In addition to housing, manufacturing is range-bound as well

 

 - by New Deal democrat

First off, let me reiterate that my focus this year is on manufacturing and construction. That’s because these are the two sectors the waxing and waning of which have almost always determined if the US economy is growing or not. By contrast, for the past half century or more the production and consumption of services has tended to increase even right through most recessions.

With that framework in mind, yesterday I wrote about how, following interest rates, housing is range-bound.

This morning durable goods orders for March were reported, which gives me a good opportunity to update the state of the maufacturing sector.

Total durable goods orders rose 2.6% month over month. Core capital goods orders rose 6.0%. These series are very volatile. Thus the big increase in orders was only the third largest in the past 9 months, during which there have also been three months where orders declined -4% or more.

Stepping back and taking a longer term look shows that core capital goods orders (black in the graph below) have been generally flat for the past two years, while total orders (blue) may have risen and then fallen a little. This is similar to the trajectory of manufacturing production (red) which peaked in late 2022, but has only declined about -1% since then:

The YoY look at the same data shows just how “unchanged” the trend has been:

When we compare with the 25+ years before the pandemic, we see a number of instances - 1998, 2012, 2015-16, and 2019 - where both new orders and production declined significantly into negative territory YoY without a recession occurring:

The sideways trend is also apparent in manufacturing employment (blue in the graph below), which has stayed in a 0.2% range for the past 18 months. Average weekly hours (red) has declined -1 hour or more, which before the China shock of 2000 and since had always meant a recession. But hours above 40.5 per week are mainly about overtime; thus since then the decline must go below 40.5 hours to be signficant:

Finally, turning from the production to consumption side, real personal consumption on goods, which was similarly rangebound from 2021 through the first half of 2023, has been on an increasing trend since:

While having both housing and manufacturing in a rangebound, mainly flat trend isn’t good, it isn’t recessionary either, as services provision and spending continue to perform very well.

The range-bound new home sales market continues

 

 - by New Deal democrat

As per my usual caveat, while new home sales are the most leading of the housing construction metrics, they are noisy and heavily revised. 

That was true again this month, as sales (blue in the graph below) increased almost 9% m/m to 693,000 annualized, after February was revised downward by -25,000 to 637,000. As the five year graph below shows, after the initial Boom powered by 3% mortgage rates, sales declined almost 50% in 2022, but have stabilized in the 650,000 +/-50,000 range for the past 16 months. For comparison I also include the much less noisy, but slightly less leading single family housing permits (red), which as anticipated appear to have started to follow sales down from their peak:

Here is a re-run of the graph I posted last week, showing the differing trajectories of new vs. existing home sales, showing that existing home prices remained elevated longer, and have taken longer to decline, by 40% vs. 50%:

Because mortgage rates have risen somewhat in the past few months (from 6.67% to 7.10%, I expect this range in new home sales to continue, with a slight downward bias in the immediate months ahead.

Also unlike existing home sales, where inventory is being constrained by would-be sellers trapped in 3% mortgages and thus prices remain near all-time highs, the median price of new homes declined as much as -16% from peak at their lows last year, and are still down -13.3%:

But, like sales, on a YoY basis prices have stabilized, and are only down -1.9%.

As I almost always point out, sales lead prices. Thus as shown above the range-bound sales for the last 16 months are leading to more stable prices.

The bottom line is that I expect this range-bound behavior in sales and prices, as well as the bifurcation between the new and existing home markets to continue until such time as the Fed moves significantly on interest rates.

Real median wage and income growth through March continued the recent increasing trend

 

 - by New Deal democrat

This is an update of some information I last posted several months ago.

Real median household income is one of the best measures of average Americans’ well-being, but the official measure is only reported once a year, in September of the following year.

So right now the most recent official measure is for calendar year 2022 (when you might remember gas prices surged to $5/gallon). In other words, it’s hopelessly out of date.

There are several ways of approximating real median household income on a more timely basis available in the public data. 

For this purpose, wages are a very imperfect proxy, because income includes things like stimulus payments or debt relief during the pandemic, and also because - especially during the pandemic - layoffs were concentrated among low wage workers, thus distorting the averages higher.

The best proxies make use of personal income. We can also get information from total payrolls. The below graph shows both real personal income (blue) and real aggregate payrolls (red), both divided by population. Here’s the data starting before the pandemic:

And here is the close-up after the end of pandemic related stimulus payments:

The big difference between the two is that real payrolls only include wages and salaries, while real incomes includes all sources of income, including stimulus payments and things like social security. Thus real per capita payrolls declined sharply during the fist months of the pandemic, and did not recover until late 2022, while incomes soared due to the pandemic related programs. Further, real payrolls stalled during 2022, while real incomes per capita actually declined.

