What I’m watching for this week

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New home sales suggest housing bottom is in

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Commercial and industrial loans: another sign of a slowdown?

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How increasing local oligopolization has distorted the housing market

Earlier this week new home sales for March were reported, soaring to a new expansion high bar one month (November 2017). Something else that a few other writers picked up on: the median *prices* for new homes fell to a level not seen in the past two years, off -11.8% from their peak, also in November 2017:

With mortgage rates also down at approximately where they were in January 2018, the carrying cost of a new house has declined by over 10% overall, enticing lots of new potential buyers into the market.

All well and good. But my reaction went a little beyond that: “Holy crap! Builders can slash their prices by almost. 12% and still make a profit?!?” 

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Nailed it!

Three weeks ago I wrote No, the Meuller report ***DID NOT*** “find no collusion!” in which I lambasted and parsed Barr’s conclusory snippet of the Mueller report, to wit, that “[T]he investigation did not establish that members of the Trump Campaign conspired or coordinated with the Russian government in its election interference activities.”

I pointed out that:

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March real retail sales very strong, but no “all clear” yet

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YoY Industrial production and structural changes to the US economy since 1980

Of those 25 times, 17 have been during recessions, sometimes having started shortly beforehand. On only 8 occasions have negative YoY readings not been associated with recessions. That’s better than a 2:1 rate of correct readings vs. false positives, with no false negatives.

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Industrial production continues to decelerate

Industrial production is the King of Coincident Indicators. In dating the onset and end of recessions, in practice the NBER relies upon industrial production more than any other measure.

March 2019 production continued a string of recent disappointments, with overall production declining -0.1%, and manufacturing production unchanged. For the first quarter of 2019 in total, overall production declined -0.3%, and manufacturing declined -0.8%. Here’s the graphic look at the past nine years:

Note that the recent flatness is on par with, e.g., 2012, which was nowhere near to recession.

But on the other hand, after a surge last summer, leading some to conclude that we were in a “boom,” both total and manufacturing production have decelerated sharply on a YoY basis. Both levels YoY were last seen in late 2017:

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February JOLTS: a mirror of the poor jobs report

The JOLTS report on labor is noteworthy and helpful because it breaks down the jobs market into a more granular look at hiring, firing, and voluntary quits. Its drawback is that the data only goes back less than 20 years, so from the point of view of looking at the economic cycle, it has to be taken with a large dose of salt.
With that disclaimer out of the way, Tuesday’s JOLTS report for February generally mirrored the poor jobs report (+20,000, revised to +33,000) for that month. With the exception of one new high, the other series are off their best levels, and two continued to decline:

• Quits declined -0.1% from their peak of one month ago.
• Hires declined and are -3% off their October peak.
• Total separations rose slightly but remain about -2% off their peak in last July.
• Job openings declined about -7% from their October all time high, which was virtually tied one month ago. While this is a sharp decline, it has typically happened once or twice a year in this series even during expansions.
• Layoffs and Discharges rose slightly and remain about 9% higher than their September 2016 low, although well below their levels of most of the past 18 months.

Let’s update where the report might tell us we are in the cycle.
First, below is a graph, averaged quarterly through the fourth quarter, of the *rates* of hiring, quits, layoffs, and openings as a percentage of the labor force since the inception of the series (layoffs and discharges are inverted at the 3% level, so that higher readings show fewer layoffs than normal, and lower readings show more):

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Real wages got gassed in March

The consumer price index rose +0.4% in March, mainly as a result of a big monthly increase in gas prices. That really shouldn’t have been a surprise, since almost every time gas prices have increased by as much as they did in March — up 9% for the month — consumer prices as a whole have gone up at least +0.4%. I’m showing just the last 10 years in the graph below:

In fact, ex-gas, consumer inflation ex-energy has been remarkably stable between 1.5% and 2.5% YoY ever since gas prices made their long term bottom in early 1999. The only big exceptions were in the year before each of the last two recessions:

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