The AI data center driven manufacturing rebound continues

 

 - by New Deal democrat

While we await tomorrow’s deluge of data (Q3 GDP, personal income and spending, and jobless claims) let’s take a look at the yesterday’s most recent update of manufacturer’s new durable and capital goods orders from yesterday.

This comes out twice a month, as a first estimate and then as a final number for each month. Yesterday’s report was the first estimate for September. And it continued the strong rebound we have seen for over a year.

On a monthly basis, headline manufacturer’s new durable goods orders (blue) increased another 1.8%, while the less noisy core capital goods orders (red) increased 0.5%, to new post-pandemic high in the case of the less-noisy, more-signal latter:

On a YoY basis, the headline number increased 9.9%, and core capital goods orders increased a very sharp 13.5%:

What is interesting about the YoY comparison is that, if we use a paradigm that AI adoption will follow a typical “S” curve of exponential acceleration in growth followed by a similar exponential deceleration in growth” (note, we are talking about the second derivative here), then the fact that the core capital goods growth, while remaining very strong, may have reached peak acceleration at about 15%, then the first sign of the diminishment of the AI story may be near at hand (i.e., still strong growth, but decelerating to under 10% YoY).

Also interesting is that this inflection point of the second derivative may also be operative in the regional Fed new orders indexes that I updated last week. Here again is that graph:

This is noisier, so I look at the three month average, which remains close to its 3+ year peak.

The bottom line is that the AI-data center driven manufacturing rebound is very much intact at present. This suggests that consumer spending and goods-producing employment will also continue to be strong (in the case of the former) or rebounding (in the case of the latter). The inflationary expansion continues.

New home sales and repeat home prices may both have sung their ‘swan song’ for recent trends last month

 

 - by New Deal democrat

Last month I closed with “a reminder that the Fed’s interest rate hike and the similar increase in mortgage rates suggests that the recent equilibrium in the market is probably going to be yanked to the downside.” We have already seen that with mortgage applications, which have fallen to close to their 5 year lows. Next in line is sales, and only after that, with a lag, will be prices.

With that in mind, let’s take a look at this morning’s reports on new home sales and median prices, as well as repeat home sales as measured by both the FHFA and Case-Shiller indexes.

Let me start by repeating that new home sales are perhaps the most leading of all the housing sector metrics. But they suffer from being very volatile and heavily revised. So their three month moving average is more reliable as a signal.

In September sales (blue) declined -4,000 annualized to 676,000. But as the graph below shows, this remained close to the high point for this year, and was in the middle of the range for the past 3+ years:

The above graph also shows inventory (red). Although I won’t bother with the historical graph this month, sales have *always* led inventory, which tends to turn down much closer to a recession, and generally bottoms towards or even after the end of a recession. So the sideways to slightly higher trend this year would normally suggest a recovering housing market.

Prices are not seasonally adjusted, so are best measured YoY. And there, they have been in a sideways to slowly declining trend, which continued in September as the median price for a new home declined -1.0% for the month (dark blue), and -2.3% YoY. The below graph also shows the quarterly averages (light blue), which are down -1.0% YoY:

The trend in absolute numbers indicates a general decline in the past four years. Even more importantly, as shown in the graph below whicg deflates the median price of a new home by average weekly earnings, normed to 1 as of September, indicates that the “real” median price of a new home (dark blue) is down to its range in the 1990s and after the housing bust around the Great Recession. This contrasts with the “real” similarly deflated cost of existing homes as measured by the FHFA repeat sales index (orange), which while lower than several years ago, is still very high in historical terms:

Before I sum up, let’s turn to this morning’s other housing reports. Although they are not an infallible indicator (nothing ever is!),house prices are an important component of the economy, particularly as they affect the official CPI measure downstream, not to mention their importance to especially younger people in terms of the affordability of purchasing a new or existing home. And the repeat home sales indexes, by S&P Case Shiller and the FHFA, are the best indicator of prices in the 90% of the market that is existing home sales. same.

