Important changes in trend in the bond and stock markets, and a note on GDP estimates as well

 

 - by New Deal democrat

There’s no important economic data today, so this is a good time to write about several important developments in the stock and bond markets.

First of all, as many of you may already know, a portion of the US Treasury yield curve, between the 10 year and 3 month Treasuries, re-inverted last week. Here’s what that looks like (dark blue), plus the similar pattern as to the Fed funds rate (light blue):

I put up a post over at Seeking Alpha about how this is not uncommon, and what it means going forward (hint: not so good).

Secondly, especially with the Administration’s latest geopolitical and economic moves, there’s been a little excitement over at the stock market as well. Below is a graph of the S&P 500 Index normed to 100 as of November 1, 2023. I’ve put a line through the level as of November 6, one day after the Election:

As you can see, in the year before the Election, stock prices had increased nearly 40%. That is a huge bull move. While there was a 4% spurt higher on the day after the Election, and several new all-time highs, most recently on February 19, the overall trend in the four months since Election Day has been flat. In fact, yesterday during the day they briefly made a new 3 month low. Should such a low be made at the close of the trading day, that would break the long term uptrend.

UPDATE: The S&P 500 did tumble to a new 3+ month low on the close today, at 5778.15. This breaks the uptrend of the past two years.

There’s also been quite the hubbub in the last few days - particularly by political activists - about the negative GDP prints in the Atlanta Fed’s “nowcast” series, as below:

I suggest taking this with more than a few grains of salt.

The Atlanta Fed’s nowcast of quarterly GDP is an ongoing estimate that changes with each new data point, and can vary widely between the beginning of the Quarter and the end. For sxample, here is the nowcast’s record from Q3 2022, at a time when many observers were predicting a recession:

Note that at the end of August, with only one month to go in the Quarter, it was “nowcasting” a GDP print of nearly 3%. Three weeks later it was barely above 0%. 

What actually happened? It was first reported as up 2.6%, and after many revisions, it is presently reported to have been 2.7%.

Even when the nowcast gets it “right,” as it did last Quarter, there is still a lot of variation in the estimate over the course of the three months:

The bottom line is that it would not be surprising at all if the Atlanta Fed’s nowcast rebounded in the next month just as sharply as it declilned in the last week. 

The most up to the moment forecasting tool I have is the “quick and dirty” model using the YoY% changes in stock prices and (inverted) initial jobless claims:

While the four week average of jobless claims is higher - but by less than the 10% necessary for me even to consider it a “yellow flag,” even after their 5% sell-off, stock prices are still higher by 14% YoY. The upturn in claims, and downturn in stocks, must get considerably worse for me to issue a “recession watch,” let alone a “warning.”

It is important to note that sometimes the main factors affecting the economy are intrinsic to it, like wage gains or commodity prices. But there are also individual (or small group of) actors with singular economic power, and the decisions they make can have immediate or nearly immediate impacts on the situation. That was the case with the OPEC price hikes of the 1970s, and Paul Volcker’s single-handed ratcheting up of interest rates that caused the 1981 “double dip” recession. 

The new Administration is behaving like the proverbial “bull in a china shop,” in a way it did not in 2017, because at that time T—-p did not know how to use the levers of economic power available to the President. This time around he does, and is ignoring Congress, and previous laws and appropriations passed by it, right and left. Many voters in 2024 probably expected that a 2nd T—-p Administration would look like the 1st, which was a traditional GOP Administration when it came to the economy. Obviously that is not going to be the case.

I am going to continue to look at the data (which hopefully will remain reliable for a long enough time), and not go further than what it tells me in terms of forecasting the near term trend going forward in the economy.

ISM manufacturing index and construction spending report paint a picture of a goods producing sector that is no longer expanding

 

 - by New Deal democrat

Although manufacturing is of diminishing importance to the economy, (it was in deep contraction both in 2015-16 and again in 2022 without any recession), the ISM manufacturing index remains an important indicator with a 75+ year history of accurately describing that sector and forecasting it over the short term. 

Any number below 50 indicates contraction. The ISM indicates that the number must be 42.5 or less to signal recession. I use an economically weighted three month average of the manufacturing and non-manufacturing indexes, with a 25% and 75% weighting, respectively, for forecasting purposes.

The last few months may have an additional confounding factor in that after the Election, most businesses likely figured that the new Administration would be laying more tariffs, and may well have been in a rush to get their orders in ahead of time.

