Jobless claims continue to be the most positive metric in the array of economic indicators

 

  - by New Deal democrat

The new regime of lower jobless claims continued this week. Initial claims declined -11,000 to 207,000, while the four week moving average rose 500 to 209,750. Both of these remain within a stone’s throw of their recent 50+ year lows. Continuing claims, with the usual one week delay, rose 31,000 to 1.818 million but aside from that and one other recent week, is the lowest since May 2024:

The YoY% changes also continue to be lower, with initial claims down -4.6%, the four week average down -5.1%, and continuing claims down -3.1%.:

This continues to be very positive for the economy over the next several months. To reiterate, jobless claims are currently the most positive leading indicator of any across the board.

Since jobless claims lead the unemployment rate, let’s update that as well:

Jobless claims continue to indicate that the unemployment rate over the next several months should decline to the 4.2% or even 4.0% range.

Stock market at new highs, even with Strait of Hormuz still closed. What is Wall Street thinking?!?

 

 - by New Deal democrat

As I type this, there are two particularly salient facts:

 1. Although the US and Iran are not lobbing bombs at one another at the moment, the Strait of Hormuz is still closed.

 2. The US stock market is, on an intraday basis, at record highs:

Huh?!?

On almost no level does this make any basic sense. There is no way that the global economy is as well off, let alone better off, than it was before the Iran war started. And if there was a peace deal today, it would likely be several months before the oil flow returned to normal — and likely a year or more before the Gulf States are able to repair all the damage to their oil and gas pumping facitilities.

Let me back up a little bit and see if I can discern what the stock market is smoking.

To begin with, yesterday’s PPI showed all YoY comparisons higher:

Total final demand PPI (light blue) was up 4.0% YoY; for goods (dark blue), the number was 4.1%. Even services (gold) were up 3.7%. And raw commodities (red) were higher by 6.0%. Since commodity prices feed through into finished goods, here is a historical look at the PPI for raw commodities, normed so that a 6.0% YoY increase shows at the 0 line:

On most occasions in the past, increases this much or more have been associated with supply shocks (1974, 1979, 1990, 2007, and 2021-22). With the exception of the last case, all such supply shocks resulted in recessions very quickly. But let’s take a look at the entire series to see why not every big increase in commodities resulted in recessions.

First, let’s compare the YoY% change in commodity prices with YoY real GDP (blue). I’ve divided up the past 80 years into two sections to better show the relationship:

In the 1950s as well as the 1970s oil shocks, a big increase in commodity prices of 6% or more YoY pretty quickly correlated with a decline in the growth of YoY real GDP. The same was true in 1988, 1990, 2001, 2004, 2005 (post-Katrina), 2007, and during the “Oil Choke Collar” period of 2011-12.

The only exception was during 2001-04 and the 2009-10 period immediately after the end of the Great Recession. The latter is explained by  the fact that gas prices were at historic lows in early 2009. A surge in demand early in the recovery caused both real GDP and commodity prices to rise.

But 2002-03 stands out as the exception. Gas prices and other commodities rose in price, and real GDP accelerated. This was the quintessential “jobless recovery,” were jobs continued to be lost into the summer of 2003 due primarily to the “China shock” of manufacturing jobs being shipped overseas en masse. It was also the period when George W. Bush’s tax cuts kicked in.

Let’s do a similar exercise with corporate profits, since these ought to align more closely with stock prices:

Unsurprisingly, since corporate profits are a long leading indicator, typically they have led producer prices by one or several quarters, which is most apparent during the earlier slice of history above. Perhaps the biggest exception was during the Great Recession, when the two moved in opposite dirrections more or less in concert; but also during the earlier part of George W. Bush’s presidency, when they increased in tandem, again more or less simultaneously.

Now here is the current situation with real GDP:

Real GDP growth has been decelerating at a slow pace over the past serval years. And the current situation with corporate profits also shows a sharper deceleration in growth:

If the situation from the vast majority of similar episodes in the past holds true, both corporate profits and real GDP growth should slow further, if not turn absolutely negative. 

So why are stock prices surging? Wall Street most likely thinks this is an episode like 2002-04, where lower tax rates (from last years Bust-out Budget Bill) together with AI holding down employment costs, more than overbalance the negative effects of the oil price shock. 

In support of their position, let me offer the following graph of the last three years of YoY weekly retail spending from Redbook:

If anything, this shows that the top 10% of the income distribution has so pulled away from everybody else that even a financial shock administered to the bottom 90% is not enough to put a dent in the top tier’s spending.

March existing home sales demonstrate a new equilibrium in the housing market

 

 - by New Deal democrat

Sometimes there just isn’t much drama in economic numbers, and that was certainly the case for this month’s edition of existing home sales.

