Weekly Indicators for December 5 - 9 at XE.com

 - by New Deal democrat

My Weekly Indicator post is up at XE.com.

A negative trifecta is developing (we're not quite there yet) of interest rates, US$ appreciation, and gas prices.

October JOLTS and Labor Market Conditions Index positive but meh

 - by New Deal democrat

The JOLTS Survey and the Labor Market Conditions Index are two metrics with great promise, but like those surveys, but suffer by not having a long enough real-time history to use with full confidence.

In the case of the JOLTS survey, there is now a clear divergeance between the pattern during this expansion and the only full sample of the prior expansion. 

Here's job openings (blue),  hires (red), and quits (green, right scale) since the first bottom in 2003: 

In the one and only complete cycle since the series began, hires and quits peaked first, while openings continued to increase until shortly before the onset of the 2008 recession.  During this cycle, hires have gone sideways for over a year, while openings continued to rise until recently, and now appear to be rolling over.  Meanwhile quits, while down this month, are still at a new high on a 3-month rolling average. 

So, In the last cycle, YoY job openings held up until nearly the end.  This time around, it appears at least for now that openings may be turning before quits.  Unless job openings make new highs in the months ahead, this cycle will not match the last one.  We just don't have enough history with the JOLTS series to know which resolution is more likely.

In the past, employment growth (which is the net of hiring over firing) decelerates markedly before layoffs begin to increase.  JOLTS now breaks that down into hiring and discharges, shown below:

Hiring looks like it shows late cycle deceleration, but this has not translated into any increase in layoffs and discharges.  Here's a close-up of the last year from the graph above

Turning to the Labor Market Conditions Index, the problem is backfitting, since the underlying data goes back half a century, but the index itself was only created a few years ago.  We need to see how it performs in real time.

Earlier this year there were some poor, negative readings leading some Doomers to holler "recession!" but these have largely been revised away:

As you can see, the most recent reading (for October) was also positive.

The recent upturn in housing should translate into increase spending, and thus increased employment, in the next 6-12 months, so I expect further positive readings here over the near term.

Bottom line: for the economic expansion, there is no sign in these two metrics that Indian Summer will give way to the Gales of November anytime soon.

2017 is increasingly looking like a year of inflation

 - by New Deal democrat

As things stand presently, it increasingly like 2017 will be a year where inflation finally exceeds 2%, leading to Fed rate hikes in a classic late-cycle trend.

This post is up at XE.com.

Housing forecast for 2017

 - by New Deal democrat

This post is up at XE.com.  How, and when, can we expect the see-saw that has been interest rates in 2016, to affect the housing market in 2017?

My Columns Are Up At XE.com

International Economic Week in Review

Bond Market Week in Review

Equity Week in Review

Weekly Indicators for November 28 - December 2 at XE.com

 - by New Deal democrat

My Weekly Indicators post is up at XE.com.

While the present and near future forecast look sunny, the broad US$ joined interest rates as an important negative this week.

November jobs report: good unemployment news, faltering wage growth

- by New Deal democrat

HEADLINES:

• +178,000 jobs added
• U3 unemployment rate down -0.3% from 4.9% to 4.6%
• U6 underemployment rate down -0.2% from 9.5% to 9.3%

Here are the headlines on wages and the chronic heightened underemployment:

Wages and participation rates

• Not in Labor Force, but Want a Job Now: down -36,000 from 5.912 million to 5.876 million  
• Part time for economic reasons: down -220,000 from 5.889 million to 5.669 million
• Employment/population ratio ages 25-54: down -0.1% from 78.2% to 78.1% 
• Average Weekly Earnings for Production and Nonsupervisory Personnel: up $.02 from $21.71 to $21.73,  up +2.4% YoY.  (Note: you may be reading different information about wages elsewhere. They are citing average wages for all private workers. I use wages for nonsupervisory personnel, to come closer to the situation for ordinary workers.)

September was revised upward by +17,000, but October was revised downward by -19,000, for a net change of -2,000. 

