Friday, September 27, 2019

Personal spending shows consumers OK; durable goods shows producers still struggling

 - by New Deal democrat

This morning’s reports on personal income and spending continue to show a consumer that is doing alright. Meanwhile durable goods orders continue to show a production sector that is struggling.

First, real personal income (red in the graph below) rose +0.4% in August, while real personal spending rose +0.1%. Since July spending (blue) was revised down -0.1%, the result was a wash:

The rising trend remains intact.

In general, spending has slightly lagged income in the past few years. Thus the personal saving rate has increased:

Overall the savings rate has increased since before the Great Recession, meaning that households are being more cautious with spending. This is a real change in the trend of declining savings that started in about 1980.

Meanwhile, durable goods orders for August (blue in the graph below) were up a slight +0.2%, while “core” durable goods orders (minus defense and Boeing)(red) declined -0.2%:

Because there are unique issues with the Boeing 737 Max, I think “core” orders are less helpful than usual. The bottom line is that durable goods orders remain in decline compared with the end of last year, similar to but not as bad as prior to the producer-led 2001 recession.

In short, the consumer continues to do OK. The weakness has been on the producer side, although not enough at this point to signal a recession.

Thursday, September 26, 2019

Initial jobless claims continue near expansion lows

 - by New Deal democrat

I’ve been monitoring initial jobless claims closely for the past several months, to see if there are any signs of stress. This is because the long leading indicators were negative one year ago, and many - but not a majority - of the short leading indicators have recently turned negative as well. So I have been on “recession watch.” But no recession is going to begin unless and until layoffs increase.

To reiterate, my two thresholds are:

1. If the four week average on claims is more than 10% above its expansion low.
2. If the YoY% change in the monthly average turns higher.

As of this week, initial claims continue to be very close to their expansion lows. The 4 week moving average of claims Is 212,000, only 11,000, or 5.2%, above the lowest reading of this expansion:   

On a YoY% change basis, the 4 week average is only 0.7% higher than one year ago (which itself was one of the lowest readings of the entire expansion):

But September claims so far are running -2,333, or -1.1% less than the full month of September 2018:

The less volatile 4 week average of continuing claims is also running -1.5% below where it was a year ago:

There is simply no sign whatsoever of any stress in the jobs market that we could expect to see in the immediate months preceding a recession. The recession risk for Q4 of this year is rapidly receding.

Wednesday, September 25, 2019

August new home sales continue rebounding trend

 - by New Deal democrat

Let me start out my look at this morning’s August new home sales report with my typical housing mantra:

  • Interest rates lead sales
  • Sales lead prices
  • Prices lead inventory
We saw all of that in this morning’s report.
First, the trend of rising single family sales continues, and the three month average of this very volatile series (blue), shown in comparison with single family housing permits  was the highest since late 2007:
Note, by the way, that new single family home sales have a tendency to lead every other metric, including permits - but they are much more volatile and heavily revised.
Next, the median new home price (red) turned positive YoY, for only the second time since the slump that began last year, vs. the YoY change in sales (blue) which has been positive YoY for most of this year:
Finally, here is the long term view of new home sales vs. new homes for sale, I.e., inventory (gold):

It’s easy to see that inventory only turns after sales do.

Now, here is the close up look of the past 5 years:

Inventory turned down earlier this year, and at the moment is stable at that lower level. Note that I do not make use of “month’s supply” of inventory in my analysis, because it is clear that it turns up or down only as a result of sales turning up or down.

In sum, August new home sales confirms that lower mortgage rates have caused sales to increase, prices appear to be beginning to follow, and inventory remains slightly reduced.

As per my “housing choke collar” thesis, any quick continued increase in prices is likely to feed into a slowdown in sales.

Tuesday, September 24, 2019

The incipient housing choke collar: July prices update

 - by New Deal democrat

Three months ago I first wrote about the concept of a “housing choke collar” constraining economic growth, to wit:
The FHFA and Case-Shiller price indexes have only decelerated to a point where they roughly match median household income growth. This makes me wonder if prices for new homes will shoot back up again quickly as demand returns. If so, we could wind up in a “choke collar” situation (similar to what we had with gas prices 5 to 10 years ago), where rapid price increases choke off demand, which causes prices to back off, which reignites demand, and so on repeatedly. 
This is important, because if the producer side of the economy falters, a choking off of higher new demand for housing would enhance the chances of a recession.

