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

Weekly Indicators for September 16 – 20 at Seeking Alpha

by New Deal democrat

Weekly Indicators for September 16 – 20 at Seeking Alpha

My Weekly Indicators post is up at Seeking Alpha.

For all of the discussion about various iterations of the treasury bond yield curve, it is little noted that right now it is sending a different message than virtually every other long leading indicator for the economy.

As usual, clicking over and reading should bring you up to the moment on the economy, and bring me a penny or two for my efforts.

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A closer look at the housing rebound

A closer look at the housing rebound

On Wednesday we got some excellent new residential construction numbers. I went into a lot more detail, showing how – exactly as I forecast – the turn in interest rates led the turn in housing sales by about six months, over at Seeking Alpha.

As usual, clicking over and reading helps reward me with a penny or two for my efforts.

While I am at it, on the subject of housing, here is a chart I am working on (not completed yet!) for another post, showing the maximum percentage decline in total and single family housing permits from expansion peak until the onset of recession, ever since reports started in the early 1960s, plus the decline from peak between the beginning of 2018 to the present:

Recession onset Total housing
Permits
1 unit housing
Permits
——
12/1969  -22.7%  -20.7% ———
11/1973  -42.0  -40.1
 6/1980  -36.8  -43.7
 7/1981  -37.4  -38.4
 7/1990  -44.3  -35.1
 3/2001  -11.5  -12.5
12/2007  -49.2  -58.7
2018-19   -12.4  -11.9

Note that in all cases but two (1969 and 2001), the declines were in excess of 30%. The recent  decline, at roughly 12%, is almost identical to the decline prior to the 2001 recession. Why the 2001 recession happened despite the relatively small decline is important (and a subject of that other post to come!).

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Initial claims increasingly foreclose 2019-early 2020 downturn

Initial claims increasingly foreclose 2019-early 2020 downturn


I’ve been monitoring initial jobless claims closely for the past several months, to see if there are any signs of stress. This is because the long leading indicators were negative one year ago, and many – but not a majority – of the short leading indicators have recently turned negative as well. So I have been on “recession watch.” But no recession is going to begin unless and until layoffs increase.
To reiterate, 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.

As of this week, initial claims continue to be very close to their expansion lows. The 4 week moving average of claims as of this morning is 212,500, only 11,000, or 5.3%, above the lowest reading this expansion:

On a YoY% change basis, the 4 week average is 0.6% higher than one year ago:

 

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Housing: BOOM!

Housing: BOOM!

Well, this is an easy post. This morning’s report (Wed.) on housing permits and starts showed new expansion highs in both overall permits and starts. The less volatile single family segment also recovered, with both single family permits and starts at one year highs, although slightly below their expansion peaks.

Here are total and single family permits:

And here are total and single family starts:

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Industrial production rebounds; another message of slowdown, no recession

Industrial production rebounds; another message of slowdown, no recession

 Industrial Production is the King of Coincident Indicators.  When industrial production peaks and troughs coincides more often than any other indicator to NBER’s recession dating. Let’s take a look at the report for August, which was pretty darn good, which was released this morning.

Production as a whole increased 0.6%, and last month’s report was revised upward by +0.1%. The manufacturing component also increased, by 0.5%. Both, however, are still below their peaks set last December (left scale in the graphs below). The other important component, mining (which includes oil production) increased 1.4%, reversing July’s decline, missing a new high by less than 0.1% (right scale):

Stepping back for a longer term look, here is the same graph including the “shallow industrial recession” of 2015-16:

 

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Weekly Indicators for September 9 – 13 at Seeking Alpha

by New Deal democrat

Weekly Indicators for September 9 – 13 at Seeking Alpha

I realized that I neglected to post a link to this Saturday’s Weekly Indicators post, which was up at Seeking Alpha.  So here it is.

The theme over the past few months has been that, despite worsening conditions in manufacturing, and almost singular forecaster attention to the yield curve, many of the short and long term indicators have been improving, or are starting to improve.

As always, clicking over and reading helps reward me a little bit for the efforts I put in.

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Would Trump Try to Manipulate Economic Data Before the Election?

Dean Baker considers whether Trump’s group of supporters would be able to manipulate the bureacracies of the federal government to alter the economic outlook of the nation in a more expansive way than Larry Kudlow and others, but the data itself ( if that is even needed?)  He says not likely, but how creative would one need to be?

Dean Baker wonders out loud…

Would Trump Try to Manipulate Economic Data Before the Election?

I talked to a reporter last week who wanted to know if Donald Trump could manipulate economic data for political advantage. For example, could Trump make the Bureau of Labor Statistics (BLS) show a lower rate of unemployment or the Bureau of Economic Analysis show a higher rate of GDP growth, just before the election next fall?

