Saturday, June 17, 2017

Weekly Indicators for June 12 - 16 at

 - by New Deal democrat

My Weekly Indicators post is up at

This week, while the high frequency data remained fairly steady, the Fed and the monthly housing data overshadowed it.

Friday, June 16, 2017

This is a Big Deal: housing permits and starts now a long leading negative

 - by New Deal democrat

I'll have more to say next week, but let me just drop this right now: this morning's housing report was a Big Deal. FRED doesn't have the graphs yet, but here are the numbers from the Census Bureau cite.

Graph of starts and permits:

Note both have turned down significantly this year.

Table of housing starts:

The three month rolling average of starts, which smooths out the volatility, is at a 12 month low. the three month rolling average of single family starts is at a six month low.

Table of housing permits:

The much more stable single family permits is at the median value for the last 12 months. Total permits are at a 12 month low.

In the past it has taken a decline of -175,000+ in permits to be consistent with the onset of recession. Today was -132,000 under January's high.

I have been expecting a slowdown, based on the jump in interest rates since the Presidential election last November. It has clearly arrived, and it is significant enough to tip my rating of the housing market as a long leading indicator all the way to negative, pending next week's report on single family home sales, which becomes all the more important.

Thursday, June 15, 2017

Consumer inflation ebbs, real wages make new expansion high

 - by New Deal democrat

Yesterday I wrote about the retail sales report, and noted that the consumer price report was just as important.

To wit, both recent sources of an uptick in inflation have moderated.  First of all, shelter, which is nearly 40% of the index, and which had been running at almost 0.3% per month in 2016, has decelerated to only a little over 0.2% monthly this year so far:

Meanwhile, energy prices, which had also been rebounding, have also gone back to negative YoY, with downdrafts in 3 of the last 4 months:

The next effect of both of these decelerations has been that headline CPI (red), CPI less shelter (blue) and CPI for energy (green - divided by 5 for scaling purposes), have all sharply decelerated YoY in the last several months:

As a result, headline CPI is only up +1.9% YoY as of May.

The downdraft in consumer inflation means that real wages have resumed growing on a YoY basis:

Moreover real wages have just made another new high for this expansion:

which also means, although not shown, a new nearly 40-year high.
At least some of the slowdown in consumer spending evident in yesterday's retail sales report was probably due to the decline in real wages recently - which is now, obviously, over. That's another reason I am not terribly concerned about yesterday's retail sales report.

Finally, the slight *de*flation in May means that real median household income, which was less than 0.1% under its all time record as of April, as shown in this graph (h/t Doug Short) of Sentier's monthly calculation:

probably finally broke through and established a new all-time record high last month.

Wednesday, June 14, 2017

The Fed is Missing the Inflation Picture

This is over at

Retail sales disappoint -- but don't hyperventilate about it

 - by New Deal democrat

There certainly is a  lot of information to unpack from this morning's retail sales and inflation reports, and what they mean for wages and jobs.  I'll address them in separate posts.

First, retail sales.  They certainly were a disappointment, coming in at -0.3% nominally and -0.2% in real terms.  That being said, the monthly reports are somewhat noisy.   We commonly get several of these a year, as shown in this graph of the monthly change in real retail sales for the last 7 years:

There have been 9 worse monthly reports than this just over the last 3 years!

The YoY% change in real retail sales barely budged, and remains higher than for most of 2016:

So while yes it is disappointing, there's no reason to hyperventilate.

While on a monthly basis there is way too much volatility, over the longer YoY measure, real retail sales do generally lead jobs by 3-6 months (averaged quarterly to reduce noise):

Since YoY real retail sales in 2017 have been generally better than 2016, there is no reason to think that the jobs situation is going to deteriorate substantially in the next few months.

Tuesday, June 13, 2017

Waiting for the Fed - what happens to bond yields?

 - by New Deal democrat

Everyone expects the Fed to hike interest rates tomorrow.  I take a look at what that might mean for the yield curve over at

Monday, June 12, 2017

Gas prices join oil prices as YoY negative

 - by New Deal democrat

Well, this isn't something I expected to happen at the beginning of this year. For the last 16 months, gas and oil prices have risen off their bottom and the question had been, how much of a YoY increase there would be.

That has all changed in the last month.  A few weeks ago, oil prices went negative YoY.

As of this past weekend, according to GasBuddy, so did gas prices:

Further, since oil prices remain down YoY:

and gas prices at the pump tend to follow oil prices with a slight lag, it looks like consumers will benefit from cheaper gas for a little while longer.  This will tend to be reflected in subdued inflation readings, and so higher real wage gains.

All of which makes it perfectly obvious that the Fed isn't raising rates to fight inflation.