Even in the best of times various sectors of the economy can move in different directions.
To be clear:
- I see no warning signs of an impending recession.
- I can produce many charts showing a strong economy.
- Although I am FAR from a fan of consumer sentiment - consumer sentiment remains near historical highs. Recessions do not happen when consumer confidence is high.
But both GDP and new home sales data this week showcased the residential building sector hitting the wall. Growth in spending is very close to nothing year-over-year.
And residential building sales are now contracting year-over-year. But the canary is inventory - number of months supply of homes for sale.
Currently there is 7.4 months of constructed homes for sale based on the current sales rate. Since 1960, there has always been a recession within a year of reaching a 7.4 month's supply of new homes.
We are in the new normal - and there are structural and demographic changes which affect interpretation of all data sets. I have doubts we are within a year of a recession based on most other data sets. If so this time will be different for rising homes for sale inventory as a recession indicator.
Time will reveal the truth.
Economic Releases This Past Week
The following table summarizes the more significant economic releases this past week. For more detailed analysis - please visit our landing page which provides links to our complete analyses.
Other Economic Release Summary For This Week
|Release||Potential Economic Impact||Comment|
|October Chicago Fed National Activity Index||Confirms the U.S. is in a strong expansion cycle||I call this the super coincident index as it weights and quantifies 85 economic indicators. The October outcome shows the economy remains in a strong expansion cycle with little change from the previous month's values.|
|September Case-Shiller Home Prices||Marginal||The non-seasonally adjusted S and P CoreLogic Case-Shiller home price index (20 cities) year-over-year rate of home price growth decelerated from 5.5 % to 5.1 %. The index authors stated "nine cities saw prices decline in September compared to August".|
|November Conference Board Consumer Confidence||Slight|
The latest Conference Board Consumer Confidence Index's headline number is 135.7 (1985=100), down from 137.9 in October. The softening this month could be the beginning of a downtrend - or at a minimum is showing a growing consumer uncertainty. Still, the index level is very close to all time record territory.
|3Q2018 GDP||Signs economy is slowing|
The second estimate of 3Q2018 GDP was unchanged at 3.5%. But consider the build of the 3.5%:
- consumption for goods and services declined adding 2.5 % to GDP.
- trade balance worsened deducting 1.9 % from GDP
- inventory change added 2.3 % to GDP (inventory change is part of domestic investment)
- domestic investment had added 0.3 % to GDP
- federal spending added 0.4 % to GDP
Inventory build is a sign of a slowing economy - and if we ignore this element GDP would only have improved 1.0 %
October New Home Sales
|Signs economy is slowing||The headlines say new home sales again declined and fell deeper into contraction. Median sales prices declined but the average sales price increased - and the backlog of unsold homes grew with over 7 months of supply.|
|October Median Household Income||Signs economy is improving||Median household income for October 2018 was 2.6 percent higher than October 2017, when the median stood at $61,617.|
|October Personal Income and Outlays||Roughly little changed from last month|
Real Disposable Personal Income is up 2.8 % year-over-year (published 2.9 % last month and revised to 2.7 %), and real consumption expenditures is up 2.9 % year-over-year (published 3.0 % last month and revised to 2.8 %). The backward revisions this month were mixed. Overall, the expenditure data is little different than last month. The real issue with personal income and expenditures is that it jumps around - and one cannot take any single month as fixed or gospel.
|October Pending Home Sales||The housing market is slowing|
The National Association of Realtors (NAR) seasonally adjusted pending home sales index remains in contraction year-over-year. Our analysis shows continued worsening of growth. You might be surprised what the NAR said:
... existing-home sales this year [are expected ] to decrease 3.1 percent to 5.34 million, and the national median existing-home price to increase 4.7 percent. Looking ahead to next year, existing sales are forecast to decline 0.4 percent and home prices to drop roughly 2.5 percent...
year-over-year pending home sales
|November FOMC Meeting Minutes||Worried the Econony May Slow|
Participants commented on a number of risks and uncertainties associated with their outlook for economic activity, the labor market, and inflation over the medium term. Some participants viewed economic and financial developments abroad, including the possibility of further appreciation of the U.S. dollar, as posing downside risks for domestic economic growth and inflation. Several participants were concerned that the high level of debt in the nonfinancial business sector, and especially the high level of leveraged loans, made the economy more vulnerable to a sharp pullback in credit availability, which could exacerbate the effects of a negative shock on economic activity. The potential for an escalation in tariffs or trade tensions was also cited as a factor that could slow economic growth more than expected. There were upside risks identified including greater than expect effects of the physical stimulus.
|November Chemical Activity Monitor||Signs economy is slowing|
The barometer posted a 0.3 percent decline in November on a three-month moving average (3MMA) basis. This marks the barometer's first month-over-month drop since February 2016 and adds to the chorus of growing concern of slowing U.S economic expansion. On a year-over-year basis the barometer is up 2.8 percent (3MMA), a marked slowdown in the pace of growth from earlier this year.
|Surveys||Signs economy is slowing||This week there were three manufacturing survey's released - Dallas Fed, Richmond Fed and the Chicago Purchasing Managers Indices. Pretty much the surveys show a slowing rate of YoY growth.|
|Weekly Rail Counts||Signs economy is slowing||The rolling averages and the year-over-year growth continues to slow - and now the intuitive sectors are in contraction YoY. There is a correlation between rail growth and economic growth - and rail is saying the economy will slow.|
This week the economically negative news seems to outweigh the positive developments.
Our Economic Forecast for December:
The Econintersect Economic Index for December 2018 continues to show this economic growth cycle continues and remains well into territory associated with normal expansions. With the mixed economic picture and stock market turmoil one mnight expect our forecast to significantly degrade. But the Econintersect Economic Index (EEI) only insignificantly declined this month and remains well into territory associated with normal expansions. Over the last 3 months the index's growth rate is almost unchanged. Still we are seeing mixed trend lines - which usually happens when there is an overall reversal in trends. Our major worry is the rapid deceleration of growth in rail transport data - a usual flag for a slowing economy. Additionally the building sector is in contraction, but "this time" the reason is affordability - and this sector needs help from other sectors to bring the economy into a recession.