Weekly Indicators for May 25 - 29 at Seeking Alpha

 

 - by New Deal democrat

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

The split between the portion of the economy being driven by AI-related production and profits and the broad consumer economy continues to stand out starkly. But as I have pointed out often in the past many months, there is no sign as of yet that the consumer is putting down their credit card and pulling in their horns.

As usual, clicking over and reading will bring you up to the virtual moment as to the broad state of the economy, and reward me a little bit for collecting and organizing all of the data for you.

April new home sales: prices somnolent, an interesting wrinkle in inventory

 

 - by New Deal democrat

The final note from yesterday’s data is concerning new home sales, and more importantly at the moment, prices.

As a general refresher, new home sales are perhaps the most leading of all housing data; but they are very volatile and heavily revised, which is why I pay more attention to single family permits. But averaged over three months, most of the noise goes away.

Normally I start with the sales numbers, but at present I am most interested in what is happening with house prices. The data for new homes is not seasonally adjusted, so the better metric is the YoY% change. On a YoY basis, those were up 2.2% through April (orange) (absolute prices shown in blue, right scale):

The three month moving average remained negative (quarterly average shown in red), at -1.3%, well within the range over the past three years. Indeed, from the same three month period three years ago, prices are down -4.9%.

Compare this with existing home sales, where the median price through April was up 0.9%, and the Case Shiller and FHFA repeat home sales prices, which were up 0.7% and 1.7%, respectively. 

The difference is that home builders can change, and have changed, price points, not just by lowering profit margins, but also by building more densely, or smaller square footages, or fewer amenities.

So the bottom line is that all of the measures of median home prices that we have indicate that house price inflation is somnolent.

Now let me turn to sales, which are seasonally adjusted. These declined -41,000 to 622,000 annualized. All four month so far this year have shown sales at or near the bottom of their range for the past three years. This is a negative long leading indicator, but one that I will need to see validated by single family permits (red) in the next several months:

Perhaps more importantly at present, as opposed to new single family homes *sold*, the inventory of new single family homes *for sale* is typically one of the last shoes to drop before a recession actually begins. In April, inventory increased 8.000 to 489,000. After decreasing since last March, Inventory (red in the graph below) has been increasing so far this year:

This is probably because, until the Iran war, mortgage rates were decreasing and builders expected there to be more demand for spec houses. Since mortgage rates have since increased, builders were probably caught somewhat flatfooted.

The only other time such a turnaround happened was during the tech boom of the 1990s. After declining into 1998, housing inventory increased again until early 2000. Then it decreased again in the next year until the recession:

Not exactly the same scenario, but it suggests that a recession will not be signaled by this metric until iinventory turns down again.

The producer part of the economy is doing just fine, thank you

 

 - by New Deal democrat

Per my comments yesterday, so much data was released (with none coming today) that I did not report on several of the items. I’ll get to new home sales later, but first let’s talk about new orders and revised GDP.

The central theme of yesterday’s personal income and spending report was that real incomes have fallen significantly since last September, such that typically by now we would be in a consumer-led recession. That hasn’t happened (yet!) in part because consumers are digging into their savings and running up credit card debt to deal with the shortfall. The other part is because the producer part of the economy is booming (or bubbling) on the back of massive AI-related spending.

So let me start with my last graph from yesterday, of real manufacturing and trade sales through March, which declined -0.3% from their all time high in February:

After a post-tariff pause last year, real sales have resumed their strong upward trend this year.

And there is every sign that the trend is going to continue at least for a few more months, because the short leading indicator of durable goods new orders increased a whopping 7.9% in April alone, and the second biggest monthly gain since the pandemic, to a new all-time high. Although core capital goods orders did decline-0.8% for the month, it was only eclipsed by March’s all time high as well:

And beyond that, yesterday’s second report on Q1 GDP included corporate profits, a long leading indicator. Excluding inventories and capital consumption, real inflation adjusted profits increased 3.3% in Q1, although including those adjustments they declined -0.4%:

But on a YoY basis, either way they were higher by over 10%:

Typically real corporate profits peak one year or more before a recession. 