The more leading numbers in the report tell us about where the economy is likely to be a few months from now. These were mixed.

• the average manufacturing workweek declined -0.2 from 40.9 to 40.7 hours.  This is one of the 10 components of the LEI, and is a negative.
 
• construction jobs increased by +19,000 YoY construction jobs are up 155,000.  
 
• manufacturing jobs decreased by -4,000, and are down -54,000 YoY

• temporary jobs increased by +14,300, a new high.


• the number of people unemployed for 5 weeks or less increased by +24,000 from 2,397,000 to 2,421,000.  The post-recession low was set 1 year ago at 2,095,000.

Other important coincident indicators help  us paint a more complete picture of the present:

• Overtime was unchanged at 3.3 hours.
• Professional and business employment (generally higher- paying jobs) increased by +63,000 and are up +571,000 YoY.


• the index of aggregate hours worked in the economy rose by 0.1  from  106.0 to 106.1 

•  the index of aggregate payrolls was unchanged at 131.3 . 

Other news included:         

• the alternate jobs number contained  in the more volatile household survey increased by  +160,000 jobs.  This represents an increase  of 2,641,000  jobs YoY vs. 2,253,000 in the establishment survey.    
   
• Government jobs rose by +22,000.     

• the overall employment  to  population ratio for all ages 16 and up was unchanged at  59.7%  m/m and is up +0.3% Y oY.   
• The  labor force participation rate fell -0.1% from 62. 8% to 62.7% and is up +0.2% YoY (remember, this includes droves of retiring Bsoomers).     

 SUMMARY 

This was a good headline report with mixed internals. The good news was mainly in the underemployment and underemployment rates, which both fell to new lows, as did the number of those part time for economic reasons. That temporary employment is making new highs is also a good leading indicator for the rest of the jobs market.

The bad news primarily came in faltering wage growth, which fell to +2.4% YoY, and aggregate real wages, which also fell.

Again, a good late cycle "Indian Summer" employment report, but one that if anything amplifies my concern that in the next recession we will see actual wage deflation for the first time in 80 years.

  

The Potential For Very Bad Inadvertent Policy Impacts of Trump's Trade Policies

     This week, president-elect Trump directly intervened in the private economy.  He negotiated directly with the Carrier Corporation, getting them to agree to keep an Indiana factory in the U.S..  He has also said that renegotiating NAFTA is a top priority, along with increasing export and import tariffs to prevent U.S. companies from moving abroad.

     Above is a chart showing that real exports as a percent of GDP are now greater than 12% of real U.S. GDP.  While we don't know the exact parameters of Trump's policies, we do know that the law of unintended consequences tells us that for every policy action, there may be a large number of inadvertent policy results.  Trump's policies have the potential to seriously unbalance 12% of the U.S. economy, which may negatively ripple through other economic sectors.  

Is A Housing Slowdown in the Cards?

The chart above plots three sets of data: the 10 year CMT treasury (in blue), the 15-year mortgage rate (in red) and new home sales (in green).

Note that as the blue and red line declined from the beginning of 2014 new home sales rose.  This is an easily explained relationship: lower interest rates lead to lower financing costs, increasing overall housing demand.  But interest rates have sharply increased since the election.  Just as low rates stimulate demand, expect higher rates to lower it.

    

Bonddad's Thursday Linkfest

F. Hale Stewart is a financial adviser with Thompson Creek Wealth and a transactional attorney, specialising in asset protection and advanced tax planning. 

Fed Releases the Beige Book

Reports from the twelve Federal Reserve Districts indicate that the economy continued to expand across most regions from early October through mid-November. Activity in the Boston, Minneapolis, and San Francisco Districts grew at a moderate pace, while Atlanta, Chicago, St. Louis, and Dallas cited modest growth. Philadelphia, Cleveland, and Kansas City cited a slight pace of growth. Richmond characterized economic activity as mixed, and New York said activity has remained flat since the last report. Outlooks were mainly positive, with six Districts expecting moderate growth.

