– by New Deal democrat

My “Weekly Indicators” post is up at Seeking Alpha.

As per the analysis of monthly data that I wrote about this week, hurricane season continued to complicate the high frequency data as well. With that very big caveat, the underlying tone remained positive.

As usual, clicking over and reading will bring you up to the virtual moment as to the economic situation, and reward me a little bit for reporting and organizing it for you

The Bonddad Blog

New Deal democrat Weekly Indicators for October 7-11, Angry Bear by New Deal democrat

Tags: October 2024

– by New Deal democrat

Much of the data that is being released, like yesterday’s jobless claims data, has to be viewed with an asterisk after it, because of hurricane disruptions. As an addendum to yesterday’s industrial production report, I failed to mention that the BEA that “the effects of two hurricanes subtracted an estimated 0.3 percent” from the total. Even with that increase, production would have been unchanged and manufacturing construction down -0.1%, and both would remains slightly down YoY, so the ultimate conclusion remains the same.

Similarly, Hurricane Beryl in July interfered with construction in July, and then permits and starts bounced back in August. Helene may have affected this month’s report, and Milton almost certainly

– by New Deal democrat

A periodic reminder, real retail sales is one of my favorite economic indicators, because it tells us so much about the state of the consumer, and since consumption leads employment, it is a short leading indicator for that as well.

In September retail sales in August rose 0.4% on a nominal basis. After adjusting for inflation, they rose 0.3%. The below graph norms both real retail sales (dark blue) and the similar measure of real personal consumption of goods (light blue) to 100 as of just before the pandemic:

Despite the improvement in the past three months, over the longer term since the end of the pandemic stimulus in spring 2022, real retail sales have been trending generally flat to slightly declining, while

– by New Deal democrat

Before I get to the (relatively) good news in retail sales, let’s take a look at the bad news from industrial production.

On a monthly basis, production declined -0.3%. Manufacturing declined -0.4%. There were also downward revisions to last month. Both of these continue to slowly fade from their 2022 peak:

On a YoY basis, production is down -0.6%, and manufacturing production is down -0.4%:

For all intents and purposes, manufacturing has been in a shallow recession since late 2022, and that recession continues. This is something that has been well telegraphed by both the regional Fed new orders reports as well as the monthly ISM manufacturing report.

The only reason not to be more concerned is that, since

– by New Deal democrat

The drought in new economic data continues through today. We’ll make up for it all at once tomorrow with jobless claims, retail sales, and industrial production. In the meantime, last week I noted that Hurricane Helene’s impact in Florida and North Carolina was a big part of the reason for the spike in initial claims. Let me follow that up further today.

To begin with, State by State initial claims data is only available on a non-seasonally adjusted basis. So the best way to look is YoY. So all of the graphs below are presented in that format. To show the effect of hurricanes, what I have done in the past is subtract the data from the one or more States most affected by the event, and look at the YoY data for all of the

– by New Deal democrat

 One of my fundamentals-based systems for monitoring the economy is to look at the health of household balance sheets.

Most recessions happen when consumers are under stress. If real wages are growing, if assets that can be leveraged or cashed in (mortgage payments, home equity, stocks) are increasing in value, if monthly debt payments are not increasing, then there is no reason for consumers to pull back, and economic expansions continue. It is only when all of these conduits for spending are constricted that recessions typically occur.

And at present, households are generally in good shape. None of the avenues of spending power have been constricted.

To begin with, real hourly and weekly wages have been increasing

For Indigenous Persons Day: a review of “A Brave and Cunning Prince” by James Horn

 – by New Deal democrat

Recently I read the above entitled book, and found it fascinating. Below are excerpts from an online book review, to which I have added further detail in brackets. I highly recommend it:

“In the mid-sixteenth century, Spanish explorers in the Chesapeake Bay kidnapped an Indian child [whose name they wrote as ‘Paquiquineo’] and took him back to Spain and subsequently to Mexico. [He may not have been kidnapped at all. There is evidence that many of the Indians who went to Europe did so of their own free will, especially younger warriors who were up for a Big Adventure.]  The boy converted to Catholicism and after nearly a decade was able

– by New Deal democrat

Sometimes producer prices lead consumer prices; sometimes they don’t – but in the sense that sometimes there is no lag at all before increases show up in consumer prices. In any event, overall the message from the producer price index this morning was benign, with very little pressure “in the pipeline” for consumer inflation.To begin with, raw commodity prices (red) declined -1.2% in September, continuing their 2+ year downtrend; while final demand prices (blue) increased less than 0.1%:

On a YoY basis, commodity prices are down -2.5%, while final demand producer prices are only up 1.8%:

About the only place where any  (slight) upward pressure shows up is in final demand producer prices for services (gray), which

– by New Deal democrat

Today’s CPI report for September came in almost exactly as I suggested it would in my preview yesterday. To wit:

 – Headline CPI continued increased 0.2% for the month, and decelerated to 2.4% YoY, its best showing since February of 2021. 

