Weekly Indicators for January 20 - 24 at Seeking Alpha

 

 - by New Deal democrat

My “Weekly Indicators” post is up at Seeking Alpha.

Seasonality continues to be an important issue in dealing with high frequency indicators - this time because the observance of MLK Day was moved into the following week compared with last year. That’s one of the trade offs you have to make to get data very quickly.

Nevertheless, while the long leading indicators continue to be problematic, the short term and coincident indicators most emphatically are not.

As usual, clicking over and reading will bring you up to the virtual moment, and reward me with a little pocket change for my efforts.

Sales, prices, and inventory in existing home market all up YoY in December

 

 - by New Deal democrat



There was some tepid good news as to existing home sales in December, which have been flat in the general range of 3.85 -4.10 million annualized for almost two years. Three months ago they made a 10+ year record low of 3.83 million. They have increased in each month since, and in December they rose to 424.4 million annualized, a 9 month high:

This is likely secondary to the relatively low mortgage rates we saw several months ago in September.

The bad news is that the moderation in the YoY% change in prices from the earlier this year has reversed in the past several month, and in December was up 6.0% (below graph shows non-seasonally adjusted data):

On a YoY basis, in response to the longer term decline in inventory, existing home prices have risen consistently since 2014, and accelerated during the COVID shutdowns. After briefly turning negative YoY in early 2023, troughing at -3.0% in May, comparisons accelerated almost relentlessly to a YoY peak of 5.8% in May of this year. Thereafter the YoY% comparisons declined to 2.9% in September, but here the comparisons since:

October 4.0%

November 4.7%

December 6.0%

Finally, while inventory declined seasonally in December (along with January, typically the lowest level of the year) to 1.15 million, it is the highest inventory for that month since 2019 (note: December data is not shown):

This contrasts with the low of 880,000 in December 2021, vs. the best December level in the past 10 years of 1.86 million in 2014.

In summary, on a non-seasonally adjusted basis sales, prices, and inventory were all up from one year ago. This tells us that the market is continuing to slowly recover from the pandemic collapse, but the re-acceleration of YoY price growth indicates that the now-chronic overall shortage of supply in the housing market continues.

Jobless claims: seasonality and neutrality continue

 

 - by New Deal democrat

The week’s first meaningful data is jobless claims. These have been trending higher YoY, but with lots of seasonal noise. And that trend continued this week.

Initial claims increased 6,000 to 223,000. The four week moving average (especially more important right now to filter out seasonal noise) increased 750 to 213,500. With the typical one week lag, continuing claims increased 46,000 to 1.899 million:

Th unresolved seasonality in the adjustments for the past couple of years really stands out right now, as we see claims rising from year end lows towards summer peaks, and then back to year end lows in both of the last two years.

Also because of seasonality (in this case having to do with the week in which MLK day is observed), YoY comparisons have added importance, in addition to their being the basis for forecasting. So measured, initial claims were up 0.9%, the four week average up 5.3%, and continuing claims up 3.8%:

This continued the nearly 5 month string of higher YoY comparisons. But since we don’t even get to yellow flag territory until the comparisons hit 10%, these continue to qualify as neutral readings, consistent with a tepid but growing economy.

Finally, let’s take a look at what this might mean for the unemployment rate when January’s jobs report comes out:

Note that I’ve changed this format slightly this week, by including the total of initial + continuing claims in gold, since the unemployment rolls include people looking for work on both new and continuing basis. Also the unemployment rate data is rendered as the % change in a %. Since in the months around one year ago the unemployment rate averaged 3.8%, this suggests that it ought to be tending towards a 5% increase in that, i.e., 2.8 * 1.05 = 4.0% approximately. In December the unemployment rate was 4.1%, so this suggests it should tend slightly lower, leaving aside any continuing upward pressure from new immigrants seeking employment.

The new Administration and the return to an Inflationary Era

 

 - by New Deal democrat

I don’t normally discuss movements in the stock and bond markets, but occasionally there are important paradigm shifts that can tell us a lot about the economy, and the last few months have been one of those times.

The Federal Reserve began to cut interest rates on September 18th. What is instructive is what has happened with bond yields, and the comparative moves in stock prices, since.

The 10 year Treasury bond (dark blue) made a low of 3.63% on September 16. In the below graph, I norm that value to 0, and similarly norm yields on 2 year (light blue), 1 year (gray), 6 month (gold), and 3 month (red) Treasurys, so that their trends before and after that inflection point are apparent:

Interest rates were generally trending down across the spectrum in the five months before September, as signs of economic weakness, particularly in several summer jobs reports, worried investors that the Fed had kept rates high for too long, and needed to start cutting them to boost the economy. 