Demand for manufactured products was mixed during the current reporting period, with the strong dollar being cited as a headwind to more robust demand in a few Districts. Modest to moderate increases in capital investment are expected in several other Districts. Business service firms saw rising activity, especially for high-tech and information technology services. Reports from ground freight carriers were mixed, while port cargo increased. A majority of Districts reported higher retail sales, especially for apparel and furniture. New motor vehicle sales declined in most Districts, with a few Districts noting a shift in demand toward used vehicles. Tourism was mostly positive relative to year-ago levels. Residential real estate activity improved across most Districts. Single-family construction starts were higher in a majority of Districts, while multifamily construction reports were mixed. Activity in nonresidential real estate expanded in many Districts. Banking conditions were largely stable, with some improvement seen in loan demand. Farmers across reporting Districts were generally satisfied with this year's harvests. However, low commodity prices continue to weigh on farm income. Investment in oil and gas drilling increased slightly, while reports on coal production were mixed. A tightening in labor market conditions was reported by seven Districts, with modest employment growth on balance. Districts noted slight upward pressure on overall prices.

Personal Income and Spending Increases

Personal income increased $98.6 billion (0.6 percent) in October according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased $86.5 billion (0.6 percent) and personal consumption expenditures (PCE) increased $38.1 billion (0.3 percent).

Real DPI increased 0.4 percent in October and Real PCE increased 0.1 percent. The PCE price index increased 0.2 percent. Excluding food and energy, the PCE price index increased 0.1 percent.

The corporate profit recession has ended ... (but) ...

 - by New Deal democrat

The important long leading indicator of corporate profits was reported yesterday for the 3rd Quarter.

The good news is, corporate profits increased significantly, whether measured nominally or adjusted by unit labor costs (the adjustment preferred by Prof. Geoffrey Moore who identified corporate profits as a long leading indicator:

The bad news is also evident from the graph.  Regardless of which way you measure, corporate profits are still below their peak from several years ago.  In particular, adjusted by unit labor costs, corporate profits are still 9% less than they were at their peak in 2012.

So, the profits recession has bottomed -- as of Q4 of last year.  But before you get too excited about the end of the profits recession, consider that industrial production isn't exactly setting the world on fire:

And because profits are below their peak for this expansion, they are one indicator which has still given the necessary signal to be consistent with an oncoming recession.

Bonddad's Wednesday Linkfest

F. Hale Stewart is a financial adviser with Thompson Creek Wealth and a transactional attorney, specialising in asset protection and advanced tax planning. 


Brad Delong With a Really Important Insight

While standard measures show productivity growth falling, all other indicators suggest that true productivity growth is leaping ahead, owing to synergies between market goods and services and emerging information and communication technologies. But when countries with low-growth economies do not sufficiently educate their populations, nearly everyone below the top income quintile misses out on the gains from measured economic growth, while still benefiting from new technologies that can improve their lives and wellbeing.

Exports Jumped Thanks to a Large Increase in Consumer Durable Good Exports

Corporate Profits -- One of the Primary Leading Indicators -- Increased for A Second Consecutive Quarter

Consumers Continue to Buy a Lot of Durable Goods; They Bought a Lot of Cars Last Quarter

The US is A Service Economy and Has Been for A Very Long Time

President-elect Trump has promised he'll bring back high-paying manufacturing jobs.  Unfortunately, macroeconomic forces disagree with him.

The above chart places total service sector and goods-producing jobs on a logarithmic scale.  You'll notice that total manufacturing jobs plateaued in the late 1970s.  Meanwhile, total service jobs have consistently increased since the beginning of the 1960s.

The above chart plots total monthly increases of service sector (red) and goods producing (blue) jobs. For the last four expansions, the service sector has consistently created far more jobs than the goods producing sector.

The US is a service economy.  Period.  

Bonddad's Tuesday Linkfest

F. Hale Stewart is a financial adviser with Thompson Creek Wealth and a transactional attorney, specialising in asset protection and advanced tax planning. 

