Saturday, June 26, 2021

Weekly Indicators for June 21- 25 at Seeking Alpha


 - by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

All of the important metrics for the economy remain positive.

But, in addition to supply chain issues, we have to start worrying about COVID again, because the delta variant has now taken hold in up to 8 States with rising new cases. All of those States have fewer vaccinations per capita than the national average, and most of them much below the average. By the end of July, I anticipate that it will be clear there is a new “wave” of cases in the relatively unvaccinated States. Aside from the human cost, it is unclear how much this will retard recovery in the economy as a whole.

As usual, clicking over and reading will bring you up to date, and bring me a little bit of change.

Friday, June 25, 2021

Real personal income and spending both decline in May - but that’s OK, as it was mainly expiration of stimulus; NBER likely to declare end of recession soon


 - by New Deal democrat

The last of the 4 monthly coincident markers for whether the economy is in recession vs. expansion was reported this morning for May. Let’s take a look.

Personal income declined -2.0% in nominal terms, which on top of April’s decline of -13.1%, has taken back most, not by no means all, of March’s big 20.7% gain. The Census Bureau specifically noted in its press release that “the decrease in personal income for May reflected declines in pandemic-related assistance programs.”

Personal spending was unchanged in nominal terms. But both are still ahead, by 8.8% and 5.3%, respectively, of where they were in February 2020 just before the pandemic hit:

The price deflator, i.e., the inflation measure used in this release, was -0.4% (meaning in essence a 0.4% increase in prices). The below graph takes that into account and shows both real personal consumption expenditures (spending) and real disposable personal income:

Again,both real income and spending are above their pre-recession levels by 6.0% and 1.9%. 

Simply put, in this crisis decisive action by the government to put cash in consumers’ hands has worked.

 The “official” recession vs. expansion metric is real personal income less transfer receipts (things like unemployment insurance), shown below:

This was already above its pre-recession level in April, and with its 0.4% gain in May, is now 0.8% ahead of February 2020. 

Finally, here are employment, industrial production, real gdp, real retail sales, and real personal income less transfer receipts together:

The last two are already above their pre-recession levels. Real GDP for Q2 is also expected to exceed its pre-recession level when it is reported next month. While industrial production is down by -1.4% from February 2020, its manufacturing component is only down -0.3%. Only employment remains severely down.

Thus, while “happy days are [certainly not] here again” as to employment, unless there is a nasty negative surprise next month, I expect the NBER to shortly declare that the pandemic recession has ended, most likely with the trough date in April 2020.

Thursday, June 24, 2021

New jobless claims stall, adding to the evidence that stalling vaccinations and case counts are having an economic effect


- by New Deal democrat

New jobless claims have been the most important weekly economic datapoint this year, as they have correlated strongly with vaccination progress. Unfortunately, that progress has largely stalled in the past month, and now new jobless claims appear to have stalled as well.

This week new jobless claims declined 7,000 to 411,000, 37,000 higher than the pandemic low of 374,000 set two weeks ago. The 4 week average of claims also rose by 1,500 above last week’s pandemic low to 397,750.

At the peak of the pandemic lockdowns, new claims were running 6 million to 7 million per week. Here is the trend since the beginning of last August:

From late February into May, claims had trended down an average of roughly 100,000 per month. This had slowed to roughly 50,000 per month, indicating that the “opening” of the economy is getting nearer to an endpoint. As indicated above, since 5 weeks ago, the trend is now sideways. This also implies a sharp slowing down of net job creation from the last 3 months’ levels.

The story is different for continuing claims, which are reported with a one week lag, and lag the trend of initial claims typically by a few weeks to several months. These set a new pandemic low, falling 144,000 to 3,390,000.  At the same time, over the past 3 months these have only declined about 10% from roughly 3,750,000:

At least some of this decline *may* be due to many States’ termination of all extended jobless benefits due to the pandemic.

