A slew of economic reports on Thursday plus a residential construction disaster on Friday caused a huge decline in the GDPNow estimate. Details below.
Two-Day Summation
- The base GDP nowcast fell from 2.9 percent on Wednesday to 2.4 percent on Thursday based on a slew of economic reports and then to 2.0 percent on Friday based on the residential construction report.
- The Real Final Sales (net) was not impacted by the Wednesday reports but took a 0.4 percentage point hit from the construction report.
Chart Details
Three Thursday Components
- Retail Sales (Green): Retail Sales Surge In July from Smaller Negative Revision
- Import Export Prices (Yellow): I did not do a report but import prices rose only 0.1 percent while export prices rose 0.7 percent
- Industrial Production (red): Industrial Production Declines 0.6 Percent on Top of Big Negative Revisions
Thursday morning, I did a Tweet saying “expect a surge in GDPNow forecast.” But I had not looked at Industrial production.
The above chart shows PCE Goods (green) rose 0.22 percentage points and import-export prices (yellow) added 0.05 percentage points. I expected a bit more from the
Also on Thursday, PCE services (red) declined 0.21 basis points due to industrial production. All of that netted to zero in terms of Real Final Sales.
In addition, the Change in Private Inventories (CIPI) estimate went from +0.17 to -0.28 PP, a net of -0.45 which took the headline forecast from 2.9 percent to 2.4 percent without impacting real final sales.
Understanding the Inventory Adjustment
I explained the CIPI adjustment on Thursday in Retail Sales Surge but GDPNow Forecast Declined, What Happened?
The economic reports on Thursday were strong except for industrial production. GDPNow creator, Pat Higgins, explains the decline.
There is a bit more discussion in my article but here is the key point from Pat Higgins.
It looks like the majority of the decline was due to the model’s forecast for motor vehicle and parts dealer inventories falling. The industrial production variable for motor vehicle assemblies is one of the variables used within the model to make that forecast, and those assemblies fell a little more an 12 percent from June to July according to the IP report.
Residential Construction
On Friday, I commented Housing Disaster: Single-Family Starts Crash 14.1 Percent in July
Residential Construction Key Points
- Privately-owned housing starts in July were at a seasonally adjusted annual rate of 1,238,000. This is 6.8 percent (±10.3 percent) below the revised June estimate of 1,329,000 and is 16.0 percent (±10.5 percent) below the July 2023 rate of 1,473,000.
- Single-family housing starts in July were at a rate of 851,000; this is 14.1 percent (±8.3 percent) below the revised June figure of 991,000.
- Privately-owned housing completions in July were at a seasonally adjusted annual rate of 1,529,000. This is 9.8 percent (±8.4 percent) below the revised June estimate of 1,696,000, but is 13.8 percent (±13.9 percent) above the July 2023 rate of 1,343,000.
I suspect the big hit to GDPNow was due to the drop in completions as opposed to starts but I have not confirmed that.
If so, the decline in starts will impact future completions.
Pieces That Don’t Seem to Fit
- Motor vehicle assemblies fell 12 percent from June to July according to the Industrial Production report.
- Motor vehicles and parts sales rose 3.6 percent according to the retail sales report.
Adding to the discussion, sales are recorded when manufacturers ship vehicles to the dealer, not when a consumer actually buys a vehicle.
And finally, the 3.6 percent surge was on the heels of a 3.4 percent decline the previous month.
A Bit of Skepticism
I am more than a bit skeptical of the retail sales report.
Looking ahead, I expect negative revisions to the retail sales and economic reports in general.
The huge decline in Industrial Production is another indicator of a severely weakening economy. Retail sales does not change my prognosis that a recession is underway.
Recession Underway
July 25, 2024: “All Hell Breaks Loose” In the Next Few Months as Recession Bites
August 2: Unemployment Rate Jumps, Jobs Rise Only 114,000 with More Negative Revisions
August 2: 2024: The McKelvey (Sahm) Unemployment Rate Recession Rule Just Triggered
August 15, 2024: Industrial Production Declines 0.6 Percent on Top of Big Negative Revisions
It seems to me that all hell breaking loose.
M*Vt = P*T
Both short and long-term flows peaked in July.
Hi all,
Can anyone help explain the massive delta values from the section labeled Residential Construction Key Points? What does that information actually tell us when the standard errors are so high?
Normally I make a comment on that.
There are a few reports with huge variances and there should be more. For example, I expect a 700,000 to 1,000,000 negative job revision on Wednesday perhapos as much as 70,000 per month.
Bad sampling or not enough sampling are the general reasons.
