Weekly Indicators for May 26 - 30 at Seeking Alpha

 

 - by New Deal democrat

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

As I wrote about here this week, the supply chain effects of the tariffs have finally bled through to rail shipments, and probably trucking as well.

Meanwhile, despite all the uncretainty, as we saw yesterday with the personal income and spending report, consumers keep on powering the economy forward by spending.

How long can it be until the weak long leading and short leading indicators bleed through into the coincident data? That is the question.

In the meantime, clicking through and reading will bring you thoroughly up to date on all of the relevant information, and bring me a penny or two for my efforts.

April personal income and spending: the last positive front-running report?

 

 - by New Deal democrat

We finish the month of May with the very important personal income and spending for April, which gives us a thorough look at the consumer. In this case it is particularly complicated by the fact that “Liberation Day” tariffs and various further retaliatory increases were imposed at various times during the month. So I would expect to see lots of evidence of consumers front-running those increases, but which may well have tailed off by the end of the month.

The news on income was particularly good, as it increased nominally by 0.8%. Spending increased 0.2%. Since the deflator increased by 0.1%, real income rose 0.7% and real spending increased 0.1%. Here is real personal income and spending normed to 100 since the onset of the pandemic (as are all other graphs below except for the personal saving rate), showing the former up 13.5%, and the latter up 15.7%:

A closer examination of the release tables indicates that the portion of personal income attributable to wages and salaries increased 0.5%. The big drivers of the outsized increase in income in April were an increase in Social Security benefits, up 2.8%, and also proprietors’ incomes, up 1.3%.

An important forecasting issue is that typically real spending on goods declines before recessions, while real spending on services can increase throughout all but the most severe of them. In April the former declined by -0.2%, while the latter increased 0.3%:

Let’s break down real spending on goods further, into durable vs. non-durable goods. At least one important historical recession model indicates that durable goods purchases turn down before non-durables. I would expect to see front-running by consumers much more evident in the former than the latter. And here there was a major divergence, as real spending on durable goods declined -0.8%, while real spending on non-durables rose 0.1%:

This is particularly hard to interpret, but still, real spending on durable goods was at a level below only March and last December, so my interpretation is that front-running continued in April, but probably abated sharply by the end of the month.

Another important indicator is the personal saving rate. Generally, as expansions continue, consumers become more aggressive with their purchasing, and then more cautious immediately in advance of (and partially the cause of) recessions. In April this increased to 4.9%, the highest level in 11 months, and well above its low of 3.5% in December, indicating that consumers have indeed become more cautious since the end of last year:

It is important to note that such a rate remains below any reading below 1999, and the average between 2000 and 2019 was 5%:

Finally, there are several important coincident indicators used by the NBER in recession dating in this report.

The first is real personal income less government transfer payments. This increased 0.3% in April to another record:

This shows a healthy consumer in the present.

The second is real manufacturing and trade sales, which are calculated with a one month delay. In March they increased 1.4% to a new all-time high as

The surge in real sales - remember, for March, not April - looks very much like further evidence of front-running tariffs, in this case by producers and wholesalers.

 

Because of the tariff situation, forecasting based on this report is particularly fraught. What we can say is that the consumer portion of the US economy remained in expansion through April, given the increases in almost all of the income and spending series. The only points of caution are the increase in the personal saving rate, and the pulling back on durable goods purchases - but it will be important to see if that trend continued or was amplified in May or not when we get next month’s report.

Tariff-palooza! Implodes - for now; but is it already too late?

 

 - by New Deal democrat

Let me start this post by picking up where I left off yesterday.

In yesterday’s post I suggested that an absolute YoY decline in intermodal rail freight might well show up in this morning’s report from the AAR. And as the below chart shows, that’s exactly what happened, with intermodal traffic being down YoY for the first time this year at -1.8%:

This is after a very small 0.3% YoY increase last week.

But of course the other big thing that has happened since yesterday morning is that the US Court of International Trade, as special US District Court specializing in these issues, declared that (as far as I have been able to determine) *ALL* of the tariffs T—-p has imposed since he took office were Unconsitutional and invalid, and ordered that they be permanently stopped.

So what happens next? I expect both the legal and the financial/economic communities will be gaming out how this is likely to unfold further in the coming months.

One thing that has already happened as of last night is that the Administration filed an appeal with the Federal Circuit Court of Appeals.

In order of confidence, here is how I expect developments to happen from here:

 - the Administration will ask that the Court of Trade’s decision be stayed during appeal

 - this will wind up with the Supreme Court, perhaps within a matter of weeks.

 - the Supreme Court will expedite the appeal and decision process, because of the huge impact on the economy from a decision either way. They will want to provide certainty.

I am somewhat less certain of the following:

 - the Administration’s request for a stay will be granted, because continuing the status quo of tariffs is less destabilizing than their sudden disappearance.

