Repeat existing home prices continue to increase at a snail’s pace, but still outstrip post-pandemic wage growth

 

 - by New Deal democrat

In the past month, all of the various home price indexes have confirmed abating inflation in the shelter sector. This morning the FHFA and Case Shiller house price indexes were updated through December. Last week we got price information for new houses, and earlier in the month for existing homes. In this post I’ll update all of them. My emphasis is on a rebalancing of the housing market between new and existing homes in the context of a housing shortage that caused prices to spike in the post-pandemic period.

On a seasonally adjusted monthly basis, the Case Shiller national index (blue in the graphs below) rose 0.4%, while the FHFA purchase only index (red) rose 0.1% for the October through December period. This is the fifth straight seasonally adjusted increase, after 4-5 months of seasonally adjusted declines earlier in 2025 [Note: as per usual, FRED has not  updated this month’s FHFA readings yet]:

So it is safe to say that the downtrend earlier in 2025 has reversed, although the increases are at their 2023-24 pace, and not the price spike of 2021-22.

Here is the equivalent monthly graph for new home sales (gold), which unfortunately are not seasonally adjusted. These increased 4.2% for the month of December, which is within their range of monthly noise - and in fact less than their increase in December one year ago:

But on a YoY basis, the trends in all three indexes continue to be very subdued, with the Case Shiller Index up only 1.3% and the FHFA index up 1.7%, lower than their YoY increases at any point since the pandemic with the exception of a brief period in 2023. Meanwhile the YoY median price of new houses *declined* -2.0% (note I show new home prices quarterly as well as monthly in order to smooth out noise):

Although I won’t bother with the long term historical graph this time, the YoY gain in the FHFA Index is the lowest in the past 35 years outside of the 2007-11 housing bust and 2 months in 1993, while for the Case-Shiller national index it is the lowest except for the 2007-11, housing bust, the 1991 recession, and briefly in 2023. Although new home prices are, as shown above, much noisier, they display a similar pattern. 

In a similar vein, the monthly change in existing home prices is not seasonally adjusted. These declined -2.0% in December, typical for that month. Here is a look at the past 10 years:

Although I can’t show you a YoY graph, the change for 2025 was only 0.9%.

In summary, prices for existing homes were up 0.9% YoY, and repeat sales of existing homes were only up 1.3% and 1.8%; while the prices of new homes actually continued to decline.

Finally, let’s take a look at affordability. The below graph shows average weekly earnings for nonsupervisory workers compared with the Case-Shiller, FHFA, and new homes price information, all normed to 100 as of just before the pandemic:

As of the end of 2025, average weekly earnings have increased 32.9%, while repeat home sales prices have increased 53.6% and 56.9%. In other words repeat home sales prices have increased over 20% more than average weekly wages since before the pandemic. The median price for an existing home (not shown) has increased by 47.0% over that same period. By contrast, the price decreases of the past several years mean that the median new home has sold for only 24.9% more than just before the recession, or about -8% less than average wage gains.

So if we continue to see a very gradual rebalancing of the housing market between new and existing home prices, but we simply need much more new and existing home inventory to bring down median prices to the pre-pandemic level (not to mention the issue with mortgage rates, but that’s another story).

Long leading indicators in Q4 GDP suggest worsening conditions for an economy barely keeping its head above water

 

 - by New Deal democrat

Last week’s Q4 GDP release, as usual, updated two long leading indicators: proprietors’ income (a placeholder for corporate profits, which won’t be reported until next month at the earliest), and private residential fixed investment, a proxy for housing. They were of particular interest this time because, while the normalized yield curve (except at the short end) brought about by the Fed’s lowering interest rates has been getting a lot of attention as forecasting a good economy ahead, the rest of the long leading indicators aren’t doing so well. And that is of further particular concern because most of the critical coincident indicators of the economy aren’t doing so well, either.

Let’s take a look at them, starting with the two in the GDP report.

First, real private residential fixed investment declined slightly, and — the more precise long leading indicator — as a share of GDP made not just a new post-pandemic low in Q4, but a new 10+ year low:

Further, proprietors’ income declined for the third quarter in a row. The below graph shows it deflated by the PCE index, but even nominally there was a decline during Q4:

Here is the historical view (in log scale) to put it in more perspective:

 

The message of these two metrics would suggest a recession could happen at any time. 

