October vehicle sales give sharply mixed message about the economy going forward

 

 - by New Deal democrat

Ok, FRED is back up and running, so here is my economic post of the day.

Vehicle sales used to be reported monthly by all manufacturers. Then, one by one, they switched to reporting only once a quarter, which makes their data much less interesting, since it is largely 90 days old by the time it is available. Not terribly helpful for looking ahead.

But the BEA also reports vehicle sales monthly, although for reasons unknown FRED does not post them until 4 weeks later.

Which is a too-lengthy introduction to saying that the BEA has reported October results, although the FRED graphs below only show through September.

In October both light vehicle and heavy duty truck sales were up vs. September, the former to 13.0 million units annualized, and the latter to 0.445 million units annualized. The below graph subtracts that amount from each so that it shows as zero (and truck sales are multiplied x30 for scale):

There have been significant declines in both car and truck sales this year. Light vehicle sales peaked at 18.3 million annualized in April, and truck sales at 0.515 million annualized in March.

The reading is mixed. In the past, heavy truck sales have been a much earlier and more reliable leading indicator for a recession. This year they have not declined by nearly so much as prior to other recessions. Meanwhile light vehicle sales, which are typically very noisy, have declined by much more than is usually the case before a recession.

We know that much of this decline is due to the inability of manufacturers to get all the parts they require. This in turn has driven up prices sharply, which has caused a decline in sales as well.

I read this as showing that there is little economic stress on the producer side of the economy (that purchases heavy trucks); but there will be ramifications on vehicle manufacturers that will ripple through the economy. Overall I do not read this as recessionary - at least not at this point. As with last month, this Friday’s jobs report should be watched for both the number of jobs and hours added or lost in the manufacturing sector.

About last night

 

 - by New Deal democrat

I was going to write about motor vehicle sales (not good), but FRED is down for maintenance. I might put something up later whenever the site comes back online. 

In the meantime, because a few people have asked me offline what I make of last nights results (at least in Virginia), so herewith is my take.

Virginia turned out about exactly how I expected. The RWers are as pi**ed as progressives were 2 and 4 years ago, so they were going to turn out more. And as soon as McAuliffe dissed parents’ right to have a say in the education of their children, I knew he was sunk, and would probably take down the rest of the ticket.

But here is the more extended discussion. There were a few main factors, uniquely local, overlaid with a typical off-year electoral trend.

There were two national factors:

1. People are motivated much more strongly to vote by anger over something that they feel has been taken away from them, than gratitude for something they feel has been given to them. This is basic human behavioral wiring. That’s why the out-party typically does well in off year elections. And courtesy of Fox and Facebook, RWers were thoroughly wound up. Which is why NJ is also so close. (Dems will have the same incandescent rage - regrettably - one year from now after the Supreme Court overrules Roe v. Wade.)

2. Manchin and Sinema have done some real damage to national Dems. Here Biden is, going on one year in office, and he still can’t get his main agenda out of Congress. This is similar to 2009-10 and Obamacare, when centrist Dems like Baucus and LIeberman slow-walked it nearly to death. It is also similar to what happened to the GOP four years ago, when Trump failed to get a repeal of Obamacare through the Congress. Trump had among his worst ratings ever right after McCain’s thumbs-down.

But there were several decisive factors unique to VA:

1. McAuliffe’s gaffe at the last debate saying parents shouldn’t have any control over their childrens’ education. Even if you think that statement is true, it was a disaster to say it. A million parents heard “F*** you, we’re going to control your children.” Up until that statement, all the polls showed McAuliffe ahead (despite the background national issues above, and including Afghanistan and whatever other extraneous event you want to include. McAuliffe was still winning). As soon as that statement got publicized, his polls all tanked, and continued that way.

2. McAuliffe ran Hillary’s 2016 anti-Trump campaign, and got Hillary’s 2016 result. This is in contrast to the last two off-year elections, where Democrats ran against the votes cast by GOP legislators in the Statehouse. And none of the candidates touted the good things Statewide Dems had done for people in the last 2 years.

In short, take away the gaffe, and run a campaign focused on the State, and VA Dems might have overcome the adverse national trends.

Coronavirus dashboard for November 2: the winter wave has begun

 

 - by New Deal democrat

The Delta decline is probably over. Nationwide US cases are up 4000/day from one week ago. The Northeast and South census regions still show a decline, but West and Midwest regions show increases: 

One week ago only 3 States were in the “increasing” category. Now the increasing trend States include: NJ, AL, CA, NV, AZ, CO, NM, ND, SD, MI, MN, IA, and NE. There are also slight increases in NY, RI, IN, and WI.

