Stale data watch: construction spending for October — more “green shoots”?

 

 - by New Deal democrat

Originally housing permits and starts through December were supposed to be updated this morning, but that has now been put off another week. In the meantime, we did get some data, albeit stale, about the important leading sector of construction, in the form of the construction spending report through October. And it added to the very small patch of evidence suggesting that some “green shoots” may be forming.

To wit, as shown in the graph linked to below, in October nominally total construction spending rose 0.5%. More importantly, the long leading sector of residential construction spending rose 1.3%. Since the cost of construction materials in the last PPI report declined -0.2%, in real terms spending rose 0.7% and residential spending rose 1.5%:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1QKCy&height=490 

In absolute nominal terms, both series rose to close to 10 month highs:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1QKBO&height=490 

In real terms, residential construction also made a 9 month high:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1QKFw&height=490 

Keep in mind that construction spending is one of the latter housing series to turn, although it generally turns before housing units for sale and residential construction employment. Across almost all the more leading housing data, the trend in the past few months has been a leveling out or even some small improvement. Even prices (which follow sales) may be leveling out.

All of this is downstream of the 3 year lows in mortgage rates. Of such small things are “green shoots” made (subject, of course, to longer term interest rates blowing out to the upside due to T—-p’s blowing up NATO).

Record low labor share: corporate profits are at their most extreme levels ever compared with nonsupervisory payrolls

 

 - by New Deal democrat

An I’ve read a few takes in the past week or so about the declining “labor share” of GDP. To cut to the chase, here’s a link to that exact graph: 

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1QGJI&height=490 

In case you are confused as to what this means, the labor share is defined as the total amount of compensation of employees and proprietors, divided by the value of the output of businesses. A lower labor share means that more of the revenue earned by businesses is going to other items; those items may be things like capital improvements, or more to the point they may be paid out as profits to shareholders. 

What the above graph shows is that labor share was gradually declining by roughly 2%-5% from 1960s until China was admitted to full regular trading status with the US in 1999. Thereafter it immediately plummeted by another 7.5%-10% in the 2000’s as high (and even average) paying manufacturing jobs were vacuumed overseas, primarily to China. After the end of the Great Recession, it stabilized during the 2010’s expansion at about 87.5% of its share in the 1960s. But following COVID, it declined another 2% — and finally, in 2025, it declined 1%, so that at the end of Q3 labor only received about 83% of the benefits of productivity that it did in 1960. 

An even more descriptive way to show this is in the graph linked to below, with norms the nominal values of GDP, corporate profits, and the aggregate payrolls of all nonsupervisory workers to 100 as of 1964, when the lattermost series started (note: shown in log scale so that each relative increment shows equally):

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1QGFV&height=490 

While there were some fluctuations, corporate profits and aggregate payrolls stayed in a reasonably stable relationship until the 1990s, when the tech boom together with a weak labor market skewed it towards profits. Even then, by 2000 the two series had converged again. Thereafter, profits have consistently blown out to the upside compared with nonsupervisory labor compensation. As of Q3 2025, corporate profits are almost double their level relative to labor compensation compared with what they were in 2000. Over time, this amounts to $Trillions(!) that have gone into the stock portfolios of the wealthiest sectors rather than average American households.

It’s no wonder, then, that the other day I saw a graph (sorry, don’t recall the link) showing that the richest Americans relative to all other Americans, now own multiples of wealth even compared against the most concentrated years of the Gilded Age.

It isn’t just in political terms that the US has largely turned into a Banana Republic; in economic terms it already is.

A powerful new tailwind behind the economy: the “real” price of gas

 

 - by New Deal democrat

There’s no new data of note today or tomorrow, so in the meantime (aside from observing Martin Luther King’s birthday) let me take a look at a very important, if small piece of economic data: the “real” price of gas.

Gas price shocks have been important precipitants of a number of recessions in the past 50 years. Conversely, sharp declines in the price of gas (most notably at the end of 2008) were important factors in the bottoming out of recessions and the beginning of recoveries. This also includes summer of 2022, when gas prices declined from $4.93/gallon in June in the aftermath of Russia’s invasion of Ukraine, to $3.70 in September (and ultimately $3.21 in December). When almost all of the other signs of oncoming recession were flashing warning’s the sharp declines in commodity prices, including for gas, completely overwhelmed the negatives, and the robust economic expansion plowed ahead.

But $3/gallon gas means something entirely different in 2026 than it meant the first time it breached that threshold in 2005 in the aftermath of Hurricane Katrina. That’s because incomes are vastly different. In September 2005 the average hourly wage for nonsupervisory workers was $16.19/hour. As of last month it was almost double that, at $31.76.

Which means that the “real” cost of gas was much lower in 2025 than it was in 2005. And in the last two months it has declined significantly again. Throughout most of 2025 it ranged between $3.00 and $3.20/gallon, but as of last week it was $2.78.

And although the mal-Administration in Washington has done many things that have sabotaged the economy, this is a strong countervailing force. How strong? Here’s a link to the long-term “real” price of gas, i.e., gas prices divided by average hourly nonsupervisory wages, going all the way back to the beginning of the 1990s:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1QGuV&height=490 

As of December (the last available period for wages), when gas prices averaged $2.89/gallon, it took just over 9% of an hour, or just over 5 minutes, for workers to earn enough to buy a gallon of gas. That is lower than at any point since the start of the Millennium except for the immediate aftermath of the 2001 recession and the pandemic lockdowns, and briefly in 2016.

And so far this month, the price of gas has declined even further, to $2.78 as of last week. While of course I have no crystal ball with which to forecast the future price of gas, should the new even lower range be sustained, that is going to put yet another powerful tailwind behind the consumer economy (in part because we know that consumers pay a lot of attention to the very noticeable price of gas), possibly saving it one more time from going into recession.

Weekly Indicators for January 12 - 16 at Seeking Alpha

 

 - by New Deal democrat

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

With the yield curve close to completely normal and mortgage rates at or near 3 year lows, and the housing market reacting to those, the longer range picture is improving.

But what is going to drive (in more ways than one) the immediate future is that gas prices are at the lowest they have been in almost 5 years:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1QC7I&height=490 

This is similar to, although much smaller than, the big unwind of prices in 2022 that created a positive supply shock saving the economy from recession. 

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

Industrial production sets new post-pandemic high in December - but mainly due to utilities

 

 - by New Deal democrat

Industrial production is much less central to the US economic picture than it was before the “China shock,” but it remains an important if diminished economic indicator, particularly since the month it has peaked in the past has typically been the month the NBER has chosen as the economic cycle peak.

In December, headline industrial production (blue in the graph linked to below) rose 0.4%, with previous months revised higher 0.2% on net, establishing a new post-pandemic high, although it remains -1.3% below its 2018 all-time high.  Manufacturing production (red) increased 0.2%, and prior months were also revised higher by 0.2%, but it remained slightly below its September 2025 post-pandemic high:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1QzOo&height=490 

The difference between the two is mainly due to utility production, which rose 2.6% for the month, and was higher by 2.3% YoY. And all of 2025 on average set new all-time records for production, most likely driven by AI data center needs:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1QzOv&height=490 

Despite the influence of utility production, this was a positive report, adding to the evidence we have seen in durable goods orders and regional Fed manufacturing reports in the past few months indicating that manufacturing production in particular has been improving. This in turn is most likely due to the lack of new tariff gyrations, and producers having found a modus operandi to deal with the effects of previously imposed tariffs.

That being said, the next comprehensive report on personal income and spending will be crucial to determining whether the autumn lull or downturn in important coincident economic data ended after the end of the government shutdown or not.