This probably figured into the fact that the ISM report for January was the strongest since the second half of 2022. And now in February the Index has fallen back. Specifically, the total index fell -0.6 to 50.3, and the more leading new orders subindex fell from its very strong January reading of 55.1 back into contraction at 48.6, the lowest reading in four months.

Here is a look at both the total index and new orders subindex since the Great Recession:

Including this month, here are the last six months of both the headline (left column) and new orders (right) numbers:

SEP 47.2. 46.1

OCT 46.5. 47.1

NOV  48.4. 50.4

DEC 49.2. 52.1

JAN 50.9  55.1

FEB  50.3  48.6

The current three month average for the total index is 50.3, and for the new orders subindex 51.9.

The surge and then retreat in new orders in particular certainly looks like front-running potential tariffs. The regional Fed manufacturing reports will take on added significance this month to see if they confirm whether that is the case.

For the economy as a whole, the weighted index of manufacturing (25%) and non-manufacturing (75%) indexes is more important. Since the latter has been very positive in the past few months, the combined indexes have suggest continued growth in the months ahead. The non-manufacturing index will be reported on Wednesday.

Meanwhile, construction spending declined as well in the latest report, which was for January. Total spending fell -0.2% and residential spending fell -0.5%. Both of these have been close to flat in the past twelve months:

After declining slightly during the first nine months of 2024, the prices of construction materials have increased in the past few months:

Finally, the boom in manufacturing construction that followed the Inflation Reduction Act has also flattened:

Construction spending isn’t declining in any significant way, but it is no longer increasing either.

Together, this morning’s ISM and construction spending reports paint the picture of the goods producing sector of the economy that is not contracting, but is also no longer expanding.

Weekly Indicators for February 24 - 28 at Seeking Alpha

 

 - by New Deal democrat

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

Last week I wrote that exogenous factors - like political decisions - could have nearly simultaneous effects across all timeframes of indicators. In other words, the long and short leading indicators as well as the coincident indicators, could all react at the same time.

This week there was evidence of exactly that.

As usual, clicking over and reading will bring you up to the virtual moment as to the state of the economy, and reward me a little bit for organizing the data for you.

January income and spending show unresolved seasonality in a typical late cycle configuration

 

 - by New Deal democrat

There were two important points in this morning’s personal income and spending report for January. The first is that there appears to be some unresolved seasonality at work. The second is that nevertheless both were weaker than one year ago.

Nominally personal income rose 0.9%, while spending declined -0.2%. Since the deflator increased 0.3%, real income rose 0.6%, and real spending declined -0.4%. Income was a new record high, while spending obviously pulled back:

But a look at the monthly comparisons for the last several years shows that the sharpest increase in real income all last year was also in January, up 0.9%, and the sharpest decrease in real spending was also in last January, down -0.3%:

This strongly hints at unresolved seasonality.

On a YoY basis, the chain type price deflator (blue) was up 2.5%, average for the past six months. Indeed (not shown) since last April prices are up 1.5% for a 2.1% annualized rate over the past nine months. Decomposing the price deflator shows that for goods the index rose a sharp 0.5% for the month, while for services it rose 0.3%. On a YoY basis, the index for services (gold) rose 3.4%, the lowest such increase since March 2021, while for goods (red) it rose 0.6%, the biggest increase since September 2023:

This points to the end of the deflationary period in commodities as being the underlying reason why the PCE inflation index has not declined further since early 2024.  While I won’t bother with the graph this month, despite the decrease in YoY inflation in services consumption, the number is high compared with the 30 years before the pandemic. As I wrote last month, it is noteworthy that goods inflation increasing, and services inflation remaining elevated, is a typical late cycle configuration.

More evidence for residual seasonality was that the personal saving rate jumped from 3.5% to 4.6% on a month over month basis. As the graph below shows, the very same jump happened in January of last year:

Ordinarily I would consider such a jump as a potential precursor to recession, showing an increase in consumer caution, but compared with last January’s rate of 5.5%, the suggestion is that the real trend is a continued slow decline in saving - again, a typical late cycle phenomenon. In other words, as expansions continue, consumers get further out over their skis, and so more vulnerable to an adverse shock.