But what is interesting is what happened since. While the very short maturities followed the Fed rate cuts lower, from the 1 year maturity out, bond yields *rose.* This tells us that in the aggregate, bond investors believed that either the Fed’s rate cutting regimen would be short lived, and/or that inflation would increase. This is referred to in bond trader circles as a “bearish steepening.” In other words, the bond yield curve un-inverted, but did so mainly because longer term rates rose - meaning that things like mortgage rates would also increase.

Which brings us to the stock market. Below I compare yields on the 10 year Treasury to stock prices as measured by the S&P Index for the past five years:

Sometimes the two move in tandem, and sometimes they move in opposite directions. In the immediate post-pandemic aftermath, yields and prices rose together, consistent with an expanding economy. In 2022, as most investors and analysts became nervous that a recession was near (triggered in no small measure by the inversion of the bond yield curve), prices fell even as yields increased in response to Fed rate hikes. In 2023 and earlier in 2024, as fears abated and the “soft landing” scenario took hold, once again prices and yields moved in the same direction.

Now let me focus on the past ten months:

Except for the brief period between the first rate cut and the Election, where both metrics moved in sync along with economic optimism, prices and yields have moved in opposite directions again. In the period between April and September, that was because there was increasing worry that a “hard” landing was in store. 

But the second period began within two days after the Presidential Election in November. At first stock prices rose on economic optimism, while bond yields fell. But stock prices peaked almost immediately, with even the December highs only being only 1.5% above their level on November 11. And bond prices have moved almost relentlessly higher, including to new 12 month highs this month. This is much less likely about future Fed behavior than about inflationary policies likely to be in store from the new Administration.

Long term trends back up this inflationary concern. Bond yields tend to move in very long cycles, equivalent to more or less one human lifespan (or “saeculum”), suggesting the old adage that as lived history is forgotten, old dangers are renewed.

Here is the history of long term bond yields from 1920 to 1980:

After slowly declining from 1920 to 1940, beginning in the 1950s bond yields increased for 30 years, as inflation slowly, and then more quickly, took root.

Now here is the same graph since 1981:

Bond yields declined for a long period, coinciding with disinflation and then even concerns about outright deflation. That period appears to have abruptly ended with the pandemic. 

All the signs are that we have begun a new inflationary era in which bond yields are likely to continue to generally rise. And all the signs are that the policies of the new Administration are going to contribute to that.

The economic reasons why the Democrats lost in 2024

 

 - by New Deal democrat

There is no significant economic news until Thursday. In the meantime, today and tomorrow let me discuss a couple of issues at the intersection of economics and politics.

The 2024 Presidential election was one of the closest popular vote margin for the winning candidate, at 1.5%, since Richard Nixon’s 0.7% margin in 1968. (Note: I’m leaving aside 2000 and 2016, where the winning candidate actually lost the popular vote). In such a case, the reasons one can assign for the victory of one candidate over another are myriad. My analysis below is of the economic issues. That is by no means saying that issues in other dimensions, such as the situation in the Gaza Strip, or racism or sexism did not play a role, or misinformation and disinformation flooding the zone via various tradition and social media controlled by right wing billionaires.

First, I have read a number of analyses lamenting the rightward shift in the vote by people under 30, and in particular men under 30. For the past year, when I have weighed in on the topic, I have insistently harped on the issue of housing costs.

Young people in their 20s move out of their childhood homes, rent apartments, and usually are saving for or buying their first home. And at no time in the past 40 years was the situation facing such young renters and buyers more unfavorable.

Since the beginning of 2021, house prices rose 37.5% according to the FHFA. Meanwhile mortgage rates rose from 3% to 7%. Here is what those prices and mortgage payments look like graphically:

Not only did potential buyers have to come up with a 35% bigger down payment, but their monthly mortgage payment on average rose from about $1000 to $2300.

As a result, the index of Housing Affordability fell to lows it had not seen since the early 1980s:

Needless to say, these prices rose much more than median family income:

Renters did not escape unscathed either. Measured from January 2021, average rents increased about 3% more than wages:

Had I measured from the expiration of COVID rent increase moratoriums, the shortfall would be more than 6%.

Given the sharp deterioration in their housing prospects, is it any wonder that more young people might have turned away from the party in power?

Secondly and more broadly, a trope on progressive sites has been that in addition to an excellent job market, wages did in fact go up faster than inflation. But that’s not nearly as dispositive as those writers thought it was. 

