Unwelcome news for homebuyers and the CPI, as repeat home sales prices continue re-acceleration in December

 

 - by New Deal democrat

There was unwelcome news in this morning’s repeat home sales reports from the FHFA and Case-Shiller. On a seasonally adjusted basis, in the three month average through December, according to the Case-Shiller national index (light blue in the graphs below) prices rose 0.5%, and the somewhat more leading FHFA purchase only index (dark blue) rose 0.4%. Both of these continue the trend of re-acceleration we have seen in house prices in the second half of 2024 [Note: FRED hasn’t updated the FHFA data yet]:

Both indexes also accelerated on a YoY basis, the Case Shiller index by 0.1% to a 3.9% gain, and the FHFA index by +0.5% to a 4.7% YoY increase:

Because house prices lead the measure of shelter inflation in the CPI, specifically Owners Equivalent Rent by 12-18 months, here is the updated calculation of its trend. Despite the increases in the house price indexes in the past several months, there is still every reason to believe that OER should continue to trend gradually towards roughly a 3.5% YoY increase in the months ahead:

The most leading rental index, the Fed’s experimental all new rental index, has not been updated since November, but the similar Apartment List National Rent Report as of the end of January continued to indicate that YoY rent increases should decline further. So the bulk of the evidence continues to point further deceleration in that huge component of consumer price inflation:

Because prices generally follow sales, as a refresher here is the graph of existing home sales. As I wrote earlier this week, for the past 2 years these have remained in a relatively tight range (following mortgage rates):

The takeaway from the increased price pressure in the existing home market as measured by the FHFA and Case Shiller Indexes is that the trend of slowly abating shelter inflation in the CPI may slow even further, although it seems likely to slow down.

Q3 2024 QCEW suggests employment was considerably weaker than we thought last year

 

 - by New Deal democrat

This will be income, spending, and housing week, but that won’t start until tomorrow. While there’s no news today, there was an important update to employment data last week; namely, the QCEW for Q3 of last year.

As a refresher, the Quarterly Census of Employment and Wages is just that, a *census* rather than a survey. It includes something like 95% of all businesses, and is taken from their tax reporting. This means it is not an estimate or guess, but very close to a full itemized count. The drawback being, of course, that it doesn’t get reported until almost 6 months later.

Since at least June of 2023, the QCEW has been telling us that the monthly jobs report has been over counting employment. The recent benchmark revisions downwardly revised 2023 and 2024 employment by about -600,000.

And the Q3 2024 QCEW tells us it will probably have to be revised down further.

Since the QCEW is not seasonally adjusted, the only way to measure is YoY. Also, unfortunately FRED does not pick up the data for easy putting in graphic form. But here is the crucial chart:

To cut to the chase, in the first five months of last year, employment grew either 1.3% or 1.4% YoY. That suddenly downshifted in June, and remained anemic through September, with YoY growth of 0.8% to 1.0%.

Now leet’s compare that with a graph of the YoY% growth in nonfarm payrolls:

With the recent benchmark revisions, the YoY growth rate in jobs for the first five months of last year is now estimated at 1.4%-1.6%, only slightly higher than the QCEW. But in the JUne through September period, it is 1.2% or 1.3%, significantly higher than the QCEW.

According to the crrrent nonfarm payrolls numbers, the economy added almost 2 million jobs during the 12 months from September 2023 through September 2024. If we bring that down to a 0.9% gain (the average of the June through September YoY gains as measured by the QCEW, that brings us down to a 1.4 million job gain, a difference of -600,000, primarily centered on the last four months of that period.

Now here is a graph of the monthly gains in jobs during that same 12 month period:

The current estimate of job gains in the June through September 2024 period is 486,000, including three very anemic months. If we apply the YoY downshifting of the QCEW during those months, all of those gains disappear.

At the same time, it’s important to note that all of the QCEW numbers for 2024 are preliminary at this point. In 2023 there was a similar cratering of the QCEW, strongly suggesting actual job losses - that subsequently disappeared when the QCEW for that year was finalized.

