Weekly Indicators for November 9 - 13 at Seeking Alpha

 

 - by New Deal democrat

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

This week’s theme is the same as the past few weeks: the long leading time horizon has become considerably more problematic, while the coincident present continues to feature strong production, transportation, and spending.

As usual, clicking over and reading will bring you all of the details in organized fashion and reward me a little bit for my efforts.

October producer prices confirm pressures spreading to services upstream

 

 - by New Deal democrat

I don’t normally pay that much attention to producer prices. Back in the day, producer prices used to lead consumer prices by several months or more. But since the turn of the Millennium, and in particular with “just in time” inventory management, somewhat attenuated since the pandemic, producer prices and consumer prices have risen more or less in sync.

But at very least producer prices as reported for last month confirm continuing inflationary pressures, with final demand prices (gold) rising 0.3% for the month, although raw commodity prices (red) declined by -0.2%, as compared with headline consumer prices (blue), which earlier this week were reported up 0.5%:

On a YoY basis, final demand prices were up 6.5%, and commodity prices up 12.8%, vs. an estimated 4.0% for consumer prices:

Decomposing producer prices further into prices for goods (purple) vs. services (orange), the former rose 0.5% and the latter rose 0.2%:

Note that on a monthly basis, for most of this year producer goods inflation is as bad as it was during the post-pandemic bottlenecks, while producer services inflation is up much less. On a YoY basis, the former is up 10.2%, and the latter up 5.0%:

Again, I don’t think this gives us a lot of predictive informatioin like it might have once upon a time. But at very least it confirms that there is widespread inflation at all levels, and to the extent there may be a leading/lagging relationship, I would worry that goods inflation has been spreading to services, and might further show up in the next several months in consumer prices as well.

Next week we’ll begin to get the November regional Fed reports, which will give us considerably more insight into whether further consumer price hikes are on the horizon.

The 3+ year equilibrium in the existing home market has broken - to the downside

 

 - by New Deal democrat

I’ll discuss this morning’s producer price index release later. First, though, let me catch up on yesterday’s report on existing home sales for October.

For the last three years, the market for existing homes has been rangebound, first in sales, then in prices, and finally this year in inventory as well, in what I have described several times as a “suboptimal equilibrium,” since existing homes have been unaffordable compared with any time outside of the housing bubble before the pandemic. Last month I concluded that, downstream of the increase in interest rates, September might be the last month for this equilibrium.

And it was, as existing home sales broke out of their three year+ range of between 3.85-4.30 million units annualized, declining a seasonally adjusted -5.5% monthly and -8.8% YoY to 3.75 million annualized, the lowest level in over 10 years:

Downstream of sales, prices on a YoY basis (which are not seasonally adjusted, so this is the best comparison) have been relatively calm as well. Since February of 2025 there has been no YoY comparison higher than 3.0%, and in October there was the lowest such comparison since, up only 0.4% YoY from $420,200 to $421,900: 

The most lagging metric, inventory, is still increasing, although tepidly. In October, the YoY% change in existing home inventories increased by 4.6%. As shown in the below graph, this year’s inventory has been the highest since the pandemic, but still below its 2016-19 baseline by about 500,000 units:

As I have been saying all year, until this inventory shortage is taken care of, the housing market will continue to be tight, and largely unaffordable for new buyers.

But the big takeaway has to be that the equilibrium has broken to the downside, along with most of the financial long leading indicators. It remains to be seen whether the crucial non-financial long leading indicators (corporate profits and real retail sales per capita) follow suit.

It’s still a historically low-fire economy; and the trend in the unemployment rate is still downward

 

 - by New Deal democrat

Let’s take our regular weekly look at jobless claims. Additionally, let me use this as an opportunity to delve a little further into the unemployment rate as reported in last Friday’s jobs report.

