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
June data included declines in housing permits and a sharp decline in housing starts as well as a sharp decline in existing home sales, leading to an equally sharp decline in the index of leading indicators.
Coronavirus vaccinations and cases
I have discontinued the tracking of vaccinations, since they have virtually come to a halt at roughly 66% of the populace, and 75% of adults, being vaccinated (not counting booster shots). Less than half of children age 5-17 have been vaccinated.
Infections plateaued in the last week in the 120-125,000 range, as Ba.4&5 constitute over 90% of all new infections. Deaths also plateaued in the 400-425 range. But hospitalizations continued their recent inexorable increase to over 42,000.
Long leading indicators
Interest rates and credit spreads
- BAA corporate bond index 5.24%, down -0.03 w/w (1-yr range: 3.13-5.48)
- 10-year Treasury bonds 2.76%, down -0.17 w/w (1.08-3.48)
- Credit spread 2.48%, up + 0.14 w/w (1.65-4.31)
- 10 year minus 2 year: -0.22%, down -0.02 w/w (-0.22 – 1.59) (22 year low)
- 10 year minus 3 month: +0.24%, down -0.15% w/w (-0.99 – 2.04)
- 2 year minus Fed funds: +1.77%, up +0.22% w/w
30-Year conventional mortgage rate (from Mortgage News Daily) (graph at link)
- 5.69%, down -0.03% w/w (2.75-6.28)
Corporate bonds are near the top of their 5 year range, so negative.
Similarly, treasury bonds and mortgage rates are also near 5 or even 10 year peaks, so their rating is also negative.
The spread between corporate bonds and Treasuries remains positive. The yield curve at the important 2 to 10 year level remains inverted – at the worst level since 2000 – so is negative. This week the 3 month-10 year spread tightened into the neutral zone.
Mortgage applications (from the Mortgage Bankers Association)
- Purchase apps down -7% w/w to 210 (210-349) (SA) (tied for 1 year low)
- Purchase apps 4 wk avg. down -8 to 230 (SA) (341 high Jan 29, low 214 6/10/22)
- Purchase apps YoY -19% (NSA)
- Purchase apps YoY 4 wk avg. -19.5% (NSA)
- Refi apps down -4% w/w (SA)
- Refi apps YoY down -80% (SA) (lowest since 2000)
*(SA) = seasonally adjusted, (NSA) = not seasonally adjusted
(Graph at yardeni.com)
Real Estate Loans (from the FRB)
- Up +0.4% w/w
- Up +8.5% YoY (-0.9 – 8.5) (new high)
The highest mortgage rates in 12 years have killed both purchase and refinance mortgage applications, the four week averages of which are at 6 and 20 year lows, respectively. We have seen this feed into all of the monthly housing sales and construction reports. Price haven’t quite turned yet.
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 very positive. This is being helped by inflation in house prices; thus, the turn in the indicator will be when that cools.
The Federal Reserve has discontinued this weekly series. Data is now only released monthly. May data was released three weeks ago:
- Real M1 m/m down -0.9%, YoY Real M1 down -1.4%
- Real M2 m/m down -0.9%, YoY Real M2 down -2.0%
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. Real M1 also turned negative as of May.
- Q2 2022 21% actual + 79% estimated up +.10 to 55.88, up 3.4% 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. Now that this has happened, Q1 has dropped out of the average. Since Q2 actual + estimated are up over 3%, this counts as a positive.
Credit conditions (from the Chicago Fed) (graph at link)
- Financial Conditions Index down -.10 (looser) to -0.19 (-0.09 – -0.72)
- Adjusted Index (removing background economic conditions) down -0.14 (less tight) to +0.02 (+0.19 – -0.75)
- Leverage subindex down -0.50 (less tight) at +0.31 (+0.81 – -0.39)
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. Leverage is at its highest since the Great Recession, obviously very negative.
