Weekly Indicators for April 21- 25 at Seeking Alpha

 

 - by New Deal democrat

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

Another important indicator - corporate profits - tipped into negative territory this week, as Q1 profits look to be substantially below those of Q4 of last year. On the other hand, real money supply from the Fed has tipped back into positive territory.

As per most of my posts in the past few weeks, the real crux of the matter at present is whether producer and consumer durable goods spending, and consumer spending in general, turn negative. So far they have not.

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 my efforts.

March existing home sales continued the slow process of rebalancing in the housing market

 - by New Deal democrat

Existing home sales are not that important for forecasting purposes, since they have much less economic impact than new home sales, because the main effect is simply a change in ownership. But there has been an ongoing shortage of housing for over a decade, which was only exacerbated by the pandemic. So I mainly look at this data for evidence of a rebalancing of the market.

And in March there was further evidence of that rebalancing.

Like new home sales, existing home sales have been rangebound for the past 2 years, in reaction to mortgage rates remaining in the 6%-7% range. In February they were near the top of that range at 4.26 million annualized. In March they retreated towards the bottom of that range, at 4.07 million, so the rangebound trend continued:

But as indicated above, the main issue has been a chronic lack of inventory. As shown in the graph below, this trend has been going on for at least 10 years, well predating the pandemic. Unlike sales, this series is not seasonally adjusted, so it must be looked at YoY. In March inventory continued its slow climb from its 2022 Covid lows, at 1.330 million units, a 19.8% increase, and the highest March reading since 2020:

Nevertheless inventory remains well below its pre-2014 levels (not shown), which typically were in the 1.7 million to 1.9 million range, which means that the shortage still exists.

This shortage is still creating upward pricing pressure, but that pressure is abating somewhat. Like prices, this data is not seasonally adjusted and so must be looked at YoY. Here is what the last 10 years look like:

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%

In March this deceleration continued, with a YoY% gain of 2.7%, the lowest such gain since September 2023.

This is good news, but as indicated above pricing pressures will remain until the shortage of inventory is resolved.

The bottom line is that existing home sales continued the slow rebalancing of the housing market. Next week we will see if the repeat sales indexes buttress this evidence.

More front-running in March, for durable goods orders; but more manufacturing contraction in April

 

 - by New Deal democrat



This morning we got more hard data on manufacturing, one from March, one for this month.

In March new durable goods orders (blue in the graph below) soared higher by 9.2% to an all-time high. This was all about front-running tariffs, because excepting motor vehicles they were unchanged (not shown). Meanwhile core capital goods orders (red, right scale) increased only 0.1%, -0.2% below their January peak:

Since this pulled orders forward from future months, there must inevitably be a giveback in the months ahead. But this does tell us that Q1 was not negative for manufacturing at least.

Meanwhile the Kansas City Fed reported on manufacturing in its district for this month declined slightly further into contractionary territory again, at -4:

Note that this is still above its average reading for the past several years.

The new orders subindex rose +1 to a still very contractionary -11.

The average for the four regional Feds reporting manufacturing so far is -13. For new orders the average is -17. Needless to say, this is consistent with a recession in the manufacturing sector.

The Kansas City Fed will update its general business conditions survey, that includes services, tomorrow.

Jobless claims remain well behaved

 

 - by New Deal democrat

Jobless claims remained well behaved last week, as they increased 6,000 to 222,000. The four week moving average declined -750 to 220,250. With the typical one week delay, continuing claims declined -37,000 to 1.841 million, at the low end of its range over the past 10 months:

As usual, the YoY% changes are more important for forecasting. There, initial claims were up 6.2%, the four week average up 3.0%, and continuing claims up 4.0%:

These are all consistent with a slowly expanding economy.

Since initial claims lead the unemployment rate by several months, here’s our updated look at that, including initial plus continuing claims:

There is no indication of upward pressure on the unemployment rate in the next several months.

Finally, although I won’t bother with a graph this week, after several days being negative YoY, for the past week the stock market has rebounded to higher YoY, finishing yesterday up +6.0%. Thus the “quick and dirty” recession forecasting model indicates continuing expansion for now.

And now, for some decent economic news: new home sales steady, prices slowly deflating

 

 - by New Deal democrat

In ordinary times, new home sales are important because while they are very noisy and heavily revised, they are the most leading of all housing metrics. They remain important even presently because they can tell us about the underlying upward or downward pressure on the economy going forward one year or more. 

By way of background, remember that housing responds first and foremost to mortgage rates, and since those have been rangebound generally in the 6% - 7% range for 2.5 years, so have new home sales in the range of 611,000-741,000.

