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
May data included at slight increase in the PPI, and a slight decrease in the CPI. Consumer sentiment as measured by the U. Of Michigan improved.
Note: For many indicators, I have added the week of the worst reading since the coronavirus crisis began in parentheses following this week’s number. The first indication of bottoming will be when these comparisons get “less worse,” and a bottom will probably be in when the comparison improves by about 1/2).
Interest rates and credit spreads
- BAA corporate bond index 3.57%, down -0.26% w/w (1-yr range: 3.29-5.18)
- 10-year Treasury bonds 0.71%, down -0.17% w/w (0.54-2.79)
- Credit spread 2.86%, down -0.09% w/w (1.96-4.31)
(Graph at FRED Graph | FRED | St. Louis Fed)
- 10 year minus 2 year: +0.51%, down -0.16% w/w (-0.04-0.67) (new one-year high)
- 10 year minus 3 month: +0.54%, down -0.17% w/w (-0.52-0.70)
- 2 year minus Fed funds: +0.15%, unchanged w/w
(Graph at FRED Graph | FRED | St. Louis Fed)
30-Year conventional mortgage rate (from Mortgage News Daily) (graph at link)
- 2.95%, down -0.29% w/w (2.94-4.63) (NEW ALL TIME LOW INTRAWEEK)
BAA Corporate bonds and Treasury bonds turned positive several months ago. That corporate bonds fell to another new expansion low late last year would ordinarily be extremely bullish into Q1 2021, but the more recent spike to nearly five-year highs would ordinarily mean this is a negative. In the past two months bonds have bounced back into positive territory near their lows.
The spread between corporate bonds and Treasuries turned very negative in March, but has also bounced back significantly. Two of the three measures of the yield curve remain solidly positive, while the Fed funds vs. 2 year spread turned neutral. Mortgage rates remain near all-time lows and are extremely positive.
Mortgage applications (from the Mortgage Bankers Association)
- Purchase apps +5% w/w to 311 (184-315) (SA)
- Purchase apps 4 wk avg. +17 to 287 (SA)
- Purchase apps YoY +13% (NSA) (Worst: -35% on 4/18)
- Purchase apps YoY 4 wk avg. +10% (NSA)
- Refi apps +11% w/w (SA)
*(SA) = seasonally adjusted, (NSA) = not seasonally adjusted
Real Estate Loans (from the FRB)
- Down -0.1% w/w
- Up +4.0% YoY (2.8-5.2)
With lower rates since early 2019, purchase mortgage applications were solidly positive. When the crisis started, they reverted back to negative. In the past several months, however, they have rebounded strongly and are now only about 10% from their all-time highs. Lower rates also recently led to a decadal high in refi.
With the exception of several weeks in 2019, real estate loans generally stayed positive for the past several years.
- -1.0% w/w
- +1.1% m/m
- +30.1% YoY Real M1 (-0.1 to 34.7)
- +0.2% w/w
- +2.6% m/m
- +23.1% YoY Real M2 (2.0-23.0)
(Graph at FRED Graph | FRED | St. Louis Fed)
In 2018 and early in 2019, real M1 turned neutral and very briefly negative. Real M2 growth fell below 2.5% almost all during 2018 and early 2019, and so was rated negative. Last year, both continued to improve, and for the past few months, both have turned and remained positive. Fed actions to combat the economic crash have only amplified that.
Corporate profits (estimated and actual S&P 500 earnings from I/B/E/S via FactSet at p. 23).
- Q1 2020 actual, unchanged at 33.33, down -20.2% q/q, down -22.3% from Q4 2018 peak
- Q2 2020 estimated down -0.12 to 23.55, down 29% q/q, down 44.8% from Q4 2018 peak
FactSet estimates earnings, which are replaced by actual earnings as they are reported, and are updated weekly. Based on the preliminary results, I expanded the “neutral” band to +/-3% as well as averaging the previous two quarters together, until at least 100 companies have actually reported.
Q1 earnings have been dismal and Q2 are expected to be much worse. Needless to say, this metric is negative.
