Positive production print points to continued economic expansion in May

The usual suspects are out, claiming that a recession has either already started or is imminent. Well, the big reason I call industrial production the King of Coincident Indicators is because empirically is the one whose peaks and troughs coincide most definitively with NBER recession dates. And unless there is a significant downward revision, in May the King of Coincident Indicators proclaimed: no recession yet.

Total production rose 0.2%, while manufacturing declined -0.1%. April’s overall number was also revised higher, from 1.1% to 1.4%, while manufacturing remained at +0.8%. The former made yet another new record high:

On a YoY basis, total production is up 5.8%,

An across the board downturn for housing permits and starts in May

Housing permits and starts declined across the board in May.

In the past year there has been a unique divergence between permits and starts due to construction supply shortages.  This has been reflected in the number of housing units authorized but not started increasing to a near-50 year records of 298.4 in March. In May that number increased from April by 1.5 million annualized to 287.6:

As a result, for the time being I am paying the most attention to the three month average of housing starts (blue in the graph below), as these reflect actual economic activity, vs. permits (gold) which are only potential activity. That three month average declined to 1.691 annualized, a 5

The increasing trend in new jobless claims continues

Initial jobless claims declined -3,000 to 229,000 last week, vs. the 50+ year low of 166,000 set in March. The 4 week average also rose 2,750 to 218,500, compared with the all-time low of 170,500 ten weeks ago.  Continuing claims rose 3,000 to 1,312,000, or 6,000 above their 50 year low of 2 weeks ago:

It’s now clear that initial claims have been in an uptrend over the past 2.5 months. If this continues until the end of this month, they will no longer qualify as a “positive” in my array of short leading indicators, although they have not risen to levels that would change their rating to a negative.

This is yet more slight weakening in the economic indicators, and yet more reason for concern

Negative May and YoY real retail sales add to the foreboding signals of a recession next year

Nominal retail sales for the month of May declined -0.3%, and April was revised down by -0.2% to +0.7%. This reduces April’s number, after inflation to +0.4%, followed by a “real” decline in May of -1.2% after rounding. YoY real retail sales were up 8.1%, but because inflation in the past 12 months has been 8.5%, real retail sales YoY is down -0.4%. Here is a graph of the absolute value of real retail sales:

In the past 75 years, a decline in real retail sales YoY has frequently – but not always – indicated a recession. Here’s what the past 30 years look like:

Needless to say, not good news. 

Next let’s turn to employment, because real retail

On the road, and missing all the fun on Wall Street . . .

I’m still on the road, and there is no important economic statistic to report, but I will make a brief market comment.

YoY stocks are now down 10%. Except for the very bad 1982 and 2008 recessions, and the 2000 Nasdaq bubble and the 1987 crash (which were prolonged bear markets), that has typically been close to their YoY lows:

And with rare exception that level has only been hit about midway through a recession.

The only time buying a broad basket of stocks at this price reduction has not been amply rewarded within after 2-3 years is during the 1929-32 Great Contraction.

< Sigh > I miss the days when I could read triumphalist diaries by DOOOMers at Daily Kos, who were

Consumer prices rise 1% in May alone; owners’ equivalent rent at 30 year high; expect the Fed to keep stomping on the brakes

Today is a travel day for me, so I’ll keep this relatively brief.

People who were hoping inflation would abate did not get the news they wanted from the May CPI. Consumer prices rose 1.0% in that month alone. Inflation less energy rose 0.7%, and “core” inflation less food and energy rose 0.6%. On a YoY basis, prices are up 8.5%, tied for a multi-decade high with a few months ago. Core prices are up 6.0%, down slightly from their February and March peak:

The news was relatively “good” in the prices of used cars and trucks, up 1.8% for the month, but “only” up 1.6.1% YoY, down from 45% half a year ago:

Finally,

Initial jobless claims now in a clear uptrend, and other economic notes for the week

First, a note on other economic news from earlier this week. 

The housing market is getting absolutely crushed by 10 year+ high mortgage rates. Mortgage applications fell to levels not seen since 2017 (except for a few weeks during the 2020 Covid lockdowns). Refinancing is at 20 year lows. The next questions are when prices will peak, and what will happen with the huge backlog in housing starts from properties already permitted? We’ll find out more in a week with the next report on housing starts and permits, but we won’t get more price information for a couple more weeks.

I saw a couple of comments on consumer credit increasing. As I’ve noted, the consumer

Coronavirus variant update: and on to the BA.4/5 wave

Last week the CDC update showed variant “Ba.1.1.526” increasing quickly to 6.6% of all cases. Although they did not note it, I wrote that this was almost certainly Ba.4/5; they simply had not made the change yet.

