showing 1 million jobs added in the last 3 months, a significant increase in wages, and a slight uptick in the unemployment rate due to a huge influx into the labor force. January ISM manufacturing was less positive, while ISM services were more positive. Motor vehicle sales declined slightly. December personal income rose, but personal spending fell. Construction spending rose. Factory orders fell. In the rear view mirror, Q4 productivity declined and unit labor costs rose.
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.
As I have done recently, I am generally going in order of long leading, then short leading, then coincident indicators.
Interest rates and credit spreads
- 4.43% BAA corporate bonds up +0.11%
- 1.83% 10 year treasury bonds up +0.10%
- 2.60% credit spread between corporates and treasuries up +0.01%
Interest rates for corporate bonds rose slightly from their 50+ year low set last week. Treasuries fell to a possible once-in-a-lifetime low of 1.47% in July 2012, but rose to over 3% in late 2013. Since the beginning of 2014, they have moved about 75% of the way back down to their July 2012 lows. Corporate bond yields had trended generally sideways since May 2014, before breaking out to the downside in the last 5 weeks. Spreads widened in recent months, a warning of near-term weakness.
Home Sales and Prices from DataQuick:
- +2.7% sales YoY, down -1.4% (1 month rolling average)
- +3.7% prices YoY, up +0.5% (1 month rolling average)
YoY sales were positive for the twelfth week in a row, while prices appreciation has accelerated slightly.
Mortgage applications from the Mortgage Bankers Association:
- -2% w/w purchase applications
- +3% YoY purchase applications
- +3% w/w refinance applications
YoY purchase applications established a “less awful” trend in the last few months, and this week, for the fourth straight week were positive. Refinance applications also remained close to an 18-month high.
Real estate loans from the FRB H8 report:
- Up +0.1% w/w
- Up +3.6% YoY
Loans turned up at the end of 2011, turned down in late 2013, but have remained positive to sharply positive since April 2014.
- +1.2% w/w
- +0.1% m/m
- +10.0% YoY Real M1
- +0.1% w/w
- +0.5% m/m
- +5.0% YoY Real M2
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, and both remain firmly in positive territory.
Initial jobless claims
- 278,000 up +13,000
- 4-week average 292,750 down -5,750
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 +5.14% YoY
The YoY comparison has generally been positive to strongly positive since last spring.
- $183.5 B for the month of January vs. $185.0 B one year ago, down -$1.5 B or -0.8%
- $180.0 B for the last 20 reporting days ending Thursday vs. $169.3 B one year ago, up +$10.7 B or +6.3%
In the last half of 2014, virtually all readings were positive. There was definite weakness in January (but note that there was 1 less reporting day this year than last year). The last 20 days are within the range of past positive readings.
Oil prices and usage
- Oil up +$3.90 to $51.69 w/w
- Gas up +$0.03 to $2.07 w/w
- Usage 4-week average YoY +6.3%
The price of gas may have bottomed one week ago. The 2010-2013 oil choke collar has been broken, and usage has been responding in a big way.
- Johnson Redbook +3.8% YoY
- Gallup daily consumer spending 14-day average at $83, up +$6 YoY
In 2013 and early 2014, the Johnson Redbook YoY was between from +2% to a high over +4%. In the second half of 2014, the range increased to +3.5% to +5%. It fell out of that range in the last two weeks before returning to its regular range this week. Gallup declined sharply for two weeks and then turned negative two weeks ago. In the last two weeks it has rebounded. Clearly, consumers pulled back, even adjusted for seasonality, in January. YoY comparisons are a little suspect now, since exactly one year ago was the worst of the “polar vortex” decline.
Steel production from the American Iron and Steel Institute
Steel production over the last several years has generally been in a decelerating uptrend. Since last spring, they have alternated between slightly positive and slightly negative. This week was particularly negative.
Railroad transport from the AAR
- +27,600 carloads up +10.2% YoY
- +2,700 intermodal units up +1.1% YoY
- +30,600 total loads up +5.9% YoY
- Harpex up + 6 to 461 (3 year high)
- Baltic Dry Index down -73 to 559 (3 year low)
Rail traffic made a new all-time high six weeks ago. Two weeks ago it had rare negative comparisons. The BDI has declined sharply in the last eight weeks. On the other hand, Harpex has turned up sharply in the last month. In the longer term, shipping rates bottomed about 2 years ago and have been in a slow and variable uptrend since, although the Baltic index shows signs of breaking that to the downside. This is probably because Harpex is primarily container shipping, and the BDI is primarily single hull shipping (e.g., oil).
Bank lending rates
- 0.248 TED spread up +0.03 w/w (18-month high)
- 0.171 LIBOR unchanged w/w (1-year high)
LIBOR has risen sharply from its post-recession low set in May and tied the one-year high it made last week. 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 this week. While there has been enough of an increase for me to score these as neutral or negative, they need to be kept in perspective. The move in the last months (probably mainly due to the latest Euro crisis) has been pale compared with the moves before the Great Recession.
- Up +1.23 to 102.88 w/w
- Down -19.61 YoY
BBG Industrial metals ETF
Commodity prices rebounded off a possible long-term low one week ago. 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, and made a new low two weeks ago.
Once again, there were few outright negatives this week. These were commodity prices and the Baltic Dry Index, joined by steel production and slight negatives in the TED spread (Greece!) and bond spreads. Everything else was slightly to strongly positive.
Among long leading indicators, yields on corporate bonds and treasuries increased slightly, reflecting an abatement of immediate deflationary concerns, but they are still very positive. Money supply remains quite positive. All of the housing indicators were positive: Real estate loans, house sales as reported by DataQuick, and most significant of all, mortgage applications, which had their fourth positive week in a row.
The short leading indicators were also generally positive. Oil prices and industrial metal prices increased slightly. Spreads between corporate bonds and treasuries were slightly negative. Temporary staffing and gas prices and usage remained positive, and initial jobless claims remain within a very positive range.
Coincident readings were mixed. Consumer spending and tax withholding were positive this week. Rail and container shipping were positive, while steel production and single hull shipping were negative. The TED spread increased enough to be a slight negative, while LIBOR was neutral.
The conclusion this week is the same as last week: one year ago we had decided weakness in some long leading indicators, especially housing and corporate profits. This looks like it has finally spread into some of the coincident indicators. But the big story right now has to be oil and housing. Not only is consumer sentiment soaring, but low interest rates are starting to show up in a rebound in housing. This is very positive going forward.