Weekly Indicators for December 2 - 6 at Seeking Alpha

 

 - by New Deal democrat

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

This week whipsawed the data that was heavily influenced by Thanksgiving week. 

The tone of the short leading and coincident data remains positive. The negativity of much of the long leading data is becoming more problematic.

As usual, clicking over and reading will bring you up to the virtual moment as to the state of the economy, and reward me with a penny or two towards lunch for calculating and organizing it for you.

November jobs report: the expected monthly rebound masks deeper declining trends

 

 - by New Deal democrat



To understand this month’s jobs report, let’s start with last month’s, where I wrote that “there were some signs of real weakness in this report that do not appear to be hurricane-related. But Hurricane Milton, as well as the strike, had an impact, so take this report with a gigantic helping of salt.”

So everyone, including me, expected a big rebound this month, and we got one. As I’ll get into below, though, it is especially important to average the two months together to get a better idea of the trend.

Below is my in depth synopsis.

HEADLINES:

• 227,000 jobs added. Private sector jobs increased 194,000. Government jobs increased by 33,000. the two month average was an increase of +131,500.
• The pattern of downward revisions to the last months reversed this month.. September was revised upward by +32,000, and October by +24,000, for a net increase of +56,000.
• The alternate, and more volatile measure in the household report, showed a decrease of -355,000 jobs. On a YoY basis, this series has *declined* by -725,000 jobs, which remains consistent with recession, as it has for months. This is the second time in three months this measure has shown a YoY decline.
• The U3 unemployment rate rose 0.1% to 4.2%. Since the three month average is 4.167% vs. a low of 3.7% for the three month average in the past 12 months, or an increase of over 0.4%, this means the “Sahm rule” is back in effect.
• The U6 underemployment rate also rose 0.1% to 7.8%, 1.4% above its low of December 2022.
• Further out on the spectrum, those who are not in the labor force but want a job now declined -180,000 to 5.486 million, vs. its post-pandemic low of 4.925 million in early 2023.

Leading employment indicators of a slowdown or recession

These are leading sectors for the economy overall, and help us gauge how much the post-pandemic employment boom is shading towards a downturn. This month they were again mixed, but tilted towards negative:

• the average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, rose 0.1 hour to 40.7 hours. This remains down -0.8 hours from its February 2022 peak of 41.5 hours, but on the other hand is only -0.1 hour below its 18 month high.

• Manufacturing jobs rose 22,000. But this only reversed half of the -44,000 strike-related decline last month, so the two month average is negative.
• Within that sector, motor vehicle manufacturing jobs declined -400. The two month average is -3,200. 
• Truck driving increased 2,900. The two month average is +950.
• Construction jobs increased another 10,000. The two month average is +9,000.
• Residential construction jobs, which are even more leading, rose by 1,400 to another new post-pandemic high.
• Goods producing jobs as a whole rose 34,000, but because they declined -42,000 last month, the two month average is -4,000. This is especially important, because these typically decline before any recession occurs. As I wrote last month, “in the absence of special factors this would be a serious red flag for oncoming recession.” Thus the net two month decline is worth at least a yellow flag.

• Temporary jobs, which have generally been declining since late 2022, rose by 16,000, although the two month average is -850. These are down over -550,000 since their peak in March 2022. This appears to be not just cyclical, but a secular change in trend.
• the number of people unemployed for 5 weeks or fewer rose 97,000 to 2,209,000. The two month average is an increase of +32,500.

Wages of non-managerial workers

• Average Hourly Earnings for Production and Nonsupervisory Personnel increased $.09, or +0.3%, to $30.57, for a YoY gain of +3.9%. Their post pandemic peak of 7.0% in March 2022. This is equal to their recent low in July. Nevertheless, and importantly, this continues to be significantly higher than the 2.6% YoY inflation rate as of last month.

