The housing market continues to be recessionary: repeat home sales edition

 

 - by New Deal democrat

Note: there was a good advance manufacturers’ new orders report for September this morning. I’m going to save discussing it until Friday, when I dissect the regional Fed reports, which are now all in through November.

Neither building permits and starts, nor new residential sales, were updated this morning, which means that only the NAR’s existing home sales report is current, as I noted last week. What did get updated yesterday was price information for repeat home sales, by both S&P Case Shiller, and the FHFA.

On a monthly basis, the Case Shiller National Index rose 0.2%, while the FHFA Index was unchanged (note: for some reason FRED still hasn’t updated the latest FHFA data):

The above graph shows that in the last 10 years, house prices have almost doubled, while both average hourly wages and median household income have only risen about 50%. The big breakout was during the 2021-22 post pandemic inflation. 

This year house price gains have completely stalled, and are still under their nominal peaks:

The same downdraft is apparent in the YoY% comparisons, going all the way back to the inceptions of the two respective series:

House price gains have only been this weak in the past 35 years in the vicinity of the two consumer recessions, and briefly during 2023. Although not updated by FRED, the FHFA index only increased 1.7% in the past 12 months.

As I always point out, prices follow sales, and this year we have seen a pronounced downturn in permits, starts, and units under construction, as well as new home sales. The market typically rebalances as inventory follows prices, and as I discussed last week in terms of the NAR’s existing home sales report, inventories continue to slowly grow on a YoY basis.

In sum, the housing market continues to be generally recessionary, and yesterday’s price reports were consistent with that scenario.

Jobless claims continue recent trends, do not suggest any worsening of unemployment

 

 - by New Deal democrat

With the end of the government shutdown, jobless claims are fully updated and back on their regular schedule.

And this week, there was more of the same.

Initial jobless claims were down -6,000 to a very low 216,000, and the four week average declined -1,000 to 223,750. With the typical one week delay, continuing claims rose 7,000 to 1.960 million:

Typically my graphs have been of the last two years, but since there was some ballyhooing about the low 216,000 number, I thought a comparison with the last four years  puts it in more perspective, i.e., very good but not especially unusual.

As per usual, it is the YoY% changes which mean the most for my forecasting purposes. Just for example, a 260,000 number would have been great in the 1990s or 2000s, but would be very worrisome now. And in that regard, initial claims were unchanged YoY, the four week average was up 2.6%, and continuing claims were up 3.6%:

Higher comparisons YoY mean weakening, but unless they cross the 10% threshold, they don’t even raise a yellow flag. In other words, the economy is continuing to expand at a very low rate.

Because jobless claims lead the unemployment rate, which isn’t going to be reported at all for October, and November is almost over, they assume a greater importance for exploring that facet of the jobs market. Here’s what this week’s data adds to the update:

Initial claims are noisier but a more leading indicator, while initial plus continuing claims are less noisy but also much less leading. Either way, they are not forecasting any further deterioration in the unemployment rate over the next several months of monthly data - which we probably won’t have until January.

Real retail sales for September decline slightly, but within range of trend noise

 

 - by New Deal democrat

With the continued delay in the official release of the more comprehensive personal income and spending report, retail sales, which is normally one of my most important indicators, assumes even more importance. Additionally, with employment growth all but dead in the water since April, consumer spending - which leads future employment - is the single most crucial of whether or not the economy has reached a turning point. Unfourtanely, of course, because this release is for September, it is somewhat sale.

In any event, in September nominally retail sales rose 0.2%. There was no revision to August. After taking into account the 0.3% increase in September consumer prices, real retail sales declined -0.1% for the month from their post-pandemic high in August. Because real pesonal spending on goods historically tracks the trend if not the amplitude of real retail sales, that is also included in the below graph (gold, right scale):

So far there is no information as to when the latter series might be updated.

Historically, with the notable expection of 2022-23, in the past 75 years whenever real retail sales turned negative YoY, a recession was about to begin or had just begun. If it was positive and not sharply decelerating, a recession was unlikely in the immediate future. At present real retail sales are higher YoY by 1.2%, so there they are not forecasting any imminent downturn in the economy:

Further, because consumption leads employment, here is the updated graph of real retail sales YoY, together with real personal consumption of goods compared with nonfarm payrolls (red):

The last time I reported on this over two months ago, I wrote that “Based on historical experience, after the last two good months, real retail sales now suggest that YoY jobs growth will not roll over, but remain in a similar weakly positive range for the next several months.” That has been borne out so far, and that remains my conclusion for the next several month of data when they are reported (i.e., October and this month) as well.

