Weekly Indicators: Labor Income And Spending Stay Positive Even As Interest Rates Pinch

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

August data included a slight increase in real personal spending, unchanged real personal income, and a decline in the saving rate. The total deflator for personal spending increased YoY, but the deflator ex-food and energy decreased to a 2 year low. Durable goods and core capital goods spending also both increased. Both repeat sales home price indexes increased, but new home sales declined. Consumer confidence as to both the present and future as measured by the Conference Board declined, as did present conditions as measured by the U. Of Michigan, although the latter’s measure of future expectations increased.

Long leading indicators

Interest rates and credit spreads

Rates

• BAA corporate bond index 6.39%, up +0.24% w/w (1-yr range: 5.28-6.59)
• 10-year Treasury bonds 4.58%, up +0.15% w/w (2.60-4.58) (new 15 year high)
• Credit spread 1.81%, up +.09% w/w (1.72-2.42) (new 1 year low)

(Graph at Moody’s Seasoned Baa Corporate Bond Yield | FRED | St. Louis Fed.)

Yield curve

• 10 year minus 2 year: -0. 48%, up +0.20% w/w (-1.06 – 1.59)
• 10 year minus 3 month: -0.88%, up +0.17% w/w (-1.69 – 2.04)
• 2 year minus Fed funds: -0.27%, down -0.05% 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)

• 7.44%, up +0.05% w/w (5.05-7.65) (new 23 year high intraweek).

With the new highs in interest rates in the past month, their rating reversed from neutral to negative. Meanwhile the short end of the interest rate curve became less inverted this week, enough to change that rating to neutral, although the long vs. short maturities yields remain very negative.

Housing

Mortgage applications (from the Mortgage Bankers Association)

• Purchase apps down -1% to 145 (137-260) (SA)
• Purchase apps 4 wk avg. down -1 to 144 (SA) (268 high 3/26/22, low 143 9/15/23)
• Purchase apps YoY -27% (NSA)
• Purchase apps YoY 4 wk avg. -27% (NSA)
• Refi apps down -1% w/w (SA)
• Refi apps YoY down -21% (SA)

*(SA) = seasonally adjusted, (NSA) = not seasonally adjusted

(Graph at https://www.yardeni.com/pub/mortgageapprate.pdf.)

Real Estate Loans (from the FRB)

• Up +0.1% w/w
• Up +6.9% YoY (6.9% – 12.1%) (tied for one year low).

(Graph at Real Estate Loans, All Commercial Banks | FRED | St. Louis Fed.)

Mortgage rates, like bond yields, recently reversed to new highs. Importantly, purchase mortgage applications which had bounced around in a fairly narrow range of between 155 and 180 since last October, in the past month have sunk to repeated new lows, several weeks ago at a 28 year low!

Real estate loans turned ever more positive during 2022. This was helped by inflation in house prices. This indicator declined by 1/3rd from its peak YoY% change in August, and so became the last real estate indicator to decline from positive to neutral.

Money supply

The Federal Reserve has discontinued this weekly series. Data is now only released monthly. August data was released this week:

• M1 m/m down -0.7%, YoY Real M1 down -14.3%
• M2 m/m down -0.2%, YoY Real M2 down -7.4%.

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.

Corporate profits ( Q2 actual and Q3 estimated from I/B/E/S via FactSet at p. 29)

• Q2 actual unchanged at 54.53, up +2.3% q/q
• Q3 estimated up +0.01 to 55.75, up +2.2% 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. The average of Q2 and Q3 is +2.25%. The cumulative decline since the recent Q2 peak through Q2 2023 is -1.7%. This rating recently changed from negative to neutral.

Credit conditions (from the Chicago Fed) (graph at link)

• Financial Conditions Index down -0.04 ( looser) to -0.46 (-0.03 – -0.62)
• Adjusted Index (removing background economic conditions) down -.03 ( looser) to -0.38 (+0.16 – -0.59)
• Leverage subindex down -0.14 (less tight) to +0.05 (+1.61 – -0.35).

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. As a result of these improvements, the leverage index has improved from negative to neutral, while the adjusted index has improved beyond its breakeven point, so has returned from neutral to positive. The unadjusted index has also moved close enough to its breakeven point to turn neutral as well.

