I look at the high frequency weekly indicators because while they can be very noisy, they provide a good nowcast 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.
A Note on Methodology
Data is presented in a “just the facts, ma’am” format with a minimum of commentary so that bias is minimized.
Where relevant, I include 12-month highs and lows in the data in parentheses to the right. All data taken from St. Louis FRED unless otherwise linked.
A few items (e.g., Financial Conditions indexes, regional Fed indexes, stock prices, the yield curve) have their own metrics based on long-term studies of their behavior.
Where data is seasonally adjusted, generally it is scored positively if it is within the top 1/3 of that range, negative in the bottom 1/3, and neutral in between. Where it is not seasonally adjusted, and there are seasonal issues, waiting for the YoY change to change sign will lag the turning point. Thus I make use of a convention: data is scored neutral if it is less than 1/2 as positive/negative as at its 12-month extreme.
With long-leading indicators, which by definition turn at least 12 months before a turning point in the economy as a whole, there is an additional rule: data is automatically negative if, during an expansion, it has not made a new peak in the past year, with the sole exception that it is scored neutral if it is moving in the right direction and is close to making a new high.
For all series where a graph is available, I have provided a link to where the relevant graph can be found.
Recap of monthly reports
November data started out with a weakly positive employment report, with the headline data all positive, but the least so since the recovery from the initial pandemic lockdowns began. The ISM manufacturing and non-manufacturing indexes were both positive, but less so than October. Auto sales declined slightly from October’s pace.
October factory orders were positive, as was October construction spending.
Note: For most indicators I have now added both the weeks of the best and worst readings since the coronavirus crisis began in parentheses following this week’s number. This will tell us whether gains are continuing, leveling off, or whether we are starting to turn back down.
Interest rates and credit spreads
- BAA corporate bond index 3.15%, down -0.04% w/w (1-yr range: 3.12-5.18)
- 10-year Treasury bonds 0.97%, up +0.13% w/w (0.54-2.79)
- Credit spread 2.18%, down -0.17% w/w (1.96-4.31)
(Graph at FRED Graph | FRED | St. Louis Fed)
- 10 year minus 2 year: +0.82%, up +0.13% w/w (-0.04-0.67)
- 10 year minus 3 month: +0.89%, up +0.13% w/w (-0.04-0.70)
- 2 year minus Fed funds: +0.10%, unchanged w/w
(Graph at FRED Graph | FRED | St. Louis Fed)
30-Year conventional mortgage rate (from Mortgage News Daily) (graph at link)
- 2.83%, down -0.01% w/w (2.81-4.63)
Corporate bonds spiked to near five-year highs early this year, but subsequently made multi-decade lows, which they are near to again.
The spread between corporate bonds and Treasuries turned very negative in March, but has also bounced back, and is positive now. Two of the three measures of the yield curve remain solidly positive, while the Fed funds vs. two-year spread is neutral. Mortgage rates are also extremely positive.
Mortgage applications (from the Mortgage Bankers Association)
- Purchase apps up +9% w/w to 343 (184-326) (SA) (New 10-year high)
- Purchase apps 4 wk avg. up +10 to 314 (SA)
- Purchase apps YoY +28% (NSA) (Worst: -35% on 4/18)
- Purchase apps YoY 4 wk avg. +23% (NSA)
- Refi apps -5% w/w (SA)
*(SA) = seasonally adjusted, (NSA) = not seasonally adjusted
(Graph at here)
Real Estate Loans (from the FRB)
- Down -0.2% w/w
- Up +1.3% YoY (1.9-5.2) (new 1-year low)
Purchase mortgage applications, after declining sharply in March and April, rebounded to repeated new decade highs. Refi has also improved from neutral to positive.
With the exception of several weeks in 2019, until recently, real estate loans have generally stayed positive for the past several years. But now having decreased by more than 1/2 of their YoY peak, they are neutral.
- +8.7% w/w
- +7.5% m/m
- +56.2% YoY Real M1 (-0.1 to 56.2) (New High)
- +0.1% w/w
- +1.5% m/m
- +23.9% YoY Real M2 (2.0-24.9)
(Graph at FRED Graph | FRED | St. Louis Fed)
In 2019, both M1 and M2 improved from negative to neutral and ultimately positive. Fed actions to combat the economic crash amplified that.
