January data this week included very positive housing permits and starts, as well as very positive consumer confidence as measured by the U. of Michigan. Industrial production and capacity utilization were negative, as were retail sales. Consumer prices increased a significant +0.5%, and producer prices increased significantly as well. 

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, then coincident indicators. 

NOTE that I include 12 month highs and lows in the data in parentheses to the right.

Interest rates and credit spreads

  • BAA corporate bond index 4.53% up +.05% w/w (1 yr range: 4.15 – 4.90)
  • 10 year treasury bonds 2.87% up +.01% w/w  (2.05 – 2.92) (new 4 year high intraweek)
  • Credit spread 1.66% up +.04% w/w (1.56 – 2.30)

    • Yield curve, 10 year minus 2 year:

  • 0.68%, down -0.10% w/w (.50 – 1.30) 

    • 30 year conventional mortgage rate

  • 4.53%, up +0.03% w/w (3.84 –  4.57) (new 4 year high intraweek)

    • BAA Corporate bonds, having recently tied their expansion low, are now a positive, but only weakly so because AAA bonds did not confirm this low. If they move above 4.65%, I will downgrade them to neutral.  Mortgage rates and treasury bonds are now both negatives. The trend for these for most of 2017 was neutral. The yield curve is positive, while the spread between corporate bonds and treasuries is strongly positive.

    Housing

    Mortgage applications  

  • Purchase apps up -6% w/w
  • Purchase apps up +4% YoY
  • Refi down -2% w/w

    • Real Estate loans

  • Down -0.1% w/w 
  • Up +3.8% YoY  ( 3.3 – 6.5) 

    • Purchase applications were strong almost all last year. Refi has been dead. In December, purchase applications turned neutral and then negative. In January they returned to positivity, and are still positive, but more weakly so, this week.

    The growth rate of real estate loans remains neutral.

    Money supply

    M1

  • -0.1% w/w 
  • +1.5% m/m 
  • +6.1% YoY Real M1 (4.6 – 6.9)

    • M2

  • +0.1% w/w  
  • +0.2  m/m 
  • +2.1% YoY Real M2 (2.1 – 4.1)

    • Since 2010, both real M1 and real M2 were resolutely positive.  Both decelerated substantially in 2017.  Real M1 is still quite positive. Real M2 growth has fallen below 2.5% and is thus a negative.

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