Still flying blind

 

 - by New Deal democrat

There are no significant updated data releases today - which is disconcetering, considering how far behind we are over three weeks after the end of the government shutdown.

How far behind are we?

One area that is important for determining if the consumer economy is close to a turn is spending on big ticket items - vehicles and other durable  consumer goods.

Courtesy of Redbook, which updates retail shopping weekly, we know that last week was the best YoY comparison in almost three years, up 7.6%:

But this does not cover the expensive items which tend to turn down first. Real retail sales, which do include motor vehicles, have been updated through September (blue), but manufacturers new orders for consumer goods are only updated through August (red):

Even worse, while nominal manufacturers sales have been updated through August (blue), but real manufacturing and trade sales (red) are only available through July:

Nominal motor vehicle sales have just been updated this morning through August:

And the BEA’s last update of the number of light weight vehicles (blue) and heavy truck sales (red) is only available through August as well:

The lag is just as bad for the very important housing sector, where housing permits, sales, and units under construction are only updated through August:

And real residential fixed investment as a share of real GDP was last updated for Q2:

But the biggest laggard of all is the QCEW, the “gold standard” for growth in the jobs sector, to which the monthly reports are ultimately benchmarked, which was last updated in August for Q1:

Hence my continued focus on the regional Fed manufacturing and services reports, as well as the nationwide manufacturing and services ISM surveys, as it does not appear this situation is going to be remedied for another month at least.

November ISM manufacturing report indicates deepening stagflationary contraction

 

 - by New Deal democrat

Normally we begin each month with reports on both construction spending and manufacturing. But even though th federal shutdown has been over for more than three weeks, data releases have been both very sparse and very stale. In particular, construction spending for August was just released two weeks ago. There was no updated report this morning, and as far as I can tell no target date for the September release. 

Which means that the ISM manufacturing and services reports will continue to be of heightened importance this month and probably next month as well.

Last week I updated the regional Feds’ manufacturing reports, which showed something of a rebound, but with widespread increases in prices paid and stagnation in employment.

Today’s ISM manufacturing report was significantly weaker. There was contraction across the board, except for prices paid, which increased to 58.5 (a reminder that 50 is the dividing line between strength and weakness). New orders declined to 47.2, employment to 44.0, and the headline number to 48.2. 

For forecasting purposes, I use an economically weighted three month average of the manufacturing and non-manufacturing indexes, with a 25% and 75% weighting, respectively.

With today’s report, the three month average for the headline number is 48.7. The more significant news is that the three month average of the more leading new orders subindex declined to 48.6. Here is a look at both the total index (blue) and new orders subindex (gray) for the past three years (via Tradingeconomics.com):

Both remain slightly better than their low points in 2022-23, which is noteworthy because there was no recession then.

As I indicated above, for the economy as a whole the weighted index of manufacturing (25%) and non-manufacturing (75%) indexes is more important. In the non-manufacturing report, the averages of the last two months for the headline and new orders numbers have been 52.1 and 53.3, respectively. Pending the ISM report on services on Wednesday, the economically weighted headline number is 51.2, and the new orders average is 52.1. These containue to be expansionary if only weakly.

Last month I started to report on the prices paid and employment subindexes, as in the absence of current employment or inflation data are more important now. 

Prices paid (the ISM does not report on prices received downstream) increased from 58.0 last month to 58.5 this month, although it remains substantially lower than the 60.0+ readings from this summer, suggesting as with the regional Fed indexes that there is still widespread pricing pressure, but it is getting integrated into companies’ models. The graph below shows the last five years better to compare the current situation with the immediate post-pandemic inflation):

The low point remains employment, which sank from 46.0 last month to 44.0, among the lowest readings since the pandemic:

To sum up, unlike the regional Fed manufacturing reports, the ISM manufacturing report for November indicates a manufacturing sector sinking further into contraction on both the production and employment fronts, but facing stagflationary price pressures. Because this report is national in scope (vs. only 5 Fed districts) I would give this measure more weight. And given the pronounced weakness in the regional Fed services reports, Wednesday’s ISM services report assumes even greater importance.

Weekly Indicators for November 24 - 28 at Seeking Alpha

 

 - by New Deal democrat

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

In the aggregate, consumer spending remains robust. On the other hand, as I pointed out yesterday with my aggregation of the various regional Fed reports on manufacturing and services, the largest sector of the US economy appears to be stagnant, or even shrinking somewhat. Another big sign that there may have been another ratchet downward in the economy is the deceleration in the YoY withholding tax payments since the beginning of the fiscal year in October (also when the government shutdown started. 

