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
October data included positive retail sales, industrial production, housing permits, and a 10 year+ high in existing home sales. Housing starts were unchanged. As a result, the Index of Leading Indicators rose again.
Note: For most indicators I have now added both the weeks of the best and worst readings since the coronavirus crisis began in parentheses following this week’s number. This will tell us whether gains are continuing, leveling off, or whether we are starting to turn back down.
Interest rates and credit spreads
- BAA corporate bond index 3.21%, down -0.12% w/w (1-yr range: 3.12-5.18)
- 10-year Treasury bonds 0.83%, down -0.07% w/w (0.54-2.79)
- Credit spread 2.38%, down -0.05% w/w (1.96-4.31)
(Graph at FRED Graph | FRED | St. Louis Fed)
- 10 year minus 2 year: +0.67%, down -0.05% w/w (-0.04 – 0.67)
- 10 year minus 3 month: +0.75%, down -0.06% w/w (-0.04 – 0.70)
- 2 year minus Fed funds: +0.11%, down -0.02% w/w
(Graph at FRED Graph | FRED | St. Louis Fed)
30-Year conventional mortgage rate (from Mortgage News Daily) (graph at link)
- 2.87%, down -0.07% w/w (2.81-4.63)
Corporate bonds spiked to near five-year highs early this year, but subsequently made multi-decade lows.
The spread between corporate bonds and Treasuries turned very negative in March, but has also bounced back, and is positive now. Two of the three measures of the yield curve remain solidly positive, while the Fed funds vs. two-year spread is neutral. Mortgage rates are also extremely positive.
Mortgage applications (from the Mortgage Bankers Association)
- Purchase apps up +4% w/w to 304 (184-326) (SA)
- Purchase apps 4 wk avg. up +1 to 303 (SA)
- Purchase apps YoY +23% (NSA) (Worst: -35% on 4/18)
- Purchase apps YoY 4 wk avg. +23% (NSA)
- Refi apps -2% w/w (SA)
*(SA) = seasonally adjusted, (NSA) = not seasonally adjusted
Real Estate Loans (from the FRB)
- Up +0.1% w/w
- Up +2.4% YoY (2.3-5.2)
Purchase mortgage applications had been solidly positive in late 2019 and early this year. When the crisis started, they reverted back to negative. Since then, they have rebounded to repeated new decade highs. Refi has also improved from neutral to positive.
With the exception of several weeks in 2019, real estate loans have generally stayed positive for the past several years – until two weeks ago. Having decreased by more than 1/2 of their YoY peak, they are now neutral.
- +1.8% w/w
- +2.3% m/m
- +43.9% YoY Real M1 (-0.1 to 43.9) (New High)
- +0.9% w/w
- +1.3% m/m
- +24.1% YoY Real M2 (2.0-24.9)
(Graph at FRED Graph | FRED | St. Louis Fed)
In 2019, both M1 and M2 improved from negative to neutral and ultimately positive. Fed actions to combat the economic crash amplified that.
- Q3 2020 95% actual + 5% estimated up +0.49 to 39.23 w/w, up 39.0% q/q, down -8.5% from Q4 2018 peak
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 are up over 10% q/q so this indicator has now changed all the way back to positive.
Credit conditions (from the Chicago Fed) (graph at link)
- Financial Conditions Index down -.05 (looser) to -0.53 (Best: -.60 on July3)
- Adjusted Index (removing background economic conditions) down -.03 (looser) to -0.59 (Best: -0.70 on Sep 25. Note: This series has just undergone revisions)
- Leverage subindex down -.02 (less tight) to +0.28 (Best)
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 early April all turned negative. Since then, both the adjusted and unadjusted indexes quickly rebounded to positive.
Trade weighted US$
Both measures of the US$ were negative early in 2019. In late summer, both improved to neutral on a YoY basis. Against major currencies it has recently fluctuated between positive and neutral. It is positive again this week. The broad measure also turned positive six weeks ago, then with the exception of one week reverted to neutral.
Bloomberg Commodity Index
- Up +0.41 to 74.14 (58.87-83.08)
- Down -5.3% YoY (Worst: -26.0% on April 25; Best: -5.2% on Aug 28, Sept 4)
Bloomberg Industrial metals ETF (from Bloomberg) (graph at link)
- 129.68, up +4.82 w/w (88.46-124.03)
- Up +15.6% YoY (Worst: -23.6% on April 11; Best: +15.6 this week)
Both industrial metals and the broader commodities indexes declined to very negative into 2019, but rebounded considerably since April. Total commodities have remained neutral, while industrial commodities briefly turned positive in August, and again for the past three weeks.
Stock prices S&P 500 (from CNBC) (graph at link)
There have been repeated recent three-month highs, including a new all-time last week, so this metric remains positive.
Regional Fed New Orders Indexes
(*indicates report this week) (no report this week)
The regional average is more volatile than the ISM manufacturing index, but usually correctly forecasts its month-over-month direction. In April the average was even more negative than at its worst reading of the Great Recession. It rebounded by more than half in May, and at the end of June, it rebounded all the way to positive. After money supply and stock prices, it is the most positive indicator of all right now.
Initial jobless claims
- 742,000, up +31,000 w/w (Worst: 6.867 M on April 4)
- 4-week average 742,000, down -13,750 w/w (Worst: 5.786 M on April 25)
(Graph at FRED Graph | FRED | St. Louis Fed)
New claims made a new pandemic low this week, but are still above their worst levels of the Great Recession. Continuing claims are also down by over 1/2 from their worst readings. The continued pandemic lows make this metric positive, but I suspect it may have started a reversal this week, due to the out of control pandemic.
