Thursday, July 29, 2021

Q2 2021 GDP: goodbye recession, hasta la vista recovery, hello expansion


 - by New Deal democrat

Nominal GDP before inflation increased 3.1%, while real GDP for the 2nd Quarter increased 1.6%. The real annual rate of growth was thus 6.5%. Real GDP is now 0.8% higher than its last quarter before the onset of the pandemic:

The recession is over, as was declared by the NBER last week. In fact, so is the recovery, if one measures by GDP, since once all of the decline during the recession is made up, that qualifies for calling it an expansion.

Real income and spending are also at higher levels than at any point before the recession, while industrial production and - especially - employment have continued to lag.

Initial claims continue two-month stall


 - by New Deal democrat

Initial jobless claims declined 24,000 this week, but at 400,000 this was the 2nd week in a row starting with a “4” handle. The 4 week average of claims also increased by 8,000 to 394,500:

Significant progress in the decline of initial claims has stopped for the last 2 months.

Continuing claims rose 7,000 to 3,269,000:

This is the third week within 10,000 for continued claims. This level was last seen at the end of 2012 during the last expansion.

Whether claims will continue to stall, reverse, or improve from here is under the control of the Delta variant, and whether new vaccinations continue to stall.

Wednesday, July 28, 2021

Coronavirus dashboard for July 28: you’re reading the right blog, ghoulish edition


 - by New Deal democrat

In writing about the economy, I make use of long and short leading indicators to forecast coincident indicators. In writing about COVID, the template isn’t much different: cases lead hospitalizations by about 2 weeks, which in turn lead deaths by about 2 weeks. Put another way, cases lead deaths by about 4 weeks.

Four weeks ago I wrote:

we have to start worrying about COVID again, because the delta variant has now taken hold in up to 8 States with rising new cases. All of those States have fewer vaccinations per capita than the national average, and most of them much below the average. By the end of July, I anticipate that it will be clear there is a new ‘wave’ of cases in the relatively unvaccinated States.”

In the past 4 weeks, cases have nearly quintupled from about 11,300 to 55,000. Hospitalizations have risen about 2.5x. And here is what deaths nationwide look like, vs. cases:

Deaths have been trending slightly higher and just made a 1 month high.

And here are deaths in the bellwether States that were first hit with Delta, plus a few others:

Deaths in some of those States have started to go parabolic.

In the last 4 weeks, the US has gone from about 47% fully vaccinated to just under 50% fully vaccinated - i.e., not much of a change.

Here is what is going to happen in the next month. Deaths are going to follow cases. Cases have nearly quintupled. Deaths are going to nearly quintuple - I.e., to a level of about 1,000/month.

Tuesday, July 27, 2021

Housing sales decline, while price surges continue


 - by New Deal democrat

So I take a little one day road trip on my vacation, and come back to find much weeping and gnashing of teeth and generalized whining about a big decline in new home sales. Well, what exactly were they expecting?

The new home sales data is particularly volatile and heavily revised. So, in June, it was volatile, and May was revised substantially downward (blue in the graph below). Prices also declined, although they remain within the range of monthly noise (red):

When we look at the YoY% change quarterly (to reduce noise), the prices follow sales continues to be in evidence:

In absolute terms, sales peaked at the turn of the year, while prices continue to rise faster than the pace of overall inflation.

But of course, we really already knew this, because single family housing permits give us the same information, which much more signal and much less noise, with about a 1 month delay (red in the graph below):

Sales lead prices. Once sales decline enough, sellers will get the message about prices.

Meanwhile, this morning both the FHFA (red in the graph below) and Case Shiller (blue) house price indexes for existing homes were released, which I show YoY compared with median new house prices (green):

All three continue to show YoY acceleration in prices. As inventory of existing homes held back in 2020 continues to catch up, and supply chain disruptions dissipate, price increases will abate, and I further expect them to reverse.

Saturday, July 24, 2021

Weekly Indicators for July 19 - 23 at Seeking Alpha


 - by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

No visible impact on the economy yet due to the Delta wave. In March 2020, the first indicator to tip over was restaurant reservations. I would expect that to be the first item to suffer now as well.

As usual, clicking over and reading will not only bring you up to the virtual moment, but bring me a penny or two for my efforts.

Friday, July 23, 2021

Comments on existing home sale prices


 - by New Deal democrat

Existing home sales were reported yesterday. Since, although they are about 90% of the market, they have much less effect on the economy than new home sales, I normally don’t pay that much attention.

But I did want to emerge from my vacation hideaway to make a few comments.

1. Inventory is up 11% YoY. Inventory follows prices, and as prices rise, more and more people decide now is a good time to sell their house (especially if they are downsizing). A huge number of people held off selling during the pandemic lockdowns last year in spring. Those houses are going to come back on the market, and I expect inventory to surge as the pandemic recedes.

2. Prices are up 23.4% YoY, almost as insane an increase as last month’s 23.6%.

3. Prices are even more extreme compared with income as they were at the height of the housing bubble. Using average hourly income, here’s how many hours a person would have to work to buy the median existing home for sale last month vs. the two peaks of the bubble, August 2006 and May 2007:

6/21: 14,147 hours
8/06: 12,889
5/07: 12,585

4. But when we look at monthly mortgage payments as a multiple of average hourly income, prices aren’t nearly as extreme as they were at the peak of the bubble, because mortgage rates in June averaged 2.98%, vs. 6.52% in August 2006 and 6.26% in May 2007:

6/21: 59.5 hours
8/06: 81.6 
5/07: 77.6

So, as insane as existing home prices appear now, they could still rise substantially higher. Nevertheless, as they continue to rise, I expect sales to continue to decline (unless mortgage rates come down significantly more).