Aggregate hours and wages: 

• The index of aggregate hours worked for non-managerial workers rose 0.1%, vs. last month’s revised unchanged level. This measure remains up 1.4% YoY, which is higher than its trend for the past 12+ months.

• The index of aggregate payrolls for non-managerial workers was rose 0.4%, and is up 5.3% YoY. This increase may be just noise, but at least for this month it reverses the slow deceleration since the end of the pandemic lockdowns. With the latest YoY consumer inflation reading of 2.6%, this remains powerful evidence that average working families have continued to see gains in “real” spending money.

Other significant data:

• Professional and business employment rose 26,000, but the two month average is a decline of -10,500. These tend to be well-paying jobs. Although the YoY comparison therefore improved this month, they are only higher YoY by 0.4% - a very low increase that has *only* happened in the past 80+ years immediately before, during, or after recessions. 
• The employment population ratio declined another -0.2% to 59.8%, after a -0.2% decline last month, vs. 61.1% in February 2020.
• The Labor Force Participation Rate declined another -0.1% to 62.5%, after a -0.1% decline last month, vs. 63.4% in February 2020. The prime 25-54 age  participation rate declined -0.3% to 83.5%, vs. 84.0% in July, which was the highest rate during the entire history of this series except for the late 1990s tech boom.

SUMMARY

On a month over month basis, this report was very positive, as with the exception of the labor force participation rate and the employment population ratio, everything rebounded - as expected.

That’s why looking at the average of the past two months is so important. And there, the news isn’t so good at all. In addition to upticks in the unemployment and underemployment rates, not only did manufacturing, motor vehicle production, professional and business jobs, and temporary help jobs decline further, but for the first time, so did goods-producing jobs as a whole. For the last four months, there has been less than a 0.1% gain, and only a 0.2% gain for the last eight months. Even since the accession of China to regular trading status, such meager gains have signaled at least weakness if not outright recession.

There certainly were bright spots, as construction, including residential construction jobs, continued to plow ahead. The downturn in trucking jobs reversed. Those who want a job now but have not applied for one also decreased. And aggregate hours worked and aggregate payrolls for nonsupervisory workers both increased. This suggests that consumer spending will continue a net positive in the next few months.

Last month I closed with “I would take 60% of this month’s decline as temporary, but 40% real.” This month’s report is confirmatory of that hypothesis, with the two month average gain being 131,500, and the three month average 173,000. In other words, the trend of deceleration in the jobs market is continuing without abatement. If this trend continues for another 12-15 months, it will be negative - in other words, signaling a recession.

Jobless claims: neutral - with an extra grain of salt

 

 - by New Deal democrat

As I cautioned last weekend in my “Weekly Indicators” update, we have entered that period of the year where Holiday seasonality means take everything with at least a little grain of salt. For example, this year Thanksgiving was almost one full week later than lat year.

With that caveat, initial jobless claims for Thanksgiving week this year increased 9,000 to 224,000. The four week moving average increased 750 to 218,250. Continuing claims, with the typical one week lag, declined -25,000 to 1.871 million:

As per usual, the YoY% changes are more important for forecasting purposes. So measured, initial claims were up 3.7%, the four week average up 0.3%, and continuing claims up 2.9%:

On the face of it, these comparisons are a little weak, since they are all higher YoY, but not nearly enough to warrant any special concern. Still, take even that statement with a little extra caution because of seasonality.

Looking at tomorrow’s unemployment rate for November, the suggestion is that absent the impact of immigration unemployment should be in the area of flat to 5% (as a percent of a percent, left scale) higher than one year ago. Since, per the gray line (right scale) which shows the actual unemployment rate, one year ago was 3.7% in November, that means trending towards an unemployment rate of 3.7%-4.0%:

This is all neutral - with a grain of extra salt.

ISM non-manufacturing shows that services continue to power the economy forward. Are they inflationary?