 – On a 3 month annualized basis, prices are increasing 2.1%. On a 6 month annualized basis, they are only increasing 1.6%. 

 – energy inflation remains non-existent, with another decline of -1.9% for the month, resulting in a decline of -6.9% YoY.

–  excluding shelter, prices were also up 0.2%, and were once again up 1.1% YoY, the 17th month in a row the YoY change has been below 2.5%.

 – shelter inflation decelerated sharply for the month, up only 0.2%, tied for the least

– by New Deal democrat

Step away from the ledge, everybody; and pay no attention to the DOOOMers, who are surely out in force this morning: the big increase in initial claims was almost all about Hurricane Helene.

By the numbers, initial claims increased 33,000 to 258,000, the highest number since August 2023. The four week moving average increased 6,250 to 231,000, the highest in a month. Continuing claims, with the usual one week delay, increased 42,000 to 1.861 million, the highest since mid-August:

On a YoY basis, initial claims were up 22.3%, the four week average up 8.7%, and continuing claims up 3.4%:

I won’t bother with the “Sahm Rule” unemployment rate comparison this week, partly because this is only the first week of the

Real aggregate payrolls and inflation preview for September

 – by New Deal democrat

Tomorrow consumer prices for September will be reported. It’s almost certain that the best short term forecasting tool from the employment report, real aggregate payrolls, will increase once again. Let’s take a more detailed look.

Post-pandemic, nominally aggregate payrolls have increased relentlessly. Consumer prices increased almost as relentlessly until June 2022. Since then payrolls have continued to increase faster than prices (graph below norms both series to 100 just before the onset of the pandemic):

Here’s the month by month look for the past year. In all but two of the past twelve months, payrolls increased significantly more than consumer

– by New Deal democrat

First things first: there’s almost no significant economic news at all this week until Thursday, so don’t be surprised if I play hooky for a day or two.

The coincident headline news out of last Friday’s employment report was very positive, so most all observers heaved a sigh of relief. Of course, precisely *because* it is coincident, it could all be reversed next month, or by next month’s revisions to Friday’s data.

But since I am all about leading indicators and forecasting, let’s take a deeper look at those indicators from Friday’s report.

First, a little perspective. Recall that last week I was writing about manufacturing and construction. The former has been showing at least mild contraction for many months

– by New Deal democrat

My “Weekly Indicators” post is up at Seeking Alpha.

There was a slight fading of several indicators in the short leading and coincident sphere, but overall the positive and improving trend continues.

As usual, clicking over and reading will bring you up to the virtual moment as to the state of the economy, and reward me a little bit for organizing and presenting it to you.

The Bonddad Blog

Weekly Indicators for September 23 – 27 at Seeking Alpha by New Deal Democrat

Weekly Indicators for September 9-13 – Angry Bear by New Deal democrat

Tags: weekly indicators

– by New Deal democrat

Recently I have paid much more attention to the ISM services index. That’s because, since the turn of the Millennium, manufacturing’s share of the economy has contracted to the point where even a significant decline in that index has not translated into an economy-wide recession, as for example in 2015-16. 

When we use an economically weighted average of the non-manufacturing index (75%) with the manufacturing index (25%), it has been a much more reliable signal, particularly when we use the 3 month average, requiring it to be below 50. 

Once again this month the contraction shown in the manufacturing index has been more than counterbalanced by continued expansion in the services index, which was reported at 54.9. The

– by New Deal democrat

Especially in view of the relative weakness in the jobs report for the past few months, my focus continues to be on whether jobs gains are most consistent with a “soft landing,” i.e., no further deterioration, or whether there is further decline towards a recession. 

For this month at least, the verdict was clear: both the Establishment and Household Surveys pointed to “soft landing.”

Below is my in depth synopsis.

HEADLINES:

254,000 jobs added. Private sector jobs increased 223,000. Government jobs increased by 31,000. 

