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

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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May real wages grow, but real aggregate payrolls on the verge of a red flag warning

May real wages grow, but real aggregate payrolls on the verge of a red flag warning

The consumer price index rose +0.1% in May and declined YoY to 1.8%. Again the main reason was gas prices, which declined in during the month. Below is overall CPI (blue) vs. CPI less energy (red) for the past 20 years:

Now let’s turn to wages. Nominally, wages for non-supervisory employees increased +0.3% in May, so after inflation they were up +0.2%, an improvement over the past few months. YoY non-supervisory wages nominally were up +3.2%, which means that real wages for non-supervisory workers are up +1.6%:

 

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Scenes from the May employment report: expect more lackluster reports, and layoffs in manufacturing

Scenes from the May employment report: expect more lackluster reports, and layoffs in manufacturing

Three months ago when the poor February jobs report came out, I was just about the only commentator who saw it as a harbinger rather than an outlier. On Friday the naysayers got silenced.Let’s see how the more leading aspects of the employment report played out, with an eye towards the near future. To cut to the chase, expect more lackluster total payroll gains in the coming months, and further, it is a near certainty that there will be layoffs in manufacturing, probably totaling at least 50,000.

But first, let’s take a quick look at wage growth, which has pulled back slightly from the beginning of this year. Nominal wage growth is significant because employers do not give out inflation-indexed wage increases, and the pattern is that, as underemployment decreases below about 9%, wage growth increases:

That isn’t cause for concern yet, given the noise in the series, including at least two prior temporary downturns in this expansion alone. But on the other hand, note that an extended period of a slowdown or flatness in growth has tended to occur in the final stage of expansions. This is best shown when we track the YoY change in percent of wage growth itself (i.e., the second derivative), averaged quarterly in the graph below:

 

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For party voting preference, which is more important, age or education? Looks like we have an answer

For party voting preference, which is more important, age or education? Looks like we have an answer

For all the slicing and dicing that has been done in voting metrics for 2016 and 2018, one quandary has stood out. We know that higher educational attainment has strongly correlated with voting for Democrats, and we also know that there was a stark age difference in votes between Clinton and Trump in 2016: a majority of voters younger than 45 voted for Clinton, while a majority over 45 voted for Trump.

But the level of educational attainment has not remained static over time. With each passing generation, more and more students are getting a college degree, and advanced degrees as well.

So are the voting patterns mainly showing us that more younger voters have college degrees? Or is it really about generational experience? For example, is a Silent Generation or Boomer college graduate more likely to vote Democrat than a GenXer or Millenial with no college? This week I finally saw a graphic that spells out the answer, and here it is:


Age is more decisive, hands down. The only anomaly that even comes close is that voters aged 30 to 44 with a high school degree were only slightly more likely to vote Democratic than voters aged 45 to 64 without a high school degree.

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