- A Note on Methodology
- Recap of monthly reports
- Coronavirus Vaccinations and Cases
- Long leading indicators
- Interest rates and credit spreads
- Yield curve
- Mortgage applications (from the Mortgage Bankers Association) (no report this week)
- Real Estate Loans (from the FRB)
- Money supply
- Corporate profits (Q3 actual + Q4 33% actual + 67% estimated S&P 500 earnings from I/B/E/S via FactSet at p. 27)
- Credit conditions (from the Chicago Fed) (graph at link)
- Short leading indicators
- Economic Indicators from the late Jeff Miller’s “Weighing the Week Ahead”
- Trade weighted US$
- Commodity prices
- Bloomberg Commodity Index
- Bloomberg Industrial metals ETF (from Bloomberg) (graph at link)
- Stock prices S&P 500 (from CNBC) (graph at link)
- Regional Fed New Orders Indexes
- Employment metrics
- Initial jobless claims
- Temporary staffing index (from the American Staffing Association) (graph at link)
- Tax Withholding (from the Dept. of the Treasury)
- Oil prices and usage (from the E.I.A.)
- Bank lending rates
- Coincident indicators
- St. Louis FRED Weekly Economic Index
- Restaurant reservations YoY (from OpenTable)
- Consumer spending
- Railroads (from the AAR)
- Shipping transport
- 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
December data included further increases in house prices, and a big increase in new home sales. Durable goods orders declined, as did real personal income and spending, and consumer confidence as measured by both the Conference Board and the University of Michigan.
In the rear view mirror, Q4 GDP increased sharply, as did the Employment Cost Index.
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: 249.3m, revised downward -1.0m w/w (86.7% of population age 18+)
Fully vaccinated*: 211.2m, up +1.2m (74.0% of population age 18+)
*not counting booster shots
The arrival of Omicron has changed the picture considerably, with record cases and hospitalizations; but ICU admissions and deaths have not followed suit, which is good news (so far).
Long leading indicators
Interest rates and credit spreads
- BAA corporate bond index 3.67%, up +0.05 w/w (1-yr range: 3.13-3.88)
- 10-year Treasury bonds 1.75%, up +0.04% w/w (1.08-1.78)
- Credit spread 1.88%, up +0.01% w/w (1.65-4.31)
(Graph at FRED Graph | FRED | St. Louis Fed)
- 10 year minus 2 year: +0.62%, down -0.13% w/w (0.62 – 1.59) (new 1 year low)
- 10 year minus 3 month: +1.60%, up +0.02% w/w (-0.99 – 1.75)
- 2 year minus Fed funds: +1.09%, up +0.17% w/w
(Graph at FRED Graph | FRED | St. Louis Fed)
30-Year conventional mortgage rate (from Mortgage News Daily) (graph at link)
- 3.69%, up +0.02% w/w (2.75-3.74) (2 year high intraweek)
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 yields made an all time low in mid-2020. They 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, and have remained near the bottom of their 5 year range since then. Since as of now neither has made a new low in the past year, their ratings have also changed from positive to neutral. Additionally, should mortgage rates rise to a level more than 1% higher than 1 year ago, that is usually enough to put downward pressure on the housing market.
The spread between corporate bonds and Treasuries remains positive, as do two of the three measures of the yield curve remain very positive, while the Fed funds vs. 2 year spread is neutral. In the past 5 months, 2 year Treasuries have increased roughly 0.70% in yields, causing the 10 year minus 2 year spread to compress, but it still remains positive. I will pay more attention to this in 2022, as the bond market anticipates Fed tightening.
Mortgage applications (from the Mortgage Bankers Association) (no report this week)
- Purchase apps down -2% w/w to 300 (184-349) (SA)
- Purchase apps 4 wk avg. up +3 to 291 (SA) (341 high Jan 29, low 251 Aug 20)
- Purchase apps YoY -11% (NSA)
- Purchase apps YoY 4 wk avg. -13% (NSA)
- Refi apps down -13% w/w (SA) (2 year low)
- Refi apps YoY down -53% (SA)
*(SA) = seasonally adjusted, (NSA) = not seasonally adjusted
(Graph at here)
Real Estate Loans (from the FRB)
- Down less than -0.1% w/w
- Up +2.9% YoY (-0.9 – 2.9)
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 this week:
- M1 m/m up +1.0%, YoY up +15.4%
- M2 m/m up +0.9%, YoY up +13.1%
Corporate profits (Q3 actual + Q4 33% actual + 67% estimated S&P 500 earnings from I/B/E/S via FactSet at p. 27)
- Q3 2021 actual, 53.86, up +2.0% q/q
- Q4 2021 estimated, up +0.74 to 52.06, down -3.3% 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.
