- A Note on Methodology
- Recap of monthly reports
- Coronavirus Vaccinations and Cases
- Long leading indicators
- Interest rates and credit spreads
- Money supply
- Short leading indicators
- Economic Indicators from the late Jeff Miller’s “Weighing the Week Ahead”
- Trade weighted US$
- Commodity prices
- Regional Fed New Orders Indexes
- Employment metrics
- Oil prices and usage (from the E.I.A.)
- Bank lending rates
- Coincident indicators
- St. Louis FRED Weekly Economic Index
- Steel production (American Iron and Steel Institute)
- Summary And Conclusion
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
January retail sales, industrial production, building permits, and existing home sales all increased, although manufacturing production only increased slightly. Housing starts declined, but the three month average made a 10 year+ high. For the first time in many months, the Index of Leading Indicators declined.
Note: I have discontinued comparisons with the “worst” readings since the onset of the coronavirus crisis began over one year ago, as they are no longer helpful. I am continuing to post the best readings during the pandemic in parentheses after the current week’s number.
- At least 1 dose administered: 252.5m, up +0.8m w/w (87.6% of population age 18+)
- Fully vaccinated*: 214.5m, up +1.1m (74.7% of population age 18+)
*not counting booster shots
Omicron infections have declined by almost 85% from their peak, all the way back to the level at the onset of the wave in December, while deaths are only about 10% lower than their Omicron peak.
Long leading indicators
Interest rates and credit spreads
- BAA corporate bond index 4.09%, up +0.15 w/w (1-yr range: 3.13-4.09 (new 1 year high)
- 10-year Treasury bonds 1.92%, unchanged w/w (1.08-1.92) (1 year high)
- Credit spread 2.17%, up +0.15% w/w (1.65-4.31)
(Graph at FRED Graph | FRED | St. Louis Fed)
- 10 year minus 2 year: +0.45%, up +0.03% w/w (0.42 – 1.59) (new 1 year low)
- 10 year minus 3 month: +1.56%, down -0.01% w/w (-0.99 – 1.75)
- 2 year minus Fed funds: +1.39%, down -0.04% w/w
(Graph at FRED Graph | FRED | St. Louis Fed)
30-Year conventional mortgage rate (from Mortgage News Daily) (graph at link)
- 4.08%, up +0.03% w/w (2.75-4.08) (2 year high)
After making a 70 year low at the end of 2020, in 2021 corporate bonds remained between the bottom and middle of their 5 year range, and remained near the lower end of that range during the last 6 months – but failed to make a new low in 2021. Therefore their rating changed to neutral.
Treasury bonds increased towards and then fluctuated near the middle of their 5 year range throughout 2021. Similarly, mortgage rates made an all time low during the first week of 2021. Neither has made a new low in the past year, so their ratings have also changed from positive to neutral. Additionally, now that mortgage rates have risen to a level more than 1% higher than 1 year ago – and are now in the middle of their 5 year range – that is enough to put downward pressure on the housing market, so their rating goes to negative.
The spread between corporate bonds and Treasuries remains positive, as now do all three measures of the yield curve. That’s because, ironically, with the 2 year yield increasing sharply, but the Fed standing pat, the 2 year minus Fed funds spread is now wide enough to be a positive. In the past 7 months, 2 year Treasuries have increased over 1% in yields, causing the 10 year minus 2 year spread to compress, but it still remains positive. If either spread goes below 0.25%, their rating will switch to neutral, but *not* to negative unless there is an actual inversion.
Mortgage applications (from the Mortgage Bankers Association)
- Purchase apps down -1% w/w to 280 (184-349) (SA)
- Purchase apps 4 wk avg. down -7 to 293 (SA) (341 high Jan 29, low 251 Aug 20)
- Purchase apps YoY -7% (NSA)
- Purchase apps YoY 4 wk avg. -9% (NSA)
- Refi apps down -9% w/w (SA)
- Refi apps YoY down -54% (SA)
*(SA) = seasonally adjusted, (NSA) = not seasonally adjusted
(Graph at here)
Real Estate Loans (from the FRB)
- Up +0.2% w/w
- Up +3.5% YoY (-0.9 – 3.5)
Early in 2021 purchase mortgage applications declined to 2 year lows due to higher interest rates (and probably housing unaffordability as well). All measures are within the middle 1/3rd of their 52 week range, and mortgage rates have failed to make a new low in the past 12 months, so the rating has changed to neutral. Refi is at 24 month lows, so they remain negative.
