The post-pandemic affordability crisis and the election of 2024

 

 - by New Deal democrat

There are times when there is little new economic data of import, and not too much else to say. At other times, the import of particularly striking data on even long term historical trends could justify entire book chapters almost overnight. Right now is one of the latter. Bear with me a little bit while I lay the groundwork.

This particular moment got started when Jamelle Bouie took Michelle Cottle to the woodshed over the issue of “wokeism” in a podcast I saw reported late last week. Here’s the essence of the exchange:

Cottle: My guess is that you then completely reject the idea that we wound up with this wretched administration in part because the backlash to the excesses of woke, especially alienating young men who were like based told they were the problem, just generally speaking.

Bouie: I completely reject that for like simple reasons of like linear time. That like this administration was elected in 2024 at peak woke when like Nancy Pelosi was wearing Kente cloth, Democrats won a trifecta, right? …. I think that if you look at the 2024 election and you ask yourself, why did Trump win? The very obvious answer is he won because inflation was high and people didn't like it. And people backfilled a lot of cultural reasons. [P]eople [we]re mad about inflation, and that directly tracks with President the President's declining approval.”

G. Elliott Morris amplified that in a substack article, which I excerpt below:

The reality of the 2024 election is that it was going to be hard for a Democrat to win, regardless of who they were or how they campaigned. The broader economic and political conditions were so favorable to Republicans that you would have expected Trump to win about 90% of the time, regardless of campaign or candidate effects.

Political scientists have been pointing out for decades that you can predict presidential elections reasonably well using just two pieces of information: how voters feel about the incumbent president, and how voters feel about the economy. There are many variants of this model — such as the “Bread and Peace” model (Douglas Hibbs), the “Time for Change” forecast (Abramowitz), Ray Fair’s “Fair” model, and Wlezien/Erikson’s work with “Leading Economic Indicators” — but all use a similar set of economic and political “fundamentals” to predict the result of the election.  

….

In 2024, Kamala Harris received about 49.3% of the two-party vote. The model — fit on data from 1956 through 2020, with 2024 held out — predicted she’d get about 48%, with an 80% prediction interval of 46.6% to 49.9%. Harris’s vote share lands on the upper end of this range, but still squarely inside of it.”

Here is the model that Morris is talking about:

He concludes: “[G]enerally speaking, ‘inflation was high, and Harris was going to lose anyway’ is a much better explanation for 2024 than anything else in isolation.”

That is a very unpopular opinion in many progressive quarters, especially when you look at the breakdown in the 2024 vote by race. It is very obvious that T—-p was popular with, and remains generally popular with, Whites, and in particular White men. But elections are decided at the margin. Rock solid bigots are going to vote bigot, no matter what. More broadly speaking, people tend to have unmovable opinions about what are generally called “social issues,” vs. more malleable opinions about the broad economy. And so generally it is the latter group of people who wind up deciding national elections. And incidentally, I tracked both the “bread and peace” and “leading economic indicators” models during 2016, and both - unlike the political pundity - forecast a very close election, with Clinton getting slightly more votes. She did, but lost in the Electoral College.

Even during 2024, that the economy was not actually doing all that well in terms of delivering goods to the people, broadly measurered, was something I argued many times.

What are the two most important purchases that average consumers ever make? Houses and cars. And younger people in particular were priced out of the market during most or all of Biden’s term.

Here is what happened to the average price of existing homes, as measured by the FHFA repeat sales index (blue) vs. average hourly nonsupervisory wages (red) normed to 100 as of just before the pandemic:

The average price of a house increased 38.2% by June 2022, while average wages were only up 14.5%. And that imbalance has never resovled. Even as of this past June, house prices were up 57.8% since February 2020, while wages were up 34.7%.

Here’s the same comparison applied to the average of new and used car prices:

At their peak difference, in February 2022, vehicle prices were up 28.4% compared with just before the pandemic, vs. 12.2% for wages. The difference did not finally resolve until May 2024, when both were up 24.8%.

And that’s not all, because the interest rate to finance mortgages (purple) and vehicle loans (orange) increased sharply as well [note: the latter are dots because the data is only reported once a quarter]:

Just before the pandemic, mortgage rates averaged 3.47%. At their peak in October 2023, they were 7.62%. Vehicle loans averaged 5.29% just before the pandemic, and peaked in February 2024 at 8.65%.

Finally, here is what the graph of monthly real median household income, compiled by Motio Research, looked like through December 2024:

Real median household income languished below its pre-pandemic 2019 peak all the way until the end of 2023. By Election Day 2024, it was only about 1% higher.

It’s true that job creation was red hot and even white hot throughout Biden’s term. And it is also true that real wages rose stoutly from their June 2022 trough linked to gas prices during the initial Ukraine invasion by Russia. But it is not true that average consumers, and in particular younger ones, prospered during Biden’s term - particularly as to the items they needed to be most affordable - at least not until 2024, by which time it was too late.

There is much more to say of a much broader issue that is led into by the above. For now, let me just give you a quick foretaste. The below is the updated graph through last Friday of corporate profits reported to Wall Street through last Friday:

At an index value of 110.26, they are almost 50% higher than they were even one year ago. And they are almost double their index value of 54.45 from only three years ago, in Q2 2023.

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.