Short leading indicators
Economic Indicators from the late Jeff Miller’s “Weighing the Week Ahead”
- Miller Score (formerly “C-Score”): up 45 w/w to 213, +88 m/m (125 6/24/22 – 508 on 7/30/21)
- St. Louis Fed Financial Stress Index: down -5695 to -1.8261 (-0.2562 12/3/21 – -1.8261/10/22) (new low)
- BCIp from Georg Vrba: up +7.4 at 98.4 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. With this number having fallen below that threshold last year, it is negative. (Its relentless decline had mainly been a function of soaring gas prices and very low weekly unemployment claims; both of those have now somewhat reversed; but the negative factors now include several significant Fed rate hikes).
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, albeit a very weak one.
Trade weighted US$
- Up +1.00 to 123.55 w/w, +9.3% YoY (last week) (broad) (111.02 – 126.47) (Graph at Nominal Broad U.S. Dollar Index
- Down -1.46 to 106.60 w/w, up +14.7% YoY (major currencies) (graph at link) (89.54 -105.11)
In early 2021, both the broad rating and the USD against major currencies turned higher YoY, and so changed to neutral. With both measures now well above +5% YoY, these ratings are negative.
Bloomberg Commodity Index
- Up +3.05 to 116.52 (79.11-135.43)
- Up +21.8% YoY (Best: +52.3% June 4)
Bloomberg Industrial metals ETF (from Bloomberg) (graph at link)
- 140.30, up +8.84 w/w (131.43-230.32)
- Down -4.6% YoY (Best +69.0% May 7)
During the Boom last year, commodity prices soared, and total commodities were very positive. As of this week, total commodities (which include oil) are back in the middle of their range, and the decline in industrial metals has put that indicator in the bottom 1/3rd of its 52 week range, so a negative.
Stock prices S&P 500 (from CNBC) (graph at link)
- Up +2.5% to 3961.63
This last high for this index was January 3. As there has not been a new three-month high since then, but there have been ongoing new 3-month and even 1 year lows, so this indicator has been a negative.
Regional Fed New Orders Indexes
(*indicates report this week)
- Empire State up +0.9 to +6.2
- *Philly down -12.4 to -24.8
- Richmond down -22 to -16
- Kansas City down -23 to -8
- Dallas down -10.5 to -7.3
- Month-over-month rolling average: down -1 to -9
The regional average is more volatile than the ISM manufacturing index, but usually correctly forecasts its month-over-month direction. These had usually been extremely positive ever since June 2020, but in the last several months have fallen, and precipitously so in the past two months. The indicator having fallen below -5, moves from neutral to negative.
Initial jobless claims
- 251,000, up +7,000 w/w
- 4-week average 240,500, up +4,500 w/w
(Graph at St. Louis FRED)
New claims made new all-time lows on a 4 week average basis eight weeks ago. Now that this metric had failed to make a new 3-month low, its rating changes to neutral. It will not turn negative unless and until the 4 week average is higher YoY. The bad news is, on its current trend, that will happen in about 3 months.
Temporary staffing index (from the American Staffing Association) (graph at link)
- Down -1 to 105 w/w
- Up +9.2% YoY
This gradually improved to neutral at the beginning of 2021, and positive since then.
Tax Withholding (from the Dept. of the Treasury)
- $234.5 B for the last 20 reporting days this year vs. $215.3 B one year ago, +$19.2 B or +8.9%
YoY comparisons turned positive in the beginning of 2021, and have remained that way – usually very strongly so – almost every week since. These are now normally reliable. The YoY% change fell below 5% several times in the past several months, making it a neutral, but four weeks ago it once again rebounded to positive.
Oil prices and usage (from the E.I.A.)
- Oil down -$2.75 to $94.67 w/w, up +48.9% YoY ($62.32 – $123.70)
- Gas prices down -$.16 to $4.49 w/w, up $1.34 YoY
- Usage 4-week average down -7.6% YoY
Gas prices remain firm negatives, remaining close to all-time highs. Oil has declined sharply, however, and so it changes to a neutral.
