Thursday, August 2, 2018

Early August data potpourri-palooza!

 - by New Deal democrat

As promised, here is a pithy rundown on the monthly data for July that was released earlier this week. As usual, let's take it in order of how it leads the overall economy.

Residential construction spending

This is the least volatile of any housing data, although it lags permits and starts by one to two quarters. The monthly number was down, but for now the positive trend is continuing, albeit not as strongly as in the past several years (blue is construction spending, red is single family permits):

A look at the same data as YoY% changes again shows the leading/lagging relationship. Single family permits have decelerated YoY. Residential construction spending hasn't decelerated much yet.

As interest rates have ticked higher in the last several months, I expect permits to continue to be flat, and residential construction should follow in a few months.

ISM manufacturing new orders

Manufacturing began to pick up over two years ago, and has been very strong over the last 18 months (h/t

This month the leading new orders index cooled slightly -- from white hot to red hot. It's within the range of reasonable possibility that the "less hot" trend of the last few months is the beginning of the weakness in the long leading indicators beginning to bleed over into the short leading indicators -- something I expect to happen sooner or later -- so this is something to keep an eye on. 

Motor vehicle sales

These tend to plateau during expansions, and meaningfully decline in the 6 to 12 months before a recession. This month wasn't so hot (h/t Bill McBride):

As I've said before, it would take a reading under 16 million units annualized for me to become concerned. Also, because GM is no longer reporting monthly, this metric has become much less reliable, so take with lots of grains of salt.

Personal income and spending

Everything I -- and every other -- observer has said about income over the last several years got thrown out the window last week courtesy of the GDP revisions. Ugh! *Nominal* GDP values for the last 5 years did not change significantly, but BEA decided that there was significantly less inflation than they had previously reported:

This is a classic coincident indicator, and confirms that the expansion is continuing.

As a result, "real" spending improved, and the decline in personal savings completely evaporated.

I hesitate to comment further, lest further revisions make those obsolete as well.

The Employment Cost Index

This is a quarterly report on *median* wages and benefits. As such it isn't subject to the "Bill Gates walks into a bar" type of distortion. BUT, it holds the distribution of jobs constant. In other words, it measures pay for, e.g., a constant percentage of engineers, or retail clerks, now vs. pay for engineers, or retail clerks, one quarter ago, and so on (h/t

It is the one measure of wages that has consistently shown YoY improvements over the last few years, and continued to do so in the 2nd Quarter. Where it may be inadequate is to the extent that there are job distinctions based on seniority. Thus it may not be picking up on the very large demographic trend of Boomers retiring and being replaced by Millennials (old folks being replaced by young folks is a constant, but almost certainly has been happening disproportionately in the last decade).

Putting the data this week together, although several series declined month over month, all of them were indicative of an expansion that is continuing, and will continue in the next several quarters. And maybe even a little more spare change will be tossed in the direction of ordinary workers, which we'll find out more about in tomorrow's monthly jobs report.