A long term perspective shows that these are equivalent to the worst levels of most previous recessions, or early in the expansions, versus at 2,000,000 or below later in strong expansions:

As I wrote two weeks ago and reiterated last week, “I think we are going to see two tracks going forward from here, as near-normalcy does return to the more vaccinated parts of the country, while attempts to return to normalcy fail in the laggard regions.”

Last week I further wrote, “Over the next 6 to 8 weeks, these States [in the South and the mountain West with low vaccination rates] are ripe for a serious outbreak of the highly infectious new ‘delta’ variant of the disease,” which in turn is going to lead to many people “re-cocooning” themselves in those areas, and thus decreasing economic activity there. This will result in there being 2 separate economic tracks in regions of the US depending on vaccinations and new outbreaks.

[As an aside, when Seeking Alpha cross-posted my note last week, a bunch of RW nutjobs completely lost their minds, a reminder of how much politicized irrational insanity is out there. As a result, I have terminated that arrangement.]

This week’s jobless claims data supports that argument. My final objective  for claims to average 325,000 or below, which would signify a return to normal expansion levels in the past 30 years, increasingly appears to be a ways off.

Wednesday, June 23, 2021

New home sales edition: the remedy for high prices is . . . high prices


 - by New Deal democrat

New home sales confirmed this morning what we learned from existing home sales yesterday, and from housing permits and starts earlier in the month: in terms of new construction and sales, the housing market has peaked.

To the numbers.... New single family home sales declined -48,000 on a seasonally adjusted basis to 769,000 annually, the lowest level in 11 months (blue in the graph below):

New home sales have declined by nearly 1/4 (-22.6% to be more precise) off their January peak. They thus confirm the decline shown in the much less noisy single family permits series (red).

Median sales prices, however, continue to boom, up 18.1% YoY (blue) vs. 23.6% for existing homes (red):

Comparing sales with inventory (gold in the graph below), we can see that sales peak and bottom first (shown YoY in the graph below, but the same is true of the absolute values):

Inventory of new homes for sale bottomed last August and is now up 7.1% YoY.

As I said yesterday, the remedy for high prices is . . . high prices. I expect sales to continue to decline until the price situation is addressed.  

Coronavirus dashboard for June 23: And so, it (the delta wave) begins


 - by New Deal democrat

[Note: New home sales will be reported later this morning, and I will post on that report afterward.]

There is now more evidence that the “delta” variant of COVID is taking hold in the unvaccinated regions of the country, and case counts are increasing accordingly.

Below are the 5 States that have all seen unequivocal increases in new cases over the past 2 to 4 weeks:

*All* of these except for Nevada are among the lowest 1/3rd of States for vaccinations. Arkansas, at 33% fully vaccinated, is the 3rd worst. Oklahoma and Utah, at 37%, are tied for 8th worst, and Missouri, at 38%, is tied for 12th worst. Only Nevada, at 41%, is closer to the middle of the pack.

As an aside, the 2 worst States for vaccinations, Mississippi at 29% and Alabama at 32%, almost certainly are in worse shape than their “official” new case counts. Although I won’t post graphs, both are among the 10 worst States for the rate of testing, and both are among the 10 highest States for the rate of positive test results (along with 4 of the 5 States above experiencing new outbreaks). Their rate of positivity hasn’t started significantly increasing - yet.

Because I am not a DOOOMsayer, I want to contrast this with the case of Colorado, which has a good  full vaccination rate at 50%, is nearly surrounded by States doing poorly, and yet has case counts that have continued to decline, albeit from high levels:

Colorado will make a very good bellwether for whether high levels of vaccinations will slow or stop the delta spread. 

Tuesday, June 22, 2021

The remedy for high house prices is . . . high house prices


 - by New Deal democrat

I normally don’t pay much attention to existing home sales, since they tell us much less about future economic activity than new home sales, but since there is nothing else on the calendar today, let’s take a brief look.