In March, new home sales increased 7.4% from a slightly downwardly revised February, to 724,000 units annualized, continuing the rangebound behavior. As per usual, the below graph compares with with single family permits (red, right scale), which lag slightly but are much less noisy:

.

Both demonstrate the recent range bound behavior. 

Over the same 2.5 year period of time, prices at first stalled, and then began a very slow deflation. This continued last month, as on a non-seasonally adjusted basis, the median price of a new single family home declined -7,900 to 403,600, with the exception of last November the lowest price in three years:

Although I won’t bother with a graph this month, on a YoY basis, the median price of a new home is continued to decline, down -7.5%.

Builders are much more able to respond to market pressures, and - tariffs aside for the moment - this continues to make new homes relatively much more attractive than the constricted existing homes market, with its continuing upward price pressure.

Finally, 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 it is good news that last month’s slight downward tick was revised away, and the inventory of new homes for sale rose 3,000 to a new 17 year high of 503,000 annualized:

Because manufacturing has been flat to declining in the past three years, construction has been important in the continued expansion of the economy. This month’s report tells us that while new home construction is not increasing significantly, it is not meaningfully decreasing either, and is not showing any sign of any imminent recession.

Regional Feds so far on general business conditions in April: the worst since July 2022

 

 - by New Deal democrat

Three of the five regional Feds that report on their region’s state of the economy have now reported for April. With one exception in the data, everything is negative.

On the manufacturing side, the NY Fed reported last week that now orders had gotten “less bad,” improving +6.1 to -8.8, which is actually in line with most of the monthly readings from the NY Fed since the beginning of 2022:

The Philly Fed, on the other hand, reported that new orders collapsed to -34.2, which is the worst reading of the past 10 years except for the two Covid lockdown months in 2020:

And this morning the Richmond Fed reported that new orders had declined -11 to -15. Aside from last summer, this is in line with the worst readings since the Covid lockdowns as well:

The average of the three for April is -19.3.

Since manufacturing is now far less important to the economy than services, to gauge the impact of T—-p’s economic moves, I am now also following the services indexes as well.

Last week the NY Fed reported that services deteriorated very slightly, by -0.5 to -19.8:

This morning the Philly Fed reported *positive* general business conditions, up +1.3 to +6.9. This is the sole positive report for any regional Fed this month:

And the Richmond Fed also reported this morning that business conditions declined -16 to -30 (note below graph is not updated yet):

The average of the three for April is -14.3.

In general the three regional Fed’s are suggesting that the broader services economy is in the worst shape since 2022, when inflation was at its worst post-pandemic. Since that even did not quite spill into recession territory, we shouldn’t get too far over our skis at this point.

Will this be the week the hard data turns down?

 

 - by New Deal democrat

Typically this is a week where I pay the most attention to incoming housing data in the form of both new and existing home sales, but because we live in “interesting times,” this week it’s different.

The Sword of Damocles hanging over the entire economy is policy uncertainty, for unfortunately obvious reasons. In case you haven’t seen this elsewhere, there actually is a “policy uncertainty index” that is updated daily. Below I show its entire history, both daily (dotted line) and biweekly (solid blue):

On a biweekly basis, there has been more policy uncertainty in the past month than there has ever previously been in the history of the Index, including in the middle of the Covid lockdowns and even more surprisingly, more than during the near financial freeze-up of the economy in autumn 2008.

Needless to say, this is not conducive to undertaking big new projects. Further, because of the incipient trade war, there has been front-running of tariffs that will reverse - and may already have started to do so.

Which means that this Thursday’s durable goods orders report for March, although hardly up to the minute, will assume added importance. Here’s what new orders for durable goods (blue), durable consumer goods (gold), and core capital goods (red) look like since the pandemic:

Most importantly, core capital goods orders have been rising in the past six months. We’ll see on Thursday if front-running caused a further increase in March.

The other big data points will be coming throughout the week from the regional Feds.

On Tuesday, Richmond will report both manufacturing and services conditions for this month. Philadelphia will also report on services. 

On Thursday, Kansas City will report on manufacturing, and on Friday it will report on services for this month.

Because a downturn in manufacturing, unless particularly severe, is not enough anymore to cause a broader downturn in the economy, the coincident measures of business conditions including services for April from the various regional Feds assume additional importance. The Philly Fed’s manufacturing report last week was horrible, and the NY Fed’s reports on both manufacturing and services also indicated contraction.

Finally, it will be worth paying additional attention to the AAR’s weekly rail carloads week report on Thursday, because there are indications that trans-Pacific shipping from China has already declined by more than half. If so, the next effect will be on rail shipping out of the West Coast.