In summary, if consumers are teetering on the cusp of a recessonary contraction, producers are doing just fine, thank you.  For now, anyway.

April personal income and spending: the consumer is teetering on the very edge of recession

 

 - by New Deal democrat

This morning’s personal income and spending report for April showed us a consumer who is teetering on the very edge of recession, while the production side of the economy continued its elevated AI-related growth. 

To repeat my usual introduction, personal income and spending are among the most important monthly indicators of all, because they give us a detailed look at consumption by the broad range of American households. And since consumption leads employment, they also give us an idea of what is likely to happen with regard to jobs in the near future.

In April, nominally personal spending rose 0.5%, while personal income was unchanged. Since the PCE deflator increased 0.4%, however, spending was only higher by 0.1%, while real income declined by -0.4%, the third decline in a row and the fifth decline in the past seven months, taking the absolute number down to its lowest since February of last year:

Further, on a YoY% basis, real spending was up 2.1%, the lowest such comparion in over two years except for last December. But worse,  real income actually declined -1.2% YoY:

Importantly, the long term historical graph of real income YoY shows that outside of comparisons with stimulus or tax law change months, real income has only been negative YoY during or in the immediate aftermath of recessions:

Once we exclude government transfers — one of the important coincident metrics used by the NBER to date recessions — real personal income also declined -0.4% to its lowest level since late 2024, and -1.2% below its peak level last September:

Outside of brief declines of no longer than four months, and during 2022, a -1% or greater decline from a peak has only happened leading up to or during recessions (note log scale for better clarity):

And 2022 can be distinguished by a gale force economic tailwind of close to a -10% decline in most commodities as the COVID bottlenecks unraveled, which needless to say is nowhere to be found at present. 

Another important component of the data is spending on goods, and in particular durable goods, which is a leading indicator. Historically, the pattern has been that real spending on goods (gold in the graph below) turns down in advance of recessions, and in particular spending on durable goods (red), which tends to turn down first. Real spending on services (blue) has tended to rise even during all but the most prolonged or deep recessions. 

These have already been flashing red warning signals for a number of months. In April, real spending on services rose 0.2%, but real spending on goods declined -0.1%, and on durable goods declined -0.6%. The below graph shows the post-pandemic record, normed to 100 as of March of last year:

On a YoY basis real spending on goods was up 1.2% but real spending on durable goods was down -0.1%. The trend has been weakening for over a year, and for the past few months has been the lowest since 2022:

A longer term graph of the same shows that such weak numbers only happened during the Great Recession and also in early 2019, which was close to a recession as well:

The Iran war showed up in PCE inflation, as the deflator increased 0.4%, causing YoY PCE inflation to rise to 3.8%, the highest since May of 2023:

Meanwhile, the personal saving rate - i.e., the portion of income left over after spending, declined a sharp -0.6% to 2.6%, the lowest such rate since June 2022, which has only been exceeded during the 2005-07 period and during 2022:

This is the second month in a row in which it appears that, in order to deal with the spike in gas prices, consumes got further out over their skis, leaving them vulnerable to any further shock. Typically sharp retrenching by consumers as demonstrated by an increase in the saving rate is something that happens just before the start of a recession.

Finally, the updating of the PCE deflator also allows for an update to another important coincident indicator used by the NBER to consider whether the economy is in recession or not; namely, real manufacturing and trade sales, which is delayed by one additional month. These declined -0.3% in March from their all-time high in February:

This is of a piece with the recent rebound in manufacturing data we have seen in things like durable and capital goods orders as well as manufacturing production, which in turn is tied to AI data center construction.

To sum up, April’s personal income and spending report amplified two very big trends which have been apparent in this data since late last year. First, the average consumer is only keeping their proverbial head above water by digging into their credit limits, as their real income has declined by recessionary margins. This is also manifesting by a decline in spending on goods, and especially durable goods. 