Existing home sales declined again, by 0.9%, in May, to a 10 month low (blue in the graph below). Prices, however, continued to soar (red):

Prices are now up 23.6% YoY!:

Existing home sales have clearly joined the decline already evident in new home sales (gold) and also housing permits and starts (not shown):

As always, sales lead prices. If sales continue to trend much lower, expect prices to reverse course soon. In this regard, just for reference, here is my template of the late 1980’s for the kind of sales and price decline I am expecting as a first estimate:

After sales peaked, with a delay the YoY increase in prices declined by more than half, and indeed prices only increased on average about 1% a year (less than the rate of inflation) in the last several years before the recession.

Monday, June 21, 2021

Coronavirus dashboard for June 21: watching the States with flat or increasing rates of new cases


 - by New Deal democrat

For the past week I have been sounding the alarm about the economic impact of the “delta” variant of COVID. We are probably already beginning to see its impact on the case count in several States, with many more primed to join the pack, so that is what I want to focus on today.

To begin with, let’s compare the 3 countries that have had the most aggressive vaccination programs: the US, UK, and Israel:

Israel has defeated the virus. It’s case count is down to virtually zero. Vaccinations work! But thanks to the “delta” variant, the UK has seen more than a tripling of new cases over the past month. That is where the future likely lies for at least the unvaccinated portions of the US.  One difference between the two is that the UK emphasized maximizing the population with one dose, so when the variant hit, relatively few were fully vaccinated.

Here is what the county-by-county breakdown of vaccinations in the US looks like (note that several States do not fully report, so are greyed out):

Among other places, note the many counties along the lower Mississippi River and in the panhandle of Florida in which less than 25% of the population is fully vaccinated. And it appears that it is along this route: specifically southern Missouri, northern Arkansas, and eastern Oklahoma and Kansas where the “delta” variant may be making its earliest impact. 

In particular, as noted in This report by a local television station: “The [Missouri] state dashboard says new cases are up by about 20.3% over the past seven days. The positivity rate has jumped 1.2 percentage points in that same time, while tests are down 4.6%.” According to other reports,  
“ A swath of southern Missouri is seeing a big rise in coronavirus cases and hospitalizations  at just the wrong time - as tourists eager to get out after being cooped up for a year make their way to popular destinations such as Branson and Lake of the Ozarks.
  most southern Missouri counties are well short of 40%. Branson sits in Taney and Stone counties, where the vaccination rates as of Wednesday were 27.4% and 28.4% respectively. Miller County, at Lake of the Ozarks, had a vaccination rate of 22.9%.

“We think that with the Delta variant here, those that aren’t vaccinated are just sitting ducks," said Steve Edwards, CEO of CoxHealth, which operates several hospitals in the region.

To gauge where the variant may be beginning to show, below are the 17 States where there has been no decline in new cases over the past 2 weeks, divided between those which may have declared premature victory, those where the virus is just as rampant as last summer, and those in between.

There are five States - MO, AR, AZ, NV, and UT - where the virus is just as widespread as last summer:

Note that in 3 of them - MO, AR, and UT - the number of new cases has actually risen. 

Next, here are the 7 States that may have declared premature victory:

In all of these States, new cases are averaging less than 3.5 per 100,000 daily. At all previous times during the pandemic, that would be excellent. At less than 1 per 100,000, Vermont is outstanding! - but, to be consistent, that rate has not declined in the past 2 weeks.

Finally, here are the 5 States that are in between, all averaging between 4 and 5 cases per 100,000 population daily:

Note that in Oklahoma, and possibly New Mexico as well, cases are increasing.

In particular, three of the States that show increasing new cases - OK, MO, and AR - are contiguous, and all show low vaccination rates.

All of these States bear watching, the ones with higher rates to see how bad the next wave gets, and the ones at the low end to see if their higher rates of vaccinations stem the tide, or whether they too see significant upturns.