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

6 days ago

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

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Real wages unchanged, real aggregate payrolls rose slightly in April

7 days ago

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

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Strong demand for loans, but accommodation ends

8 days ago

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,

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A “Big Picture” look at housing

9 days ago

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

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Can empire-sized Republics long survive, and the failure of judicial supremacy as a bulwark

10 days ago

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

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April jobs report: strong Establishment survey, very weak Household survey

11 days ago

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

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New jobless claims: a possible reversal with a slight rising trend

12 days ago

Initial jobless claims rose 19,000 to 200,000, continuing above the recent 50+ year low of 166,000 set in March. The 4 week average also rose by 8,000 to 188,000, compared with the all-time low of 170,500 set four weeks ago. On the other hand, continuing claims declined -19,000 to 1,384,000, yet another new 50 year low (but still well above their 1968 all-time low of 988,000):

The “job openings” component of the March JOLTS report released on Tuesday, indicated that there was no abatement in the number of employers participating in the new game of employment “musical chairs.” But the graph above shows a slight trend of increased new layoffs, which might just be noise. Or maybe not.

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The impact of supply constraints on the US economy in 3 easy graphs

14 days ago

The impact of supply constraints on the US economy in 3 easy graphs

The two most important purchases ever made by most consumers are (1) their houses, followed by (2) their motor vehicles. Indeed, according to Prof. Edward Leamer‘s forecasting model, ever since the end of World War 2 almost all American recessions have been preceded by, first of all, a decline in new home purchases about 6-7 quarters before, followed by a decline in the purchase of new motor vehicles about 9-12 months before.

By all reasonable accounts, the US economy Boomed last year, with real GDP up 5.5%, industrial production up 3.4%, manufacturing up 3.9%, and employment up 4.7%.

So one would think that the production of houses and motor vehicles would approach prior

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The game of musical chairs in the jobs market intensifies to all-time highs

15 days ago

March JOLTS report: the game of musical chairs in the jobs market intensifies to all-time highs

In March, as this morning’s Census Bureau JOLTS report shows, the game of musical job chairs in the jobs market has actually intensified to all-time levels. Specifically, both job openings and quits made all-time highs, and total separations during their entire 20 year history were only higher in March and April 2020.

As a refresher, some months ago I introduced the idea that the jobs market was like a game similar to musical chairs, where employers added or took away chairs, and employees tried to best allocate themselves among the chairs. Because of the pandemic, there are several million fewer players trying to sit in those chairs, leaving many

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Manufacturing and construction start out the month with positive prints

16 days ago

Manufacturing and construction start out the month with positive prints

As per usual, the new month starts with updates on manufacturing and construction.

The ISM manufacturing index, and especially its new orders subindex, is an important short leading indicator for the production sector. This remained positive, but there has been a definite slowing in the past two months.

In April the index declined from 57.1 to 55.4, and the new orders subindex also declined from 53.8 to 53.5, the lowest reading since 2020. As noted above, these remain positive, since the breakeven point between expansion and contraction is 50:

This forecasts a continued expansion on the production side of the economy through summer – but nowhere near the red-hot and

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Lackluster spending, a decline in real income and savings in March; when the house price spiral turns, consumers are in real trouble

18 days ago

Lackluster spending, a decline in real income and savings in March; when the house price spiral turns, consumers are in real trouble

In March nominal personal income rose 0.5%, and spending rose 1.1%. But since the personal consumption deflator, i.e., the relevant measure of inflation, rose 0.9%, real income declined -0.4%, and real personal spending rose only +0.2%.

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 2.4%, while income has declined -1.3%.

Comparing real personal consumption expenditures with

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Q1 GDP negative; but more importantly, two of three long leading indicators have deteriorated

19 days ago

Q1 GDP negative; but more importantly, two of three long leading indicators have deteriorated

First things first: yes, it was a negative GDP print. No, it doesn’t necessarily mean recession. I’ve been expecting weakness to show up by now ever since last summer; so here it is.But the big culprits were non-core items. Personal consumption expenditures, even adjusted for inflation, were positive. The three big negatives were a big decline in exports vs. imports, followed in about equal measure by a decline in inventories and a downturn in defense production by the government. The inventory adjustment is temporary. So, most likely, was the downturn in defense production. We’ll see about exports and imports (supply chain issues!).But there are two

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Jobless claims: yet another 50+ year low in continuing claims

20 days ago

Jobless claims: yet another 50+ year low in continuing claims

[Programming note: I’ll comment on the Q1 GDP report later].