Short leading indicators

Economic Indicators from the late Jeff Miller’s “Weighing the Week Ahead”

• Miller Score (formerly “C-Score”): up +21 w/w to 175, -31 m/m (154 9/22/23 – 319 on 11/4/22)
• St. Louis Fed Financial Stress Index: down -0.0378 to -0.7316 (1.5746 3/23/23 – -.8325 9/16/22) St. Louis Fed Financial Stress Index
• BCIp from Georg Vrba: down -6.0 to 46.7 as of 9/28/23 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 did so in December, and then again briefly in March, but almost immediately decreased back below zero again and stayed there.

The BCIp, which remained very positive until very recently, deteriorated sharply earlier this year, and is below its recession-signaling threshold, although it has improved in the past several months, and indeed is now above its recession warning signal level, and IM has rescinded its recession warning.

Trade weighted US$

• Up +0.34 to 122.02 w/w, down -4.1% YoY (last week) (broad) (118.06 – 128.31) (Graph at Nominal Broad U.S. Dollar Index)
• Up +0.62 to 106.19 w/w, down -5.3% YoY (major currencies) (graph at link) (100.79-114.78).

Ever since 2021, both measures of the US$ were well above +5% higher YoY, and so negative. Recently, both declined into the neutral range, and in the past several months, both turned positive.

Commodity prices

Bloomberg Commodity Index

• Down -1.38 to 104.84 (97.95 5/31/23-117.49)
• Down -6.0% YoY (Best: +52.3%; worst -25.3%).

(Graph at BCOM | Bloomberg Commodity Index Overview | MarketWatch.)

Bloomberg Industrial metals ETF (from Bloomberg) (graph at link)

• 144.37, up +2.58 w/w (137.18 8/15/23-179.68)
• Up +0.6% YoY (Best +69.0% May 7, 2022).

During the Boom of 2021, commodity prices soared, and total commodities were very positive. While industrial commodities remain in the bottom 1/3rd of its 12 month range, the broader index is in the middle 1/3rd of that range, so the former remains negative while the latter is neutral. (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.)

Stock prices S&P 500 (from CNBC) (graph at link)

Stocks made several new 3 month highs and even a new 12+ month high earlier this year, including at the end of July. But as of one week ago, they also made a new 3 month low. Thus this indicator changed from positive to neutral. If there is no new 3 month high by the end of October, it will turn negative.

Regional Fed New Orders Indexes

(*indicates report this week)

• Empire State down -25.0 to -19.9
• Philly down -26.2 to -10.2
• *Richmond up +14 to +3
• *Kansas City down -11 -14
• *Dallas up +10.6 to -5.2
• Month-over-month rolling average: up +3 to -9.

The regional average is more volatile than the ISM manufacturing index, but usually correctly forecasts its month-over-month direction. Since last spring, these gradually declined to neutral and then negative. They remain negative now, although they have become “less negative” recently.

Employment metrics

Initial jobless claims

• 204,000, up +2,000 w/w
• 4-week average 211,000, down -6,250 w/w.

(Graph at St. Louis FRED.)

In spring, revisions caused major changes in this index. The 4 week average has been higher YoY for 4+ months, but not at levels which have in the past triggered a “recession warning.” Although the absolute numbers are very low, they are about 10% higher YoY, and so remain at a negative rating.

Temporary staffing index (from the American Staffing Association) (graph at link)

• Unchanged at 101 w/w
• Down -4.8% YoY.

This was extremely positive at the end of 2021. During 2022, the comparisons at first slowly and then more sharply deteriorated, and four weeks ago for this first time turned negative. It had the most negative February downturn since the inception of the index 16 years ago. In the past four months it improved somewhat.

Tax Withholding (from the Department of the Treasury) Issues: Current and Archive

• $247.8 B for the last 20 reporting days this year vs. $233.4 B one year ago, +$14.4 B or +6.2%.

YoY comparisons peaked in Q1 2022. Since summer, it has oscillated between neutral and positive, and was negative on a monthly basis several times. Since the first of the year, these have generally turned positive. That was not the case for the month of April, but in May it turned back positive, and on a 20 day basis it has been near its best level in 12 months for the last several months.

Oil prices and usage (from the E.I.A.)