Some good news was that real income less government transfers, one of the metrics that the NBER looks at to determine economic expansions vs. recessions, increased by 0.3% in January to another new high:

Finally, the PCE price index is used to calculate real manufacturing and trade sales (with a one month lag), another metric used by the NBER to determine if the economy is in recession or not. These jumped 0.7% in December, continuing their post-pandemic uptrend:

Because of the apparent unresolved seasonality in the January numbers, I think we have to turn to the YoY trends for more insight this month. These show continued but decelerating growth in both income and spending, as well as a likely continuing ebbing of the saving rate. Prices of goods are firming and picking up, while services remain elevated. This continues to be a typical late cycle type of configuration.

The end of “steady as she goes” in jobless claims?

 

 - by New Deal democrat

This week’s report on initial jobless claims was of particular interest, because of the issue of whether Federal employees laid off by the new Administration would cause an increase. It appears they did.

Initial jobless claims rose 22,000 for the week to 242,000, and the four week moving average rose 8,500 to 224,000. With the typical one week delay, continuing claims declined -5,000 to 1.862 million:

As you can see from the above graph, initial claims tied for the second highest weekly number in the past six months. A preliminary check of the state by state data indicates that there was a sharp increase in claims in Washington DC, but that would only marginally increase the weekly number. There was also a significant increase YoY in Virginia, but not in Maryland. So as an initial matter it appears that the Federal layoffs were only a part of this increase.

The sharp increase also showed up in the YoY% changes, which are more important for forecasting purposes. There, initial claims were up 13.6% YoY, the four week average up 7.0%, and continuing claims up 3.2%:

Of note, the average of the last two weeks in initial claims is +11.3% YoY.

These numbers are still neutral for forecasting purposes, since the four week moving average is more important than the noisy weekly numbers. But as per the above, that could change as early as next week.

Finally, let’s update our look at what this suggests about the unemployment rate in the months ahead, since initial claims in particular have a very long record of leading the unemployment rate:

On a monthly basis initial claims are up 7.0% YoY, and initial + continuing claims together are up 10.4%. Since one year ago the unemployment rate was 3.8%, for the first time in many months this suggests upward pressure on the unemployment rate, since 3.8%* 1.07 and *1.10 indicates an unemployment rate of 4.1% or 4.2%, vs. last month’s 4.0%.

More unwelcome news in (new) house prices, while sales continue sideways trend

 

 - by New Deal democrat

I almost always start out my post on new home sales by indicating that, while they are the most leading of all housing metrics, they are very noisy and heavily revised.

That was true in spades for this morning’s report for January. As shown in the graph below, sales of new single family homes declined -10.5%, or by 77,000 annualized, to 657,000, from December’s level of 734,000, which was upwardly revised by 36,000, or about 5%, from its originally reported level of 698,000. 

That’s why I usually compare them with single family permits (red, right scale), which lag slightly but are much less noisy or revised:

Just like existing home sales, which I discussed earlier this week, new home sales have been rangebound in the past two years, varying between a low of 611,000 and a high of 741,000.

So despite the sturm and drang of the monthly decline, really this just shows a steady and flat market.

What is perhaps more important is what is happening with prices. To reiterate my theme from the past few months, Ive been looking at new and existing home sales more in tandem, with a rebalancing of the market in mind. For that to happen we need price increases to abate in existing homes, and prices to remain flat or still declining in new homes.

Sales lead prices, which are best viewed in a YoY% comparison. The below graph shows sales (/1.5 for scale) and median prices of new homes (red) in that format, together with the YoY% change in the FHFA repeat sales index reported yesterday (gold):

You can see that prices followed sales higher with about a 12 month lag, and settled in to a slightly declining trend with a similar delay. 

The unwelcome news here is, just as with the repeat sales indexes yesterday, after about two years of generally declining prices, on a YoY basis the median price of a new home was higher by 3.7%. This isn’t rebalancing, but a renewed push in inflation in both new and existing house prices

As the below graph of actual non-seasonally adjusted prices shows, in January we broke that two year trend of slightly declining prices, with the highest price since summer 2022:

This is not good.

Finally, the inventory of new houses made yet another 15+ year high in January, if fact an all time high except for 2006-07. This is actually “good” news - for the moment - because as the below long term historical graph shows, recessions have in the past happened after not just sales decline, but the inventory of new homes for sale - which also consistently lag - also decline (as builders pull back):

So in summary January continued the “steady as she goes” pattern for sales, but broke that trend for prices (subject to noise and revisions next month!). With mortgage rates still close to 7%, I do not expect any upward breakout in sales soon. Which, while it isn’t *bad* news for the economy, is definitely not good news either.

