Wednesday, September 22, 2021

Coronavirus dashboard for September 22: the Delta wave rolls out?


 - by New Deal democrat

At last it appears that the Delta wave may be receding, as for now the US is on a definite downslope in cases. As of yesterday the US recorded 135,000 cases, a 31,000 decrease from the peak only 20 days before:

Deaths have continued to rise, but may peak out below the 2400 level I identified previously as the low end of the range for a likely top by the end of this month.

A look at the regional breakdowns shows that the Northeast and Midwest have continued to rise, albeit slowly, and may or may not be peaking. The West has declined, mainly driven by California. But the big news is that in the South, where Delta hit early and severely, cases have declined by 30%:

Further, when we look at the 10 worst jurisdictions for cases, only South Carolina is from the Deep South. Aside from Guam, we have 3 States - KY, TN, and WV - from the Appalachians, and 5 - AK, ID, MT, ND, and WY - sparsely populated States in the northern West:

Needless to say, all of these States are among the lowest vaccinated.

An issue is whether the opening of the school year in the North will drive cases to a new peak. Since schools have been open over 2 weeks, and given the fast transmissibility of Delta, we ought to be seeing not just an increase, but an acceleration of that increase, within the next week, if school spread is enough to cause a renewed Delta wave.

In that regard, let me just show cases and deaths in Israel, which has a similar vaccination profile to the US, with a similar anti-vaxx religious component:

Cases and deaths are both down about 1/3rd from their recent peak there, even with schools open.

An even better example is India, where the Delta variant first struck:

Cases and deaths have totally reverted to background rates, declining by more than 90% from peak - and I hear tell that there are schools in India, so that doesn’t seem to have precluded the decline.

If by the end of this month we don’t see a big increase from the reopening of schools in the North, then I expect the Delta wave to continue to ebb until cold weather arrives.

Tuesday, September 21, 2021

August housing construction shows stabilization, following interest rate moderation


 - by New Deal democrat

This morning’s report on August housing permits and starts shows that the stabilizing of mortgage rates in the past few months has now stabilized housing construction.

Housing starts increased 3.9% m/m, and total permits increased 6.0%. The less volatile single family permits increased 0.6%. As a result, the overall trend for all three metrics for the past several months is sideways:

Last month I noted that the YoY comparisons were going to become much more challenging, given the boom in construction late last year. With the stabilization of construction, both measures of permits as well as starts remained above their levels of one year ago:

Normally I show the changes in mortgage interest rates YoY and compare them with housing construction. This month let me show you the raw mortgage interest rate number (gold), left scale vs. the absolute number of single family permits (right scale):

As mortgage rates declined from 3.7% to 2.7% throughout 2020, single family housing permits increased over 30% from roughly 950,000 annualized to 1,270,000. After the increase early this year in mortgage rates to 3.2%, housing cooled, but in the past 4 months rates have settled in the 2.85%-3.0% range, and housing can be expected to resume a moderate increasing trend in response. This in turn suggests that the economy, which tends to follow housing with a 1 year+ lag, after a period of cooling early next year, will also stabilize later on.

Monday, September 20, 2021

Median household income and housing affordability


 - by New Deal democrat

Let’s take a look at the affordability (or not!) of housing, since there is no economic news of note today.

Last week the Census Bureau released their annual report on median household income for the US, covering 2020. Since this is the best measure to gauge housing affordability, rather than average wages or income, this is a good time to update this information.

Median household income declined in the US last year due to the pandemic, and the tsunami of unemployment that accompanied it. Still, at $67,521 it was still 40% higher in nominal terms than it was at the peak of the housing bubble in 2006, when it was $48,201:

Below I compare house prices measured by the FHFA house price index and the Case Shiller national index, deflated by median household income (dark and light blue) and by average hourly wages (red and violet) as a monthly proxy. The results are normed to 100 as of the peak of the housing bubble in 2006:

Note that, because “average” wages are skewed higher than “median” wages, house prices appear more affordable in average hourly wage terms than in median household income terms. Specifically, in 2020 FHFA prices deflated by median household income were only 5.3% below their peak in 2006, and similarly deflated Case Shiller prices were 13.5% below theirs.

While median income for 2021 won’t be reported for another year, we do have both house price indexes through June of this year, and they are up a further 17.4% and 17.7% since mid year of 2020:

 If median household income from 2020 were held constant (it won’t be, there will be an increase this year because of the big gains in employment), in both cases “real” house prices would be higher than their bubble peak!  But even if nominal median income increases this year back to where it was in 2019 just before the pandemic, house prices would at least be very close to their all time record as a multiple of household income.

But if house prices compared with household income are close to or at an extreme high, the situation is quite different when we look at monthly mortgage payments, because interest rates have declined so much in the past 15 years.

At the peak in July 2006, mortgage rates were 6.76%. In June they were only 2.98% (red, right scale):

 While house prices as measured by the FHFA index have gone up 54.6% in that time, the monthly mortgage payment to finance that house increase went up less than 1%! And remember, the median household has had a 40% increase in income to finance that less than 1% increase in mortgage payments.

The bottom line remains that, if you can afford the down payment on a house, even at these extreme levels, the monthly mortgage payment is not near an extreme at all. This is probably while the “affordability index” of the National Association of Realtors is equivalent to its poorest level in the past 10 years, it is still nowhere near as low as it was at the peak of the housing bubble (when it was below 100, not shown):

I think seriously derailing the housing market to where it might spark a recession is only going to take place if there is another year of huge price increases, or else a hike of 1% or more in interest rates, or both.

Saturday, September 18, 2021

Weekly Indicators for September 13 - 17 at Seeking Alpha


 - by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

Despite the fact that Delta has been almost as bad as last winter’s wave of infections, which was the worst to date, and has been almost as bad in terms of deaths as the first wave that hit the NYC area hard, it has had almost no effect on the economy, and in particular consumer behavior.

In the longer term, relatively low unemployment and higher inflation may spur the Fed to raise rates sooner rather than later, but this has not dragged down the long leading indicators too much at this point.

As usual, clicking over and reading should bring you nearly up to the moment as to the economic situation, and bring me some lunch money.

Friday, September 17, 2021

August retail sales rebound slightly, argue for continued strong jobs growth in autumn


 - by New Deal democrat

Let’s take a look at retail sales, which are perhaps my favorite monthly economic indicator, since they tell us so much about average consumer behavior, and are also a good short leading indicator for jobs.

Nominally retail sales increased 0.7% for August, after a -0.6% downward revision to -1.7% for July.  Since consumer prices rose 0.3% in August, real retail sales increased 0.4%. Although real retail sales are down -3.8% from their April peak, they are 11.5% higher than they were just before the pandemic hit:

While the recent decline from April is consistent with a slowing economy ahead, if sales stabilize here I don’t see this as a harbinger of an actual downturn.

As I have written many times over the past 10+ years, real retail sales YoY/2 has a good record of leading jobs YoY with a lead time of about 3 to 6 months. That’s because demand for goods and services leads for the need to hire employees to fill that demand.  The exceptions have been right after the 2001 and 2008 recessions, when it took jobs longer to catch up, as shown in the graph below, which takes us up to February 2020:

Now here is the same graph since just before the onset of the pandemic. Note the scale is much larger, given the huge changes wrought by the early lockdowns, and of course the comparative spikes from the data one year later:

As with the recoveries immediately after the two prior recessions, up until the past several months YoY job creation has been well below YoY real retail sales growth. But for the last 3 months, jobs have caught up to forecast trend.

This argues that we can expect jobs reports in the next few months to average out about even with those from one year ago, which averaged about 500,000 per month.