- Q3 2020 actual up +0.16 to 39.39 w/w, up 39.6% q/q, down -8.1% from Q4 2018 peak
- Q4 2020 estimated at 37.17, down -5.6% q/q
FactSet estimates earnings, which are replaced by actual earnings as they are reported, and are updated weekly. The “neutral” band is +/-3%. I also average the previous two quarters together until at least 100 companies have actually reported.
Q3 earnings are up over 10% q/q, so this indicator has now changed all the way back to positive, and are also up more than 3% from Q2 when averaged with Q4.
Credit conditions (from the Chicago Fed) (graph at link)
- Financial Conditions Index down -.03 (looser) to -0.60 (tied for Best with: -.60 on July 3)
- Adjusted Index (removing background economic conditions) unchanged (loose) at -0.54 (Best: -0.70 on Sep 25; note: this series has just undergone revisions)
- Leverage subindex down -0.05 (less tight) to +0.18
The Chicago Fed’s Adjusted Index’s real break-even point is roughly -0.25. In the leverage index, a negative number is good, a positive poor. The historical breakeven point has been -0.5 for the unadjusted Index. In early April all turned negative. Since then, both the adjusted and un-adjusted indexes quickly rebounded to positive.
Trade weighted US$
Both measures of the US$ were negative early in 2019. In late summer, both improved to neutral on a YoY basis. Against major currencies it has recently fluctuated between positive and neutral. It is positive again this week. The broad measure also turned positive six weeks ago, then reverted to neutral, but was positive again this week.
Bloomberg Commodity Index
- Down -0.52 to 74.30 (58.87-83.08)
- Down -4.6% YoY (Worst: -26.0% on April 25; Best: -5.2% on Aug 28, Sept 4)
Bloomberg Industrial metals ETF (from Bloomberg) (graph at link)
- 133.72, up +1.90 w/w (88.46-124.03) (new 1-year high)
- Up +21.6% YoY (Worst: -23.6% on April 11; Best: +18.5% this week)
Both industrial metals and the broader commodities indexes declined to very negative into 2019, but rebounded considerably since April. Total commodities have remained neutral, while industrial commodities briefly turned positive in August, and again for the past four weeks.
Stock prices S&P 500 (from CNBC) (graph at link)
- Up +1.7% to 3699.12 (new record high)
There have been repeated recent three-month highs, including today’s all time high, so this metric remains positive.
Regional Fed New Orders Indexes
(*indicates report this week)
The regional average is more volatile than the ISM manufacturing index, but usually correctly forecasts its month-over-month direction. In April the average was even more negative than at its worst reading of the Great Recession. It rebounded by more than half in May, and at the end of June, it rebounded all the way to positive. New orders have pulled back somewhat in the last two months, but are still very positive.
Initial jobless claims
- 712,000, down -75,000 w/w (Worst: 6.867 M on April 4)
- 4-week average 739,500, down -11,250 w/w (Worst: 5.786 M on April 25)
(Graph at FRED Graph | FRED | St. Louis Fed)
New claims made a new pandemic low this week, but are still above their worst levels of the Great Recession. Continuing claims are also down by over 1/2 from their worst readings. The continued pandemic lows have made this metric positive.
Temporary staffing index (from the American Staffing Association) (graph at link)
- Up +1 to 88 w/w
- Down -9.3% YoY (Worst: 36.3% on May 28; Best this week)
This index turned negative in February 2019, worsened in the second half of the year, and plummeted beginning in March. It has gradually been becoming “less awful” over the past five months, and two months ago improved to neutral.
Tax Withholding (from the Dept. of the Treasury)
- $201.2 B for November 2020 vs. $200.5 B for November 2019, up +$0.7 B or +0.3%
- $190.8 B for the last 20 reporting days vs. $201.2 B one year ago, down -$10.4 B or -5.2% (Worst: -16.0% on July 3; Best Oct 30)
YoY comparisons turned firmly negative in the second week of April. The comparative YoY readings, except for one week, have generally improved to less than 1/2 of their worst, making this indicator neutral.
Oil prices and usage (from the E.I.A.)
