Repeat home sales and leading apartment rent indexes both point to lower shelter inflation ahead

 

 - by New Deal democrat

This morning’s repeat home sales reports from the FHFA and S&P Case Shiller were not good news for sellers - but very good news for future consumer inflation readings.

On a seasonally adjusted basis, in the three month average through May, the Case-Shiller national index (light blue in the graphs below) declined -0.3%, while the FHFA purchase index declined -0.2%. In the case of the FHFA index, this was the second decline in a row; in the Case-Shiller Index, the third. This is on par with the declines we last saw in the summer of 2023 (note: as per usual, FRED hasn’t updated the FHFA information yet):

Put another way, there has been actual *de*flation in the house price indexes since February, by -0.5% in the FHFA Index and -1.0% in the Case Shiller Index.

On a YoY basis, price gains in both indexes not only continued to decelerate, at 2.7% for the Case Shiller index, and 3.0% for the FHFA index; but these were the lowest YoY% increases since 2012 for both indexes excluding 6 months in 2023 for the Case Shiller index:

As I indicated at the outset, while this may be bad news for home sellers, it is excellent news for the shelter component of CPI in the future, because house prices lead the measure of shelter inflation in the CPI, specifically Owners Equivalent Rent by 12-18 months. To wit, here is the same graph as above (/2.5 for scale) plus Owners’ Equivalent Rent from the CPI YoY (red):

In the past several months, I wrote that the last time the Case-Shiller and FHFA Indexes were in this range YoY (2019), Owners Equivalent rent gradually declined in the 12-24 months thereafter to the +2% YoY level (courtesy in part of COVID). With this month’s decline, we are past that: the most apposite period is the first half of the 1990s, when CPI for owners’ equivalent rent was in the 2.5%-3.5% range:

Before I conclude, let me also highlight that last Thursday the experimental New and All Tenant Rent Indexes were updated for Q2 by the BLS, and it showed new rents falling off a cliff, with a YoY likely range of between -1.5% and -17.1, and a median of -9.3%. Here’s a graph of this metric compared with the CPI for rents (advanced 9 months):

The range for *all* rents was between 2.4% and 3.2%, with a median of 2.8% YoY. This compares with 3.8% for rents in the latest CPI report.

While this is a huge range of error, the trend it forecasts is unmistakeable. 

Similarly, the latest “National Rent Report” from Apartment List from the end of June continued to show YoY decreases, specifically of -0.7%. I won’t bother with the graph since it hasn’t been updated yet for this month.

Both last Thrusday’s new rents report and this morning’s repeat home sales reports are excellent news on the inflation front. If it weren’t for tariffs, this would forecast almost the complete obliteration of the post-pandemic consumer inflation spike.

What I’m watching this week: real spending on goods, payrolls, and corporate profits

 

 - by New Deal democrat

Once again there is no significant economic news on a Monday, so let’s take a look at the important data I am especially interested in later this week.

Consumption leads employment, and since consumption is about 70% of the US economy, any downturn in consumption is important, as it directly affects two of the coincident series that the NBER uses to date recessions.

And since spending on services tends to rise right through recessions, the critical datapoint is real consumer spending on goods, which will be updated for June on Thursday. Below are the YoY% changes in real spending on services (dark blue) vs. real retail sales (light blue), which covers about 50% of the same territory. On a YoY basis as of the last report real retail sales was up 1% and real spending on goods up 3%; the below graph norms those to the zero line:

Now let’s look at the same series, identically normed to 0, since the 1990s:

Real spending has typically been this tepid YoY going in to recessions, but also during slowdowns, such as 1994, 2002, and 2019.

After strong monthly gains due to March and April front-running of tariffs, consumers pulled back in May. I will be watching to see if the pullback continues or even intensifies, or whether there is a rebound.

Since consumption leads employment, what happens with real spending on goods also has ramifications for job growth. The below graph includes both of these YoY, again normed to zero as of their most recent readings (slightly above 1% for employment):

And here is the historical look. Pay particular attention to employment:

In the 30 years before the pandemic, YoY employment growth was never as low as it is now outside of recessions except during the severe “jobless recovery” of 2002. 

Last month only 74,000 private sector jobs were added. Seasonally adjusted, education jobs shot up 63,000. The rest of government added 10,000. It is likely that some or all of the seasonal adjustment for eduction is going to be given back this month, so I am watching to see if there is a surprise low payroll number, especially given the recent relatively anemic level of goods spending by consumers.

