Weekly Indicators for August 24 - 28 at Seeking Alpha

 

 - by New Deal democrat

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

The big story continues to be the upward move in Treasurys. The spread that became most salient this week is the very wide 0.73% spread between the 2 year note and the Fed funds rate. In the past this has normally suggested that the Fed has gotten “behind the curve” and will hike rates soon. In other words, another sign of an “inflationary expansion.”

As usual, clicking over and reading will bring you up to the virtual moment as to the state of the economy, and bring me a penny or two in lunch money in return for collecting and organizing the data for you.

The “gold standard” QCEW jobs report suggests employment all but stalled during most of last year and early this year

 

 - by New Deal democrat

The Quarterly Census of Employment and Wages (QCEW) is “the gold standard” of US employment measures. It is an actual census of 95%+ of all employers, who must report new employees for purposes like unemployment and disability benefits. Because of this, it is used for the final revisions, a/k/a benchmarks, for monthly jobs numbers, which are estimates based on surveys. Its drawbacks are that it is not seasonally adjusted, and is delayed months after the end of the quarter.

This morning the QCEW was updated for Q1 of this year, and last year’s preliminary QCEW numbers were finalized. The (very lagging) news was mixed.

The first piece of bad news was that the YoY comparisons through the first nine months of 2025 were even worse than currently shown by the monthly nonfarm payrolls data. The good news is that the last three months of last year were better. But then the second piece of bad news is that - preliminarily - the good employment reports for the first quarter of this year were considerably overstated.

Unfortunately, FRED doesn’t include the national QCEW numbers in its vast graphic database, so I will have to show charts and a few lists. But let me start by comparing the YoY% changes in jobs as shown in the non-seasonally adjusted (blue) and seasonally adjusted (red) nonfarm payrolls reports for last year through this March:

Now here is the chart of the YoY% changes as shown in this morning’s update to the QCEW:

Here is the list comparing the two as of the end of each quarter since the end of 2024. The first number is the nonfarm payrolls YoY% value; the second is the QCEW value:

Q1 2025  0.6%  0.5%

Q2 2025  0.5%  0.4%

Q3 2025  0.4%  0.2%

Q4 2025  0.1%  0.3%

Q1 2026  0.2%  0.1%

Note that, with the exception of Q4 of last year, the QCEW indicates that YoY job growth was -0.1% or 0.2% less than indicated by the monthly payrolls reports.

In terms of the actual change in the number of persons employed, through Q3 of last year, on a YoY basis NSA payrolls showed a gain of 618,000, and seasonally adjusted a gain of 636,000; but the QCEW indicates that only 274,000 new jobs were added.

As per the above, the good news is that, as of the end of 2025, NSA payrolls showed a gain of 69,000, and seasonally adjusted a gain of 164,000. The QCEW increases that gain to 454,000.

But through the end of March of this year, NSA payrolls show a 211,000 twelve month gain, and seasonally adjusted a gain of 164,000. But on a preliminary basis the QCEW only shows a 12 month gain of 86,000 jobs. [ADDENDUM: The BLS has updated their preliminary benchmark to indicate that -69,000 fewer jobs were added in the first three months of this year than as of the last report. That is still a 12 month gain of 194,000 jobs.]

How bad is a 12 month gain of only 86,000 jobs (or 7,000 a month)? The below graph of the entire nonfarm payrolls series going all the way back to WW2 up until the pandemic indicates that with the exception of one month in 1952, such a paltry YoY gain has only been seen during recessions:

In summary, the finalized 2025 QCEW employment numbers add credence to the notion that there was a “mini-recesson” during the second half of last year. And they also suggest, preliminarily, that this year may have had a shakier start than we have heretofore believed. This is also more evidence for the “K-shaped” economy, in which employment has all but stalled and income has declined; but sales and production are moving ahead like a normal expansion.

Heavy truck sales and durable goods orders also confirm an expansion is underway

 

 - by New Deal democrat

There was more evidence yesterday that, far from sliding into recession, this year we came our of last autumn’s “mini-recession” and are in an inflationary expansion now.

Both metrics have to do with durable goods. In general, durable goods are the second items to turn down or up after housing. They can be noisy on a month to month basis, but at present that’s not an issue.

In July, durable goods orders by manufacturers rose 1.1%, and core capital goods orders rose 0.2%. Both have been in a clear rising trend since the middle of 2024:

Much of this is likely related to AI data center building, so I question its durability; but for now the trend is clear.