As a mild refresher, even though they constitute about 90% of all housing sales, existing sales are not nearly so important as new home sales, since the latter involve much more economic activity in the building process, plus more landscaping and furnishings. As a further refresher, for the past several years existing home sales have been narrowly rangebound.

And they remained rangebound in March. Although the declined -3.6% for the month, at 3.98 million annualized, they remained well within their 3 year range of 3.85 million to 4.35 million. The negative here is that this range is also well below their pre-COVID range, shown in this 10 year graph:

Meanwhile, similar to the sideways trend in prices in both the FHFA and Case Shiller repeat sales indexes, on a YoY basis prices were only up 1.4%:

And although I won’t bother with the graph today, recall also that the median price of new single family houses has been trending slightly *downward* for the past several years.

With both sales and prices more or less in stasis, it is no surprise that inventory only crept upward at a very slow pace, up only 3% YoY. Here is the 10 year graph showing that while inventory has mainly recovered from its post-COVID lows, it is still only about 80% of what it was in the several years before 2020:

In short, the housing market seems to have reached a post-COVID equilibrium, with the big unfortunate aspect that the US needs much more housing to be built in order for it to be as affordable as it was before (actually, several decades before) COVID.

The Big Picture overview of the economy: the oil shock may be the proverbial straw that breaks the camel’s back

 

 - by New Deal democrat

Today I want to step back from the daily data and give you my Big Picture overview of the economy, particularly because Friday’s inflation report has materially changed an important component.

To begin with, as I have been saying off and on for months, the economy has been essentially flat, and may have tipped into a “mini-recession” during the government shutdown last autumn. Here are important components of real income (light and dark blue) and real spending (red and orange) for the past two years (note: all graphs below are normed to 100 as of last August with the exception of YoY graphs):

All of these were essentially flat for the last 5 months of 2025, and all are as of their most current reading below last August’s.

In addition to real income less government transfers (blue), nonfarm payrolls (red) and industrial production less utilities (purple) are also close to flat since last August. Indeed, payrolls have been flat for almost a full year:

In fact, the only two metrics that the NBER uses to declare recessions which are materially higher than last August are real manufacturing and trade sales (gold) and total industrial production including utilities (blue):

In the above graph I also show capital goods new orders (red), which have been rising sharply more or less consistently since late 2024. Both capital goods orders and utility production are likely closely tied to the construction of AI data centers, which are broken out specifically in the graph below from Wolf Street:

Downstream of that construction boom has (until the Iran war) been a boom in the stock market (blue, left scale) and strong personal spending on services (red, right scale):

At least until the Iran war this spending has more than overcome the lackluster growth in jobs, income, other manufacturing production, and spending on goods. 

But as indicated above, Friday’s inflation report has darkened the picture. Let me show that in a number of YoY graphs.

First, here are average nonsupervisory hourly earnings (blue) vs. inflation (red). The first two graphs below show the pre-pandemic historical view:

Except for the 1980s and 1990s, the onset of recessions was associated with a sharp increase in inflation that surpassed wage growth. In the 1980s and 1990s, as wages were depressed by the tsunami of Boomers and women entering the workforce (which meant that two-earner household income nevertheless increased) a relative sharp further increase in inflation vs. wages typically was a feature of the onset of recessions.

The post-pandemic record shows a similar surge in inflation in 2022, but government stimulus checks and the rapid disinflation of late 2022 kept the economy from falling into recession. March’s spike in inflation has brought us within 0.1% of real wages turning down YoY again - with no government stimulus nor, at this point, any likely prospect of rapid disinflation:

Finally, here is aggregate nonsupervisory payrolls (dark blue) vs. inflation (red). As above, the first two graphs show the pre-pandemic historical view:

In absolute terms, as I have indicated many times, real aggregate nonsupervisory payrolls have always peaked several months before the onset of recessions. On a YoY basis, in 5 of the last 7 recessions, YoY inflation has topped YoY aggregate payrolls several months into the recession, while on 2 occasions the corssover happened before the onset of the recession.

Now here is the post-pandemic view:

Even in 2022, aggregate payrolls increased more than inflation, with the closest approach being a 1.1% difference in December 2022. As of last Friday, a new low of 0.8% was made. The crossover point could easily happen within the next several months.

To put the capstone on this analysis, the surge in consumer inflation could be the proverbial straw that finally breaks the camel’s back, taking an economy that was just barely expanding and putting it into contraction.

Weekly Indicators for April 6 - 10 at Seeking Alpha

 

 - by New Deal democrat

My “Weekly Indicators post is up at Seeking Alpha.

While inflation and interest rates took a whack at some of the data, most of the financial-related series (like the yield curve in the bond market and credit conditions) remain very positive. And consumer spending, likely by the uppermost income groups, actually posted one of its very best YoY comparisons in the last 3+ years!

As usual, clicking over and reading should bring you up to the virtual minute as to the state of the economy, and reward me a little bit for my efforts.