EU Monetary Aggregates and Loan Growth

Federal Reserve Bank of Philadelphia's Leading Index

Mario Draghi's Speech

For both the euro area and the United Kingdom, the Single Market has been a fundamental asset and a positive sum game. Bringing together European economies has allowed the European Union to reap efficiency gains and better satisfy demand. For sectors such as financial services, the ability to serve an EU-wide, interconnected market is a key factor of success. The Single Market also makes it possible for firms to benefit from the complementarities of various locations across the EU as part of European value chains. Moreover, the free movement of people ensures that anyone can seek work where economic activity is concentrated as a result of agglomeration effects. Economic clusters in turn benefit from being able to recruit workers from across the EU.

The United Kingdom has benefited from the strong economic and financial links within the Single Market. In fact, more than 40% of the foreign value-added contained in UK exports comes from the rest of the EU. Within the Single Market, the United Kingdom has also been a major hub for wholesale banking activities. More specifically, the single passport means that UK-based banks can currently serve the rest of the EU without needing to set up subsidiaries in other Member States, and vice versa. That implies sizeable savings in terms of capital and liquidity.

If, in the long run, the risk of a less open UK economy in terms of trade, migration and foreign direct investment were to materialise, there would be a negative impact on innovation and competition and, thus, productivity and potential output. Such developments would first and foremost weigh on the UK economy. They would to a likely lesser extent also have some limited adverse spillover effects on the euro area. The overall impact would, however, vary across countries depending on their trade links with the United Kingdom.

Mexico Warns the US About Trade Issues

The US risks harming its own interests in any renegotiation of the North American Free Trade Agreement, as planned by Donald Trump, José Antonio Meade, Mexico’s finance minister, has warned.

“The damage assessment is not just Mexico’s,” he told the Financial Times during a recent visit to London. He added that the trade deal, which includes Canada as well as the US and Mexico, “is creating value on both sides of the border”.

OECD Backs Trumps Infrastructure Plan

Donald Trump’s economic plans received strong backing from the Organisation for Economic Co-operation and Development on Monday, with the international organisation predicting the president-elect’s infrastructure plans would increase US growth, combat inequality and energise discouraged workers.

.........

The OECD’s support highlights how views of US prospects have altered over the past two months. Before the US election, international financial institutions, such as the International Monetary Fund and World Bank, feared a Trump presidency and officials discussed him as a sort of Voldemort for the global economic order — like the villain in Harry Potter, his name spoken only in hushed tones and behind closed doors.

US Bond Market Week in Review

      Last week’s column focused exclusively on Chairperson Yellen’s most recent Congressional testimony where she convincingly argued for a rate hike in the near future.  Markets interpreted this to mean at the December meeting.  In this week’s column, I will look at the 4 primary coincidental indicators along with a broad selection of labor market and price indicators to demonstrate that the data supports a rate hike in the next few months.

    Let’s start with the four primary coincidental indicators:

Only industrial production is declining; the other three have been consistently increasing since the end of the recession.  The decline in industrial production is contained to the mining sector; utility and manufacturing output has been moving sideways for the last several years, indicating the oil sector slowdown hasn’t bleed into other areas.

     Turning to the labor market, the Atlanta Fed’s Spider Chart shows a variety of indicators in a convenient format:

The chart above plots 15 different employment indicators covering 6 different labor market data categories at three different times: the height of the last expansion (dark blue), the depth of the recession (light green) and current levels (gold).  Clearly, current conditions are far better than the depths of the last recession.  Confidence, employer behavior and flows are as high as or just below previous highs.  But recent utilization and wage levels are below the heights of the previous expansion.  It’s more likely that weak utilization rates are causing weak wage growth.  This, oddly enough, helps the fed because weaker wages lowers inflationary pressure.  But weakness in these two areas aren’t sufficient to prevent a rate hike.

