May new home sales decline, but prices firm, more evidence suggesting rebalancing

 

 - by New Deal democrat



This morning gives us the last of our three measures of home sales, prices, and inventory, new home sales. These are the most important of the three because while they are very noisy and heavily revised, they are the most leading of all housing metrics, and so they can tell us about the underlying upward or downward pressure on the economy going forward one year or more. Additionally, the construction of new homes has a much bigger impact than the sale of existing homes. 

In May, new home sales declined 99,000 to 623,000. April’s initial number of 743,000, which had been a 3 year high, was revised downward by -21,000. In the below graph I also show single family permits (red, right scale), which lag slightly but are much less noisy:

Both have until now been rangebound. New home sales this month were close to the bottom of that range, while permits made a new 2 year low. 

Over the same 2.5 year period of time, prices also stalled, and then began a very slow deflation on the order of -1% -5% YoY. In absolute terms that trend continued last month. While the median price of a new single family home increased 15,200 to $426,600 in May, that is average compared with the last 2.5 years:

On the other hand, this was the second highest YoY% increase in the median price of new homes in the past 2 years, up 8.1%, suggesting that the deflating trend may be ending. The below graph compares the one month and quarterly average of the YoY% change in new homes compared with the YoY% change in the FHFA and Case Shiller Indices, which were reported yesterday:

. 

Before 2018 (not shown), typically the series moved in tandem. Since then, as you can see, with the exception of 2021-22, the median price of existing homes has increased substantially more than that of new homes. For a rebalancing to occur, these should start to converge - and that may be happening.

Finally, after a slight decline in April, the inventory of homes for sale rose 7,000 to 507,000, another post-pandemic high:

This is significant because in the past recessions have happened after not just sales decline, but the inventory of new homes for sale (red, right scale) - which also consistently lag - also decline (as builders pull back:

To summarize, new home sales, while weak in May are not signaling recession, and in fact the relative firmness in prices this month, compared with the continued deceleration of price increases in existing homes, is most consistent with an ongoing rebalancing of the market.

Repeat home sales through April confirm housing market is well on its way to rebalancing

 

 - by New Deal democrat

Yesterday the existing home sales report showed continued deceleration in YoY price increases to 1.3%, along with an increase in inventory of houses for sale, indicative of the ongoing rebalancing of the housing market. This morning’s repeat home sales reports from the FHFA and S&P Case Shiller strongly confirmed that deceleration and ongoing rebalancing.

On a seasonally adjusted basis, in the three month average through April, both the Case-Shiller national index (light blue in the graphs below) as well as the FHFA purchase only index (dark blue) showed a declines of -0.4%, the steepest such declines since the summer of 2023:

On a YoY basis, price gains in both indexes not only continued to decelerate, at 2.7% for the Case Shiller index, and 3.0% for the FHFA index; but these were the lowest YoY% increases since 2012 for both indexes excluding 7 months in 2023 for the Case Shiller index:

These are of a piece with yesterday’s very low YoY% gains in prices in the existing home sales report:

(Graph by Calculated Risk)

Further, because house prices lead the measure of shelter inflation in the CPI, specifically Owners Equivalent Rent by 12-18 months, here is the same graph as above (/2 for scale) plus Owners’ Equivalent Rent from the CPI YoY (red):

As I wrote last month, the last time the Case-Shiller and FHFA Indexes were in this range YoY (2019), Owners Equivalent rent gradually declined in the 12-24 months thereafter to the +2% YoY level.

All of this is good news, showing that the existing vs. new homes market is well on its way to rebalancing, and that we can expect further good news in the very large shelter component of the CPI in the months ahead; with the sole - significant - exception of the effects of tariffs.

May existing home sales show prices stabilizing, inventory continuing to increase towards its historical range

 

 - by New Deal democrat

The first part of this week is all about more housing data. This morning started out with  existing home sales, which although they typically constitute about 90% of all sales are the least important for forecasting purposes, since the main thing that happens is only a change in ownership, and therefore they have much less economic impact than new home sales.