From 2018 until late in 2020 real estate loans with few brief exceptions stayed positive. Earlier last year they varied between neutral and negative, but for the past several months have been positive.
The Federal Reserve has discontinued this weekly series. Data is now only released monthly. December data was released three weeks ago:
- M1 m/m up +1.0%, YoY up +15.4%
- M2 m/m up +0.9%, YoY up +13.1%
Corporate profits (Q4 84% actual + 16% estimated S&P 500 earnings from I/B/E/S via FactSet at p. 32)
- Q4 2021, up +0.26 to 55.16, up +2.8% 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.
Q4 earnings remain in the neutral range.
Credit conditions (from the Chicago Fed) (graph at link)
- Financial Conditions Index up +0.01( less loose) to -0.56 (-0.56 – -0.72) (new 52 week high)
- Adjusted Index (removing background economic conditions) down -0.03 (looser) to -0.65 (-0.55 – -0.75)
- Leverage subindex down -.08 (looser) to -0.29 (+0.09 – -0.39)
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. Both the adjusted and un-adjusted indexes have been positive ever since mid-2020. Leverage recently has been close enough to zero now as to have changed from positive to neutral. If it declines below -0.25, it will change back to a positive.
Short leading indicators
Economic Indicators from the late Jeff Miller’s “Weighing the Week Ahead”
The Miller Score is designed to look 52 weeks ahead for whether or not a recession is possible. Any score over 500 means no recession. With this number having fallen below that threshold several months ago, this metric is negative.
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. Thus the present reading is also a positive for the economy.
Trade weighted US$
In early 2021, both the broad rating and the USD against major currencies turned higher YoY, and so changed to neutral. In the past few months, with the measure against major currencies usually above +5% YoY, this rating turned negative.
Bloomberg Commodity Index
- Up +1.73 to 111.63 (79.11-111.63) (new 1 year high)
- Up +30.9% YoY (Best: +52.3% June 4)
Bloomberg Industrial metals ETF (from Bloomberg) (graph at link)
- 187.23, up +3.51 w/w (131.43-187.23) (new 1 year high)
- Up +29.2% YoY (Best +69.0% May 7)
Since April 2020 both industrial metals and the broader commodities indexes rebounded sharply. Both total and industrial commodities are extremely positive, with a recent downturn in the indexes having reversed higher, to new highs.
Stock prices S&P 500 (from CNBC) (graph at link)
This index made a new three month low three weeks ago. As there have been both a new three month high and low during the past three months, this indicator has turned neutral.
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. These have usually been extremely positive ever since June 2020.
Initial jobless claims
- 248,000, up +23,000 w/w
- 4-week average 243,250, down -10,500 w/w
(Graph at St. Louis FRED)
New claims declined to repeated new pandemic lows since February 2021. They remain very positive. The 4 week average is only back to its level in November, so this metric remains positive. The recent increases have probably mainly been due to Omicron.
Temporary staffing index (from the American Staffing Association) (graph at link)
- Up +2 to 103 w/w
- Up +15.7% YoY (Best +57.4% May 21)
This gradually improved to neutral at the beginning of 2021, and positive since February. It is about 17% higher than its reading this week in 2020.
Tax Withholding (from the Dept. of the Treasury)
- $253.3 B for the last 20 reporting days vs. $228.8 B one year ago, up +$24.5 B or +10.7% (Best +37.6% April 30)
YoY comparisons turned positive in the beginning of 2021, and have remained that way – usually very strongly so – almost every week since. Beginning next month, these should be normally reliable again.
- Oil down -$2.20 to $91.58 w/w, up +65.9% YoY
- Gas prices up +$.05 to $3.49 w/w, up $0.99 YoY (new 7 year high)
- Usage 4-week average up +8.0% YoY (Best +67.5% April 30)
- Usage down -2.6% vs. 2020 (Best +3.0% July 8)
Both gas and oil prices remain firm negatives, particularly with oil at new multi-year highs. As to gas usage, for the next several months both 2020 and 2019 comparisons will continue to be useful.
Bank lending rates
- 0.140 TED spread up +0.138 w/w (0.02 -.20) (graph at link) (new low)
- 0.162 LIBOR up +.025 w/w (0.0753- 0.200) (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 declined precipitously, and although both have risen somewhat in the past several months, both are still positive.