Finally, because of the lag in the official data due to the shutdown, I have been paying extra attention to alternate indicators, and in this case the weekly Redbook Index of consumer spending. This was up 5.9% YoY this week, and has been trending gradually higher YoY since summer:

This likely reflects the wealth effect for the most affluent households due to the AI Boom in the stock market, which at least for now is counterbalancing the constricting effect of tariffs on spending by lower income households.

Producer prices in September told a tale of goods vs. services (plus; programming note)

 

 - by New Deal democrat

First, a scheduling note. Several data releases have been made this morning, and several more delayed releases having to do with housing *might* be released tomorrow. Alas, the very late Q3 GDP report is not going to be released at all until the end of December. There will be no releases on Thanksgiving Day and none of note on Friday.

Today I will take a look at the PPI and retail sales reports. I’ll save reporting on the Case Shiller and FHFA house price indexes until tomorrow, integrating that with any construction or new home sales reports which might also be issued. I’ll also update jobless claims.

Because of the sportiness and continued delays in the federal data, the regional Fed manufacturing and services indexes continue to be of greater importance. The last of these have also been reported yesterday and today, so I will take a comprehensive updated look at those on Friday.

Now … here is a quick look at the producer price index for September. In this case I can add little to the graphs that were supplied by the Census Bureau, below:

There is a distinct upward trend in goods prices (thank you, tariffs!), with a countervailing deceleration in service price inflation for producers. The latter is interesting because it suggests a cooling of the forces driving the services economy, which after all is the largest part of the consumer economy.

Further upstream, commodity prices increased only 0.1% in September, after being unchanged in August (blue, right scale). On a YoY basis, commodity prices are only up 1.7%, a deceleration from the 1.9% back in July (red, left scale) [note the below graph has not been updated through September yet, and there were minor changes in the prior few months]:

Recall that prices paid and received are part of the regional Fed reports. These are all now current through November, so the update on Friday is considerably more important than this two month old data.

Scenes from the very tardy September jobs report

 

 - by New Deal democrat

An opening comment: it is an abomination that the US government treated its statistical agencies as doing expendible work. Thus, after over 85 years of continuity, there will never be an unemployment rate, nor a consumer inflation reading, for October. Which means we will never know what real retail sales or real earnings, among other measures, for that month will be, either.

The Founders understood the need for good data when they established the decennial census in the Constitution itself. And a “Statistical Abstract of the United States” was mandated by statute all the way back to the early 1800’s - until a partisan Congressional majority killed it about 10 years ago. The latest insult is simply part of the ongoing war against knowledge that has also been manifested in the onslaught against the higher education community as well as medical and scientific research by the current Administration.

A country that willfully blinds itself will deserve what follows.

With that out of the way, let’s take a look at some of the important datapoints from the very tardy September jobs report that was released on Friday.

Real wages for nonsupervisory workers declined slightly (less than 0.1%) for the second month in a row, meaning they are down -0.1% in total since July:

While this is a slight negative, as you can see from the above graph it is well within the range of noise.

On a more positive note, nominally aggregate nonsupervisory payrolls rose 0.6%. Since consumer inflation only rose 0.3%, real aggregate payrolls for nonsupervisory workers, an excellent fundamentals-based short leading indicators, rose 0.3% to tie its record high set in July (blue, right scale):

On a YoY% basis (red, left scale), growth has slowed to 1.7% in the last two months, but this is equivalent to or better than a number of readings in the past few years, so is not of concern yet. It mans that ordinary consumers have more money, in real terms, to spend on goods and services, which in the past has almost always negatived a short term recession.

The news is much less sanguine when it comes to the goods producing sector, as jobs in that sector in total have declined since April (blue). Manufacturing jobs (red) have continued to decline, and while they rebounded in September, residential construction jobs (gold) are still down from peak. Only total construction jobs (orange) made a new high:

Since jobs in this sector rolling over has historically been a leading indicator for recession, this is a continuing yellow flag at least.

Further, on a YoY basis, gains in total payrolls continued to decelerate, now down to just over 0.8%:

Historically growth rates this slow have almost always meant recession:

The only contrary readings since WW2 have been briefly during 1952 and again in 2002 during the worst of the “jobless recoveries.”