Lol! That’s a whole lot of whining and crying by people who are privileged to live in a country that provides the best opportunity in the world to get ahead and live a good life. If you whiners can’t make a good life for yourselves here, go try somewhere else.
While most of you were moaning and groaning, I was making big profits this past week. This remains the land of opportunity!
But that’s okay. I’m sure that after the upcoming election the government will magically improve all your lives so you can stop whining.
People are different. What works for you or did work for you doesn’t work for everyone. People are vastly different. The country is clearly not meeting enough people’s basic needs and needs improvement.
Also, ‘best opportunities’ is a relative statement compared to all other places, and this is clearly not true. For example, in some countries, it’s easier to get healthcare than it is here, especially for the proletariat.
Without access to quality healthcare, one’s already very unique decision-making will be hampered.
The single biggest driver of our national debt since 2001 has been Republican tax cuts. https://x.com/PattyMurray/status/1825206270413946903
You cannot go into debt without spending. Try again.
If SPY closes July 16/17 gap it will make a rd to the top. SPY is rising on a lower speed, lower vol and lower breadth to Aug 1 high — slightly above July 31 close — to July 11 hi/lo. From there SPY might turn down, making a rd trip to Jan 2022 high, breaching it to July 2023 high, or below Oct 2023 low, to May 12 lo/17 hi 2022 Anti for entertainment only.
Chicago numbers. https://heyjackass.com/
If you add in stolen cars as a business with economic impact for sales and part sales, both replacements and black market, then business is booming in Chicago. 26,476 car jackings in Mayor Brandon Smith’s first year. 300% increase vs. Mayor Lightfoot. Wow. The Soviet Union had a very large black market economy for retail in the years leading up to the fall.
VIX, which is only a statistic, not a price, exploded into the greatest one day move in its recorded history. Up and then back. Implied volatility, the difference between standard deviation and the pricing of standard deviation for options. And wham, just like that the daily ES chart bounces in V symmetry. So much leverage, so much herding, speed of algo dumps and pumps. As if information is no longer available in pricing, or that the band of indeterminacy has made any information no longer applicable. Yet, we still live in a world where market pricing matters, it should reflect the information available regarding economic conditions. This is setting up to be a doozy.
Yes. Are you of the opinion that the VIX determining option prices were gamed, wag-the-dog style?
ABC, CBS, NBC, YouTube… are flooded with Kamala Harris ads. They treat their biggest customer with a faked respect. Money flow from Wall Street to democrats and from the D to Comcast, Disney, ViacomCBS and Googl. The guppies get nothing. DIS was testing 2020 twice. Googl [1M] flopped (??) after closing Apr 25/26 gap. CMCSA peaked in Sept 2021. CMCSA Oct 2023 breached 2020 low. Something is wrong with those snake pits which poison our daily lives with fake news and fake ads.
The hilarious thing is that they are treating Harris as though she is campaigning to be in government… When she’s already in government… Campaigning for her to make all kinds of changes when she’s in power… When she’s already in power… No doubt next she’ll be laying the blame at what she inherited… When she is the incumbent creating the inheritance.
It’s a joke… They can’t seriously expect all this gaslighting and lying opposite-of-the-evident-truth crap to work?!
GDPNow jumps around a good bit, especially mid quarter like we’re in now. Let’s wait and see what the August jobs report looks like. Another low 100K may mean that we’ve finally arrived at the point where the labor market has weakened past a point of no return.
I’m still in the camp that says $1.92T deficit spending is a very big hill for a recession to get past, so it can come home to roost. Personally, I’d love to see a number like 185K to really make the Fed second guess a Sept cut.
If rates are in the mid to high 5% by spring with a labor market that still hasn’t rolled over, then housing is going to stage a meaningful sales comeback and extend the price increases we’ve seen over the last 3-6 months.
How do price increases happen when credit is contracting and savings are depleted and costs are rising?! Where are those buyers?!
That’s what the most recent data says. Granted Case-Shiller is 2-3 months stale, but home prices in June ’24 rose 4.7% YoY.
“The Harris campaign is booking at least $370 million worth of television and online ads in key battlegrounds to run between Labor Day and the November election”
More than a billion dollars will be spent on an election that will be decided by perhaps 100,000 ‘undecided’ voters. That’s $10,000 per vote.
It’s money well spent because the winning party will reap billions worth of special favors/spoils/grants, etc. they will dole out to the favored ones.
Reminds me of the MadMen episode about the 1960 Presidential Campaign and ads for Secor Laxatives.
