Weekly Indicators for October 27 - 31 at Seeking Alpha

 

 - by New Deal democrat

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

With the dearth of monthly federal economic data, the privately sourced data that forms the backbone of the high frequency indicators is even more important.

This week, unsurprisingly, the biggest move was in the yield curve, in response to the Federal Reserve cutting interest rates. But underneath, several coincident series, including the Weekly Economic Index and Federal Tax Withholding, softened to the very threshold of turning neutral from positive.

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 collecting and organizing it for you.

An appreciation of the Angry Bear blog

 

 - by New Deal democrat

Yesterday we were supposed to find out how much the economy grew (*if* it grew) during the 3rd Quarter, via the GDP report. This morning we were supposed to get the very important personal income and spending data for September as well. Neither of these were issued because of the federal government shutdown. While there are some decent substitute reports from other sources that can at least give us a back of the envelope estimate for this important data, they are no substitute for the real thing. We are flying blind, and there has been no urgency on the part of those in control of the Administration, the House, and the Senate, to do anything about it. In fact, if the economy is on the cusp of being in recession, they might prefer it that way.

It is an absolute disgrace that an alleged premier First World country has degenerated in to the governance of a Third World banana republic - and is poised to continue that way for possibly a long while more.

But today I want to pause to give a note of apprecitiaon.

For roughly the past 10 years, much of the material I have posted here has been picked up and cross-posted (with my permission) at the Angry Bear blog. For the past 5 years or so, *all* of my posts have been. Odds are that it gets more views over there than here.

The Angry Bear blog started over 20 years ago; in fact, Bill McBride a/k/a Calculated Risk started out there before he struck out on his own. For most of the time, it was hosted by Dan Crawford, until he passed away several years ago. One of his dying wishes was that the blog would continue, and he handed the reins over to another poster, whose first name in real life is Bill (not sure he would want his full last name posted publicly), who I had the pleasure of meeting over some gourmet pizza last year in Phoenix AZ.

For among other things health reasons Bill has also needed to step back. As a result, as of this weekend Angry Bear goes dark.

Angry Bear is only one of three economic sources I correspond with which have initiated plans to wrap up in the next year, mainly due to retirement. Sad, but as George Harrison sang, All Things Must Pass.

For my part, I am not a spring chicken either, but I have always figured there is another recession (not caused by the Giant Flaming Meteor of Death) out there, and another recovery. And I’ve also figured that, health permitting, I would like to keep at it until I forecast those cycle turns.

But I wanted to take this opportunity to express my appreciation to Bill, his late predecessor Dan Crawford, and everybody else associated with Angry Bear for their efforts. Thank you all.

Weighing Regional Fed Services Surveys, the sketch emerges of an economy on the cusp of stagflationary recession

 

 - by New Deal democrat

As I’ve reiterated several times this month, the two items of information I am paying the most attention to in the absence of official federal economic data are the Regional Fed Banks and the ISM, for both of their manufacturing and services reports. I should add that earlier this week ADP said that it would make its valuable weekly employment reports available to the public with a two week delay for the duration of the shutdown.

Yesterday I wrote about the Regional Fed manufacturing reports. Today I am following up with the service sector reports. The below chart includes, in order, NY, Philadelphia, Richmond, Kansas City, and Texas. Month over month changes are in parentheses, showing momentum (the 2nd derivative), with the absolute diffusion values for October following. The final number is the average change and absolute number for all 5 together.

Regional Fed:     NY.           PHL.           RVA.       KC.      TX.       Avg

Headline:  (-4.2) -19.4; (-9.9) -22.2; (6) -1; (4) -5; (-3.8) -9.4; (1.6) -11.4     

Cap Ex   (-8.1) -6.7; (9.5) 17.5; (4) 1; (7) 14; (-1.5) 5.8; (5.5) 6.3

Prices Paid  (3.2) 66.4; (-3.0) 35.8; (0.6) 5.5; (-3) 35; (-1.4) 23.0; (0.7) 33.2

Prices Rec’d (-5.8) 26.4; (-8.9) 12.9; (0.1) 3.8; (5) 21; (-1.5) 5.8; (-1.6) 13.7  

Wages (-2.3) 25.9; (9.6) 38.3; (0) 17; (11) 21; (-1.2) 10.7; (3.4) 22.6 

Employment (-2.3) -5.2; (-5.5) -0.5; (0) 0; (8) -4; (-2.2) -5.8; (-0.4) -3.2

Most of the trends are the same:

 1. like New Orders in the manufacturing series, Cap Ex is increasing at a reasonable clip.