Because this might be a reflection of the very slow growth in the prime working age population, the below graph (blue) shows that payroll gains have been running significantly below the *estimated* growth of the prime age working population - with the very important caveat that this year’s jihad against Latin immigrants may mean that there has been no such population growth at all:

Still, fewer workers means fewer people contributing to gains in production, a/k/a GDP. Here’s a historical look at the recent past covering similar *lack* of growth:

Which is a reminder that the report of Q3 GDP has been delayed as well - more blindness.

My takeaway from this more detailed look at the September numbers is yet more confirmation that spending on AI related construction, and increased consumer spending in part from recent stock market gains, are likely the only two significant factors keeping the economy out of recession.

Weekly Indicators for November 17 - 21 at Seeking Alpha

 

 - by New Deal democrat

My “Weekly Indicators” post is up at Seeking Alpha.

Few changes from the last few weeks, but some noteworthy trends include continuing strong consumer spending, but also continuing weakening of transport. Also, in the past month the YoY comparisons in tax withholding payments have waned considerably, but with several opposing possible reasons.

As usual, clicking over and reading will bring you up to the virtual moment as to the state of the economy, and improve the state of my wallet by a penny or two.

October existing home sales, prices, and inventory continue to show slow progress towards rebalancing

 

 - by New Deal democrat

Although the government shutdown is over, most data points - including all having to do with housing - have not been updated, which means that alternate data sources, including the NAR’s existing home sales report, have temporarily become our best look at the housing market. 

As per my context all this year, after the Fed began hiking rates in 2022, mortgage rates also rapidly rose from 3% to the 6%-7% range, where they have remained ever since. Since sales follow mortgage interest rates, existing home sales rapidly declined to 4.0 million annualized, and have remained in that range, generally +/-0.20 million for the past 3.5+ years - and they did so once again in October:

In October, sales were 4.10 Million annualized (blue, right scale), 5,000 annualized above September’s rate. As of our last look two months ago, new home sales (gray, left scale) similarly declined and have similarly stabilized in the 625,000-725,000 annualized range. 

In the past several years I have been looking for the new and existing homes markets to rebalance. Existing home inventory has been removed from the market for over 10 years (likely due in part to absentee rental owners buying increasing chunks of inventory), and really accelerated during the pandemic. This caused an acute shortage of houses for sale, which in turn led to bidding wars among buyers and a spike in prices.

A rebalancing of the market more than anything would require an increase in inventory at least to pre-COVID levels, and a deceleration of price increases, or even outright decreases. Which means that the level of sales themselves was far less important than what the median price for an existing home and inventory are telling us about the ongoing rebalancing of the housing market.

The secular decline in inventory reached a nadir in 2022. This series is not seasonally adjusted, so it must be looked at YoY. In October inventory declined  10,000 from a revised 1.530 million to 1.520 million, exceeding its 2020 level for the same month by 10,000, but still 250,000 below its level in October 2019:

Since inventory was typically in the 1.7 million to 1.9 million range before the pandemic, the chronic shortage still exists, although it is very slowly abating.

For inventory to fully adjust, so must prices. As shown in the below graph, the average price of a new home (gray, left scale, not seasonally adjusted) rose almost 40% between June 2019 and June 2022 before slowly declining about -7% through June 2025. Meanwhile, the average price of an existing home (blue, right scale, not seasonally adjusted) rose about 45% between July 2019 and July 2022 and another 5% from there through July of this year, before seasonally declining:

With seasonal adjustments are not made, my rule of thumb is that a peak (or trough) occurs when the YoY% change is less than half of its maximum change in the past 12 months. Here are the comparisons in the past 12 months:

October 4.0%

November 4.7%

December 6.0%

January 4.8%

February 3.6%

March 2.7%

April 1.8%

May 1.3%

June 2.0%

July 0.2%

August 2.2%

September 2.1%

October 2.1%

While YoY price increases have crept up since July, they remain well below their past 12 month peak of 6.0%, so the fair conclusion remains that, if we could seasonally adjust, house prices are softer than they were last winter and spring.

With prices of existing homes up about 50% from their pre-pandemic levels, and mortgage rates still double what they were in the immediate aftermath of the pandemic, the rebalancing of the market is a long slow slog. Yesterday’s existing home sales report is another data point of very slow progress towards that rebalancing.

