Monday, April 22, 2024

Real median wage and income growth through March continued the recent increasing trend


 - by New Deal democrat

This is an update of some information I last posted several months ago.

Real median household income is one of the best measures of average Americans’ well-being, but the official measure is only reported once a year, in September of the following year.

So right now the most recent official measure is for calendar year 2022 (when you might remember gas prices surged to $5/gallon). In other words, it’s hopelessly out of date.

There are several ways of approximating real median household income on a more timely basis available in the public data. 

For this purpose, wages are a very imperfect proxy, because income includes things like stimulus payments or debt relief during the pandemic, and also because - especially during the pandemic - layoffs were concentrated among low wage workers, thus distorting the averages higher.

The best proxies make use of personal income. We can also get information from total payrolls. The below graph shows both real personal income (blue) and real aggregate payrolls (red), both divided by population. Here’s the data starting before the pandemic:

And here is the close-up after the end of pandemic related stimulus payments:

The big difference between the two is that real payrolls only include wages and salaries, while real incomes includes all sources of income, including stimulus payments and things like social security. Thus real per capita payrolls declined sharply during the fist months of the pandemic, and did not recover until late 2022, while incomes soared due to the pandemic related programs. Further, real payrolls stalled during 2022, while real incomes per capita actually declined.

Since late 2022, both measures have consistently increased. 

Additionally, a few private services have been able to use monthly data from the survey that gives rise to the jobs report to create a far more timely and illuminating monthly update. The best of these that I know of is Motio Research.

Here’s their most recent update, through March:

Like personal income, household income really spiked with the pandemic relief programs in 2020. It then went nowhere for almost three years, stuck at the same level it had been in 2019. Again, like personal income, that’s because of the spike in inflation, and the fact that jobs and real payrolls didn’t return to their pre-pandemic levels until 2022 and 2023 respectively.

The one remaining puzzle is why real *median* household income declined again into mid-2023, vs. *average* personal income, which increased.  One explanation might be the expiration of pandemic stimulus and relief programs, although I would expect that to show up in the broader income measure.

Some light can be shed by looking at *median* wage growth, as documented by the Fed:

Note that, compared with inflation, median (rather than average) wages continued to decline until early 2023. 

Another important explanation is likely that income growth has been concentrated among the the lowest quintile of households. In connection with the latest annual update, US News and World Report wrote:
While overall household wealth in America fell from the end of 2021 through the first three quarters of 2022, the bottom 20% of households by income saw their wealth grow.

“In total, household wealth for the lowest-income quintile rose by nearly 10% while wealth in all other income quintiles fell, according to figures from the Federal Reserve and nonpartisan data center USAFacts.

Here is the accompanying graph:

This very much helps explain why Biden’s approval ratings have been so poor throughout 2022 and 2023.

But, to return to the Motio Research graph, note that since last June, the trend has been rising again, and in March real median household income reached its highest level ever except for the 2020 stimulus months. What this means is that, if real household income growth had been concentrated among the lowest quintile through 2022, by mid-2023 it had spread upward to include the median group as well, and with some fits and starts this growth has continued.

Which is good news for the average American household.

Sunday, April 21, 2024

Weekly Indicators for April 15 - 19 at Seeking Alpha


 - by New Deal democrat

I neglected to pt this up yesterday, so here it is now. My “Weekly Indicators” post is up at Seeking Alpha.

There continues to be a fair amount of churn and noise in the short leading and coincident time range. Nevertheless, the underlying theme is one of positivity. Aside from the swoon in the stock market this past week, the other big move was in industrial commodities, which spike higher late in the week. This is the first time they have been positive YoY in well over a year.

Typically that is because of higher demand straining against current supply, which means an expanding economy (with inflationary pressure building up).

As usual, clicking over and reading will bring you up to the virtual moment on all of these trends, and reward me with a little pocket change for organizing the data and bringing it to you.

