Weekly Indicators: Industrial Commodity Prices Spike To 12-Month High
Ibrahim Akcengiz
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 a decline in housing permits and starts, which was part of the reason for yet another decline in the Index of Leading Indicators. Existing home sales also declined, while prices were higher YoY. Industrial production rose, and retail sales rose sharply in nominal terms, and also rose in real terms.
Long leading indicators
Interest rates and credit spreads
Rates
- BAA corporate bond index 6.11%, up +0.14% w/w (1-yr range: 5.43-6.80)
- 10-year Treasury bonds 4.62%, up +0.10% w/w (3.30-4.93)
- Credit spread 1.49%, up +0.04% w/w (1.36-2.42).
(Graph at Moody’s Seasoned Baa Corporate Bond Yield | FRED | St. Louis Fed.)
Yield curve
- 10 year minus 2 year: -0.36%, up +0.02% w/w (-1.07 – -0.17)
- 10 year minus 3 month: -0.78%, up +0.08% w/w (-1.89 – 0.21)
- 2 year minus Fed funds: -0.35%, up +0.58% 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 0.14% w/w (6.16-8.03).
With no new highs in interest rates in over 4 months, their rating improved to neutral at the end of February. That continued to be the case despite significant increases in the past two weeks. All of the yield curve measures remain negative, although several have improved close to the point where their rating could change to neutral.
Housing
Mortgage applications (from the Mortgage Bankers Association)
- Purchase apps up +5% to 144 (125-208) ((SA))
- Purchase apps 4 wk avg. unchanged at 142 ((SA))
- Purchase apps YoY -10% ((NSA))
- Purchase apps YoY 4 wk avg. -16% ((NSA))
- Refi apps up 0.5% w/w ((SA))
- Refi apps YoY up 11%% ((SA))
*((SA)) = seasonally adjusted, ((NSA)) = not seasonally adjusted
(Graph at Our Charts.)
Real Estate Loans (from the FRB)
- Up +0.1% w/w
- Up +3.1% YoY (2.3% – 11.9%).
(Graph at Real Estate Loans, All Commercial Banks | FRED | St. Louis Fed.)
Mortgage rates, like bond yields, made multi-decade new highs over 5 months ago. Additionally, purchase mortgage applications sank to repeated new long-term lows. 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.
Money supply
The Federal Reserve has discontinued this weekly series. Data is now only released monthly. February data was released three weeks ago:
- M1 m/m down -0.2%, YoY Real M1 down -10.5%
- M2 m/m down -0.5%, YoY Real M2 down -4.8%.
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 (Q1 14% actual + 86% estimated) from I/B/E/S via FactSet at p. 33)
- Q4 2023 actual down -0.06 w/w at 55.56, down -5.7% q/q
- Q1 2024 Actual +estimated down -1.06 to 53.65, down -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. This rating changed from negative to neutral to positive when Q3 profits made a new all-time high. Q4 declined sharply from that, and so far Q1 profits are estimated to decline again. Averaging the two results in a negative rating of -4.7%.
Credit conditions (from the Chicago Fed) (graph at link)
- Financial Conditions Index unchanged (loose) at -0.53 (-0.03 – -0.62)
- Adjusted Index (removing background economic conditions) unchanged (loose) at -0.55 (+0.16 – -0.59)
- Leverage subindex down -0.01 (less tight) to +0.02 (+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 +14 w/w to 224, +31 m/m (154 9/22/23–315 on 6/14/23)
- St. Louis Fed Financial Stress Index: up +0.0488 to -0.8186 (1.2072 3/17/23 – -.9347 3/15/24) (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 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 is 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 four weeks ago IM once again stated that their system no longer forecasts a recession.
Trade weighted US$
- Up +1.30 to 122.66 w/w, up +3.1% YoY (last week) (broad) (117.41–124.28) (Graph at Nominal Broad U.S. Dollar Index
- Up +0.11 to 106.15 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. Six weeks 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 reverted to positive five weeks ago, 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
- Up +0.13 to 103.06 (95.40 2/23/24 -108.75)
- Down -2.4% 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)
- 158.81, up +8.27 w/w (132.17 12/8/23-158.81 4/1924) (new 12-month high)
- Up +1.2% YoY (Best +69.0% May 7, 2022).