Jobless claims: new four year high in continuing claims

 

 - by New Deal democrat

While this morning’s much delayed September jobs report was the big news of the day, the DoL did resume their normal weekly reporting of unemployment claims, so let me in turn resume my normal weekly note of them.

Initial claims declined -8,000 to 220,000 while the four week moving average (whether using the last September report for the first such week, or my tabulation for that week) declined to 224,750. Continuing claims, with the typical one week delay, rose 28,000 to 1.974 million, a new four year high:

On the YoY% basis I use for forecasting purposes, initial claims were up 1.6%, the four week average up 2.6%, and continuing claims up 4.3%:

The new high in continuing claims suggests that the economy has gotten even weaker in the wake of the government shutdown, but the small increase YoY suggests it is not in recessionary territory at this point. Still, one of my mantras is that “hiring precedes firing,” which in this context means that hiring slows down before layoffs increase. It would appear that we are on the cusp of this phase.

September jobs report: a positive - if stale - report

 

 - by New Deal democrat

First things first: the jobs data we received this morning, like the official data reported earlier this week, is “stale news.” The period canvassed giving rise to this data was over two months ago. As such, aside from the fuller texture which it provides to us, the most important question is how well the alternative data sources accorded with this data.

In a more medium term context, even before this year, my focus had been on whether the economy would have a “soft” or “hard” landing, i.e., recession. The last two reports before the government shutdown were very much “hard landing” reports. Thus my focus now, as it would have been two months ago, is whether the more leading components, as well as the headline numbers, accord with a near term or even imminent start of a recession.

Below is my in depth synopsis.

HEADLINES:

• 119,000 jobs added. Private sector jobs increased 97,000. Government jobs rose 22,000. The three month average rose to +62,000.
• The pattern of downward revisions to previous months continued. July was revised downward by -9,000 to +70,000, and August was revised downward by -26,000 to -4,000, for a net declined of -35,000. 
• The alternate, and more volatile measure in the household report, rose by 251,000 jobs. On a YoY basis, this series increased 1,843,000 jobs, or an average of 154,000 monthly.
• The U3 unemployment rate rose 0.1% to 4.4%, the highest since October 2021, but well below the “Sahm rule” threshold for confirming a recession.
• The U6 underemployment rate declined -0.1% to 8.0%.
• Further out on the spectrum, those who are not in the labor force but want a job now declined by -421,000 to 5.933 million, the lowest since May.

Leading employment indicators of a slowdown or recession

These are leading sectors for the economy overall, and help us gauge how much the post-pandemic employment boom is shading towards a downturn. For the second month in a row they were sharply negative:

• The average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, rose 0.1 hours to 41.0 hours, but is down -0.6 hours from its 2021 peak of 41.6 hours.

• Manufacturing jobs decreased by -6,000, the fifth decline in a row. This series declined sharply in the second half of 2024 before stabilizing earlier this year. It is now at a 3+ year low.
• Truck driving, which had briefly rebounded earlier this year, declined -6,800.
• Construction jobs rose 19,000.
• Residential construction jobs, which are even more leading, rose 3,900, the first increase after 5 straight declines.
• Goods producing jobs as a whole rose 10,000, after declining for 4 months in a row. 

• Temporary jobs, which have declined by over -650,000 since late 2022, declined again this month, by -15,900, a new post-pandemic low.
• The number of people unemployed for 5 weeks or fewer declined -249,000 to 2,227,000.

Wages of non-managerial workers 

• Average Hourly Earnings for Production and Nonsupervisory Personnel increased $.08, or +0.3%, to $31.53, for a YoY gain of +3.8%, its lowest YoY% gain in 4 years. Nevertheless, this continues to be significantly above the 3.0% YoY inflation rate through September.

Aggregate hours and wages: 

• The index of aggregate hours worked for non-managerial workers rose 0.3%, and is up 1.0% YoY, about average for the past two years.

• The index of aggregate payrolls for non-managerial workers rose 0.6%, and is up 4.8% YoY, near its post-pandemic lows.

Other significant data:

• Professional and business employment declined another -20,000. These tend to be well-paying jobs. This is the fifth decline in a row, and is the lowest number in over 3 years. It is also lower YoY by -0.3%, which in the past 80+ years - until now - has almost *always* meant recession. This is vs. last spring when it was down -0.9% YoY.
• The employment population ratio rose 0.1% to 59.7%, vs. 61.1% in February 2020.
• The Labor Force Participation Rate increased +0.1% to 62.4% , vs. 63.4% in February 2020.