A third non-financial long leading indicator, real retail sales per capita, although not part of the GDP, after improving throughout 2024, was also faltering in the second half of 2025:

Although I won’t bother reposting graphs, as we know from last week, housing permits and units under construction also faltered during most of 2025. 

In other words, take away the financial-based indicators, and the “real world” long leading indicators are flat at best.

Now let’s turn to the monthly coincident indicators that the NBER is said to track. The graph below norms them — payrolls, industrial production, real personal income less government transfers, and real manufacturing and trade sales — to 100 as of September. I’ve also included real retail sales, since the reporting on real manufacturing and trade industries sales is lagging so badly:

With the exception of industrial production, the best any of them have done since September is a 0.2% increase in real personal income as of November (before declining in December).

Note that there was lots of volatility early in 2024 that had to do with front-running the imposition of tariffs. So this is the same series shown YoY:

 

All of them except for industrial production are converging towards 0, i.e., no gain at all since one year ago.

Finally, although it isn’t necessarily part of the NBER’s calculations, real disposable personal income, both in total and per capita, also barely advanced in 2025, and particularly since July:

This is the discretionary money that consumers have to spend. As I pointed out last week, increased spending has only been as a result of consumers going into their savings, which renders them more vulnerable to any adverse shock.

In sum, we have an economy that is barely holding its head above water, and more compartments (to mix in a Titanic metaphor) are flooding.

Weekly Indicators for February 16 - 20 at Seeking Alpha

 

 - by New Deal democrat

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

It is striking that the (generally) non-governmental high frequency data point to a strong consumer-led economy, while the official, generally monthly data point to a stall in sales, income, spending, and jobs, with only production growing. This almost has to be resolved one way or the other soon.

As usual, clicking over and reading will bring you all of the most timely information, and bring me a penny or two to put towards lunch money.

December personal income and spending: on the very cusp of recessionary

 

 - by New Deal democrat

Personal income and spending are among the most important monthly indicators of all, because they give us a detailed look at consumption by the broad range of American households. And since consumption leads employment, they also give us an idea of what is likely to happen with regard to jobs in the near future.

This morning’s data was for December, so it is almost one month stale. For the month, nominally personal income rose 0.3% and spending rose 0.4%. But the PCE deflator also increased 0.4%, so in real terms income rounded to unchanged, and spending rounded to only a 0.1% increase. Here is what they look like since the pandemic:

Note that real personal income has been flattening for months, and has been lagging spending, which becomes even more apparent on a YoY basis:

Real personal income is only up 1.4% YoY, and real spending is up 1.7%. And both measures are decelerating.

Further, once we exclude government transfers — one of the important coincident metrics used by the NBER to date recessions, real personal income actually declined -0.1%:

Real personal income excluding transfers was only up 0.1% YoY, and completely flat since last January. With only two exceptions — 2022 and 2013 (which was an artifact of a change in Social Security withholding) — such a low rate has only happened during recessions:

How is that spending being sustained? Households are digging into their savings. The personal savings rate declined -0.1% to 3.6%, the lowest rate since 2022. In fact, as the below long term historical graph, which subtracts -3.6% so that the current rate shows at 0, the personal saving rate has only been this low during the years immediately preceding the Great Recession, and during 2022:

In 2022, the economy was saved by the hurricane strength tailwind of deflating producer prices, which enabled a continued Boom in consumer spending. Needless to say that is unlikely to happen now. To the contrary, as indicated above, PCE prices increased 0.4% for the month, are were up 2.9% YoY, the highest rate of YoY increase since March 2024:

An accelerating PCE deflator is not something that is going to encourage the Fed to cut interest rates further.

And the leading portions of consumer spending are also flashing red warning signals. Historically, the pattern has been that real spending on goods (red in the graph below) turns down in advance of recessions, and in particular spending on durable goods (orange), which tends to turn down first. Real spending on services (blue) has tended to rise even during all but the most prolonged or deep recessions. The below graph shows the post-pandemic record, normed to 100 as of one year ago:

In December, services spending rose 0.3%, but real spending on goods declined -0.5%, and on durable goods -0.9%. For all of 2025, services spending did indeed increase, up 2.6%, but real spending on goods declined -0.1%, on real spending on durable goods declined -2.9%. And it wasn’t just one poor month. The trend in goods spending has been flat all year. To smooth out some of the noise, I have been tracking the three month average. That average peaked in October, and made a six month low in December.

