Regional Fed manufacturing indexes suggest 2025 trends are slowly abating

 

 - by New Deal democrat

Although the federal government shutdown has been over for a month and a half, most of the data that has been released has lagged badly, especially including data on sales, spending, and business orders. That means that the most current measures of these are the ISM manufacturing and non-manufacturing reports, due later this week and next week; and the regional Fed banks’ manufacturing and services indexes.

While certainly not perfect, in the aggregate they at least sketch on outline of where the economy has been going in the past month. With the last regional manufacturing index reported this morning, here is the December update for that sector.

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 December following. The final number is the average change and absolute number for all 5 together.

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

Headline:     (-22.6) -3.9; (-8.5) -10.2; (+8) -7; (-7) 1; (-0.5) -10.9; (-7.5) -5.2          

New Orders (-15.9) 0.0; (+13.6) 5.0; (+14) -8; (+2) 0; ( -11.2) -6.4; (+0.5) 1.9 

Prices Paid  (-11.4) 37.6; (-13.5) 43.6 (-0.3) 6.5; (+4) 40; (+0.7 ) 36.0; (-4.1) 31.5 

Prices Rec’d (-4.2) 19.8; (+6.7) 24.3; (+1.9) 5.0; (+9) 22; (-2.6) 6.2; (+2.1) 15.5

Wages* (n/a) n/a; (n/a) n/a; (0) 24; (n/a) n/a; (+6.4) 21.8); (+3.2) 23.0

Employment  (+0.7) 7.3; (+6.9) 12.9; (+6) -1; (-15) -4; (-3.3) -1.1; (-0.9) 2.8

____

* only 2 of the banks report this information

Last week durable goods and core capital goods orders were updated through October, showing a -2.2% decline and a 0.5% gain, respectively. On a YoY basis, the trend of increasing strength has continued, at +4.8% and +6.2% respectively:

 https://fred.stlouisfed.org/graph/?g=1Pvmw 

The December regional Fed reports suggest that while new orders have continued to be positive, the increasing trend has abated, with overall actual contraction of production. Prices paid by manufacturers continue to increase, but at a slower pace, while the prices they receive have firmed. Meanwhile employment is barely positive, but wage growth continues. 

Tomorrow the Texas Fed will report on that region’s service sector, and that (larger) portion of the economy for December can be examined as well.

Weekly Indicators for December 22 - 26 at Seeking Alpha

 

 - by New Deal democrat

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

The year ended with a magnification of several trends that have been a theme all year: the US $ is down almost 10%, largely responsible for a nearly 15% rise in commodity prices, while consumer spending ended with a bang as well.

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

How the “wealth effect” fueled Q3 GDP

 

 - by New Deal democrat

In Q3, personal spending rose 1.6%, or 6.4% annualized, while personal incomes only rose 0.8%, or 3.3% annualized. A little more precisely, personal spending rose 0.75% more than personal incomes.

Just how much more did spending rise than the income to fuel it compared on a historical basis?

In the past 80 years (or 280 quarters), spending only exceeded income by 0.75% or more only 29 times. In other words, in only 10% or all quarters has spending exceeded income so much:

 https://fred.stlouisfed.org/graph/?g=1Pavh 

Needless to say, this is not sustainable. This is particularly so when real disposable personal income did not grow at all last quarter, and real personal income excluding government transfer payments has not increased at all in the past two quarters:

 https://fred.stlouisfed.org/graph/?g=1Pays 

As I have written a number of times in the past few months, this is probably spending driven by the “wealth effect” which in turn is driven by stock market gains. 

Unless you think we are headed for AI-driven nirvana, this is not going to last.

The low pace of firings continues to Christmas

 

 - by New Deal democrat

Our last bit of news before Christmas continued the positive news, as initial jobless claims declined back to 214,000, while the four week average also declined to 216,750. The last three weeks collectively have had the lowest seasonally adjusted numbers since January. Meanwhile, continuing claims rose back above 1.9 million to 1.923 million.

As is usual, for forecasting purposes the YoY% changes are more important. Here, initial claims were -2.3% lower than one year ago, the four week average down -4.2%, and continuing claims higher by 2.2%:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1P7pl&height=490 

Although per the recent QCEW update through Q2 as well as the recent nonfarm payrolls reports show that on net almost no hiring is happening, jobless claims tell us there is very little firing as well. This is a positive report.

Strong Q3 GDP, but long leading components are mixed; first preliminary positive signs for production in October

 

 - by New Deal democrat

Because today is a travel day for me, I am going to keep my comments about the much-delayed Q3 GDP report brief.

As was obvious, a 4.3% annualized real GDP print is very good, as was the real final sales to domestic purchasers number. One of the comments I made repeatedly at the time, as the summer regional Fed reports came in, as well as the weekly consumer retail spending numbers, was that they were surprisingly good - probably reflecting a rebound from the weak spring numbers immediately after “Lbieration Day” tariffs. Basically I think the excellent GDP numbers reflect that.

As usual, my focus is on the more forward looking components of the GDP release: real private residential fixed investment (housing) and corporate profits.

The story in housing continued to be negative, as real private residential fixed investment declined -1.3% in the Quarter:

  https://fred.stlouisfed.org/graph/fredgraph.png?g=1P5Bk&height=490 

 

This means housing is down -15.3% from its 2021 peak, and -3.5% from its secondary peak in early 2024. And keep in mind that the best forecasting model is to deflate this metric by real GDP - and since there was strong improvement in real GDP in Q3, the relative decline is even worse.

The story on the second long leading indicator, corporate profits, was completely different, as they grew by a strong 4.2% after accounting for inventories to another new all-time record:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1P5Bo&height=490 

The bottom line: if the rear view mirror, coincident reading of Q3 GDP was very positive, the measures which forecast where the economy is headed in 2026 were mixed.

Keep in mind, though, this is a report covering July through September, i.e., 3 to 5 months ago. In other words, more stale data. We still have very little data from the period of the government shutdown months of October and November. On that score, manufacturers new durable goods orders for October were reported this morning. The headline number increased 0.5%, but the core capital goods number declined -2.2%:

 https://fred.stlouisfed.org/graph/?g=1P5Ae 

The YoY trend for both remains in strong expansion, up 4.8% and 6.2% respectively:

  https://fred.stlouisfed.org/graph/?g=1P5Aw 

I have been very concerned that the government shutdown may have tipped the economy into recession. The jobs numbers have certainly been recessionary. But the weekly consumer spending data has, contrarily, been very healthy. This morning’s two reports make it all but certain that there was no recession in Q3, and are the first -preliminary - positive indications that at least in the first month of the shutdown, the economy continued to make progress.