Focusing on the short end of the yield curve

 – by New Deal democrat 

When most analysts talk about yield curve inversions, they typically mean a measure of the 10 year bond vs. a shorter maturity like 3 month or 2 years. These certainly have merit – in fact the 10 year minus 2 year inversion has typically had the longest lead time before recessions.

But the NY Fed has written that special attention should be paid to the short end of the yield curve, i.e., 2 years and less. That is the portion of the yield curve that is most responsive to the Fed, and what the trajectory of the economy is likely to be in the next year or two. In general, once the shortest end inverts (i.e., Fed funds and 3 month maturities) vs. 1 and 2 year maturities, the

Jobless claims: the positive trend continues

 – by New Deal democrat

For yet another week, initial jobless claims continued their reversal from had been in an almost relentless uptrend from spring through early August.

This week initial claims rose -5,000 to 213,000 from a revised 3 month low of 208,000, while the 4 week average declined another -6,000 to a new 3 month low of 216,750. Continuing claims, which lag somewhat, declined 22,000 to 1,379,000:

I have expected continuing claims, which lag slightly, to reverse lower, and they have, from a revised high of 1,437,000 on August 20.

Once again, this is almost certainly a positive side-effect of lower gas prices.

That being said, the long term outlook in next year remains negative;

August existing home sales: confirmation that house prices have peaked

Existing home sale by themselves are not that important economically, since there is a mere transfer in ownership, rather than a complete build. But they can help verify turning points, and in this case very importantly as to prices.

But first, sales declined slightly (-2,000) to 4.80 million annualized. This is the lowest seasonally adjusted monthly number since June 2020, is 20% off its post-pandemic peak, and is also the lowest in nearly 6 years excluding the worst of the pandemic months (via Mortgage News Daily; note this morning’s data is not included yet):

But we’ve known that home sales have been declining all this year in the face of Fed rate hikes and their

Housing: permits and average starts decline, while construction remains at peak

The data on housing construction this month was mixed. While starts rose, their 3 month average, at 1.511 million annualized, was the lowest since September through November 2020. Meanwhile total and single family permits both declined, both to the lowest since June 2020:

This year I’ve also been looking at the record number of housing units that had permits, but had not yet been started. These have been at 50 year highs, and distort the economic signal from permits, because it is construction itself that is the actual economic activity. And here, the evidence is mixed.

From the long term point of view, both housing units permitted but not started and housing

Coronavirus dashboard for September 19: no, the pandemic is *not* over

 – by New Deal democrat

Contrary to the statement by President Biden last night, the coronavirus pandemic is *not* over.

First, here’s the long term look at infectious particles in wastewater by Biobot, compared with confirmed cases:

Levels of COVID in wastewater continue to be as high as at any point before last winter’s original Omicron onslaught. And confirmed cases are at levels that were moderate – but not terribly low – before Omicron as well.

Hospitalizations have decreased by slightly over 1/3rd, from 46,000 to 30,000, from their peak in June, but are not as low as they were in summer 2020, summer 2021, or this past spring:

Where there is a definite

The Ukraine war spike in energy prices has completely unwound

 – by New Deal democrat

I plan on putting up a Coronavirus update later today, because there have been a few significant developments (No, the pandemic is *NOT* over) particularly as they relate to the next few months. Tomorrow and Wednesday, we get our first batch of monthly housing data. In the meantime, today let’s update the situation with energy prices.

And here, the news is unequivocally good. Oil prices, as of this morning, are under $83/barrel. They have remained under $90/barrel for this entire month. Even more importantly, if you follow the dotted line on the below graph all the way to the left, you can see that oil prices now are *lower* than they were before Russia

Weekly Indicators for September 12 – 16 at Seeking Alpha

 – by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

Gas prices have continued to decline, with almost the entire Ukraine war spike gone. Meanwhile Tuesday’s core CPI reading sent the bond market into a tizzy, with interest rates going back up to their highs.

The decline in gas prices is good news for the immediate short term. But the increase in interest rates just adds to the evidence that a 2023 recession is likely.

Suddenly there are a lot of things for me to write about; including not just if there will be a recession, but also how deep and how long it might be. The longer the Fed goes on raising rates, the more I think it may turn into a bad, deep

Real aggregate payrolls and recessions

 – by New Deal democrat

One of my favorite indicators for the overall economic health of the American working and middle classes is real aggregate payrolls for non-supervisory workers. This is kind of self-explanatory. Rather than measure hourly wages, this is the *total* amount of wages paid to non-supervisory workers, adjusted for inflation. It tends not to be noisy, i.e., there is a lot of signal compared with noise. And its growth, or lack thereof, is a good short leading indicator for recessions. Since I didn’t update this earlier in the week when inflation was reported, let’s take a look at it now.

