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.

Real retail sales for September decline slightly, but within range of trend noise

 

 - by New Deal democrat

With the continued delay in the official release of the more comprehensive personal income and spending report, retail sales, which is normally one of my most important indicators, assumes even more importance. Additionally, with employment growth all but dead in the water since April, consumer spending - which leads future employment - is the single most crucial of whether or not the economy has reached a turning point. Unfourtanely, of course, because this release is for September, it is somewhat sale.

In any event, in September nominally retail sales rose 0.2%. There was no revision to August. After taking into account the 0.3% increase in September consumer prices, real retail sales declined -0.1% for the month from their post-pandemic high in August. Because real pesonal spending on goods historically tracks the trend if not the amplitude of real retail sales, that is also included in the below graph (gold, right scale):

So far there is no information as to when the latter series might be updated.

Historically, with the notable expection of 2022-23, in the past 75 years whenever real retail sales turned negative YoY, a recession was about to begin or had just begun. If it was positive and not sharply decelerating, a recession was unlikely in the immediate future. At present real retail sales are higher YoY by 1.2%, so there they are not forecasting any imminent downturn in the economy:

Further, because consumption leads employment, here is the updated graph of real retail sales YoY, together with real personal consumption of goods compared with nonfarm payrolls (red):

The last time I reported on this over two months ago, I wrote that “Based on historical experience, after the last two good months, real retail sales now suggest that YoY jobs growth will not roll over, but remain in a similar weakly positive range for the next several months.” That has been borne out so far, and that remains my conclusion for the next several month of data when they are reported (i.e., October and this month) as well.

Finally, because of the lag in the official data due to the shutdown, I have been paying extra attention to alternate indicators, and in this case the weekly Redbook Index of consumer spending. This was up 5.9% YoY this week, and has been trending gradually higher YoY since summer:

This likely reflects the wealth effect for the most affluent households due to the AI Boom in the stock market, which at least for now is counterbalancing the constricting effect of tariffs on spending by lower income households.

Producer prices in September told a tale of goods vs. services (plus; programming note)

 

 - by New Deal democrat

First, a scheduling note. Several data releases have been made this morning, and several more delayed releases having to do with housing *might* be released tomorrow. Alas, the very late Q3 GDP report is not going to be released at all until the end of December. There will be no releases on Thanksgiving Day and none of note on Friday.

Today I will take a look at the PPI and retail sales reports. I’ll save reporting on the Case Shiller and FHFA house price indexes until tomorrow, integrating that with any construction or new home sales reports which might also be issued. I’ll also update jobless claims.

Because of the sportiness and continued delays in the federal data, the regional Fed manufacturing and services indexes continue to be of greater importance. The last of these have also been reported yesterday and today, so I will take a comprehensive updated look at those on Friday.

Now … here is a quick look at the producer price index for September. In this case I can add little to the graphs that were supplied by the Census Bureau, below:

There is a distinct upward trend in goods prices (thank you, tariffs!), with a countervailing deceleration in service price inflation for producers. The latter is interesting because it suggests a cooling of the forces driving the services economy, which after all is the largest part of the consumer economy.

Further upstream, commodity prices increased only 0.1% in September, after being unchanged in August (blue, right scale). On a YoY basis, commodity prices are only up 1.7%, a deceleration from the 1.9% back in July (red, left scale) [note the below graph has not been updated through September yet, and there were minor changes in the prior few months]:

Recall that prices paid and received are part of the regional Fed reports. These are all now current through November, so the update on Friday is considerably more important than this two month old data.

Scenes from the very tardy September jobs report

 

 - by New Deal democrat

An opening comment: it is an abomination that the US government treated its statistical agencies as doing expendible work. Thus, after over 85 years of continuity, there will never be an unemployment rate, nor a consumer inflation reading, for October. Which means we will never know what real retail sales or real earnings, among other measures, for that month will be, either.