In summary, real personal income, as well as real personal spending on goods, have flatlined in recent months, and are now slightly negative. Savings are being used to power additional spending, making consumers particularly vulnerable to any adverse shock. Any further deterioration would be clearly recessionary — and a downturn in the stock market, which has delivered so much “wealth effect” spending, could be just such a blow.

AI data center and electricity supply production as drivers of industrial production and capital goods spending

 

 - by New Deal democrat

There is more and more accumulating evidence that manufacturing, at least in the aggregate, is something close to Booming. That message was apparent in yesterday’s durable goods orders report for December. While the headline number (blue in the graph below) declined -1.4%, the three month average for this very volatile series made a new post-pandemic high. The much less noisy capital goods new orders number (red, right scale) increased 0.6% to a new all time high. The three month average for that metric made a new all time high as well:

These numbers have been rising for the past 18 months, and even accelerating, as the YoY% gains have also been increasing:

The same dynamic was apparent in yesterday’s industrial production release, in which headline production rose 0.7% for the month, and the manufacturing component 0.6%. The latter made a 3+ year high, and the former a post-pandemic high. But as I pointed out, the real driver was electric utility production. The below graph drives this home by norming all three to 100 as of just before the pandemic. Headline production is up 1.3% since then, but manufacturing production, despite the increases of the past 18 months, is still down -0.4%. Utility production, however, is up 13.9%!:

As I indicated then, I suspect this is almost all driven by AI data center and attendant power plant construction. Below I again show headline industrial production (blue) compared with employment in manufacturing (red), and in non-residential construction (gold), again all normed to 100 as of just before the pandemic:

Employment in manufacturing has been declining for several years, and is now -1.2% below its pre-pandemic levels. But employment in construction ex-residential housing is up 9.4%, and as of the latest report was still rising!

We know that some non-residential construction employment was increasing due to the Inflation Reduction Act, which led to a surge in construction of manufacturing plants, but that peaked in the middle of 2024 and has been declining since:

While this isn’t definitive, and I haven’t yet found a way to do a more granular analysis, it all points to the big increase in both electric utility production and non-residential construction employment being concentrated on the building of AI data centers and the gargantuan energy demands to power them. On this (I submit) rather slender reed is the current growth of the economy reliant.

Presidents’ Day week jobless claims pose a quandary

 

 - by New Deal democrat

Later this morning I’ll discuss yesterday’s positive durable goods orders release, and in that context I’ll also have more to say about the likely reason why industrial production also improved so much. Tomorrow we’ll get personal income and spending, and new home sales, both from December, as well as the first pass at Q4 GDP — all of which are one month late - even now three months after the end of the government shutdown!

In the meantime let’s take our usual weekly look at jobless claims. I do this because they are a good short leading indicator, particularly of the labor market.

Initial claims declined sharply last week, down -23,000 to 206,000, the best reading since mid-January. The four week moving average declined -1,000 to 219,000. And with the typical one week delay, continuing claims rose 17,000 to 1.869 million:

As per my usual practice recently, the above graph includes the last three years to show that there has been a pattern of unresolved seasonality whereby claims rise in the first six months of the year, and then decline in the last six months. 

Now let’s look at the YoY% changes which are more important for forecasting pursposes:

Initial claims were down -8.0%, but the four week moving average was still higher by 0.6%. Continuing claims were also higher by 0.4%.

So was the big decline this week a return to the positive comparisons YoY that we saw beginning last July? Or was it simply a function of Presidents’ Day being one week earlier this year than last year? Notably, in 2023 and 2024 there was a big spike downward in claims during the equivalent week in February, and while there was no such spike last year, there was a big upward spike the following week.

All of which means we’ll have to wait one more week to see if this week’s initial claims number was an outlier or not. Another week of lower claims YoY suggests that the trend since last July of comparatively very low claims has not abated, while a spike upward would suggest that unresolved post-pandemic seasonality has resumed being the bigger driver of the trends.

In either event, for forecasting purposes the numbers remain either mildly or strongly positive.