Relevant and even prescient commentary on news, politics and the economy.

New home sales roar back to pre-pandemic levels

New home sales roar back to pre-pandemic levels

At some point – probably three or four months after Joe Biden takes the oath of office on January 20 of next year, G*d willing – the coronavirus pandemic is going to be brought under control in the US. At that point the long leading indicators are going to be very important in terms of the immediate direction of the US economy.

And the news on that score is very good, as shown by new home sales for June, reported this morning.

New home sales are extremely noisy and heavily revised, but they are the most leading of all of the housing metrics – even before permits. This morning they were reported at 776,000 units annualized (blue in the graph below), the highest since the onset of the Great Recession over 12 years ago:

Single-family home permits (red in the graph above, right scale) are much less noisy and tend to follow new home sales with a slight lag of 1 to 3 months. As you can see, these also rebounded sharply in June, although only half the way back to their pre-pandemic levels. Based on low mortgage rates and new home sales, I expect building permits and starts to follow shortly, and return to pre-pandemic levels as well.

Because home construction feeds through Into the broader economy over a period of 12 to 18 months, this will provide a tailwind for economic growth once the public feels safe in resuming normal activity.

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The short leading indicators and the 2020 Presidential election forecast

The short leading indicators and the 2020 Presidential election forecast

As I pointed out on Sunday, polls and poll aggregations really aren’t forecasts, they are nowcasts. They tell you who would win and by how much *if the election were held today.* They don’t tell you whether or by how much that is likely to change over the next few months. Further, candidates, campaigns, and voters react to them, and so change the dynamics. And in the case of several of them, most notably Nate Silver’s aggregations, since they only give you *probabilities* of each candidate winning, in a fundamental sense they are non-falsifiable — e.g., “well I *told* you that Candidate X had a 6% chance of winning, my model was correct!”

Models based on economic fundamentals, however, *can* forecast, because in the case of leading indicators, what the data is likely to show on Election Day is “baked in the cake” months before. For example, the model based on Q1 polling plus the Index of Leading Indicators are the end of Q1 already forecasts a Biden victory, by a substantial margin. That’s because the Index is supposed to tell you what the economy might be like 6 to 8 months later.

 

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Initial claims: a jolt of bad news, as Mitch McConnell and the GOP dawdle on an emergency benefit extension

Initial claims: a jolt of bad news, as Mitch McConnell and the GOP dawdle on an emergency benefit extension

This morning’s report on initial and continuing claims, which give the most up-to-date snapshot of the continuing economic impacts of the coronavirus on employment, was a jolt of bad news, as claims increased by over 100,000 to the worst level in 4 weeks. The trend of slight improvement to “less awful” since the end of March was broken, and there was also a slight negative revision to last week’s number.

Here is the week over week % change since the end of March:


There were 1.416 million new claims, 109,000 more than one week ago.

Continuing claims (red in the graph below, right scale), which lag by one week, did continue to decline by just over 1.1 million, from 17.304 million to 16.197 million, as opposed to the increase in initial claims (blue, left scale):

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The 2020 Presidential election nowcast based on State polling: Trump support deteriorating even in red States

The 2020 Presidential election nowcast based on State polling: Trump support deteriorating even in red States

For the past four weeks I have posted a projection of the Electoral College vote based solely on State rather than national polls (since after all that is how the College operates) that have been reported in the last 30 days.

Here’s how it works:
– States where the race is closer than 3% are shown as toss-ups.
– States where the range is between 3% to 5% are light colors.
– States where the range is between 5% and 10% are medium colors.
– States where the candidate is leading by 10% plus are dark colors.

Before I proceed further, let me emphasize that polls are *not* forecasts, only nowcasts. They tell us the likely result if the election were held today. Since voters, campaigns, and decision-makers respond to the polling, it is inherently fluid. The only true “forecasts” are those which make us of leading indicators, which forecast where the data will be in a few months. One model, based on the Q1 Index of Leading Indicators, already forecasts a bad Trump loss. Another model, based on real disposable personal income through Q2, will be locked in when June’s data is reported in two weeks. Tomorrow or Tuesday I will look at the status of the short leading indicators, which will give a forecast “locked in” through Q3.

With that said, here is the updated map through July 19:

In the past two weeks, 6 red States have been downgraded to “lean” or toss-up for Trump, and two Congressional districts in Maine and Nebraska have flipped to Biden. Only Iowa has moved from toss-up to lean Trump. As of now, only 10 States, none of which has more than 9 Electoral votes, are “solid” Trump. In several of them – the Dakotas, Idaho, West Virginia, and Wyoming – there has not been any new State polling in months, so there could well be more Electoral votes and GOP Senators at risk who we simply don’t know about.