       And finally, we have prices:

The top chart shows the Y/Y percentage change is the CPI index while the bottom chart shows the Y/Y percentage change in the PCE price index.  In both cases, the core rate is at or near 2% while the overall rate is approaching 2%.  Both data sets support a rate hike.

     The above data, in combination with the recent rise in inflation expectations, all point to rate hikes in the future.

International Economic Week in Review

      Earlier in the week, Mario Draghi gave a speech where he noted three positive trends within the EU economy.  First, the banking sector was far stronger now than immediately after the recession.  Tier 1 capital increased from 7%-14% and lending to business was up.  Second, domestic demand growth now accounted for 1% of overall GDP growth.  This is in contrast to export demand, which contributed little to growth in the last 12 months.  Finally, the unemployment rate has dropped from 12% to 10%.  While this seems high by western standards, it does indicate the EU economy is making progress.  In other EU news, Markit released their latest flash estimate for the EUs manufacturing, service and composite indicators.  The service reading was 54.1, an 11 month high.  Manufacturing was also 54.1 as was the overall composite reading.  It appears that the ECBs bond buying program has been successful.

     Earlier in the week, newly appointed BOJ member Masai gave a speech that highlighted various risks to the international economic order:

The election of Donald Trump as U.S. President, Brexit, and the weak state of the European Union's financial sector have been named by Bank of Japan board member Takako Masai as possible causes of future global economic weakness and wild financial market swings.

Since Trump’s election, equities have rallied and global bonds have sold off.  The drop in bonds was so severe that the BOJ used its yield curve control program to halt the sell-off.  While some have argued the bond sell-off is overdone, there is no denying that the reflation trade now dominates global investment thinking, indicating that Masai’s concerns are well justified.  Other news showed a weak economy.  Exports declined 10.3% Y/Y while the Markit manufacturing flash estimate was 51.1, a number that, while positive, is statistically weak.

     The UK’s ONS released their second estimate of 3Q GDP, which was unchanged from the first report of a 2.3% Y/Y increase.  Services were the sole source of growth, rising .8% Q/Q.   Production, in contrast, decreased .5% as 3 of 4 subsectors decreased.  The UK’s Brexit quandary deepened.  Some governmental factions continued to push for a complete withdrawal while an increasing number of business leaders began advocating for a “soft Brexit,” which would comprise a multi-state withdrawal lasting over 2 years.  This would allow additional time for businesses to more gradually change their policies and structures, preventing severe economic disruption. 

     The RBA’s Christopher Kent gave a speech that not only contained a clear explanation of the current state of Australia’s economy, it also included an assessment of the economic conditions at the state level.  Kent described the macro level economy in the following terms:

The economy continues to adjust to the end of the resources boom (Graph 1). Our expectation is that GDP growth will be close to potential growth over the next few quarters and pick up to be a little above potential thereafter. The unemployment rate, which has declined over the past year by more than expected, is likely to edge just a little lower over the next two years. That implies that there will be some spare capacity in the labour market for a time. Inflation is low. In year-ended terms, we expect underlying inflation to remain around 1½ per cent for a few quarters before gradually increasing to more normal levels. That profile follows from the forecast for the growth of labour costs to rise gradually and is consistent with the medium-term inflation target.

Kent’s analysis also contained a positive assessment of the overall terms of trade:

One notable aspect of our latest forecasts was the upward revision to the outlook for Australia's terms of trade. Prices of bulk commodities have risen this year and contributed to a rise in the terms of trade of about 6 per cent in the June and September quarters. That's the first rise in the terms of trade in some time. Our forecasts are for the terms of trade to remain above the low point reached earlier this year (and about 25 per cent above the average of the early 2000s before the boom). While our forecasts are uncertain and subject to various risks, the upward revision represents a marked change from the pattern of the past five years. Our assessment, based in part on liaison information, is that the improved outlook for commodity prices is not likely to lead to a noticeable pick-up in mining investment (in the near term at least). Even so, if our forecasts are right, the terms of trade will shift from the substantial headwind of recent years to a slight tail breeze providing some support to the growth of nominal demand

