Tuesday, November 20, 2018

October housing permits and starts flat vs. trend


 - by New Deal democrat

This morning's report on housing permits and starts will do nothing to stop the now-received wisdom that higher interest rates, higher prices, (and the impact of the cap on the mortgage tax deduction) has caused this most important cyclical market to cool. On the other hand, they aren't evidence of any intensifying downturn.

While we wait for FRED, here's the Census Bureau's graphic representation of permits, starts, and completions:



Here are the basic important numbers:
  • single family permits  down -0.6% m/m -0.6% YoY
  • total permits -0.5% m/m -6.0% YoY
  • total starts -+1.5% m/m -2.9% YoY
  • 3 month average of total starts +1.0% m/m +3.2% YoY
As usual, let's start with single family permits, which are the least volatile of all the leading housing indicators. These last made a new high 8 months ago, and for the first time since April 2014 they are down YoY. Before that, the last time they were down YoY was in 2011 after the expiration of the stimulus tax credit. They are also down about -4.1% from their peak. While negative, this is not a decline that is consistent with a recession.

Total permits are off -7.6% from their peak, in March .This isn't recession watch territory either.

The 3 month average of housing starts smooths out this much more volatile series. They are down -6.1% from their March peak. The single month peak, due to revisions, is now back in January.

Two months ago I wrote that the poor data had gone on long enough and was deep enough enough to turn this important long leading indicator negative. In the last two months, more data series, such as purchase mortgage applications, have also turned down. This remains true, but the *relatively* good news is that both single family permits and the three month average of housing starts have improved from their August lows of 827k and 1214k, respectively. In other words, there's been a decline from peak, but the trend - for now - is sideways since then.

Since interest rates have risen further in the last several months, I do not expect housing to improve over the next 3-6 months. To the contrary, it will probably worsen at least slightly. In short, this morning's data only reinforces my call that, absent a change of course by the Fed, housing has peaked for this cycle.

Monday, November 19, 2018

Good payroll reports will probably coninue until next spring


 - by New Deal democrat

One of my continuing mantras over the years has been that spending leads hiring. It is simply demonstrable fact that, going back over 50 years, upward or downward changes in trend in consumer spending as revealed by retail sales, happen before similar changes in trend by jobs.

It turns out that there's an even close correlation when we substitute aggregate payrolls (jobs x hours x pay) for the number of jobs alone. Here's what that looks like over the past 50+ years. Real retail sales are in red, real aggregate payrolls in blue, YoY, and averaged quarterly to cut down on noise:




The only exceptions to the rule are the two oil shocks in the 1970s, the Fed-induced recession immediately thereafter in 1981, and the laste 1990s tech boom. Even in two of cases, there is a very slight lead time when we look monthly:



So now let's zoom in on the last 5 years, measured monthly:



The surge in retail spending that started at the time of the hurricanes last year and lasted through this past spring has not completely worked its way through the system. Thus I anticipate that total payrolls in real terms will continue to increase at a good clip for the next several months at least. If I am right that the last couple of months show the beginning of a slowdown in sales, that should become apparent in payrolls by about next spring.

Saturday, November 17, 2018

Weekly Indicators for November 12 - 16 at Seeking Alpha


 - by New Deal democrat

My Weekly Indicators piece is up at Seeking Alpha.

If my reference frames are well- constructed, economic trends ought to start out in the long leading forecast, then start to show up in the short leading forecast, and finally make it through to the coincident nowcast.

Almost 6 months ago, the long leading forecast changed from positive to neutral for the first time.  It's been flirting with further deterioration ever since.  Well, this week ....

As usual, clicking through and reading is a way to help support my putting in the effort to describe and forecast the economy for you.

Friday, November 16, 2018

Credit remains loose, but big borrowers aren't interested; real consumer spending may be stalling


 - by New Deal democrat

We interrupt this coverage of the ongoing Trump Boom (c) to advise you that two more long leading indicators, while still positive, are showing at least some weaknesses.  This story is up at Seeking Alpha.

As usual, reading the story over there is both informative for you and a little $$$ revwarding for me.

Also, as an aside, once corporate profits for Q3 are reported in two weeks as part of the revised GDP report, that will be a good time to do a comprehensive update of the long leading forrecast through 2019.


Thursday, November 15, 2018

Initial markers for a manufacturing slowdown now hit


 - by New Deal democrat

I have a new article that hopefully will get posted by Seeking Alpha later today.  In the meantime ...

Two weeks ago I wrote an article establishing a manufacturing baseline for my forecast of an economic slowdown by about the middle of next year. I concluded that by saying:
the first thing I am looking for is decelerating growth which will show up in a reading below 15 in the average of  Regional Fed reports, and below 60 in ISM new orders.
The ISM new orders index did fall below 60 to a new nearly 2 year low (but still positive!) at the beginning of this month.

As of this morning, the average of the five Fed regional new orders indexes also declined from 18 to 15*, as the Empire Fed index fell slightly (from 22.5 to 20.4), and the Philly Fed index fell substantially (from 19.3 to 9.1).

This could of course all be noise, but I've made a forecast, I've laid down some markers, and the data is - at least on an initial basis - hitting those markers.

*(okay, technically not "below" 15, but close enough).