Since the beginning of this year, prices in both indexes have appeared to be firming, with the FHFA (red in the graphs below) as it often does slightly leading the Case-Shiller National Index (blue). That continued to be the case in this morning’s reports through August, with both reports indicating a seasonally adjusted monthly increase of 0.3% in prices. [Note: FRED has not yet updated the Case Shiller data]:

As per the above comment, earlier this year there had been 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. But in the past several months, the Case Shiller index has followed suit. As of this morning’s report, the FHFA continued to be slightly “hotter” overall, with a 2.4% YoY increase, vs. 2.1% in the Case-Shiller Index.

It continues to be the case that 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.

Both of this morning’s reports discussed above may have been the last for the current trends. Higher mortgage rates have badly hit mortgage applications, and can be expected to his sales and permits for construction within a month or two. Prices will only react after that, and the inventory of new homes in particular can be expected to increase again. If there is a silver lining, it is that builders have been steadily making their new homes for sale more affordable as a multiple of average earnings.

‘Level two’ chaotic systems, polling, and election results

 

 - by New Deal democrat

There’s no important economic data today, so let me post something that I meant to write about over the weekend before I was distracted by real life.

In his book “Sapiens,” Yuval Noah Harari writes that 

[M]any people [ ] prefer history to be deterministic. Determinism is appealing because it implies that our world and our beliefs are a natural and inevitable product of history….

[But h]istory cannot be explained deterministically and it cannot be predicted because it is chaotic…. [H]istory is what is called a ‘level two’ chaotic system. Chaotic systems come in two shapes. Level one chaos is chaos that does not react to predictions about it. The weather, for example, is a level one chaotic system….

Level two chaos is chaos that reacts to predictions about it, and therefore can never be predicted accurately. Markets, for example, are a level two chaotic system…. [because the better the history of a forecasting system, the more it will become a ‘nowcast,’ as people front-run the prediction].

Politics, too, is a second-order chaotic system…. Imagine … some political scientist in association with a computer wizard have developed an infallible algorithm [that predicts the political future. A politician on the losing end of that prediction, for example, would take pre-emptive measures to ensure that the prediction does not come to pass….]

(Sapiens, pp. 239-241)

This is exactly what happens with political polling, and the fate of poll aggregators is a case in point. Nate Silver was initially very successful. But soon, players with other interests reacted to his system. First, and with increasing frequency, partisan pollsters ‘flooded the zone’ with junk polls, forcing him to weigh pollsters by accuracy, and even to develop a slew of alternate and inconsistent forecasting systems. But those junk polls also influenced voters to decide that either a race was competitive, or that one candidate was sure to win or lose. And now we have seen the rise of outright fraudulent polling, to the same end.

The net result has been that these poll aggregations have been increasingly off-target. For example, Sam Wang famously said in 2016 that “It is totally over. If Trump wins more than 240 electoral votes, I will eat a bug.” (and to his credit, he ate a honey-dipped cricket on CNN four days after the election. 

What happened in 2016, essentially, was that “everyone knew” Hillary Clinton was going to win. And because “everyone knew” that, some voters felt free to stay home. Others felt free to cast a protest vote for Trump. Clinton herself felt free not to campaign in the “safe” upper Midwestern States. And most notoriously, FBI Director James Comey felt free to hold a press conference announcing a renewal of a criminal investigation into Clinton while early voting was already underway!

Now in 2026 we are being told that Democrats are heavily favored to take the House, and more likely than not to take the Senate. We are being told that early turnout is heavily in favor of Democrats, and that especially Hispanic voters are turning out in those areas.

But we are not just the passive recipients of these messages. We should fully expect that both potential voters and likely non-voters are going to *react* to that message as well. For example, might some Democratic voters in swing States relax? Will GOP operatives flood likely GOP voters’ mailboxes and social media feeds with horror stories about the big early Democratic turnout, thus driving more tenuous GOP voters to the polls to counter that early trend? Or conversely might a significant chunk of the public decide that they want to show up to be on the winning side, or turn a wave into a tsunami? 