And this month the level of sales themselves was far less important than what the median price for an existing home and inventory are telling us about the ongoing rebalancing of the housing market.

Sales of existing homes, just like new homes, have been rangebound for the past 2 years, in reaction to mortgage rates remaining in the 6%-7% range. In May they remained within that range, increasing 0.8% to 4.03 million annualized on a seasonally adjusted basis (although on a YoY basis there was a slight -0.7% decline). The below graph shows the last 10 years, showing both the immediate post-COVID surge and the low but rangebound trend since:

But as I wrote above, prices and inventory were more important this month. 

Let’s start with inventory. As I have pointed out repeatedly, the secular decline in inventory began well before onset of the pandemic, reaching a nadir in 2022. Unlike sales, this series is not seasonally adjusted, so it must be looked at YoY, and in May inventory continued to climb, to 1.540 million units, a 20.3% YoY increase, and only 1,000 units lower than May 2020 (May data not shown):

Nevertheless inventory is still below its pre-2014 levels, which typically were in the 1.7 million to 1.9 million range, which means that although it is lessening the chronic shortage still exists.

Finally, let’s look at prices. Builders of new homes are much more able to respond to market pressures, and - leaving the effects of tariffs on building materials aside - this has continued to make new homes relatively much more attractive than the constricted existing homes market, which has had strong upward pricing pressures right through the end of last year.

There was already strong evidence that this upward pricing pressure was abating. And this month added yet more such evidence. Like inventory, this data is not seasonally adjusted and so must be looked at YoY, as in the graph below of the last 10 years (May data not shown):

In the immediate aftermath of the pandemic in 2021-22, prices increased as much as 15% or more YoY. After the Fed started its sharp hiking regimen, prices briefly turned negative YoY in early 2023, with a YoY low of -3.0% in May of that year. Thereafter comparisons accelerated almost relentlessly to a YoY peak of 5.8% in May of 2024, before decelerating to 2.9% in September.

Here are the comparisons since:

October 4.0%

November 4.7%

December 6.0%

January 4.8%

February 3.6%

March 2.7%

April 1.8%

In May this deceleration continued, with a YoY% gain of 1.3%, the lowest such gain since earnly 2023.

In summary, this month’s existing home sales report tells us that the rebalancing of the housing market is continuing. Although seasonally adjusted sales remain rangebound, price increases have abated dramatically, and inventory is increasing at a big YoY clip. Although inventory is still low by historical standards, it is possible that by July’s report it could reach the 1.7 million level, i.e. the bottom of its pre-2014 historical range. 

“Economic expansions don’t die of old age; they are murdered” usually by domestic or geopolitical exogenous shocks

 

 - by New Deal democrat

There is an old saying that “economic expansions don’t die of old age. They are murdered.” 

I have been writing about the economy, and examining all sorts of leading, coincident, and lagging indicators, for 20 years; and the longer time goes on, the truer that saying appears.

My most recent examination has been based on the data showing that despite the blows inflicted on the economy by the likes of Tariff-palooza!, it just keeps powering along. It simply takes an awful lot of hits to sink a US expansion.

Which got me thinking about all the past recessions I have experienced, and that fact that, going back over 50 years now, every single one of them featured important and sometimes decisive shocks, usually geopolitical or domestic political shocks. Let’s take a brief look:

1974 - Arab oil embargo, brought about by the 1973 Yom Kippur War.

1979 - Iranian Revolution brings about another doubling in the price of oil

1981 - Paul Volcker raises interest rates from 9% to 19% to deal with the inflationary fallout from the 1979 stagflation.