SUMMARY

This was a respite from the last few gloomy reports, as a number of series, most importantly the headline jobs number, rebounded nicely. Construction and goods producing jobs increased, and even government jobs increased , while discouraged workers who want a job and the short term unemployed declined sharply. Real wages and hours held steady, while real aggregate payrolls for nonsupervisory workers rose significantly. The employment population and labor force participation rates also rose. Of note, the headline number for private employment rose by more than all of the alternative data sets that were necessary to use during the shutdown.

But there were negative signs as well. Manufacturing continued to shed jobs, as did trucking, temporary help, and professional and business jobs. The unemployment rate also rose to a new multi-year high, although this was in large part due to the sharp increase in the labor force. Also of note, this report confirmed two negative readings in the last five months. During those five months, payrolls have risen only 193,000 in total, or 38,600 per month on average.

All things considered, this was a positive - if stale - report.

Partially updated jobless claims data suggest unemployment rate at or near top end of 2025 range

 

 - by New Deal democrat

There was no new official data reported this morning, including the normal monthly report on housing permits, starts, and construction. Yesterday the Department of Labor did partially update several weeks of jobless claims data, which helps us estimate what might happen with the unemployment rate when the September jobs report is finally released tomorrow.

Unadjusted initial claims were reported as 237,750 for the last week (a grand total of 38 claims higher than my calculation, probably reflecting the inclusion of the Virgin Islands. This translated to 232,000 as adjusted. Unadjustted continuing claims for the last two weeks were reported as 1,674,170 and 1,708,565 respectively, both of which were significantly lower than the number I was able to tabulate from the data reported by the States. This translated into 1.947 and 1.957 claims as adjusted, very close to my estimates.

In any event, although several weeks of data remain missing for now, here is what the updated graph of each looks like:

Continuing claims (right scale) are near the top of their 2025 range, while initial claims (left scale) are in roughly the middle of theirs.

Remember that initial claims are the more leading but noisier indicator for the unemployment rate, while continuing claims are closer to coincident, but carry more signal. When we compare continuing claims (right scale) with the unemployment rate through August (left scale), it suggests that in tomorrow’s report the unemployment rate is likely to be 4.2% or 4.3%:

This would be in line with the top range of the unemployment rate this year so far.

Tomorrow will be a busy day, as in addition to the delayed jobs report, we are likely to get the first timely updated jobless claims report (possibly with more back details) as well as existing home sales from the NAR.

August factory orders rebounded from early summer lows

 

 - by New Deal democrat

As with yesterday, the good news is that important official economic data is being reported again. The bad news is that it is very stale, as in covering last August.

Still, one important area that private data did not cover well during the shutdown was orders and spending on durable goods, both for manufacturers and consumers. So even if the data is stale, at least it gives us more information than we had before.

To wit, durable goods orders for August confirmed what we have been seeing in some of the manufacturing indexes, which is a slight rebound from this spring. Headline durable goods orders increased 2.9%, while total manufacturing orders increased 1.4%. Core capital goods orders (subtracting defense and aircraft) rose 0.4%:

Here is what the post-pandemic view looks like (normed to 100 as of February 2020):

And here is what the monthly change in new orders looks like (*4 for scale) compared with the more up-to-date regional Fed metrics from NY and Philly:

Finally, one marker of a recession is when sales go down, but inventories increase - because that means cutbacks in manufacturing and layoffs of employees. In August, shipments declined by a little over -0.1%, while the tiny increase in inventories rounded to unchanged:

Again, with the important caveat that this data is almost three months old, it suggests that  manufacturing found its footing after this spring’s chaotic uncertainty about tariffs, and the national trend is likely to follow the slightly improving trend we have seen from the regional data during the shutdown.

August construction spending: strong nominal headline masks neutral real trend in the deep rear view mirror

 

 - by New Deal democrat

The good news is, with the end of the government shutdown, economic data reporting resumed this morning. The bad news is, we are now in the latter part of November, and the construction spending report issued this morning was for all the way back in August. In fact, the last time I updated this information here was back at the beginning of September. So, since the information in this morning’s report is already stale, I am going to keep this brief.