Here is the long term view for the past 55+ years:

During that time period, real aggregate

August industrial production declines; overall decelerating trend consistent with recession in 2023

 – by New Deal democrat

Finishing today’s data dump, industrial production, the King of Coincident Indicators, declined -0.2% in August, while manufacturing production increased 0.1%. July’s sharp gains in both were revised slightly (-0.1%) downward: 

While July remains the high water mark for overall production, manufacturing has not made a new high since April.

What I see is a decelerating trend which will probably continue to worsen as the Fed raises rates. This adds to the evidence that a recession is likely next year.

Tags: August 2022 industrial production

Positive real retail sales in August, but YoY flatness continues

 – by New Deal democrat

Retail sales, probably my favorite monthly economic datapoint, increased 0.3% in August. Since consumer prices rose 0.1%, real retail sales rose 0.2%:

That’s certainly good news. Now here’s the bad news: July’s retail sales were revised downward by -0.4%, so that real retail sales, reported last month as +0.1%, are now shown down by a little less than -0.4%. 

Thus as shown above real retail sales are still -1.1% below their April peak.

Ex-autos, retail sales were down -0.3%, and unchanged ex-autos and ex-gas, reversing July’s initially reported gains – which in the case of autos were revised down sharply to -0.4%.

As I note almost every

I have been following New Deal democrat for a long time now. What NDd is reporting in this post is a big deal going into November’s Elections. In spite of all the negativism being reported by political interests, the economy is still moving forward. People are still working. I keep having to remind people about what 2008 was about. The last two years could have been far worse. run75441

Improvement in initial jobless claims continues

 – by New Deal democrat

Initial jobless claims continued their reversal from had been in an almost relentless uptrend from spring through early August.

This week initial claims declined another -5,000 to 213,000, and the 4 week average declined another -8,000 to 224,000. Continuing claims, which lag

PPI, without the lagging phantom of Owners Equivalent Rent, declines in August, decelerates YoY

 – by New Deal democrat

What a difference it makes that PPI does not have a concept like “owners equivalent rent!”

Overall PPI declined by -0.1%, following a -0.4% reading in July, together the two lowest readings since the pandemic lockdown months:

Core PPI increased by 0.5% (blue in the graph below), which while historically high, was the lowest reading in 16 months, excluding last August, in contrast to the continued elevation in core CPI (gold):

Notice that core PPI has been decelerating since April.

PPI’s primary housing component is residential construction materials. Here are the absolute values in both flavors of that reading:

Housing: permits and average starts decline, while construction remains at peak

The data on housing construction this month was mixed. While starts rose, their 3 month average, at 1.511 million annualized, was the lowest since September through November 2020. Meanwhile total and single family permits both declined, both to the lowest since June 2020:

This year I’ve also been looking at the record number of housing units that had permits, but had not yet been started. These have been at 50 year highs, and distort the economic signal from permits, because it is construction itself that is the actual economic activity. And here, the evidence is mixed.

From the long term point of view, both housing units permitted but not started and housing

August CPI: sharp gains in housing and new cars offset declines in used cars and gas

 – by New Deal democrat

Following up on yesterday’s post, let’s cut to the chase:

Total CPI +0.1%

Energy -5.0%

Used vehicles -0.1%

New vehicles +0.8%

Owners’ equivalent rent +0.7% (biggest monthly gain since 1990)

YoY inflation declined to +8.3% from its recent +9.0% peak:

The 0.7% increase in owner’s equivalent rent was the biggest monthly gain since 1990. YoY OER increased to 6.3%, the highest since the series started in 1984, with the exception of two months in 1986. Here it is YoY in comparison with the FHFA house price index (/2 for scale) since the latter series started in 1993:

OER lags house prices by 12-18 months. House price

Previewing CPI

No economic news today. Tomorrow the August CPI will be reported. Recall that in July there was no inflation whatsoever. In August last year prices increased 0.3%, so any number lower than that will lower YoY CPI from its July level of 8.5% (June’s 9.0% YoY inflation having been the peak).

The big bugaboos for consumer inflation have been housing, vehicles, and gas. So let’s take a look at each.