1991 - Another oil shock brought about by Saddam Hussein’s invasion of Iraq

2001 - a combination of the “China shock” as manufacturing jobs flee the US for China, the 9/11 terrorist attacks, and the bursting of the internet bubble

2008 - As well as the bursting of the housing and mortgage lending bubble, there was another oil shock, as gas prices rise from $2.25 in early 2005 to $4.10 in mid-2008.

2020 - COVID

The above list isn’t to downplay cyclical events, but rather that an economy that was already vulnerable was finally knocked over by some exogenous event; or at least the exogenous event contributed. Even those recessions with the most “cyclical” or financial components - 1981, 2001, and 2008 - had at least some deliberate decision-making involvement, whether Volcker’s deliberate choice to bring about a recession in order to kill inflation, or the accession of China to regular trading status, in combination with terrorist attacks, or Greenspan’s enabling of reckless lending practices as well as the first time oil went over $100/barrel.

We entered this year with a weak if expanding economy. The most recent QCEW - an actual *census* of US employment rather than the monthly estimate - suggests that in all of 2024 only about 0.8%, or 1.25 million, new jobs were added, less than the likely population growth last year. And this year we have already had 2 exogenous political shocks: Tariff-palooza!, and now the war with Iran. The GOP tax bill is set to be a 3rd major political shock.  Will those blows be enough to sink the economy? We’ll find out soon enough.

Weekly Indicators for June 16 - 20 at Seeking Alpha

 

 - by New Deal democrat

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

The trends that have been in place ever since the start of Tariff-palooza!, aided and abetted by the GOP budget-busting bill and the burgeoning Israel-Iran war, are continuing.

The US$ is declining, oil prices are spiking, rail traffic has turned negative, and consumer spending seems to be slowly decelerating.

WINNING! One of the things I may elaborate on as early as tomorrow is that not a single US economic expansion in the past 50+ years has died a natural death. Every single one has been murdered in whole or in part by a domestic political or geopolitical shock. As noted above, in the past 5 months T—-p has managed to unleash at least 3 of them.

As usual, clicking over and reading will bring you up to the virtual moment as to the state of the economy, and reward me with a penny or two for organizing and reporting on it.

Why hasn’t the housing downturn caused a recession yet? A detailed look

 

 - by New Deal democrat

As promised yesterday, today let me take an extended look at the important leading sector of housing. I want to walk through each of the important series generally in the order in which they have typically peaked, and how in at least one important respect this time is - somewhat - different.

First, here is another variation on a graph I have run many times, showing how mortgage rates (red) typically lead both total (dark blue) and single family (gold) permits and the more noisy starts (light blue). Here is 1972-98:

And here is 1999-present:

The magnitude of the response is not always proportionate (see the 1970s) and in at least one case (the housing bubble and bust of the 2000s) overwhelmed by other factors, but the relationship almost always holds.

Here is a close-up on the post-pandemic period:

As usual, not perfect, but the major leading/lagging relationship holds. Most importantly for today’s purposes, note that mortgage rates have not changed significantly in the past 20 months, and since then both permits and starts have become more rangebound YoY as well.

Next, let me show the relationship between new home sales (red) and permits, first from 1962 to 1994:

And 1995-present:

The point here is that sales lead even permits - but they are much more noisy (and also heavily revised), which is why I pay more attention to permits.

Here is the post-pandemic close-up, showing that as usual sales both peaked and troughed first, before permits, and have been similarly rangebound since mid-2023:

For completeness’ sake, here are purchase mortgage applications as well:

Unfortunately FRED is not allowed to publish these, but note that they peaked right after new homes sold and right before permits. They also troughed in late 2023, and were rangebound until the end of 2024, before rising in the early part of this year. That would normally be a good sign, but applications have declined again in the wake of the recent increase in mortgage rates due to Tariff-palooza!

Next, let’s delete the more noisy starts, and compare total and single family permits with housing units under construction (gold, right scale), all normed to their 2022 peaks:

The important points here are that units under construction - which as I almost always say, is the real total of the economic activity in this sector - follow permits (and starts) with a lag. And secondly that when there have been recessions, the number of units under construction continued to decline right into the period of actual economic contraction.