To begin with, I suspect there was an important behavioral econ aspect to why so many people felt that the economy was doing poorly during Biden’s term.  I don’t have graphs, but consider the following two scenarios:

1. Over 4 years, prices rise 8% (2% per year), while wages rise 10%

2. Over 4 years, prices rise 28% (7% per year), while wages rise 30%.

In both cases real wages have risen 2%.

I have little doubt that a majority of people would feel that their well being is much worse under scenario #2 than scenario #1.  Because in scenario #1, their perception would probably be that their wages increased, while prices remained basically stable. But in scenario #2 their perception would be that inflation was very bad, and their wages barely kept up.

But even that doesn’t completely explain the poor feeling many people had about their economic situation. Because wage increases aren’t uniform. Obviously some people make out better than average, and others worse than average.

A good way to show that is via the Atlanta Fed’s wage tracker, which contrasts wage increases obtained by job stayers vs. job switchers. Here’s what that looks like over the past 25 years:

The divergence between the wages earned by job switchers vs. stayers was at its all time high in 2022-23. Job stayers made out much better that inflation in real terms, while job stayers did not keep up. Cumulatively through December 2024, during Biden’s term the wages of job stayers rose on average 20.2%, while CPI rose 21.0%. And remember, many of those job stayers made out worse than that average.

Another way to look at this is to compare real average wages vs. the employment cost index for wages. The big difference between the two is that the latter norms for the type of job. In other words, if there was a switch from being employed in food and drink services to construction during the time period, that change in job mix would show up in average wages. But the employment cost index would compare food and drink servers at the beginning and end of the peiod, and contruction workers at the beginning and end of the period.

Here’s what those two measures look like for Biden’s term:

Real average nonsupervisory wages were up close to 1% at the end of last year vs. the beginning of 2021, while wages normed by the type of industry were *down* by almost 2%. And job stayers are all in that second category.

To reiterate, I am not saying that economics was the sole, or necessarily even the primary reason why the Democrats lost the Presidential election. But there were solid economic reasons why a substantial share of potential voters might decide to vote against the incumbent party.

Joe Biden: the last Institutionalist president

 

 - by New Deal democrat

Over 5 years ago, I took a look at the 500 year history of the Roman Republic. In my penultimate discussion of its downfall, I wrote:

“By 78 BC the Republic was dead on its feet. Virtually all of its norms of office-holding had been swept away. Political mobs using violence to get their way had become chronic. Even worse from a long-term point of view, prominent politicians of wealth were raising private armies that they themselves paid, and whose loyalty was to them rather than to the Republic, culminating in 3 separate military marches on Rome in short-lived dictatorships.”

The title of this post is not because there will not be future Institutionalist politicians, but because by four years from now I believe those Institutions will similarly be “dead on their feet,” understood to be hollowed out forms that have proven themselves unable to withstand raw power grabs. While Biden had a number of impressive policy triumphs, I believe it is his ultimate complacency about American “norms” that will be his legacy.

Last week Qasim Rashid wrote:

“Here’s a harsh truth. [Biden] ran in 2020 on the promises to ‘save the soul of America’ and to ‘protect American democracy. …. Now as he leaves office, white supremacy and Christian nationalism ar the official policies of a fascist returning to the White House with full control of the House, Senate, and SCOTUS. The harsh truth is Biden failed his promises.”

Let’s leave aside the outline of Trump’s policies, and any assignment of fault to Joe Biden. The simple *fact* is that the ultimate *outcome* of Biden’s Presidency has been that the American “soul” has not been saved, and “American democracy” has not been protected.

At the beginning of his term in office, Joe Biden had a choice: he could either emphasize playing hardball going after the myriad transgressions of Donald Trump and his allies during his Presidency, or he could emphasize restoring the prior norms and “guardrails” that historically allowed the American Republic to function. He chose the latter. 

That choice was epitomized by the choice of Merrick Garland as Attorney General. In his farewell speech last week, Garland said “It is the obligation of each of us to follow our norms, not only when it is easy, but also when it is hard, especially when it is hard …. and especially when the circumstances we face are not normal.” Voting rights attorney Marc Elias said of that speech, “From start to finish, he brought norms to a Trump fight and democracy suffered.”

The next four years are likely to demolish what is left of the “guardrails” upholding the Republic. The next liberal President, presuming there is one, will almost certainly not make that same choice.