The biggest reason for better terms of trade (the difference in price between exports and imports) is the rise in industrial metals prices, which is captured by the daily DBB ETF chart:

US Economic Week in Review

     On Monday, the Chicago Fed released its latest National Activity Index.  This statistic collates 85 indicators from  four general economic statistical categories.  Any reading below .7 indicates a recession is a higher probability while any reading below 0 indicates the economy is growing below potential.  According to the indicator’s three-month moving average, the economy has been expanding below potential for the most of the last 5 years:

     Housing news was positive.  Existing home sales increased 2% M/M and 5.9% Y/Y.  Although new home sales decreased 1.9% M/M they increased a very strong 17.9% Y/Y.  The 5-year chart places new home sales figures into a longer-term perspective:

Starting in July 2015, new home sales began a year-long increase.  Recent declines probably a cooling off from an accelerating pace.  Going forward, expect both of these numbers to decrease as the impact of higher interest rates flows through the economy.

     Durable goods orders rose for the 4^th consecutive month, this time by 4.8%; the figure rose 1% ex-transportation.  However, the overall trend is still weak:

The total orders line (in red) has moved sideways 2013 while the ex-transport number has decreased slightly over the last 2 years. 

    Economic conclusion: this week’s news was positive.  Housing continues to be a bright spot, although the recent increase in rates may slow their recent moves.  Durable goods numbers were also positive, although we don’t have enough data to determine if a new trend is starting.  Finally, the CFNAI is still within expansionary parameters, although the 3 month moving average is still showing a below average expansion. 

Doomer radio silence: trucking edition

 - by New Deal democrat

One of the hallmarks of Doomers is that a data series is only worth reporting if it shows that we are DOOOMED.  When it turns positive, it is no longer worth mentioning.

Such is the case now with the Cass Freight Index, a monthly trucking report.  It turned down badly early in 2015, and remained negative YoY since then, although it had gotten "less worse" in the past few months.

If this sounds familiar, it is because the weekly railroad loading report from the AAR has had the same trajectory. Basically the Cass Freight Index is useful as confirmatory of the much more timely AAR reports, but the AAR reports are much more timely, since they are reported weekly with less than a 7 day lag, which the Cass index is reported once a month somewhere in the middle to latter part of the ensuing month.

Since the weekly AAR reports had been tracking neutral to positive over the last month, I was waiting to see if the Cass Trucking report would confirm them -- and what the Doomer reaction would be.

Well, the wait is over, because here is the latest Cass Freight Index graph:

And the Doomer reaction -- radio silence.

The "shallow industrial recession" of 2015 is long gone, and the YoY measures are finally turning positive.  This is a good time to remind you of one of my consistent themes: that YoY data will lag turning points. My rule of thumb is that unadjusted YoY series have probably made a top or bottom when the YoY change is reduced to less than 1/2 of what it was at its maximum.

Meanwhile the Doomers will move on to the next metric which at the moment shows that we are DOOOMED!

Bonddad's Monday Linkfest

F. Hale Stewart is a financial adviser with Thompson Creek Wealth and a transactional attorney, specialising in asset protection and advanced tax planning. 

Weekly Performance of US Indexes

The Russell 2000 is still outperforming 

The Mid-Caps Are Also Performing Well

US Sector ETF Performance

The potential for increased infrastructure spending is supporting a basic materials rally

Infrastructure spending is also supporting the XLIs

Potential deregulation of the energy sector is supporting the XLEs

Weekly Indicators for November 21 -25

 - by New Deal democrat

[N.B.: XE's blog is having a software glitch.  I am posting my Weekly column here until the issue is worked out.]

Monthly data for October was positive with the exception of new home sales, which declined. Durable goods orders increased. The advance reading of inventories showed a decline, which is good. Existing home sales set a new post-recession record high.  

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, and will telegraph the maintenance or change in the economy well before monthly or quarterly data is available.  They are also an excellent way to "mark your beliefs to market."