We don’t know. But what we *should* know is that the very act of publicizing all these polls and early turnout models is going to significantly affect the ultimate result. Ask Brazil, where reporting and polling after the first round of balloting that Bolsonaro was almost sure to be elected drove a massive outpouring of votes for Lula.

For my part, I am hopeful. But I am thoroughly discounting all of these polls and dissections of early voting.

A century ago, early industrial psychologists ran a study of factory workers. They found that, e.g., increasing the light on the factory floor made the workers more productive. But it turned out that, more than anything else, it was the act of *observing* the workers that was the chief reason that the altered their behavior. Because, as a fan of Star Trek, to put Harari’s observation in Ferengi terms, “Hoo-mans are a clever species. When you observe the hoo-mans, they always observe back.”

Weekly Indicators for October 19 - 23 at Seeking Alpha

 

 - by New Deal democrat

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

While the usual recent troika of stock market valuations, low initial jobless claims, and strong consumer spending are holding up the short leading and coincident forecasting time frames, enough deterioration has occurred in the long leading time frame to turn that neutral.  This doesn’t mean that the economy ‘will’ stall in the next 12 months or so, but it does mean that the conditions are in place for a stall to be a significant possibility.

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 in my pocket for gathering and organizing the information for you.

No, we are not DOOOMED: real usual weekly earnings edition

 

 - by New Deal democrat

As widely reported in the past week, real weekly earnings declined a sharp -2.1% in Q3. For example, here is Menzie Chinn at Econbrowser:

And here, more histrionically, is Mike Koncxal on X:

Is this an important danger sign?

No. Why? To cut to the chase, because even after seasonal adjustment it is the noisiest wage earnings metric there is (light blue in the graph below), and specifically in comparison with average weekly earnings as measured in the monthly jobs report (dark blue), and even more importantly in comparison with the quarterly employment cost index (red). Here’s what they look like since before the onset of the pandemic:

You can easily see that the blue bars not infrequently have both upside and downside quarterly swings well in excess of average weekly earnings, and positively wild swings in comparison with the employment cost index. Note, for example, that real weekly earnings had an outsized increase in Q2 of this year that almost completely cancels out their Q3 decrease. Perhaps more importantly, while both usual weekly earnings and the employment cost index are median numbers rather than an average like the monthly weekly earnings figure, the employment cost index norms by type of employment. Thus, in the immediate wake of the pandemic, many more low wage earners were laid off compared with higher wage earners, causing the other indexes to increase sharply even as unemployment soared as well. Then, as the pandemic gradually subsided and the low wage earners were hired back, those series decelerated back to a more “normal” change. But the employment cost index, which accounted for the change in the mix of employment, remained fairly steady.

As a result, when we measure the changes YoY rather than quarter over quarter, the huge swings tend to even out:

The monthly metric of average weekly earnings for all workers, averaged quarterly, is higher YoY on a nominal basis almost by the same percentage as median usual weekly earnings, but with much less drama.

And the same holds true on a historical basis. Note that the above graph, as well as all those below, show *nominal* changes, to account for the fact that different deflators may be used in the normal reporting of the series.

Here is 1979-99:

And here is 2000-2019:

Again, the “usual median weekly earnings” series is much more volatile, as you can see from the wider swings in the blue bars compared with the others.

This is not to say that Q3 real wages for ordinary workers have been good. As I’ve reported for a number of months now, on a YoY basis, real earnings have been flat or slightly negative. But take the noisy Q3 report with multiple grains of salt. It is likely to revert to the mean compared with the other reports in Q4.

Jobless claims continue near historic lows, forecast sub-4.0% unemployment rate

 

 - by New Deal democrat

Let’s take our regular weekly look at jobless claims. As a brief reminder, I always look at this because, especially in conjunction with stock market performance, it is an excellent short leading indicator, and also leads the monthly unemployment rate. 