Friday, April 19, 2024

The bifurcation of the new vs. existing home markets continues


 - by New Deal democrat

The bifurcation of the new vs. existing home markets continued in March, per the report on existing home sales and prices yesterday. Remember that, unlike existing homeowners, house builders can vary square footage, amenities, lot sizes, and offer price and/or mortgage incentives to counteract the effect of interest rate hikes.

On a seasonally adjusted basis, existing home sales declined from 438,000 to 419,000 in March. But this is well within the seasonally adjusted range of the past 16 months (gray, right scale in the graph below){also, note I am using Trading Economics graphs due to restrictions put on FRED by the Realtors; also note difference in scales):

At their worst seasonally adjusted levels last year, existing home sales were down over 40% from their 2021 peak. Meanwhile new home sales (blue, left scale), at their low in July 2022 down almost 50% from their 2021 peak, responded to mortgage rates by rebounding during much of last year before fading again in the past few months. They are presently down 35% from peak.

Some of the difference in trajectories between new and existing home sales can be explained by prices. Because so many homeowners have been frozen in place by their existing 3% mortgages, the inventory of existing homes for sale remains low, and that has driven prices higher almost consistently since the onset of the pandemic:

Although I can’t show you a graph, similar to the trajectory of the FHFA and Case Shiller repeat sales indexes, the median price for existing homes briefly turned negative in early 2023, troughing at -3.0% YoY in May. Thereafter YoY comparisons increased to a peak of higher by 5.7% in February. In March median prices were higher by 4.8%, which may or may not just be a pause.

Meanwhile the median price for new houses was down by -7.6% YoY in February. The below graph shows actual median prices for the last 5 years of new homes vs. the last 12 months (all that allows FRED to publish) of existing homes:

Median existing home prices are currently about 40% higher than their immediate pre-pandemic level, while new home prices are about 30% higher. 

Ultimately both the new and existing home markets are driven by mortgage rates. With a diminished supply of existing homes (because of prospective sellers being frozen in place by their current mortgage rates), their relative scarcity has driven prices comparatively higher than for new homes, especially as builders have moved aggressively to bring the purchase price of new homes down. This bifurcation will continue until the Fed moves significantly on rates.

Thursday, April 18, 2024

Initial jobless claimZzzzzzzzzz . . . .

 - by New Deal democrat

For the last 8 months, initial and continuing claims have been remarkably consistent. Initial claims have varied between 194,000 and 228,000, and continuing claims have with the exception of three weeks right at the new year varied between 1.787 million and 1.829 million.

That rangebound trend continued this week as initial claims were unchanged at 212,000, and the four week average was also unchanged at 214,500. With the usual one week delay, continuing claims rose 2,000 t0 1.812 million:

Indeed, with the exception of last spring, initial claims have been essentially rangebound for the entire last 2 years!

For forecasting purposes, the YoY% change is more important. There, initial claims are down -5.5%, the four week average down -3.8%, and continuing claims are higher by 4.3% — still the lowest YoY reading for continuing claims in the past 13 months:

Needless to say, this suggests continued economic expansion in the next few months.

A reader over at Seeking Alpha several weeks ago asked what these looked like compared with population, since that is a more true measure of the tightness of the jobs market. Here’s the post-pandemic look:

The 4 week average of initial claims is 0.13% of the entire civilian labor force, while continuing claims are 1.1%.

Let’s compare that with the entire pre-pandemic record:

The 4 week average of initial claims is tied with the lowest ever pre-pandemic reading it had in 2019, while continuing claims are lower than the entire 50+ year pre-pandemic period except for 2017-19.

This in short remains a very tight labor market, where finding a new job is easier than at almost any time ever before the pandemic.

Finally, let’s update the Sahm rule implications with the first two weeks of April under our belt. Remember that both initial and continuing claims lead the unemployment rate, the former by more than the latter:

As per form, the unemployment rate followed jobless claims higher last year. Initial claims are now lower again, and continuing cliams remain flat. This suggests no further upward pressure on the unemployment rate in the months ahead, and likely some downward pressure towards 3.7% or 3.6%. In short, the Sahm rule is not going to be triggered.

