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

The consumer is alright

The consumer is alright

One of my big themes this year is that low gas prices can hide a multitude of economic sins. This morning’s data on personal income and spending confirms that the consumer side of the economic ledger is doing OK.

Nominal personal income rose +0.4%, and nominal personal spending rose +0.5%. After adjusting for inflation, the numbers are +0.3% and +0.2%, respectively. As a result, the positive trends for both continue:

On a YoY basis, we can see that spending slightly leads income (similarly point to the way consumption leads employment, not the other way around), and is also more volatile:

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Initial jobless claims: positive this week, but close to crossing two thresholds for concern

Initial jobless claims: positive this week, but close to crossing two thresholds for concern

I have started to monitor initial jobless claims to see if there are any signs of stress.

My two thresholds are:

1. If the four week average on claims is more than 10% above its expansion low.
2. If the YoY% change in the monthly average turns higher.

Here’s this week’s update.

The four week average is 9.8% above its recent low:

On a weekly basis, YoY the average is +0.3% higher than this week last June.

Last June the monthly average was 222,000. With one week still to go this June, it is 221,250:

 

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Manufacturing job losses now look virtually certain

Manufacturing job losses now look virtually certain

I’ll have a post going up at Seeking Alpha later, but between a steep decline in the manufacturing work week, lackluster regional Fed manufacturing indexes (still barely positive), a turndown in durable goods orders (in part due to Boeing’s woes), and increasing inventories, it now looks nearly certain that there will be an actual decline in manufacturing jobs over the next twelve months.
To put this in perspective, here are the annual gains (losses in 2010) in manufacturing jobs through the end of 2018:

Here is the same data monthly through May from the beginning of Obama’s second term:

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New home sales: is housing developing a price “choke collar”?

New home sales: is housing developing a price “choke collar”?

So, new single family home sales for May were reported light this morning:

Because this series is very volatile and heavily revised, as always take this with a grain of salt.

To smooth out some of the volatility, I pay more attention to the three month moving average, which at 670k is slightly below that of that average for the past two reports, and also slightly below the late 2017 peak. Still it is above all of 2018, so it nevertheless adds to the evidence that the bottom for housing is in.

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A tale of two timeframes

A tale of two timeframes

No data today Monday, so while we are waiting for new home sales tomorrow, let me step back a little and give you an updated overview of my thinking.

It boils down to: the short term forecast — over the next 4 to 8 months — looks flat at best, and could develop into an actual downturn. The longer term — over one year out — looks more positive.

Let me start with the positive long term forecast first.

Long term interest rates have gone down significantly. Most importantly, mortgage rates have declined from about 5% to 4%. As a result, overall housing permits and starts, new single family home sales (which will be updated tomorrow) and through last Friday’s release of existing home sales have all turned higher:

The last big holdout, single family permits, probably made a bottom in April.

 

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Trucking suggests transport slowing, but has not rolled over

Trucking suggests transport slowing, but has not rolled over

 

I have been paying particular attention to the monthly report of the American Trucking Association, to compare its performance with rail, which has been sagging since the beginning of this year. A few other people are relying on the Cass Freight Index, but since that includes international shipping and air transport, it does not exclusively measure the US economy.

In April this index rose 7.7%, and was up 7.4% YoY as well. In May it gave almost all of that back:

According to the ATA, truck traffic declined 6.1% in May, and is now up only 0.9% YoY.

The trend remains neutral to slightly positive, in contrast to rail, suggesting that overall the economy, at least as measured by transport, has slowed down substantially but not yet rolled over.

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May real retail sales positive, but industrial production remains in a shallow recession

May real retail sales positive, but industrial production remains in a shallow recession

Retail sales are one of my favorite indicators, because in real terms they can tell us so much about the present, near term forecast, and longer term forecast for the economy.

This morning retail sales for May were reported up +0.5%, and April was revised upward by a net +0.5% as well. Since consumer inflation increased by +0.4% over that two month period, real retail sales have risen +0.6% in the past two months.  For the past two months I have noted that sales were still slightly below their peak last November, and YoY real sales remained in a downshift. This morning’s report helps those comparisons substantially, as YoY real retail sales are now up +1.4%.

Here is what the last five years look like:

Real retail sales turned flat for about a year before both of the last two recessions. Even with this morning’s positive revisions, since late last year we’ve hit the biggest soft patch since 2013.

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Empire State Manufacturing: OUCH!

Empire State Manufacturing: OUCH!

I’m on vacation this week, so fair warning that there is probably going to be light posting!

The only economic news of note today was the Empire State Manufacturing Index.  Only one district, only one survey, in a noisy series, but just the same, the overall index fell to -8.6 and the new orders component fell to -12:


This brings the average of all five regional Fed Indexes down to +1. If the Philly Index simply declines to +5 or less later this week, then the average will turn negative.

Even that would not be a disaster. Note that in 2015-16 when the Empire State Index was this low or lower, the overall economy remained positive. But unless housing turns around quickly, we have a problem.

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Initial jobless claims for week ending June 10 – no concern yet

Initial jobless claims for week ending June 10 – no concern yet

I have started to monitor initial jobless claims to see if there are any signs of stress.

My two thresholds are:
1. If the four week average on claims is more than 10% above its expansion low.
2. If the YoY% change in the monthly average turns higher.

Here’s this week’s update.

Initial claims last week were 222,000. The four week moving average was 217,750.
First, the four week average is only 8.1% above its recent low:

Second, the YoY% change for this week is only lower by -1.8%. For the first two weeks of June, it averages +0.5% higher:

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Initial jobless claims for week ending June 10 – no concern yet

Initial jobless claims for week ending June 10 – no concern yet

I have started to monitor initial jobless claims to see if there are any signs of stress.

My two thresholds are:
1. If the four week average on claims is more than 10% above its expansion low.
2. If the YoY% change in the monthly average turns higher.

Here’s this week’s update.

Initial claims last week were 222,000. The four week moving average was 217,750.
First, the four week average is only 8.1% above its recent low:

Second, the YoY% change for this week is only lower by -1.8%. For the first two weeks of June, it averages +0.5% higher:

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