Thursday, March 12, 2026

Housing permits, starts, and construction: signs of both imminent recession and “green shoots”

 

 - by New Deal democrat


This morning’s important data on housing construction contained two apparently contradictory trends: on the one hand, it continues to be - even more intensely - consistent with an imminent or ongoing recesssion. On the other hand, it suggests that the sector is bottoming, meaning that (except for the lunacy of the T—-p Administration) a recovery should be near.

Let me address this by taking things in reverse chronological order, by which I mean focusing on the most coincident economic metrics first, and then working backward towards the most leading.

The most important of the more coincident (really, short leading) aspects of the report is housing units under construction. These both peak and trough significantly after permits and starts. These declined another -11,000 to 1.365 units annualized, the lowest number in over 5 years, and -26.1% below their 2022 peak (red in the graph linked to below), which also shows the same metric in YoY% terms (blue):




Only once in the past 50 years has such a decline not *yet* given rise to a recession: in 1991, when the decline was -28.2%. On the other hand, while units under construction are down -9.6%, this is less of a decline than one year ago, when the YoY decline was -15.9%. With the important exception of the 1991 recession, when the YoY decline became “less bad,” it has typically occurred after the recession has ended. 

Typically, the final housing-related metric to decline before a recession actually begins has been employment in housing construction (red in the graph linked to below):




As you can see, this has indeed happened, but only by -1% (vs. a more typical -5% decline prior to past recessions), and although you will need to zoom in on the above graph, that is about a 1% improvement since last August — again, a recessioin marker on the one hand, but a potential sign of incipient “green shoots” on the other.

Now let’s turn to the more leading permits and starts. The latter (blue in the graph linked to below) are noisier and slightly less leading. These increased 100,000 annualized for the month to 1.487 million, and they are 9.5% higher than they were 12 months ago, although the below graph really shows them as being mainly volatile with an overall flat trend. Permits (gold) are less noisy and more leading, and these declined -79,000 to 1.376 million, and were down -5.8% YoY. The trend here has been slightly negative, as the current reading is only higher than last July and August’s. Finally, the least noisy indicator of all is single family permits (red, right scale), and these declined another -8,000, but are higher than they were in late 2022 into 2023, and in June and August last year:




Nevertheless, as the graph shows, permits and starts remain in territory below their peaks sufficient to be consistent with a recession. On the other hand, in the past it has taken a more severe decline of greater than -10% to be consistent with with a recession:




Only single family permits, down -11.6% YoY, meet this criterion.

Finally, the most leading component of all is mortgage rates, currently just above 6%, just above their 3.5 year low of 5.98% made last month:




Unsurprisingly, the gradual decline of mortgage rates from their 2023 highs (with a peak of 7.79%) has led to an increase, albeit a tepid one, in mortgage applications over the past 15 months:




Again, the decline in mortgage rates has given rise to “green shoots” in purchase mortgage applications.

So let me sum up: in the longest leading data, we see signs of *relative* easing, which has given rise to some improvement off the bottom in mortgages (in 2023), mortgage applications (in 2024), and permits (in summer 2025). But among the less leading data, in particular housing units under construction and employment in housing construction, we see declines consistent with a recession now, or imminent, along with signs that, if there were not other complicating factors (like the Iran war), any such recession if it occurred at all would be a short and shallow one.


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Jobless claims continue at very low levels (plus an update on tech enshittification)

 

 - by New Deal democrat


I’ll post on the updated housing situation later this morning. Meanwhile, before I get to jobless claims, a brief update on the tech situation.

It turns out that I am not the only person having this problem. Basically anyone who uses an Apple platform and attempts to post photos on a Google-aligned site is having this same issue. Yesterday with an assist from my local tech guy we ripped both my browsers and photos apps down to the studs and reinstalled them. It worked! - for one time only. The moment I navigated away from this site, the connection was broken. Google would not even permit me to post photos stored on Google under the same account set up for this purpose. This is our enshittified world.

I am going to try one more workaround, but if that does not work, I am probably going to have to do something drastic like setting up a new site on substack. I will certainly give you a link if something like that happens.

Now, to jobless claims …. Which continued to be lower YoY, which is the most important metric. Initial claims declined -1,000 to 213,000 for the week. The four week moving average declined -4,000 to 212,000. Continuing claims, with the usual one week delay, declined -21,000 to 1.850 million:




On a YoY basis, initial claims were down -4.5%, the four week average down -7.2%, and continuing claims down -0.1%:




That jobless claims are down near their 50+ year lows is one of three dynamics keeping the economy from keeling over. The second metric is the continued increasing trend in stock prices, which even after the Iran situation, are up 21.0%! The third is consumer spending by the upper echelons, which has been higher by 5%-7.5% YoY for the past six months as measured weekly by Redbook. Both of these latter two metrics have probably been driven by the AI data center boom
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Wednesday, March 11, 2026

February CPI: a likely last hurrah for relatively tame consumer price increases

 

 - by New Deal democrat


Much like last month, February benefited from shelter and gas prices - for a change - pulling in the same, disinflating, direction. Needless to say, I do not expect that to be the case for March! But in the meantime, let’s look at the continued (more or less) good news.