 - the appeals court and Supreme Court will uphold the opinion of the Court of Trade on the basis of the “major questions doctrine” and possibly for other reasons. In other words, if Biden couldn’t waive student loan payments in the face of a statute that said that he could “waive or alter” such payments, without more explicit Congressional authorization, then the wholesale upending of the US tariff regime in the face of explicit Constitutional text saying that tariffs are a Congressional responsibility, certainly qualifies as such a “major question” as well.

 - regardless of what the courts do, the Administration will drag the process out with as many interim appeals as possible.

 - the Administration will try to evade the Court of Trade’s ruling, and indeed any adverse ruling by the Supreme Court by invoking other laws allowing for the imposition of tariffs.

Now let’s turn to what companies will do. I am almost 100% sure that the kind of gaming out I engaged in above is being done by many businesses today as well.

In view of the above, if I were a company that imported some or all of what I sell, would I go ahead now and reinstate new foreign orders? Or would I hold back, waiting for the smoke to clear?

I think the second course of action is far more likely. If I order now, or during the pendency of any appeals, I am subject to being whipsawed by any stay that might be entered by the Appellate or Supreme Court, as well as by any adverse ruling upholding the tariffs by either court, and further by the likely continuing efforts of the Administration to evade the ruling. And even if the Supreme Court ultimately agrees with the Court of Claims, T—-p is notorious for stiffing counterparties, so I would expect to go through months if not years of dilatorious litigation just to get my improperly paid tariffs back. Thus the safer course is to wait until I have certainty.

We live in interesting times. In any event, my suspicion is that the downstream effects of Tariff-palooza! will continue.

Jobless claims: unresolved post-pandemic seasonality appears once again

 

 - by New Deal democrat

One of the main reasons I include the last two years when I write about initial and continued jobless claims is that a distinct unresolved post-pandemic seasonality has developed. Even after seasonal adjustment, claims have tended to rise in the late spring towards the summer, and then decline beginning in late summer towards the winter.

That was manifested in this week’s numbers. Initial claims rose 14,000 to 240,000, one of the highest readings in the past six months. The four week moving average declined -250 to 231,750, also at the high end of the pat six months’ readings. Continued claims, with the usual one week delay, rose 26,000 to 1.919 million, after a -10,000 revision to last week’s number:

As usual, the YoY% change is more important for forecasting purposes. And as has been the case almost universally for the past six-eight months, the comparisons are higher by single digits. Initial claims were higher by 8.6% YoY, the four week average higher by 3.9%, and continuing cliams higher by 6.7%:

This continues the pattern of forecasting continued growth in the immediate future, albeit weak.

Finally, with the jobs report coming out next week, let’s update the forecast for the unemployment rate. Below I show the YoY% comparisons of intiai claims, total jobless claims, and the unemployment rate (red). In gray I also show the absolute unemployment rate (right scale):

The YoY% changes in initial and total jobless claims have been amazingly consistent in the past eight months, centered on a 5% increase, plus/minus 5%. One year ago the unemployment rate was 4.0%. This suggests the unemployment rate is most likely to hold steady at 4.2%  (i.e., 4.0 * 1.05) +/-0.1% in the next few months.

Updating the status of tariff-palooza!

 

 - by New Deal democrat

There’s no significant new economic data today, so let’s take an updated look at the downstream effects on the supply chain and retail sales so far from T—-p’s tariffs.

To begin with, at least some of the tariffs are indeed in effect. Here is a graph from Ben Casselman of The NY Times:

Not only was there a sharp increase in April, but in May so far he reports that the government is on track to collect $23 Billion in tariffs, which he says is about 3x the revenues compared with May last year.

That revenue is coming out of corporate profits and/or consumers’ pockets, depending on how much companies are able to pass on vs. eat.

Let’s start looking at the supply chain with this graph from Torsten Slok of Apollo Investments via Carl Quintanilla showing trans-Pacific ships sailing from China to the US:

For the last three weeks, this shipping has been at or very close to 12 month lows, despite the “pause” in the trade war. As one wag said, “it’s almost as if companies cannot make any near-term plans” because the situation might change at any moment.

Downstream of that are arrivals at US ports. The port of LA updates its inbound container count every week, including scheduled arrivals over the next three weeks. Here is its latest, through June 14:

Since the week of April 26, with one exception - that corresponds with the brief revival of trans-Pacific shipping in early May - every week has shown a decrease from the corresponding week in 2024. Cumulatively so far in the seven weeks since, scheduled arrivals have totaled 611,000 TEU’s, vs. 679,000 in 2024, an exact -10.0% decline.

Once containers arrive at US ports, the next step is shipping via rail (usually) or truck (typically for shorter hauls). While I am not aware of any weekly or similar data for truck volumes, the AAR does update intermodal traffic every week. Here is its YoY data for intermodal rail traffic through the week of May 3:

Note that rail traffic typically bottoms at about the end of March, and begins rising all the way towards the Holiday Season beginning in April. By contrast, this year intermodal traffic continued to trend downwards in April.

And although it isn’t shown in the graph above, in the two weeks since that trend has continued. For the week of May 10 there were 273,000 intermodal containers, a YoY increase of 5.7%. For the week of May 17 it was 262,000, a mere 0.3% increase YoY.