 

 - by New Deal democrat

Because services are roughly 3/4’s of the economy, I now pay a lot of attention to the economically weighted average of the ISM manufacturing and services indexes. Since the accession of China to normal trading status with the US, a downturn in manufacturing alone has simply not been enough to forecast recession - which has again been true in the past two years.

This morning the ISM non-manufacturing (i.e., services) index again came in positive, at 52.1, while the more leading new orders subindex came in at 53.7. Their three month weighted averages are 54.3 and 56.8, respectively.

Since the three month average for the manufacturing index is 47.4, and for the new orders component 47.9, that means the economically weighted three month averages are 52.6 for the total indexes, and 54.6 for the new orders components.

This means that the economy is nowhere near a recession for the next few months, as services continue to power it forward.

An interesting question is whether the strength in services, which as you can see above includes continued strong pricing pressure, translates into continued elevation in the non-shelter services portion of the CPI and PCE indexes. I haven’t done a comparison, but it very much looks like a significant correlation to calculate going forward.

JOLTS report for October: continuing trend of deceleration has begun to pose a problem

 

 - by New Deal democrat

The JOLTS survey parses the jobs market on a monthly basis more thoroughly than the headline employment numbers in the jobs report. It also is a slight leading indicators for both initial jobless claims and unemployment; and for forecasting wage growth as well. 

Like many other statistics concerning jobs, the JOLTS series have been deceleration for several years. The question now is whether they level off or continue to decelerate towards outright declines in net job creation. 

In October, the data was mixed. The soft statistic of job openings as well as the hard data of quits and also layoffs and discharges were positive, while actual hires declined. The below graph norms the series above (expect for quits) to 100 as of just before the pandemic:

Both actual hires, as well as quits, turned weaker than their pre-pandemic levels a little more or less than one year ago respectively. Openings remain higher but continue their decelerating trend as well.

Showing the same data as YoY% changes tells us that there has been no significant change in the decelerating trend:

In other words, there is no evidence that these metrics have begun to level off.

To show the longer historical trend, I have normed each of these series by the prime age population level, and also normed to zero as of their current readings, below:

None of these are actually negative, but hires in particular are mediocre compared to their performance since the turn of the Millennium, while quits remain at pretty robust rates. Job openings have softened but are confounded by their long term inflating trend that mainly shows changes in how businesses handle purported vacancies.

The best news in October was that after rising sharply due to hurricanes in September, layoffs and discharges retreated back into their range for the previous year. This is of a piece with the decline in initial jobless claims during November back to their previous range as well:

This may translate into a decline in the unemployment rate in Friday’s report for November as well.

Finally, the quits rate (blue in the graph below) has a record of being a leading indicator for YoY wage gains (red):

The quits rate stabilized earlier this year, before resuming its decline from June through September. This month, as you can see, the rate jumped again, but is likely just noise:

Despite the positive news on the quits rate this month, the likelihood is that on a YoY basis wage gains will continue to decelerate as well. If inflation stabilizes or picks up again, this could create a problem next year. The same could be said for the overall picture of the JOLTS data: no problem now, but if the trend continues, possibly a big problem by later next year.

ISM manufacturing remains weak, while construction spending continues to power along

 

 - by New Deal democrat

As usual, the month’s data begins with the ISM manufacturing index, and with a one month delay, construction spending.

Because manufacturing is of diminishing importance to the economy, and was in deep contraction both in 2015-16 and again in 2022 without any recession occurring, I now use an economically weighted three month average of the manufacturing and non-manufacturing indexes, with a 25% and 75% weighting, respectively, for forecasting purposes. As a refresher, any number below 50 means contraction.

In November both the total index and the more leading new orders subindex improved. The former rose 1.9 to 48.4, while the latter rose 3.3 into expansion at 50.4.