Tuesday, April 16, 2024

Industrial production for March is positive, but the overall trend remains flat


 - by New Deal democrat

Industrial production, one of the premier series the NBER has historically used to declare recessions vs. expansions, has faded in importance since China was admitted to regular trading status in 1999. As you can see in the first graph below, both total and manufacturing production peaked in 2007. Further, manufacturing has continued to fade, as its post-pandemic peak has not equaled its 2010’s peak either:

In March, total production increased 0.4% from an upwardly revised, by 0.2%, February; but it is still down -0.6% from its September 2022 post-pandemic peak. Manufacturing production increased 0.5%, but is also down, by -0.2% from its post-pandemic peak as well:

Before the “China shock,” a YoY downturn in industrial production almost always meant recession. As the YoY graph below shows, there was a significant “industrial recession” in 2015-16 without any generalized economic downturn:

Whether the 2019 downturn would have resulted in a recession by itself had the pandemic not intervened will always remain an unanswered question. But again in 2023 production was again down YoY with no recession. As of March, manufacturing production is flat YoY, while total production is now up by 1.0%.

Bottom line: while March was positive, the overall trend remains generally flat.

Simultaneous declines in housing permits, starts, and units under construction in March suggests seasonality glitch, not a change in trend


 - by New Deal democrat

There was a big decline in housing starts last month, and a smaller but significant decline in permits. Whether that signifies a change in trend or just noise is the issue. I lean towards the latter. To wit, in reaction to both January and Feburary’s housing construction report I wrote, “To signify a likely recession, units under construction would have to decline at least -10%, and needless to say, we’re not there. With permits having increased off their bottom, I am not expecting such a 10% decline in construction to materialize.” I also indicated that I expected to see more of a decline in the actual hard-data metric of housing units under construction.

That is still the case.

To recapitulate my overall framework: mortgage rates lead permits, which lead starts, which lead housing units under construction, all of which lead prices. Of those metrics, the least noisy one that conveys the most signal vs. noise is single family permits.

In response to inflation data which generally stopped declining towards the holy 2%, mortgage rates have risen about .25% since the end of last year. For March as a whole, they averaged 6.82%. This is about average for the past 18 months, in which overall they have varied between 6.1% and 7.8%. In response permits have stabilized in the range of 1.42 million to 1.52 million units annualized. In March they declined -65,000 to 1.458 million annualized:

The relationship shows up even better when we compare the two series YoY:

With mortgage rates higher by a slight 0.25% YoY, permits went slightly positive YoY and are still higher by 1.5%.

As per usual, starts (light blue in the graph below) are the noisier of the metrics, declining 228,000 to 1.321 million annualized in March. Permits (dark blue) declined -65,000 to 1.458 million, and single family permits (red, right scale) declined -59,000 to 973,000:

These are among the poorest numbers for each in the past 12 months, but the simultaneity of the downturn (as opposed to a 1-2 month lag in starts) makes me suspect there may be a seasonal adjustment issue in play, perhaps having to do with Easter. Still, there isn’t enough there to break out of their range, and as discussed above mortgage rates have not suggested one is coming.

Next, to reiterate: housing units under construction (red in the graph below) are the best measure of the actual economic activity in the housing market. Here’s the long term historical view:

Those also declined, by -15,000, to 1.646 million units annualized:

Once again note the synchronicity of the downturn, making me suspect a seasonality glitch. Further, they are only down -3.7% from their peak, nowhere near the historical -10% most consistent with the onset of a recession.

Below I have broken out single vs. multi-family construction. Because, in response to record high house prices, builders turned to higher density, lower cost apartment and condo construction. Hence the record high last year in that metric. Last month multi-family construction faded slightly, while single family units under construction actually continued their slightly increasing trend:

As I wrote last month, I do expect a further gradual decline in total housing units under construction in the months ahead, to catch up with the decline in permits that bottomed one year ago. Here’s the post-pandemic view of starts, permits, and total units under construction:

But, as shown above, I doubt we will cross the -10% threshold that it would normally take to signal a recession, given the general stabilization of both permits and starts over the past 16 months.