Temporary staffing index (from the American Staffing Association) (graph at link)
- Up +1 to 86 w/w
- Down -10.8% YoY (Worst: 36.3% on May 28; Best this week)
This index turned negative in February 2019, worsened in the second half of the year, and plummeted beginning in March. It has gradually been becoming “less awful” over the past five months, and seven weeks ago improved to neutral.
Tax Withholding (from the Dept. of the Treasury)
- $186.9 B for the last 20 reporting days vs. $194.2 B one year ago, down -$7.3 B or -3.8% (Worst: -16.0% on July 3; Best Oct 30)
YoY comparisons turned firmly negative in the second week of April. The comparative YoY readings, except for one week, have generally improved to less than 1/2 of their worst, making this indicator neutral.
Oil prices and usage (from the E.I.A.)
- Oil up +$1.95 to $42.12 w/w, down -21.1% YoY
- Gas prices up +$0.01 at $2.11 w/w, down -$0.48 YoY (Worst: -$1.12 on May 1)
- Usage 4-week average down -9.5% YoY (Worst: -43.7% on May 1; Best -6.7% Oct 9)
(Graphs at This Week In Petroleum Gasoline Section)
Gas prices remain very low, relatively speaking. Usage turned very negative at the beginning of April, but has since rebounded by much more than half since its low point, and so has become neutral.
Bank lending rates
- 0.153 TED spread up +0.013 w/w (0.12-1.51) (graph at link)
- 0.146 LIBOR up +0.006 w/w (0.13-2.50) (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 have declined far enough after that to turn back positive.
The five-week average of this statistic cuts down on most of that noise while retaining at least a short-leading signal that appears to turn 1-3 months before the cycle. This turned negative YoY in March as soon as coronavirus turned into a real issue, but by July turned back strongly positive.
St. Louis FRED Weekly Economic Index
- Down -0.16 to -2.84 w/w (Worst: -11.48; Best -2.68 Nov 13)
Restaurant reservations YoY (from Open Table)
- Nov 11 -43%
- Nov 18 -55% (Best -40% on Oct 15)
The comparisons gradually improved each week from spring into summer. Since then the improvement has been much more gradual, but still the comparisons rose enough to turn neutral. This week there has been some retrenchment, but not enough to change the rating.
In April the bottom fell out below the Retail Economist reading, followed a few weeks later by Redbook. Redbook turned positive for two weeks before turning neutral and then positive. The rebound in the past few weeks has continued.
Railroads (from the AAR)
- Carloads down -3.1% YoY (Worst: -30.2% on May 22; Best this week)
- Intermodal units up +12.9% YoY (Worst: -22.4% on May 1; Best +24.8% on Sep 11)
- Total loads up +5.2% YoY (Worst: -39.4% on May 8; Best +8.6% on Sep 11)
Since January 2019, rail had been almost uniformly negative, and worsened in April, but got “less awful” since. Intermodal has generally been positive for over a month. Total rail carloads had also improved by more than 50% from their worst readings, so were neutral. Two weeks ago they turned positive, with their best reading all year, except for seasonality.
Harpex declined to a new one-year low earlier this year. It improved enough in the past several months to be positive, but has now declined back to neutral. BDI traced a similar trajectory, making new three-year highs into September 2019, then declining to new three-year lows at the beginning of February. In summer the BDI improved enough to warrant changing its rating from negative to neutral, and several weeks ago to positive. Three weeks ago it fell back again to 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 (from the beginning American Iron and Steel Institute)
- Up +0.4% w/w
- Down -13.3% YoY (Worst: -39.4% on May 8; Best this week)
The bottom in production fell out in April. There has been slow but continuing improvement since then, and finally two months ago, it improved enough to be rated neutral.
Summary And Conclusion
There were no significant changes this week.
Among the coincident indicators – the most important timeframe so long as the pandemic is not under control – the unadjusted Chicago Fed Financial Index, the TED spread, and LIBOR, Redbook consumer spending, and intermodal and rail loads are positive. Rail carloads, restaurant reservations, Harpex, the BDI, steel, and tax withholding are all neutral. There are no remaining negatives.
Among the short-leading indicators, gas and oil prices, business formations, stock prices, the regional Fed new orders indexes, initial jobless claims, the US$ against major currencies, industrial commodities, and the spread between corporate and Treasury bonds are positives. Gas usage, total commodities, the broad US$, and staffing are neutral. There are no negatives.
Among the long-leading indicators, corporate bonds, Treasuries, mortgage rates, two out of three measures of the yield curve, real M1 and real M2, purchase mortgage applications and refinancing, corporate profits, and the Adjusted Chicago Financial Conditions Index are all positives. The two-year Treasury minus Fed funds yield spread and real estate loans are neutral. The Chicago Financial Leverage subindex is the sole negative.
All three time frames thus remain firmly positive.
As I sometimes note, this weekly data, while noisy, gives early notice of significant changes. This week Paul Krugman wrote in The NY Times that the economy is primed for a V-shaped recovery once the pandemic abates. This is something that has been apparent for several months in these indicators I follow each week. Put succinctly, by summer, 2021 should be a very positive year.
But right now, the pandemic is truly out of control, with 1 in 2,000 Americans testing positive for COVID-19 each and every day for the past week. Some of the metrics, like table reservations and new jobless claims, may be beginning to reverse in response. Whether this is the case should become clearer in the next several weeks.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.