Initial jobless claims declined -5,000 to 180,000, but above the recent 50+ year low of 166,000 set in March. The 4 week average rose 2,250 to 179,250, compared with the all-time low of 170,500 set three weeks ago. Continuing claims declined -1,000 to 1,407,000, yet another new 50 year low (but still well above their 1968 all-time low of 988,000):

This is yet another installment in the saga of “nobody is getting laid off.” The “job openings” component of the March JOLTS report, which will be released next Tuesday, is the next important metric, because that will tell us if there is any abatement in the number of

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Coronavirus dashboard for April 27: Estimating the BA.2.12.1 wave

20 days ago

Coronavirus dashboard for April 27: Estimating the BA.2.12.1 wave

The CDC updated its variant proportions data yesterday. BA.2.12.1 cases grew from 19% to 29% of all US cases: 

and from 45% to 60% in NY and NJ. At the other end of the spectrum, BA.2.12.1 was only 9% of cases in the Pacific Northwest and 8% in the South Central region. BA.1 is down to only 2% of cases:

Focusing on NY and NJ, NJ has had a little spurt in the last couple of days, probably just due to an artifact of daily reporting one week ago, and is now up 15% for the week. Deleting that artifact, NJ is only up 4% for the week. NY appears to be peaking right now, 6.5 weeks after its recent lows, with cases essentially flat for the last 6 days, and up only 7%

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Prices soar, sales drop; oh by the way, sales lead prices

22 days ago

Prices soar, sales drop; oh by the way, sales lead prices

New home sales declined -8.6% in March, which isn’t as sharp as it seems since declines of this magnitude happen 2-3x/year. The series is also heavily revised, so no new month’s number should be given too much weight. On the other hand, new home sales are frequently the first series to decline after a peak, so the fact that they have not made a new high since January of last year, and are now almost 25% below that mark is certainly a sign that higher interest rates and prices have taken their toll:

Very much on the other hand, the month over month % change in both the Case Shiller and FHFA Indexes rose at record paces of ~2% last month alone:

All of this has caused the

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Lessons for the present from the Postwar Boom

23 days ago

Lessons for the present from the Postwar Boom

One of the things I harp on from time to time is that from 1932 to 1956 there was never a yield curve inversion, and yet recessions certainly did happen! Too many modern models get hung up on Fed intervention.

But what happens when the Fed doesn’t intervene, as was the case for that 25 year period? Or is perhaps the case now, with the Fed funds rate at record levels below the inflation rate?

The case of the immediate postwar Boom of 1946-48 and the recession of 1949 bears a lot of similarities to our current situation – but some significant differences too.

I wrote a lengthy post about it, and it is up on Seeking Alpha.

A factor I didn’t even get into in that discussion was how the GI

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Mortgage rates continue to rise

25 days ago

Mortgage rates continue to rise; once the backlog in construction is cleared, this will likely kill housing

No important economic news today (April 22), but an important negative trend in interest rates is continuing. Mortgage rates are now at 12 year highs.

The weekly data from Freddy Mac’s weekly survey shows rates increased to 5.11% as of April 21:

This is 2.46% above the low of 2.65% that was set at the end of 2020, and the highest rates since April 2010. It is also only 1.69% below the 6.80% rate that killed the housing bubble in 2006.And according to Mortgage News Daily, as of today rates have increased further to 5.38%.

Here’s an update of a graph I ran earlier this week, showing the YoY change in mortgage rates, inverted

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Jobless claims: more 50+ year lows

26 days ago

Jobless claims: more 50+ year lows

Initial jobless claims declined -2,000 to 184,000, another 50+ year low. The 4 week average rose from 4,500 to 177,250, compared with the all-time low of 170,500 set two weeks ago. Continuing claims declined -58,000 this week to 1,417,000, a new 50 year low (but still well above their 1968 all-time low of 988,000):

Nobody  – still – is getting laid off. We’re still about 1.6 million shy of “full employment,” by my calculation. Further, the game of “musical chairs” whereby workers can always find higher wages somewhere is still very much happening. 

