Saturday, November 28, 2015

Weekly Indicators for November 23 - 27 at

 - by New Deal democrat

My Weekly Indicator column is up at .  The intensified deflationary pulse that we have seen in the last several months continues.

Friday, November 27, 2015

Corporate profits (through Q3 2015) as leading indicator for quarterly stock prices

 - by New Deal democrat

I have an update up at, comparing corporate profits through Q3 with stock prices.

Wednesday, November 25, 2015

Updating two mid-cycle consumer spending patterns

 - by New Deal democrat

Three years agoI identified a consistent pattern whereby retail sales grew faster than the broader category of personal consumption expenditures early in an expansion, but slower later in an expansion.  Retail sales constitute about 50% of PCE's.  Note, however, that real retail sales are much more volatile. And, as this graph below (subtracting YoY PCE growth from YoY real retail sales growth through 1997) shows, in a very specific and non-random way:

Retail sales minus PCE's are always negative before the economy ever tips into recession. That's 11 of 11 times. Further, in 10 of those 11 times (1957 being the noteworthy exception), the number was not just negative, but was continuing to decline for a significant period before we tipped into recession.

So what does it look like now?  Here is the updated graph of the YoY% change in real personal consumption expenditures (blue) vs. real retail sales (red):

This strongly suggests we are in the late stages of the economic expansion.  Both are decelerating YoY, retail sales more than personal consumption expenditurres.

Secondly, the YoY% growth in personal consumptioin expnditures on durable goods tends decelerate before spending on non-durable goods.  Here is the graph of that relationship through the 1980s:

and here it is through the present:

This also suggests that we are getting later in the cycle, but interestngly, durable goods are holding up much better than nondurable goods.  

At the same time, none of these have turned negative -- just less positive.  There is no imminent threat of a downturn.

Tuesday, November 24, 2015

Revised Q3 GDP: there's good news, and there's bad news

 - by New Deal democrat

I have a new post up at discussing this morning's revisions to Q3 GDP.

While the revision was positive, the news regarding long leading indicators was significantly mixed.

Monday, November 23, 2015

One long term indicator changes to Yellow

 - by New Deal democrat 

One long leading indicator has turned from green (positive) to yellow (caution): mortgage rates.

Since middle class wages peaked in the 1970s, the ability to refinance debt at lower interest rates has been an important coping mechanism.  Particularly since the 1980s, whenever 
  •  real wages have stagnated,
  •  the effects of refinancing debt have dwindled, and
  •  the ability to cash in an appreciated asset has stalled,
the middle class has retrenched by curtailing its debt load, thereby bringing about a recession.
(You can read a post from me on this, dating from the blogosphere's primitive era, here.)

As the below graph shows, each of the last 3 recessions has occurred after a period of 3 years (red) where mortgage rates have failed to make a new low:

The failure of mortgage rates to make a new low is not the *signal* for a recession.  Rather, it has been a necessary predicate.

As the below graph of mortgage rates and refinancing applications from Mortgage News Daily shows, we just passed the 3 year marker since rates made a new low during the week of November 19, 2012:

As a result, refinancing applications are stuck near their lows.  The boost to consumer spending from the last bout of refinancing has run its course.

In the 1980s and 1990s, the great long term bull market in stocks gave rise to the ability to cash in that asset.  But stocks have failed to make a new high in 6 months and have been basically flat all year:

In the 2000s, of course, it was home equity that was cashed out.  The below graph of the Case Shiller index shows that, in an apples to apples comparison of pair counts, house prices have gained little this year, and are well below their 2006 highs:

Fortunately, largely due to the collapse in gas prices, real wages have made new highs several times this year:

On a YoY basis, gas prices have continued to decline.  And we are now finally at the point in the labor market recovery where some upward pressure on wages should start to materialize.

Through the 3rd quarter, there is no sign of household debt retrenchment:

So there is no sign of any imminent downturn.  And so long as real wages continue to improve, the economic expansion should continue.

But the fundamentals underlying improvement to the lot of the middle class have moved into the yellow, "caution" zone.