Yesterday, for the first time, Prof. Paul Krugman acknowledged something I’ve been pounding on for nearly a year:

I.e., the official measure of inflation, which drives Fed policy, lags the real world badly – by 12 to 18 months, by my best calculation.

Krugman made this observation by way of noting that monthly apartment rents, per

by New Deal democrat

Weekly Indicators for September 5 – 9 at Seeking Alpha

My Weekly Indicators post is up at Seeking Alpha.

While interest rates continue to rise, gas prices have continued to fall, giving consumers a second wind.

As usual, clicking over and reading will bring you up to the virtual moment, and reward me a little bit for my efforts.

Tags: My weekly indicators

An update on oil and gas prices

 – by New Deal democrat

After stabilizing in the $87-$94 range for a little over a month, oil prices have declined further in the past several days. As of this morning they were in the $82/barrel range. The YTD graph via CNBC below shows that they have now completely reversed the Ukraine invasion increase that began in February (perhaps linked to Ukraine’s counteroffensive of the past week?):

Gas prices follow oil prices with typically a delay of several weeks. As shown above, oil prices peaked in early June, and gas prices at mid-month. 

So here is a 9 month graph, via GasBuddy, of gas prices:

The declines in gas price declines slowed down a couple of weeks after those of oil. As of this morning,

The spending transition from goods to services

 – by New Deal democrat

Today is the last day for a very light economic week of news. One item worth addressing is the relative state of consumer purchases of goods vs. services in this pandemic recovery, because it appears to be unique.

Let’s start with the ISM non-manufacturing report, which was released on Tuesday. Unlike the manufacturing report, which bounced back slightly into expansion after two months of slight contraction, the non-manufacturing portions of the economy were still going strong in August, if not at their Boom levels of last year:

The overall index level was 56.9, well into expansion and a perfectly normal level over the past 15 years. The new orders index (not shown)

Another week of good news on jobless claims

 – by New Deal democrat

Initial jobless claims had been in an almost relentless uptrend from the end of March through early August. Since then, they have completely reversed.

This week initial claims declined another -6,000 to 222,000, and the 4 week average declined -7,500 to 233,000. Continuing claims, which lag somewhat, increased another 36,000 to 1,473,000, a 5 month high:

There was a little caterwauling on CNBC about the increase in continued claims. I am not concerned in the slightest. As I wrote above, they lag initial claims. They will reverse lower in the next few weeks.

Lower gas prices continue to bring lots of good short term news to the economy. I tipped off Menzie Chinn of

“Coronavirus dashboard for September 7: the slow ebbing on the way to endemicity continues”

I promised a COVID update, so I suppose I ought to follow through.

Let’s start today with a graph of South Africa’s cases and deaths for the past year:

South Africa is where BA.1 and BA.4&5 originated. You can see the huge spike in cases last December from original Omicron, and the smaller spike this June from BA.4&5. And yet deaths never approached the peak from Delta in summer 2021. 

Even more importantly, both cases and deaths are now as low as, and in the past month have even been lower than at any point since the pandemic started over 2 years ago.

I think this is a foretaste of what the future of COVID is likely to be.

Here is the same

I told you so

Not much economic news this week. I’ll post an update on COVID later, but for now, a follow-up on my Mar A Lago search warrant post last week.

Last week I concluded my observations as follows:

“Despite how devastating the DoJ response apparently is, it is important to remember that this judge, on Friday [actually Saturday, sorry], publicly declared that she had made up her mind on an issue before the other party had an opportunity to respond to the request, without even proper service on the defendant, without asking for any sworn factual assertions by the plaintiff, and to provide information to her about, inter alia, highly classified documents that goes beyond normal search warrant practice.There is no substantial reason to

On Labor Day 2022, how well is labor doing?

This is Labor Day, so let’s take a look at a few metrics of how labor is doing.

As an initial aside, occasionally I get asked why I write about expansions and recessions. An important reason is, pretty much by definition during recessions jobs and income decline. During expansions they, well, expand. So forecasting whether the period ahead will feature better or worse conditions for job-holding and income for average workers is a social good in my book.

Last Friday in the jobs report, there was an apparent anomaly in that the unemployment rate went up (bad), but the labor force participation rate increased (good). How could that be, and what does it mean?

Not everybody participates in the labor

August jobs report: despite a good headline number, the decelerating trend resumes

 I have written a number of times since February that the short leading indicators have signaled that we should expect weaker monthly employment reports, with both fewer new jobs and a higher unemployment rate. That was completely *not* the case in July, In August, would the decelerating trend kick in again?