Last week initial jobless claims rose 9,000 to 200,000, still an excellent number. The four week moving average was unchanged at 195,250, close to its all time historical lows. And with the typical one week lag, continuing claims declined -20,000 to 1.697 million, also an excellent number:

As usual, the YoY% changes are what tell us what is likely ahead in the near term for the economy as a whole. On that basis, all were -here’s that word again - excellent! Initial claims were down -12.3%, the four week average down -14.0%, and continuing claims down -12.8%:

While I’m at it, let me update my “quick and dirty” forecast, including the YoY% change in stock prices (note that jobless claims are inverted in the below graph):

Despite the recent AI-related sell-off, the S&P 500 is still up almost 10% YoY, so the “quick and dirty” forecast is for continued expansion in the next few months.

As I usually note, new jobless claims have a 60 year history of leading the unemployment rate. Here’s the update on that, including (orange) the two numbers that make the unemployment rate: the number of unemployed divided by the number of people in the labor force, which last month was 4.14% rounded to 4.1% in the official rate:

While the unemployment rate seems to be a little stubborn about following the number of newly laid off workers down, the downward trend is nonetheless apparent. Interestingly, by looking at the component parts: the number of unemployed and the number of people in the labor force, here:

It appears that in the last few months there has been a rebound in the number of people in the labor force, suggesting there have been new entrants to the labor force who may be having a little more difficulty than in the past several years securing employment to their liking. In any event, as I wrote above, the overall downward trend is intact, and all things being left to themselves, I continue to expect a sub-4.0% unemployment rate in the months ahead.

Leading employment indicators, real wages and payrolls, and the consumer nowcast recession indicators

 

 - by New Deal democrat

Typically in the quiet week after the jobs report, I take an extended look at some of the trends. With the significant “hot” CPI print yesterday, I am splitting that up. Tomorrow I’ll take a look at the unemployment side, as part of my weekly update on jobless claims. Today I’ll briefly update the leading employment indicators, which will segue into an important discussion of the health of the average American consumer in view of the recent acceleration in inflation. In particular, I will update my “consumer nowcast” recession system.

First, let’s take a look at the leading employment sectors, almost all of which are in the goods producing secotr (blue). This includes manufacturing (gold), construction (orange), and the more leading residential construction (red):

As you can see, with the exception of residential construction, all of these bottomed roughly at the end of last year, and have improved this year. Residential construction has reversed again in the past several months, but that hasn’t been enough to undo the wider, positive signal. And although I won’t show it, the remaining portion of construction is nonresidential construction, which includes things like AI data centers.

Two other items are the average weekly hours of manufacturing workers (red, right scale) and truck driving (blue, left scale):

The former has been very positive for many months, while the latter has improved slightly even with the burden of the spike in diesel prices due to the Iran war.

These positive leading sectors tell us that, left to its own devices, the economy - and overall employment - should continue to expand over the next 4-8 months.

But yesterday’s CPI print tells a very different story of different employment indicators; namely, real wages and payrolls.

First here is what average hourly (blue) and weekly (orange) wages look like deflated by CPI, normed to their highs in February of this year:

Both metrics are down -0.8% from that peak. Further, the former is now down an estimated -0.4% YoY, while the latter is down -0.8%. While these aren’t strong recession indicators, their turning down often does presage one.

More importantly, as I’ve written any number of times, is real aggregate payrolls. In particular, I track real aggregate nonsupervisory payrolls (red), which have a 60 year history of being an excellent leading and coincident indicator. In the below graph, I also include total payrolls including supervisory jobs (blue). Both of are normed to 100 as of their peak this past January:

The former is down -0.2% since then, and the latter is down -0.3%. While this is a long period of time to be down from peak before a recession, typically the retreat is on the order of -0.6% before a recession actually begins. Additionally, within +/-2 months of a recession onset, typically these turn down YoY. As of next month, if there is no improvement from this month, the former will be down -0.2% YoY, and the latter by -0.1% YoY.

The above discussion is very important on its own for forecasting purposes, but on a more fundamental level, if wages and payrolls are not going up in real terms, where is growth in consumer spending coming from?  Which leads me to my “consumer nowcast,” which holds that if real incomes aren’t going up, then spending must be fueled by either refinancing at lower interest rates (needless to say, not happening now!), or spending equity from increased home or stock prices. If neither of those is available either, then consumers are likely to retrench (i.e., their aggregate savings rate will increase), bringing about a consumer-led recession.