In fact, it is likely that real payroll growth has been even weaker. The Quarterly Census of Employment, covering over 95% of all jobs, indicated that payrolls grew only 0.8% through the end of last year. The Business Dynamics Survey seasonally adjusts this data for about 75% of all employment, and will be released for Q4 of last year this coming Thursday. 

Finally, we’ll get our first look at Q2 GDP this Wednesday. I’ll be paying extra attention to proprietors’ income, the proxy for corporate profits, which won’t be reported until next month’s revision. This is because historically corporate profits have led the stock market, which has risen sharply higher since its April lows. Although I won’t show the graph, the S&P 500 is higher YoY by over 15% as of last week. Typically at or about the onset of recessions the market goes lower YoY.

At the end of May, S&P 500 profits were expected to be over -1% lower in Q2 than Q1, which was signficantly lower than Q4 of last year:

Typically companies beat the last earnings estimates, and that has been the case so far this quarter as well, as with just over 1/3rd of all companies reporting, Q2 profits are supposed to end up being slightly higher than Q1 profits:

Corporate profits as reported in GDP are a good check on those estimates. So I will be paying particular attention to whether proprietors’ income continued to grow in Q2, or whether it foreshadows problems for “real” corporate profits.

As I noted a few weeks ago, in the past 50+ years it has typically taken some kind of “shock” to the system to derail the US consumer economy, whether the pandemic, or a sudden spike in gas prices, or the collapse of the housing market leading to the collapse of financial institutions caught up in the mania. At present we have a potential double-shock in the form of tariff increases not seen in the past 90 years, and the shock to the food industry (both agricultural and butchering) caused by the widespread deportations of their workers, and the fear of many thousands of others that showing up to work may lead to their deportation as well - causing crops to rot in the fields, and slaughterhouses to grind to a halt.

Will it start to hit the most important economic data? That’s what I’ll be watching for the rest of this week.

Weekly Indicators for July 21 - 25 at Seeking Alpha

 

 - by New Deal democrat

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

With the continued pause in actual tariff increases, the data has rebounded basically across the board from April and May. Even the long leading indicators have improved somewhat, led by some un-inversions of the yield curve and the improvement in corporate profits as reported (at least, so far).

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 my efforts collecting and collating it. 

Has consumer spending really been flagging in 2025?

 

 - by New Deal democrat

There was no big economic news today, despite the report on durable goods, which declined -9.3% in June — after a 16.5% advance in May. Simply put, it was all about aircraft orders from Boeing. Take out transportation, and orders rose 0.6% in May and 0.2% in June. The more important core capital goods number declined -0.7% after a 2.0% increase in May. Even more fundamentally, in addition to being very noisy (see above), sometimes durable goods orders lead, and sometimes they don’t. So I don’t normally pay much attention to them.

But what I do pay a lot of attention to is consumer spending, and today I want to address variations on a graph I have seen in various places in the past few weeks. Below is a graph of real retail sales, total real personal consumption, and real personal consumption on goods, all normed to 100 as of last December:

It doesn’t take a genius to see that these are all trending sideways or down since then. So the claim is that real consumer spending has been flat this year.

True in the most literal sense, compared with last December. But now let’s look at the monthly changes since December 2023:

Note that the two biggest declines were in each January, and that each December was above average. Holiday spending is always difficult to seasonally adjuste, and has been especially so in the wake of COVID. In other words, this suggests very strongly that there is some unresolved Holiday seasonality in the December vs. January numbers.

Probably the best way to deal with this issue is to average December and January together. FRED doesn’t let us do that (and regrettably is not set up for 3 month moving averages either), but another way to minimize the impact of this residual seasonality is to use quarterly rather than monthly data. And that’s what the below graph does, with the monthly data in narrow lines, with the quarterly averages of the same data in bold thicker lines (note that the Q2 average isn’t available yet for the two personal spending series) :

Now we can see that while spending has decelerated, the trend still appears to be higher. In other words, the choice of December as the starting point is carrying a lot of weight in the suggestion that consumer spending has stalled in 2025.