St. Louis FRED Weekly Economic Index
- Down -0.22 to +5.40 w/w (+4.86 Jan 21 – +12.30 April 29)
In the 5 years before the onset of the pandemic, this Index varied between +.67 and roughly +3.00. Just after the Great Recession, its best comparison was +4.63. The big positive numbers last year were in comparison to the pandemic shutdown of March and April 2020. Since it has now declined to less than half its best YoY level, its rating has changed to neutral.
Restaurant reservations YoY (from Open Table)
- Feb 10 seven day average -16% YoY (Best +31% Oct 21)
- Feb 17 seven day average -10% YoY (Worst -29% Jan 13)
The comparison year for this metric is 2019 and not 2020. Compared with the depths of the pandemic, in 2021 reservations rebounded to neutral, then positive for a number of months, before declining back to neutral – and negative for several weeks recently. Recent negative readings are almost certainly due to Omicron.
This was the very first weekly indicator to signal collapse when COVID and the ensuing lockdowns started in March 2020. Note I am now measuring its 7 day average to avoid daily whipsaws.
In April 2020 the bottom fell out in the Redbook index. It has remained positive almost without exception since the beginning of this year. There was never any perceptible change at all due to the Delta wave – and none due to Omicron, either.
Railroads (from the AAR)
- Carloads up +11.9% YoY (Best +35.3% June 4)
- Intermodal units down -0.4% YoY (Best +38.3% April 23)
- Total loads up +5.9% YoY (Best +34.0% April 23)
- Harpex up +38 to 4398 (1038-4398) (new multi-year high)
- Baltic Dry Index down -54 to 1886 (1302-5650) (graph at link)
Rail carloads turned positive early in 2021, before gradually fading to negative from August through the end of the year and the beginning of this year – until this week. This week rebounded to 6% higher than either 2021 or 2020. Thus it becomes a positive. BUT, the comparison with 2021 involves the week in which Texas and adjoining states were largely shut down. It will have more challenging comparisons in several weeks.
Earlier in 2021 Harpex repeatedly rose to new multiyear highs, before leveling off in October. It declined from that peak, but in the past few weeks has increased slightly again. Meanwhile, BDI traced a similar trajectory, repeatedly making new multi-year highs. But several months ago it fell over 50%, largely stabilizing at roughly that level.
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)
- Down -1.5% w/w
- Up +1.0% YoY
Since the end of March 2021, against terrible comparisons, this metric had been positive, typically running at a double digits higher YoY percentage growth. Because it has fallen by more than half of its best YoY comparison, it is neutral.
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|
|10 year Treasury||✓|
|10 yr-2 yr Treasury||✓|
|10 yr-3mo Treasury||✓|
|2 Yr Treasury-Fedfunds||✓|
|Purchase Mtg. Apps.||✓|
|Refi Mtg Apps.||✓|
|Real Estate Loans||✓|
|Adj. Fin. Conditions Ind.||✓|
|Short Leading Indicators||Positive||Neutral||Negative|
|St. L. Fin. Stress Index||✓|
|US$ Major currencies||✓|
|Regional Fed New Orders||✓|
|Initial jobless claims||✓|
|Weekly Econ. Index||✓|
|Financial Cond. Index||✓|
As indicated last week, the two recent big trends: commodity prices through the roof; and the Omicron wave receding sharply; are both still pre-eminent. To that this week I would add that the escalation in mortgage rates, together with the continued soaring in house prices, is likely to put that sector under strong pressure in the very near future.
The long leading forecast remains weakly positive. While interest rates, especially intermediate term Treasuries and mortgage rates, are particularly elevated, neither have crossed the threshold yet to be consistent with an oncoming recession. The effects of the increased rates can be expected to filter through the economy, beginning with housing, over the months ahead.
The short leading forecast remains positive, as soaring commodity prices signal manufacturing tightness, while oil and gas prices will be very much noticed by consumers.
The coincident indicators also remain positive. There are no more new cases now than there were at the beginning of the Omicron wave. One item of interest is that steel production is on the cusp of turning negative – although it hasn’t happened yet.
The expansion is decelerating, and will continue to do so. In particular, mortgage rates have risen enough that housing will be significantly affected, but typically that is 3 to 6 months after interest rates turn. Typically it has taken at least a 1.75% increase in mortgage rates to be consistent with housing being driven into full recession conditions. While we aren’t there yet, with house prices at a record multiple of average hourly wages, the sharp increase in mortgage rates is putting monthly mortgage payments only about 15%-20% below their 2005 extreme in real, income-adjusted terms.