Unwelcome news for homebuyers and the CPI, as repeat home sales prices continue re-acceleration in December

 

 - by New Deal democrat

There was unwelcome news in this morning’s repeat home sales reports from the FHFA and Case-Shiller. On a seasonally adjusted basis, in the three month average through December, according to the Case-Shiller national index (light blue in the graphs below) prices rose 0.5%, and the somewhat more leading FHFA purchase only index (dark blue) rose 0.4%. Both of these continue the trend of re-acceleration we have seen in house prices in the second half of 2024 [Note: FRED hasn’t updated the FHFA data yet]:

Both indexes also accelerated on a YoY basis, the Case Shiller index by 0.1% to a 3.9% gain, and the FHFA index by +0.5% to a 4.7% YoY increase:

Because house prices lead the measure of shelter inflation in the CPI, specifically Owners Equivalent Rent by 12-18 months, here is the updated calculation of its trend. Despite the increases in the house price indexes in the past several months, there is still every reason to believe that OER should continue to trend gradually towards roughly a 3.5% YoY increase in the months ahead:

The most leading rental index, the Fed’s experimental all new rental index, has not been updated since November, but the similar Apartment List National Rent Report as of the end of January continued to indicate that YoY rent increases should decline further. So the bulk of the evidence continues to point further deceleration in that huge component of consumer price inflation:

Because prices generally follow sales, as a refresher here is the graph of existing home sales. As I wrote earlier this week, for the past 2 years these have remained in a relatively tight range (following mortgage rates):

The takeaway from the increased price pressure in the existing home market as measured by the FHFA and Case Shiller Indexes is that the trend of slowly abating shelter inflation in the CPI may slow even further, although it seems likely to slow down.

Q3 2024 QCEW suggests employment was considerably weaker than we thought last year

 

 - by New Deal democrat

This will be income, spending, and housing week, but that won’t start until tomorrow. While there’s no news today, there was an important update to employment data last week; namely, the QCEW for Q3 of last year.

As a refresher, the Quarterly Census of Employment and Wages is just that, a *census* rather than a survey. It includes something like 95% of all businesses, and is taken from their tax reporting. This means it is not an estimate or guess, but very close to a full itemized count. The drawback being, of course, that it doesn’t get reported until almost 6 months later.

Since at least June of 2023, the QCEW has been telling us that the monthly jobs report has been over counting employment. The recent benchmark revisions downwardly revised 2023 and 2024 employment by about -600,000.

And the Q3 2024 QCEW tells us it will probably have to be revised down further.

Since the QCEW is not seasonally adjusted, the only way to measure is YoY. Also, unfortunately FRED does not pick up the data for easy putting in graphic form. But here is the crucial chart:

To cut to the chase, in the first five months of last year, employment grew either 1.3% or 1.4% YoY. That suddenly downshifted in June, and remained anemic through September, with YoY growth of 0.8% to 1.0%.

Now leet’s compare that with a graph of the YoY% growth in nonfarm payrolls:

With the recent benchmark revisions, the YoY growth rate in jobs for the first five months of last year is now estimated at 1.4%-1.6%, only slightly higher than the QCEW. But in the JUne through September period, it is 1.2% or 1.3%, significantly higher than the QCEW.

According to the crrrent nonfarm payrolls numbers, the economy added almost 2 million jobs during the 12 months from September 2023 through September 2024. If we bring that down to a 0.9% gain (the average of the June through September YoY gains as measured by the QCEW, that brings us down to a 1.4 million job gain, a difference of -600,000, primarily centered on the last four months of that period.

Now here is a graph of the monthly gains in jobs during that same 12 month period:

The current estimate of job gains in the June through September 2024 period is 486,000, including three very anemic months. If we apply the YoY downshifting of the QCEW during those months, all of those gains disappear.

At the same time, it’s important to note that all of the QCEW numbers for 2024 are preliminary at this point. In 2023 there was a similar cratering of the QCEW, strongly suggesting actual job losses - that subsequently disappeared when the QCEW for that year was finalized.

