Tuesday, January 29, 2019

Flying blind: a note on the long leading forecast for the second half of 2019

 - by New Deal democrat

We are still “flying blind” on some important economic data, most notably housing permits, starts, and sales, and GDP.

As of this morning, neither the Commerce Department nor its Census Bureau have indicated when these reports will be released, although the notice from the former suggests that there will be at least a two week delay.

As a result, some important monthly and quarterly data that is essential for the long leading forecast that I would normally post this week after the release of the GDP report is missing: corporate profits and real private fixed residential investment from the GDP report,  housing permits from the monthly residential construction report, and real retail sales per capital from that monthly report.

This presents me with a quandary: should I wait for the reports to be posted, which may be weeks away, or should I provide a *very* preliminary forecast based upon data that has not been impacted?

Here is what I am going to do. I am going to wait for the rest of this week to see if we get an updated schedule. If we don’t, or if the reports are going to be delayed more than two weeks, I will go ahead an post the “preliminary” long leading forecast through the end of this year. If the reports will all be released within the following two weeks, I will wait for them and then do a formal forecast.

So that I can at least say something useful, at the moment, from other sources here is what we know:

  • The first two weeks of earnings reports from the S&P 500 show earnings up quarter over quarter. This is a pretty decent proxy for corporate profits and suggests they will be positive when reported in the GDP.
  • Mortgage applications, after tanking in December, have come roaring back in the first several weeks of January.
  • House prices, from the Case-Shiller report this morning, continued to rise at a level in excess of 5% nationally averaged as of November.
  • Taken together, the mortgage and price data suggests housing remained under pressure through December.
  • Weekly retail sales reports remained very positive through December, although the Retail Economist report stumbled badly one week ago.

*If* it winds up that housing is the only significant negative through December, the long leading forecast is not going to be negative for the second half of 2019.