Thursday, August 3, 2017

Consumer durable purchasing (houses and cars) stalls

 - by New Deal democrat

Along with corporate profits in the producer sector, the other two nonfinancial leading sectors are those consumer durable purchases of houses and motor vehicles.  Consumers typically cut back on these before producers notice.  Once they do, production turns down and a recession begins.  This is the same idea behind noting that in the inventory to sales ratios, typically first sales turn before inventories turn -- it takes a little while for producers to take note of the consumer change in demand.

With Tuesday's July motor vehicle purchase data, let's take a more detailed look at each.

In the first place, vehicle purchases continue down from their expansion peak of just over 18 million purchases annualized (h/t Calculated Risk):

All this year, vehicle sales have been running between 16 and 17 million annualized. It would take a number below 16 million to be concerned that a consumer-led recession might be near.  So the news here is mixed.

The news on housing is similarly mixed, but again by most measures has backed off from its expansion peak.

The two least noisy series I have found are single family permits (blue i the graph below), and the even less noisy but also less leading residential construction (red):

Single family permits made a peak in winter. Residential construction has now followed. It is important to note, however, that single family permits stalled at least twice before in this expansion, in late 2013 through early 2014, and late 2015, without signaling an economic downturn. 

Turning to the four typical monthly measures of the housing market -- permits, starts, plus new and existing home sales -- we see that total permits and starts, with the exception of Q4 of last year and Q1 of this year, have made no progress at all in two years. Existing home sales are up about 5% in the  
last two years.  Only new home sales has grown about 10% YoY over the last 8 quarters.

Median home prices for new houses have continued to trend higher, but at a decelerating rate over the last several years, while new home prices continue to rise at roughly a 5% YoY pace:

With the stalling of sales by most measures, I would expect prices to follow, as they typically have in the past. Here's a graph I haven't posted in years -- the NAR affordabililty index:

[Updated with 2017 vs. 2016 graph]

It appears that existing home sales are being affected by affordability. With foreign buying declining, I do not expect prices of new homes to continue to rise much further either.

In summary, with the exception of single family new home sales, there is nothing in either of the two leading consumer sectors suggesting any positive input into the economy as we move into 2018.