Q3 earnings came in well ahead of estimates, but are less than 3% above Q2, while Q4 estimates are negative. The average is -0.65%, and so is in the neutral range.
- Financial Conditions Index up +.03 (less loose) to -0.59 (-.58 – -0.72)
- Adjusted Index (removing background economic conditions) up +0.02 (less loose) to -0.70 (-0.55 – -0.75)
- Leverage subindex down -.03 (looser) to -0.18 (+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. Ironically, the increase in jobless claims “helps” this number, as it makes the “Phillips curve” component less 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 above +5% YoY, this rating turned negative.
Bloomberg Commodity Index
- Up +1.79 to 107.15 (79.11-107.15) (new 1 year high)
- Up +33.8% YoY (Best: +52.3% June 4)
- 178.91, down -4.89 w/w (131.43-186.82)
- Up +34.1% 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.
This index made a new three month low one week ago. As there have been both a new three month high and low during the past three months, this indicator switches from positive to 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
- 260,000, down -30,000 w/w
- 4-week average 247,000, up +15,000 w/w
(Graph at St. Louis FRED)
New claims have declined to repeated new pandemic lows since February. They remain very positive. The last two weeks’ big increases only took the 4 week average back to its level in late November, so this metric remains positive. This has probably mainly been due to Omicron.
- Down -1 to 95 w/w
- Up +14.1% YoY (Best +57.4% May 21)
This gradually improved to neutral at the beginning of 2021, and positive since February. It is about 12% higher than its reading this week in 2020.
Tax Withholding (from the Dept. of the Treasury)
- $285.2 B for the last 20 reporting days vs. $243.0 B one year ago, up +$42.2 B or +17.4% (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 in two months, these should be normally reliable again.
Oil prices and usage (from the E.I.A.)
- Oil up +$2.72 to $87.24 w/w, up +77.6% YoY (new 7 year high)
- Gas prices up +$.01 to $3.32 w/w, up $0.83 YoY ($3.41 6 year high Nov 11)
- Usage 4-week average up +6.1% YoY (Best +67.5% April 30)
- Usage down -3.9% vs. 2020 (Best +3.0% July 8)
Both gas and oil prices remain firm negatives. As to gas usage, for the next several months both 2020 and 2019 comparisons will continue to be useful.
Bank lending rates
- 0.114 TED spread up +0.023 w/w (0.0643 -.20) (graph at link)
- 0.105 LIBOR down -.004 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
- Up +0.28 to +5.14 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 OpenTable)
- Jan 20 seven day average -25% YoY (Best +31% Oct 21)
- Jan 27 seven day average -24% 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. For the past three weeks this metric has been down roughly 25% YoY, as Omicron apparently finally hit.
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 so far due to Omicron.
Railroads (from the AAR)
- Carloads down -3.3% YoY (Best +35.3% June 4)
- Intermodal units down -14.8% YoY (Best +38.3% April 23)
- Total loads down -9.8% YoY (Best +34.0% April 23)
- Harpex up +131 to 4109 (1038-3999) (new multi-year high)
- Baltic Dry Index down -172 to 1302 (1302-5650) (graph at link) (22 month low)
Rail carloads turned positive early in 2021. Intermodal, reflecting trans-ocean shipping concerns, had generally been positive for several months, before turning back negative. After being generally positive for about 4 months, total traffic has also turned back negative. Since late last summer, total rail traffic had been roughly even compared with 2019’s pre-pandemic levels for the same week. In the past several weeks it has been over 6% lower than 2020, and was negative for the second week in a row, so I have changed the rating of this indicator from neutral to negative.
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 seven weeks ago it peaked, and fell over 50% since then, 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 -1.6% w/w
- Up +3.9% 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:
|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.||✓|
|St. L. Fin. Stress Index||✓|
|US$ Major currencies||✓|
|Regional Fed New Orders||✓|
|Initial jobless claims||✓|
|Weekly Econ. Index||✓|
|Financial Cond. Index||✓|
There was only one change this week. Omicron has continued to affect a few indicators, notably restaurant reservations.
The long leading forecast remains weakly positive. Interest rates remain neutral, and mortgage rates could turn into a negative if they increase much further. Yields on bonds from 1 year duration out through the intermediate maturities have continued to increase, anticipating Fed rate increases, as the Miller score has been suggesting for months. But the yield curve, money supply, and credit provision continue to be very positive.
The short leading forecast remains positive, although the picture is somewhat more mixed than it was a few months ago, when virtually all indicators were positive.
Although the BDI sank to a one year low this week, the coincident indicators also remain positive. Hopefully Omicron will recede in February as fast as it increased in December and early January.
As I pointed out in my short term outlook last week, the short leading indicators suggest that the underlying economy remains strong for the near future, particularly once Omicron fades. I anticipate posting my long range forecast through the end of the year on Monday.