Finally, even if I can’t show you in FRED, below are the three month averages starting with October-December 2024, and averaging December and January together:

Months: Retail sales, Total PCE, Goods PCE (US$ Billions)

Oct-Dec 2024:  224.6. 16.26. 5.54

Nov 24- Jan 25:  224.7. 16.30. 5.56

Dec 24 - Feb 25:  223.9. 16.29. 5.56

Jan-Mar 2025: 224.4. 16.31. 5.58

Feb-Apr 2025: 224.7.  16.33. 5.59

Mar-May 2025: 224.9. 16.36. 5.61

Apr-Jun 2025*: 224.2. N/A

*(only retail sales available)

While real retail sales have indeed trended sideways since last autumn, note that the highest 3 month average was in May of this year, followed by April (tied with January). But the 3 month averages of both total and goods real personal spending have almost uniformly trended higher throughout this period.

Personal income and spending will be reported next Thursday. At that point we will have a much better look at the Q2 trend in real spending.

New home sales continue rangebound, prices continue to decline, inventory continues to rise

 - by New Deal democrat

This morning’s report on new home sales for June indicated that sales continue to be rangebound, YoY prices continue to decline, and inventory of homes for sale continue to rise. This complicates the story of rebalancing between new and existing homes.

To recapitulate, while new home sales are the most leading measure of the housing market, they are very noisy and heavily revised, which is why I generally pay more attention to single family permits. Still, if averaged over three or more months they are valuable indicators of the underlying upward or downward pressure on the economy going forward one year or more. 

Let me begin also with a periodic reminder that sales lead prices:

As well as leading inventory:

Here is the YoY% change post-pandemic of all three:

As per history, sales rose first, followed by prices and inventory. Sales then abated, and median prices have since turned down, although inventory has not yet done so.

Turning to each metric in order …. 

With mortgage rates remaining in the 6%-7% range, sales of both new and existing homes have also been rangebound for over two years. In June, new home sales rose 4,000 to 627,000, near the bottom of that range: 

Over the same 2+ year period of time, prices also stalled, and then began a very slow deflation on the order of -1% -5% YoY. In absolute terms that trend continued last month, as the median price of a new single family home declined -$20,900 to $401,800 (gold, right scale in the graph below. Note that this metric is not seasonally adjusted, so the YoY% change is also shown (magenta, left scale):

Since 2019, the median price of existing homes has increased substantially more than that of new homes. For a rebalancing to occur, these should start to converge. Since YoY prices of new homes continue to decline, while that of existing homes continues to increase, albeit at a lower pace, per yesterday’s 2.0% YoY increase, that is not happening yet.

Finally, after a slight decline in April, the inventory of homes for sale has risen in both of the last two months, and in June rose 6,000 to 511,000, another post-pandemic high:

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

The June report suggests that rebalancing of the market has quite a way yet to go, as prices continue to diverge, with new home inventory also well ahead of the increases in the inventory of existing homes. Further, this report was not recessionary as sales continued rangebound and inventory has not turned down.

Jobless claims: clear evidence of a break in trend to the downside

 

 - by New Deal democrat

Last week I suggested that there might have been a break in the trend of higher YoY jobless claims, but there was not enough evidence yet. It is fair to say that this week’s report supplied that evidence.

Initial claims declilned another -4,000 to 217,000, the lowest weekly number since mid-April. The four week average declined -5,000 to 214,500, also the lowest such number since mid-April. Contrarily, with the typical one week delay continuing claims rose 4,000 to 1.955 million, close to its 3.5 year high set four week ago:

On the more important for forecasting YoY basis, initial claims were down -8.1%, and the four week average down -4.1%. Only continuing claims were higher, by 5.5%:

Initial claims are squarely in the middle of their range over the past 3.5 years, suggesting that very few people are getting laid off. Indeed, as a percentage of the labor force, so far this month the average is only about 0.13% of the labor force has been laid off, among the lowest proportions since initial claims were first reported 60 years ago (not shown). The only soft spot is that those who have been laid off are finding it more difficult to find new employment.

This is very strong evidence of a break in the weaker trend that began last September. I have no thesis as to why, beyond speculation that it may have to do with employers in some sectors wary of losing their employees who may be of dubious legal immigration status.

Finally, here is the comparison with the unemployment rate:

With total claims now running roughly even to last year’s level, this suggests that the unemployment rate, which was 4.2% one year ago as well as last month, is likely to stay very close to that level as well.

June existing home sales: a pause in the rebalancing of the housing market

 

 - by New Deal democrat



Housing data for June resumed this morning with existing home sales. 

Let me start with my usual caveat: although they typically constitute about 90% of all sales are the least important for forecasting purposes, since the main thing that happens is only a change in ownership, and therefore they have much less economic impact than new home sales.