Including November, here are the last six months of both the headline (left column) and new orders (right) numbers:

JUN 48.5. 49.3

JUL. 46.8. 47.4

AUG 47.2. 44.6

SEP 47.2. 46.1

OCT 46.5. 47.1

NOV  48.4. 50.4

Here is what they look like graphically:

The three month average for the manufacturing index is 47.4, and for the new orders component 47.9. For the past two months, the average for the non-manufacturing headline has been 55.5 and the new orders component has been 58.4. These are very strong positive numbers. For the weighted ISM infexes to signal recession, the services component would have to swan dive to about 40 in both readings. Since that isn’t going to happen, we can safely conclude that the ISM indexes forecast continued expansion for the next few months.

Construction spending for October also came in generally positive. On a nominal basis, total construction spending rose 0.4% to a new record, and residential spending rose 1.5%, down -0.8% since May 2024. Only manufacturing construction bucked the trend, declining -0.1%, and is now down -0.9% from its June 2024 peak.  Since the onset of the pandemic, total nominal construction spending is up 45.1%, residential up 53.7%, and manufacturing up 200.6% - this last due to incentivized re-shoring spending under the Inflation Reduction Act:

Since housing is such an important leading component of the economy, here is residential construction spending as above compared with the PPI for construction materials:

The prices of construction materials have been generally slowly declining for the past two years, meaning that real inflation-adjusted residential construction spending has risen to its highest level since January 2021, including a 0.4% increase in today’s reading:

The bottom line is that, while manufacturing remains weak, the economy continues to be powered along by (somewhat surprising) continued strength in construction, as well as the services sector.

Weekly Indicators for November 26 - 30 at Seeking Alpha

 

 - by New Deal democrat

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

Thanksgiving came in the 4th week of November this year vs. the third week last year, which means seasonality played havoc with a lot of the YoY weekly comparisons this past week (and will do in this coming week as well.

But the overall story remains the same: generally positive short term and coincident conditions, with very mixed long term background measurements.

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

Real personal income and spending for October were all good; no special cause for concern yet about inflation

 

 - by New Deal democrat

Let me finish catching up this week with a quick look at personal income and spending, which were reported on Wednesday.

The “big” takeaway I’ve seen elsewhere is that inflation picked up, and maybe will complicate the Fed’s task. But I don’t see where it’s such a big deal. The price index increased 0.2% for the month, mainly on the back of a 0.4% increase for services, while the price index for goods declined -0.1%:

As you can see, while that’s an acceleration from a few months ago, it’s hardly out of line for the past two years. And the YoY% increase to 2.3% was tied with August’s rate for the lowest since the pandemic (blue in the graph below):

As you can see, goods inflation as measured by the index is still somnolent; it is inflation for the services component which remains somewhat “hot” compared with before the pandemic.

The bottom line is, this was only a one month increase. If the trend continues to increase for another month or two, I’ll be more concerned, but for now this could easily just be noise.

Otherwise, the news remained all good. Both real personal income and real personal spending increased for the month, by 0.4% and 0.1% respectively, to new highs:

The personal savings rate also increased slightly to 4.1%, also a positive thing:

The important coincident indicator of real personal income less government transfers also increased:

As did real manufacturing and trade sales for September:

So the bottom line is that all of the important metrics were positive, and I don’t see any cause for concern yet about any sustained pick-up in inflation.

It’s not just corporate profits, the long leading housing sector is also under pressure

 

 - by New Deal democrat

I suspect that both hurricanes as well as mortgage rates somewhat distorted all of the housing reports for October.

Last week with existing home sales I noted that “While sales remained in range, price appreciation increased and the pace of inventory accumulation decreased.“

There was something of a mirror image in yesterday’s reports on both new and repeat home sales. In the case of new homes, sales decreased sharply while inventory increased sharply. And price appreciation accelerated for both new and repeat home sales - but it may be unresolved seasonality at work.

As usual let me start with the important caveat that new home sales data are very noisy and heavily revised. With that out of the way, the next thing to consider is that mortgage rates have risen back close to 7%:

While an increase from 6% to 7% doesn’t seem like much, that increases the necessary monthly payment by about 10%, which is enough to drive many people to the sidelines, and that is what we have seen with purchase mortgage applications, which have fallen back down close to their post-pandemic lows.