In general I go in order of long leading indicators, then short leading indicators, then coincident indicators.

Interest rates and credit spreads

• Dow Jones corporate bond index 358.16 up +0.12 w/w (2016 high is 395.36, 2016 low is 341.41)
• 2.36% 10 year treasury bonds up +.02% (new 12 month high intraweek)
• BofA/ML B Credit spread down -.22% to 4.70% (12 month low of 4.62% on Oct 22)

Yield curve, 10 year minus 2 year:

• 1.24%, up +.32% w/w

30 year conventional mortgage rate

• 4.19%, up +.07% w/w (52 week high)

Yields on treasuries and mortgage rates continued to spike to 12 month highs this week. They are now negatives. Corporate bonds are still neutral. Because rates made new lows after the Brexit vote in June, that nevertheless strongly suggests that the expansion will continue through mid-2017.  Yields are also still positive, but spreads are neutral.

Housing

Mortgage applications

• purchase applications up +3% w/w
• purchase applications up +11% YoY
• refinance applications up +3% w/w

Real Estate loans

• Down -0.1% w/w
• Up +6.8% YoY

Mortgage applications briefly  spiked in response to low rates following the Brexit vote.  Purchase applications last made a new high at the beginning of June.  They have wobbled between being positive and neutral for the last 9 weeks. This week they turned higher. But withhold your cheers, because the same thing briefly happened in 2013 at the time of the "taper tantrum" as borrowers rushed to lock in rates before they got any higher.  Mortgage applications may go YoY negative within the next several weeks.  If so, they will flip to becoming an important negative. Refinance applications remain a mild positive for the moment.

Real estate loans have been firmly positive for over 3 years.

Money supply

M1

• +2.9% w/w
• Unchanged m/m 
• +8.0% YoY Real M1

M2

• _0.4% w/w    
• +0.5% m/m 
• +6.0% YoY Real M2 

Both real M1 and real M2 have been firmly positive almost all year, although less so in the last month. 

Trade weighted US$

• Up +0.82 to 126.43 w/w, up +4.1% YoY (one week ago) (Broad)
• Up +0.21 to 101.50 w/w, up +1.7% YoY (yesterday) (major currencies)

The US$ appreciated about 20% between mid-2014 and mid-2015.  It went mainly sideways since then until spiking higher after the US presidential election. It has been neutral for 7 of the last 8 weeks.

Commodiy prices

JoC ECRI

• Up +2.13 to 98.06 w/w
• Up +18.46 YoY

BBG Industrial metals ETF

• 116.61 up +8.03 w/w, up +33.0% YoY

Commodity prices bottomed about one year ago.last November. Recently metals briefly turned negative, but have now resumed being positive, and surged higher in the last several weeks.

Stock prices S&P 500

• Up +1.4% w/w (new record high)

Stock prices became a positive having made new all-time highs in summer, and made more new highs this week.

Regional Fed New Orders Indexes

(*indicates report this week)

• Empire State up +8.7 to +3.1
• Philly up +2.3 to +18.6
• *Richmond up +19 to +7
• Kansas City down -8 to +6
• Dallas down -0.6 to -3.5
• Month over month rolling average: up +4 to +6 (12 month high)

In the months since I started coverage of this metric, the regional average has been more negative than the ISM manufacturing index, but has accurately forecast its month over month direction. The average Fed readings are at their most positive this year as of now.

Employment metrics

 Initial jobless claims

• 251,000 up +16,000
• 4 week average 251,000 down -2,500

Initial claims remain well within the range of a normal economic expansion, as does the 4 week average. 

The American Staffing Association Index

• Down -1 to 98 w/w
• Down -0.61 YoY

This index turned negative in May 2015, getting as bad as -4.30% late last autumn.  Since the beginning of the year it became progressively "less bad" and for the last few months has been so close to positive YoY as to be a neutral, as it was again this week.

