Sales data for new and existing houses delivered better-than-expected news this week, prompting some analysts to predict that the residential real estate market is again poised to come roaring back in the summer and beyond. But a closer look at the numbers suggests that the housing recovery is still sluggish at best. One good month for sales is encouraging, but it doesn’t change what still looks like a slow grind for the broad trend in this corner of the economy.
Continue reading →

Existing-Home Sales Heat Up in May, Inventory Levels Continue to Improve
National Assoc. of Realtors | June 23
Existing-home sales rose strongly in May and inventory gains continued to help moderate price growth, according to the National Association of Realtors. All four regions of the country experienced sales gains compared to a month earlier…. “Home buyers are benefiting from slower price growth due to the much-needed, rising inventory levels seen since the beginning of the year,” said Lawrence Yun, NAR’s chief economist. “Moreover, sales were helped by the improving job market and the temporary but slight decline in mortgage rates.”
Continue reading →

US economic growth remained “above trend” in May, according to this morning’s update of the Chicago Fed National Activity Index, a weighted average of 85 indicators. For the third consecutive month, the three-month average of the index (CFNAI-MA3) posted a reading above zero. This business cycle benchmark decreased modestly to +0.18 from a revised estimate of +0.31 for April, although the decline still leaves CFNAI-MA3 well above the neutral mark. As a result, recession risk remained low as of May.
Continue reading →

US economic growth for this year’s second quarter is widely expected to rebound sharply after a 1.0% decline in Q1. The upbeat estimates for this quarter include the Capital Spectator’s median econometric nowcast, which anticipates that GDP will increase 3.3% during the April-through-June period (real seasonally adjusted annual rate). That’s up from 2.8% in the previous Q2 nowcast. The Capital Spectator’s final estimate for this quarter will be published shortly ahead of the government’s initial Q2 GDP report, which will be published on July 30 by the US Bureau of Economic Analysis (BEA).
Continue reading →

The three-month average of the Chicago Fed National Activity Index (CFNAI) is expected to rise incrementally to +0.20 in tomorrow’s update for May, according to The Capital Spectator’s median econometric forecast. The projection is virtually unchanged from the previously released +0.19 reading for April, which reflected above-average economic growth relative to the historical trend. Only values below -0.70 indicate an “increasing likelihood” that a recession has started, according to guidelines from the Chicago Fed. Based on today’s estimate for May, CFNAI’s three-month average is expected to remain at a level that’s historically associated with growth, and at a moderately above-trend pace.
Continue reading →

● The Consolations of Economics: How We Will All Benefit from the New World Order
By Gerard Lyons
Review via The Telegraph
The Consolations of Economics provides the reasons that the world has become so much smaller over the past 40 years, ranging from President Nixon’s decision to end the last remnants of the gold standard in 1971, by ceasing the convertibility between the dollar and gold, to the Big Bang of the London markets in 1986, and the rise of China as an economic superpower. Lyons also addresses the many crises that the new economy might face in the future, from market instability to growing inequality, to the end of Western economic dominance. However, none of these problems will prove terminal, he tells us, just so long as we follow the golden rule: “In economics, allowing the market mechanism to work is the right way to proceed, as it allows the price to clear, sends the right signals and allows outcomes freed of prejudice.” But how exactly do we ensure a world free of cloudy prejudice?
Continue reading →

Earlier this month I wrote about an econometric tool—Hidden Markov model (HMM)—for identifying the start of bear markets, as early as possible and with a relatively high degree of confidence. The record looks encouraging for the past 50 years with the US stock market (S&P 500), although some readers wondered if this upbeat in-sample analysis would hold up in an out-of-sample context. That’s always a relevant question when forecasting (or nowcasting or even backcasting). Many models look wonderful with historical numbers only to stumble when applied in real time going forward. Is that fate for the HMM process I outlined a few weeks ago? Not necessarily, as a bit of testing suggests.
Continue reading →

It’s a melt-up scenario. Everything’s running higher for the major asset classes. Red ink has been banished from our standard list of ETF proxies via 250-trading-day windows (the rough equivalent of 1-year returns). With volatility generally moving in the opposite direction, it’s the best of times as summer’s set to officially begin on Saturday.
Continue reading →

It seems that macro threats are popping up everywhere these days, but the broad trend for the US economy has yet to show substantial signs of stress overall. The May update of a diversified set of 14 economic and financial data sets continues to track positive with regards to measuring business cycle risk. There are some cracks that deserve monitoring—rising oil prices, weak housing data, and a wobble in consumer sentiment. But the majority of indicators in the aggregate still look encouraging. Near-term projections imply that the upbeat trend will soften a bit in the months to come but otherwise roll on.
Continue reading →

Where’s that spring rebound? No sign of it in today’s update on residential construction activity. Housing starts in the US fell more than expected in May, dropping to an annual rate of 1.001 million units, according the Census Bureau. That’s down from the revised 1.071 million in April. The crowd was looking for something better, with the consensus forecast calling for a kinder, gentler retreat to 1.036 million. There was also disappointing news for newly issued building permits, a leading indicator for residential construction. On a monthly basis the numbers don’t look so bad, but there’s a worrisome trend brewing when we review the data in year-over-year terms.
Continue reading →