So the next graph includes the above two real payrolls data, and also adds house prices as measured by the FHFA (gold), and the S&P 500 stock prices index (purple), both also normed to 100 as of January of this year:

As you can see, house prices have barely increased also. As a result, home equity loans have increased relatively modestly, by 5.4% YoY through Q3:

But as you can also see, stock prices are up over 10% from the beginning of this year. In fact, on a YoY basis, up until several weeks ago, they were higher by 15%-20% YoY. And this is the only significant remaining source of consumer spending.

While credit card debt has increased by roughly 4% YoY, and population growth has not been a significant factor (thanks to actual and threatened deportations, as well as the complete shutdown of the asylum system (except for White South Africans), the US population has only grown 0.2% YoY so far this year). Aside from that, credit growth has mainly tracked inflation:

Finally, despite the bad news on real incomes, consumers have not pulled in their horns. The savings rate, which just declined to 3.8%, is among the lowest levels since the onset of the pandemic, and although I won’t show the longer term graph, it is also among the lowest readings outside of the 2000’s housing bubble period:

Pulling this all together, I see an economy which is improving - for the moment - but almost entirely based on AI data center construction and its related stock market Boom. Should this reverse, consumers will have no new source left to fuel increased spending, and then I would expect the negative signal in real aggregate payrolls to come to fruition.

October CPI: another hot month for inflation; plus, the last revenge of last year’s government shutdown

 

 - by New Deal democrat

One year ago we were in the midst of the longest government shutdown on record. As a result, there was no consumer inflation report for last October. Which means that this month is the last revenge of that shutdown - for all but a few items, there is *no* official YoY measure. 

But as usual, I have a workaround that will at least enable us to estimate all YoY% changes +/-0.1%. Except as noted, the YoY growth in all items below is based on the average of last year’s September and November reports, normed to “1”. Thus, e.g, a 4% rise in headline inflation shows as “1.04.”

And what it shows is that this October was yet another “hot” month for inflation, revealing higher numbers spreading out into more areas.

With that out of the way, let’s begin. In October, consumer prices (blue) rose 0.4%, and on a YoY% basis accelerated an estimated further 0.3% to 4.0%. Core CPI excluding food and energy (red) rose 0.3% for the third month in a row, aceelerating 0.2% on an estimated YoY basis to 2.8%. Excluding shelter (gold), CPI rose 0.4%,  and accelerated sharply on an estimated YoY basis from 3.5% to 4.2%:

Energy remained the main culprit, as prices rose 0.7% for the month, and were up an estimated 20.3% YoY:

There was good news and bad news for shelter, which is 1/3rd of the entire index. The good news is that it is now running significantly lower than headline inflation. The bad news is that it accelerated on a YoY basis for the second month in a row. Specifically, after rising 0.4% in September, it rose another 0.3% in October, and on an estimated YoY basis, rose  another 0.1% to 3.3% YoY (blue).  Of it’s two components, Owner’s equivalent rent rose 0.3% monthly and accelerated 0.2% to 3.5% estimated YoY, while actual rent of primary residence rose 0.2% and accelerated 0.1% to an estimated 2.9% YoY:

Electricity prices also continued to be a significant problem child, as prices rose a sharp 0.9%, although they only rose an estimated 3.7% YoY against very good comparisons last autumn. On an estimated YoY basis, they are higher by 20.4%:

Transportation services - mainly motor vehicle maintenance and repair, and insurance  - also continued to be a problem child, up 0.6% for the month, although only an estimated 3.8% YoY:

Last month’s silver lining continued this month, as motor vehicle prices continued to be somnolent. New vehicle prices (red) rose 0.2% for the month, and were only higher 0.7% YoY, and while used vehicle prices (gold) declilned -1.2% for the month, and they were once again lower YoY by -3.3%. The average for all motor vehicles (blue) declined -0.5% monthly, and was unchanged YoY. Note that this is one category for which the source data is not from the government, and thus we have actual YoY comparisons. The below graph is normed to 100 as of just before the pandemic:

Now that we have the inflation report, tomorrow I will take a closer look at some fallout from last Friday’s employment report. Teaser: this is not going to be good for real wages and payrolls.