Well, this week they did. This morning’s “nowcast” update of variants shows Ba.1.1.526 having vanished, with Ba.4/5 having taken its place, and having doubled to 13% of all cases in the past week, even as Ba.2.12.1 slowly increased from 59% to 62%:

Here’s the regional breakout:

Ba.2.12.1 now makes up a little over 80% of cases in NY, NJ, and PR, while BA.4/5 combined make up 18% of all cases in the northern Rockies and 22% of the southern Plains, including Texas.

It is

Coronavirus dashboard for June 6: transitioning ever so gradually into a less fatal endemic condition

The economic calendar is very light this week, with no significant news until Thursday, so let’s take this opportunity to update the situation with COVID-19.

First, as of one week ago subvariant BA.2.12.1 continues to increase very slowly its share of overall cases, up to 59% nationwide: (Dan here…graphs can be enlarged at Bonddad blog…click the title)

This subvariant makes up 78% of cases in NY and NJ, but only 38% in the Northwest. Meanwhile new subvariants BA.4/5 (still listed as BA.1.1.529 by the CDC) has risen to 6.1% of all cases, with a high of 12.4% in the northern Great Plains, and a low of 2.9% in NY and NJ:

The BA.2.12.1 wave

May jobs report:

Like the past few months, I was most interested in three main issues:

1. Is the pace of job growth decelerating?  (Yes, but it is still very strong by historical standards)

2. Is wage growth holding up? Is it accelerating? (It is still strong, but decelerated again slightly)

3. Are the leading indicators in the report beginning to flag? (Not yet)

We still have 822,000 jobs, or 0.5% of the total to go to equal the number of employees in February 2020 just before the pandemic hit. At the current average rate for the past 6 months of 505,000 jobs added per month, that’s 2 months from now. Perhaps even more importantly, non-managerial workers are now working in total *more* hours than they did before the pandemic hit.

April JOLTS report: record low layoffs, still near record high quits and job openings

Late last year, I introduced the idea that the jobs market was similar to a game of musical chairs. Employers added or took away chairs, and employees tried to best allocate themselves among the chairs. Because of the pandemic, there have been several million fewer players trying to sit in those chairs, leaving many empty. Additionally, there is 10% greater demand for goods and services in total in the past year than there was before the 2021 stimulus payments. As a result, wages have continued to increase sharply. And employers attempt to attract potential employees to sit in the continuing big number of empty chairs.

I’ve further posited that the game of

Let’s take a look at the new month’s first data, on manufacturing and construction.

The ISM manufacturing index, and especially its new orders subindex, is an important short leading indicator for the production sector. In May both increased, by 0.7 to 56.1, and by 1.6 to 55.1, respectively. The breakeven point between expansion and contraction is 50, so these both remain solidly positive, if not white hot like they were during last year’s Boom (new orders shown in the graph below):

This forecasts continued economic expansion on the production side through summer into early autumn.

Meanwhile, construction spending rose 0.2% in nominal terms in April, and March’s number was revised up 0.2% to 0.3%. The more leading residential

House prices: signs and portents of an approaching peak?

House price increases were still going strong through March, as reported this morning in both the Case Shiller and FHFA house price indexes. The Case Shiller national index rose 2.1% for the month and 20.5% YoY, the biggest YoY% gain ever, while the FHFA purchase-only index rose 1.5% for the month, and 19.0% YoY.

In the first graph below I also include the quarterly YoY% gain in the median price of all houses sold from the Census Bureau’s home sales report (gold), which increased 15.9% YoY:

While both the FHFA and Case Shiller indexes are at or near record YoY gains, quarterly median house prices from the Census Bureau are down significantly from 21.8% YoY in Q3, which was the

Memorial Day 2022

Memorial Day is that most somber of national observances, in which we remember all those, of whatever race, creed, color, or nationality, who gave their lives so that government of the People, by the People, and for the People shall not perish from the Earth.

In past years I have included photographs of famous Civil War and World War 1 and 2 graveyards, as well as Arlington National Cemetery.

This year let me focus on several others who gave all in defense of the Republic.

This is a photo of the 54th Massachusetts Infantry Regiment, the unit whose story was made into the 1999 Oscar winning movie “Glory:”

The 54th suffered roughly 42% casualties, including the death of their commander, leading the failed Union assault

Real income and – especially – spending increase in April, but households are getting much more overextended

by NewDealdemocrat

In April nominal personal income rose 0.4%, and spending rose 0.9%. March’s spending was revised up from 1.1% to 1.4%. In more good news, the personal consumption deflator, i.e., the relevant measure of inflation, rose only 0.2%, so real income rose 0.2%, and real personal spending rose 0.7%. So far, so good.