 2. Inflation in the form of both prices paid for materials, and prices passed on to consumers, is a serious issue, with only some of the increased costs being passed on.

3. While wages continue to increase at a significant clip, employment is dead in the water - actually declining slightly.

4. The one big difference is in the headline business conditions number, which continues to be in significant contraction.

While the forward looking New Orders and Capital Expenditures categories for both manufacturing and services sectors are expansionary, the economically weighted (i.e., 25% manufacturing and 75% services) headline numbers, at -7.8, are negative, as is the employment category, at -2.2.

With the huge caveat that these are diffusion indexes (i.e., number of companies expanding minus contracting for each datapoint), and are much more variable than the much larger official surveys that we are missing, what emerges is a sketch - exmphasizing *sketch* - of an economy that is on the cusp of a stagflationary recession.

October Regional Feds’ summary of the goods producing economy: growth, but with strong inflation and almost nonexistent job growth

 

 - by New Deal democrat

With the shutdown of almost all economic statistics from the federal government, one of the most important remaining sources is the Fed and its regional banks. All 5 of them that publish manufacturing and services reports have now done so. Which means that we have a decent placeholder proxy for important trends in order, production, prices, and employment.

Today I am going to focus on the manufacturing reports. The below chart includes, in order, NY, Philadelphia, Richmond, Kansas City, and Texas. Month over month changes are in parentheses, with the absolute values for October following. The final number is the average change and absolute number for all 5 together.

Regional Fed:     NY.           PHL.           RVA.       KC.    TX.    Avg

Headline:     (19.4) 10.7; (-36.0) -12.8; (13) -4; (2) 6; (0) 5.2; (14) 3.5          

New Orders (23.3) 3.7; (5.8) 18.2; (9) -6; (-1) 1; (0.9) -1.7; (7.6) 3.0 

Prices Paid  (6.3) 52.4; (2.4) 49.2; (-1.4) 5.8; (1) 41; (-10.0) 33.4; (-0.3) 29.0 

Prices Rec’d (5.6) 27.2; (8.0) 26.8; (-1.0) 3.0; (6) 19; (-4.0) 7.7; (2.9) 16.7

Wages* (n/a) n/a; (n/a) n/a; (2) 15; (n/a) n/a; (-1.7) 14.2); (0.2) 14.6

Employment  (7.4) 6.2; (-1.0) 4.6; (5) -10; (-6) 1; (5.4) 2.0; (2.2) 0.8

____

* only 2 of the banks report this information

While the chart is somewhat messy, below are the 3 main trends:

 1. Production and to a lesser extent new orders showed significant upward momentum in October, while prices, wages, and employment showed little change.

 2. But if upward momentum (2nd derivative) has abated, prices both received by the manufacturers, and even more impressively prices paid by them for raw materials increased sharply, indicating continued effects from tariffs and trade issues, some of which, but only some of which, are being passed on to retailers and consumers.

 3. Wages show continued strong growth, but employment is virtually dead in the water, neither expanding nor contraction.

Importantly, remember that the goods producing sector is only roughly 1/4 of the entire US economy. The remaining 3/4’s is picked up by the services surveys.

But because production and orders are significantly positive, this means the goods producing sector of the economy was growing this month, while inflation is an increasingly important issue (which *should* greatly complicate matters for the Fed), and employment is almost not picking up at all.

Repeat home sales show continued deflation (Case Shiller) vs. stabilization (FHFA) (update with current graphs)

 

 - by New Deal democrat

Despite the government shutdown, the FHFA did publish its repeat home sales index this morning. And since the S&P Case Shiller index is from a private entity, that was published as well. Between those two and the NAR’s existing home sales report, we still have pretty good visibility into that 90% of the housing market, although we have to infer what it means for new home sales and construction.