The next important marker is going to be “job openings” in the March JOLTS report which will be released next week. That’s because this situation is going

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Coronavirus dashboard for April 20: there’s a new subvariant in town

28 days ago

Coronavirus dashboard for April 20: there’s a new subvariant in town

Let me start with the current overview. As of today, Nationally cases are now rising sharply, up to 41,500, an increase of 25% in the past week:

Hospitalizations are generally flat at slightly over 10,000, but new admissions have risen steadily, by 8% over the last 11 days:

Deaths have continued to decline, to 452, a level lower than all times during the pandemic except for 7 weeks last June and July:

But, conditions have changed.

Up until this week, my paradigm has been that cases in the US would follow the pattern in Europe, where once the BA.2 subvariant of Omicron reached roughly 90% of all cases, typically 2.5-3.5 weeks after the onset of the BA.2

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Housing starts show continued strength in March, while single family permits indicate softness ahead

29 days ago

Housing starts show continued strength in March, while single family permits indicate softness ahead

The continued strength in total housing permits and starts shown in this morning’s report for March was surprising; but the series with the most signal and least noise, single family permits, betrayed weakness. While typically permits, especially single family permits, lead the series, in the past year, however, there has been a unique divergence between permits and starts, as supply shortages resulted in a delay in actually building houses that had been approved.Housing authorized but not started increased to yet another 50+ year record last month, at 290,000: 

In 2021 permits soared then sank, while starts held much more steady, due to the

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The worst interest rate upturn since 1994

April 20, 2022

The worst interest rate upturn since 1994 is likely to produce the worst housing downturn in over a decade

No economic news of note today; but tomorrow we will see housing permits and starts for March, and on Wednesday existing home sales. So let’s take an important look at housing.

The recent increase in mortgage rates to over 5% is the most serious interest rate threat to housing in at least the past 30 years. As the below graph shows, the increase of over 2% is the biggest jump in mortgages since 1994:

But additionally, in 1994, when interest rates jumped from 6.75% to 9.25%, that was a 37% increase in monthly mortgage costs. The jump in the past year from 2.65% to 5.00% makes for an 89% increase in monthly costs. In other words, in

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Paul Krugman on the Great Illusion of economic rationality and war — in 2008

April 20, 2022

Paul Krugman on the Great Illusion of economic rationality and war — in 2008

Paul Krugman wrote an article this past week about how free trade can enable authoritarians, and how Russia’s invasion of Ukraine may be putting an end to globalization. I went looking for an excerpt that wasn’t behind a paywall, and look what I found instead: the below article from Krugman in 2008, helpfully copied in the old Economist’s View blog.

In retrospect, it is an amazing read. I’ve highlighted In bold portions of particular interest.——

“Is the ‘second great age of globalization’ about to end?”

The Great Illusion, by Paul Krugman, Commentary, NY Times: So far, the international economic consequences of the war in the Caucasus have been fairly minor,

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The worst interest rate upturn since 1994 is likely to produce the worst housing downturn in over a decade

April 19, 2022

The worst interest rate upturn since 1994 is likely to produce the worst housing downturn in over a decade

No economic news of note today; but tomorrow we will see housing permits and starts for March, and on Wednesday existing home sales. So let’s take an important look at housing.

The recent increase in mortgage rates to over 5% is the most serious interest rate threat to housing in at least the past 30 years. As the below graph shows, the increase in over 2% is the biggest jump in mortgages since 1994:

But additionally, in 1994, when interest rates jumped from 6.75% to 9.25%, that was a 37% increase in monthly mortgage costs. The jump in the past year from 2.65% to 5.00% makes for an 89% increase in monthly costs. In other words, in

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Real aggregate payrolls and sales

April 18, 2022

Real aggregate payrolls and sales

There seems to be some pushback against the narrative that real wages have declined, based on compositional effects (lower pay occupations vs. higher pay occupations). While some of that is true (for example, 5/6’s of all leisure and hospitality losses have been recovered, vs. 3.4% actual job *gains* since February 2020 in professional and business services; and a 91% rebound among total payrolls) – it is far less a factor than it was 18 or even 12 months ago.