While both real income and spending are well above their pre-pandemic levels, I have stopped comparing them with that, but instead with their level after last winter’s round of stimulus. Accordingly, the below graph is normed to 100 as of May 2021: 

Since then spending is up 3.3%, while income has declined

– by New Deal democrat

Weekly Indicators for May 16 – 20 at Seeking Alpha

My Weekly Indicators post is up at Seeking Alpha.

The yield curve tightened some more this week (but did not invert).

Meanwhile, I am seeing a fair amount of commentary suggesting that a recession is imminent. This is jumping the gun, and is mainly relying on the downturn in the stock market as well as the increase in gas prices. These are short leading indicators, but only signal correctly once the long leading indicators have been in place for a sustained period of time – which they have not.

As usual, clicking over and reading will bring you up to the virtual moment as to the economy, and will bring me a little beer money.

Coronavirus dashboard for May 20: signs of a peak in BA.2.12.1 in bellwether jurisdictions; is BA.4/BA.5 next?

With no significant economic data today, let’s take a look at where the BA.2.12.1 COVID wave is.

Nationwide cases (thin line below) have increased about 3.5x from their bottom of roughly 26,700 five weeks ago, to just over 100,000. Meanwhile, deaths (thick line) appear to still be in the process of making a bottom at under 300 per day:

A longer term perspective shows that, compared with the Omicron peak, both deaths and cases are comparatively very low:

The CDC variant update shows that, as of last week, the BA.2.12.1 variant was causing just under 50% of cases nationwide. Its share has been increasing by only about 6%-7% per

Initial claims: a little cooling in the white hot employment market

Initial jobless claims rose 21,000 to 218,000, continuing above the recent 50+ year low of 166,000 set in March. The 4 week average also rose by 8,250 to 199,500, compared with the all-time low of 170,500 set six weeks ago. On the other hand, continuing claims declined another -25,000 to 1,317,000, yet another new 50 year low (but still well above their 1968 all-time low of 988,000):

Initial claims have trended slightly higher over the past 2 months, which, while it shows some cooling in the white hot employment market, is nowhere near a cause for concern at this point. This continues to be the brightest spot in the entire economy.

Housing permits and starts decline slightly, but housing still an economic positive over the next 12 months

Housing permits and starts declined, but not by much, in April.

Importantly, while typically permits, especially single family permits, lead these series, in the past year there has been a unique divergence between permits and starts due to construction supply shortages.  This has been reflected in the number of housing units authorized but not started increasing to 50+ year records. In April that number declined by a tiny 0.6 million annualized to 293.3: 

As a result, I am paying the most attention to the three month average of housing starts (blue in the graph below) for the time being, as these reflect actual economic activity,

Industrial production continues to show excellent growth

I call industrial production the King of Coincident Indicators, because it speaks volumes about where the economy is at any particular moment, and empirically is the indicator whose peaks and troughs coincide most definitively with NBER recession dates.

In April the story told by industrial production continued to be very positive, as total production rose by 1.1%, and manufacturing production rose by 0.8%.  The former made yet another new record high, while the latter has only been exceeded in a 12 month period from spring 2007 through winter 2008:

On a YoY basis, total production is up 6.4%, while manufacturing is up 6.0%. Compared with the last 40 years, and particularly the last

Real retail sales signal further expansion, but also continue to suggest slower payrolls growth ahead

Nominal retail sales for the month of April were up 0.9%, and previous months were revised higher. That means that, after inflation, real retail sales for April were up 0.6%, a very positive number.

Yesterday I wrote that, rather than a YoY comparison with last April, during the stimulus spending spree, the more important comparison was with last May. Although the direct YoY comparison is absolutely unchanged, vs. last May real retail sales were up 1.7%:

This is consistent with a relatively slow consumer-fueled expansion (a moderate expansion would be a number more like 2.5%-3.0% YoY), and not consistent with any imminent recession.

No economic data today (May 16) of significance; but tomorrow one of my favorite economic indicators, retail sales, will be reported for April. Since real retail sales lead employment and generally are a short leading indicator for the economy as a whole, I wanted to update on what I see as their importance right now.

Here are real retail sales per capita (red) vs. real aggregate payrolls per capita (blue), both normed to 100 as of last May (note: I chose May because of the stimulus fueled spending spree in March and April that abated by then):

As you can see, payrolls have continued to grow by about 10% since then, while real retail sales per capita have for all intents and purposes been flat for the 10 months since, up only 0.3% as

Coronavirus dashboard for May 13: the virus will gradually become less lethal – because you can only die once,

COVID-19 is still a pandemic and will gradually transition to an endemic. A year ago I thought that between nearly universal vaccinations and an increasing percentage of the population already infected, the virus would wane into a background nuisance by now.