…First, the people at these and other statistical agencies are dedicated professionals.

…Furthermore, since so much of the data are publicly available, it would be very hard to do this without being detected.

…Theoretically, someone could do something like this, but it would have to be a person who was very knowledgeable about the data. And, they would almost certainly need the cooperation of at least 20 or 30 people at the BLS.

 

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Affordable Housing

The other night, ten Democratic presidential, hopeful, nominees took stage and debated their plans for America’s future. There never was a mention beyond a few garbled words hastily thrown together about an issue which is plaguing many young voters ing to raise families and one which has surfaced in my community, the shortage of affordable homes. Senator Elizabeth Warren knows of the issue as she has discussed it in one of her talks, “The Two Income Family.”

Moderators have bypassed the issue and not asked the question of a candidate’s plan for Affordable Housing which is a growing problem for many people in the US especially young people. In lieu of their not asking, here is a site 2020 Because Housing is Built with Ballots from which you can read each of the candidate’s plans.

The housing crisis has hit urban, suburban, and rural areas with some states being worst(see chart above) than others with regard to supply. Nationally, there is a shortage of 7 million homes affordable and available to the lowest-income renters. Rents have risen faster than renters’ incomes over the last two decades, more people are renting than ever, and the supply of apartments they can afford has lagged. Fewer than four affordable and available rental homes exist for every 10 of the lowest-income renter households nationwide. People of color are disproportionately impacted. Racial segregation persists and concentrated poverty is growing.

Meanwhile, policy makers have disinvested in the nation’s public housing infrastructure, leaving families living in unsafe, unhealthy, and unacceptable conditions. After almost a decade of decline, homelessness is back on the rise, and is in the news in an adversarial manner. The same as with immigrants, people do not want to provide solutions and they want the homeless to disappear. Where they should go has not been determined.

Jumping on this bandwagon pre – election, the one man who has a history of discrimination as learned from a father who was depicted by in song by Woodie Guthrie, President Donald Trump has signaled his intentions to address California’s homeless crisis in a harmful, unjust, and unlawful manner. Involving criminalization, sweeps of unsheltered people living on the streets, they will (potentially?) be moved to federal homeless camps.

Affordable housing and homelessness has been in the news across the country and debate moderators have yet to ask the question of what can be done or what are your solutions to the crisis.

While providing good and affordable healthcare is important; housing, besides a cardboard box, is one of the prerequisites to having good health. One way or another, we will be paying for it.

The Question the Presidential Candidates Don’t Get Asked, City Lab, Diane Yentel

The GAP, A Shortage of Affordable Homes March 2018

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August retail sales confirm healthy consumer sector

August retail sales confirm healthy consumer sector

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 August were reported up +0.4%, and July, which was already very good at +0.7%,  was revised upward by another +0.1% as well. Since consumer inflation increased by +0.4% over that two month period, real retail sales have risen +0.7% in the past two months. As a result, YoY real retail sales, which had been faltering earlier this year, are  now up +2.3%.

Here is what the last five years look like:

Others may use other deflators. I use overall CPI because:

 

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The Crushing Burden of Household Debt

If there is one thing that Presidential candidates, pundits, and bloggers agree on, it’s that Americans suffer under a heavy burden of debt. We have passed from alarm over predatory credit card lending, to underwater and deliquent mortgages to student debt, but in any case, we agree that debt is a huge problem. There are those who aim to save us from ruthless bankers and those who scold us for living beyond our means and eating avocado toast (personally I eat my avocados straight which is, I guess to avocado toast as crack is to cocaine) but all agree that the burden of debt has become intolerable.

Few mention that household debt service payments as a fraction of disposable personal income are near an all time low.

I think the reason is that we tend to assume that this is a brief temporary reprieve due to unsustainably low interest rates.

I think that people got used to thinking that interest rates are tiny to zero, because of desperate and temporary efforts by the Fed to fight the great recession. But the Fed shifted to worrying about inflation (as central bankers do) in late 2016. The US is currently believed to be near a business cycle peak and one reason for worry is that spending is depressed by the crushing burden of debt, which will become even less crushing if interest rates fall as they do in recessions.

I think that while economists have begun to ask if extremely low interest rates are the new normal and about what this means for fiscal policy (pdf ) I haven’t read any argument that persistently low interest rates imply that households will be able to manage student debt plus mortgage debt.

I stress I am not advising people with student debt to buy a house anyway, so it’s ok (never ever ever buy a house when I decide it is time to buy a house — I have a perfect record of buying at the peak).

My point is that the twin problems of persistently slack demand (that is high desired saving) and high household debt do tend to cancel out. It almost looks as if we aren’t headed for a macroeconomic catastrophe (in any case before Antarctica melts and we all drown, but that’s another problem).

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