For a change, there were *upward* revisions to the last two months. July was revised upward by 55,000, and August by 17,000, for a net increase of 72,000. This breaks with the pattern from

– by New Deal democrat

Initial jobless claims will be up against some very challenging comparisons for the next 6 months or so, due to some unresolved post-COVID seasonality. Which means that the headline numbers this week, which look very benign at the surface, are not quite so good as they have been for the past year.

For the week, initial claims rose 6,000 to 225,000. The four week moving average declined -750 to 224,250. Continuing claims, with the typical one week lag, declined -1,000 to 1.826 million:

Again, as you can see from the above, all of these look pretty benign in absolute terms.

But for forecasting purposes, the YoY% change is more important, and viewed that way, the story is a little different. Initial claims were up

– by New Deal democrat

I wanted to follow up on a point I made yesterday: although manufacturing is no longer a big enough slice of the US economy to bring about an economic downturn on its own – unless for some reason the manufacturing downturn were unusually severe – when it is paired with a downturn in construction, that historically has been a reliable (but of course not perfect!) harbinger of recession.

And while yesterday’s construction spending report was equivocal, there are other signs suggesting that just such a synchronous downturn may be occurring.

Let me start with a refresher on the historical value of the ISM manufacturing index, especially its new orders component. This survey has been in existence for over 75 years, since

– by New Deal democrat

This month we started the month with not just the usual two important reports on the leading sectors of manufacturing and construction, but the JOLTS report for August as well (which I will summarize separately).

In the big picture, I do not see the US economy falling into recession unless either both construction and manufacturing are in synchronous decline, or else at least one of them contracts very sharply. 

Further, because manufacturing is of diminishing importance to the economy, and was in deep contraction both in 2015-16 and again in 2022 without any recession occurring, I now use an economically weighted three month average of the manufacturing and non-manufacturing indexes, with a 25% and 75% weighting,

– by New Deal democrat

On Friday I highlighted the sharp positive revision to the personal saving rate. 

That was a byproduct of a similar sharply higher revision to real personal income over the past two years. Here is what those revisions, to real personal disposable income, look like:

Instead of being up 6.8% since just before the pandemic, real disposable income is up 10.6%.

A historical look at the most salient economic indicators for the success or failure of the Presidential candidate for the incumbent party over a decade again by James Surowiecki concluded that growth in real disposable personal income, especially during the election year, was the single most important factor. Nate Silver (I know, I know) has an “economic

-by New Deal democrat

The monthly personal income and spending report is now the most important report of all, except for jobs. That’s becuase it tells us so much about the state of the consumer economy. It is the raw material for several important coincident indicators that the NBER looks at, as well as several leading indicators on the spending side.

And to put this month’s report into the perspective of the imminent baseball postseason, it hit a triple.

To the numbers: in August both nominal personal income and spending rose 0.2%. Since PCE inflation rose 0.1%, both rounded to an increase of 0.1% (graph normed to 100 just before the pandemic) :

If there was any fly in the ointment, it was spending on goods. In historical terms,

– by New Deal democrat

I’ve been writing for the past number of weeks that we were approaching the acid test for the hypothesis that unresolved post-pandemic seasonality explained the sharp increase in jobless claims in the summer. This week we are fully immersed in the 6+ month comparison period where initial claims in the past two years averaged between 200,000-220,000.

So, first the good news: initial claims declined -4,000 to 218,000, to the lowest level in over four months, and putting them in that range. The four-week moving average, which has a few weeks to go before its transition period is over, declined -3,500 to 224,750, also the lowest in four months. Continuing claims, with their typical one-week lag, increased 13,000 to 1.834

– by New Deal democrat

With this morning’s release of new home sales, we have all of the important housing data releases for the month. So let’s integrate that into the overall housing outlook.

Let’s begin with my usual  overview that new home sales are the single most leading metric for the entire sector, but they suffer from the fact that they are extremely volatile and also heavily revised. So it is best to look at them in comparison with single family permits, which are almost as leading and have a much better signal to noise ratio.

August data confirms that caution, as they declined -4.6% on a month over month basis, but from a nearly 2% upward revision to July. On a three month moving average basis, they are at their highest level in

– by New Deal democrat

This morning’s repeat house price indexes from the FHFA and Case Shiller continued to show deceleration in this metric which is very important to home buyers. Specifically, in the three month average through July, U.S. house prices rose 0.2% according to Case Shiller’s national index, and only 0.1% according to the slightly more leading Federal Housing Finance Agency (FHFA) purchase only index, both on a seasonally adjusted basis. For the last three months, the FHFA index has risen a *total* of 0.1% as well. The Case Shiller monthly change is also tied for the lowest in the past 18 months [Note: FRED has not updated the monthly Case Shiller numbers yet. When they do, I’ll update this graph]:

On a YoY basis, the FHFA

– by New Deal democrat

Today, New Deal democrat offers a Big Picture hypothesis.

