Weekly Indicators for October 20 - 24 at Seeking Alpha

 

 - by New Deal democrat

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

This is a good time for a reminder that very little of the high frequency data has been affected by the federal government shutdown, because almost all of it comes from the Fed or regional Feds, States, and private sources.

That data continues to paint a picture of continued expansion fueled by consumer spending, likely largely coming from stock market gains. At the same time, there are important signs that actual goods producing and transporting sectors are flagging, if not quite negative.

As usual, clicking over and reading will bring you as up to date as to the economy as possible, while rewarding me a little bit for my efforts.

September consumer inflation: re-accelerating trend more established, with shelter (!) being the only silver lining

 

 - by New Deal democrat

Wow, some actual new economic data on which to report - how refreshing!

To be clear, the only reason this was reported is that it was necessary for the calculation of the annual cost of living increases to Social Security checks. Had these been frozen there would have been a “million walker/cane/Medicare scooter march” on Washington.

But let us not be curmudgeonly about it, and dig right in, because there are some significant trends in the data. 

First, both the monthly and annualized data show that inflation bottomed almost exactly on “Liberation Day” when massive tariff increases were announced this past spring; and that renewed inflation is percolatiing through the economy, as shown in the monthly (red, right scale) and YoY (blue, left scale) comparisons:

YoY inflation in September was the highest since January, and before that, June of 2024.

That April of this year marked the low for inflation is shown in even more relief with the changes for headline inflation (blue), core inflation (red), and inflation ex-shelter (gold) since the beginning of 2023:

Not only has headline inflation reversed, but there has been a smaller reversal in core inflation. But the biggest change of trend is that inflation ex-shelter, at 2.7%, was at its highest level since April 2023.

And recall that shelter is a lagging component of inflation. Which means that, paradoxically, although it is still elevated, it is the one important component of inflation that is still decelerating. To begin with, as per usual, the below graph compares the YoY% changes in the repeat home sales indexes, which lead by about 12-18 months (/2.5 for scale), to CPI for shelter (red). YoY home price increases are near or at multi-year lows, and shelter inflation has followed. In September, shelter CPI increased 0.2%, the lowest monthly increase in the past 4 years except for this past June. On a YoY basis it is up slightly less than 3.6%, its lowest level since October of 2021. The below graph includes several years before Covid to show that this is actually at the very top end of its 3.2%-3.6% range during the latter part of the last expansion:

On a monthly basis, actual rent increased 0.2% (the lowest since March 2021), while fictitious owners’ rent increased 0.1%, the lowest such increase since November 2020:

On an YoY basis they advanced 3.4% and 3.8% respectively, the lowest YoY% increases since the end of 2021:

This is the one big silver lining in this month’s report, because we can expect shelter inflation to continue to decelerate for an ongoing number of months.

Let’s take a look at a few other areas of interest.

First, new car prices continue to be largely unchanged, up 0.2% for the month and up only 0.8% YoY. Meanwhile in a reversal from recent months, used car prices declined -0.4%, and their YoY increase decelerated from 6.0% to 5.1%. On an absolute basis, new cars have been up almost exactly 20% from their pre-pandemic range for the past 3 years, while used cars have been up about 30% for the past 20 months:

I suspect that used car prices increased more since the pandemic because car loan interest rates may be causing a bigger percent of purchasers to go to lower cost used vehicles.

Next, transportation services (mainly car repairs and insurance) lag the prices of new and used cars. Inflation here returned to below 4.0% YoY this year, and was up 2.7% YoY in September. While insurance costs have increased only 3.1% in the past year (not shown in the graph below), maintenance and repairs have accelerated in recent months and are up 7.7% YoY:

I suspect this is a direct result of the impact of tariffs.

Next, recently price increases in medical care services have also re-accelerated, and again this month increased 0.3% for a 3.9% YoY increase:

Finally, gas for utilities and electricity costs have also turned up sharply this year. But in September both declined, the former by -1.2% and the latter by -0.5%. Nevertheless, on a YoY basis, they are up 11.7% and 5.1%, respectively:

At least some of this is probably due to a sharp increase in demand caused by the enormous use of electricity in data-mining plants used for AI, much of which is passed on to ordinary residential customers.

