Two cheers for increasing manufacturers’ new orders

 

 - by New Deal democrat

This is another one of those weeks when most of the important new data is crammed into one day, in this case Q2 GDP, personal income and spending, and jobless claims all will be released on Thursday.

Today we did get some further information on manufacturing, and the positive news in that sector continued, as new orders for durable goods (blue) increased 0.3% in June, and core capital goods orders (red) increased 0.9%. Since these are “official” (short) leading indicators, it is worth paying attention to them:

The former series in particular is noisy; hence the increased emphasis on the core. But it’s easy to see that both have been in an increasingly sharp positive trend since late 2024, interrupted somewhat in the months surrounding the T—-p Administration’s first imposition of widespread tariffs in April of last year.

This is in accord with what we have been seeing in the new orders components of the regional Fed manufacturing indexes. The average of the NY and Philadelphia indexes (gold, right scale) are shown below for comparison:

With the exception of early 2022, the regional Fed indexes have maintained a trend similar to the monthly durable goods orders reports.

The picture becomes more complicated, however, when we compare the durable and core capital goods orders metrics with the industrial (gray) and manufacturing (gold) production data (right scale):

Durable and core capital goods orders have risen over 35% since just before the pandemic, while production is up less than 1%, and manufacturing production slightly *below* their pre-pandemic level.

This brings up something that is important in the current environment, which is that the durable and capital goods orders metric are reported in nominal $ terms. Which means that, adjusted for inflation, the situation might be quite different. Below I show what both new orders metrics look like deflated by the PPI for finished goods, in comparison with manufacturing production:

Now the series look very similar, not only in terms of the trend, but also in their absolute values compared with just before the pandemic. Let me state right up front that there may be a better deflator or combination of deflators that may be better than the one I have used above, but it demonstrates that inflation has been distorting to the upside the positive trend in new orders. 

In other words, postive, but not so much. 

The NY Times finally tells its readers what I’ve been telling you for the last 6 months: wealth effect edition

 

 - by New Deal democrat

Via Ben Casselman, who authored the piece, here is the headline for a NYTimes article from last Wednesday:

As he summarizes it:

In other words, the Times finally got around to telling its readers what I’ve been telling you for about the last six months.

—-

And while I am at it, here is a link to the blog post I had to upload as an addition to the “Weekly Indicators” link one week ago, on the day when Blogger for some reason said I was unable to add a new post; on the pitfalls of mistaking the aggregate economy (and especially the stock market) as a proxy for the condition of average American working or middle class households:

 In which I defend the criticism of ‘bloodless quants’

Weekly Indicators for July 20 - 24 at Seeking Alpha

 

 - by New Deal democrat

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

With the renewed warmaking in the Middle East, the price of oil and gas shot up, and interest rates across the board as well. It looks increasingly likely that the Fed will have to hike rates to fight inflation soon, maybe as early as next month.

As usual, clikcing over and reading will bring you up to the virtual moment as to all of the data on the economy, and reward me with a penny or two for collecting and organizing it for you.

June new home sales, prices, and inventory are more evidence for a subpar housing equilibrium

 

 - by New Deal democrat

In last month’s note on new home sales,  I concluded that “This is all but unique. Historically a recession will not occur until inventory turns down again. But to reiterate, housing has been recessionary for a year, and yet no recession has occurred.”

Earlier this month, I described the housing market as being in a subpar equilibrium, with sales, construction, prices, and finall inventory moving more or less sideways - but at a level of building not nearly enough to meet the needs of the millions of mainly younger potential buyers who are unable to move out of apartments or maybe even their parents’ home.

This morning’s new home sales report for June was yet more evidence for both of the above theses. Sales, prices, and inventory all generally stayed on their recent trend level.

First, sales increased 10,000 on a seasonally adjusted basis to 628,000 annualized. Because new home sales, while perhaps the most leading metric in the housing market, are very volatile and sharply revised, below I also show the much more stable, if slightly less leading, single family permits (red, right scale):

Single family permits have been stable for a year. Meanwhile single family home sales have downshifted slightly (by about 5%) this year. In June sales were down -5.6% YoY.

The dynamic is similar in median prices, which declined -$13,700 to $398,300 on a non-seasonally adjusted basis:

This continues the very slow declining trend in new home prices ever since 2022, down -2.7% YoY in June. By contrast, repeat existing home sales as typified by the FHFA index (red, right scale) have continued to rise at a very slow pace (currently up less than 2% YoY). The difference is because builders of new homes have been able to cut lot sizes, square footage, and amenities to make their homes more affordable to potential buyers, whereas those selling their existing homes obviously cannot. Since, as noted above, this series is not seasonally adjusted, here’s the YoY comparison:

Finally, inventory has also stabilized, down only -1,000 in June. This has been almost completely stable since last September:

For the past few years, I’ve been repeating that prices follow sales, and inventory follows prices. Inventory has historically been the last shoe to drop before a recession; but as shown in the below historical graph, only once in the past 60 years has a period of stability about this long been shortly followed by a recession, in 1991 - and in that case, inventory declined again for several months before the recession:

Otherwise, a bottoming in inventory is something we typically see towards or even after the end of a recession.

 So, to sum up and repeat: unless inventory turns back down, it is not forecasting a recession. With sales relatively stable and prices slowly deflating, the new home market is meeting the existing home market in a equilibrium, which is likely to remain unless something significant happens upstream, like an increase in mortgage rates back to 7%, possibly driven by a Fed rate hike. 

The “no fire” economy sets a new, 55+ year record low

 

 - by New Deal democrat

[Administrative note: yesterday’s problem, in which the platform would not allow me add a new post, seems to have spontaneously resolved, although “officially” the blog metrics show “0 posts” in all its history, Cross your fingers that this issue has gone away permanently.]

I discussed the stock market’s very positive performance earlier this week. This morning’s update to jobless claims means the second half of my “quick and dirty” economic forecasting tool is also positive in the extreme.

To wit: only 187,000 new jobless claims were made last week. If this level holds up in revisions next week, it will be the lowest since 1969. In fact, only about 20 weeks in 1968 and 1969 were lower in this series’ entire history. And remember, in the 1960s, the US population was only about half of what it is now.

The four week moving average also declined sharply to 207,500, and continuing claims, with the typical one week delay, declined under 1.8 million again, to 1.796 million:

And the YoY% changes more important for forecasting purposes came in very positive as well, with initial claims down 14.2%, the four week average down -7.6%, and continuing claims down -7.5%:

We’re far enough along in the month now to see what that suggests about the unemployment rate going forward. Unsurprisingly, it adds to the evidence that the unemployment rate is likely to move even lower from its last 4.2% reading:

Geopolitical events, driven by the ramshackle chaos emanating from Washington could upend all of this, but endogenously the economy in the aggregate is in surprisingly good shape.