Another way around that is to look at *aggregate* payrolls, particularly for nonsupervisory employees. This takes out the distortions introduced by outsized pay increases for the bosses, and also takes into account the total hours of pay earned in the

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The production side of the economy remained solid in March

April 17, 2022

The production side of the economy remained solid in March

Industrial production, the King of Coincident Indicators, increased in March by 0.9%. February was also revised higher by 0.4%, but January was revised lower by the same percentage, for a wash. Manufacturing production also increased 0.9%. Total production thus made another new record high, while manufacturing is still below its record levels of 2007 and early 2008:

On a YoY basis, total production is up 5.5%, while manufacturing is up 5.2%. Compared with the last 50 years, and particularly the last 20, this continues to be solid growth:

Of course, industrial production still lags when it is compared with either population growth or GDP growth over the past 25 years (i.e.,

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Real retail sales in March continue to show a weaker consumer sector, forecast weaker jobs reports

April 16, 2022

Real retail sales in March continue to show a weaker consumer sector, forecast weaker jobs reports

For the past few months, I have suspected that a sharp deceleration beginning with the consumer sector of the economy was more likely than not. The retail sales report for March was consistent with that suspicion.

Nominally retail sales rose +0.5% in March, but since consumer prices rose 1.2%, real retail sales declined -0.7%. Further, they are up only 0.2% from last May (using that month because March and April were the stimulus months): 

Typically a YoY decline in real retail sales is a recession indicator. Since compared with last March, sales were down -1.5%:

Ordinary, I would be worried. But since last March and April were

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Watching the BA.2 “bump”

April 15, 2022

Coronavirus dashboard for April 13: watching the BA.2 “bump”

The BA.2 “bump” (h/t Dr. Eric Topol) is upon us (and hopefully a “bump” is all it is). Let’s take a look at where we stand.

Cases bottomed 8 days ago at 28,378. As of yesterday, they had increased to 32,835:

Hospitalizations have continued to decline, and at 9859 are the lowest since March 2020 when the pandemic was just beginning:

Deaths are at 527, just above their 10 month low of 498 the previous day. Only in June and July 2021 have deaths been lower than this. The below graph shows the long term view of both deaths (bold line) and cases (thin line), scaled separately:

Each successive wave has been *relatively* less lethal (i.e., deaths vs. cases)

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The employment sector of the economy continues to do just fine

April 15, 2022

Jobless claims: the employment sector of the economy continues to do just fine

[Note: I’ll comment on this morning’s retail sales report for March separately]

Initial jobless claims rose 18,000 to 185,000 from their 50+ year last week. The 4 week average rose 2,000 from last week’s all-time low to 172,250. Continuing claims declined -48,000 this week to 1,475,000, a new 50 year low (but still higher than the 1960s):

Essentially nobody is getting laid off. We’re still about 1.6 million shy of “full employment,” by my calculation, but with that exception, the jobs part of the economy is doing just fine.

Tags: jobless claims

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March consumer inflation part 2: I told you so

April 14, 2022

March consumer inflation part 2: I told you so; the Fed *must* start paying attention to house price indexes

This is the second part of my take on the March consumer inflation report.

As you may have already read, total inflation clocked in at +1.2% for March alone! YoY consumer prices are up 8.6%, the highest 12-month rate since 1981. As anticipated, gas prices were a huge contributor; less energy, prices were up 0.4%; less both food and energy they were only up 0.3%:

The spike in gas prices may be – to use a recently dreaded word – transitory. In the past 4 weeks, gas prices are down 5%; as of this morning oil prices, which had been as high as $123/barrel on March 8, are back under $100.

There was some small good news in one

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March consumer inflation part 1: real wages decline sharply

April 13, 2022

March consumer inflation part 1: real wages decline sharply

The March consumer inflation report was particularly important, and particularly bad. So much so that I am going to divide my comments into two separate posts.

First, the news on real wages was terrible. While nominally nonsupervisory wages rose 0.4% in March, since inflation rose 1.2%, “real” wages declined -0.8% in March alone. On a YoY basis, real wages were down -1.8%:

Aside from the outset of the pandemic during April and May 2020, this is the worst number since 2011, and one of the 4 worst months since 1991.

Further, on an absolute scale, real wages were the lowest since March 2020; they were also down -1.6% since July 2020: 

Finally, real aggregate payrolls

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