In the past few months, I wrote that consumer inflation was in a transitionary period. September’s report, with its definitive re-acceleration only counterbalanced by the important and continuing declaration of shelter inflation, shows that we are further along that path.

home sales, prices, inventory all rangebound

 

 - by New Deal democrat

With the continuing desert of official data, the NAR’s existing home sales report - which normally is of secondary importance - temporarily becomes our best look at the housing market. 

To repeat what I’ve mentioned an number of times in the past, 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 again this month:

In September, sales came in at 4.06 Million annualized (blue, right scale), a mere 6,000 annualized above August’s rate. As of our last look one month 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 September inventory crept up by 5,000 to 1.550 million, exceeding its 2020 level for the same month by 9,000:

Inventory was typically in the 1.7 million to 1.9 million range before the pandemic, which means that the chronic shortage still exists.

But even more important is what happened, and has continued to happen, with 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% through July of this year, as was reported last Monet:

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:

September 2.9%

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%

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

With softened prices and increasing inventory on a YoY and even 5 years basis, the rebalancing of the housing market appears well underway. Still, with prices of existing homes up about 50% from their pre-pandemic levels, there is still some distance to go.

Redbook, Philly Fed: a whiff of consumer weakening?

 

 - by New Deal democrat

The government shutdown is continuing. The only significant national economic news will be the NAR’s existing home sales report on Thursday. Additionally, the remaining regional Fed surveys will come at the end of this week or next week.

And, as I am still on vacation, don’t be surprised if I play hooky until then.

In the meantime, there are a couple of nuggets with a whiff of a suggestion that the consumer services sector is weakening.

First, the Philadelphia Fed’s nonmanufacturing report was very week. Here’s a graph of employment (blue), new orders (red), and prices paid (gold):

Services inflation has accelerated this year, while employment has been flat, and shrank a little this month, while the new orders component came in at one of the lowest readings in the survey’s entire 15 year history.

Additionally (via Renaissance Macro), the general outlook and diffusion indexes in the survey also came in at among the lowest readings outside of the pandemic lockdowns and the Tariff backlash earlier this year:

Finally, after a strong September, Redbook’s national retail spending survey came in at a weak +5.1% YoY this week:

Well within the range of weekly readings in the past 18 months for this survey, so of course it could very well just be noise.

But without national economic numbers, this is the best information we have. Once more regional Fed’s report, we’ll have a more reliable average.

Initial claims lower than one year ago, an important positive point for the economy

 

 - by New Deal democrat

As per my introduction the past several weeks, despite the government shutdown we can recreate the initial and continuing claims data, because it is based on reporting by the States, plus DC, Puerto Rico, and the Virgin Islands.

Since my forecasting method relies on the YoY% changes, it is almost never an affected by seasonality. Further, by using the same seasonal adjustment for the equivalent week one year ago, we can arrive at a good estimate of what the weekly changes would be.

Tabulating the 53 jurisdications’ reports, for the week ending October 11, unadjusted initial claims totaled 210,639 vs. 225,245 in 2024, which is -6.5% less. 

Last year this week the seasonal multiplier was *1.0655:

Applying it gives us an estimated seasonally adjusted number of 224,000, a decline of -4,000 from one week ago. 

Similarly, adding it to the three previous weeks of data we arrive at a four week moving average of 222,000, which is -14,750, or -6.2% lower than the number of 236,750 one year ago.

As with last year, there is an important caveat about last year in that these were affected by hurricane related layoffs, particularly in Florida and North Carolina. 

Using the same methodology, unadjusted continuing claims for the week ending September 27, totaled 1,654,456 vs. 1,598,184 last year, or 3.5% higher.

The seasonal adjustment for the applicable week last year was *1.16945. Applying it gives us an estimate of 1.935 million continuing claims, or -3,000 lower than one week ago.

As with one week ago, absent hurricane distortions, this continues the general neutral trend of initial and continuing claims, forecasting a weak but not contracting economy in the next several months.

To give you a graphic idea of how this data shakes out, here are initial claims (blue), the four week average (red), and continuing claims (gold) all normed to 0, compared with their readings in the past two years before the shutdown:

 I will continue to estimate this data for the duration of the shutdown