Finally, let me emphasize that the above does not mean there was a recession last year. Almost all of the other important indicators showed continued growth through the period. And the QCEW also reports wage growth, and there it showed continued aggregate wage growth of 4.4% and 4.5% in Q2 and Q3 of last year, very much in line with aggregate nonsupervisory payrolls from the monthly reports:

Still, it’s another cautionary signal that the economy last year (which also means the economy going into the November elections) probably was not as strong as was thought at the time.

Weekly Indicators for February 17 - 21 at Seeking Alpha

 

 - by New Deal democrat

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

For now the status quo continues, of problematic interest rates, but excellent short term and coincident data. Political events affecting the economy may start to show up in the next few weeks, however. The first tiny inkling may have been the 9.5% YoY increase in weekly initial claims.

As usual, clicking over and reading will bring you up to the virtual moment as to the economic data, and reward me a tiny bit for collecting and organizing it all for you.

Existing home sales: trends of increasing prices, invcreasing inventory, and flat sales all continue

 

 - by New Deal democrat

Existing home sales have been flat in the general range of 3.85 -4.10 million annualized for two years, and that continued in January, as on a monthly basis sales decreased -4.9% to 40.8 million from an upwardly revised December number of 4.29 million annualized:

The slightly better numbers in the past few months are of a piece with the slight uptrend in housing permits and starts we saw earlier this week, likely driven by recent lower mortgage rates (which have now ended).

Earlier in 2024 we saw a deceleration in the YoY% change in prices, but that reversed in autumn, as after a 4.0% YoY increase in October, the pace re-accelerated and in December prices were up 6.0%. In January that moderated to up 4.8% YoY, but considering that January is typically the low for annual prices, as shown in the below graph which shows the non-seasonally adjusted data, there is no sign of any real moderation in that trend:

Finally, there has been a decade-long trend of lower inventory than in the past. That trend accelerated during the COVID shutdowns. After briefly turning negative YoY in early 2023, making a low of -3.0% YoY that May, inventory has gradually turned higher. Typically December and January are the annual lows in inventory. In January inventory increased to 1.18 million from December’s low of 1.15 million.  This is the highest inventory for January since 2020 (note: graph below is not updated through January)::

This contrasts with the low of 860,000 in January 2022, vs. the best January level in the past 10 years of 1.86 million in 2015.

As was the case last month, in summary on a non-seasonally adjusted basis sales, prices, and inventory were all up from one year ago, meaning that the market is continuing to slowly recover from the pandemic collapse. The continuing issue is whether enough supply will come back onto the market to allow competition to attenuate YoY price growth that has made existing homes relative to new homes relatively speaking the least affordable ever.

Jobless claims: possibly the final “steady as she goes” report

 

 - by New Deal democrat

Let’s take our weekly look at jobless claims. These are a short leading labor market indicator. Also, it is likely that the firings in the federal labor force will shortly be reflected in this data.

This week initial claims rose 5,000 to 219,000, while the four week average declined -1,000 to 215,250. With the typical one week delay, continuing claims rose 24,000 to 1.869 million:

As usual, the YoY% changes are more important for forecasting purposes. So measured, initial claims were up 9.5%, the four week average up 1.4%, and continuing claims up 4.6%:

These are neutral readings, suggesting a slowly growing economy.

Finally, let’s look at what these suggest about the unemployment rate in the next several months. On a biweekly basis, both initial claims and the composite initial + continuing claims are higher by about 4%. Since the three month average of the unemployment rate one year ago was 3.8%, that suggests an unemployment rate trending to 4.0%:

Here is the absolute version of the same, using the initial + continuing composite:

This is another example of “steady as she goes.” But I suspect that the story might start to change significantly for the worse as early as next week, especially since the outlier low initial claims reading from January 25 will drop out of the four week average.