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Improvement slows in initial claims; expect recent job growth to slow as well

Improvement slows in initial claims; expect recent job growth to slow as well

 

A preliminary note: this morning’s report on housing permits and starts showed improvement across the board in June, although the absolute levels are no better than the low points of 2017 and late 2018-early 2019:

I’ll have more at Seeking Alpha later.

Now let’s turn to yesterday’s report on initial and continuing claims, which have been giving the most up-to-date  snapshot of the continuing  economic impacts of the coronavirus on employment. This week continued the trend of slight improvement to “less awful,” as shown in the below graph of the week over week % change:

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June retail sales: some actual good news; the entirety of the pandemic decline has been reversed

June retail sales: some actual good news; the entirety of the pandemic decline has been reversed

Retail sales are the third report for June out of the four main coincident indicators that show whether the economy is in recession or expansion. And they were the third that grew again for the month. In fact, in real, inflation-adjusted terms they were higher than in February, the last month before the coronavirus pandemic hit:

They were also only 0.4% lower than their all-time high set last August.

 

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Industrial production rebounds, but will manufacturing employment continue to do so?

Industrial production rebounds, but will manufacturing employment continue to do so?

 

Industrial production is the King of Coincident Indicators. The NBER almost always identifies month of the end, and frequently the beginning, of recessions based on the top and bottom of this statistic. This morning it was reported to have risen for the second month in a row in June. Let’s take a little deeper look.

First, here’s the graph of both overall (blue) and manufacturing (red) production since Trump was inaugurated in January 2017:

Both rose by a total of 5% or more until December 2018. In that month both peaked, and both have been in declines since then, first shallow, and then collapsing when the coronavirus hit in March. As of this morning’s report, overall production has regained about 1/3 of its loss since December 2018. Manufacturing has regained about 1/2 of its loss.

 

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Coronavirus dashboard for July 14: A few US States are containing the coronavirus

Coronavirus dashboard for July 14: A few US States are containing the coronavirus

Headlines for the US:
Total infections: 3,364,704
7 day average: 60,997
Total deaths: 135,615
7 day average: 780

We all know that taken as a whole, the US is failing abysmally in controlling the coronavirus. At least 13 States most notably including California are “re-closing” at least in part.  In the last week, deaths, which had continued to decline despite the renewed exponential rise in cases in many areas, finally started to rise as well:

that, for the first time in months, on Sunday New York City did not have even a single death from the coronavirus, I thought I would take a look to see if New York, or any other States, have continued to “crush the curve.” There are a few slivers of good news.

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The 2020 Presidential election nowcasts and forecast: growing evidence for a likely Biden blowout

The 2020 Presidential election nowcasts and forecast: growing evidence for a likely Biden blowout

 

For the past three weeks I have posted a projection of the Electoral College vote based solely on State rather than national polls (since after all that is how the College operates) that have been reported in the last 30 days.

Here’s how it works:
– States where the race is closer than 3% are shown as toss-ups.
– States where the range is between 3% to 5% are light colors.
– States where the range is between 5% and 10% are medium colors.
– States where the candidate is leading by 10% plus are dark colors.

Here is the updated map through July 11:


There are no flips, except that I noticed I had overlooked a poll last month of Nebraska that actually showed a slight Biden lead. In Biden States, Arizona weakened and several others strengthened. In Trump States, a number in the Mississippi valley weakened significantly. And this morning another Texas poll showed a Biden lead, although not enough to move that State out of the “toss-up” range.

 

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Initial and continuing claims, JOLTS show labor market “less awful” improvement continues – for now

Initial and continuing claims, JOLTS show labor market “less awful” improvement continues – for now

Weekly initial and continuing jobless claims have been giving the most up-to-date snapshot of the continuing economic impacts of the coronavirus on employment. This week continues the trend of slight improvement (or, more truly, slightly less awful).

Below are initial jobless claims both seasonally adjusted (blue) and non- seasonally adjusted (red). The non-seasonally adjusted number is of added importance since seasonal adjustments should not have more than a trivial effect on the huge real numbers:

There were 1.400 million new claims, 31,000 less than one week ago. After seasonal adjustment, this became 1.314 million, 99,000 less than last week’s number. The good news is, this is the smallest weekly decline since the worst reading in April. The bad news is, it is only 250,000 (or 17%) less than five weeks ago. In other words, the improvement is slight and huge second-order impacts in terms of new layoffs continue to spread.

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