In the rear view mirror, as expected first-quarter GDP stunk, although it remained just barely positive. Some good news was the big increase in median wages and benefits.
Monthly reports for April started out with a decline in vehicle sales, a steady ISM manufacturing report, positive Chicago PMI, and mixed consumer sentiment reports, with the University of Michigan’s measure up and the Conference Board’s measure down. March data included a big increase in pending home sales, and increased house prices. Personal income was flat, but spending increased both in nominal and real terms, indicating consumers finally started to loosen the purse strings on their gas savings.
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.
Coincident indicators remain front and center, and I’ve been especially watching Gallup’s consumer spending, so let’s start there again:
- Johnson Redbook +1.4% YoY
- Gallup daily consumer spending 14-day average at $91, up +$5 YoY
The Gallup report, which had been barely positive to outright negative since the beginning of this year, has had three weeks in a row of excellent YoY comparisons, the best in 2015 to date. For the last 28 days, Gallup has averaged $91.50, up 10% from its equivalent 2014 reading of $83. This signals that it is likely that consumers are starting to spend their gas savings. I should caution that Gallup was somewhat weak in April 2014 (Easter variation) and May will feature considerably more challenging YoY comparisons.
In the second half of 2014, Johnson Redbook was between +3.5% to +5%. It has fallen out of that range in 12 of the last 14 weeks. The last 4 weeks started with a good (for 2015) +3.4% followed by poor +1.1%, +0.8%, and +1.4% comparisons, and probably reflect the change in the Easter holiday over the two years. I am favoring Gallup, which has proven reliable, over JR, which compares given weeks with an entire month from the previous year. Unfortunately, the ICSC report has inexplicably been discontinued.
Railroad transport from the AAR
- -23,900 carloads, down -7.9% YoY
- +14,800 intermodal units, up +5.6% YoY
- -8,800 total loads, down -1.6% YoY
- Harpex up +7 to 620 (4-year high)
- Baltic Dry Index down -12 to 587
Rail traffic fell off a cliff seven weeks ago. Intermodal traffic quickly turned positive again, but domestic carloads have remained generally negative. After declining sharply for several months, making a 3-year low in mid-February, the BDI rebounded mildly and then has plateaued. Meanwhile, Harpex (container shipping) has turned up sharply for the last 3 months in a row, making almost 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.
Steel production from the American Iron and Steel Institute
Steel production over the last several years had generally been in a decelerating uptrend. Since spring 2014, it turned mixed and then cliff-dived in the two months. This may be due to weak foreign economies and a strong dollar (and Chinese dumping).
- Up +1.54 to 103.72 w/w
- Down -19.62 YoY
BBG Industrial metals ETF
Commodity prices as measured by ECRI remain close to their recent new low. This is still probably due to international weakness, and mainly about oil. Industrial metals have generally been declining for the last 3 years, made and retested a low in the last three months, have rebounded slightly, and are bouncing sideways along that bottom.
Interest rates and credit spreads
- 4.65% BAA corporate bonds up +0.15%
- 2.11% 10-year treasury bonds up +0.15%
- 2.54% credit spread between corporates and treasuries unchanged
Interest rates for BAA corporate bonds made a 50+ year low 11 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 have hovered around 2%. Spreads widened in recent months, a warning of near-term weakness, and in the last few weeks have wobbled back and forth near the neutral 2.50% range.
Mortgage applications from the Mortgage Bankers Association:
- Unchanged w/w purchase applications
- +21% YoY purchase applications
- -4% w/w refinance applications
30-year conventional mortgage rate from Mortgage News Daily
- 3.84%, up +0.13% w/w (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 10 of the last 11 weeks. Mortgage rates are in the bottom part of their 12-month range, but have not made a new low in over two years. As a result, mortgage refinancing remains relatively somnolent, although off its bottom.
Real estate loans, from the FRB H8 report:
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
- -0.1% m/m
- +6.9% YoY Real M1
- +0.1% w/w
- +4.0% m/m
- +6.1% 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, although Real M1 had the “least positive” reading in awhile this week.
Initial jobless claims
- 262,000 down -33,000 (15 year low)
- 4-week average 283,750 down -750
Initial claims remain well within the range of a normal economic expansion, as does the 4-week average. This is particularly interesting since the 10 oil patch states have seen higher jobless claims in the last few months, but they have been over matched by lower claims elsewhere.
The American Staffing Association Index
- Up +1 to 97
- Up +2.24% YoY.
The YoY comparison had generally been positive to strongly positive since last spring. In the last month, the YoY comparisons, while still positive, have generally declined significantly, although this week we got a positive rebound.
- $178.0 B for the month of April vs. $167.6 B one year ago, up +$10.4 B or +6.2%
- $150.3 B for the last 20 reporting days ending Thursday vs. $154.6 B one year ago, down -$4.3 B or -2.8%
Beginning with the last half of 2014, virtually all readings have been positive. I am discounting the 20-day reading this week. One reason I keep track of withholding 2 ways is because the biggest deposit of the month inevitably occurs on the first day. In this case, on May 1, $15.6 B was deposited, but April 1 had already passed out of the 20-day window, so the full monthly April reading is the more accurate one.
Oil prices and usage
- Oil up +$1.84 to $59.26 w/w
- Gas up +$.08 to $2.57 w/w
- Usage 4-week average YoY +2.6%
The price of gas bottomed 11 weeks ago. Oil briefly made a new low three weeks ago, but has also risen to 2015 highs since. The 2010-2013 oil choke collar has been broken. The interesting issue now is when and at what price we get the seasonal peak, even though gas prices have only risen about $0.55 off their January bottom.
Bank lending rates
- 0.274 TED spread up +0.017 w/w (new 2-year high)
- 0.1810 LIBOR down -0.003 w/w (midweek made a new 18-month high)
LIBOR has risen sharply from its post-recession low set in one year ago, and the TED spread has had a slight upward trend since the last 6 months of 2014, rising off its November 2013 low. As indicated above, both have made significant new highs. Still, this negative move, probably due to the latest Euro crisis, pales in comparison with the moves before the Great Recession.
Among long leading indicators, money supply and real estate loans were positive. Treasuries and corporate bonds also remained positive, although less so. Purchase mortgage applications were positive for the sixth straight week, helped by relatively low mortgage rates, while refinancing, despite a small boomlet, in the longer term is negative and still very close to its multi-year bottom.
The short leading indicators were mixed, but more positive. Oil and gas prices have risen, but remain positives, as has gas usage. Initial jobless claims were very positive, and temporary staffing improved, reversing two weeks of surprise negative readings. Industrial metals were slightly negative. Spreads between corporate bonds and treasuries again score a slight negative.
Coincident indicators were mixed, but primarily negative. There were three positives: Tax withholding, container shipping, and for the third week in a row, Gallup consumer spending. Steel production was again “less awful” this week. Rail was again mixed, but after turning positive one week ago, returned to a negative reading this week. The Baltic Dry Index turned slightly negative. The TED spread and LIBOR turned more negative. Johnson Redbook consumer spending rebounded weakly from its least positive week in a year.
This week continued the dominant theme of the last several months: poor coincident indicators with generally positive long and short leading indicators. There is a shallow industrial recession due to the strong dollar and oil patch weakness, but a resilient consumer economy. Incidentally, ECRI’s Lakshman Achuthan just voiced a similar view, speaking of the US as having a “two-track economy,” as well. The good news is that the Gallup consumer survey suggests April will show increased consumer spending. The bad news is that oil patch weakness and a stronger dollar portend a relatively weak April employment report.