Hiroshi Watanabe
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 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
March data included an increase in personal income and a strong increase in personal spending. The personal saving rate declined further. New home sales, durable goods orders, and core capital goods orders all increased. Consumer sentiment as measured by the U. Of Michigan declined slightly.
In the rear view mirror, Q1 GDP increased at a much lower rate than Q4, mainly due to a big decline in exports and inventories. Real sales to domestic purchasers remained close to Q4’s strong number.
Long leading indicators
Interest rates and credit spreads
Rates
- BAA corporate bond index 6.17%, up +0.06% w/w (1-yr range: 5.43-6.80)
- 10-year Treasury bonds 4.67%, up +0.05% w/w (3.30-4.93)
- Credit spread 1.50%, up +0.01% w/w (1.36-2.42)
(Graph at https://fred.stlouisfed.org/graph/?g=pAak )
Yield curve
- 10 year minus 2 year: -0.33%, up +0.03% w/w (-1.07 – -0.17)
- 10 year minus 3 month: -0.73%, up +0.05% w/w (-1.89 – 0.21)
- 2 year minus Fed funds: -0.33%, up +0.02% 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)
- 7.45%, up +0.01% w/w (6.16-8.03)
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 significant increases in the past three weeks. All of the yield curve measures remain negative, although two have improved close to the point where their rating could change to neutral. In general the yield curve is far less steeply inverted than it was late last year.
Housing
Mortgage applications (from the Mortgage Bankers Association)
- Purchase apps down -1% to 143 (125-208) (SA)
- Purchase apps 4 wk avg. unchanged at 142 (SA)
- Purchase apps YoY -15% (NSA)
- Purchase apps YoY 4 wk avg. -15% (NSA)
- Refi apps down -6% w/w (SA)
- Refi apps YoY up 3% (SA)
*(SA) = seasonally adjusted, (NSA) = not seasonally adjusted
(Graph at Our Charts )
Real Estate Loans (from the FRB)
- Up +0.2% w/w
- Up +3.0% YoY (2.3% – 11.9%)
(Graph at https://fred.stlouisfed.org/graph/?g=pAam )
Mortgage rates, like bond yields, made multi-decade new highs over 5 months ago. Additionally, purchase mortgage applications last made a new long term low at the same time. Refinancing has turned higher YoY, albeit from nearly non-existent levels one year ago. Purchase mortgages recently improved from their bottom as well, although they are not yet positive YoY. Thus their rating has also improved to neutral.
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, but not in the past month.
Money supply
The Federal Reserve has discontinued this weekly series. Data is now only released monthly. March data was released this week:
- M1 m/m up +0.3%, YoY Real M1 down -8.6% (worst: -14.9% 4/23)
- M2 m/m up +0.4%, YoY Real M2 down -3.8% (worst -9.4% 4/23)
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 clearly “less bad” than they were in 2023. 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 at p. 32)
- Q1 2024 46% actual +54% estimated up +0.60 to 54.25, down -2.4% 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 (which occurred for Q1 this week). This rating changed from negative to neutral to positive when Q3 profits made a new all-time high. Q4 declined sharply from that. But as of this week Q1 profits are estimated to decline by less than 3%. Thus the rating changes from negative to neutral.
Credit conditions (from the Chicago Fed) (graph at link)
- Financial Conditions Index up +.02 (less loose) to -0.51 (-0.03 – -0.62)
- Adjusted Index (removing background economic conditions) up +.03 (less loose) to -0.52 (+0.16 – -0.59)
- Leverage subindex down -0.01 (less tight) to +0.01 (+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. 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 slightly positive again.
Short leading indicators
Economic Indicators from the late Jeff Miller’s “Weighing the Week Ahead
- Miller Score (formerly “C-Score”): up +8 w/w to 232, +42 m/m (154 9/22/23 – 315 on 6/14/23)
- St. Louis Fed Financial Stress Index: up +0.2139 to -0.6062 (1.2072 3/17/23 – -.9347 3/15/24) St. Louis Fed Financial Stress Index (new 12 month low)
- BCIp from Georg Vrba: up +13.5 w/w to +50.7 as of 4/4/24 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 or not 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 five weeks ago IM once again stated that their system no longer forecasts a recession.