Some States still show declines: AK, VT, NH, PA, CT, WV, KY, DE, NC, SC, AR, FL, GA, MT, OK, TX, and WY.

The declines are almost all in the warmest States + those with the most recent outbreaks. The increases are with few exceptions in the colder States.

On the plus side, deaths are down 35% from the Delta peak into the middle of the “normal” range for this pandemic:

The winter wave has almost certainly begun.

But as of yesterday 80% of all US adults had at least one shot, and later this week we will probably cross the threshold of 70% of all US adults completely vaccinated. Including those age 12 and up the respective numbers are 78% and 68%. We can expect lots of younger school age children to have at least one shot before Thanksgiving, and be fully vaccinated by Christmas.

Plus, on average (with plenty of variation) being infected recently almost certainly conveys some resistance to reinfection - and in the past 4 months about 4% of all Americans had *confirmed* cases, most likely meaning that close to 10% were *actually* infected. 

Put that together, and there are significantly fewer people susceptible to infection at present than there were 4 or 12 months ago, so I strongly suspect this winter’s wave will not be as bad as either last winter’s, or Delta.

Manufacturing remained strong in October, while construction spending declined in September (but not yet at recessionary levels)

 

 - by New Deal democrat

As usual, we started out the month with the forward-looking ISM manufacturing report for October, as well as construction spending for September.

Let’s take the ISM report first, since it is an important short leading indicator for the production sector. Here the total index declined slightly - mere -03 - to 60.8, and the more leading new orders subindex declined sharply - by -6.9 to 59.8:

Since the break even point between increasing and decreasing numbers of respondents, both of October’s numbers in fact show strong expansion - in the case of new orders, simply not nearly so strong as in most of the last 12 months. In short, still quite positive.

Turning to construction, in nominal terms overall spending including all types of construction declined -0.5%, while spending on the leading residential sector declined  -0.4%, but still at levels very close to their all-time highs:

Adjusting for price changes in construction materials, which jumped by 0.7% in September, “real” construction spending declined -1.3%m/m, and “real” residential construction spending declined -1.1%. In absolute terms, “real” construction spending has declined sharply earlier this year, although there has been relative stabilization in the last few months:

“Real” total construction spending has now declined -18.7% since its post-recession peak in November 2020, while “real” residential construction spending has declined -14.8% since its post-recession peak in January of this year.

The above shows that, while total construction spending has declined by more than it had before the Great Recession, the decline in residential construction spending, while substantial, is nowhere near the big decline it suffered before the end of 2007 in this series that only dates from 2002.

This gives us essentially the same message that we got from single family housing permits several weeks ago: there has been a big decline in this long leading sector, but not yet what would typically precede a recession.

Weekly Indicators for October 25 - 29 at Seeking Alpha

 

 - by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

There are increasing signs that commodity prices are peaking, the latest candidate - but it may just be noise! - is the price of oil.

And if commodity prices are peaking, that gives us some important information that the supply chain bottleneck may be beginning to ease even if just slightly for now.

As usual, clicking over and reading will bring you nearly up to the moment on economic conditions, and will bring me my weekly grocery shopping money.

September personal income and spending: positive, but consumers’ “cushion” of pandemic assistance savings is now exhausted

 

 -by New Deal democrat

Real personal income and spending held up well throughout the pandemic, due to a vigorous government response. This morning these were reported for the first month after the expiration of the last such assistance. 

In nominal terms, personal income declined -1.0%, but spending rose 0.6%, and the previous month was revised upward by 0.2%.

In real terms, personal income (blue in the graph below) declined -1.4%, while real personal spending (red) rose 0.3%, both well above their immediate pre-pandemic levels:

Since May, while the trend for both has been close to flat, real spending is up 1.1%, while real income (with the expiration of emergency benefits) is down -1.2%.

Not only did consumers spend a lot of their pandemic assistance, but they also saved a lot. This provided a “cushion” in personal savings for many. As of last month, they appear to have gone through this cushion. The personal savings rate for September was 7.5%, below the 8.3% of February 2020 just before the pandemic hit, and about average for the 4 previous years, as shown in the graph below which subtracts -7.5% across the board:

This is also shown in the graph of total personal savings, which at $1,336 Billion, has also returned to the level it was just before the pandemic hit:

In other words, from here on in, people’s spending is going to be based upon “normal” factors, with no special stimulus to help them out.