When we last got information, for July, it continued the trend of declining since the summer of 2024 once we adjusted for the cost of construction materials.

In nominal terms, together with revisions, in August that reversed. For the month, total construction spending (blue in the graph below) rose 0.2%,  while residential construction spending (red, right scale) increased 0.8%, the third advance in a row for both metrics in nominal terms:

Adjusted by the cost of construction materials, however, residential construction spending declilned slightly, by less than -0.1%:

Although this is higher than readings this past spring, it looks more like stabilization than an actual turnaround - and once again, we are talking about August data, so it gives us almost no currently significant insight.

Finally, the boom in spending on building manufacturing plans continued to wane, after an explosive boom following the Biden infrastructure bill:

The August decline of -0.9% is the 10th decline in the past 12 months. While the buildout of new plants continues at a very strong pace, the trend (which is more important for the direction of the economy) is a decline.

Although the nominal headline increases are nice, I take this as no better than a neutral report

Jobless claims continue slightly elevated YoY

 

 - by New Deal democrat

Hopefully for the last time . . . As I have done since the beginning of the government shutdown, the unadjusted number of initial and continuing claims can be calculated based on reporting by the States, plus DC, and Puerto Rico. Then, by applying the same adjustment as was used for the same week last year, the seasonally adjusted number can also be estimated closely as well. This post covers initial claims for the week ending November 8, and continuing claims ending November 1.

Since my forecasting method relies on the YoY% changes, it is almost never an affected by that seasonality.  So tabulated, for the week ending November 8, unadjusted initial claims totaled 237,712 vs. 230,810 in 2024, an increase of 3.0%.  

Last year this week the seasonal multiplier was *0.94853. Applying it gives us an estimated seasonally adjusted number of 226,000.

We can similarly calculate the four week moving average, since the last four weeks of claims were 230,000, 220,000, and 225,000, as well as this week’s 226,000. That gives us an average of 225,250, which is 3,750, or 1.7% higher than the 221,500 of one year ago.

Using the same methodology, unadjusted continuing claims for the week ending November 1 totaled 1,715,989 vs. 1,647,230 last year, an increase of 4.2%.

The seasonal adjustment for the applicable week last year was *1.13645. Applying it gives us an estimate of 1.950 million continuing claims, or -4,000 lower than one week ago. Still, continuing claims throughout the government shutdown have all been close to their highest levels since 2021, which was 1.968 million this past July. 

Aside from the 2024 hurricane related distortions during October, this continues the general neutral trend that was in place before the shutdown, i.e. higher than one year ago but much less than 10% higher, forecasting a weakly expanding economy for the next several months.

Weekly Indicators for November 10 - 14 at Seeking Alpha

 

 - by New Deal democrat

My “Weekly Indicators” post is up at Seeking Alpha.

The trends of strong retail spending, a weak US$, and strength in commodity prices all continue. But in recent weeks withholding tax payments have waned. While there can be a number of causes for that, it definitely merits a caution flag as to job creation.

As usual, clicking over and reading will bring you up to the virtual moment at to the state of the economy, and reward me with a little lunch money for my efforts in collecting and collating it for you.

The student loan shock

 

 - by New Deal democrat

Earlier this week, I wrote about 4 current shocks to the US economy (tariffs, medical insurance increases, SNAP payments, and AI related layoffs), but I should have included a 5th as well: the effect of the end of the student loan repayment moratorium.

As a quick refresher, the Biden Administration enacted a student loan payment moratorium during COVID. That moratorium ended at the end of September 2023. As a result, monthly student loan payments rose from about $1 Billion per month to as high as $7 Billion:

Unsurprisingly, the amount of student loans in serious delinquency rose sharply, from about 1% during the moratorium to almost 15% ( ! ) in Q3 of this year:

Since student loans cannot be discharge in bankruptcy, one coping strategy is to allow other types of loans, such as credit card debt and auto loans, to go into delinquency. And that is what we have seen happen ever since the moratorium was ended:

It’s unclear if this stressor has given rise to more bankruptcies or not. Via Bankruptcy Watch, here is the weekly YoY data as of last week:

Put this together with the other shocks I described earlier this week, and it is a wonder the US was not already in recession even before the government shutdown started. It resembles very much the “austerity” program that was tried in the UK and other European countries after the Great Recession, which retarded their recoveries to a great degree.