Once again, let’s focus on the post-pandemic period:

As usual, the number of units under construction followed permits by a little under a year. Note also that as per the above discussion of mortgage rates, the absolute number of permits has been rangebound for almost two years - until possibly yesterday’s report, which may have been the first one reflecting the impact of tariffs (on lumber, for example). 

But more importantly, the number of units under construction has declined almost every month in the past 18, and is well within the range of declines where previously recessions have begun. Indeed, if units under construction stabilized for a significant period of time, that would suggest a recession has been avoided - but that has not happened.

Before I get to the final series in chronological order, let me note that construction spending, whether nominal or adjusted for inflation, peaked almost simultaneously with permits in 2006:

Post-pandemic, as measured by construction costs, construction spending peaked at the time of the initial peak in permits in early 2001. Nominally or deflected by the CPI, it peaked several months before permits (teal) did in 2022:

Note that in the past several months residential construction spending has also declined further, just as permits have done.

Now let’s take a look at what the final shoes to drop typically have been before recessions have started, houses for sale (blue) and residential construction employment (red), in comparison with units under construction:

Although I won’t show a graph this time, remember that homes for sale lag homes sold in the housing sales report, and it has only been once homes for sale peak and then turn down that recessions have begun. There is no clear pattern as to whether homes for sale or residential construction employment peak first, but both lag units under construction.

And now, our final post-pandemic look:

The number of houses for sale declined slightly in April, but it is too soon to know whether that marks the peak or is just noise. But in the past 6 months, the number homes for sale have only increased by 1.2%. Residential construction employment is still increasing! 

Let me make one final point about these last two graphs. At the outset of this post I wrote that at least one thing was somewhat different about this cycle, which has a lot to do with why the number of units under construction seemed to levitate for so many months after permits and starts peaked, and why employment in this sector has not turned down yet. 

Notice, beginning in about 2012, how much construction employment lagged the increase in units under construction. Between then and the outset of the pandemic, units under construction nearly tripled, while the number of workers building those units only increased 50%. That has only been exacerbated since the pandemic, as units under construction peaked at more than *quadruple* their number in 2011, while employment in the sector is only up 70%. 

With such a big decline in the number of laborers per unit being built, it is no wonder that the lag time has been so great, and the need to lay off workers so little. But if there is to be a recession, almost certainly both of the final shoes in this chronological panorama will drop first. And Tariff-palooza! might just do the trick.

[P.S.: Since there is no significant data tomorrow, and given the length of this post, don’t be surprised if I play hooky.]

Housing construction looks even more recessionary

 

 - by New Deal democrat

Because no data will be released tomorrow due to the Federal holiday, I am going to defer a deeper look at the very important housing sector until then. Today I’ll just note the top line indications from this morning’s housing construction data.

As per usual, permits are much less noisy than starts, and slightly more leading. Single family permits are the least noisy of all the data, so I pay the most attention to that number. And the numbers for May were not good.

Permits (gold) declined -29,000 annualized to 1.393 million, the lowest number since June 2020. Single family permits (red) also declined, by 25,000 annualized, to 898,000, the lowest in 2 years. Starts (light blue) declined -136,000 annualized to 1.256 million, the lowest since May 2020:

Recall that mortgage rates generally lead housing permits and starts, so to some extent this is a function of those rates (blue, left scale in the graph below), which for the last seven months have hovered near the higher end of their range since late 2022:

Some of this may also be a function of Tariff-palooza!, which has caused the price of construction materials to jump (more on that tomorrow). But it is probably also part of a feedback loop, because the number that represents where the proverbial rubber meets the road for actual economic activity - housing units under construction - declined another -29,000 annualized to 1.375 million, the lowest number since June 2021, and -19.8% below their October 2022 high:

More often than not in the past, by the time units under construction had declined by this much, a recession had already begun. The only two exceptions were the late 1980s, where the pre-recession decline was -28.2%, and 2007, where the pre-recession decline was 25.6%.