In any event, between mortgage rates, hurricanes, and noise, new home sales (blue in the graph below) declined to 610,000 annualized, the lowest rate since November of 2022. The flip side of that was that the inventory of new homes for sale increased sharply to a new post-pandemic high (gold):

The latter is actually “good” news because recessions have in the past happened after not just sales decline, but the inventory of new homes for sale also decline. In other words, probably the anomaly will be reversed in the next month or two.

The median price of an existing home increased 2.5% last month alone, and are up 4.7% YoY, a reversal of the recent trend:

A similar increase occurred in repeat home sales, as on a monthly basis alone prices increased 0.3% in the Case Shiller Index and a whopping 0.7% in the FHFA index. But because there were similar increases last year in October, on a YoY basis the Case Shiller index is only up 3.9%, and the FHFA index up 4.4%, unchanged from a month ago.

Since house prices lead the measure of Owners’ Equivalent Rent in the CPI by 12-18 months, this suggests that the shelter component of the CPI should continue to decline gradually in the months ahead:

Beginning with permits and starts, none of the measures of any kind in the housing market had a good month in October. Construction was down, sales were unchanged (existing homes) or down sharply (new single family homes), and prices were up sharply on a monthly basis. 

Just as I wrote earlier this morning about Q3 corporate profits, this is one period only. Single family new home sales in particular are noisy. But if mortgage rates continue in the 7% range, and the housing market as well as corporate profits turn negative, with manufacturing already having stalled out, the economy is going to be under a lot of pressure as we go through 2025.

[Note: I’ll report on personal income and spending on Friday]

The long leading indicator of corporate profit growth stalled in Q3

 

 - by New Deal democrat

Perhaps the most important economic news released so far this week was this morning’s update on Q3 corporate profits. While it is not a good thing for society for profits to outpace wages and salaries on a sustained basis, it is almost always not a good thing for the economy for profits to decline. That’s because when profits decline, one of the first things management thinks about is not hiring, or even laying off, workers.

And this morning’s news on corporate profits was negative. After tax profits were unchanged even without adjusting for inflation or costs in the third quarter (dark blue below). Since unit labor costs increased 0.8% during the quarter (light blue), after adjusting for labor costs (not shown), corporate profits declined:

Only one quarter of course, and on a YoY basis (not shown), profits increased 9.6% vs. unit labor costs’ increase of 3.8%.

This is in accord with third quarter profits as reported to Wall Street, the latest update of which from last week is shown below:

If corporate profits continue to stall for another quarter, and interest rates (especially mortgage rates) remain elevated, this will put downward pressure on the economy in the quarters ahead in 2025.

Jobless claims continue to signal moderate expansion

 

 - by New Deal democrat

Let me start to update this week’s data with jobless claims.

Initial claims fell another -2,000 to 213,000, the lowest since last May. The four week moving average declined -1,250 to 217,000, also a six month low. With the usual one week lag, continuing claims rose 9,000 to 1.907 million:

As with one week ago, the increase in continuing claims is mainly about lagged effects from the hurricanes in North Carolina.

On the more important YoY basis, initial claims are unchanged. The four week moving average are down -0.2%. Continuing claims were up 5.2%:

None of this suggests any particular weakness.

Looking ahead to next week’s payrolls report, absent the effect of new entrants to the employment market via immigration, the unemployment rate should not increase and should decline in the next few months to 4.0% or less:

Jobless claims continue to paint a picture of at least moderate economic expansion in the near future.

On the Road

 

 - by New Deal democrat

I’m traveling this week, so light posting. 

There was no significant economic news yesterday. I’ll take a look at today’s releases about house prices and new home sales either tonight or tomorrow, Tomorrow there will be a slew of data before Thanksgiving Day. At some point between tomorrow morning and Friday I’ll take a look at jobless claims, personal income and spending, and corporate profits from the 2nd installment of the Q3 GDP report.