Credit conditions (from the Chicago Fed) (graph at link)
- Financial Conditions Index down -0.07 (looser) to -0.58
- Adjusted Index (removing background economic conditions) down -0.11 (looser) to -0.08
- Leverage subindex down -0.10 (less tight) to +0.24
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. In the past month, there has been a rebound. The unadjusted Index turned positive, and this week the Adjusted Index improved to neutral.
Short leading indicators
Trade weighted US$
Both measures of the US$ were negative early in 2019. In late summer, both improved to neutral on a YoY basis. The measure against major currencies took a major spill recently. Both measures had recently been neutral. The broad measure has improved to neutral, while against major currencies it has turned positive.
Bloomberg Commodity Index
- Down -0.98 to 63.71 (58.87-83.08)
- Down -17.4% YoY (Worst: -26.0% on April 25)
(Graph at Bloomberg Commodity Index)
Bloomberg Industrial metals ETF (from Bloomberg) (graph at link)
- 101.47, down -0.51 w/w (88.46-124.03)
- Down -8.3% YoY (Worst: -23.6% on April 11)
Both industrial metals and the broader commodities indexes declined to very negative into 2019, and remain negative, although there has been a considerable bounce in the past two months.
Stock prices S&P 500 (from CNBC) (graph at link)
Since there has been no new three-month since February 19, more than three months ago, but there has been a three-month low in late March, this metric has become a negative. If there is neither a new three-month high or low in the next two weeks, it will return to neutral.
Regional Fed New Orders Indexes
(*indicates report this week) (no reports this week)
The regional average is more volatile than the ISM manufacturing index, but usually correctly forecasts its month-over-month direction. In February there was a strong positive spike, but in March this fell apart and by April the average was even more negative than during the Great Recession. Although still very negative, it rebounded significantly in May.
Initial jobless claims
- 1,542,000 down -335,000 w/w (Worst: 6.867 M on April 4)
- 4-week average 2,002,000 down -282,000 w/w (Worst: 5.786 M on April 25)
(Graph at FRED Graph | FRED | St. Louis Fed)
Initial claims made new 49-year lows in April 2019. Needless to say, that has all gone out the window. The pace of new claims has slowed to less than half its record from six weeks ago, and continuing claims turned down two weeks ago. This is still very negative, but “less awful.”
Temporary staffing index (from the American Staffing Association) (graph at link)
- Up +1 to 62 w/w
- Down -34.6% YoY (Worst: 36.3% on May 28)
This index turned negative in February 2019, worsened in the second half of the year, and has plummeted in the past 45 days.
Tax Withholding (from the Dept. of the Treasury)
- $173.5 B for the last 20 reporting days vs. $193.7 B one year ago, down -$20.2 B or -10.4% (Worst: -13.2% on May 8)
YoY comparisons were almost uniformly positive since February 2019, until five weeks ago. Five weeks ago they turned firmly negative, although they are well off their worst reading.
Oil prices and usage (from the E.I.A.)
- Oil down -$2.95 to $36.40 w/w, down -28.4% YoY
- Gas prices up +$.07 to $2.04 w/w, down -$0.69 YoY (Worst: -$1.12 on May 1)
- Usage 4-week average down -22.7% YoY (Worst: -43.7% on May 1)
(Graphs at This Week In Petroleum Gasoline Section)
At the beginning of this year prices went higher YoY, but since have abruptly turned lower; thus they have turned positive. Gas prices remain near 20-year lows. Usage was positive YoY during most of 2019, and had oscillated between negative and positive for the last several months. It turned decisively negative since the beginning of April. It has rebounded significantly off its worst point five weeks ago.
Bank lending rates
- 0.150 TED spread down -0.03 w/w (0.15-1.51) (graph at link) (new one-year low)
- 0.180 LIBOR unchanged w/w (0.17-2.50) (graph at link)
Both TED and LIBOR rose in 2016 to the point where both were usually negatives, with lots of fluctuation. Of importance is that TED was above 0.50 before both the 2001 and 2008 recessions. After being whipsawed between being positive or negative in 2018, since early 2019 the TED spread remained positive – until five weeks ago, when it turned negative again. But both TED and LIBOR have declined far enough to turn positive.