Both of these measures have improved in the last several months, and industrial commodities surged this week. The broad measure is in the middle of its 52-week range, so is neutral. Industrial commodities made a new 12-month-high today, 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 sell-off in the past several weeks.
Regional Fed New Orders Indexes
(*indicates report this week) (no reports this week)
- *Empire State up +1 to -16.2
- *Philly up +6.8 to +12.2
- Richmond down -12 to -17
- Kansas City down -15 to -17
- Dallas down -17.0 to -11.8
- Month-over-month rolling average: up +1 to -10
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, to the cusp of turning neutral, then retreated two weeks ago to solidly negative.
Employment metrics
Initial jobless claims
- 212,000, unchanged w/w
- 4-week average 214,500, unchanged 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 -8.2% 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)
- $270.1 B for the last 20 reporting days this year vs. $248.6 B one year ago, +$21.5B or +8.6% YoY.
After being negative briefly in late 2022, in January 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 the past month, they returned to being positive, and for the past three weeks, very positive.
Oil prices and usage (from the E.I.A.)
- Oil down -$2.33 to $83.21 w/w, up +12.4% YoY ($66.74 – $98.62)
- Gas prices up +.04 to $3.63 w/w, down -$0.03 YoY
- Usage 4-week average down -1.9% 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, including this week. They are high enough to count as a negative 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
- 5.30 Secured Overnight Financing Rate (SOFR), down -0.01
- 5.43 LIBOR down -0.01 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 existed since 2018, so there is no track record 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
- Up +0.11 to 2.01 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 positive again this week.
Restaurant reservations YoY (from Open Table) State of the Restaurant Industry | OpenTable
- April 11 seven-day average -5% YoY
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 +4.9% YoY, 4-week average +4.8% (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 in March. The link above goes to a 5-year graph to best show the comparison.
Consumer inflation by Truflation (https://truflation.com/)
- Up +0.32 to +2.06% YoY (High 4.81% 3/30/23 – 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 critical indicator.
Real Consumer Spending
- Up +2.8% 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 to 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 moderately noisy, it should anticipate changes in the monthly measures ahead of time. It backed off considerably from the 12-month high it set close to two months ago, but was still positive.
Transport
Railroads (from the AAR)
- Carloads down -8.2% YoY
- Intermodal units up +11.0% YoY
- Total loads up +1.5% YoY.
(Graph at Railfax Report – North American Rail Freight Traffic Carloading Report.)
Shipping transport
- Harpex up +3 to 1233 (810– 1241)
- Baltic Dry Index up +172 to 1901 (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 -1.1% w/w
- Down -2.4% 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 stayed positive for a number of months. Several months ago it returned to negative, but in the past three weeks rebounded to neutral, then to positive last week, before declining to negative again this 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 | ✓ | |||
| Adj. Fin. Conditions Index | ✓ | |||
| Leverage Index | ✓ | |||
| Totals: | 0 | 7 | 7 | |
| Short Leading Indicators | Positive | Neutral | Negative | |
|---|---|---|---|---|
| Credit Spread | ✓ | |||
| Miller Score | ✓ | |||
| St. L. Fin. Stress Index | ✓ | |||
| US$ Broad | ✓ | |||
| US$ Major currencies | ✓ | |||
| Total commodities | ✓ | X | ||
| 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 | x | ✓ | ||
| Tax Withholding | ✓ | |||
| TED (deleted) | ||||
| LIBOR (deleted) | ||||
| Financial Cond. Index | ✓ | |||
| Totals: | 5 | 1 | 3 | |
There have been almost no changes at all among the long leading indicators for the past several months, while there has been a considerable amount of churn among both the short leading and coincident indicators.
The long leading indicators remained so this week despite the increase in rates. The yield curve measures, real money supply, and real estate loans remain negative. A commenter last week asked why I could be positive on the economy, with interest rates rising. The answer is the long leading nature of interest rates. Although they have risen recently, they have not yet gone above their highs from last October. Only if they do that will they turn back into a negative.
In general, the short leading indicators have also been improving, but with a lot of noise. In particular, commodities especially and also the US$ are all getting stronger. While 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 are 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.
So the message is the same this week: in 2024 the “soft landing” scenario remains the most likely trend.