No more.  I am now thoroughly convinced that an unending series of variants will create continuing waves of new infections and, increasingly importantly, RE-infections. The percent of the population fully vaccinated (not even counting boosters) has come to a screeching halt at 66%. And even in jurisdictions with high percentages of vaccinated people, like Vermont, Puerto Rico, and

New jobless claims rise slightly, but continuing claims make another 50+ year low, May 12, 2022

 – by New Deal democrat

Initial jobless claims rose 1,000 to 203,000, continuing above the recent 50+ year low of 166,000 set in March. The 4 week average also rose by 4,250 to 192,750, compared with the all-time low of 170,500 set five weeks ago. On the other hand, continuing claims declined -44,000 to 1,343,000, yet another new 50 year low (but still well above their 1968 all-time low of 988,000):

The graph above (click on graph to enlarge) shows a slight trend of increased new layoffs, which may or may not  just be noise. In any event, the tightest market for keeping a job in half a century continues. With so many other data points

With the Fed already having begun to “stomp on the brakes,” inflation is still running very hot

As promised, here is my second post on the April CPI number.

The YoY advance in consumer prices, +8.3%, is down from last month’s 8.6%, which was the highest 12 month rate since 1981. As I suggested last month, “the spike in gas prices may be – to use a recently dreaded word – transitory,” since gas prices had declined 5% month over month at the time of last month’s report. In the April report, energy prices declined -2.7%, and since they are 8% of the total weighted, that was certainly helpful. So far this month they have been more or less steady.

There was also good news in that the price of used cars and trucks fell -0.4% in April, after

Real wages unchanged, real aggregate payrolls rose slightly in April

Consumer inflation for April was +0.3%, the lowest monthly advance since last August. The number was helped by a big decline in energy prices, down -2.7% for the month, and also by used cars, down -0.4% for the month. In this post I’ll report on the impact on wages. I’ll put up a separate post with more general comments later.

Since nominal nonsupervisory wages rose 0.4% in March,“real” wages rose less than 0.1% (rounded to 0.0%) in April:

On a YoY basis, real wages are still down -1.7%, slightly above March’s -1.8% reading:

This remains a terrible number historically. Under ordinary circumstances, this would absolutely be recessionary.

But these are not

Q1 Senior Loan Officer Survey: strong demand for loans, but accommodation ends

The Senior Loan Officer Survey for Q1 was published yesterday (May 10), generally covering the supply of, and demand for, bank credit. It has two components that qualify as long leading indicators for the economy, as they have typically turned about one year before the onset of a recession over their 30+ year history.

First, the below graph is of the percentage of banks tightening standards for commercial and industrial loans for large and medium-sized firms (blue) and small firms (red). Since tightening constricts credit, it typically happens in advance of a recession. Thus a positive number in the below graph is a negative for the economy:

As you can see,

A “Big Picture” look at housing at Seeking Alpha; plus an in-depth look at existing home sales and inventory

I have one of my periodic “Big Picture” looks at housing up over at Seeking Alpha.

One economic relationship – whether sales lead inventory for existing homes as well as new ones – has been extremely difficult to nail down, since for the past number of years the NAR has only allowed FRED to post the last one year of its data. 

Well, after much digging, including going back and re-reading an article I wrote eight years ago, plus some painstaking month-by-month reading of old NAR reports, I finally have some decent graphs, plus an answer. To wit, what is below . . .

First, here is a graph I created eight years ago, showing existing

On the self-government of prehistorical human settlements, whether empire-sized Republics can long survive, and the failure of judicial supremacy as a bulwark

  Can the Empire-sized Republic long survive? This was the issue I pondered after Donald Trump was elected President in 2016. Once a country gets big enough, do elected officials ultimately fail, and people inevitably turn to an autocrat to lead them? 

That led me on a journey reading the histories of all of the larger Republics in human history, from Rome through Venice, Genoa, Florence, the Swiss Confederation, the Dutch Republic, and the Glorious Revolution that birthed the modern UK. 

It also caused me to realize that the most revolutionary part of the US Constitution, although the

April jobs report: strong Establishment survey, very weak Household survey (UPDATED)

 I got a late start on this report today (May 6). I’ll add much more detail shortly, but for now, be advised in summary that while the establishment report was strong, with mainly positive internals, the household report was very weak, with some very weak, albeit mainly still positive, internals.

To be continued . . . 

——-UPDATE:Just as one month ago, I was most interested in three main issues:

1. Is the pace of job growth beginning to decelerate?  (Not in the establishment survey, *definitely* in the household survey)

2. Is wage growth holding up? Is it accelerating? (It is still strong, but decelerated slightly)

3. Are the leading indicators in the