And the news continues to be very good especially on a historical basis. Initial claims declined -6,000 to 194,000, one of the lowest numbers in 50+ years. The four week moving average declined -1,000 to 197,750, also one of the lowest numbers in 50+ years. With the typical one week delay, continuing claims rose 25,000 to 1.728 million, which remains also well behaved:

On the YoY% basis more important for forecasting purposes, initial claims were down -16.0%, the four week average down -13.2%, and continuing claims down -11.2%:

Note that these comparisons have been getting *even more* positive in the past several months, indicating a strengthening jobs market.

Finally, we’re far enough along in the months to update what this likely portends for the unemployment rate (orange, thin line) for the next few months. Since the unemployment rate is a rounding of the actual ratio of unemployed to the labor force, I’ve also included that (dark red):

We’ve had a slight contratrend move in the last several months in the unemployment rate, likely reflecting the upward tick in new jobless claims earlier in summer. But it is almost certain that the downward trend in the unemployment rate will continue, likely under 4.0% in the next few months.

In short, despite the continued chaotic economic lunacy coming out of Washington, it is extremely hard to derail the US economy. The bigger danger over the next months is that AI will prove to be a bubble after all, the popping of which would drag both consumer spending and also job growth down with it.

The inflationary expansion is still expanding, and is likely even more inflationary

 

 - by New Deal democrat

There were a couple of reports last week about the manufacturing sector that I didn’t cover then. Let’s take a look at them now. What I am interested in is whether the rebound in manufacturing is continuing, is it more or less inflationary, and is it supported by sales?

First up, both the NY and Philadelphia Fed manufacturing indexes were reported. The below several graphs average the two to minimize noise. Ideally I would like to show the three month average, but unfortunately it is one of the few things that FRED does not indulge.

The headline index average (blue in the graph below) shows that the rebound is very much in place, and if anything has accelerated in the past few months. The more forward looking new orders (red) suggests that the rebound, if not ebbing, might be a little past its peak:

In other words, still strongly positive, and set to continue for a few more months, all else being equal.

The prices paid (blue) and prices received (red) index averages tell a less positive story:

Not only are inflationary pressures still very widespread (in the prices paid subindex), but the indication is that they are increasingly being passed on to customers (in the prices received subindex).

So if there is an industrial expansion, it very much remains an inflationary one - and the inflationary aspect may be accelerating even more.

Now let’s look at the second report from last week: business sales and inventories.

The first thing for me to repeat is that sales lead inventories by several months at least, as shown in the below graph of the absolute levels of sales and inventories (/1.5 for scale) in log scale (note these are both nominal, but since we are interested in the trend, we don’t need to worry about the proper deflator):

Sales always turn up and turn down first. Once business see that their sales have turned, they either increase or decrease inventories in reaction.

But an even better way to show this same data is YoY, as below:

This makes it easy to see that inventories change, up or down, after sales do.

Now here is a close-up of the last few years in absolute terms:

Note that sales have stalled since May, declining slightly and then, as of August, the last month reported, only 0.5% higher. While this isn’t a downturn, and there have been a number of similar sideways moves before, if this were to continue several more months I would expect inventories to react as well - which would mean a cutback in production and, if pronounced and long enough, in employment.

Which brings me to my final graph, which is the average of the employment subindex in the two regional Fed reports:

Manufacturing employment has continued to grow at the best pace since the immediate post-pandemic Boom, if at a slower pace than at its June peak. The three month average is slightly down from there, but still quite positive.

In summary, the business sales and inventory report, and the NY and Philadelphia Fed manufacturing reports, show that the inflationary expansion is still both an expansion and inflationary, with employment growth as well. But new orders suggest that in a few months it might begin to decelerate somewhat, exacerbated by customers reacting to increased costs; and if that shows up further in sales, then production and employment might then begin to flag as well.

