The Conference Board’s Composite Index of Leading Economic Indicators fell 0.2% during August (+1.1% y/y) following a 0.5% July gain, revised from 0.4%. It was the first decline in three months. Expectations had been for no change in the Action Economics Forecast Survey. The three-month change in the index held steady at 2.3% (AR), but was below its peak growth of 7.1% roughly one year ago.
Contributing negatively to the index last month were a shorter factory sector workweek, more initial claims for jobless insurance, a lower ISM new orders index, fewer nondefense capital goods orders and fewer building permits. These declines were offset by positive readings from a gain in stock prices, a steeper interest rate yield curve and the leading credit index.
Doug Short has the best charts on this:
(…) the LEI has historically dropped below its six-month moving average anywhere between 2 to 15 months before a recession. The latest reading of this smoothed rate-of-change suggests no near-term recession risk.
Here is a twelve month smoothed out version, which further eliminates the whipsaws:
The National Activity Index from the Federal Reserve Bank of Chicago declined to -0.55 during August from 0.24 in July, revised from 0.27. It was the weakest reading in three months. The three-month moving average was little changed at -0.07. During the last ten years, there has been a 75% correlation between the Chicago Fed Index and the q/q change in real GDP.
Weaker readings in the component series were widespread. The Production & Income reading fell sharply to -0.33, its lowest level since March. The Employment, Unemployment & Hours figure declined to -0.09, the weakest level in three months. The Sales, Orders & Inventories figure eased to -0.05, in negative territory where it’s been for most of the past year. The Personal Consumption & Housing reading fell to -0.08, also the weakest figure in three months. The Fed reported that 19 of the component series made positive contributions to the total while 66 made negative contributions. (Chart from Haver Analytics)
Existing-Home Sales Fall for Second Straight Month Americans reduced home buying for the second straight month in August, suggesting the housing market might be stumbling due to a run-up in prices, an inventory shortage and persistent doubts about the economy’s strength.
Sales of previously owned homes fell 0.9% from a month earlier to an annual rate of 5.33 million, the National Association of Realtors said Thursday. (…)
The median price of an existing home—the point at which half of all homes were priced above and half priced below—stood at $240,200 in August, up 5.1% from a year earlier.
Higher prices have been driven in part by dwindling inventory. The number of homes on the market has declined 10.1% over the past year. Regionally, sales rose in only the Northeast last month from July, while declining in the South, West and Midwest.
Curiously, even though real estate is more local than national, the YoY trend is similar across the country as this Haver Analytics table shows:
Many economists, including the NAR’s Lawrence Yun, say that the lack of available inventory is the main cause and that higher housing starts would help, housing starts data don’t go along that thesis. In effect, starts are up 24.8% YoY in the Northeast, 17.1% in the Midwest and 15.7% in the West. Only the South has seen a drop in starts this year.
Looking at longer term charts, I tend to think that the housing market is simply near its “normal” cyclical peak, considering that the 2003-07 peak was a bubble aberration.
And as much as realtors complain about the lack of inventory (same as listings for them), the reality is that we are simply back to normality after the “good old bubble days”. (Charts from CalculatedRisk)
What is below normal is housing starts which continue to suffer from demographics and financial considerations:
Bespoke Investment shows that the bears are back:
QE has created a tremendous gap between asset price inflation and the “real economy” inflation. (Via The Daily Shot)