Finally, let me emphasize that the above does not mean there was a recession last year. Almost all of the other important indicators showed continued growth through the period. And the QCEW also reports wage growth, and there it showed continued aggregate wage growth of 4.4% and 4.5% in Q2 and Q3 of last year, very much in line with aggregate nonsupervisory payrolls from the monthly reports:

Still, it’s another cautionary signal that the economy last year (which also means the economy going into the November elections) probably was not as strong as was thought at the time.

Weekly Indicators for February 17 - 21 at Seeking Alpha

 

 - by New Deal democrat

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

For now the status quo continues, of problematic interest rates, but excellent short term and coincident data. Political events affecting the economy may start to show up in the next few weeks, however. The first tiny inkling may have been the 9.5% YoY increase in weekly initial claims.

As usual, clicking over and reading will bring you up to the virtual moment as to the economic data, and reward me a tiny bit for collecting and organizing it all for you.

Existing home sales: trends of increasing prices, invcreasing inventory, and flat sales all continue

 

 - by New Deal democrat

Existing home sales have been flat in the general range of 3.85 -4.10 million annualized for two years, and that continued in January, as on a monthly basis sales decreased -4.9% to 40.8 million from an upwardly revised December number of 4.29 million annualized:

The slightly better numbers in the past few months are of a piece with the slight uptrend in housing permits and starts we saw earlier this week, likely driven by recent lower mortgage rates (which have now ended).

Earlier in 2024 we saw a deceleration in the YoY% change in prices, but that reversed in autumn, as after a 4.0% YoY increase in October, the pace re-accelerated and in December prices were up 6.0%. In January that moderated to up 4.8% YoY, but considering that January is typically the low for annual prices, as shown in the below graph which shows the non-seasonally adjusted data, there is no sign of any real moderation in that trend:

Finally, there has been a decade-long trend of lower inventory than in the past. That trend accelerated during the COVID shutdowns. After briefly turning negative YoY in early 2023, making a low of -3.0% YoY that May, inventory has gradually turned higher. Typically December and January are the annual lows in inventory. In January inventory increased to 1.18 million from December’s low of 1.15 million.  This is the highest inventory for January since 2020 (note: graph below is not updated through January)::

This contrasts with the low of 860,000 in January 2022, vs. the best January level in the past 10 years of 1.86 million in 2015.

As was the case last month, in summary on a non-seasonally adjusted basis sales, prices, and inventory were all up from one year ago, meaning that the market is continuing to slowly recover from the pandemic collapse. The continuing issue is whether enough supply will come back onto the market to allow competition to attenuate YoY price growth that has made existing homes relative to new homes relatively speaking the least affordable ever.

Jobless claims: possibly the final “steady as she goes” report

 

 - by New Deal democrat

Let’s take our weekly look at jobless claims. These are a short leading labor market indicator. Also, it is likely that the firings in the federal labor force will shortly be reflected in this data.

This week initial claims rose 5,000 to 219,000, while the four week average declined -1,000 to 215,250. With the typical one week delay, continuing claims rose 24,000 to 1.869 million:

As usual, the YoY% changes are more important for forecasting purposes. So measured, initial claims were up 9.5%, the four week average up 1.4%, and continuing claims up 4.6%:

These are neutral readings, suggesting a slowly growing economy.

Finally, let’s look at what these suggest about the unemployment rate in the next several months. On a biweekly basis, both initial claims and the composite initial + continuing claims are higher by about 4%. Since the three month average of the unemployment rate one year ago was 3.8%, that suggests an unemployment rate trending to 4.0%:

Here is the absolute version of the same, using the initial + continuing composite:

This is another example of “steady as she goes.” But I suspect that the story might start to change significantly for the worse as early as next week, especially since the outlier low initial claims reading from January 25 will drop out of the four week average.

Housing construction declines further into recessionary territory

 

 - by New Deal democrat

As promised, economic data resumed this morning, and with it my extended posts.

First, the usual point that housing is a very important and leading sector of the economy, typically turning down more than a year before a recession begins. And with higher mortgage rates as well as surging prices, housing has indeed turned down.

This morning the Census Bureau reported that housing permits, the most leading of these metrics, rose 1,000 annualized, while starts, which are noisier and typically lag permits by a month or two, declined -149,000 back into their general 2024 range (although their three month average, which smooths out some of the noise, rose to a 12 month high):

The trend is slightly higher compared with this past summer, but within a limited range over the past two years.

But as I always point out as well, the *real* economic measure of housing is total construction. That had levitated for almost two years after permits peaked before turning down last year. And they declined more this month, down -20,000, or -17.8% percent from their peak (gold, right scale):

Housing construction is now down well into the range where in the past a recession was more likely than not to occur in the near future.

