More clarity in jobless claims: both post-pandemic seasonality and regime change at work

 

 - by New Deal democrat

As we move further into the calendar year, we are getting more clarity on what has been happening with jobless claims. As a reminder, I look at these because historically they have been a good short leading indicator for the unemployment rate and more broadly for the economy as a whole. And to cut to the chase what I see happening with claims is *both* residual post-pandemic seasonality *and* a change in regime to lower claims that started at mid-year last year.

First, to this week’s numbers: initial claims rose 4,000 to 212,000. The four week moving average rose 750 to 220,750. And with the typical one week delay, continuing claims declined -31,000 to 1.833 million:

The one week delay in continuing claims this week is likely unusually important, because this reports (like initial claims last week) for the week including President’s Day and so had one fewer day that government offices would be open.

Note, though, that the post-pandemic seasonality, in which claims make lows at the turn of the year, rise to highs at mid-year, and then decline back down through the end of the year, looks more apparent now as we see initial claims and their four week average moving higher since January.

But as usual, the YoY% change is more important for forecasting purposes; and it is here that we see continued evidence of a change in regime. On a YoY basis, initial claims were lower -7.1%, the four week average down -2.5%, and continuing claims down -0.8%:

This is the trend of generally lower claims we have seen since the end of last June. This trend is a positive for the economy over the next few months. Again, the reason for this regime change may have to do with the nearly complete cessation in new immigration, and fear and deportations driving immigrants already here not to show up for work or to file claims, leading to lower jobless claims. Since we have also seen a gain in AI data center-related employment, it could reflect a lower number of layoffs in nonresidential construction employment as well.

Finally, since we are close to the end of the month, let’s take a look at what this likely means for the unemployment rate (red in the graph below, left scale) in the next monthly jobs reports:

The downward trend in jobless claims strongly implies a declining trend in the unemployment rate over the next several months, towards 4.2% or even 4.1%. 

Per Prof. Edward Leamer’s forecasting method, a yellow flag “Recession Watch” is warranted

 

 - by New Deal democrat

In a landmark paper almost 20 years ago, UCLA Prof. Edward Leamer wrote that “Housing IS the Business Cycle.”

In that paper he concluded:

In the years before recessions … consumers contribute a total of 65% of the leading weakness. In contrast, business spending contributes only 10%…. The temporal ordering of the spending weakness is: residential investment, consumer durables, consumer nondurables consumer services….

I’ve been writing for many months that the housing sector has been recessionary. I’ve also noted that another important leading indicator from the real economy, truck sales, has also been recessionary. This month three more of the items on Leamer’s list, albeit in noisy terms, also appear to have turned recessionary.

The first of those is personal spending on durable goods, which I noted last Friday. Here is the graph I used then, normed to 100 as of one year ago:

The second is motor vehicle sales for December (blue in the graph below), which was reported as part of last Friday’s GDP release, and is the quinessential “consumer durable” on Leamer’s list. These declined sharply to an annualized rate of 14.810 million, the lowest monthly number in four years, and over -17% below the peak month last March, in which a SAAR of 17.892 units were sold:

The three month average of 15.5 million is -9% below the peak average earlier last year of 17.0 million. This is significant because, as the historical graph below indicates, typically recessions have begun once motor vehicle sales have declined roughly -10% from peak. In both the above and below graphs I also show heavy truck sales (red), which almost always decline first and more decisively, and recover later. As I’ve noted above, these have already been recessionary:

The third metric is manufacturers’ new orders for consumer goods, which were reported last Wednesday. These declined -1.4% for the month, but more importantly with the exception of last April and May were the lowest in almost two years:

They were also negative YoY, just as real personal spending on goods also turned negative YoY in that most recent report last Friday:

In other words, every single item on Leamer’s leading checklist has turned negative except for consumer spending on services (which I question because frequently services spending has continued to increase throughout recessions).

On Tuesday I noted that since September three of the four of the typical monthly data upon which the NBER has traditionally relied upon in determining if a recession has occurred - payrolls, real sales, and real income excluding government transfers - have been essentially flat:

I characterized this as “an economy barely holding its head above water.” By the terms of Prof. Leamer’s forecasting method, a yellow flag “Recession Watch” is warranted. Should the three month averages of motor vehicle sales and new orders for consumer durables turn more negative, a “Warning” would be warranted.

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.