Finally, real personal spending is basically the other side of the coin compared with real retail sales, since they cover the seller and buyer of consumer transactions, which is over 2/3’s of the entire economy. Here is a graph comparing the monthly %age change in each since July 2020:

Both of these have returned to basically normal levels m/m, as both increased 0.3% in September.

Last month I wrote that, “with the total expiration of emergency measures, the next few months will be much more challenging.” This only intensifies after this month’s report showed, as above, that consumer’s “cushion” has run out.

Jobless claims: it’s Boom time for workers

 

 - by New Deal democrat

I’ll keep this morning’s update on jobless claims brief, because we have clearly moved past any pandemic weakness. 

Initial claims declined 10,000 this week to 281,000, and the 4 week average declined 20,750 to 299,250, both yet another new pandemic lows:

For the past 50 years, initial claims have only been below 300,000 during the peak of expansions and from late 2014 to just before the pandemic in 2020. For all intents and purposes, nobody is getting laid off.

Continuing claims also declined 237,000 to 2,243,000, also a new pandemic low. This number is only 243,000 above the cutoff line of 2,000,000 which has epitomized peak economic expansions in the past 50 years, as shown in the below graph which subtracts 2,000,000 from the reported numbers:

While some of this is probably due to the expiration of all emergency benefits, it also reflects the ability of those who want to get new jobs being able to find them without much difficulty.

Bottom line: it’s Boom times for workers. Not too shabby.

Coronavirus dashboard for October 27: whither the winter wave, and the trajectory of endemic COVID

 

 - by New Deal democrat

Well, we got some definite good news yesterday in the FDA approval of vaccines for children ages 5-11. Probably about 1/2 of the 8.5 million children in this age group will be vaccinated by the middle of winter.

In the meantime, here is an update on the current status. 

The Delta wave, which rolled in like a tsunami, continues to roll out like a tsunami as well. New cases are down almost 60% from their peak (at a still awful 67,000), while deaths, after some noise from data dumps, are down under 1500:

Since deaths follow cases with roughly a 3 week lag or so, the current decline in cases suggests a decline in deaths below 1000/day in about 3 weeks.

Here is what the trajectory of the Delta wave looks like regionally:

Note that the Northeast and Midwest peaked later than the South and West. Delta burned through the dry tinder particularly quickly in the South (where said dry tinder was easily available), but is consuming the dry tinder more slowly in the more heavily vaccinated portions of the country - but it is still so infectious that it is able to ignite said dry tinder).

Last year the winter wave began by October 1, as case counts of roughly 20,000 per day doubled to about 40,000 per day during the month. By contrast, this October cases have continued to decline and are now lower YoY.

But we *may* be beginning to see this year’s winter outbreak, as cases in the Mountain States plus South Dakota are on an uptrend again, after about a week where *no* States were in an uptrend:

This could be just noise at this point, but it bears watching.

Finally, over the weekend I wrote that I expected waves from here on in to decline by about 1/3 to 1/2 of each prior wave, due to an increased % of vaccinated people, plus and increased % of those previously infected.

As part of the FDA approval for children, we got a very useful update on seroprevalence, i.e., what % of the population has been infected, whether “confirmed” or not.  Via CNN, here is what Dr. Fiona Havers, a viral disease specialist with the CDC, said:

The seroprevalence of Covid-19 antibodies among children ages 5 to 11 appeared to increase from about 13% in November to December last year to 42% in May to June of this year, according to data that Havers presented to the VRBPAC members Tuesday.

"Investigators also use seroprevalence to estimate the cumulative number of infections and compare that with the number of reported cases by age. Overall, for the general population, the jurisdiction-level infections-to-case ratio had a median of 2.4, with a range of 2.0 to 3.9," Havers said. 

"For children, the infections-to-case ratio was substantially higher, with a median of 6.2 cases per every one infection, with a range of 4.7 to 8.9," Havers said. "These seroprevalence data suggest that infections in children are less likely to be reported compared with adults. But children are at least as likely as adults to be infected with SARS-CoV-2."

That is is an important reason why I think any winter wave will not be as bad as either Delta or last winter. Which is a way of introducing today’s final graph, showing those fully and partially vaccinated, plus the total # of infections:

As of today, 67% of the entire US population has received at least one shot, and 58% have been fully vaccinated. About 14% have had *confirmed* infections. If the real number of infections is 2.4x that %, that amounts to about 34% of the total population having been infected.

If we figure that infection + one shot is the equivalent of being fully vaccinated, and that infection on average gives resistance equivalent to one shot, then we get the following:

58% fully vaccinated

3% previous infection + one shot

Equals 61% essentially immune.