- Oil up +$0.53 to $46.05 w/w, down -13.6% YoY
- Gas prices up +$0.02 to $2.12 w/w, down -$0.45 YoY (Worst: -$1.12 on May 1)
- Usage 4-week average down -9.2% YoY (Worst: -43.7% on May 1; Best -6.7% Oct 9)
(Graphs at This Week In Petroleum Gasoline Section)
Gas prices remain very low, relatively speaking. Usage turned very negative at the beginning of April, but has since rebounded by much more than half since its low point, and so has become neutral.
Bank lending rates
- 0.15 TED spread down -0.003 w/w (0.12-1.51) (graph at link)
- 0.153 LIBOR up +0.007 w/w (0.13-2.50) (graph at link)
TED was above 0.50 before both the 2001 and 2008 recessions. Since early 2019 the TED spread has remained positive, except the worst of the coronavirus downturn. Both TED and LIBOR have declined far enough after that to turn back positive.
The five-week average of this statistic cuts down on most of that noise while retaining at least a short-leading signal that appears to turn 1-3 months before the cycle. This turned negative YoY in March as soon as coronavirus turned into a real issue, but by July turned back strongly positive.
St. Louis FRED Weekly Economic Index
- Up +0.52 to -2.31 w/w (Worst: -11.48; Best this week)
Restaurant reservations YoY (from Open Table)
- Nov 25 -57%
- Dec 2 -62% (Best -40% on Oct 15)
The comparisons gradually improved each week from spring into summer. Since then, the improvement has been much more gradual, but still the comparisons rose enough to turn neutral. In the past three weeks, there has been some retrenchment, and enough this week to change the rating to negative.
In late April, the bottom fell out in the Redbook index. It turned positive for two weeks before turning neutral and then positive. The rebound in the past several months has continued.
Railroads (from the AAR)
- Carloads down -4.1% YoY (Worst: -30.2% on May 22; Best -3.1% on Nov 14)
- Intermodal units up +11.2% YoY (Worst: -22.4% on May 1; Best +24.8% on Sept 11)
- Total loads up +3.7% YoY (Worst: -39.4% on May 8; Best +8.6% on Sept 11)
Since January 2019 rail had been almost uniformly negative, and worsened in April, but got “less awful” since. Intermodal has generally been positive for several months. Total rail carloads had also improved by more than 50% from their worst readings, so were neutral. Four weeks ago they turned positive.
Harpex declined to a new one-year low earlier this year, then improved gradually. In the past month, it has spiked to new multiyear highs. BDI traced a similar trajectory, making new three-year highs into September 2019, then declining to new three-year lows at the beginning of February. In summer, the BDI improved enough to warrant changing its rating from negative to neutral, and several weeks ago to positive. Four weeks ago, it fell back again to neutral.
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 (from the beginning American Iron and Steel Institute)
- Down -0.3% w/w
- Down -14.4% YoY (Worst: -39.4% on May 8; Best -13.2% Nov 27)
The bottom in production fell out in April. There has been slow but continuing improvement since then, and finally two months ago, it improved enough to be rated neutral.
Summary And Conclusion
Among the coincident indicators, the unadjusted Chicago Fed Financial Index, the TED spread, LIBOR, Redbook consumer spending, and intermodal and rail loads are positive. Rail carloads, Harpex, the BDI, steel, and tax withholding are all neutral. This week restaurant reservations turned negative.
Among the short-leading indicators, gas and oil prices, business formations, stock prices, the regional Fed new orders indexes, initial jobless claims, the US$ both broadly and against major currencies, industrial commodities, and the spread between corporate and Treasury bonds are positives. Gas usage, total commodities, and staffing are neutral. There are no negatives.
Among the long-leading indicators, corporate bonds, Treasuries, mortgage rates, two out of three measures of the yield curve, real M1 and real M2, purchase mortgage applications and refinancing, corporate profits, and the Adjusted Chicago Financial Conditions Index are all positives. The 2-year Treasury minus Fed funds yield spread and real estate loans are neutral. The Chicago Financial Leverage subindex is the sole negative.
The long- and short-term forecasts remain very positive, while the coincident nowcast has become weakly positive. Consumer spending remains a bright spot despite the gloomy death toll from the pandemic.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.