Since late 2022, both measures have consistently increased. 

Additionally, a few private services have been able to use monthly data from the survey that gives rise to the jobs report to create a far more timely and illuminating monthly update. The best of these that I know of is Motio Research.

Here’s their most recent update, through March:

 

Like personal income, household income really spiked with the pandemic relief programs in 2020. It then went nowhere for almost three years, stuck at the same level it had been in 2019. Again, like personal income, that’s because of the spike in inflation, and the fact that jobs and real payrolls didn’t return to their pre-pandemic levels until 2022 and 2023 respectively.

The one remaining puzzle is why real *median* household income declined again into mid-2023, vs. *average* personal income, which increased.  One explanation might be the expiration of pandemic stimulus and relief programs, although I would expect that to show up in the broader income measure.

Some light can be shed by looking at *median* wage growth, as documented by the Fed:

Note that, compared with inflation, median (rather than average) wages continued to decline until early 2023. 

Another important explanation is likely that income growth has been concentrated among the the lowest quintile of households. In connection with the latest annual update, US News and World Report wrote:

 

While overall household wealth in America fell from the end of 2021 through the first three quarters of 2022, the bottom 20% of households by income saw their wealth grow.

“In total, household wealth for the lowest-income quintile rose by nearly 10% while wealth in all other income quintiles fell, according to figures from the Federal Reserve and nonpartisan data center USAFacts.

Here is the accompanying graph:

This very much helps explain why Biden’s approval ratings have been so poor throughout 2022 and 2023.

But, to return to the Motio Research graph, note that since last June, the trend has been rising again, and in March real median household income reached its highest level ever except for the 2020 stimulus months. What this means is that, if real household income growth had been concentrated among the lowest quintile through 2022, by mid-2023 it had spread upward to include the median group as well, and with some fits and starts this growth has continued.

Which is good news for the average American household.

Weekly Indicators for April 15 - 19 at Seeking Alpha

 

 - by New Deal democrat

I neglected to pt this up yesterday, so here it is now. My “Weekly Indicators” post is up at Seeking Alpha.

There continues to be a fair amount of churn and noise in the short leading and coincident time range. Nevertheless, the underlying theme is one of positivity. Aside from the swoon in the stock market this past week, the other big move was in industrial commodities, which spike higher late in the week. This is the first time they have been positive YoY in well over a year.

Typically that is because of higher demand straining against current supply, which means an expanding economy (with inflationary pressure building up).

As usual, clicking over and reading will bring you up to the virtual moment on all of these trends, and reward me with a little pocket change for organizing the data and bringing it to you.

The bifurcation of the new vs. existing home markets continues

 

 - by New Deal democrat

The bifurcation of the new vs. existing home markets continued in March, per the report on existing home sales and prices yesterday. Remember that, unlike existing homeowners, house builders can vary square footage, amenities, lot sizes, and offer price and/or mortgage incentives to counteract the effect of interest rate hikes.

On a seasonally adjusted basis, existing home sales declined from 438,000 to 419,000 in March. But this is well within the seasonally adjusted range of the past 16 months (gray, right scale in the graph below){also, note I am using Trading Economics graphs due to restrictions put on FRED by the Realtors; also note difference in scales):

At their worst seasonally adjusted levels last year, existing home sales were down over 40% from their 2021 peak. Meanwhile new home sales (blue, left scale), at their low in July 2022 down almost 50% from their 2021 peak, responded to mortgage rates by rebounding during much of last year before fading again in the past few months. They are presently down 35% from peak.

Some of the difference in trajectories between new and existing home sales can be explained by prices. Because so many homeowners have been frozen in place by their existing 3% mortgages, the inventory of existing homes for sale remains low, and that has driven prices higher almost consistently since the onset of the pandemic:

Although I can’t show you a graph, similar to the trajectory of the FHFA and Case Shiller repeat sales indexes, the median price for existing homes briefly turned negative in early 2023, troughing at -3.0% YoY in May. Thereafter YoY comparisons increased to a peak of higher by 5.7% in February. In March median prices were higher by 4.8%, which may or may not just be a pause.

Meanwhile the median price for new houses was down by -7.6% YoY in February. The below graph shows actual median prices for the last 5 years of new homes vs. the last 12 months (all that Realtor.com allows FRED to publish) of existing homes:

Median existing home prices are currently about 40% higher than their immediate pre-pandemic level, while new home prices are about 30% higher. 

Ultimately both the new and existing home markets are driven by mortgage rates. With a diminished supply of existing homes (because of prospective sellers being frozen in place by their current mortgage rates), their relative scarcity has driven prices comparatively higher than for new homes, especially as builders have moved aggressively to bring the purchase price of new homes down. This bifurcation will continue until the Fed moves significantly on rates.