6% one shot but never infected

11% (1/3rd of the unvaccinated) previously infected

Equals 17% with some resistance

That leaves only 22% of the population as sitting ducks, right now.

This is going to improve not only due to vaccinations among those 5-11, but also employer and school mandates, and a slow creep of those begrudgingly getting their shots.

This is why I expect any winter wave this year to be only 1/2 to 2/3’s of the peak of the Delta wave, or last winter’s wave, and as more unvaccinated people get infected, as well as more people ever so slowly get vaccinated, those subsequent wave peaks are going to continue to decline in intensity going forward.

New home sales confirm upturn in housing, while FHFA and Case Shiller suggest increase in house prices is slowing

 

 - by New Deal democrat

This morning we got three reports on housing sales and prices. Let’s start with the sales data.

New home sales, while very noisy and heavily revised, tend to lead all of the other housing indicators, even permits. 

This morning’s m/m increase in new home sales (blue in the graph below) was good news. It was the second increase in a row, and at 800,000 was the highest since March. This suggests that single family permits (red, right scale) - which have continued to decline, but only slightly in the past several months - are likely to turn up shortly:

The number of houses for sale (which lags the number sold) was unchanged at 379,000, tied with last month for the highest level since October 2008 (gold in the graph below):

Increasing sales and increasing prices bring out increasing inventory, as home builders jump at the chance for increased profits.

Now let’s turn to house prices.

As shown below, both the FHFA and CaseShiller indexes have risen almost an identical 250% since January 1991, when the FHFA index began:

During that time, usually the FHFA index has decelerated, and made a peak or trough a month or two before the Case Shiller index (note for example, 1994, 2006, 2009, 2010, and 2013). 

With that in mind, here is the same data zoomed in on the last 4 years (again, note that the FHFA index turned slightly ahead of the Case Shiller index in 2018 and 2020):

The Case Shiller index shows no signs of decelerating, although at least it has stoppped *accelerating* on a YoY basis. But price gains in the FHFA index have decelerated at least slightly, from over 19% one month ago to 18.2%, the least YoY gain in the last 4 months. The 1.0% monthly gain is the smallest since June 2020. I’ve also added new home prices YoY (gold) from this morning’s new home sales report:

Last week I noted that median existing house prices as reported by Realtor.com had decelerated from a 23% YoY gain to 13%, likely indicating the peak in actual prices had either just happened or was imminent. Neither the FHFA nor Case Shiller indexes are confirming that, nor certainly have new home prices, but the *slowdown* in price increases indicates they are not too far behind.

Meanwhile sales, which lead prices, are likely to increase in response to recently lower mortgage rates, although the surge in prices will put a damper on just how much.

Q3 GDP will show economic contraction? 150+ years of short term interest rate history says no

 

 - by New Deal democrat

No economic news today, but let me show you one important reason I am not concerned about the supply chain or inflation issues at this point, despite some DOOOMMsaying about a likely punk GDP reading for Q3 that will be reported on Thursday.

There is no one foolproof indicator that always has indicated recession in advance. For example, as I have noted many times, the yield curve never inverted between 1932 and 1957, even though there were a number of recessions during that time.

But if inflation were such a bugaboo, why hasn’t the Fed raised rates? In the modern era, the Fed raising rates has always been a reason that the economy has slowed down. But let’s go further back. Because even before the Fed undertook a systematic raising/lowering interest rate regime, in fact even before there even *was* a Fed, there were commercial paper rates.

And short term commercial paper rates (basically short term commercial loans) almost always increased substantially before the economy tipped over into contraction - and indeed the increase in those rates was probably a factor in why the economy did so.

Here are short term commercial paper rates going all the way back to before the Civil War:

Note they always increased before every 19th or early 20th century recession.

Here are the same rates from the Great Depression through 1971:

The only cases where they did not rise appreciably were in 1938 and 1945. The former was a recession caused by a sudden contraction in fiscal spending. I’ll come back to the latter in a bit.

Here are the last 50 years:

Once again, we have appreciable increases, mirroring the increases in Fed short term rates, before every recession.

In summary, we have over 150 years of history telling us that, even if the central bank does not raise rates, commercial lenders will if they think they need to protect themselves, and that tightening of credit provision helps bring about a recession.

And there is *no* such tightening going on now.

Finally, let me come back to 1945, the one possible example that might be similar to our own situation. That was a recession brought about by the end of World War 2, and the sudden synchronous stoppage of war production in factories all over the US. It took time to convert back to civilian production!