Trade weighted US$
- Up +0.79 to 123.45 w/w, up +3.3% YoY (last week) (broad) (117.41 – 124.28) (Graph at Nominal Broad U.S. Dollar Index
- Down -0.15 to 106.00 w/w, up +4.3% YoY (major currencies) (graph at link) (99.58-107.35)
Early in 2023 both measures of the US$ turned positive. Two 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
- Down -0.14 to 102.92 (95.40 2/23/24 -108.75)
- Down -1.3% YoY (Best: +52.3%; worst -25.3%)
(Graph at https://www.marketwatch.com/investing/index/bcom?countrycode=xx )
Bloomberg Industrial metals ETF (from Bloomberg) (graph at link)
- 157.30, down -1.51 w/w (132.17 12/8/23-158.81 4/1924)
- Up +3.1% YoY (Best +69.0% May 7, 2022)
Both of these measures have improved in the last several months, and industrial commodities surged last week. The broad measure is in the middle of its 52 week range, so is neutral. Industrial commodities remain close to their 12 month high, so are positive.
Note, importantly, that because this particular decline in commodity prices may reflect increased supply rather than destruction of demand, the message of a nearly -10% YoY decline may have been very different from usual. On the other hand, the FRBNY’s “Global Supply Chain Pressure Index,” a monthly indicator, has been close to or above 0 since last November. I suspect this indicator is giving its “normal” reading again.
Stock prices S&P 500 (from CNBC) (graph at link)
Since we have had multiple new all-time highs, but no new lows in the past 3 months, this indicator is positive, despite the recent sell off.
Regional Fed New Orders Indexes
(*indicates report this week) (no reports this week)
- Empire State https://www.newyorkfed.org/survey/empire/empiresurvey_overview.html up +1 to -16.2
- Philly up +6.8 to +12.2
- *Richmond up +8 to -9
- *Kansas City up +11 to -6
- Dallas down -17.0 to -11.8
- Month-over-month rolling average: up +4 to -6
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 in February and again last week, right up to the cusp of turning neutral, then retreated three weeks ago to solidly negative.
Employment metrics
Initial jobless claims
- 207,000, down -5,000 w/w
- 4-week average 213,250, down -1,250 w/w
(Graph at St. Louis FRED)
Claims for most of the past few months have been lower than they were one year ago, warranting a rating change back from neutral to positive.
Temporary staffing index (from the American Staffing Association) (graph at link)
- Unchanged at 90 w/w
- Down -8.0% YoY (low -12.9%- high +0.9%)
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.
Tax Withholding (from the Department of the Treasury) https://fsapps.fiscal.treasury.gov/dts/issues
- $263.3 B for the last 20 reporting days this year vs. $249.1 B one year ago, +$14.2B or +5.7% YoY
After being negative briefly in late 2022, in January of 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. For three of the last five weeks, they turned negative YoY once again. But in March they returned to being positive, and for the past four weeks, very positive.
Oil prices and usage (from the E.I.A.)
- Oil up +$0.44 to $83.65 w/w, up +19.6% YoY ($66.74 – $98.62)
- Gas prices up +.04 to $3.67 w/w, up +$0.01 YoY
- Usage 4-week average down -3.7% YoY
(Graphs at
This Week In Petroleum Gasoline Section – U.S. Energy Information Administration (EIA) )
Oil prices briefly were slightly into the bottom 1/3rd of their 3 year range, and so turned positive, and have reversed back and forth repeatedly since then. They are high enough to count as a neutral this week. Gas prices are still closer to the lows of their 3 year range, and so are positive. Mileage driven turned negative for 5 weeks before turning positive 3 months ago. It too has bounced between positive and negative in the last month, then rebounded to neutral, but is now negative again.
Note: given this measure’s extreme volatility, I believe the best measure is against their 3 year average. Measuring by 1 year, both are negative.
Bank lending rates
- 5.31 Secured Overnight Financing Rate (SOFR), up +0.01
- 5.43 LIBOR unchanged 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 in existence since 2018, so there is no track record has 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 -0.11 to 1.90 w/w (Low 0.90 May 13, 2023 – high 2.35 Jan. 6, 2024)
This measure remained in a neutral range during most of 2023 before breaking above 2.0, changing its rating to positive, off and on since September. Two months ago it had its highest reading in several years, before oscillating between neutral and positive. It was neutral again this week.
Restaurant reservations YoY (from Open Table) OpenTable | Site Maintenance
- April 11 seven day average -5% YoY (No report this week)
I have been measuring its 7 day average to avoid daily whipsaws.
Open Table’s data since last April has generally shown a YoY% decline in the range from -2% to -7%. In the past few weeks there was a spike in both positive and negative volatility, probably due to the change in the date for Easter this year. It has now returned to its previous range.