The trend I have been looking for in the past several years is the rebalancing of the new and existing homes markets. Existing home inventory has been removed from the market for over 10 years (likely due in part to absentee rental owners buying increasing chunks of inventory), and really accelerated during the pandemic. This caused an acute shortage of houses for sale, which in turn led to bidding wars among buyers and a spike in prices.

A rebalancing of the market more than anything would require an increase in inventory at least to pre-COVID levels, and a deceleration of price increases, or even outright decreases. Which means that the level of sales themselves was far less important than what the median price for an existing home and inventory are telling us about the ongoing rebalancing of the housing market.

Let’s start with sales. In reaction to generally stable mortgage rates in the 6%-7% range, sales of existing homes, just like new homes, have been rangebound for the past 2+ years. In June they again remained within that range, decreasing -2.7% to 3.93 million annualized on a seasonally adjusted basis. On a YoY basis sales were exactly unchanged. The below graph shows the last 5 years, showing both the immediate post-COVID surge and the low but rangebound trend since:

But as I wrote above, prices and inventory continued to be more important this month. 

Let’s start with inventory. The secular decline in inventory reached a nadir in 2022. Unlike sales, this series is not seasonally adjusted, so it must be looked at YoY, and although it declined -1,000 on a month over month basis, in June inventory increased YoY by 15.9% to 1.530 million units, , and for the third month in a row only 1,000 units lower than the comparable month in 2020 (June data not shown in the graph below):

Pre-2020, inventory was typically in the 1.7 million to 1.9 million range, which means that although it is lessening the chronic shortage still exists.

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

In the past few months there has been strong evidence that this upward pricing pressure was abating. This month broke that trend, but only slightly.  Like inventory, this data is not seasonally adjusted and so must be looked at YoY, as in the graph below of the last 10 years:

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

Here are the comparisons since:

October 4.0%

November 4.7%

December 6.0%

January 4.8%

February 3.6%

March 2.7%

April 1.8%

May 1.3%

In June prices were higher by 2.0% YoY, as indicated slightly breaking the trend  in place since December.

To conclude, this month’s existing home sales report marked a pause although not a reversal in the rebalancing of the housing market. Seasonally adjusted sales remain rangebound, as did the YoY change in inventories, while YoY price increases firmed a little. 

Last month I concluded with “Although inventory is still low by historical standards, it is possible that by July’s report it could reach the 1.7 million level, i.e. the bottom of its pre-2014 historical range.” This now appears very unlikely. This report will have to be weighed against the report for new home sales, which will be released tomorrow. Despite this month’s pause, I still expect moderation in price increases and more importantly, for inventories finally to exceed their 2020 levels.

Updating transport and consumer spending since Tariff-palooza!

 

 - by New Deal democrat

New economic data will resume tomorrow. Since I haven’t updated the impact of Tariff-palooza! on transport and spending in awhile, let’s take a look at that.

The “tip of the spear” is container shipping. Here’s a graph of traffic at the busiest ports in the US, from CNBC:

At the busiest ports, the steep decline this spring after a period of front-running is evident. In the past few weeks, there has been a rebound, doubtless in part caused by the TACO delay in tariff implementation. With the current “Liberation Day 2.0” set for August 1, a similar dynamic may well be in play.

Once containers arrive in the US, they are typically shipped long distances by rail. Here is the historical record of monthly intermodal volumes through June, measured YoY to deal with seasonality:

Again, the slowdown this spring is apparent.

Here is a weekly close-up of the past year:

Much like shipping traffic, there has been a rebound so far in July, which may very well represent front-running the August 1 deadline.

Finally, here is YoY weekly consumer spending from Redbook, updated this week:

Again, we can see graphic evidence of front-running in February and particularly in the earlier part of April, which has now leveled off. The YoY nominal gain of just over 5% so far in July is very similar to the YoY gain last July. In short, there is no evidence of a consumer slowdown at this point.

In sum, the evidence of the past several months is that the economy has held up, in large part due to the delay in implementation of many of the tariffs. We’ll see what happens if implementation actually goes forward in August.

Real average wages and aggregate payrolls for nonsupervisory workers for June

 

 - by New Deal democrat

Once again there is a hiatus in the data for a couple of days. So let’s take a look at two of my favorite labor indicators: real average hourly wages and real aggregate payrolls for nonsupervisory workers.