Of interest is the latest update from early November from California, which is 1/8th of the entire US population. There, withholding tax payments have continued to be very strong, up almost 10% YoY in October. If tax changes from the “Big Beautiful Bill” were driving the recent deceleration, i.e., taxpayers waiting until more favorable treatment next year, I would expect tech-heavy California to have lower comparisons than the rest of the country. But the reverse is true, suggesting that it is sluggish job growth that has been driving the sharp deceleration in payments. 

In any event, as usual clicking over and reading will bring you up to the virtual moment as to the state of the economy, and reward me a little bit for my efforts collecting and collating it all for you.

Regional Fed manufacturing and services indexes for November show manufacturing rebound, continued rampant price pressures, and stagnant employment

 

 - by New Deal democrat

Although the federal government has resumed reporting economic data, it is spotty and woefully stale, from August and September. As a result, the two big sources for current data remain the regional Feds and the ISM surveys. The latter will be reported next week for November, but all five regional Feds surveys of both manufacturing and services conditions have been reported. While they certainly aren’t perfect (to begin with, they are diffusion indexes rather than absolute numbers; and do not cover all ten regions), they provide a good sketch of current conditions in both economic sectors.

Last month they showed an upward trend in both manufacturing and services production and new orders, but Prices paid were increasing broadly, with prices received also increasing, but less broad. Finally, employment was at a standstill or worse. The only significant difference between the two sectors was the perception that manufacturing conditions were positive, and services negative. This month continued those trends.

Let’s take each sector in turn.

Manuacturing

The below chart includes, in order, NY, Philadelphia, Richmond, Kansas City, and Texas. Month over month changes are in parentheses, with the absolute values for November following. The final number is the average change and absolute number for all 5 together.

Regional Fed:     NY.           PHL.           RVA.       KC.    TX.    Avg

Headline:     (+8) 18.7; (+11.1) -1.7; (-11) -15; (+2) 8; (+15.3) 20.5; (+1.2) 4.7          

New Orders (+12.2) 15.9; (-26.8) -8.6; (-16) -22; (-3) -2; (+3.1) 4.8; (-1.4) 1.6 

Prices Paid  (-3.4) 49.0; (+6.9) 56.1; (+1.0) 6.8; (-5) 36; (+1.9) 35.3; (+7.6) 36.6 

Prices Rec’d (-3.2) 24.0; (-9.1) 17.7; (+0.1) 3.1; (-6) 13; (+3.1) 7.7; (-3.0) 13.7

Wages* (n/a) n/a; (n/a) n/a; (+9) 24; (n/a) n/a; (+1.2) 14.2); (+5.1) 19.7

Employment  (+0.4) 6.6; (+1.4) 6.0; (+3) -7; (+10) 11; (-0.8) 2.0; (+2.8) 3.6

____

* only 2 of the banks report this information

On Wednesday durable goods and core capital goods orders were reported for September, showing the second highest levels for both since the pandemic:

This confirmed the upswing we already saw in the regional Feds at the time. The above chart suggests that the improvement has continued since then. FRED does cover the NY, Philly, and Texas manufacturing surveys. Here is the average of the headline number for the three:

Next, here is the Services sector:

As with the manufacturing chart above, month over month changes are in parentheses, showing momentum (the 2nd derivative), with the absolute diffusion values for November following. The final number is the average change and absolute number for all 5 together.

Regional Fed:     NY.           PHL.           RVA.       KC.      TX.       Avg

Headline:  (-2.3) -21.7; (+5.9) -16.3; (-14) -15; (-2) -7; (+7.1) -2.3; (-1.1) -12.5     

Cap Ex   (+22.9) 16.3; (-11.3) 6.2; (-4) -3; (-19) -5; (7.4) 13.2; (-0.8) 5.5

Prices Paid  (-4.5) 61.9; (-1.1) 34.7; (-0.7) 4.8; (-3) 32; (+4.6) 27.6; (-1.0) 32.2

Prices Rec’d (-6.3) 20.1; (+9.1) 22.0; (-0.7) 3.1; (-7) 14; (+0.7) 6.5; (-0.6) 13.1  

Wages (-0.5) 25.4; (+11.0) 49.3; (-5) 12; (+3) 24; (+4.0) 14.7; (+2.5) 25.1 

Employment (-3.4) -8.6; (+3.0) 2.5; (+1) 1; (-12) -16; (+8.9) 3.1; (-0.4) -3.6

The only trend that showed month over month improvement was in wages. All other measures - headline business conditions, capex, prices paid and received, and employment - softened. At the same time, only the headline business conditions sentiment and employment were negative.

When we examine both the manufacturing and services sector in full as reported by the regional Feds in November, we see expanding manufacturing and services capex, but a divergence in the headline numbers. Prices paid continue to show widespread inflation, on some of which is being recovered as pass-throughs to consumers. And while wage growth remains strong, employment averages to flat at best.

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.