June personal income and spending: very weak as payback for front-running continues, meriting a yellow flag

 

 - by New Deal democrat

In my conclusion last month, I wrote “In the first two months of Q2, total real spending has declined by -0.8%, while services has been basically unchanged. If there is a further decline in June, based on the above discussion that would likely trigger a “recession watch” signal.”

To cut to the chase, June’s report just barely missed giving that signal. If it weren’t for the fact that so much of the weakness is obvious payback for the front-running in March and April, it would be a serious concern. Even so, it’s worth hoisting a yellow flag caution, while unfortunately waiting one more month to see if the weakness persists.

Let’s go to the data. With the exception of the personal saving rate, and one YoY graph, all of the data in the below graphs is normed to 100 as of just before the pandemic.

To begin with, nominally income and spending both rose 0.3%. After accounting for inflation, which also rose 0.3%, real income was flat and real spending rounded to 0.1% higher:

Since real spending on goods rarely turns down, even in recessions, the focus is on goods. In that regard, real spending on both goods and services rose 0.1% in June:

Additionally, there is authority for the fact that spending on durable goods usually cools risk before spending on non-durable goods. In June, the former declined -0.5%, while the latter rose 0.4%:

Real spending on durable goods has declined for three months in a row, and is down -2.5% since March.

In case you haven’t noticed already, a common thread in almost all of the above data is that it has been virtually flat, or worse, since March. As I indicated above, normally that would warrant at least a recession watch; but this year, so far it is consistent with front-running tariffs in March and April, with payback in May and June.

Next, here is the personal savings rate. I follow this because just before and going into recessions it tends to turn up as consumers get more cautious. In June it remained steady at 4.5%, in line with its typical reading this year, although higher than last autumn:

Before I conclude with two final data sets, one way to differentiate between noise and trend is to look at the YoY comparisons.In general while real income and spending do not turn negative YoY until after a recession has started, usually they have declined 50% or more from their YoY peaks within the previous 12 months (e.g. a decline from up 4.0% YoY to being up 2.0% YoY). Bleow are real income (gray), real spending (dark blue), real spending on durables (red), and real spending on services (gold), normed to their YoY high comparisons:

So measured, tow of the above data series are close to that threshold: real spending is down -33.8% from its YoY high, and real spending on services is down -47.3%. Real spending on durable goods has actually crossed the threshold, down -52.8%. Only real income, down -25.7% is nowhere near the threshold.

Finally, let’s take a look at two coincident indicators from this report which the NBER pays close attention to in dating recessions. First, here is real income less government transfers:

This declined -0.2% for the second decline in a row. Since one year ago, this metric was higher by 2.8% YoY, and is now only higher 1.2% YoY, at -55.4% it has also crossed the 50% decline threshold I mentioned above.

Second, here is real manufacturing and trade industries sales, which is delayed one month and so if for May:

This also declined, by -0.3%, also for the second decline in a row, although note that the overall trend since mid-2022 remains higher.

Last month, looking at historical trends I noted that “real spending on services rarely turns down, even during recessions, although usually its growth does declerate below 1% annualized during the quarter just preceding or starting the recession.” Further, where real spending on goods declined -1% YoY or more, about 50% of the time that also signaled recession (vs. slowdown the other 50%). And “If growth in real spending on services was also [i.e., simultaneously] decelerating sharply, even if still positive, it almost always meant recession.” 

Real spending on goods is still higher by 2.9% YoY, so we are not near this signal.

Let me put this all together. This was a very weak report, although not negative. If there were not distortions from the front-running of tariffs earlier this year, it would come very close to meriting a “recession watch.”  But by next month, the payback from this previous front-running should have largely abated. If there is a rebound, needless to say that will be good. But if the weakness persists, we may cross the threshold. As it is, because of this uncertainty a “yellow flag” caution, ie., pay extra close attention, is merited.

The bottom line in Q2 GDP; front-running, payback, and contrasting long leading indicators

 

 - by New Deal democrat

Today’s GDP report for Q2 was pretty much as we expected, i.e., payback from the front-running of import tariffs in Q1. But as usual, my main focus is on the two long leading components.

