- by New Deal democrat
Yesterday and today we got a bunch of leading economic data for both March and April. Last month the short term news was good, while the longer term construction spending data portended a slowdown (but not a downturn). Let's take an updated look.
Residential construction spending
To recap, in terms of their order in leading the economy, the housing data I track runs in this order:
- new home sales (but these are very volatile and heavily revised, so the signal to noise ratio is low)
- permits (much less volatile)
- single family permits (even less volatile - signal to noise ratio is high)
- housing starts (more volatile than permits, but have the advantage of being "hard" economic activity)
- residential construction spending (the least volatile of all of the data, even though less leading)
- residential fixed investment (part of quarterly GDP, so the last reported)
There is also the weekly mortgage applications report, which has just made new highs for the expansion, and which recently has tracked new home sales better than the other series, but has had compositional issues in the past.
Residential spending declined significantly in March, but only taking back outsized gains in the several previous months:
Next, here are the two least volatile series, single family permits (red) vs. inflation-adjusted private residential construction spending (blue), measured YoY% q/q for the last 15 years:
You can see the relative advantages of each. Single family permits are more leading, but somewhat more noisy, while residential construction spending is not noisy at all, but follows a few months after permits.
That there has been a recent slowdown in growth becomes more apparent when we look at the m/m percent change in nominal construction spending focused on the last several years:
As of March, both single family permits and private residential construction spending have increased by about 5% YoY. While we had slowdowns even more than this in 1994, 1996, and 2010 without recessions following, actual downturns in 1999 and 2006-07 did presage the recessions.
ISM manufacturing new orders
The ISM index has a 70 year history of being a good short leading indicator, and in particular the new orders subindex. In April it remained very strong, backing off just a bit from March's reading (h/t Briefing.com):
At the same time, in the last two months it has declined from the torrid levels of last autumn and winter.
April motor vehicle sales
Because GM is no longer reporting on a monthly basis, this metric must be taken with large grains of salt. The best way to get around the issue would be to measure vehicle sales ex-GM, and compare with sales ex-GM last month and one year ago. Instead, the services appear to be estimating GM's sales at anywhere between flat and -8% (!!!). This is a recipe for missing a change of trend.
With that very big caveat, April sales were reported at over 17 million:
Sales tend to plateau for long periods of time during expansions. At this point it is quite clear that there has been a slight decline in trend since late 2016, akin to the slight declilne we say in 2006.
The bottom line is that, while manufacturing production should remain strong over the next few months, as with so much other data the slowdown in residential construction growth and vehicle sales are markers of a late cycle slowdown in growth, without any imminent danger of an outright downturn.