The last several months showed absolute *de*flation in home prices. The message was mixed for this morning’s reports through August, in which the Case Shiller National Index (gray in the graphs below) declined another -0.3% (non-seasonally; on a seasonally adjusted basis they rose 0.2%), but the FHFA purchase only index (blue) rose 0.4% (note: FRED hasn’t updated either series yet, so the below graphs are through last month. When they update, so will I) (now updated with current Case-Shiller information):

On a YoY basis, price gains in the Case Shiller index continued to decelerate, at 1.5%, while the YoY change in the FHFA Index remained at 2.3%. These remain the lowest YoY% increases since 2012 for both indexes excluding 5 months in 2023 for the Case Shiller index:

With the gain this month, the actual *de*flation in the house price indexes from peak has been reduced to -0.1% for the FHFA Index, while the Case Shiller Index is down -0.9%. The peak for the FHFA index (blue in the graphs below) was in March, while that the Case-Shiller Index (gray) was in February:

Because house prices lead the shelter component of the CPI by 12 - 18 months, this also suggests that they will continue to decelerate, at least slowly, over that period. Here is the same graph as above (/2.5 for scale) plus Owners’ Equivalent Rent from the CPI YoY (red):

The last time the Case-Shiller and FHFA Indexes were in this range, excluding the Great Recession, was in the 1990s, during which time Owners Equivalent rent was in the 2.5%-3.5% range (vs. 3.8% as of the most recent CPI report, which was also the lowest reading of that number since autumn of 2021).

When available, I’ve been comparing these numbers to the latest “National Rent Report” from Apartment List, but that has not been released yet for September. On the other hand, via Nick Gerli, a similar metric from RealPage also shows an actual decline in rents in Q3 of this year, and are also negative YoY, likely (he says) driven by a slowdown in job growth and a decline (or outright reversal?) in immigration:

 

For the last two months, my conclusion has been that all phases of the housing market are either at or near their low points (sales, permits, starts), or declining (prices, construction, employment, and new spec units for sale). For over a decade I have said that sales lead prices, and the available information this month indicates that it is still the case, with the housing market is still flat on its back, with stagnant - but not necessarily declining - sales, and continuing declines in prices at least. 

Tabulated state initial and continuing claims continue neutral trend indicating weak expansion

 

 - by New Deal democrat



As I have done since the beginning of the government shutdown, the number of initial and continuing claims can be calculated notwithstanding, because it is based on reporting by the States, plus DC, Puerto Rico, and the Virgin Islands. Then by applying the same adjustment as was used for the same week last year, the seasonally adjusted number can also be estimated closely.

Further, since my forecasting method relies on the YoY% changes, it is almost never an affected by that seasonality. 

So tabulated, for the week ending October 18, unadjusted initial claims totaled 205,375 vs. 203,482 in 2024, an increase of 0.9%.  

Last year this week the seasonal multiplier was *1.1205. Applying it gives us an estimated seasonally adjusted number of 230,000.

We can similarly calculate the four week moving average, since the last four weeks of claims were 224,000, 228,000, 224,000, as well as this week’s 230,000. That gives us an average of 226,500, which is -12,000, or -5.0% lower than the number of 238,500 one year ago, which was the peak week for affects by the hurricanes which struck the Southeast, particularly Florida and North Carolina last autumn.

Using the same methodology, unadjusted continuing claims for the week ending October 11 totaled 1,669,530 vs. 1,627,757 last year, an increase of 2.6%.

The seasonal adjustment for the applicable week last year was *1.15742. Applying it gives us an estimate of 1.932 million continuing claims, or -3,000 lower than one week ago.

To give you a graphic idea of how this data shakes out, here are initial claims (blue), the four week average (red), and continuing claims (gold) all normed to 0 as of this week’s tabulation, compared with their readings in the past two years before the shutdown:

As with the past several weeks, absent hurricane distortions this continues the general neutral trend of initial and continuing claims, higher than one year ago but much less than 10% higher, forecasting a weakly expanding economy for the next several months.