There are only two things keeping this from having brought about a recession already. The first is that consumers have not yet started to retrench by increasing savings. Second, the AI data center construction boom (or bubble), likely also aided by oil company profits, is driving an increase in manufacturing production.

By such a narrow thread is the entire economy hanging.

Jobless claims continue to forecast economic growth and a tight labor market

 

 - by New Deal democrat

This morning there is a slew of economic data, including personal indome and spending, jobless claims, durable and capital goods orders, revisions to GDP, and new home sales. Since tomorrow there is very little data, I am going to report on the first two tdoay, and save the rest for tomorrow.

Let me start with my usual weekly report on jobless claims. As per usual, I do this because historically they have been a very good short leading indicator.

Last week initial claims rose 5,000 to 215,000, and the four week moving average rose 6,250 to 209,000. Both of these continue to be excellent numbers from the historical perspective. Continuing claims rose 15,000 to 1.786 million:

As usual, the YoY% changes are more important for forecasting purposes, and all of these were negative comparisons (which means very positive for the economy). Initial claims were down -8.9%, the four week average down -8.6%, and continuing claims down -6.8%:

Based on long term historical data, these portend continuing economic growth in the next few months. There is an important caveat, which is that the historically low jobless claims numbers are consistent with historically low working age population growth, fueled in large part by a virtual halt to immigration. In particular, it is probably not a coincidence that the YoY negative comparisons began last July and have intensified since. While Los Illegales cannot make unemployment claims, legal immigrants can but may be afraid of ICE targeting them anyway (because ICE has certainly been detaining and even deporting legal immigrants). Additionally, if an employer’s undocumented workforce has dried up, then it will take a lot more slack in the jobs queue before the employer begins to lay off remaining workers.

Finally, since jobless claims lead the unemployment rate, let’s do our update of that comparison:

The big slide in the monthly averages of both initial and continuing jobless claims forecast a similar decline in the unemployment rate in the next few months, not just to 4.0%, but possibly even lower.

The bottom line is that the employment sector of the economy (if not necessarily the income earned) is doing quite well.

Why no US recession? Free spending by the upper class

 

 - by New Deal democrat

There is a slew of economic data being released tomorrow, the most important of which will be personal income and spending, so I will likely defer some reporting on the other data until Friday.

But in the meantime, there’s no significant data today. So let me take this opportunity to show in the simplest terms why all of the economic chaos coming out of Washington, including Tariff-palooza, mass deportations, the Big Billionaire Bust-out Bill, and the gas price spike and all of the other disruptions arising from the war with Iran have not put the US economy into recession as of now.

First, here are stock prices for the last year:

One year ago, the S&P 500 was about 5900. Yesterday it closed at 7519.12, about a 27% increase in that one year period. That is an absolutely booming (or bubbly!) stock market, driven mainly by AI-related companies.

It is estimated that the top 10% of the wealth distribution owns about 90% of all stocks. The top 10% by income own about 70%.

 

By contrast, both personal income and average nonsupervisory earnings have grown about 3.7% YoY as of their respective latest readings:

This vs. the latest YoY growth of 3.8% in the CPI.

So while the lower parts of the income distribution are struggling, the uppermost elements are doing just fine, thank you.

And they are spending.

Here is the last three years’ of YoY weekly retail spending by Redbook. As of this week it showed a 9% YoY increase:

Not only has spending been positive YoY, but there has been a marked acceleration in that YoY spending beginning last autumn and accelerating even more this spring.

One of the very first things we could expect consumers to cut is the cost of dining out. That hasn’t been happening either:

Typically in 2024 and 2025, YoY growth in dining reservations was about 6%-8%. In the past 12 months it has accelerated to over 10% gains YoY.

So why isn’t the US in recession? Because gains by the uppermost in the income and wealth distribution have enabled such free spending that it has more than overbalanced the struggles of most of the rest.

