Weekly Indicators: Short Leading And Coincident Data Remain Mainly Positive

seekingalpha07-06

Weekly indicators provide a good "nowcast" of the economy and help mark beliefs to the market.Data is presented in a factual format with minimal bias to analyze various economic indicators.Recent data...

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SanyaSM/E+ via Getty Images Purpose 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 the 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 June data started out with decent headline jobs growth, but another uptick in the unemployment rate. Both ISM surveys, manufacturing and services, showed slight contraction, for the first time since the solitary month of December 2022. May data included a slight decline in construction spending as well as a decline in new factory orders. Long leading indicators Interest rates and credit spreads  Rates  BAA corporate bond index 5.89%, up +0.05% w/w (1-yr range: 5.43-6.80) 10-year Treasury bonds 4.28%, down -0.08% w/w (3.30-4.93) Credit spread 1.61%, up +0.13% w/w (1.36-2.42).  (Graph at Moody's Seasoned Baa Corporate Bond Yield | FRED | St. Louis Fed.) Yield curve  10 year minus 2 year: -0.32%, up +0.15% w/w (-1.07 - -0.17) 10 year minus 3 month: -1.08%, down -0.08% w/w (-1.89 - 0.21) 2 year minus Fed funds: -0.73%, down -0.13% w/w.  (Graph at 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity | FRED | St. Louis Fed.) 30-Year conventional mortgage rate (from Mortgage News Daily) (graph at link) 7.03%, down -0.04% w/w (6.61-7.79). With no new highs in interest rates since last October, their rating improved to neutral at the end of February. That continued to be the case despite recent significant increases, which have slightly reversed in the past several weeks. All the yield curve measures remain negative. In general, the yield curve had been far less steeply inverted than it was late last year. Housing Mortgage applications (from the Mortgage Bankers Association)  Purchase apps down -3% to 146 (125-162) (SA) Purchase apps 4 wk avg. up 2 to 148 (SA) Purchase apps YoY -12% (NSA) Purchase apps YoY 4 wk avg. -12% (NSA) Refi apps down -2% w/w (SA) Refi apps YoY up 29% (SA)  *(SA) = seasonally adjusted, (NSA) = not seasonally adjusted (Graph at Our Charts.) Real Estate Loans (from the FRB)  Down -0.2% w/w Up +2.6% YoY (2.2% - 11.9%) (tied for 12 month low).  (Graph at Real Estate Loans, All Commercial Banks | FRED | St. Louis Fed.) Mortgage rates, like bond yields, made multi-decade new highs over eight months ago. Additionally, purchase mortgage applications last made a new long-term low at the same time. They have meandered in a relatively tight range since - continuing slightly higher than their bottom last autumn - warranting a neutral rating. Refinancing has traced a similar trajectory, but actually has often turned significantly higher YoY, albeit from nearly non-existent levels one year ago, by enough to warrant a positive rating. Late last year, real estate loans sank below 1/2 of their 12-month-high, the last housing indicator to turn negative, and have generally continued to worsen. They paused for several months, but in the last month made renewed YoY lows. Money supply  The Federal Reserve has discontinued this weekly series. Data is now only released monthly. May data was just released one week ago:  M1 m/m up +0.3%, YoY Real M1 down -6.1% (worst: -14.9% 4/23)(18 month YoY high) M2 m/m up +0.4%, YoY Real M2 down -2.6% (worst -9.4% 4/23)(2 year YoY high).  No recession has happened without a YoY real M1 negative, or YoY real M2 below +2.5%. Real M2 fell below that threshold in March 2022. Real M1 also turned negative as of May 2022. Although both of these are still negative, they are both the “least bad” they have been since early 2022. On an absolute level, the post-pandemic bottom for real M1 was in February; for real M2 it was last October). Corporate profits (Q1 actual + estimated) from I/B/E/S via FactSet) (as of 6/30)  Q1 2024 98% actual +2% estimated unchanged at 56.49, up +1.7% q/q Q2 2024 estimated down -0.037 to 58.94, up +4.3% 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. This metric went negative with poor Q4 profits, but Q1 profits improved significantly, improving the rating is neutral. The average of Q1 and Q2 is +3.0%, keeping the rating positive. NOTE: FactSet has not updated its detailed report, but has included the data in its X/Twitter feed. Credit conditions (from the Chicago Fed) (graph at link)  Financial Conditions Index up +.07 (less loose) to -0.50 (-0.03 - -0.62) Adjusted Index (removing background economic conditions) up +0.08 (loose) to -0.45 (+0.16 - -0.59) Leverage subindex down -0.11 (from tight to loose) to -0.09 (+1.61 - -0.51).  