• Oil up +$0.54 to $90.92 w/w, up +27.1% YoY ($66.74 – $98.62)
• Gas prices down -.04 to $3.84 w/w, up +$0.13 YoY
• Usage 4-week average up +0.8% YoY

(Graphs at

This Week In Petroleum Gasoline Section – U.S. Energy Information Administration (EIA).)

Despite recent increases, gas and oil prices both remain (slightly!) in the middle 1/3rd of their 3 year range, and so are neutral.

Mileage driven has remained positive in the past few months, but it close enough to unchanged this week to warrant a change to neutral.

Note: given this measure’s extreme volatility in the past 30 months, I believe the best measure is against their 3 year average. Measuring by 1 year, both have turned negative.

Bank lending rates

• 0.329 TED spread w/w (0.02 -.685) – Discontinued
• 5.43 LIBOR unchanged w/w (0.10130- 5.45) (graph at link)

TED was above 0.50 before both the 2001 and 2008 recessions. Since early 2019 the TED spread had remained positive, except the worst of the coronavirus downturn, until last spring. It has been very choppy recently, varying between neutral and negative. It turned positive again in May. As of two months ago, it appears to have been discontinued, although I am searching for another source.

LIBOR has been increasing consistently well into its negative range.

Coincident indicators

St. Louis FRED Weekly Economic Index

• Down -0.54 to 1.86 w/w (Low 0.66 Dec 10, 2022 – high 2.80 Sept. 24, 2022).

After a very positive 2021, this measure declined to less than half its best YoY level, thus changing to neutral. It remained in that range all this year until one week ago, when it broke above 2.0, changing its rating to positive. This week it declined back into the neutral zone.

Restaurant reservations YoY (from Open Table) State of the Restaurant Industry | OpenTable

• September 28 seven day average -6% YoY (Worst this year -11% 5/11/23).

I have been measuring its 7 day average to avoid daily whipsaws.

Open Table’s data indicate that by early April reservations had stabilized at slightly below zero YoY, and they have generally faded from -2% to -7% since, although this week they did improve slightly.

Consumer spending

• Johnson Redbook up +3.8% YoY (high 12.2% in September 2022; low -0.4% July 13, 2023) United States Redbook Index – 2023 Data – 2005-2022 Historical – 2024 Forecast.

The Redbook index remained positive almost without exception since the beginning of 2021 until last October. The new link I have added above goes to a 5 year graph to best show the comparison. After 3 weeks of negative readings, the 4 week average has returned to positive for the past 7 weeks, at +4.0%

Transport

Railroads (from the AAR)

• Carloads up +4.7% YoY
• Intermodal units up +1.2% YoY
• Total loads up +2.8% YoY.

(Graph at Railfax Report – North American Rail Freight Traffic Carloading Report.)

Shipping transport

• Harpex down -40 to 963 (963- 4586)
• Baltic Dry Index up +147 to 1716 (530-1996) (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. The total loads index has been consistently negative for the past five months. In the past several months, comparisons have hovered near the zero line, varying between neutral and negative. This week they were positive again.

Harpex increased to near record highs again early in 2022, but has since backed off all the way to new lows. BDI traced a similar trajectory, before rebounding sharply earlier this year, but remains negative.

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)

• Up +0.1% w/w
• Up +3.0% YoY (worst -10.0% Dec 2, 2022).

Since the end of March 2021, against terrible comparisons, this metric had been positive, typically running at a double digits higher YoY percentage growth. In spring 2022, it turned negative, but the YoY comparisons gradually improved. It finally improved to positive for about two months, before turning negative again for a short time. It remains positive this week.

Consumer inflation by Truflation (Independent, economic & financial data in real time on-chain)

• Down -0.03% to +2.66% YoY (High 9.71% 10/15/22 – Low 2.11% 7/14/23).

Thanks to a commenter for bringing this indicator to my attention. This 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 the status of coincident or leading indicators, but needless to say it is an up-to-the-moment reading on this very important indicator.

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:

Click to enlarge

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There were a number of changes this week. The long leading indicators had been getting even more negative, led by interest rates, but notably this week several measures of financial conditions improved. There has also been churn in both the short leading and coincident indicators. In the former, stock prices have faded as has gas usage. In the latter, several measures of production and shipping have improved.

My main focus remains on the short leading indicators. Now that the big decline in commodity prices – that boosted producers’ bottom lines and aided consumer spending – is likely over, I am looking to see if more of those series begin to roll over.