That it did. Since February the 3 month average in new jobs has decelerated from over 500,000 to 378,000. And this month the unemployment rate increased to a 6 month high.

Here’s my in depth synopsis.

HEADLINES:

315,000 jobs added. Private sector jobs increased 308,000. Government jobs increased by 7,000. The alternate, and more volatile measure in

A respite in manufacturing in August, continued decline in construction in July

As usual, the new month’s first data is for manufacturing and construction. Here’s a look at each.

The ISM manufacturing index, and especially its new orders subindex, is an important short leading indicator for the production sector. In August, after two months of showing slight contraction, the leading new orders subindex improved to 51.3, indicating expansion. The overall index also continued to show expansion, with a reading of 52.8 for the second month in a row:

This index has a very long and reliable history. Going back almost 75 years, the new orders index has always fallen below 50 within 6 months before a recession, and in three cases did not actually

In which I parse and war-game the Trump “special master” litigation

And now, for something completely different .. .. 

While I have zero special knowledge about Federal criminal procedure, I *do* pay very close attention to “tells” in human behavior. (See, for example, my parsing of Bill Barr’s ‘summary’ of Mueller’s report summary, in which i accurately forecast what cherry-picking elisions Barr had made to Mueller’s document, which actually concluded things quite different from what Barr claimed.) So far, the response to Judge Cannon’s preliminary Order to appoint a special master as to the MAL search warrant documents has played out according to my view of those “tells.”

There are three such “tells” in this litigation:

1. Judge Cannon

June house price indexes show no peak yet; no respite likely in the “official” consumer housing measure

Yesterday the Case Shiller and FHFA house price indexes were updated through June (technically, the average of April through June.

Because the Case Shiller index is not seasonally adjusted, the best way to show them is YoY. Here are YoY% changes for the last 2 years of each (although the FHFA *is* seasonally adjusted, and increased only +0.1% for the month to a new record):

Remember, my rule of thumb for non-seasonally adjusted data is that the peak is most likely when the YoY gain declines to only 1/2 of its maximum in the last 12 months. By that standard, although both decelerated to 12 month lows, at +18.0% and 16.2% respectively, this

I have been writing since early this year that, because of the pandemic, there have been several million fewer persons looking for work, leaving a huge number of unfilled job vacancies, particularly in the face of a roughly 10% higher jump in demand. This gives employees the upper hand, as there are almost always higher paying jobs on offer for which they can apply. I‘ve also posited that the dynamic would only slow down once some employers throw in the towel, and the number of job openings signficantly declines. 

By now, it is almost certain that openings peaked in March. So the question becomes, how much do they have to decline before the reverse game of employment musical chairs stops? 

This morning’s report showed that job openings

Continued good news for consumers on gas prices

There’ll be lots of economic news starting tomorrow, but for today let’s pause and take a look at the energy situation.

Here’s a look at oil prices in the past year up through yesterday from CNBC:

And here’s a look over the same time period from Gas Buddy:

Here’s a close-up of gas prices for the past month:

Gas prices follow oil prices with typically a delay of several weeks. Oil prices peaked in early June, and gas prices at mid-month. Oil prices appear to have started stabilizing at the beginning of August, and gas price declines slowed down a couple of weeks later.

Finally, here’s the comparison of oil prices and gas prices (through last Wednesday, averaged weekly. Since there are 42

Weekly Indicators for August 22 – 26 at Seeking Alpha

 My Weekly Indicators post is up at Seeking Alpha.

In the past couple of weeks, the decline in gas prices has slowed considerably. Once they stabilize, the underlying economic fundamentals should reassert themselves. In the meantime, there are cross currents of interest rates and manufacturing orders, among other things.

As usual, clicking over and reading should be educational for you and remunerative in a very small way for me.

Tags: weekly indicators

July personal income and spending: more modestly good fallout from lower gas prices

There was more good fallout from the recent decline in gas prices in today’s July report on personal income and spending.

Personal income rose 0.2% for the month nominally, and nominal spending rose 0.1%. But because the relevant measure of inflation, the PCE deflator, declined -0.1%, real income rose 0.3% and real personal spending rose 0.2%. Meanwhile June’s income and spending numbers were revised higher and lower by 0.1% and -0.1%, respectively.

This year I have been comparing both real personal income and spending with that with their level after early 2021’s round of stimulus as of May one year ago. Accordingly, the below graph is normed to 100 as of May