In these indexes, lower = better for the economy. 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. If this Index goes below -0.60, its rating will change to positive. In the past six months, the leverage index turned neutral and then negative, but has since returned to neutral. The adjusted index had improved beyond its breakeven point, briefly turning positive and then oscillating between neutral and positive. This week it is positive again, while the unadjusted index is in its neutral range. The leverage subindex also remains in the neutral range. Short leading indicators Economic Indicators from the late Jeff Miller’s “Weighing the Week Ahead   Miller Score (formerly \"C-Score\"): down -6 w/w to 211, -19 m/m (154 9/22/23–309 on 6/30/23) St. Louis Fed Financial Stress Index: down -0.0185 to -0.8121 (-0.3493 10/20/23 - -.9676 5/31/24) BCIp from Georg Vrba: down -8.1 w/w from +58.5 to +50.4 as of 7/4/24 iM's Business Cycle Index (100 is max value, below 25 is recession signal averaging 20 weeks ahead)  The Miller Score is designed to look 52 weeks ahead for whether a recession is possible. Any score over 500 means no recession. This number fell below that threshold at the beginning of August 2021, so not only is it negative, but we are now well into the “recession eligible” time period. The St. Louis Financial Stress index is one where a negative score is a positive for the economy, and during its limited existence, has risen above zero before a recession by less than one year. It remains very positive. The BCIp, deteriorated sharply earlier last year below its recession-signaling threshold, but then improved sufficiently so that IM rescinded the recession signal. The signal then activated again for several months, but as of several months ago, IM once again stated that their system no longer forecasts a recession. Trade weighted US$   Up +0.10 to 124.42 w/w, up +4.0% YoY (last week) (broad) (117.41–124.64) (Graph at Nominal Broad U.S. Dollar Index  Down -1.04 to 104.86 w/w, up +2.5% YoY (major currencies) (graph at link) (99.58–107.35).  Early in 2023 both measures of the US$ turned positive. Five months ago, for the first time since then, the US$ as to major currencies turned slightly higher YoY, changing its rating to neutral, and was then joined by the broad measure. Both briefly reverted to positive, but both have since returned to neutral. If either go higher by more than 5% YoY, that will change their rating to negative. Commodity prices  Bloomberg Commodity Index  Up +1.51 to 102.50 (95.40–108.34) Up +1.1% YoY.  (Graph at https://www.marketwatch.com/investing/index/bcom?countrycode=xx.) Bloomberg Industrial metals ETF (from Bloomberg) (graph at link)  155.19, up +3.82 w/w (132.17 -172.06) Up +8.7% YoY.  Both of these measures have improved in the last several months, and industrial commodities surged to new 12 month highs several weeks ago before backing off significantly. Both of these for a few weeks were close to the top of their 12-month ranges, so were positive. The total index has retreated to the middle portion of that range, so that rating changed back to neutral. But industrial commodities have risen back into the positive portion of their range. Stock prices S&P 500 (from CNBC) (graph at link) Up +2.0% to 5567.19 (new all-time high). Since we have had multiple new all-time highs, but no new lows in the past 3 months, this indicator is positive. Regional Fed New Orders Indexes  (*indicates report this week) (no reports this week)   Empire State up +15.5 to -1.0  Philly up +5.7 to -2.2  Richmond down -11 to -17  Kansas City unchanged at -13  Dallas up +0.9 to -1.3 Month-over-month rolling average: down -2 to -7.  The regional average is more volatile than the ISM manufacturing index, but usually correctly forecasts its month-over-month direction. Since spring 2022, these gradually declined to neutral and then negative. Recently, they became “less negative,” but reversed in the last several months. The indexes had shown solid improvement earlier this year, then retreated two months ago, then improved again to close to neutral last month, and in the past several weeks faded once more. Throughout, they have remained negative. Employment metrics  Initial jobless claims  238,000, up +4,000 w/w 4-week average 237,500, up +3,250 w/w.  (Graph at St. Louis FRED.) Claims remain lower than they were one year ago, continuing to warrant a positive rating, despite an uptrend - that may partially be because of residual post-pandemic seasonality - starting seven weeks ago. Temporary staffing index (from the American Staffing Association) (graph at link)  Unchanged at 89 w/w Down -10.2% YoY (low -12.9%- high -4.8%).  