Prof. Geoffrey Moore included net formations minus bankruptcies as measured by Dun and Bradstreet among his 11 short-leading indicators. This statistic, which isn’t exactly the same and is only 15 years old, is a similar measure. There is marked seasonality and considerable variance week to week, but a five-week average 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 nearly three months ago as soon as coronavirus turned into a real issue. There has been significant improvement in the past month, and this week it turned positive.
Note: The St. Louis FRED has initiated a Weekly Economic Index consisting of many of the same components as I track below, plus the weekly Rasmussen consumer index, electricity usage, plus initial and continued jobless claims and the Staffing Index I track above. You can find it here.
Restaurant reservations YoY (from Open Table)
The last day that restaurant reservations were positive YoY was February 24. The sharp break downward began on March 9. Since the reopening of restaurants in some States, the comparisons have gradually improved each week. Although this is still very negative YoY, I will change the rating to neutral if it improves to better than -60% YoY.
- Johnson Redbook down -9.7% YoY (Worst:-9.7% this week)
- Retail Economist +4.4% w/w, -12.6% YoY (Worst: -27.5% on April 25)
In April the bottom fell out below the Retail Economist reading. Redbook finally turned negative six weeks ago.
Railroads (from the AAR)
- Carloads down -22.0% YoY (Worst: -30.2% on May 22)
- Intermodal units down -9.6% YoY (Worst: -22.4% on May 1)
- Total loads down -15.6% YoY (Worst: -39.4% on May 8)
Since January 2019 rail has been almost uniformly negative, and worsened beginning late in the year. YoY comparisons worsened in April, but have gotten “less awful” since.
Harpex made new three-year highs in mid-2019 and remained near those highs until the beginning of this year. It has declined about 165 points. 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. It remains above those lows, but is still very negative.
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 American Iron and Steel Institute)
- Down -0.9% w/w
- Down -36.0% YoY (Worst: -39.4% on May 8)
By autumn of 2019, the YoY comparisons were almost exclusively negative. It was generally positive since the beginning of this year, but in March it turned negative again. The bottom fell out in April.
Summary And Conclusion
There was only one new “worst” YoY comparison this week: Johnson Redbook chain store sales, which seems to lag by a few weeks. No ratings changed among the other indicators.
Among the coincident indicators, everything except for the TED spread and LIBOR – consumer spending, tax withholding, the Baltic Dry Index, rail, steel, restaurant reservations, Harpex and the BDI – remains negative.
Among the short-leading indicators, gas and oil prices, the Chicago Financial Conditions Index, and business formations, are positives, joined this week by the broad US$. The US$ as to major currencies and the spread between corporate and Treasury bonds are neutral. Temporary staffing, initial claims, the regional Fed new orders indexes, gas usage, stock prices, and both industrial and overall commodities are negative.
Among the long-leading indicators, corporate bonds, Treasuries, mortgage rates, two out of three measures of the yield curve, real M1 and real M2, real estate loans, purchase mortgage applications, and mortgage refinancing are all positives. The 2 year Treasury minus Fed funds yield spread remains neutral, joined this week by the Adjusted Chicago Financial Conditions Index. Corporate profits are negative, as is the Chicago Financial Leverage subindex.
The nowcast remains awful, while the short-term forecast improves from “less awful” to simply solidly negative. The long-term forecast continues to be both positive and improving.
I rarely comment on the stock market per se: it is a short-leading indicator, and usually follows – with a lot more volatility – the long-leading indicators. But I confess to have been shocked that the broad S&P 500 came within 5% of making a new high while the coronavirus is still fully in play. The virus is nothing more than a parasitic self-copying machine. It cares not – it is not capable of caring – one whit for your ideology.
At my own blog I do keep track of it, and here is my most recent post from yesterday: here. New infections have not gone lower in more than two weeks. The last two weeks have created a massive “natural experiment” on whether mask wearing alone by hundreds of thousands of protesters packed tightly together is sufficient to negative a new large outbreak. I cannot imagine how anyone could think corporate profits are going to recover to their prior trend over the next several quarters under those circumstances.
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.