I will explore more why this time around no recession has begun yet with my more in-depth look at housing tomorrow.

Jobless claims show a weakening, but not (yet) recessionary economy

 

 - by New Deal democrat

Because tomorrow is the Federal Juneteenth Holiday, initial and continuing claims were released today. They continue to show a slowly weakening, but not (yet) recessionary, economy.

Initial claims declined -5,000 to 245,000 for the week, while the four week moving average rose another 4,750 to 245,500. This four week average is the highest since August of 2023. Meanwhile, with the usual one week lag, continuing claims declined -6,000 to 1.945 million, after last week the highest since November 2021 (not shown):

While this continues the weakening trend we have seen for the past few weeks, on the YoY% basis more useful for recession forecasting, it was “more of the same.” Initial claims were up 3.4%, the four week average up 5.8%, and continuing claims up 6.2%, right in the middle of the +5% +/-5% range we have seen for the past 9 months:

Finally, let’s take our first look at what this likely means for the unemployment rate in the next several months:

In this case I think it is obvious that the increasing number of initial and continuing claims suggests at least preliminarily that the unemployment rate is likely to move higher in the next few months.

In short, a jobs economy that is slowly weakening, with a slight increase in people being laid off, and finding it increasingly difficult to find new employment, but not enough of a weakeneing at this point to mean recession in the next few months.

Industrial and manufacturing production mixed, but also consistent with the end of front-running

 

 - by New Deal democrat

Today’s second report was for industrial production, including its important manufacturing component. 

The data for May was mixed, as total production (blue) declined -0.2%, while manufacturing production (red) increased 0.1%

In March I wrote that “I suspect the big increases in February and March in manufacturing, like this morning’s retail sales numbers, were about front-running T—-p’s tariffs. Which means that like retail sales, production might have been pulled forward from the next few months, which may lead to whipsaw declines.”

Revisions to the data released this morning and going all the way back to last year showed a more complex picture. The net effect of the revisions was a decline of -0.1% for each measure through April. But the main point stands, as total production peaked in February, and manufacturing production peaked in March:

On a YoY basis, both total and manufacturing production are up 0.6%, a sharp deceleration from the previous four months:

Both of this morning’s reports were important. Industrial production has historically been one of the two main coincident indicators for recessions, while real retail sales are both an important short leading indicator, and to the extent they presage real personal consumption, which is another important coincident behavior. Both of them declined, probably due to the end of front-running tariffs by both consumers and producers. At the same time, both are within the range of noise, and for both to actually signal a downturn I would need confirmation from other short leading indicators, as I discussed yesterday.

May real retail sales: the front-running of tariffs is over

 

 - by New Deal democrat

We can safely say that the front-running of tariffs is over. As usual, real retail sales is one of my favorite indicators, because it tells us so much about consumers, and since consumption leads employment, it gives us information about the trend in that as well. And this morning’s report for May was our earliest indication in the monthly data of the post-Tariff-palooza! trend.

Nominally retail sales declined -0.9% in May, and were up 3.3% YoY. But because consumer prices rose 0.1%, real retail sales declined -1.0% for the month (blue in the graphs below). In recent months I have also been calculated real sales excluding shelter, because that has been distorting the CPI. This month real retail sales ex-shelter were down -1.1% (gold). In the below graph I also show real personal consumption expenditures for goods (red), which tends to track real retail sales well, but won’t be reported for several more weeks (Note: graphs normed to 100 as of just before the pandemic):

With rare exceptions - one of which was in 2023-24 - when real retail sales are negative YoY, a recession has followed shortly. Even after this month’s downturn, in the past 12 months, real retail sales YoY are up 0.9%, and excluding shelter, up 1.8%:

Probably the best way to look at this is to average last month and this month, which would mean that the YoY trend has been about equal with that of the end of last year, when real sales were in the range of 2.0%-2.5% higher YoY. If next month’s report does not show a further decline, the YoY measure will still be positive. But if it is further decline like this month, likely the measure will be negative again.