But as I wrote about last week, before a recession begins the even more lagging measure of housing construction employment almost always turns down as well. And as I wrote last week, that measure is *still* levitating, with job growth continuing right up through the latest employment report:

Finally, turning to the metric that leads even permits, here is a look at mortgage rates averaged monthly (blue, left scale) compared with single family permits (red, right scale), which are the least noisy most leading measure of all, and which were unchanged at their 10 month high):

With mortgage rates back hovering around 7%, I expect more of the same from housing permits and starts: very little room to improve in the next few months, and more likely to stagnate or turn back down slightly.

If housing construction is a drag on the economy, and manufacturing is no more than treading water, that makes services all the more important. And I read yesterday that one way to really put a damper on employment and spending is to lay off 100,000’s of federal workers, putting fear into the decisions of not only the workers not laid off, but all of the people likely to be caught up in the ripple effects thereof.

Data drought continues

 

 - by New Deal democrat

There is no new significant economic data today, and I am on the road. Meaningful reporting should resume tomorrow with housing permits, starts, and construction.

In the meantime, here is a look at a high frequency series I keep track of: Redbook retail sales, for the past year:

There are some peaks and valleys, generally around Holidays like Thanksgiving, Christmas, and the like, but the average over four weeks has stayed fairly steady at +5% YoY, which is about normal during expansions.

Since consumer inflation, especially ex-housing prices, has remained in the 2%-3% range, this means there has been a fairly steady increase in consumer spending that has continued over the past year.

In other words, “steady as she goes.” And since the consumer economy is about 70% of the whole economy, that has pretty much been the story for the entire economy.

Weekly Indicators for February 10 -14 at Seeking Alpha

 

 - by New Deal democrat

There’s no significant economic news today. Since I didn’t publish a link to my “Weekly Indicators” post up at Seeking Alpha over the weekend, here it is now.

Left to its own devices, as I’ve written a number of times recently, the economy is in “steady as she goes” mode, with few significant moves in any of the indicators, with the short term forecast and the nowcast both continuing to look good.

Of course, it’s the “left to its own devices” which is, shall we say, chancy at the moment. But in the meantime, clicking over and reading will bring you up to the virtual moment as to the state of the economy, and reward me with some lunch money as well.

January retail sales: once or so a year, it lays an egg. This was one

 

 - by New Deal democrat

It’s that time of month again for my favorite indicator for the consumption side of the economy: retail sales have been tracked for over 75 years. When they are lower YoY, that has historically been a good (not perfect) indicator that a recession is near. That’s because that same 75 year history empirically demonstrates that consumption leads jobs. In other words, it is the change in sales that causes employers to add or lay off employees (not the other way around, as I have sometimes seen claimed).

They are somewhat noisy, especially around the Holiday season, and they do get significantly revised, both of which were apparent in January’s report. In nominal terms, retail sales declined a sharp -0.9%, but December was revised higher by +0.3%. Since CPI tagged a strong 0.5% in January, that means real retail sales declined -1.3% for the month. Because I had the genius thought several months ago that because shelter prices (i.e., house prices and rent) were distorting CPI, maybe they were distorting the signal from real retail sales as well. So they are included below in light blue as well. Note the graph is normed to 100 as of just before the 2021 pandemic stimulus:

When we take out shelter, real retail sales show a solid uptrend since July 2022 (when gas prices were $5/gallon). Note that the December/January numbers have shown the sharpest m/m changes for each of the last three years. I am thus inclined to treat this month’s big decline as unresolved seasonal noise unless there is confirmation next month.

The best recession vs. expansion signal is the YoY% change in sales, which - pretty much until the pandemic - almost always forecast an imminent recession when it turned negative. Again, when we take out the distortions caused by shelter, the false recession signal almost completely goes away:

Even with January’s downturn, the forecast is for continued expansion.

Finally, because consumption leads employment, per the above paradigm, here is the update on that:

With the downward benchmark revisions in employment numbers for the past year, the two series are coming much closer to being in sync. While the forecast remains for positive employment reports, the suggestion from real retail sales is that there is likely to be continued deceleration in the YoY comparisons. In early 2024, the average monthly gain in employment averaged 180,000, so per this model I am expecting the next few months of job gains to average less than that.