During 2022, the comparisons at first slowly and then more sharply deteriorated, and by early last year had turned negative. After improving somewhat, since last autumn YoY comparisons faded again. It remains frankly recessionary. I suspect this is a secular change and giving a false signal as a result. Tax Withholding (from the Department of the Treasury)  $258.5 B for the last 20 reporting days this year vs. $247.6 B one year ago, +$10.9B or +4.4% YoY $254.7 B for the month of June this year vs. $257.5 B one year ago, -$2.8 B or -1.1%.  After being negative briefly in late 2022, in January 2023, these turned back positive, and stayed very positive until November. Since then, they have oscillated between being negative and positive for several weeks at a time. Since March, they have returned to being positive to very positive, with the sole exception of two weeks (including two weeks ago). This also affected the monthly June totals. The combined measure is mixed, or neutral, this week. Oil prices and usage (from the E.I.A.)   Oil up +$1.92 to $83.28 w/w, up +24.4% YoY ($67.12 - $93.68) Gas prices up +$.04 to $3.48 w/w, down -$0.05 YoY Usage 4-week average down -1.7% YoY.  (Graphs at This Week In Petroleum Gasoline Section - U.S. Energy Information Administration (EIA).) Several months ago, oil prices briefly were in the bottom 1/3rd of their 3-year range, and so turned positive. They reversed back and forth repeatedly since then. Five weeks ago, they declined enough to change back from neutral to positive, and remained so this week. Gas prices are closer to the lows of their 3-year range, and so are also positive. Mileage driven, but except for two weeks in March, has been negative YoY since February. Note: given this measure’s extreme volatility, I believe the best measure is against their 3-year average. Bank lending rates   5.33 Secured Overnight Financing Rate (SOFR), down -0.01 5.45 LIBOR down -0.01 w/w (0.10130–5.47) (graph at link.)  The TED Spread has been discontinued, and LIBOR is in the process of being discontinued. At the suggestion of a reader, I have begun to track the SOFR instead. Unfortunately, SOFR has only been existing since 2018, so there is no track record as to how it might behave around normal recessions (vs. the pandemic). Over the past 5 years, it does appear to have matched the trend in LIBOR. But because of its very brief track record, although I will report it I will not be including it in my list of indicators in the conclusion, at least for now. Coincident indicators St. Louis FRED Weekly Economic Index   Down -0.09 to 2.44 w/w (Low 1.07 August 12, 2023 - high 2.73 June 14, 2024). This measure remained in a neutral range during most of 2023 before breaking above 2.0 last December, changing its rating to positive, and again for several weeks off and on this year, oscillating between neutral and positive. It was positive again this week. Restaurant reservations YoY (from Open Table)  State of the Restaurant Industry | OpenTable 7-day average +4% YoY, vs. +4% one week ago. This index went on hiatus for six weeks, and I discontinued coverage. This week it resumed, but it appears that previous data, which had averaged -3% to -7% YoY earlier this year, has been substantially revised, and now retroactively averages +4% for most of this calendar year. With that massive caution, I have reinstated coverage. Consumer spending   Johnson Redbook up +5.8% YoY, 4-week average +5.6% (high 6.0% May 31, 2024; low -0.4% July 13, 2023) United States Redbook Index. The Redbook index briefly turned negative last summer, before rebounding. Comparisons faded somewhat during December, before rebounding again after Christmas, then fading in February, and rebounding since. It remains close to the highest comparison yet in the past year. The link above goes to a 5-year graph to best show the comparison. Consumer inflation by Truflation (Independent, economic & financial data in real time on-chain) Down -0.16 to +1.87% YoY (High 3.34% 9/19/23 - Low 1.34% 2/2/24). This recent addition is a daily update to inflation, similar to the “billion prices project” of the last decade (which required a subscription). I have not added this to my list below of coincident or leading indicators, but needless to say, it is an up-to-the-moment reading on this significant indicator. Real Consumer Spending  Up +3.9% YoY (12 month high 4.0% 2/2/24; 12 month low -1.4% May 2023). This metric premiered at the beginning of this year. One of my most important mantras is that consumption leads to employment. Real retail sales have a long history of doing so, but are only reported on a monthly basis. The weekly result is derived simply by subtracting YoY inflation as measured by Truflation by the YoY change in nominal consumer spending as measured by Redbook. While it will be moderately noisy, it should anticipate changes in the monthly measures ahead of time. It backed off from the 12-month high it set in February, but has gradually rebounded since, and remained positive this week. Transport  Railroads (from the AAR)  Carloads up +1.1% YoY Intermodal units up +6.3% YoY Total loads up +3.9% YoY.  (Graph at Railfax Report - North American Rail Freight Traffic Carloading Report.) Shipping transport  Harpex up +32 to 1973 (810–1973) (new 12-month high)  Baltic Dry Index up +33 to 2064 (919-3369) (graph at link).  Rail data has been very volatile since early 2023, with lots of volatility from positive to negative and back again. This week it was positive again. Harpex was as high as nearly 4500 almost 2 years ago, but declined as low as 810 in December of last year before rising almost relentlessly since, setting repeated 12-month highs in the past two months. The usual interpretation for this is that demand is straining against supply, showing a strong global economy, and thus very positive. Similarly, the BDI was in a generally declining trend throughout 2022 before bottoming at a three-year low of 530 in February 2023. The overall trend has been higher since then, rising to a high at 3346 in December, probably reflecting the Houthi attacks on shipping in the Red Sea. This year its low was 1309 in January, and its recent high was 2419 in March. Its current reading is near the midpoint of its one-year range, so is a 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 (American Iron and Steel Institute)   Up +0.6% w/w Down -1.0% YoY.  This metric was negative for most of 2022, then gradually improved in 2023. Several months ago it returned to negative, then rebounded to neutral, then to positive seven weeks ago, before declining to negative again. Three weeks ago, it rebounded to neutral; two weeks ago, it went back to negative, and remained so this week. Summary And Conclusion  Below are this week’s spreadsheets of the long leading, short leading, and coincident readings. Check marks indicate the present reading. If there has been a change this week, the prior reading is marked with an X:   Long leading Indicators Positive Neutral Negative     Corporate bonds   ✓       10 year Treasury   ✓       10 yr-2 yr Treasury     ✓     10 ry. - 3 mo. Treasury     ✓     2 yr - Fed funds     ✓     Mortgage rates   ✓       Purchase Mtg. Apps.   ✓       Refi Mtg Apps. ✓         Real Estate Loans     ✓     Real M1     ✓     Real M2     ✓     Corporate Profits ✓         Adj. Fin. Conditions Index ✓         Leverage Index   ✓       Totals: 3 5 6       Click to enlarge   Short Leading Indicators Positive Neutral Negative     Credit Spread ✓         Miller Score     ✓     St. L. Fin. Stress Index ✓         US$ Broad   ✓       US$ Major currencies   ✓       Total commodities   ✓       Industrial commodities ✓ X       Stock prices ✓         Regional Fed New Orders     ✓     Initial jobless claims ✓         Temporary staffing     ✓     Gas prices ✓         Oil prices ✓         Gas Usage     ✓     Totals: 7 3 4       Click to enlarge   Coincident Indicators Positive Neutral Negative     Weekly Econ. Index ✓         Open Table [reinstated] ✓         Redbook ✓         Rail ✓ X       Harpex ✓         BDI   ✓       Steel     ✓     Tax Withholding x ✓       TED (deleted)           LIBOR (deleted)           Financial Cond. Index   ✓                                           Totals: 5 3 1       Click to enlarge Among the long leading indicators, the big negatives remain the yield curve and real money supply. The remaining indicators have slowly changed back to either neutral or positive. Both the short leading indicators and the coincident indicators have generally been improving over the past few months, albeit with some noise. The tone of both the short leading and coincident indicators remains positive. In Particular, consumer spending, which has remained very positive in both nominal and inflation-adjusted terms. Last week I wrote that I would be paying particular attention to the ISM reports and to the jobs report, The economically weighted average of the ISM manufacturing and non-manufacturing reports showed contraction for the first month since December 2022. But the three-month average remained expansionary. Should it be negative again next month, that would likely justify going on recession watch. By contrast, the jobs report remained generally positive. As I predicted, there has already been erroneous coverage that the “Sahm Rule” has been triggered. It has not because three month averages are used, which is currently at 0.43 - under the threshold.  Next week’s important data will be the CPI on Thursday.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.28.3","shortVersion":"4.28.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2449013272"}