Beginning in late December, gas prices fell below $3/gallon, and they were still under $3/gallon at the end of February. Meanwhile, as I have been pounding the table for several years, I expected shelter CPI to follow house prices to minimal YoY gains. In February, both delivered as shelter increased only 0.2%, and gas declining -0.3%. As a result YoY headline CPI came in at 2.4%, tied with January for the lowest except for one month since the pandemic, and core CPI came in at 2.5%, also tying its January reading for the absolute lowest since the pandemic.

IMPORTANT CAUTIONARY NOTE: Because the October-November kludge in shelter prices of a mere 0.1% increase for two months is still present in the YoY calculations, and will be until this coming November, this is probably continuing to lower those comparisons by roughly -0.2%. In other words, take out that kludge and YoY headline CPI would probably be 2.6%, and core at 2.5%.

But to the slicing and dicing: as per my usual practice for the past several years, let’s start with the YoY numbers for headline inflation (blue), core inflation (red), and inflation ex shelter (gold), which was only up 2.1% YoY. The below link goes to the relevant graph [Note: I expect this tech issue to be solved by the end of the week, as soon as my local tech guy has time to meet with me. Also cross your fingers that this does not happen every time Apple updates its OS]:



The good news is that all three of these measures have decreased since September. This has continued to be a significant disinflationary pulse.

As per my comment above, rent increased only 0.1% for the month, the lowest such increasse in 5 years, and owners’ equivalent rent only 0.2%, the lowest since April 2021 except for last September. On a YoY basis, rent (red) was up 2.7% and Owner’s Equivalent Rent (blue) up 3.2%, the lowest YoY increase for both since late 2021::


One of the very best things I have been telling you since way back in 2021 is that the YoY% changes in the repeat home sales indexes lead shelter CPI by about 12-18 months. It did that on the way up, and it has been doing that on the way down. YoY home price increases continue near or at multi-year lows, the FHFA at 1.7%, and Case Shiller’s national index at 1.3%. And shelter inflation has followed (additionally yesterday we found out that the median price for existing homes had increased only 0.3% for the second month in a row). The graph linked to below includes several years before Covid to show its 3.2%-3.6% range during that time:


Shelter inflation has declined to *below* its pre-pandemic YoY range. Needless to say, because of the leading/lagging relationship of house prices to shelter inflation, we can expect even *further* deceleration in the shelter component of inflation during this year.

Let’s take a look at a few other areas of interest.

Although I won’t bother with a link to a graph, as noted above gas prices declined -0.3% in February. Energy as a whole increased o.3%, but for the entire last 12 months is only up 0.5%. Enjoy it while you can!

Additionally, new car prices (red) were unchanged for the second month in a row, and up only 0.5% YoY, while used car prices (gold)declined another -0.4%, and are *down* -3.2% YoY. The graph linked to below also shows  the post-pandemic trend by norming both series to 100 as of just before the pandemic:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1TjV2&height=490 


Both new and used car prices have been basically flat for the past three years. Above I also show average weekly wages for nonsupervisory workers (blue) to show that in real terms, car prices are actually *lower* than just before the pandemic (interest rates for car loans are another issue!).

Two recent “problem children,” I.e., sectors that have increased in price by 4% or more YoY, have been transportation services, mainly vehicle parts and repairs as well as insurance; and electricity and gas prices. The former is now only up 2.3% YoY. This divides into insurance, only up 0.2% YoY (not shown below), and motor vehicle maintenance and repairs, still problematic at up 5.6% YoY (red):


Electricity prices, which have become a significant problem, likely a side effect of the building of massive data centers for AI generation, declined -0.7% in February, but on a YoY basis are up 4.8%. Additionally, piped utility gas increased another 3.1% in February, and is up 10.9% YoY:


As I wrote in the last few months, the electricity issue has already created a backlash, and I expect that backlash to intensify.

One new significant problem child is medical care services (blue in the graph linked to below), which increased 0.6% for the month and 4.1% YoY. The dental care component (not available on FRED) increased 1.3% on a monthly basis and hospital care (red) increased 0.9%. On a YoY basis they are up 6.5% and 7.6% respectively:


There were several other minor “problem children” in the form of nonalcoholic beverages, tobacco products, and airline tickets, but all of these are small fry in the larger CPI scheme.

Needless to say, given what has been happening with gas prices in the past two weeks, I do not expect a quiet headline number in March. So enjoy this tame consumer inflation report for the second month in a row , driven by disinflating shelter and (temporarily) energy costs. It is pretty clear that no further progress is likely in the near term towards the Fed’s 2.0% target, although disinflation in the shelter component (1/3rd of the total) should continue. I am additionally concerned about the increase in medical services costs. I don’t have any particular insight into those, but if they continue they will be an important new drag on consumers, whether directly or by insurance premiums.