So let’s overlay the quarter over quarter change in industrial production over commercial paper rates for that era:

In both 1938 and 1945 industrial production suddenly contracted by over 10% in one quarter alone.

Now here is the quarter over quarter change in industrial production over the past 5 years, including Q3 this year that just ended:

Industrial production *rose* 1.1% in Q3 compared with Q2.

There simply is no indication that either inflation or supply chain issues have caused an actual contraction in economic activity.

My Big Picture

 

 - by New Deal democrat

It’s a Sunday, and it’s been a while since I put up some generalized thoughts on where we are, so let’s update. I’ll go in order of my optimism on the economy, COVID, and the political situation.

The economy

I am pretty happy about the place the economy is in right now, and for the near term future. Yes, we have inflation and supply chain issues, but we always have issues. And Q3 GDP will probably come in pretty punk on Thursday, but I’m just not concerned. Average hourly wages for non-managerial personnel are up 5.5% from one year ago. While inflation is going to pass, those wage gains are likely to prove “sticky.” For the first time since the late 1990s, labor is in a position of strength, and able to capture more of a share in the increase in economic activity. 

Here’s more:

 - Even after adjusting for inflation, retail spending - although down from spring’s stimulus-fueled pace - is up 12.3% since just before the pandemic hit, and up 8.1% in the past 12 months. 

 - Real disposable personal income is up 3.4% since just before the pandemic, and slightly higher than 12 months ago. 

 - Personal savings are up 22.9% since just before the pandemic, although down from 12 months ago.

Basically, households spent most but not nearly all of their stimulus payments, and also maintained some of their savings from being cooped up at home due to COVID. And they’re being paid more at work.

Producers are struggling to keep up with all of that new demand - that’s a big part of the supply chain issue - but forward looking data like factory new orders continue to show that production should continue to expand.

And the background financial conditions continue to show low interest rates, an open spigot for money supply, and also an open spigot for credit being granted.

Maybe sometime next year, the economy will hit a wall. But even one year out, very few indicators are showing signs of trouble. Color me optimistic.

COVID

Here I am also at bottom optimistic, but much more cautiously. One thing I got wrong this year is that I expected vaccinations to continue at a 2 to 3 million per day pace, once they got available, and reluctant people saw that they really did protect the vaccinated. I did not realize the ferocity and power of the disingenuous political opposition that was originally orchestrated by Trump, but then escaped beyond even his control.

That is going to continue, but it is likely to be overcome by factors on the other side.

For example, even though lots of people over 65 are GOPers, the latest data from the CDC shows that 85% of seniors are fully vaccinated, and over 95% have had at least one shot. In other words, they may be telling pollsters that they’re against vaccines, but they quietly went out and got their shots anyway (because they know how vulnerable they are, and they don’t want to die).

More broadly, almost 70% of all adults are fully vaccinated, and almost 80% have had one shot.

Right now 66% of the *entire* population has had at least one shot, and 57% are fully vaccinated. The percentage of people vaccinated may only be rising by about 0.1% a day, but it has, relentlessly, continued to rise. With the likely approval of vaccines for children ages 5 to 11 (who are about 8.5% of the population), we are going to see a further increase.

Even at 0.1% increase a day, by the end of this year (in two months), it’s likely that about 63% of the US population will be fully vaccinated, and 72% will have had one shot. By March of next year, those numbers will probably be at least 70% and 77%, respectively.

Add to that the fact that, on average, prior infection in the past 1.5 years is the equivalent of a single dose of vaccine, and that it is likely that a little over 2x the number of people have been infected as opposed to cases “confirmed” by tests, currently close to 14%, and probably about 30% of those not vaccinated have some resistance now, and that will probably be over 35% by spring.

In short, by the end of winter, between vaccinations and prior infections, there’s probably only going to be about 15% of the entire population that does not have some resistance. A coronavirus looking to infect its next victim is going to have a 3/4 chance of encountering someone virtually immune, and another 10% chance of encountering someone with some resistance. Not terribly good prospects for wide continuing spread. 

Furthermore, I anticipate more and more vaccine mandates from the federal, State, and local governments, as well as by employers. School mandates are going to be enormously helpful where enacted. I think it is only a matter of time before we get interstate public transport mandates. Finally, entire “Blue” regions like the Northeast may finally impose quarantines with teeth on travelers from places like Florida and Texas. Too bad for them; they should get vaccinated.

My base case right now is that we do get a winter wave, but it peaks at only about 1/2 to 2/3’s of the cases and deaths of the summer Delta wave. The next wave after that will be about 1/2 to 2/3’s of that wave, and so on. That’s what COVID turning endemic is likely to look like. By the end of next year, I anticipate it really will be “just like the flu” in terms of both infections and deaths.