Finally, let’s compare the YoY% changes with their potential effects on employment (red):

To reiterate, consumption leads employment. Changes in the strength of sales show up with some number of months’ delay in changes in the strength of employment. Because real sales are still positive, and the average of the last few months has not deteriorated, that suggests that the jobs report should stay positive for the next few months, with YoY gains on the order of 1%, with two caveats: (1) the YoY comparisons in employment in the next few months will be with gains of less than 100,000 last summer, meaning that similar numbers might be expected this summer as well; and (2) the QCEW, which is the “gold standard” for employment, has been indicating gains of only about 0.8%-0.9% YoY for the latter parts of last year, meaning that for the YoY gains to remain steady, even weaker job reports in the next few months might be expected.

But to reiterate: the main takeaway from this month’s retail sales report is that the consumer front-running of tariffs has ended, and payback (of unknown duration and strength) has begun.

Updating the nonfinancial long leading indicators, plus several important short leading ones

 

 - by New Deal democrat

Since a couple of years ago, I temporarily suspended my updating of the long leading indicators. That is because their negative slant in 2022 was completely overcome by the hurricane force tailwind of the unspooling supply chain kinks. By that time the Fed had already raised rates more steeply than at any point since 1981. So looking forward, should the financial indicators in particular still be normed to their best post-pandemic readings, or re-normed to after the supply chain unkinked? There was no way to know.

But at some point they must resume their salience. At this point I think it is fair to restart examining the non-financial long leading indicators; that is, those not directly under the control of the Fed or at least partially so, like interest rates, the yield curve, and real money supply.

The non-financial long leading indicators are housing permits, corporate profits, and real sales per capita. So let me take a K.I.S.S. look at each of those, plus several other salient short leading indicators; namely, real spending on goods, real aggregate nonsupervisory payrolls, and initial jobless claims. All of the graphs below are rendered YoY for ease of comparison.

First, here are corporate profits after tax, both before (light gray) and after (dark blue) accounting for inventories, divided into three time periods, again for ease of viewing. Here is 1948-1966:

Note that the measure adjusting for inventories appears to be a slightly better indicator.

Next, here is 1967-1996, and 1997-2019, also including the quarterly average of initial jobless claims, which began to be reported in 1966 (inverted):

Note again that adjusting for inventories gives us a better indicator. And when we include initial jobless claims as well, i.e., both indicators must be negative, the record is perfect except for one quarter in 1998.

Now here is the post-pandemic record:

Again, at no time since the pandemic have both profits after adjusting for inventories and initial jobless claims been negative simultaneously. 

Here is the update, as of last week, of corporate profits as reported to investors through Q1, together with Wall Street estimates going forward:

Note that profits are anticipated to decline for the second quarter in a row this quarter, but not to be negative YoY.

Next, let’s look at housing permits (blue) together with housing units under construction (red), which is the more “real” measure of ongoing economic activity in this sector:

With the exception of Q4 2023, permits have been negative since the summer of 2022. Units under construction went negative in late 2023, and turned ever more negative through the end of 2024. They are still down more YoY than at any time entering a recession, except for 2007.

Next let’s look at real retail sales (blue) for the 60 years up until the pandemic. The below graph is not per capita in order to K.I.S.S., but population growth has tended to average about 0.75% to 1% a year, so it is easy to adjust. I’ve additionally included real personal consumption of goods (red), which has a similar trend:

Except for a few isolated months, when real retail sales went negative YoY, a recession was imminent or had just started. Real spending on goods avoided those false positives, but several times did not turn negative YoY until late in recessions or not at all.

