Why no US recession? Free spending by the upper class

 

 - by New Deal democrat

There is a slew of economic data being released tomorrow, the most important of which will be personal income and spending, so I will likely defer some reporting on the other data until Friday.

But in the meantime, there’s no significant data today. So let me take this opportunity to show in the simplest terms why all of the economic chaos coming out of Washington, including Tariff-palooza, mass deportations, the Big Billionaire Bust-out Bill, and the gas price spike and all of the other disruptions arising from the war with Iran have not put the US economy into recession as of now.

First, here are stock prices for the last year:

One year ago, the S&P 500 was about 5900. Yesterday it closed at 7519.12, about a 27% increase in that one year period. That is an absolutely booming (or bubbly!) stock market, driven mainly by AI-related companies.

It is estimated that the top 10% of the wealth distribution owns about 90% of all stocks. The top 10% by income own about 70%.

 

By contrast, both personal income and average nonsupervisory earnings have grown about 3.7% YoY as of their respective latest readings:

This vs. the latest YoY growth of 3.8% in the CPI.

So while the lower parts of the income distribution are struggling, the uppermost elements are doing just fine, thank you.

And they are spending.

Here is the last three years’ of YoY weekly retail spending by Redbook. As of this week it showed a 9% YoY increase:

Not only has spending been positive YoY, but there has been a marked acceleration in that YoY spending beginning last autumn and accelerating even more this spring.

One of the very first things we could expect consumers to cut is the cost of dining out. That hasn’t been happening either:

Typically in 2024 and 2025, YoY growth in dining reservations was about 6%-8%. In the past 12 months it has accelerated to over 10% gains YoY.

So why isn’t the US in recession? Because gains by the uppermost in the income and wealth distribution have enabled such free spending that it has more than overbalanced the struggles of most of the rest.

Repeat home sales continue to show disinflation; shelter CPI likely to continue to be a non-factor

 

 - by New Deal democrat

For the last number of months, I have been putting front and center that housing prices have ceased being an engine of inflation. In fact, changes in repeat home sales prices as measured by both the Case-Shiller National Index and the FHFA Purchase Only Index are at levels that with only one exception have been at levels typically only seen during or after recessions.

This month’s report for March continued that trend.

The seasonally adjusted Case-Shiller National index (blue in the graphs below) actually declined -0.2% for the three month period ending in March, while the FHFA index (red) rose 0.1%:

Just as important if not moreso is that the YoY comparisons of at least one of the two national indexes continued to show further disinflation. The Case Shiller national index increased only 0.7% YoY, tied for the lowest since the Great Recession’s housing bust except for April through June 2023. The FHFA Index again rounded to 1.7%, as it has for the last two months, but actually was slightly lower, becoming the lowest such reading since 2012:

As per usual, since housing prices lead the CPI’s shelter component (purple in the graph below) by roughly 12-18 months, let’s compare the YoY trends (Note: house price indexes /2.5 for scale) going all the way back to 1990:

In 1992, with house price increases generally stable in the roughly 0.5%-1.0% YoY range, shelter inflation increased about 3.0%. But in the past year the trend in house prices has been continued slow disinflation, as it was in 1991. Thus I continue to believe that the repeat sales indexes provide solid evidence that we can expect shelter inflation in the CPI to continue to decelerate throughout this year, with the shelter component ending this year at close to a 2.0% YoY increase.

In April, the shelter component of the CPI had an anomalous monthly jump of 0.6%, the biggest such increase since September 2023, which caused the YoY growth to increase to 3.3%, but I expect the downward drumbeat of disinflation in the housing aspect of consumer prices to resume in the next month or two.

Memorial Day 2026

 

 - by New Deal democrat

Memorial Day originated as the day to remember those thousands who gave their lives to preserve the Union in the Cicil War, by decorating their graves. It is that most somber of national observances, in which we remember all of those who gave their lives to protect government of the People, by the People, and for the People; under the Rule of Law as previously agreed by those people.

From Lincoln’s Gettysburg Address:

“… [O]ur fathers brought forth on this continent, a new nation, conceived in Liberty, and dedicated to the proposition that all men are created equal.

“Now we are engaged in a great civil war, testing whether that nation, or any nation so conceived and so dedicated, can long endure…. We have come to dedicate … a final resting place for those who [ ] gave their lives that that nation might live. It is altogether fitting and proper that we should do this.

“But, in a larger sense, we can not dedicate-we can not consecrate-we can not hallow-this ground. The brave men, living and dead, who struggled here, have consecrated it, far above our poor power to add or detract. The world … can never forget what they did here. It is for us the living to be here dedicated to the great task remaining before us-that from these honored dead we take increased devotion to that cause for which they gave the last full measure of devotion-that we here highly resolve that these dead shall not have died in vain-… that government of the people, by the people, for the people shall not perish from the earth.” 

Here is one such place of commemoration:

Normandy American Cemetery

Weekly Indicators for May 18 - 22 at Seeking Alpha

 

 - by New Deal democrat

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

Interest rates, along with gas prices, continue to be elevated, but consumers are continuing to spend their way right on through the adversity - at least, so far.

As usual, clicking over and reading will bring you up to the virtual moment as to the economy, and reward me with a penny or two for my efforts.

Preliminary regional Fed reports indicate inflationary pulse continuing in May

 

 - by New Deal democrat

Although manufacturing is far less important to the US economy than it was in the decades after World War II, it is still about 25% of the total weighting; and further, it is more vulnerable to shocks than the services portion of the economy. Which means, for forecasting purposes, it is always a sector that turns down in advance of a general downturn, even if a sharp downturn in manufacturing by itself is generally no longer enough to bring about a recession. Put another way, a downturn in manufacturing is a necessary, but not sufficient, leading indicator for the economy.

At the beginning of this month, the ISM manufacturing index continued its string this year of expansioinary readings. The three month averages of its headline and new orders indexes, which smooth out some volatility, were steady at 52.6 and slightly lower at 54.5, respectively, with any reading above 50 indicating expansion:

But I also noted that the prices paid subindex rose sharply to the highest number since  May of 2022.

Those trends have continued with the first May readings from the New York and Philadelphia Fed regional manufacturing surveys. 

To begin with, the headline numbers were 19.6 for New York (orange in the graphs below), the highest index result since 2022, while the Philadelphia headline number (gold in the graphs below) was slightly negative, at -0.4. To smooth out these very noisy series, I also show the average (blue):

The general trend of expansion in manufacturing since late last year is apparent.

Further, the more leading new orders components of the regional surveys was similar, with New York showing robust expansion, and Philadelphia very minor -1.4 contraction. The average of the two was less positive than in April, but the three month average was the most positive since early 2025:

But if the production portion of the surveys was positive, inflationary problems reared their head in the pricing components.

Prices paid for commodities for production increased for about 50% of all respondents, close to last spring’s highs and aside from the massive 2022 inflation, amongh the highest readings of the Millennium:

And the index o prices received by those same producers also increased to close to 12 month highs, and aside from 2022 among the highest average readings as well:

Since these are May numbers, they suggest further inflationary pass-throughs to consumers. In other words, while the good news is that the economy likely will continue to expand in the next month or two, as I indicated earlier this week, the inflationary pulse that began in March is almost certainly continuing in May.