The headline was a 3.0% annualized increase in real GDP, rebounding from the -0.5% decrease in Q1 (blue in the graph below). But “core” GDP, i.e., real final sales to domestic purchasers, tells a somewhat different story, decelerating from 1.9% annualized in Q1 to 1.2% in Q2 (red):

In fact “core” GDP growth, while positive, was the lowest since the end of 2022. But again, we know that consumers accelerated some purchases into Q1 that they otherwise would have done in Q2 or even later, so this deceleration is also somewhat misleading.

Now let’s look at the impact of tariffs. Producers and wholesalers in the US ran up their inventories in Q1 in anticipation of the increased tariffs, meaning there was likely to be payback in Q2. And there was (blue in the graph below), as inventories declined -5.8% on an annualized basis. Which unsurprisingly is in accord with the fact that after rising in Q1, imports fell -8.8% (red). If there was a surprise at all, it was that exports declined in Q2 as well, by -4.4% annualized, after increasing 1.0% in Q1 (gold):

So the headline takeaway for me is slowing growth in Q2 with a decline in exports (which of course is not supposed to happen in the Tariffistas’ utopia).

Now let’s look at the two long leading components of GDP.

First, in accord with the recessionary housing data that I have been writing about each month, both nominal (blue) and real (red) private residential investment in Q2 declined, by -3.2% and -4.6% annualized, respectively:

Note that this is the second quarterly decline in a row in real terms.

Here is the longer term view, showing that housing tends to turn down more than a year before th economy as a whole:

If housing was negative, proprietors’ income (blue), which is a proxy for corporate profits (red) (which won’t be reported for another month) was positive, increasing 3.4% annualized on a nominal basis. Even after taking into account the GDP deflator, which increased at a 2.0% annualized rate, business income was positive.:

This is of a piece with what has been reported on Wall Street for Q2 so far.

Even without the complicating picture from tariffs, the background long leading indicators remain mixed, with elevated but rangebound interest rates and term spreads, increasing real money supply, and mixed real consumer spending on goods, in addition to the negative housing impacts but continuing positive profits.

I anticipate the combined impact of tariffs and the recent tax bill to negatively impact the economy as a whole, as higher prices for consumers and cutbacks in benefits more than counterbalance the tax giveaways to the wealthy. But the Q2 GDP report shows no significant effects on the bottom line yet.

Yesterday’s JOLTS report still = soft landing

 

 - by Neew Deal democrat

Yesterday’s JOLTS survey for June continued to be consistent with a “soft landing” scenario. This is good news, particularly on a relative basis, since the actions of the new Administration, especially on trade, have exacerbated the fear that this might transform into a “hard” landing, a/k/a a recession.

As a quick refresher, this survey decomposes the employment market into openings, hires, quits, and layoffs. And here are job openings, hires, and quits all normed to 100 as of just before the pandemic:

All of these declined on a monthly basis, but except for quits, were not much changed from one year ago. Openings are “soft” data and have generally trended higher going all the way back to the turn of the Millennium. They have remained above their pre-pandemic levels, and this month declined -275,000 to 7.437 million, vs. XXX million one year ago. HIres declined -261,000 to 5.204 million, vs. XXX million one year ago. Finally, voluntary quits declined -128,000 to 3.142 million, vs. XXX million one year ago. As indicated above, this is the only series significantly lower, by -4.3%, than one year ago.

Now let’s look at several components are slight leading indicators for jobless claims, unemployment and wage growth.

Recently one item of concern has been layoffs and discharges, which generally have averaged higher since last July. In June, they declined by -7,000 to 1.604 million, towards the lower range of readings in the past 2+ years:

This generally according with both the increase in the unemployment rate in 2023-24, as well as its plateauing this year (red, right scale), as well as the recent trends in new and continuing jobless claims (not shown), which after a YoY increase earlier this year, improved in the last month.

Finally, the quits rate (left scale) typically leads the YoY% change in average hourly wages for nonsupervisory workers (red, right scale):

In June the quits rate remained steady at 2.0%, about average for the past 12 months. The downshift that occurred late last year has finally been reflected in average hourly wages in the past several months. But the latest data suggests that nominal wage growth will not decelerate much further. 

As I noted at the outset, the JOLTS reports have been consistent with the “soft landing” scenario remaining intact through June. But as I indicated on Monday, if there is “payback” for the anomalous seasonally adjusted big increase in education hiring in June, on Friday we will find out if that trend holds.

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.