Finally, I should note that there has been at least one very deep recession in the past caused primarily by fiscal shock; namely, the recession of 1938, which was largely due to the abrupt ending of some New Deal stimulus programs. That recession was not fully ended until World War 2-related industrial production surged.

Light vehicle sales and transportation of goods: the next recession caution shoe may have dropped

 

  - by New Deal democrat

Although the temporary continuing resolution was signed last night, reopening the Federal government through January, needless to say the reporting of economic statistics has not yet resumed, meaning that this morning’s scheduled reports on consumer inflation and retail sales for October were not released. So we must continue to rely on private data to give us a sketch of the current economic situation.

One of the most important blind spots for data during the shutdown has been on durable goods production and purchasing. According to the paradigm discussed by Prof. Edward Leamer 20 years ago, the typical procession of a downturn begins with housing, then durable goods such as motor vehicles, then consumer goods spending, and finally the coincident production and employment sectors.

The housing sector has been recessionary, and worsening, for many months, as units under construction and real residential construction spending turned down sharply earlier this year. Another early warning sector, heavy truck sales, also turned recessionary in the past few months.

But what of the next shoe to drop - motor vehicles sales? For that we do have some insight via manufacturer and dealer reports of sales, and indirectly by motor vehicle shipments information.

Let’s begin with motor vehicle sales.  Here’s the historical look at heavy truck vs. light vehicle sales for the past 50 years (through August). Note that heavy truck sales typically turn down first, and turn down decisively months before the onset of recessions, vs. light vehicle sales, which are much more noisy and thus give a much more muddied signal:

While the official US DoT report for October was not released, via Bill McBride, Omdia (formerly reporting as Ward’s Auto) reported that in October light vehicle sales came in at 15.3 million units annualized, the lowest in 15 months:

Here is the close-up of the past five years, with light vehicle sales normalized by -15.3 million units so that October shows at the zero line:

Typically the three month moving average of light vehicle sales have had to decline about -10% YoY for a clear recession signal, and often that hasn’t occurred until the very cusp of the recession. For a clear signal now, we’d need to see monthly sales of 14.2 million vehicles annualized, so even though October’s number was among the lowest in the past three years, we aren’t there yet.

But even more recent weekly data from the AAR showing YoY transportation of motor vehicles released just this morning not only confirms the downturn, but suggests that it has intensified in the past few weeks:

In the last week, rail transport of motor vehicles and parts was down -9.4% YoY, and has been negative for the past four weeks. These are presumably vehicles being shipped to dealers, so this suggests that sales have continued to slump, and manufacturers’ shipments have been cut back.

If light vehicle sales have declined, suggesting at least a yellow caution signal from that sector, further data released just this morning suggests that the four economic shocks I outlined earlier this week (plus one I didn’t mention, the effect of the resumption of student loan repayments) are having a significant effect on sales in the wider goods producing sector.

First, here is this morning’s update on rail intermodal traffic from the AAR:

This includes motor vehicles as well as many other goods. Note that this too has declined YoY in recent weeks. As of this week, it was down -8.7% YoY.

This negative trend was reinforced this morning by the Cass Freight Report for October, which showed a -7.8% YoY decline in truck shipments:

Here is a longer term historical view of Cass Freight shipments together with rail intermodal traffic YoY. 

Typically it has taken a -10% decline in truck shipments to be consistent with an oncoming recession, together with a smaller decline, on the order of -5%, for rail intermodal traffic. 

Ordinarily I have a lot of cautions about relying too much on the Cass metric. It correlates well with manufacturing data, bust as we have seen several times in the past 10 years, a signficant downturn in manufacturing is not enough to warrant a recession call. Further, the Cass index tends to come in more negative than the official freight report, currently suspended, from the GoT.

But in the past few months the Cass Report has been sending a signficant negative signal.

I should point out that as of this week consumer retail spending continues to hold up well, up 5.9% YoY as of this week, as measured by Redbook:

In fact generally speaking it has improved since July, in consonance with the stock market’s gains fueling a wealth effect.

To reiterate what I wrote at the beginning of this post, alternate private data can only provide us with a sketch of the state of the economy. More thorough official data, in particular as to sales, income, production, and inflation, are absolutely necessary. But the private data we do have for the past month and a half warrants a yellow caution flag for sales of motor vehicles and other important durable and consumer goods.

In other words, the next shoe may have dropped.