  
The US political system

Finally, we get to the issue where I am pessimistic - but really, it is just watching what I figured out shortly after Election Day last year coming to fruition.

The President does not decree legislation. It must be passed by the Congress. And Congress has been completely non-functional ever since 2011, except on those things that are allowed to pass with a bare majority of the Senate (tax cuts and judges). This is a blueprint for continued GOP control. Everything they want they can pass with a bare majority, in a chamber weighted towards rural States to begin with. Everything Democrats want requires 60 votes, and they will never get them. A 50/50 Senate means that even 1 dissenter completely destroys any Democratic agenda item.

And here we are. Maybe some scaled down version of Biden’s economic program finally gets enacted. But the scaled down version isn’t going to be nearly enough.

And the situation with regard to voting rights in particular, and democratic integrity in general, is much more dire. 

It’s pretty clear that the filibuster in the Senate is not going to be lifted for voting rights legislation, nor for legislation (that is *clearly* within Congress’s power, as to Congressional elections) dealing with gerrymandering. And Merrick Garland (who, presumably, is following Biden’s wishes) appears to be “looking forward, not back,” thus ensuring that there are no consequences even for an attempted violent overthrow of the 2020 Presidential election, and further ensuring that much more organized attempts will follow, probably successfully.

Meanwhile the Supreme Court is revving up to repeal the entire 20th Century, both as to civil rights and economic regulation. 

About the only silver lining I see there is that, whether Roe v. Wade technically survives or not, it is really clear that abortions are going to be permitted to be outlawed by the States (and I don’t even put it past the Court to declare that the fetus is a “person” and that abortions *must* be prohibited). That will be the first time in the entire history of the US that a personal right that people thought they had - for the last 50 years - is taken away. 

And one thing we know from behavioral economics specifically, and behavioral psychology generally, is that people react *much* more strongly to things that are taken away from them than things that they didn’t have to begin with. I expect a complete firestorm of rage when this happens, and it may very well lead to 2022 midterm election results that defy the usual trend, with a Blue avalanche giving Biden and the Democrats a much better chance to enact a real agenda, up to and including voting rights and Supreme Court reform.

But in the longer term, the Rule of Law in the US is going to end shortly, I suspect. Some day long after that, a new Constitution not encumbered with creaky 18th Century kludges will finally come into existence, long after I am gone.

Weekly Indicators for October 18 - 22 at Seeking Alpha

 

 - by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

Yesterday I wrote about how house prices appear to be at their peak for this cycle. And in the weekly high frequency data, there is more evidence that a number of other commodity and transportation measures - but not oil! - are also either at or already on their way down from their respective peaks.

This can be treated as good news - hooray, the supply chain bottlenecks are beginning to ease! - or bad news - OMG, users and buyers are refusing to pay these prices, a recession is coming! The rest of the indicators so far decisiveless bet to one side of that bet.

As usual, clicking over and reading should be educational for you, and slightly remunerative for me.

Median prices for existing homes is probably at peak; expect inventory to continue to increase

 

 - by New Deal democrat

Existing home sales were reported yesterday for September, up 7% month over month on a seasonally adjusted basis. While they are about 90% of the market, they are much less important for the economic cycle than are new home sales, which will be reported next week.

I suspect new home sales will increase, since interest rates stabilized at very low rates earlier this year, and the increase in existing home sales is some confirmatory evidence. Realtor.com doesn’t all FRED to produce data more than 12 months old, so here is the last 12 months for both new and existing home sales, normed to 100 as of September 2020:

Both declined, but new home sales much more deeply.

Realtor.com does provide FRED with both new and total (“active”) listing counts for the past 5+ years. Here’s what that looks like (note, new listings are on right scale):

Note that new listings declined precipitously in late 2019 even before the pandemic - and the pandemic certainly hasn’t helped.

Since neither series is seasonally adjusted, comparing them YoY is more useful:

While new listings rebounded this year, they were slightly lower YoY in September. More importantly, they are down almost 10% since September 2019, which was just before the big decline started, while total listings are down over 20% since then.

In the “the cure for high prices is, high prices” department, YoY median price gains have continued their deceleration. Here’s what the last 4 months have been:

Jun +23%

Jul +20%

Aug +15%

Sep +13%

At this rate, prices will roll over YoY sometime this winter. While these are not seasonally adjusted either, my rule of thumb is that a deceleration of 50% typically marks the top for any such statistic. We are virtually there already as of September, causing me to believe that we are at the peak. This follows my rubric that sales peak first, followed by prices. We can expect inventories - the YoY% decline in which has already decelerated by over 50% - to continue to increase.