Three months later, and it is clear that housing sales bottomed this spring, as both housing permits and starts made new expansion highs in August. Since sales lead prices, I wrote last week that I expected price growth to bottom shortly. With this morning’s releases of the FHFA and Case-Shiller House Price Indexes through August and July, respectively, it appears that the bottoming process is happening.  

The FHFA House Price Index (gold) rose +0.4%, and the Case-Shiller national house price index (red) rose +0.1% (seasonally adjusted), in July. The YoY% change in each was +5.0% and +4.2%, respectively, essentially unchanged from June, as shown in the below graph along with YoY single family housing permits (green):

As is easily seen, housing sales growth has already started to increase. Price deceleration is probably bottoming out.

But with average hourly earnings growth running at roughly +3.4% YoY for the last 12 months, buyers are not gaining any ground compared with house prices. The only relief is due to the - very significant - decline in mortgage rates. 

The below graph shows average hourly earnings (blue), compared with median household  income (green), together with the FHFA Index (gold) and Case-Shiller national index (red). Since we only have household income through 2018, I have normed all four indexes to January 2004, when hourly earnings and house prices were at the same relative levels as they are now:

At the bubble peak, house prices were about 15% higher relative to earnings and income as they are now. But that is the *only* time in the past 30 years that house prices have been, relatively, higher.

In short, we are probably close to the peak that house-purchasing households can bear relative to their incomes. Unless mortgage rates decline further - and I am not anticipating any big further declines - housing sales growth, and its positive leading effect on the economy as a whole, is likely to be muted.

Monday, September 23, 2019

Tame inflation —-> “soft landing”?

 - by New Deal democrat

I have a new post up at Seeking Alpha.

So long as inflation remains tame, the Fed has scope to bring about a “soft landing” to the slowdown, without there necessarily being a recession (so long as the Toddler in the White House doesn’t tip over the whole apple cart).

As usual, clicking over and reading puts a penny or two in my pocket.

Sunday, September 22, 2019

What Kurt Eichenwald says - Saving the Republic

 - by New Deal democrat

When I’m not reading and writing about the economy, I do occasionally comment elsewhere on political topics. 

So it was on Thursday when, in response to this post asserting that Democrats were powerless to do anything - (including enforcing THEIR OWN GODDAM SUBPOENAS!) - and that it was “green lantern-ism” to believe otherwise, I decided I had had enough (see comment #25), for which I was called a “kook” and a disloyal Democrat. It would “hand the President a public relations victory,” it would have “undesirable optics,” and wouldn’t show “comity.”

Worse, most of these people - presumably people paying attention to the news - didn’t know that each House of Congress, like courtroom judges, have the the power of “inherent contempt,” meaning that they don’t have to ask a prosecutor to bring a case for contempt, they can imprison a non-compliant witness, obtain a conviction from the full House, and continue that imprisonment until the witness agrees to obey their subpoena.

Well, if I am a “kook” for wanting Congress to enforce its powers, so is Kurt Eichenwald of the New York Times, who has been absoluletely ON FIRE this week. Unfortunately, since twitter unrolls don’t play nice with blogger, I can’t reproduce it here, but go read the whole threads, here, here, and here.
And, while you are at it, read this 2015 article by Matt Yglesias about how, even then, “the United States was now exhibiting 11 of the 13 telltale signs of a fascist dictatorship,” and its scheme of Constitutional democracy is likely to fall in the near future.

It is simply ghastly that people like Nancy Pelosi and Joe Biden think all we need to do is elect Democrats in 2020 and all will be well. HELL, no!

Donald Trump has once and for all exposed the fact that the US has a Presidential autocracy, so long as the President has 1/3 of the Senate +1 unwilling to stop them (because you need 2/3’s of the Senate to Convict in Impeachment or to overturn an Emergency declaration). 
If the Republic does not succumb to Trump, Constitutional Amendments need to be proposed most of all to rein in Presidential power, and to do so without necessity of Impeachment. That means, at very least, Courts being able to enforce Congressional prerogatives on an expedited basis, and Congress and/or the States (via governors or attorneys general) being able to compel lower Executive Branch officials to enforce laws and regulations, under pains of fines or improsisonment. And Presidents should not be able to pardon current or former Executive branch officials from their term in office.

P.S. I just gone done reading “How Democracies Die,” by Steven Levitsky and Daniel Ziblatt.  I also just finished reading two books about the Roman Republic (which lasted 450 years, and was stable for the first 375), and how it ultimately fell into tyranny. It turns out that many of the themes discussed by Levitsky and Ziblatt were front and center in that ancient Republic as well, which hopeufully will shortly be an opus on a Sunday here.