Repeat home sales continue to show disinflation; shelter CPI likely to continue to be a non-factor

 

 - by New Deal democrat

For the last number of months, I have been putting front and center that housing prices have ceased being an engine of inflation. In fact, changes in repeat home sales prices as measured by both the Case-Shiller National Index and the FHFA Purchase Only Index are at levels that with only one exception have been at levels typically only seen during or after recessions.

This month’s report for March continued that trend.

The seasonally adjusted Case-Shiller National index (blue in the graphs below) actually declined -0.2% for the three month period ending in March, while the FHFA index (red) rose 0.1%:

Just as important if not moreso is that the YoY comparisons of at least one of the two national indexes continued to show further disinflation. The Case Shiller national index increased only 0.7% YoY, tied for the lowest since the Great Recession’s housing bust except for April through June 2023. The FHFA Index again rounded to 1.7%, as it has for the last two months, but actually was slightly lower, becoming the lowest such reading since 2012:

As per usual, since housing prices lead the CPI’s shelter component (purple in the graph below) by roughly 12-18 months, let’s compare the YoY trends (Note: house price indexes /2.5 for scale) going all the way back to 1990:

In 1992, with house price increases generally stable in the roughly 0.5%-1.0% YoY range, shelter inflation increased about 3.0%. But in the past year the trend in house prices has been continued slow disinflation, as it was in 1991. Thus I continue to believe that the repeat sales indexes provide solid evidence that we can expect shelter inflation in the CPI to continue to decelerate throughout this year, with the shelter component ending this year at close to a 2.0% YoY increase.

In April, the shelter component of the CPI had an anomalous monthly jump of 0.6%, the biggest such increase since September 2023, which caused the YoY growth to increase to 3.3%, but I expect the downward drumbeat of disinflation in the housing aspect of consumer prices to resume in the next month or two.

Memorial Day 2026

 

 - by New Deal democrat

Memorial Day originated as the day to remember those thousands who gave their lives to preserve the Union in the Cicil War, by decorating their graves. It is that most somber of national observances, in which we remember all of those who gave their lives to protect government of the People, by the People, and for the People; under the Rule of Law as previously agreed by those people.

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.” 

Here is one such place of commemoration:

Normandy American Cemetery

Weekly Indicators for May 18 - 22 at Seeking Alpha

 

 - by New Deal democrat

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

Interest rates, along with gas prices, continue to be elevated, but consumers are continuing to spend their way right on through the adversity - at least, so far.

As usual, clicking over and reading will bring you up to the virtual moment as to the economy, and reward me with a penny or two for my efforts.

Preliminary regional Fed reports indicate inflationary pulse continuing in May

 

 - by New Deal democrat

Although manufacturing is far less important to the US economy than it was in the decades after World War II, it is still about 25% of the total weighting; and further, it is more vulnerable to shocks than the services portion of the economy. Which means, for forecasting purposes, it is always a sector that turns down in advance of a general downturn, even if a sharp downturn in manufacturing by itself is generally no longer enough to bring about a recession. Put another way, a downturn in manufacturing is a necessary, but not sufficient, leading indicator for the economy.

At the beginning of this month, the ISM manufacturing index continued its string this year of expansioinary readings. The three month averages of its headline and new orders indexes, which smooth out some volatility, were steady at 52.6 and slightly lower at 54.5, respectively, with any reading above 50 indicating expansion:

But I also noted that the prices paid subindex rose sharply to the highest number since  May of 2022.

Those trends have continued with the first May readings from the New York and Philadelphia Fed regional manufacturing surveys. 

To begin with, the headline numbers were 19.6 for New York (orange in the graphs below), the highest index result since 2022, while the Philadelphia headline number (gold in the graphs below) was slightly negative, at -0.4. To smooth out these very noisy series, I also show the average (blue):

The general trend of expansion in manufacturing since late last year is apparent.

Further, the more leading new orders components of the regional surveys was similar, with New York showing robust expansion, and Philadelphia very minor -1.4 contraction. The average of the two was less positive than in April, but the three month average was the most positive since early 2025:

But if the production portion of the surveys was positive, inflationary problems reared their head in the pricing components.