Jobless claims show renewed downward trend; still some slack in continued claims

 

 - by New Deal democrat

Jobless claims declined 6,000 this week to 290,000, yet another pandemic low. The 4 week average also declined 15,250 to 319,750, also another pandemic low:

With the exception of the last few years of the last expansion, this level of weekly initial claims would be very low for any point in the last 50 years, and the 4 week average would be average for late in an expansion:

Continuing claims declined 124,000 to 2,481,000, also a new pandemic low:

This level would also be normal for the middle of the last few expansions:

Except for the last 2.5 years of the last expansion, continuing claims never dropped meaningfully below 2,000,000 at any point since the 1974 oil embargo.

Finally, here is the YoY% change of continuing claims:

Based on the YoY change, it appears that the complete nationwide phase-out of all emergency pandemic benefits last month may be a cause for the decline in continued claims since then. 

With this week’s confirming data, it appears that we have begun a renewed downward trend. Layoffs are at levels typically seen after very sustained expansions. But there is still some slack in workers who have not yet found new jobs, as evidenced in continuing claims. I suspect we will continue to see that number decrease.

The one big surprise is that all of this is happening while we still have about 80,000 new cases, and over 1600 deaths, of COVID daily.

Coronavirus dashboard for October 20: as the Delta downtrend slows, is any State closing in on “herd immunity”?

 

 - by New Deal democrat

It’s been a moment since my last dashboard. That’s primarily because the Columbus Day weekend resulted in anomalies for the past 9 days, that have finally mainly but not  completely resolved.

Here’s a look at the past 6 months for both cases and deaths per 100,000:

As of today, cases are finally down more than 50% from the Delta peak, at just over 80,000. But as you can see, they are still well above their 11,300 minimum in late June. Deaths are still just under 1700, an elevated number that is the highest since early March.

Here’s a close-up of the past 8 weeks:

I am showing you so you can see that the lack of reporting on Columbus Day, to also in some States the day after as well, caused an anomalous decline those two days, followed by a spike, and then an anomalous bigger decline today as last Tuesday’s spike left the average. You can also see that many States don’t bother to report on the weekends anymore causes a flattening of those two days’ readings compared with trend. The next few days will reveal if there remains a true downward trend or not.

Here is what the four Census regions of the country look like over the past 12 months:

Note that the winter wave began at the beginning of October last year. There has been no such increase so far this month. If cases either trend downward or even sideways for another couple of weeks, we will be lower this year than last year heading into winter. Whether vaccinations + the Delta wave mute any winter wave (when people head indoors for social gatherings) this year is the big question over the next few months.

I have also been curious as to which States have been the closest to or furthest away from either “herd immunity” or “endemic Covid.” While I haven’t looked at all of them, I have compared the most extreme cases. 

Those States with the most vaccinations tend to have had a low to moderate number of total infections (yes, that included NY and NJ). The two jurisdictions (omitting PR and various island territories) with the most vaccinations are DC and VT:

DC has 62% fully vaccinated, plus 10% partially so. VT has 71% fully plus 8% partially vaccinated. Only 9% of the population of DC has had a confirmed infection, and 6% of Vermont (both excellent number for the US). 

If we figure that the total number of actual cases is 2.2x the confirmed count, that gives us a 20% infection rate for DC, and a 13% infection rate for VT. If we randomly assign those among fully, partially, and un-vaccinated people, that gives us the following:

DC: 64% immune,* plus 14% with some resistance, for a total of 78%, with 22% sitting ducks.

VT: 73% immune,* plus 10% with some resistance, for a total of 83%, with 17% sitting ducks.

*=obviously not totally so

At the other extreme, the two States with the highest number of confirmed cases are TN and ND, both with 18.5% confirmed infection rates (suggesting that 41% of their populations have actually been infected. TN has 47% fully, plus 7% partially vaccinated.  ND has 45% fully, plus another 7% partially vaccinated:

 

That gives us:

TN: 50% immune, plus 24% with some resistance, for a total of 74%, with 26% sitting ducks.

ND: 48% immune, plus 25% with some resistance, for a total of 73%, with 27% sitting ducks.

While there aren’t any States that have managed both low vaccination and low infection rates, there is one (small!) State which has both a very high vaccination rate and a very high previous infection rate: Rhode Island.

