Friday, February 16, 2024

Housing construction essentially stable in January


 - by New Deal democrat

I’m on the road, so I need to keep this brief, but fortunately I can give you the essence of this most important housing report with little difficulty.

Mortgage rates have declined about 1% from their peak during the autumn, and are about equal to where they were one year ago:

As a result, we should expect some improvement in the housing market from its worst levels. And that’s what we got.

Housing permits declined 1.5% for the month, but are about average compared with the past 10 months. The more significant single family permits increased 1.6% to their highest level in over 18 months. The much more noisy starts decreased a sharp -14.8% for the month, to a level equivalent to their worst in the past year:

Because starts lag permits slightly, I do not think this decline presages a trend, but rather is mainly noise.

Housing units under construction, which are a measure of the “actual” economic activity in the new home market, declined -0.4%, but are only down -2.2% from their peak one year ago. Single family units declined -9,000, but multi family units increased 5,000:

To signify a likely recession, units under construction would have to decline at least -10%, and needless to say, we’re not there. With permits having increased off their bottom, I am not expecting such a 10% decline in construction to materialize. 

Retail sales faceplant; industrial production continues 16 month streak of weakness


- by New Deal democrat

Let’s take a look at two the big short leading and coincident indicators that were reported yesterday, respectively real retail sales and inducatrial production.

Retail sales can be volatile monthly, and about once in a typical year they either faceplant or unexpectedly soar. Yesterday we got the facelpalnt.

Retail sales declined nominally -0.8% in January. Because consumer prices rose 0.3%, in real terms sales declined -1.1%:

This is the lowest level in 10 months. It’s important to note that January sales, on a non-seasonally adjusted basis, are always awful, and while this year was even poorer than last year, it was better than in the years before the pandemic hit. So the seasonal adjustment may be a little askew due to pandemic-era comparisons.

On a YoY basis real retail sales (blue) are down -0.8%. Below I also show real personal consumption of goods (gold) and nonfarm payrolls (red), since the former two although noisy tend to forecast the trend in jobs:

If this were to persist, usually in the past is has meant recession (but not in the last 18 months!) - and note the unusual big divergence between the sales and consumption measures (for now!), which will probably resolve.

Meanwhile industrial production, one of the most important coincident indicators, also declined, by -0.1%, and is down -0.9% from its September 2022 peak. Manufacturing production declined sharply, down -0.5%, and is now -2.1% below its October 2022 peak:

This is the lowest reading for manufacturing production since the beginning of 2023.

On a YoY basis, total production is unchanged, and manufacturing is down -0.8%:

In the modern era since China’s accession to normal trading status in 2000, the 2023 downturn was not quite as negative as the 2015-16 downturn, which did not lead to a recession, although it was definitely as soft spot. 

While we did not get a recession in 2023, it is nonetheless true that both manufacturing and housing did decline from their respective peaks after the Fed began raising rates, and have not recovered them yet.

I am treating these reports as “more of the same” weakness for manufacturing, and a one-off volatile downward number for sales unless it is confirmed by further weakness for at least one more month.

Thursday, February 15, 2024

Initial claims remain positive


 - by New Deal democrat

Initial jobless claims declined this week -8,000 to 212,000. The four week average rose 5,750 to 218,250. With the typical one week lag, continuing claims rose 30,000 to 1.865 million:

On the more important (for forecasting purposes) YoY basis, initial claims are down -1.9%. The four week average is up 5.4%. Continuing claims are up 10.3%:

Initial claims indicate continued expansions. Continuing claims would be a significant issue if supported by initial claims, but this is their lowest YoY increase in eleven months. 

While the last several weeks of initial claims are higher than in January, they remain very low by historical standards, and continue to suggest that the unemployment rate will stay steady or decline in the next few months:

These remain good reports.

Wednesday, February 14, 2024

The long leading forecast for 2024 at Seeking Alpha


 - by New Deal democrat

A couple of times a year I update my long leading forecast. With the latest GDP and Senior Loan Officer Survey data, there is enough to take a look at what the next 12 months probably have in store.

This article is up at Seeking Alpha. 

Tuesday, February 13, 2024

January 2024 consumer inflation: still a tug of war between gas and housing


 - by New Deal democrat

As it has been for going on two years, consumer inflation has boiled down to a contest of strength between energy (mainly gasoline), which peaked in June 2022 and roughed in June 2023, and housing, which peaked in early 2023 and has been gradually disinflating since.

The headlines, as you presumably already know, are that total inflation rose 0.3% in January, and 3.1% YoY, while core inflation (less food and energy) rose 0.4% for the month and 3.9% YoY.