Prices paid for commodities for production increased for about 50% of all respondents, close to last spring’s highs and aside from the massive 2022 inflation, amongh the highest readings of the Millennium:

And the index o prices received by those same producers also increased to close to 12 month highs, and aside from 2022 among the highest average readings as well:

Since these are May numbers, they suggest further inflationary pass-throughs to consumers. In other words, while the good news is that the economy likely will continue to expand in the next month or two, as I indicated earlier this week, the inflationary pulse that began in March is almost certainly continuing in May.

An exception to the rule? Maybe Housing ISN’T the Business Cycle

 

 - by New Deal democrat

Twenty years ago, Professor Edward Leamer gave an important presentation at the Fed’s Jackson Hole meeting entitled “Housing IS the Business Cycle.” The current environment is putting that hypothesis to a very severe test. Because by all accounts housing has deteriorated  sufficiently that a recession should already have begun months ago. In fact, the current situation would be most congruent with such a recession ending! And yet, here we are. 

Let’s take a more detailed look.

As I often do, let me start with mortgage rates (blue, left scale) compared with single family permits (red, right scale). Typically housing permits and starts follow mortgage rates, and for most of the past several years they had been declining from their post pandemic high of over 7%. In February they made a new 3+ year low of 5.99% before the Iran war oil shock drove rates higher, to 6.67% earlier this week. The decline in rates before March had been sufficient to reverse the trend in single family permits (red, right scale), which began to rise from their bottom early last summer:

In April, housing starts (blue), which are noisier and slightly lag permits (gold), declined -42,000 to 1.465 annualized. Permits rose 79,000 to 1.442 million. But the metric which is the least noisy as well as being most leading, single family permits (red, right scale), declined -23,000 to 872,000 annualized: 

On the one hand, the recent increase in mortgage rates may well be behind the decline in single family permits to their second worst level in three years. But what appears most noteworthy about the above data is that the downward momentum in the numbers has almost completely stalled since last June. Single family permits have varied between 867,000 and 929,000, while total permits have varied between 1.347 million and 1.540 million. 

On a YOY% basis, starts are down -4.6%, while permits are down only -0.2% and single family permits are down -8.5%:

As I noted last month, the YoY downtrend has not been worsening for many months. Typically all three have been down 20% or more at the onset of recessions in the past, although in the 1991 and 2001 recessions, they were only down about -10%; and there have been a number of times, for example 1966, 1987, and 1995, where construction has been down -10% or more YoY without a recession occurring:

Further, negative but relatively minor and stable negative YoY changes have been just as consistent with mid-expansion slowdowns as with recessions, and stable if negative YoY changes have sometimes occurred during recessions a few months before recoveries.

Let’s turn next to the number of housing units under construction. As I have written many times in the past several years, it is the best “real” measure of the economic impact of housing. In March they were rose slightly to 1.275 million annualized, just above their five year lows, and down -25.6% from their peak:

The above graph shows how they have followed single family permits (red), as expected. More often than not in the past by the time a decline in units under construction had declined by this much, a recession had already begun. 

Now let’s update the graph of the typical final shoes to drop before recessions, including houses for sale (gold) and residential construction employment (red, right scale), both normed to 100 as of their respective post-pandemic peaks. Since December, both of these have stabilized at down roughly -5% and -2% respectively, from their peaks:

As I concluded last month, this is a quandary. For nearly the past year, almost all of the indicators in the housing sector have been giving classic signs that a recession should already have been underway. And while a number of coincident indicators, including jobs and real personal income, have been consistent with a shallow recession since then, others - most notably real manufacturing sales and industrial production - have continued to increase.

But instead, as discussed above there are a number of signs that the situation has been bottoming, without a recession having occurred. While the renewed upturn in mortgage rates may, and likely will, cause at least some further downturn in housing permits and starts, at the moment Leamer’s thesis is facing a severe test, to say the least.