First, here are real average hourly earnings for nonsupervisory workers:

These were unchanged in June. Nominally wages increased 0.3% in June, but so did consumer inflation, so the net was zero. The upward trend in these since July 2022 (when gas prices backed off from $5/gallon due to the Ukraine war) remains intact.

Here is the long term YoY% look:

Real hourly wages have increased. 1.2% in the 12 months. With a few exceptions, for the past two years they have increased between 1.0% and 1.7% YoY. More importantly, with the exception of the 2001 and COVID recessions, real hourly wages have always been negative YoY by the onset of the downturn. Typically this has been because of an inflationary pulse in the economy, which the Fed then combatted with higher interest rates.

Needless to say, real average hourly wages are not telegraphing trouble at present.

Real aggregate nonsupervisory payrolls are an even better labor indicator for the economy. Here is the long term pre-pandemic look, both in absolute terms (blue, right scale) and in YoY% change terms (red, left scale):

With the exception of the pandemic, real aggregate nonsupervisory payrolls have always peaked at least several months before the onset of a recession, and their YoY% growth has declined sharply, and crossed the zero line to negative close to coincident with the onset of recessions. It is a virtually perfect indicator, with no false positives or negatives outside of COVID and, arguably, the 2002 near-double-dip.

Here is the same graph for roughly the past three years:

Nominally aggregate payrolls declined -0.2% in June (one of the three lowest nominal readings since the onset of the pandemic), which together with consumer inflation, produced a -0.5% decline in the real number (one of the five lowest in the same period).

Despite the monthly decline, this also does not break the rising post-pandemic trend. And note, for example, as similar rough patch in early 2022. If there are further declines in the next several months, and we set a 6 month low, that would be worthy of a yellow caution flag. but we’re not there now. 

Weekly Indicators for July 14 - 18 at Seeking Alpha

 

 - by New Deal democrat

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

A number of shorter term indicators - mainly stock prices and jobless claims - moved into the positive column this week, suggesting a very good near term outlook. I’m not sure I buy this, as the stock market appears to be operating under the assumption that TACO will happen again. But if the announced tariffs take effect, it’s hard to see how that isn’t both inflationary and constrictive.

Similarly, an increase in non-petroleum commodity prices is usually because of stronger demand, i.e., it is a good thing. But what if it is mainly about a declining currency instead?

I generally am mechanical about reporting the data, and avoid “special case” carve-outs, because more often than not they hide bias. In any event, if the tariffs do take effect, we will see what happens in 2 or 3 months.

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

Housing construction continues to look recessionary

 

 - by New Deal democrat

As we get towards the end of the month, the data from the important leading housing sector begins to be reported. This morning’s report on housing permits, starts, and construction continues the trend that has been in place for several years.

For the month, permits (gold in the graph below) increased 3,000 to 1.397 annualized, while the more noisy starts (blue) increased 58,000 to 1.321 annualized. But both of these are still very close to their post-pandemic lows. But the metric that is the least noisy of all and conveys the most signal, single family starts (red), decreased 33,000 to 866,000 annualized:

In the above graph, I normalized permits and single family permits to 100 as of their post-pandemic peaks. I did the same for starts, but used their peak three month average. Starts are down 23.9% from their peak, permits 27.2%, and single family permits 30.3%. 

Is this sufficient to be recessionary? Here’s the historical pre-pandemic absolute levels of all three of the above metrics:

Downturns similar to current levels were in place at the beginning of most of the recessions in the past 50+ years, although in two cases - 1991 and the Great Recession - they were down 50% or more.

The significant decline in both measures of permits in the past several months is not a function of interest rates. Here’s an update of my graph showing the YoY change in mortgage rates (red) vs. the YoY% change in permits (blue):

Based on interest rates, permits (and subsequently starts) should be about the same as they were a year ago.

This is significant because in historically, the steep declines in permits and starts, generally more than 10% YoY, have persisted right up into recessions:

At present, permits are down -4.4% YoY, single family permits -8.4%, and the noisy starts only -0.4%.

But as I have pointed out many times in the past several years, the best “real” measure of the economic impact of housing is units under construction (red in the graph below). This month they declined another 6,000 to 1.361 annualized, the lowest level in 4 years, and off 20.6% from their peak (graph is normalized to 100 as of just before the pandemic):

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

The above graph also shows the final shoes to drop typically before recessions have started, houses for sale (gold) and residential construction employment (blue), in comparison with units under construction. Both of the two are either at or very close to their post-pandemic peaks. Here’s the historical YoY% look at all three measures:

I would expect all three series to turn negative YoY by the time a recession begins. Needless to say, that hasn’t happened yet. But because of the continuing downturn in actual construction, I do expect both of the last two measures to turn down. The only question is how long they can levitate before they do so. Once they do, I would expect their YoY decline to be similar to that already evidenced by housing units under construction - which, as per the above, is already at levels consistent with a recession on the horizon.