As I wrote above, Biden had a number of impressive policy achievements, including the emergency stimulus in 2021 and the Inflation Reduction Act that has been responsible for so much infrastructure spending. Among other things, antitrust law was re-invigorated, skyrocketing prescription costs were brought to heel, “junk fees” were outlawed, labor rights were expanded, renewable energy sources were promoted, marijuana regulations were loosened, many steps were taken to ease student debt, and industrial re-shoring was robustly undertaken. Child poverty was temporarily cut in half during the life of the 2021 economic stimulus. And he ended the war in Afghanistan. And all of this was done with razor thin House and Senate majorities.

But if he may have accomplished more socially progressive goals than any other President in the past 50 years, including Barack Obama, how many Americans - and more specifically how many voters - knew of those accomplishments in November 2024?

Eight years ago, assaying his Presidency, I wrote that Barack Obama was “a noble failure,” because even though he had several important domestic policy achievements - domestically the 2009 emergency stimulus package, the ACA, and his “evolution” on gay marriage, and in foreign policy the agreement with Iran to stop working towards a nuclear bomb, and generally improving the attitude of our allies towards the US - he had failed to sell those accomplishments to the American public, and there was every indication that Trump intended to dismantle them all. Successful Presidents, I argued, did not suffer immediate reversals of all their policy achievements, especially when much of that reversal was their failure to make their own case.

As I read that piece, I realized that much the same critique could be made of Joe Biden’s Presidency. Because just as with Barack Obama, Joe Biden failed to sell his accomplishments to the American public.

Emblematic of that failure is the contrast between Trump’s COVID stimulus payments in 2020 and Biden’s in 2021. The former arrived as a check signed by Trump; the latter were digitally deposited with no hint of who had authorized them in bank or investment accounts. 

Last week in his last interview, Biden told Lawrence O’Donnell that a key regret from his presidency was not taking enough credit for his Administration’s accomplishments, saying:

“ “The mistake we made was — I think I made — was not getting our allies to acknowledge that the Democrats did this. So, for example, building a new billion-dollar bridge over the river, we’ll call it the ‘Democratic Bridge,’ figuratively speaking,” Biden said in an interview that aired Thursday with MSNBC’s Lawrence O’Donnell, his final TV sit-down before he leaves office. “Talk about who put it together. Let people know that this was something the Democrats did, that it was done by the party. That’s different than me writing a check and me signing a check and saying I did it.”

“I’m not a very good huckster. I mean, and that – it wasn’t a stupid thing for him to do. It helped him a lot. And it undermined our ability to convince people that we were the ones that were getting this to them,” Biden said. “And so – but I don’t think – ironically, I almost spent too much time on the policy and not enough time on the politics, because, I mean, you have some senators in Congress, Democratic senators in Congress saying, ‘Well, you know, Joe Biden did this, and this is done by so and so and so and so, and this is a – the “new built by the Democratic Party” kind of thing.’”

Biden seemed to think that touting his own accomplishments was unseemly. Like Obama, he seemed to think that his accomplishments would sell themselves. And like with Obama, they did not.

In summary, Biden deserves sterling praise for all of his accomplishments, but his fundamental complacency about norms - whether it was making sure people knew about those accomplishments, or making sure that the leaders of the attempted coup of January 6, 2021 were quickly, vigorously, and resolutely brought to justice - has proven decisive. After four full years there has been an utter failure for justice to be finally rendered for that event. Either the Institutionalists failed to move with sufficient vigor, or else the Institutions themselves - most especially, the Institution of the court system generally and of the Supreme Court itself - were not able to rise up to the task. There is no third choice.

The American Project - fundamentally, the Republic that was established in 1789 - was about the Rule of Law, with checks and balances so that there was no King, and citizens could rely upon the rules being applicable to all and enforced equally. As of January 20, 2025, that Republic is also dead on its feet. There will be no return to the previous norms which allowed it to operate. I am sure there will be elections in 2026 and again in 2028, but whether those - or any others for the foreseeable future - will be in any way conducted in obedience to pre-existing rules agreed upon by all parties is an the results of those elections accepted broadly, is doubtful to say the least. The historical Institutions that Joe Biden sought to uphold have been fatally wounded. And for that reason Joe Biden was the last Institutionalist President.

Addendum: In case it isn’t clear from the above, I fully expect all of the forms of the Institutions to continue to exist in 2028 and beyond. Indeed the Roman Senate continued to exist and meet not just during the Empire, but even for a short while after the last Western Emperor was captured and exiled. But just as Julius Caesar said of the Roman Republic - “The Republic is nothing, a mere name without body or form.” - I expect most people will recognize that the forms are on the order of those we have in the past typically derided as banana republics.