September new housing construction: saying farewell to the late incipient housing recovery

 - by New Deal democrat

Last month I started my report on housing construction by writing that “This morning’s report on housing construction may be the last decent one for quite awhile.” And it was. 

Up until last month I had been writing that housing construction was most consistent with an economy coming out of a recession than going in to one. Needless to say, with the spike in mortgage rates, that is no longer the case. In September housing starts (blue) declined -5.2% to 1.221 annualized, while the less volatile and slightly more leading permits (gold) declined -0.2% to 1.400 million. The least volatile metric of all, single family permits (red, right scale) declined -4.0% to 845,000:

All three of these metrics had been trending essentially sideways since the summer of last year. As of this month, the YoY comparisons are now near the bottom of that range, with starts down -7.4%, permits by -3.0%, and single family permits by -4.8%:

This doesn’t mean housing is forecasting a recession yet. While I won’t bother with the graph this month, in the past these three metrics have generally been down -10% or more YoY to be consistent with the onset of a recession.

Now let’s update the “last shoe to drop” in this series, housing units under construction. This was unchanged on an annualized basis at 1.280 million units:

This series has been essentially flat - even rising slightly - as well since the beginning of this year, which is typical of an economic recovery that is beginning or has already begun:

Which, if it weren’t for rising mortgage interest rates would be good news.

So let’s close out with graph of mortgage rates (blue, inverted) on a monthly basis, showing that they rose to an average of 6.86% in September and 7.38% so far in October:

As the above graph shows, a similar increase in mortgage rates in late 2023 (noisily) led to roughly a -10% decline in permits issued (gold, right scale) over the next few months. With the further increase in mortgage rates this month, I expect further deterioration in new housing construction over the next several months as well.

One final note:  from a forecasting perspective, the housing market, along with corporate profits and real retail sales per capita, is one of the three nonfinancial, or “real world” long leading indicators that is of added importance for whether the US economy continues in expansion or falls into recession. Despite the renewed downturn in housing, as of now, both of the other two are still very positive. So - barring particularly strong new lunacy from Washington - the inflationary expansion appears likely to continue over the near term.

Consumer spending, income and wealth

 

 - by New Deal democrat

For awhile now I have been writing about how the wealth effect has been powering sales among upper income households. Earlier this year the Minneapolis Fed took a look at the phenomenon, comparing data from several different sources, including Moody’s:

The New York Fed:

And Bank of America:

They noted that “While Moody’s pegs a sharp break after 2020, Bank of America did not observe a widening gap in their data until mid-2025, when a large separation in spending growth opened between lower-, middle-, and upper-income customers—arguably more ‘E’ than ‘K’”

Interestingly, while they don’t supply any explanatory data, in their conclusion they note:

For each measure above, households are stratified by income. This is a natural consequence of the available data; from credit card issuers to market research firms to U.S. government surveys, income is the common denominator.

“However, wealth—rather than income—increasingly distinguishes the most well-to-do U.S. households. According to the Federal Reserve Board, household wealth has become increasingly concentrated among the top 0.1 percent. And there is ample evidence that wealth (independent of income) empowers spending, with asset-rich individuals able to borrow against their holdings and fund very high levels of spending.

This is particularly noteworthy because in the past four years there has been a huge divergeance between income and wealth, at least as measured by stock market gains. As shown in the graph below, total personal income has risen 23% since September 2022, while the stock market has doubled - it’s up 100%!

All of this adds to the evidence that at the moment the US economy *is* the stock market. Which also means that, if all else stays the same (or reasonably close thereto), a sharp selloff in the stock market is likely to prompt a sharp decline in consumer spending - which can easily become a vicious cycle, which would be broken only when sales come more in line with income growth (or, heaven forbid, decline).

