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September manufacturing new orders and August construction spending both turn down

2 days ago

September manufacturing new orders and August construction spending both turn down

 – by New Deal democrat

As usual, we begin another month and another quarter with important manufacturing and construction data.

The ISM manufacturing 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 cross the line until the first month of the recession itself – although the recession did not begin until after the total index fell below 50, and in fact usually below 48.

In September the overall index declined to 50.9 – just slightly expansionary – and new orders declined to a new post-pandemic lockdown low of 47.1:

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August personal income and spending: major downward revisions overwhelm modestly positive monthly gains

5 days ago

– by New Deal democrat

This morning’s personal income and spending report for August was positive month over month both in nominal and real terms, but the major story was in the revisions.

Personal spending is the essentially the opposite side of the transaction of retail sales. Both have been tracking relatively closely since the end of the stimulus-fueled spring spending spurge of 2021, as shown in the m/m% changes below:

Real personal spending was up +0.1% in August, compared with +0.2% for real sales. 

So far, so good. But as you can see from the above graph, real personal spending has all but stalled since April.  Compared with the average spending in Q2, the first two months of Q3 are only up +0.1% – which while positive is

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The positive trend in jobless claims continues

6 days ago

The positive trend in jobless claims continues

For still another week, initial jobless claims continued their recent downtrend.

Initial claims declined -16,000 to 193,000, a 5 month low. The 4 week average also declined -8,750 to a new 4 month low of 207,000. Continuing claims, which lag somewhat, declined -29,000 to a 2.5 month low of 1,347,000:

The downtrend of the past 2 months is almost certainly a positive side-effect of lower gas prices. According to GasBuddy, gas prices have increased in the past 10 days. If gas prices stabilize, I expect jobless claims to do so as well.

But this is good news and very much at odds with the idea that the US is currently in a recession.

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Interest rates, the yield curve, and the Fed chasing a Phantom (lagging) Menace

7 days ago

Interest rates, the yield curve, and the Fed chasing a Phantom (lagging) Menace

There’s a lot going on with interest rates in the past few days.

Mortgage rates have increased above 7%:

This is the highest rate since 2008. Needless to say, if it lasts for any period of time it will further damage the housing market.

The yield curve has almost completely inverted from 3 years out (lower bar on left; upper bar shows a similar curve in April 2000, 11 months before the 2001 recession):

As of this morning, the curve is normally sloped from the 3.12% Fed funds rate up through the 3 year Treasury, which is yielding 4.22% (which, as an aside, is a mighty tasty temptation to buy medium maturity bonds). Beyond that, with the exception of the 20

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House price indexes: more evidence of a summer peak

8 days ago

House price indexes: more evidence of a summer peak

 – by New Deal democrat

The Case Shiller and FHFA house price indexes were updated through July (technically, the average of May through July) this morning. Ordinarily I do not pay them too much mind, but this year they are very important in confirming a peak in house prices.

Although the FHFA index is seasonally adjusted, the Case Shiller index is not, so the best way to show them in comparison is YoY. Here are YoY% changes for the last 2 years of each through June (FRED has not yet posted today’s numbers):

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. the YoY peak

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Gas and oil price update: good news and bad news

9 days ago

Gas and oil price update: good news and bad news

We’ll get some important house price information tomorrow, but there is no economic news of significance today, so let’s update gas and oil prices.

As indicated in the title, there’s good news and bad news. I’ll start with the bad news first.

According to GasBuddy, gas prices have not declined in over a week:

They have bounced off $3.64/gallon and stabilized at $3.66-7/gallon. Which still is only about $.20 higher than they were back in February.

But here’s the good news, in the form of a screen shot of oil prices this morning:

I have no idea whatsoever why oil prices suddenly declined further, or whether this will last, but as of now, oil prices are only about $3/barrel (or roughly

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Weekly Indicators for September 19 – 23

11 days ago

Weekly Indicators for September 19 – 23 at Seeking Alpha

 – by New Deal democrat

My Weekly Indicators column is up at Seeking Alpha.

For the third week in a row, interest rates increased, and gas prices, along with the prices of other commodities, tumbled.

While the decline in gas prices is good, the downturn in other commodity prices is a sign of weakening global demand.

Once the decline in gas prices stops, I suspect the economic skies will darken rather quickly.

In the meantime, clicking over and reading should be educational for you, and will put a couple of Pennie’s in my pocket.

Weekly Indicators for September 12 – 16 at Seeking Alpha

Tags: New

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Focusing on the short end of the yield curve

12 days ago

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

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Jobless claims: the positive trend continues

13 days ago

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;

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August existing home sales: confirmation of housing prices peaking

14 days ago

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

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

15 days ago

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

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

16 days ago

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

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The Ukraine war spike in energy prices has completely unwound

16 days ago

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

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Weekly Indicators for September 12 – 16 at Seeking Alpha

18 days ago

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

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Real aggregate payrolls and recessions

18 days ago

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

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

19 days ago

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

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Positive real retail sales in August, but YoY flatness continues

20 days ago

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

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Improvement in initial jobless claims continues

21 days ago

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

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

21 days ago

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:

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

22 days ago

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

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

22 days ago

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

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Previewing CPI

23 days ago

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

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Weekly Indicators for September 5 – 9 at Seeking Alpha

25 days ago

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

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An update on oil and gas prices

26 days ago

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,

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The spending transition from goods to services

27 days ago

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)

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Another week of good news on jobless claims

27 days ago

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

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

28 days ago

“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

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“I told you so”

29 days ago

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

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On Labor Day 2022, how well is labor doing?

September 6, 2022

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

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

September 3, 2022

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

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