In the meantime, best wishes to all readers and hope you enjoy this holiday week.

Weekly Indicators for November 18 - 22 at Seeking Alpha

 

 - by New Deal democrat

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

With the hurricane-induced weakness past, the short term forecast has improved to very positive. At the same time, while a few series have whipsawed the coincident nowcast to a neutral status. Importantly, consumer spending still remains strong.

As usual, clicking over and reading will bring you up to the virtual moment as to the state of the economy, and reward me with a little lunch money for the effort involved in collecting and organizing the data for you.

October existing home sales: a pause, or possibly reversal, in the rebalancing trend

 

 - by New Deal democrat

Yesterday’s report on existing home sales indicated, at least for one month, a pause or even reversal in the previous trend of abating price increases and increased inventory. While existing home sales are  not nearly so important to the economy as new home sales, to the extent that home buyers must pay more of their savings, and increased monthly mortgage payments, the less they have to spend on other consumer goods and services. So this pause or reversal is not good, although it may just be one month’s noise.

Existing home sales have been flat in the range of 3.85 -4.10 million annualized for almost two years. October’s report released yesterday indicated that continued, as sales were at 3.96 million units annualized:

But the moderation in the YoY% change in prices from the past few months reversed somewhat as the median price for an existing home increased 4.0% YoY (below graph shows non-seasonally adjusted data):

On a YoY basis, in response to the longer term decline in inventory, existing home prices have risen consistently since 2014, and accelerated during the COVID shutdowns. After briefly turning negative YoY in early 2023, troughing at -3.0% in May, comparisons accelerated almost relentlessly to a YoY peak of 5.8% in May of this year. 

Here are the YoY% comparisons since then:

June. 4.1% 

July.  4.2% 

August. 3.1%

September  2.9% 

October 4.0%

As I wrote above, YoY prices had been moderating. I suspect this month’s number was noise.

Finally the sharp rise in the inventory of existing homes abated somewhat last month. In August it was 22.7% higher YoY; in September 23.0% higher, but in October it declined to 19.1% higher YoY (below graph shows absolute numbers, not seasonally adjusted):

Last month II concluded my review of both new and existing home sales by saying:

”[T]hose trends [lower mortgage rates help in the sales of new homes, which has helped drive down demand somewhat for existing homes, which in turn has led to an abatement in their price increases and an increase in inventory] all continued as to the existing home market. Demand has been driven even further down, despite somewhat lower mortgage rates. This again led to more inventory and a continued abatement in price growth. I expect these trends to continue for awhile.”

Not so much this month. While sales remained in range, price appreciation increased and the pace of inventory accumulation decreased. Again, this may have just been noise in one month’s report, and/or it may be a reflection of the recent increase in mortgage rates back to 7.0%. Because the underlying fundamentals are the existing homes, including both prices and mortgage rates, are historically expensive, I expect the trend of the past few months to re-assert itself.

Initial claims are positive, while hurricane-adjusted continued claims are neutral

 

 - by New Deal democrat

This week’s jobless claims reflect a little more complex scenario than usual, because the hurricane effects have disappeared from initial claims and their four week average, but likely are affecting continued claims, and are also likely to have a negative impact for the unemployment rate in the next jobs report.

To the numbers: initial claims declined -6,000 to 213,000, the lowest since April. The four week moving average declined -3,750 to 217,750, the lowest since the beginning of May. With the typical one week lag, continuing claims rose 36,000 to 1.908 million, the highest since November 2021:

As is usual, the YoY% numbers are more important for forecasting purposes, and there initial claims were unchanged, while the four week moving average was down -2.3%. Continuing claims were higher by 6.3%:

Ordinarily the YoY% increase in continuing claims would be somewhat concerning. But let’s take a look at the NSA numbers for North Carolina (blue, left scale) and the the rest of the US (red, right scale):

Pretty obvious what is happening, no?