Weekly Indicators for October 12 - 16 at Seeking Alpha

 

 - by New Deal democrat

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

The tug of war between the AI-powered inflationary expansion, and the Big Bad Billionaire Bust-out Bill and Iran war-related increase in interest rates and gas prices continues. In the present, so far AI is winning. But out on the horizon, enough damage has accrued that (for this week at least) the long leading indicators have turned from positive to neutral.

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 of two in lunch money for my efforts collecting and organizing it all for you.

Insutrial production, primarily powered by AI-related utilities, continued its rebound in September

 

 - by New Deal democrat

One of the biggest, if not the biggest, trend I have been writing about is the rebound in manufacturing that has been driven by AI data center construction. In that regard, industrial production, one of the four important monthly series that the NBER looks at in determining whether the economy is expanding or contraction, has been an important indicator of that upward trend, and that continued in September.

Headline production (blue) rose a sharp 0.7% to another post-pandemic high, and manufacturing production (red) rose 0.3%. And electric and gas utility production (gold, right scale), which is most closely aligned with AI data center construction, increased sharply against, by 3.5%. The below shows all three normed to 100 as of just before the pandemic:

Utility construction has outpaced the manufacturing sector as well as the headline number in the past few years, and continued to do so in September. On a YoY basis, while headline production was up 2.2% and manufacturing production up 1.1%, utility production continued to be up sharply, by 8.7%:

So the big news from industrial production is that AI data center construction continues to be the centerpiece of the manufacturing rebound since last year.

Retail sales continue this year’s positive trend, suggest jobs market likely to improve as well

 

 - by New Deal democrat

As per usual, real retail sales is one of my favorite economic indicators, because it says so much about the health of the US consumer, and since consumption leads employment (noisily), also forecasts the trend in job creation.

Normally I don’t spend a lot of time on nominal retail sales, but this year that is more useful. That’s because the weekly Redbook index, which tracks nominal retail spending YoY, has been accelerating, up as much as 11% YoY (in fact this week it was 10.5% higher YoY). Here’s what the past five years of that index look like:

It was white hot in 2022, cratered in 2023, and has been accelerating back higher ever since, including this year.

But was it telling an accurate story? 

That’s where nominal retail sales come in. These were up 0.8% in September, and higher by 6.3% YoY. Here is what the YoY% changes in that metric look like over the past five years:

This is the exact same pattern as in the Redbook graph above. In other words, Redbook’s weekly updates have been telling us a true story (which is one reason why I track them every week as part of my Seeking Alpha weekly roundup of data).

But as useful as nominal information can be, the inflation adjusted data is more important. And since consumer inflation was higher by over 0.6% in September, real retail sales rounded to only a 0.1% gain. Still, note that there has been a sharp increase in real retail sales this year, although they remain lower than during the immediate post-pandemic Boom:

Note that this is telling a similar story to that of jobless claims that I just updated again this morning.

Although I won’t show the historical graph in this post, for about 70 years prior to the pandemic a decline in real retail sales YoY generally meant that a recession was close at hand. As you can see from the below graph, that wasn’t true for 2023-24. But YoY real retail sales have been positive, and improving, this year:

Further, real retail sales lead nonfarm payrolls (red in the above graph), albeit noisily. Sudden changes, such as caused by YoY comparisons with stimulus spending, take a longer time to get “digested” by the jobs market (a decent proxy is the 12 month average of the YoY% change in sales), but typically the lead/lag time is on the order of about 6 months. In that regard, here is the close-up of the last two years in the above YoY graph:

With the improvement in real retail sales this year, I expect the next few jobs reports to be positive, and perhaps more positive than we saw earlier this year.

So, to reiterate: like jobless claims, this is another positive for the economy.

Jobless claims continue near historic lows (yet again)

 

 - by New Deal democrat

Let’s take our regular weekly look at jobless claims. As per my periodic reminder, these are an excellent short leading indicator for the economy, particularly in conjunction with the other half of my “quick and dirty” forecast method, the YoY% change in stock prices.