Tax Withholding

• $147.6 B for the first 16 days of November vs. $146.3 B one year ago, up +$1.3 B or +0.9%
• $181.0 B for the last 20 reporting days ending Wednesday vs. $173.6 B one year ago, up +$7.4 B or +4.3%

Beginning with the last half of 2014, virtually all readings were positive, but turned more mixed and choppy, and occasionally even negative, since August 2015.  The last few months have shown a marked improvement, although November has been poor so far.

Oil prices and usage

• Oil up +$0.39 to  $45.96 w/w,  down -$1.79 YoY
• Gas prices down -$0.03 to $2.15 w/w, up +$0.06 YoY
• Usage 4 week average up +0.6% YoY

The price of gas bottomed last winter at $1.69.  Usage had been almost uniformly positive until several weeks ago.  It turned negative briefly, but is weakly positive this week.  Gas prices are off their summer seasonal high, but have gone sideways for the last three months, and are now higher YoY, making them a neutral.  Oil prices have come down in the last month, so that has turned back to positive.  In general oil is no longer a tailwind for the economy, but it isn't a headwind either.

Bank lending rates

• 0.445 TED spread down -0.046 w/w
• 0.603 LIBOR up +0.043 w/w

Both TED and LIBOR rose since the beginning of last year to the point where both have usually been negatives, although there were some wild fluctuations.  Of importance is that TED was above 0.50 before both the 2001 and 2008 recessions.  Both recently reached that level. The TED spread has turned positive for the last three weeks.

Consumer spending

• Johnson Redbook up +1.0% YoY
• Goldman Sachs up +1.4% w/w, up +0.6% YoY
• Gallup daily consumer spending 14 day average $97, up +$5 YoY

Both the Goldman Sachs and Johnson Redbook Indexes progressively weakened in pulses during 2015, before improving somewhat over the last 12 months.  Redbook has recently turned very weak.  Goldman and Gallup have both been generally more positive, although Gallup was wobbly for a month before turning positive again. The results were a mixed positive this week.

Transport

Railroad transport

• Carloads up +1.3% YoY
• loads ex-coal up +1.1% YoY
• Intermodal units up +4.4% YoY
• Total loads up +2.8% YoY

Shipping transport

• Harpex unchanged at 316 ( new multi-year low)
• Baltic Dry Index down -30 to 1201

Rail traffic turned negative and then progressively worse in pulses throughout 2015. Rail loads became "less worse" in January and showed continued improvement until going over the proverbial cliff all spring (typically down -10% or more) in spring.  It trended incrementally less awful since June, generally has scored neutral. For the last three weeks it has turned positive.

Harpex has recently resumed its decline again to repeated multi-year lows. BDI recently turned positive, then neutral, and is now screamingly positive 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 +7.1% YoY

Until spring 2014, steel production had generally been in a decelerating uptrend.  It then gradually rolled over and got progressively worse in pulses through the end of 2015. This year it started out as "less worse" and has been neutral to positive for the last few few months.

SUMMARY: 

Yields continued to increase this week. As a result, the interest rate components of the long leading indicators are negative, except for corporate bonds, which are a neutral.  Purchase mortgage applications returned to being positive this week, but I am not expecting that to last. The yield curve and money supply as well as real estate loans remain positive.

Short leading indicators are positive with the exception of spreads, gas prices, and the US$, which are neutral.  Stock prices, jobless claims, industrial commodities, the regional Fed new orders indexes, and oil prices are all positive.

The coincident indicators have also become much more positive, including rail, the TED spread, the BDI, steel, are all positive now.  Tax withholding remains slightly positive, and consumer spending varies from strongly to just barely positive. Temp staffing is neutral.  Only the Harpex shipping index and LIBOR remain negative -- in fact, outside of some interest rates the only two negatives in the entire list of indicators.

In summary, positive readings predominate from long leading through short leading to coincident indicators. The present and the near future appear quite good. The big concern for the longer term is the continued increase in interest rates. If it persists, the weakness will feed through the rest of the economy over the next 18-24 months.

Have a nice weekend!

Sent from my iPad