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Weekly Indicators: ...And Rail Goes Back To Negative Edition

By New Deal Democrat

July data included flat nominal retail sales, a decrease in producer prices, but increases in both import and export prices. U. Michigan sentiment improved. June data included increases in wholesaler and total business sales, slight increases in inventories, and declines in the inventory to sales ratios. In the rear view mirror, productivity declined in Q2 and unit labor costs increased. In the far rear view mirror, both measures in Q1 were revised heavily downward.

My usual note: I look at the high frequency weekly indicators because while they can be very noisy, they provide a good Now-cast 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, and then coincident indicators.

Interest rates and credit spreads

  • 4.21% BAA corporate bonds down -.10%
  • 1.50% 10-year treasury bonds down -.05%
  • 2.71% credit spread between corporates and treasuries down -.05%

Yield curve, 10-year minus 2-year:

  • 0.81%, down -.07% w/w

30-year conventional mortgage rate:

  • 3.37%, down -.01% w/w

Yields on corporate bonds and treasuries both made new lows two weeks ago, strongly suggesting that the expansion will continue at least one more year. On the other hand, mortgages have failed to make a new low for over 3 years, thus turning yellow (caution or neutral vs. positive) as a recession indicator. Spreads remain neutral. Yields are still normally positive, although they continue to tighten.

Housing

Mortgage applications

  • Purchase applications up +3% w/w
  • Purchase applications up +13% YoY
  • Refinance applications up +10% w/w

Real Estate loans

  • Unchanged w/w
  • +7.3% YoY

Mortgage applications had been awful for several years, before turning up early last year in response to very low rates. Purchase applications are very positive, while refinancing was moving more sideways with a slight positive trend earlier this year before spiking in the last month in response to low rates.

Real estate loans have been firmly positive for 3 years.

Money supply

M1

  • -1.1% w/w
  • -0.4% m/m
  • +4.5% YoY Real M1

M2

  • +0.3% w/w
  • +0.9% m/m
  • +6.3% YoY Real M2

Real M1 decelerated markedly in January to the point where it was a very weak positive, and has fluctuated since then. Real M2 also decelerated but has been more firmly positive. Both have been very positive for the last three months.

Trade weighted US dollar

  • Up +0.4% to 121.74 w/w, up +2.6% YoY (one week ago) (Broad)
  • Up +3.46 to 95.72 w/w, down -0.8% YoY (yesterday) (major currencies)

The US dollar appreciated about 20% between mid-2014 and mid-2015. It has gone mainly sideways since then, and for the last 6 months has generally...


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