Jobless claims continue to be the most positive leading indicator of all

 

 - by New Deal democrat

I’ll get to housing permits and starts later this morning. But first, let me take my regular look at initial and continuing jobless claims. As a reminder, I look at jobless claims because historically they have been a very good short leading indicator for the economy.

And they continue to forecast no imminent recession ahead. For the week, initial claims declined -3,000 to 210,000, still historically in the lowest range going back over 50 years. The four week moving average declined -1,500 to 202,500. Aside from one week each in 2019 and 2014, plus one month in 2022, this is the lowest number since the late 1960s, when the US population was only about half of what it is now. Finally, continuing claims rose 6,000 to 1.782 million, in the lowest range it has been in since 2024:

On the YoY basis more important for forecasting purposes, initial claims were lower by -7.1%, the four week moving average by -11.8%, and continuing claims by -5.7%:

Needless to say, this is a very positive short term indicator for the economy.

And that positive indication extends to the unemployment rate as well, since jobless claims lead that metric by several months:

Initial and continuing claims forecast that the unemployment rate will decline in the next several months to the 4.0% range.

The asterisk with regard to jobless claims is that it likely has been affected by the situation with immigrants, although the exact manner is murky. Most likely even legal hispanic immigrants are reluctant to file claims, where it might attract attention from ICE for a “Kavanaugh stop” or worse. But the fact remains, it is the most positive indicator of all for the economy at present.

The current inflationary impulse does not appear to be ebbing in May

 

 - by New Deal democrat

The drought of significant official economic data continues today, but this is a good time to update my forecast for the effect of the spike in gas prices on inflation, specifically for May.

To reiterate, my back of the envelope calculation is to take the percent change in the price of gas, divide it by 16, and then add 0.15% for the average gain in other prices over the longer term. It’s definitely not exact, but it does serve as a good first order estimate. 

So let’s put together the pieces.

The most updated data we have is from GasBuddy, which estimates that for the last two weeks, national gas prices have averaged $4.50, +/-5 cents:

Yesterday the Department of Energy updated their weekly average, which came in at $4.49. On a monthly basis, so far May has averaged $4.48, a $0.38 increase over April’s $4.10 average:

That’s a 9.3% increase in gas prices for the month so far. When we perform my back of the envelope calculation, that amounts to a 0.7% increase in CPI in the month of May (blue in the graph below). But because shelter also plays such a huge role in consumer inflation (about 1/3rd of the total), the below graph in addition to showing headline CPI (red) also includes CPI less shelter (gold):

My forecasting method matches CPI ex shelter somewhat more closely than headline inflation.

So let’s take a look at shelter inflation. My forecasting method for that uses a 12-18 month lag in Owner’s Equivalent Rent, which has continued to decelerate slowly:

In the graph above, you can see that, with the outstanding exception of last month, shelter inflation has been trending in the +0.2% monthly range. If that continues, based on the current increase in gas prices this month, I would expect headline inflation to come in at 0.5% - which, as it happens, is the (rounded) current estimate for May inflation by the Cleveland Fed:

So, what would a 0.5% increase in CPI in May portend for real wages and payrolls? Here’s the month over month change in each for the past 12 months:

Nominal monthly wage gains have averaged 0.3% in the past year, while nominal payroll increases have averaged between 0.4% and 0.5% in the past six months. Which means that if the CPI increases 0.5% in May, real nonsupervisory wages will decline further both monthly and YoY, and real nonsupervisory payrolls will at best stay even monthly, but remain below their peak from last December. Which in turn means that there is an increased likelihood that consumers will start to cut back on other purchases, although we won’t find that out until personal income and spending are reported at the end of this month.

Finally, there is reason to suspect that gas prices at the pump will increase somewhat further by the end of the month, because gas price futures have been hovering near the top of their range for the past week:

We’ll see, but the bottom line is that the current inflationary episode does not appear to be ebbing yet.