A hallmark of an oil shock is an overreaction by consumers, and it appears that with the precipitous decline in gas usage, we have gotten that. With gas prices declining, we will see if that reverses.
Bank lending rates
- 0.423 TED spread down -0.044 w/w (0.02 -.685) (No update this week)
- 2.260 LIBOR up +.0100 w/w (0.0753- 2.260) (graph at link) (new multi-year high)
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 earlier this spring. Three weeks ago, it declined enough two weeks ago to be neutral, then increased back to negative, but declined into neutral range again this week.
The increases since to the Russian invasion of Ukraine added more stress. LIBOR also turned from positive all the way to negative.
St. Louis FRED Weekly Economic Index
- Up +0.29 to +2.89 w/w (+2.54 6/17/22 – +10.40 5/29/21)
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. After a very positive 2021, it declined to less than half its best YoY level, thus, changing to neutral.
Restaurant reservations YoY (from Open Table)
- July 14 seven day average -4% YoY (Best +31% Oct 21)
- July 21 seven day average -4% YoY (Worst -29% Jan 13)
The comparison year for this metric is 2019 and not 2021. Compared with the depths of the pandemic, in 2021 reservations rebounded to neutral, and even positive for a number of months, before declining back to neutral. During the Omicron tsunami they turned very negative, but in the past several months have improved to neutral.
Note I am now measuring its 7 day average to avoid daily whipsaws. This metric is within its neutral range.
- Johnson Redbook up +14.6% YoY (high 21.4% on Dec 28, 2021; low 11.4% June 11,2022)
In April 2020 the bottom fell out in the Redbook index. It has remained positive almost without exception since the beginning of 2021.
Railroads (from the AAR)
- Carloads down -2.4% YoY
- Intermodal units down -3.2% YoY
- Total loads down -2.8% YoY (Best +34.0% April 23, 2021)
- Harpex down -5 to 4455 (1038- 4586) https://harpex.harperpetersen.com/harpexVP.do
- Baltic Dry Index up +118 to 2118 (1302-5650) (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 four months.
Earlier in 2021 Harpex repeatedly rose to new multiyear highs, before leveling off in October. It declined from that peak, but has increased to near record highs again. Meanwhile, BDI traced a similar trajectory, repeatedly making new multi-year highs. But several months ago it fell about 75%, warranting a change to negative. It rebounded enough to be neutral, but several weeks ago declined into the bottom 33% of its range, and so fell back to 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)
- Down -0.6% w/w
- Down -6.7% 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. Several months ago, after almost continuous deterioration, it turned negative.
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|
|10 year Treasury||✓|
|10 yr-2 yr Treasury||✓|
|10 yr-3mo Treasury||x||✓|
|2 Yr Treasury-Fed funds||✓|
|Purchase Mtg. Apps.||✓|
|Refi Mtg Apps.||✓|
|Real Estate Loans||✓|
|Adj. Fin. Conditions Index||✓|
|Short Leading Indicators||Positive||Neutral||Negative|
|St. L. Fin. Stress Index||✓|
|US$ Major currencies||✓|
|Regional Fed New Orders||✓|
|Initial jobless claims||✓|
|Weekly Econ. Index||✓|
|Financial Cond. Index||✓|
The long leading forecast continued to be negative, as resilient corporate profits were offset by another Treasury yield curve tightening. My “Recession Watch” start time of Q1 of next year continues. The short term forecast also remains negative for the fourth week, as initial jobless claims and the regional Fed new orders indexes continue to trend towards or more negative.
Still, important coincident indicators remain positive. I do not think we are in a recession now.
On the positive side of the ledger, the continued decline in gas prices will help on the inflation front. *If* it continues, the Fed could pause interest rate hikes earlier rather than later.
Hopes for a “soft landing” must rely on that possibility, as otherwise all the signs point to recession soon, with only the start time – and the intensity – open to discussion.
As an aside, since I always look ahead, I am starting to look for bottoming among some of the long leading indicators. But we’re not nearly there yet.