Now here is the post-pandemic look:

Real retail sales again gave a false positive for an extended period of time, but has turned up over the past year. Real spending on goods avoided most of that, and has similarly trended higher beginning in 2023. Much of the positivity in the last few months has probably involved front-running tariffs, so it will be interesting to see what happens in the May reports, which for retail sales will be issued tomorrow.

Finally, here is an update on real aggregate nonsupervisory payrolls, based on the CPI reported last week:

Again, this almost always has turned negative YoY, or at least decelerated sharply, just before a recession has begun. By contrast, this measure has been trending higher since the beginning of 2024. It currently sits at higher by 2.8% YoY. I would expect that to decline below 1% by the time a recession begins.

Let’s sum up the nonfinancial long leading indicators. The housing sector is giving recessionary readings. Corporate profits adjusted for inventories are weakening, but are still positive YoY. But real sales are not just positive, but they have been improving.

Additionally, neither real aggregate payrolls nor initial jobless claims are signaling a downturn at this point. In fact, while the latter is weak, the former measure is strongly positive through last month.

I would expect all of the above measures to falter, or falter further, before a recession were to begin, even with the complete chaos coming out of Washington. That is, I would expect corporate profits to decline further, real sales to turn down, and real aggregate payrolls to decelerate sharply by then. 

Weekly Indicators for June 9 - 13 at Seeking Alpha

 

 - by New Deal democrat

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

While there were no significant changes in the indicators, there is evidence of  a downturn in consumer spending compared with the tariff front-running of several months ago, as well as a continued decline in the US$. A geopolitics-related spike in oil prices is also unwelcome.

Put this together and you *may* have the first evidence of actual stagflation taking hold.

As usual, clicking over and reading will bring you up to the virtual moment as to the state of the economy, and reward me with a penny or two for collecting and organizing the data for you.

The state of freight

 

 - by New Deal democrat

It is very difficult to track the impacts of Tariff-palooza! on the US supply chain, due to delays in any sort of accurate reporting. But below is the best overall picture I have been able to decipher.

Mainly the delay is focused on the trucking industry, because rail is very concentrated and reports in detail each week. Below is the agglomeration of intermodal (dark red) and total (light red) rail traffic, the Cass Freight Index for trucking (gold), the Truck Tonnage Index (light blue), and the Freight Transportation Services Index for all types of freight (dark blue), all normed to 100 just before the pandemic:

Note that of these, only the Cass Freight Index has been reported for May. The rest are only current through April.

Earlier this week I showed that intermodal rail traffic had turned negative for the past three weeks. In this week’s report, the AAR’s total freight reading also turned negative YoY:

The AAR also reports a monthly graph for all loads except coal and grain. Here is the update through May:

This is a fairly serious turndown. Notably, coal loads have been well above last year’s levels, but the AAR ascribes that to the fact that much of these loads moves through Baltimore, and last year as you may remember the fallen Francis Scott Key blocked the harbor for several months. Of interest, coal loads are below their 2023 numbers:

The trucking industry’s own index was last reported in May for April, showing a monthly decline, but the YoY comparison was higher by 0.1%:

As they wrote: “In April, the ATA advanced seasonally adjusted For-Hire Truck Tonnage Index equaled 113.0, down from 113.3 in March. The index, which is based on 2015 as 100, was up 0.1% from the same month last year, the fourth straight year-over-year increase, albeit the smallest increase over this period.”

Their report for May should be released in the next 7 to 10 days, and should be much more illuminating.

Historically, the Cass Index has been the most sensitive to the downside. As the below two graphs indicate, you need the *total* freight index, including both rail and trucking, to decline YoY in order to suggest that a recession is likely:

As indicated above, the total Freight Transportation Services Index was just updated this week for April. The YoY view shows an increase of 0.7%:

That’s anemic, but it is still positive. We should have a much better idea of what May looked like once the Trucking Index for May is released later this month.