These have been near historic lows much of this year, and continued in that vein this week. Initial claims rose 1,000 to 199,000, and the four week moving average rose 250 to 198,500. With the typical one week delay, continuing claims declined -4,000 to 1.710 million:

On the YoY% basis more important for forecasting purposes, initial claims were down -10.4%, the four week average down -11.7%, and continuing claims down -11.3%:

This metric continues to be very positive.

Since we’re still early in the month, I’ll dispense with what this means for the unemployment rate (but it certainly means I don’t expect the unemployment rate to increase). So here is the update on the “quick and dirty” forecast mentioned above. Note that since the metric for jobless claims is that they not be higher by more than +10% YoY, that line is inverted, and 10% added:

In contrast to the deteriorating real aggregate payrolls I discussed yesterday, this - like most current leading indicators - remains quite positive. To reiterate: when it comes to gauging the economy, leave your ideological predisposition at the door. In essence, the AI Boom (or bubble) is outweighing all the other economic determinants at the moment.

September CPI shows widespread movement *away* from Fed target, post-pandemic low in real nonsupervisory payroll growth

 

 - by New Deal democrat

After two benign months due to a temporary decline in energy prices this summer, the higher trend in inflation returned. And that continued in September, as prices (blue) rose 0.6%, and on a YoY% basis accelerated 0.3% to 3.7%. Core CPI excluding food and energy (red) also rose 0.3% for the second month in a row, rising from its post-pandemic YoY% low of 2.4% to 2.6%. Excluding shelter (gold), CPI rose 0.5%, but also increased 3.5% YoY:

Needless to say, the big culprit was energy prices, which rose 5.2% in September alone, and were up 20.4% YoY:

And the bad news extended to shelter, which is 1/3rd of the entire index. It reversed its recent deceleration, rising 0.4% for the month, and 3.2% YoY (blue).  Of it’s two components, Owner’s equivalent rent rose 0.3% monthly and increased to 3.3% YoY, while actual rent of primary residence also rose 0.2% and was up 2.8% YoY:

There was other bad news as well. Electricity prices rose another 0.2%, and are higher by 20.4% YoY. Utility services did decline -0.3% for the month, but remained higher by 5.0% YoY. And computer hardware prices rose 1.4% for the month, and were higher by 9.7% YoY:

Motor vehicle maintenance and repair also continued to be a problem child, up 0.7% for the month and 5.8% YoY:

If there was a silver lining, it was that motor vehicle prices continued to be somnolent. New vehicle prices (red) rose 0.2% for the month, and were only higher 0.6% YoY, and while used vehicle prices (gold) rose 0.7% for the month, they remained lower YoY by -1.5%. The average for all motor vehicles (blue) was higher 0.5% monthly, but was unchanged YoY:

Finally, let’s update real nonsupervisory hourly wages (orange), which declined and real aggregate nonsupervisory payrolls (red), both of which declined -0.4% for the month. Both remain about -0.9% and -0.5% below their February and January peaks respectively:

Real wages are also down -0.4% YoY, but payrolls remain positive, up 0.5% YoY:

Recall that real aggregate nonsupervisory wages are an excellent short leading indicators for recession. Further, when they turn negative YoY, they have been a good coincident marker for a recession. The current situation remains almost sui generis. It is very rare for this metric to stay below peak for more than half a year without a recession occurring shortly thereafter. In fact, only three times in the past 60 years, for *1* month apiece in 1968, 1996, and 2011, have decelerating real aggregate nonsupervisory payrolls been higher this little YoY without a recession ensuing shortly thereafter:

In conclusion, this was a poor report for obvious reasons. Not only are oil and gas prices driving up the headline number, but the recent quietude in shelter prices appeared to reverse a little higher, and the AI-data center driven increases in electricity, water, and computers are still firmly in place. While my forte is forecasting rather than Fed-watching, it is difficult to see the Fed being comfortable with this widespread boomerang away from its 2% target.