The Founders understood the need for good data when they established the decennial census in the Constitution itself. And a “Statistical Abstract of the United States” was mandated by statute all the way back to the early 1800’s - until a partisan Congressional majority killed it about 10 years ago. The latest insult is simply part of the ongoing war against knowledge that has also been manifested in the onslaught against the higher education community as well as medical and scientific research by the current Administration.

A country that willfully blinds itself will deserve what follows.

With that out of the way, let’s take a look at some of the important datapoints from the very tardy September jobs report that was released on Friday.

Real wages for nonsupervisory workers declined slightly (less than 0.1%) for the second month in a row, meaning they are down -0.1% in total since July:

While this is a slight negative, as you can see from the above graph it is well within the range of noise.

On a more positive note, nominally aggregate nonsupervisory payrolls rose 0.6%. Since consumer inflation only rose 0.3%, real aggregate payrolls for nonsupervisory workers, an excellent fundamentals-based short leading indicators, rose 0.3% to tie its record high set in July (blue, right scale):

On a YoY% basis (red, left scale), growth has slowed to 1.7% in the last two months, but this is equivalent to or better than a number of readings in the past few years, so is not of concern yet. It mans that ordinary consumers have more money, in real terms, to spend on goods and services, which in the past has almost always negatived a short term recession.

The news is much less sanguine when it comes to the goods producing sector, as jobs in that sector in total have declined since April (blue). Manufacturing jobs (red) have continued to decline, and while they rebounded in September, residential construction jobs (gold) are still down from peak. Only total construction jobs (orange) made a new high:

Since jobs in this sector rolling over has historically been a leading indicator for recession, this is a continuing yellow flag at least.

Further, on a YoY basis, gains in total payrolls continued to decelerate, now down to just over 0.8%:

Historically growth rates this slow have almost always meant recession:

The only contrary readings since WW2 have been briefly during 1952 and again in 2002 during the worst of the “jobless recoveries.”

Because this might be a reflection of the very slow growth in the prime working age population, the below graph (blue) shows that payroll gains have been running significantly below the *estimated* growth of the prime age working population - with the very important caveat that this year’s jihad against Latin immigrants may mean that there has been no such population growth at all:

Still, fewer workers means fewer people contributing to gains in production, a/k/a GDP. Here’s a historical look at the recent past covering similar *lack* of growth:

Which is a reminder that the report of Q3 GDP has been delayed as well - more blindness.

My takeaway from this more detailed look at the September numbers is yet more confirmation that spending on AI related construction, and increased consumer spending in part from recent stock market gains, are likely the only two significant factors keeping the economy out of recession.

Weekly Indicators for November 17 - 21 at Seeking Alpha

 

 - by New Deal democrat

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

Few changes from the last few weeks, but some noteworthy trends include continuing strong consumer spending, but also continuing weakening of transport. Also, in the past month the YoY comparisons in tax withholding payments have waned considerably, but with several opposing possible reasons.

As usual, clicking over and reading will bring you up to the virtual moment as to the state of the economy, and improve the state of my wallet by a penny or two.

October existing home sales, prices, and inventory continue to show slow progress towards rebalancing

 

 - by New Deal democrat

Although the government shutdown is over, most data points - including all having to do with housing - have not been updated, which means that alternate data sources, including the NAR’s existing home sales report, have temporarily become our best look at the housing market. 

As per my context all this year, 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 once again in October:

In October, sales were 4.10 Million annualized (blue, right scale), 5,000 annualized above September’s rate. As of our last look two months 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 October inventory declined  10,000 from a revised 1.530 million to 1.520 million, exceeding its 2020 level for the same month by 10,000, but still 250,000 below its level in October 2019:

Since inventory was typically in the 1.7 million to 1.9 million range before the pandemic, the chronic shortage still exists, although it is very slowly abating.

For inventory to fully adjust, so must 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% from there through July of this year, before seasonally declining:

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:

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%

October 2.1%

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

With prices of existing homes up about 50% from their pre-pandemic levels, and mortgage rates still double what they were in the immediate aftermath of the pandemic, the rebalancing of the market is a long slow slog. Yesterday’s existing home sales report is another data point of very slow progress towards that rebalancing.