It becomes more obvious when we calculate the YoY% change in continuing claims ex-North Carolina:

They are up only 3.3%, in line with their readings for the past 7 months.

In short, once we account for the hurricane effects on continued claims, the result including initial claims is net positive.

Finally, let’s do the usual update on the forecast for the unemployment rate, looking at the YoY% changes:

Jobless claims suggest that the unemployment rate should be less than 10% higher than it was a year ago. This is a “percent of a percent,” which ordinarily would mean that since last November the unemployment rate was 3.7%, next month we should expect a number no higher than 4.1%.

I don’t think that analysis will work when the November jobs report comes out. Not only will we still have the effects of immigration have been putting upward pressure on this number, but so will the continuing unemployment caused by the hurricanes, as we have seen from the analysis of continuing claims above. In short, be prepared for a negative surprise as to the unemployment rate in the next jobs report.

What to look for if housing construction does forecast a recession

 

 - by New Deal democrat

No data today, but since it is mainly a housing week, let me pick up on a topic I discussed at the end of yesterday’s post; namely, if housing does indeed forecast an oncoming recession, what should we expect next in that sector?

To cut to the chase, ultimately we need to look to construction employment.

Briefly for background, I won’t bother reposting the graphs, but the most leading aspect of housing data are mortgage interest rates. After that the most leading data are new home sales (which are very noisy) and permits, with single family permits being the least noisy. Permits, starts, and sales all lead prices.

And, reposting from yesterday, permits substantially lead housing units under construction:

Permits also lead residential construction spending adjusted for headline inflation:

Now let’s compare housing units under construction with inflation adjusted residential construction spending. In the graph below I measure each YoY, and in the case of construction spending, subtract YoY headline inflation so that what is shown is the % by which YoY residential construction spending exceeds or trails overall inflation. Finally, I also include the YoY% change in employment in residential construction:

Inflation adjusted residential construction spending has typically led housing units under construction, and both have led residential construction employment.

For completeness’ sake, let’s compare house prices as measured by the Case Shiller repeat sales index with adjusted residential construction spending:

Construction spending has typically led house prices in the past 20 years.

In fact house prices adjusted for inflation have even lagged residential construction employment, and did not even turn down in the 2001 recession:

Now let’s bring the rest of the goods producing sector (mainly manufacturing but also notably non-residential construction employment) into the mix.

As we already know, manufacturing as measured by the ISM index has been contracting since 2022:

Again, although I won’t repost the graph, because manufacturing is only about 1/4 of the US economy, for recession forecasting purposes I have begun economically weighting it with the ISM services index.

So in the following graphs I compare the YoY changes in employment in residential construction, construction generally, manufacturing, and the entirety of goods production employment. 

First, here is the historical record from 1950 through 2002 (note that the subcategory of residential construction employment was only added in 1988):

Next, here is the period from 2003 until just before the pandemic:

Now here is our post-pandemic period:

Here’s the upshot of these three graphs: Focusing on manufacturing or residential construction employment alone is not enough. If one turns negative but not the other (e.g., 1966, 1984, 1994, 2002) a recession typically does *not* happen. It is only when there is a more broad-based downturn across multiple goods-producing sectors that a recession typically occurs. 

As you can see from the final graph, that YoY downturn has already manifested in manufacturing. It has not manifested in either residential or non-residential construction, nor in goods production generally.

Indeed, on an absolute basis, but residential and total construction employment are still increasing:

And total goods-producing employment only turned down in the past month (and that may be reflective of hurricane impacts):

To sum up: with permits, starts, and housing units under construction all down from their peaks, at levels at least close to consistent with an oncoming recession, the big item to look for is employment in residential construction, and construction generally. If manufacturing employment remains negative, and construction employment turns down, that would strongly indicate that more likely than not a recession is approaching.