Consumer spending
- Johnson Redbook up +5.3% YoY, 4 week average +5.2% (high 6.0% in October 2023; 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 again in March. The link above goes to a 5 year graph to best show the comparison.
Consumer inflation by Truflation (https://truflation.com/)
- Up +0.28 to +2.34% YoY (High 4.44% 4/26/23 – 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 very important indicator.
Real Consumer Spending
- Up +3.0% YoY (12 month high 4.0% 2/2/24; 12 month low -1.4% March and May 2023)
This metric premiered at the beginning of this year. One of my most important mantras is that consumption leads 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 somewhat noisy, it should anticipate changes in the monthly measures ahead of time. It has backed off from the 12 month high it set close to two months ago, but is still positive.
Transport
Railroads (from the AAR)
- Carloads down -6.7% YoY
- Intermodal units up +8.2% YoY
- Total loads up +0.8% YoY
(Graph at Railfax Report – North American Rail Freight Traffic Carloading Report )
Shipping transport
- Harpex up +19 to 1252 (810– 1252) https://harpex.harperpetersen.com/harpex (new 12 month high)
- Baltic Dry Index down -158 to 1743 (530-3369) (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 mixed again.
Harpex backed off all the way to new lows earlier in 2023. BDI traced a similar trajectory, rebounding sharply early in 2023 and then retreating just as sharply, and remains negative – until early this year, when it increased suddenly to a 1 year+ high, before declining just as abruptly. Its rating has changed back to neutral The BDI may be reflecting the turmoil in the Red Sea and Suez Canal traffic due to Houthi attacks, and the decision to re-route some traffic around the Cape of Good Hope instead. It is now very close to the top of its 12 month range, so is positive.
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 -0.6% w/w
- Down -3.0% YoY (worst -10.0% Dec 2, 2022)
In spring 2022, this metric turned negative, but the YoY comparisons gradually improved. It generally and gradually improved in 2023, and has been positive now for a number of months. Several months ago it returned to negative, but in the past three weeks rebounded to neutral, then to positive two weeks ago, before declining to negative again last 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 | ✓ | X | ||
| Adj. Fin. Conditions Index | ✓ | |||
| Leverage Index | ✓ | |||
| Totals: | 1 | 7 | 6 | |
| Short Leading Indicators | Positive | Neutral | Negative | |
|---|---|---|---|---|
| Credit Spread | ✓ | |||
| Miller Score | ✓ | |||
| St. L. Fin. Stress Index | ✓ | |||
| US$ Broad | ✓ | |||
| US$ Major currencies | ✓ | |||
| Total commodities | ✓ | |||
| Industrial commodities | ✓ | |||
| Stock prices | ✓ | |||
| Regional Fed New Orders | ✓ | |||
| Initial jobless claims | ✓ | |||
| Temporary staffing | ✓ | |||
| Gas prices | ✓ | |||
| Oil prices | ✓ | |||
| Gas Usage | ✓ | |||
| Totals: | 5 | 5 | 4 | |
| Coincident Indicators | Positive | Neutral | Negative | |
|---|---|---|---|---|
| Weekly Econ. Index | X | ✓ | ||
| Open Table | ✓ | |||
| Redbook | ✓ | |||
| Rail | ✓ | |||
| Harpex | ✓ | |||
| BDI | ✓ | |||
| Steel | ✓ | |||
| Tax Withholding | ✓ | |||
| TED (deleted) | ||||
| LIBOR (deleted) | ||||
| Financial Cond. Index | ✓ | |||
| Totals: | 4 | 2 | 3 | |
I have received several queries in comments in the past several weeks about how I can be positive about the economy with the bulk of the long leading indicators still negative. There are two answers. First, that negativity has not bled over into the short leading indicators, which have fluctuated between neutral and somewhat positive. Secondly, the trend among the long leading indicators has been towards the “less negative,” which is what you would expect coming *out* of a downturn. This applies to both series that have remained negative: yield curve measures and real money supply. I have expanded on my commentary on each above. Corporate profits have improved to neutral, and interest rates will not revert to negative unless they take out their highs from last October.
While there were no changes this week, in general the short leading indicators have also been improving, but with a lot of noise. Both commodities especially and also the US$ are all getting stronger, and real consumer spending continues to hold up quite well. The persistent significant negative in temporary staffing appears increasingly anomalous.
In general the consumer and taxpayer is also holding up the coincident indicators. Inflation as measured by Truflation is not recording any big increase. Unless the uptick in monthly inflation continues, and is matched by an upturn in nominal YoY wage growth – a typical late cycle phenomenon – that metric also does not particularly cause me any concern at present.