I think August retail (back to school) will be lower than expected based on lower college enrollment. The anti-Israel protests were a contributing factor in less than expected acceptance rates at Emerson College, and now some professors are being let go. A local college is letting go several administrators, and winding down certain worthless liberal art degrees (German and French language) over the next 2 years to balance its budget. There have to be more that have not reached front page news.
The country has been absolutely flooded with immigrants, there’s massive asset inflation due to free money, and the US can’t build anything useful such as a single family housing. Real useful assets like housing have nowhere to go but up. Everything the ruling class wants is massively inflationary, the numbers that are published are all going to be cooked, where real inflation has been underestimated.
Yes it’s a https://fasteddynz.substack.com/p/the-perfect-storm
How are you going to have inflation and deflation at the same time? Price rises are not inflation, they are policy-driven costs, and credit is contracting presaging the contracting economy. You can’t have inflation when there is no growth.
Weather Report:
Temperature: Negative FED Funds Rate
Humidity: $100 Billion Monthly QE
Wind Direction: Inflation from North
Wind Velocity: 15% Gusting to 25%
Barometer: -15% or lower Real Rates
Precipitation: Up to our eyeballs
Gurgle Gurgle
The sky isn’t falling, not yet. Spy and Dia [1W] turned up yesterday. QQQ [1W] flopped in the last seconds. It might be a fake flop to fool trader. Spy, Dia and QQQ [1M] are in an uptrend since Oct 2023, though losing thrust. Spy [1M] close is slightly above July close. Spy [1M] is nowhere near turning down in Aug, but that might change in the next few months.
QQQ [1W] flop might be a warning shot.
Don’t some of the algos dump before weekends because they don’t want to be holding in a volatile market if the SHTF over the weekend?
Are you sticking with your .50 and in recession now? Or soon to be? This seems contradictory.
What’s contradictory?
The Fed typically cuts rates in recession
Stagflation the only exception
The Fed cut the FFR by 50 BP in September 2007 and the NBER declared the recession started 3 months later in December 2007.
As I’ve been saying for the last year, I think the unprecedented levels of deficit spending have significantly prolonged the verifiable arrival of the next recession.
It’s so bad that the usual indicators are not as reliable or at clear cut as they were in past recessions.
The top 30% are keeping the economy going with all of the money they’re making off real estate, stock market, treasuries & CDs.
Banks don’t lend deposits. The ratio of DDs to TDs has risen. Savings have been activated via the MMMFs.
Is there any other real example of that beyond Japan?! Raising rates didn’t really work for them, did it.
I just don’t see how we can say the US has been in a recession since last October as claimed by Danielle DiMartino Booth.
As you have alluded, this recession isn’t going to be quite like previous recessions, it’s a concealed deflationary depression.
The only thing I’m alluding to is that a recession hasn’t arrive yet. My post previous to this one reminds us that there was a 3-month lag from Sept 2007, when the Fed first cut rates, until Dec ’24, when the NBER declared the recession had started.
I’m not expecting a depression until down the road when several things like job losses from AI & robotics, much worse social division, extreme financial strain from out-of-control debt servicing, & a falling dollar from BRICS come to pass. That’s the moment America has to be concerned about.
Bernanke was still draining reserves when he was cutting rates.
The sky is falling.
Dogs and cats living together.
One question about the motor vehicle production numbers: Do they take the annual summer retooling shutdowns into consideration? I’d be surprised if they didn’t, but I thought I would ask.
Yes – both retail sales and the Fed
The land of the free stuff and the home of the depraved.
Until the AI is fully connected to the media servers and the government servers, there will be little “slip ups” like this. Don’t worry by next week with the “readjusted” numbers it will look like the roaring 20’s.
Nonsense we’re in a goldilocks economy!
My life is so great, we had Bread AND water this morning. Might get some more for supper tomorrow. They moved me up 2 whole pages on the Free Iphone list, so now I’m sposed to get my new phone in 2029, stead of in 2034 like when I signed up.
That Biden/Harris, they has made every day like owning my own ice cream machine, (which I’m supposed to get in 2038 according to the web site last time I checked) Praise Obama/Biden/Harris the trimuvirate, The great managers of this glorious economy that makes even Kim Jung IL jealous of our progressive management of this mandate handed down from heaven.
soon I may get that pair of shoes I signed up for under Obama. Then laces, and socks and my life will be perfect.
Lets us walk together into this glorious sunset (and hope the asphalt is not too hot on our bare feet)..
Braggart!
This should be a premium paid content.
Just think if you “just arrived” to the US.
I am not sure if you would be better off or worse.
You would not be paying for anything.