Topline monthly increase in retail sales betrays weak underlying trend

 

 - by New Deal democrat

Consumption leads employment, and retail sales are the most timely monthly indicator of consumption. Indeed, population-adjusted real retail sales in the past have tended to turn negative one year or more before a recession has begun.

In June, nominally retail sales rose a strong 0.6%. But because consumer prices rose 0.3%, real retail sales increased 0.3%.

But hold the celebration, because even with this increase real retail sales in June were among the 4 weakest readings in the past 8 months, and are below all of their readings during the 4th Quarter of last year, as well as the front-running of tariffs that was apparent earlier this year:

In other words, the trend is one of the stagnation of growth.

With several exceptions, most notably in 2022-23, in the past 75 years whenever real retail sales turned negative YoY, a recession was about to begin or had just begun. At present real retail sales are higher YoY by 1.2%, so there is no sign of any imminent downturn in the economy:

Even adjusted for population, real retail sales remain higher YoY by 0.6%, which in ordinary times would suggest no recession in the next 12 months:

Of course the whole issue of tariffs makes these not ordinary times.

But to reiterate, consumption leads employment. So here is the updated graph of real retail sales YoY, together with real personal consumption of goods (thin, light blue), compared with nonfarm payrolls (red):

Based on historical experience, real retail sales suggest that YoY jobs growth should continue to decelerate in the coming months to a meager 0.6%. And even restricting ourselves to the past 40 years, such a small increase in employment has only occurred during recessions:

So, to loop this back to my discussion of this morning’s very good initial jobless claims report, if the apparent slowing in consumption as shown by real retail sales continues much longer, I would not expect benign jobless claims reports to last much longer.

Jobless claims: the brightest spot in the entire economy right now

 

 - by New Deal democrat

Probably the brightest spot in the entire economy right now is initial jobless claims. Contrary to the general theme of deceleration which has been the case for several years now, initial claims appear to be breaking trend in the positive direction.

Specifically, initial claims declined -7,000 last week to 221,000, their lowest reading since the end of March. The four week moving average declined -6,250 to 229,500, the lowest since the beginning of May. With the typical one week delay, continuing claims rose 2,000 to 1.956 million:

On the YoY% basis more useful for forecasting, initial claims were down -7.9%, and the four week average down -1.6%, only the 3rd time in the past 10 months that this comparison has been lower, and the biggest YoY decline during that time. Only continuing claims remained higher, by 4.8%:

This tells us that there are very few layoffs, even if those who are laid off are having a more difficult time landing a new job. (More on that in my report on this morning’s retail sales number).

Finally, let’s take our first look at how this month’s jobless claims report so far might affect the unemployment rate in the next couple of months:

Remember that unemployment claims tend to lag initial claims, so even though the last several weeks have been very good, the increase in claims during June is still likely to contraindicate downward pressure on the unemployment rate at least for another month. 

One important caveat: just as the huge surge in immigration in 2021-23 distorted the unemployment rate to the upside, it is likely that immigration has slowed to a trickle this year, plus deportees do not file jobless claims, so there might well be a contrary distortion to the downside in the unemployment rate this year.

June industrial production: a mild coincident positive for the economy

 

 - by New Deal democrat

Industrial production is much less central to the US economic picture than it was before the “China shock,” since so much production moved overseas, meaning US consumers buy much more imported goods than they used to.

Still it is an important if diminished coincident indicator. This morning’s report for June was positive, but less so than appeared on the surface.

Headline industrial production (blue in the graph below) increased 0.3% for the month. It is higher by 0.7% than it was one year ago, and 0.5% higher than it was in September 2022, its former post-pandemic high. Manufacturing production (red) increased 0.1% and is 1.0% higher than one year ago, but -0.1% lower than its post-pandemic high of October 2022:

What’s the difference? As has been the case a number of times in the past year, utilities production (blue in the graph below), and specifically electrical utilities (red):

I strongly suspect this is due to the necessity to generate power for mining crypto - a complete net waste of resources, and a negative for climate.

In any event, this is a coincident positive for the economy.