RI has 70% fully, and another 7% partially vaccinated. It also has a 16.5% confirmed infection rate, the 8th highest rate in the entire country, for a “real” number of 36%:

That gives us 73% immune, plus 12% with some resistance, for a total of 85%, with only 15% still sitting ducks (2% better than VT, 7% better than DC, and over 10% better than either TN or ND.

Once 5-11 year olds are able to be vaccinated, that (hopefully) should add about another 8% to the totals of fully vaccinated. That would put both RI and VT over 90% either immune or with some resistance. That’s a point by which we should expect to see what an endemic COVID, if not “herd immunity” looks like.

New housing construction for September shows a big decline on the surface, but underneath shows stabilization

 

 - by New Deal democrat

This morning’s report on September housing permits and starts looks very negative on the surface, but on closer examination shows continuing stabilization in new home construction, following the general stabilization of mortgage rates this year.

Housing starts (violet in the graphs below) decreased -1.6% m/m, and total permits (blue) decreased a whopping 7.7%(!), but only after a downwardly revised 5.6% increase in August. The less volatile single family permits (red) decreased -0.9%. As a result, the overall trend for all three metrics for the past several months is a slight decrease:

For the past several months I have noted that the YoY comparisons were going to become much more challenging, given the boom in construction late last year. Indeed this has been the case, with total permits unchanged, single family permits down -7.1%, but housing starts *up* 7.4%:

The YoY increase in starts is noteworthy because it highlights an unusual event which has taken place over the past year; namely, a record number of permits were issued for houses that were not promptly started. 

Take another look at the first graph above, and note the sharp divergence between the violet line (starts) and the other two last winter. Single family permits increased 30% in the 2nd half of last year, and total permits over 20%, but actual starts only increased a little over 10%. The below graph shows the % by which permits have exceeded starts, averaged by quarter. Before this quarter, the *least* % by which permits exceed starts in the previous year was 6.8%, so I have subtracted that to norm it at zero. Simply put, the below graph indicates that this yearlong divergenace between early 2020 and early 2021 was the biggest of the past decade:

This year single family permits have declined almost -18% and total permits over -15%, but the three month average of starts has declined only -2.1% from 1599/month to 1566/month.

In other words, the actual on-the-ground economic activity in housing construction hasn’t declined much at all, most likely because housing materials at reasonable prices constrained the actual building of houses authorized by permits. This suggests much less of a real economic downdraft than would otherwise be the case.

And the evidence from mortgage rates is that housing should be (and is) stabilizing. Here is the raw mortgage interest rate number (gold), left scale vs. the absolute number of single family permits (right scale):

In the past 5 months rates have stabilized between the 2.75%-3.05%, and housing can be expected to resume a moderate increasing trend in response. This is also shown when we compare the YoY% changes in mortgage rates (inverted) and single family housing permits over the past 10+ years:

Mortgage rates have only increased 0.24% YoY, so for all intents and purposes have been flat YoY for the past 3 months. In sum, this continues to suggest that the economy, which tends to follow housing with a 1 year+ lag, after a period of cooling early next year, will also stabilize later on.

September industrial production turns down, but no major cause for concern

 

 - by New Deal democrat

Industrial production is the King of Coincident Indicators. This morning’s report for September was negative, and August was revised downward, taking total production back below pre-pandemic levels.

Total production decreased -1.3% in September, and the manufacturing component decreased -0.8%. The August reading for each was revised downward by -0.3%.  Nothing particularly special about that; in fact the manufacturing component was a little weak compared with most recent months. Additionally, the July numbers were revised slightly (not significantly) higher and lower for each, respectively. As a result, manufacturing is now only 0.4% above February 2020, and total production is down -1.3% compared with just before the pandemic:

Needless to say, this is very much at odds with the continuing very positive ISM manufacturing index readings which we have gotten every month this year. The Fed regional manufacturing indexes as well as the Chicago PMI also remain positive, so I am not terribly concerned about one poor month (which needless to say may also be revised!).

 

This morning’s report is probably going to prompt some scary downward revisions to forecasts of Q3 GDP, which will be released one week from Thursday. But when we look at quarter-over-quarter numbers, industrial production is still up 1.1% from Q2 of this year. In the below graph, I’ve subtracted that number so that it norms to zero, to compare that increase with the past 30+ years:

As you can see, while it isn’t the strongest reading, it is higher than most quarters during the 3 expansions since 1989, and is nowhere near recessionary. So, while we’re almost certainly going to see a sharp *deceleration* from the blockbuster last several quarters in q/q GDP next week, in absolute terms I do not see any particular cause for concern.