In May and June of last year, weekly rail intermodal loads averaged about 285,000. If we extrapolate from the -10% YoY decline in port traffic, that brings us down to about 255,000 loads. The AAR will report traffic for the week of May 24 tomorrow, and it could very well show the first outright YoY decline.

What about producers of goods and services in the US? For that we can turn to the regional Fed manufacturing and non-manufacturing indexes. So far in May All 5 regional manufacturing surveys have been reported, and all but the Texas services survey. Both types of surveys showed improvements from April, by an average of +2 (for new manufacturing orders) and +4 (for services conditions) respectively, but the actual conditions of both showed continued contraction, by -6 and -9 respectively. In other words, both sectors were contracting, but at a slower pace.

I am also unaware of any high frequency data on store inventories. But Redbook does publish weekly retail sales updates, and updated for the week of May 24, showing a 6.1% YoY increase:

This continues the trend of comparatively strong YoY increases that began in April. Undoubtedly some of this was front-running by customers who decided to make anticipated purchases in advance of tariffs. But by now some of this increase is probably consumers’ paying the increased costs due to price hikes.

It’s possible that Redbook’s universe is mainly non-durable purchases. I mention this because I had a conversation over the weekend with a neighbor who is in charge of the service department at a local Honda dealership. He reported that after a strong early April, bookings for repairs fell sharply in the past few weeks, which he attributed to customers being unwilling to incur major expenses in view of impending general tariff-related  price hikes. If that is true, it *may* show up in Friday’s personal spending report, but since that will be for April more likely it will not show up yet.

Finally, let me close with an update of my “quick and dirty” economic forecasting indicator. This consists of (1) whether the stock market is down YoY; AND (2) whether the four week average of initial jobless claims is higher by 10% or more YoY. If both of those obtain for more than a couple of weeks, it is very likely that a recession is about to start. Here it is:

No sign of a tariff-palooza! recession is indicated. At least, not yet.

Repeat home sales through March confirm continued deceleration of price increases

 

 - by New Deal democrat

Last week the existing home sales report showed continued deceleration in YoY price increases to 1.8%, indicative of the ongoing rebalancing of the housing market. This morning’s repeat home sales reports from the FHFA and S&P Case Shiller confirmed that deceleration and ongoing rebalancing.

On a seasonally adjusted basis, in the three month average through March, the Case-Shiller national index (light blue in the graphs below), showed a declne of -0.3%, and the somewhat more leading FHFA purchase only index (dark blue) declined -0.1%. These monthly changes were the lowest since late 2022 [Note: FRED hasn’t updated the FHFA data yet]:

On a YoY basis, price gains in both indexes also showed continued deceleration, as the Case Shiller index declined -0.5% YoY to a 3.4% gain, and the FHFA index declined by -0.4% YoY to a 3.5% YoY increase:

Because house prices lead the measure of shelter inflation in the CPI, specifically Owners Equivalent Rent by 12-18 months, the above graph also shows that measure of shelter inflation (red, *2.5 for scale). The FHFA and Case Shiller reports this month adds to the evidence that OER will trend gradually towards roughly a 3.5% - or even 3.0% - YoY increase in the months ahead. Indeed, the last time the Case-Shiller and FHFA Indexes were in this range YoY (2019) (not shown), Owners Equivalent rent gradually declined in the 12-24 months thereafter to the +2% YoY level (5% in 2021 as shown in graph)

Last month I noted that the most leading rent index, the Fed’s experimental all new rental index (not shown), showed a median YoY *decrease* in new apartment rents of -2.2% YoY, with all rents including existing rentals increasing at a rate of +3.3% YoY in Q1. So this morning’s repeat home sales price reports were in line with that good report as well.

The only bad news is that as a result Tariff-palooza!!, interest rates including mortgage rates have moved higher:

In fact on Friday, the daily update showed mortgage rates back slightly over 7%. Which suggests that part of the ongoing deceleration in home price increases is likely to be demand destruction.

Memorial Day 2025: “that these dead shall not have died in vain”

 

 - by New Deal democrat

From Lincoln’s Gettysburg Address:

“… [O]ur fathers brought forth on this continent, a new nation, conceived in Liberty, and dedicated to the proposition that all men are created equal.

“Now we are engaged in a great civil war, testing whether that nation, or any nation so conceived and so dedicated, can long endure…. We have come to dedicate … a final resting place for those who [ ] gave their lives that that nation might live. It is altogether fitting and proper that we should do this.

“But, in a larger sense, we can not dedicate-we can not consecrate-we can not hallow-this ground. The brave men, living and dead, who struggled here, have consecrated it, far above our poor power to add or detract. The world … can never forget what they did here. It is for us the living to be here dedicated to the great task remaining before us-that from these honored dead we take increased devotion to that cause for which they gave the last full measure of devotion-that we here highly resolve that these dead shall not have died in vain-… that government of the people, by the people, for the people shall not perish from the earth.”

[Above photo: Gettysburg National Cemetery]