Secondly, motor vehicle sales for July were reported by the BEA. Here there was a slight decline in light vehicle sales, down -1.4% for the month, and a sharper one in heavy truck sales, down -9.5%. But as the below graph shows, the trend since late last year is sharply higher for trucks, and moderately higher for light weight passenger vehicles:

In fact, on a YoY basis (not shown), sales of heavy weight trucks are higher by 3.6%.

The historical graph below shows why I pay particular attention to heavy weight truck sales:

They are much less noisy than passenger vehicle sales, and tend to turn down earlier, and higher later, than passenger vehicles. Note that there has *never* been a time when heavy weight trucks sales have turned higher YoY when a recession has closely followed. Rather, they tend to confirm that an expansion is underway.

Jobless claims continue very positive; here’s the historical record of why I pay so much attention to them

 

 - by New Deal democrat

Let’s take our usual weekly look at jobless claims. Why do I always do this? Because they are a very good and very timely short leading indicator with nearly a 60 year history; particularly when paired with YoY stock prices as my “quick and dirty” economic forecast.

To the numbers: last week initial claims declined -4,000 to 203,000, continuing their string of extremely low numbers, especially when compared with population growth over the last 60 years. The four week moving average increased 1,250 to 205,500, also very low historically. And continuing claims, with their typical one week delay, declined -18,000 to 1.778 million:

As per usual, it’s the YoY% changes which are more important for forecasting purposes. Let me show you why, with the long term historical YoY% changes dating back to the late 1960s:

The blue line (initial claims, averaged monthy) *always* rises and falls before the unemployment rate (red). It is simply an excellent leading indicator for the unemployment rate, with a 60 year history. Continuing claims (gold) are more coincident with the unemployment rate, but have the virtue of being less noisy.

Now here is the post-pandemic YoY look at jobless claims:

As of this morning’s report, initial claims are lower 11.4% YoY, the four week moving average down -9.9%, and continuing claims down -8.4%. These are extremely positive numbers for the economy.

Here is how initial and continuing claims YoY compare with the unemployment rate post-pandemic:

Jobless claims turned lower YoY about 6 months before the unemployment rate followed, and the suggestion is that there will be even better YoY comparisons with the unemployment rate.

Here’s the look in absolute terms:

Jobless claims are forecasting that over the next several months the unemployment rate will move even lower than its last 4.1% reading, or at worst remain steady.

And with stock prices higher 18.4% YoY (not shown), there is almost no chance of any recession in the next few month

Incomes remain recessionary and spending expansionary, as real sales increase and corporate profits soar

 

 - by New Deal democrat

Along with the employment report, real income and spending are probably the most important monthly reports as to the health of the average American household. This year there has been a real split between the income and spending sides of that ledger, which continued in this month’s report for July.

To summarize:

 1. Real income improved for the month (reflecting lower gas prices) but continues being recessionary.

 2. Real spending was tepid and in some important respects negative for the month, but continues being expansionary.

 3. The savings rate increased, possibly reflecting increased consumer caution, while real sales continued to climb.

Here’s a more in-depth look.

Real Income:

Nominally income rose 0.4% in July, and was up 3.7% YoY. But after adjusting for the price deflator (blue), they only rose 0.2% for the month and were totally stagnant YoY. Further, once we take government transfers into account (red), while the monthly change was also 0.2%, on a YoY basis they were down -0.4%. Here is what the absolute numbers look like:

The big increase in gas prices in March and April pushed incomes down, while the declines in prices thereafter have helped push them up. But they remain significantly below last year’s peaks.

Here is the post-pandemic look YoY:

As I’ve pointed out in the past few months, this historically has been recessionary. Here is the historical graph of both, showing that current YoY levels have with the exception of 2013 (when a Social Security payroll tax holiday ended) and 2022, this has always been recessionary:

Real spending:

But while the income side of the ledger is poor, the spending side remains decent. Nominally spending rose 0.2% and was up 5.9% YoY, but in real terms (blue) was unchanged for the month, but up 2.1% YoY. As I’ve noted many times in the past, the leading indicator in this data has to do with spending on goods (red), as real spending on services (gold) frequently increases all the way through recessions. In July real spending on goods declined a sharp -0.6%, but was higher 1.3% YoY, while real spending on services increased 0.3% for the month and is up 2.5% YoY. As you can see, the trend in all three continues to be higher this year compared with last year:

Real spending on durable goods historically tends to peak even before goods spending as a whole. As shown in the below graph, real spending on durable goods (blue) declined a sharp -1.4% in July, while real spending on nondurable goods (gold) rose 0.3%:

Again, the trend this year vs. last year is higher. On a YoY% basis (not shown), real spending on durable goods was higher 1.0%, and on nondurable goods higher 1.4%.