To spare you a bunch of graphs, here is the Census Bureau’s spreadsheet. Go down the column at the far right and it is easy to see where the remaining problem areas are:

The only sectors still up over 4% YoY are food away from home, transport services (mainly repairs and insurance), and - still - housing. The former problem areas of new and used vehicle prices are only up 0.7% and down -3.5% YoY respectively. Here’s what the first two remaining problem children look like YoY:

Inflation in food away from home is still gradually disinflating, although it is still running about 2% above its YoY rate before the pandemic. Transportation services, however, have stopped decelerating for over half a year. Some of this may be due to the reputed consolidation in the auto repair industry, where the remaining players have more pricing power. Some is undoubtedly also due to the fact that there is still a 5-10 million vehicle “hole” in cumulative new vehicle production since the pandemic hit, meaning there are many more older vehicles on the road, and those vehicles need increasing repairs.

To show the effects of the tug of war between energy and housing, below are the YoY% increases in headline inflation (which has been bouncing around between 3.1% and 3.7% for over half a year, core inflation, which has been very gradually trending downward, energy (now down -4.6% YoY, /3 for scale), and CPI ex-shelter, which is up only 1.5% YoY:

Once again, the only *real* inflation problem boils down to shelter.

Because an issue has been made by a few people about whether series like the Apartment List National Rent Index have been giving a true leading reading, here is the latest on that metric:

And here are the monthly% (blue, right scale) and YoY% (red, left scale) changes in the CPI for rent of primary residence:

Before the pandemic, monthly changes in rent typically were in the +0.2% to +0.4% range. Monthly rent just entered that range again, at 0.4%, in January. Similarly, YoY rents typically increased about 3.5%. In January, they were still at 6.1%, but the decelerating trend is very much intact. There is every reason to expect this decelerating trend to continue, and if it does so for the next nine months at the rate it has in the past nine months, YoY rent in the CPI will be about 3.4% - right in the middle of its pre-pandemic range.

Finally, here is this month’s update of the graph comparing house prices as measured by the FHFA Index (/2.5 for scale) with CPI for shelter; first, the long term historical view:

And here is the pandemic era close-up:

Although house prices have resumed increasing in the past half year, the pace of those increases is in line with their pre-pandemic trend. Which is to say that, although the pace of deceleration has itself decelerated, downward pressure is continuing on the CPI shelter index. And although CPI for shelter increased 0.6% in January, and is still up 6.1% YoY, that remains its lowest YoY increase since July 2022.

In other words, if there are no unpleasant surprises awaiting in the months ahead as to gas prices, we can expect headline inflation to continue to be fairly stable, and shelter to continue disinflating, leading to gradually lower core inflation readings as well.

Monday, February 12, 2024

Aggregate payrolls vs. total withholding taxes paid: which one has been telling the truer tale?


 - by New Deal democrat

The drought in new data continues for today. So I wanted to take a further look at the two measures of total payrolls I discussed on Friday, one of which has been of some concern. One is total aggregate payrolls, which is part of the Establishment survey portion of the jobs report each month, and the other is total tax withholding, which is the actual aggregate number reported daily by the Department of the Treasury.

Since these measure similar things - total payrolls and the taxes withheld from total payrolls - with the exception of tax law changes and updated bracketing, they should tell similar stories. And normally for the past 20+ years, they have.

To cut to the chase, here is the YoY% change in aggregate payrolls for all private jobs (blue), which started to be kept in 2007, and aggregate nonsupervisory payrolls (red):

And here is Matt Trivisonno’s long term graph of the YoY% change in the full 365 day increments of withheld taxes, covering the same period except for the last 90 days:

By and large, the two tell similar stories, although tax withholding has been somewhat more volatile. Aggregate payrolls generally varied between +4% to +6% YoY during the end of the 1990s expansion and the two expansions afterward. In the 2021-22 Boom, they peaked at just under +20% YoY. Meanwhile tax withholding varied between +2% and +9% during the previous expansions, but averaged in the +4% to 6% range. In early 2022, they were higher by more than 20% YoY.

For most of 2023 they were more seriously out of synch. Aggregate payrolls gradually decelerated from +7.5% YoY to 5% as of last month. Meanwhile tax withholding decelerated sharply from a similar 7.5% level to only about 1% as of mid-November. 

Because this is public data updated daily by Treasury, it is easy enough to get updated numbers for year end 2023 and through January of this year. Using the same formula, we can see there has been a rebound, as for all of 2023 and for the 12 months ending in January 2024  tax withholding payments were up 3.2%.

This is still significantly less than the +5% in the jobs report last month. Since much of the discrepancy happened during earlier months of 2023, the comprehensive QCEW report for last July through September, which totals 97% of all firms, and which will be published one week from this Wednesday, should give us much more visibility into whether the monthly jobs report numbers from the Establishment survey have been too optimistic or not.