This is Housing Week, but there is no significant data today, and I’m going to wait for new home sales to be reported on Wednesday before commenting on how existing home sales fit in. In the meantime, let me unpack a Big Picture look.

Since the Fed began actively managing interest rates over 60 years ago, expansions and recessions have followed a typical pattern. The unemployment rate decreases until ultimately inflation increases. Real wages and income ultimately fall behind inflation. At the same time, the Fed hikes interest rates to fend off the higher inflation. Consumers react by cutting back, unemployment increases, and the economy topples into recession.

– by New Deal democrat

There are some economic and financial indicators that aren’t classic leading or lagging indicators. Rather, they are “over-sensitive” in one direction or another. Two good examples are heavy truck sales and the unemployment rate: they are over-sensitive to the downside: they lead going in to recessions, but lag coming out.

The S&P 500 stock market index fits in this category as well. The classic aphorism is “the stock market has predicted 9 of the last 4 recessions.” 

But the converse is not true. With the stellar exception of 1929, when stocks themselves were in a bubble, if the market makes a new high, it’s almost a sure bet that the economy is not in a recession.

Here is the (almost) 100 year graph of the S&P 500

– by New Deal democrat

You may recall that last week I wrote that beginning this week and for the next 6+ months, initial claims would be up against some very tough comparisons from 2023 and would be the ultimate true test of whether there has been unresolved post-pandemic seasonality in the numbers.

Well, this week’s numbers suggest the unresolved seasonality hypothesis is still with us, but with considerable ambiguity.

Initial claims did decline -12,000 to 219,000, the lowest number since May 18. Similarly, the four-week moving average declined -3,500 to 227,500, the lowest since June 8. And continuing claims, with the typical one-week delay, declined -14,000 to 1.829 million, its lowest since June 15:

All well and good. But when we

– by New Deal democrat

You may recall that last week I wrote that beginning this week and for the next 6+ months, initial claims would be up against some very tough comparisons from 2023 and would be the ultimate true test of whether there has been unresolved post-pandemic seasonality in the numbers.

Well, this week’s numbers suggest the unresolved seasonality hypothesis is still with us, but with considerable ambiguity.

Initial claims did decline -12,000 to 219,000, the lowest number since May 18. Similarly, the four-week moving average declined -3,500 to 227,500, the lowest since June 8. And continuing claims, with the typical one-week delay, declined -14,000 to 1.829 million, its lowest since June 15:

All well and good. But when we

– by New Deal democrat

Residential construction permits and starts bounced back from their July Hurricane-Beryl affected decline, but housing units under construction declined below the threshold for hoisting a yellow “recession watch” flag for this sector. At the same time, I continue to suspect that we are rising from lows in the most leading metrics, and no “recession warning” is warranted.

To begin with, the most leading metric, housing permits (gold), rose by 69,000 to 1.475 million, the highest level since March. Single family permits (red), which are just as leading and have very little noise, rose 26,000 to 967,000, the highest since April. Housing starts (blue), which tend to lag permits by a month or two, and are much more noisy, rose

– by New Deal democrat

Residential construction permits and starts bounced back from their July Hurricane-Beryl affected decline, but housing units under construction declined below the threshold for hoisting a yellow “recession watch” flag for this sector. At the same time, I continue to suspect that we are rising from lows in the most leading metrics, and no “recession warning” is warranted.

To begin with, the most leading metric, housing permits (gold), rose by 69,000 to 1.475 million, the highest level since March. Single family permits (red), which are just as leading and have very little noise, rose 26,000 to 967,000, the highest since April. Housing starts (blue), which tend to lag permits by a month or two, and are much more noisy, rose

And now, some good news: industrial and manufacturing production rebounded strongly in August

 – by New Deal democrat

In the past, industrial production has been the King of Coincident Indicators, since its peaks and troughs tended to coincide almost exactly with the onset and endings of recessions. That weighting has faded somewhat since the accession of China to the world trading system in 1999 an the wholesale flight of US manufacturing to Asia, generating several false recession signals, most notably in 2015-16. But it is still an  important coincident measure in the economy. 

As with last month, there were significant downward revisions, but the story this month was a strong rebound.  Total production was reported higher by 0.8%, and