Savings, real sales, and profits:

The difference between income and spending is what is saved. And in July, the saving rate increased 0.4% to 3.0%, still very low historically. Only the era of the housing bubble and in 2022 were lower:

One month could easily just be noise. Or possibly it could mark the beginning of a consumer retrenchment due to the durability of higher inflation. The former would be unimportant, while the latter could mark the very near onset of a consumer recession.

Finally, this morning’s report also enables the update of real manufacturing and trade sales, one of the other important coincident markers used by the NBER to date recessions. They increased 0.3% continuing their uptrend:

They are higher 2.2% YoY (not shown).

Concordant with that positive sales number is the rear view mirror update of corporate profits deflated by labor costs which was updated in this morning’s second estimate of Q2 GDP. Nominally profits increased a sharp 8.9% in Q2 alone, and were up 28.2% YoY. Even after taking labor costs into account, they were up 8.6% for the quarter, and up 26.4% YoY. This is a simply astounding number as shown in the historical YoY% graph below:

Normally such big increases only happen coming out of recessions. The exceptions were the Booms of the 1960s and 1990s, as well as after the Bush tax cuts. Likely both the tax cuts in the Big Billionnaire Bust-Out Bill, as well as windfall profits in the energy sector, have played important roles here.

To sum up, this morning’s report on income and spending, as well as the sales and corporate profits reports, reinforces the picture of a consumer sector where lower income households that do not have stock holdings are suffering, while the uppermost income tiers who own soaring stocks are continuing to hold up the spending part of the equation. I expect this situation to resolve in the very near future. Either incomes will pick up, or spending will falter if and when stock prices do.

YoY repeat home sales prices continue to firm

 

 - by New Deal democrat

While the current cycle may have dispelled the notion that “housing *is* the economic cycle,” it is nevertheless an important component of the long leading indicators. And while new home construction is far more important economically, existing home sales - roughly 90% of the market - are an important determinant of pricing equilibrium in housing, and the repeat home sales indexes, by S&P Case Shiller and the FHFA, are the best indicator of same. And in the last few months, their prices have seemed to be slightly firming.

That emerging trend continued in this morning’s data. After several months of decline, the seasonally adjusted Case-Shiller National index (blue in the graphs below) rose 0.1% for the three month period ending in June, while the FHFA index (red) was unchanged [Note: FRED has not yet updated the Case Shiller data]:

Often the FHFA Index slightly leads the Case Shiller one, and that appears to have been the case this year as well. In the past several months I have noted that “there is something of a divergence showing in the YoY comparisons of the two national indexes,” as the Case Shiller national index had increased less than 1% YoY, while the FHFA Index had accelerated to a 2.0% increase. With this month’s data,  on a YoY% basis, the Case Shiller national index increased to 1.5%, and the FHFA declined very slightly to 2.3%:

As of this month, both series appear to have ending their YoY declines, although neither one shows any sign of significant YoY acceleration. In the above graph, I have also shown the YoY% change in the median price for new homes (purple, averaged quarterly to cut down on noise). These are still in a slow decline, although the moving average of the last three months has been only -1% YoY.

Next, let’s take a look at how new (purple) and repeat home prices compare with households’ buying power, by adjusting for average hourly nonsupervisory earnings in the graphs below (median household income would be better, but is updated only once a year, and average wages are reasonably close for these purposes).

The bad news continues to be that existing houses remain unaffordable compared with most times in the past 30 years. But there is some “less bad” news in that measured by both the Case Shiller and FHFA indexes, existing houses have gradually become “less unaffordable” over the past 24 months. Nevertheless, it will take considerably more inventory on the market to bring existing homes down to just their average affordability compared with the past 30 years.

Finally, let me look at something I haven’t updated in quite some time. Way back in 2021, it became apparent that the Fed was way behind the curve, since house prices lead the official shelter measure in the CPI, “owners’ equivalent rent,” by 12 to 18 months. What if any message are house prices sending the Fed now? Below is the YoY% change in the the CPI using the FHFA index (dark blue) instead of OER to measure shelter compared with “core” inflation (light blue) and the Fed funds rate (red):

So measured, the Fed remained slightly behind the curve throughout 2023-25, as both core inflation and house-price measured CPI were close to the Fed’s 2% target during that time. But this year, as both house prices firmed, and energy prices took off due to the Iran war, the house-price measured CPI increased above 3%. In other words, at very least the likely pass through from house prices into inflation counsels against any lowering of interest rates.