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Tuesday, March 10, 2026

The “gold standard” QCEW for last Q3 strongly suggests no job growth whatsoever in 2025

 

 - by New Deal democrat


The Quarterly Census of Employment and Wages (QCEW) is “the gold standard of US employment measures. It is an actual census of 95%+ of all employers, who must report new employees for purposes like unemployment and disability benefits. Because of this, it is used for the final revisions, a/k/a benchmarks, for monthly jobs numbers, which are estimates based on surveys. Its drawbacks are that it is not seasonally adjusted, and is delayed months after the end of the quarter.

This morning the QCEW was finally updated for Q3 of last year. And there was bad news, even compared with the benchmark revisions last month.

On a non-seasonally adjusted basis, even after the benchmark adjustment, seasonally adjusted, 70,000 more jobs added during the quarter. On a non-seasonally adjusted basis, -590,000 jobs were lost (unsurprising, given big layoffs happen in July). More importantly, on a YoY basis, the number of jobs increased 0.4% from Q3 2024.

Why is that bad? Because, according to the QCEW, on an NSA basis, -787,000 jobs were lost during Q3, and on a YoY basis, the number of jobs only increased 0.1%. Which means that the nonfarm payrolls numbers, even after the last seasonal adjustment 9show below), were still too optimistic:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1ThKq&height=490 


And the YoY comparison was too optimistic as well:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1ThLu&height=490 


In my review of the 2025 Q1 QCEW, I concluded that it was “suggesting there might not have been any job growth at all this year.” When I reviewed the update for Q2, I wrote that “it seems likely there was a very small gain, but not even keeping up with prime employment age population growth, i.e., firmly supporting the increase in the unemployment rate this year. And it is still possible that there have been no net employment gains whatsoever this year.” The Q3 update once again suggests there was no job growth whatsoever last year, not even the paltry 296,000 indicated by the latest benchmark revisions.

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Monday, March 9, 2026

How $4/gallon gas could take the economy from a nearly complete stall into outright recession

 

 - by New Deal democrat



So, first some bad news: my tech issue has resurfaced, so only links to graphs rather than graphs themselves, hopefully just for a day or two. Basically, unless I keep a bar up open to the blog page, Google and Apple sever their “handshake,” and I have to start from scratch to drag them back into it. Think of it as the tech version of herding cats.

And it’s a particular shame because, well, it’s always a bad day for the economy when the most exciting drama on TV is the financial channel. So today let me take a look at the state of the economy, ex-gas prices; and then what gas prices of $4/gallon or more might do to it. In that context I’ll also update an important graph on real retail sales, which were reported for January on Friday.

First, a couple of months ago I mentioned that gas prices under $3/gallon were a new, real tailwind for the economy. I showed this by dividing that cost by average hourly wages for non-supervisory workers. The resulting graph showed how much labor it required for an ordinary worker to be able to buy a gallon of gas. In January it was close to the lowest since the beginning of the new Millennium.

Here’s the link to an updated graph. Since as of last week’s report gas was just over $3/gallon, I’ve normed the result so that gas at $4/gallon divided by the average hourly wages shows at the 0 line:


The simple summary is that gas prices at $4/gallon would no longer be a tailwind, but they wouldn’t be much of a headwind either. Rather, they would be about average (compared with wages) for the past 25 years.

All things being equal, gas prices deteriorating from a significant positive for the economy to merely neutral wouldn’t be that big a deal. But all things are never really equal. 

Because the economy as of the end of 2025 was balancing just at the edge of recessionary readings. The below link goes to a graph of the four main monthly datapoints used by the NBER to determine whether or not a recession is underway - jobs, real personal income minus government transfer payments, real manufacturing and trade sales, and industrial production. Because business sales have only been updated through last November, I also include real retail sales, which as I noted above were just updated through January last Friday (declining -0.3% for the month, and -0.8% below their most recent interim peak last August). Additionally, I wanted to show the impact of AI related data center construction by removing utilities from the industrial production measure: 


All of the above metrics went basically sideways in 2025. *All* of them are below their respective peaks in various months from April through September. It’s already been an open question whether the government shutdown last autumn formed the peak of last expansion. Either the expansion just barely scraped by, or we were already in a very shallow recession.

In other words, gas prices turning from a tailwind to simply neutral, even if they don’t go much above $4/gallon, may well be enough to tip over the above metrics into outright recessionary readings.

In that regard, my final link is to one of my usual real retail sales graphs, showing how it (and similarly real personal spending on goods) typically leads employment by a number of months: 


Both Real retail sales and real spending on goods were negative YoY in December, before the former rebounded to +0.7% YoY in January (because January 2025 was even worse). Jobs are only up 0.1% YoY as of last Friday’s release for February. Except for the near “double-dip” of 2002-03, going back 85 years job gains have *never* been only higher by 0.1% YoY without a recession being either imminent or already in progress.


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Saturday, March 7, 2026

Weekly Indicators for March 2 - 6 at Seeking Alpha

 

 - by New Deal democrat


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


Unsurprisingly, the big news of the week was the skyrocketing of oil and gas prices. A little surprisingly, the US$ gained as a “safe haven” or perhaps “least dirty shirt” trade.

As usual, clicking over an reading will bring you thoroughly up to date on the economy, and reward me with a penny or two for my efforts.

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