Written by Steven Hansen
Home sales historically begin contracting around two years prior to a recession – and home sales currently are contracting year-over-year. Is this a warning? This post also reviews the major economic releases issued this past week – although several scheduled releases were not made due to the government shutdown.
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The reason many are looking at a recession potential is the worsening trend lines on most data sets. However, data has been acting strange since the Great Recession. Using traditional recession flags – a recession should have occurred in 2016. But a recession did not occur which makes one hesitant to take current trends too seriously.
Using new home sales, for many of the recessions, year-over-year growth began contracting two years before the recession.
Note that this new home sales data set has not been updated as it is affected by the government shutdown.
Existing home sales have been slowing for the last 2 years – and in the last six months, the rate of decline has been accelerating.
Overall, my position is that affordability as well as rent vs. buy relationships are the major causes of the deceleration of home sales – and not primarily overall economic conditions. It can be argued that there are various non-economic reasons which are impacting much of the other declining data. So interpretation of current conditions seems problematic. However, I will concede that the cumulative affect of all the declining data could interact with unknown consequences.
Where Econintersect stands on the potential of a recession in 2019 is captured by IHS Markit:
Potential trade policy mistakes “remain the biggest threats to global growth,” said Nariman Behravesh, chief economist at IHS Markit.
Behravesh, however, isn’t forecasting a recession this year.
Recessions happen, he said, when an economy has built up a dangerous excess. For example, the Great Recession was kicked off by an excess in housing markets, the recession before that by the dot-com tech stock bubble and the one before that by an overblown commercial real estate market.
“Those excesses just aren’t there right now in the U.S. economy,” Behravesh said.
As the government was partially shutdown where some key data was not released, it is a challenge to access economic conditions with any degree of confidence.
Economic Releases This Past Week
The Econintersect Economic Index for January 2019 significantly declined, and is now below territory associated with normal expansions. This is a departure from the previous three months where the index’s growth rate was little changed.
The following table summarizes the more significant economic releases this past week. For more detailed analysis – please visit our landing page which provides links to our complete analyses.
| Release | Potential Economic Impact | Comment |
|---|---|---|
| December Existing Home Sales | n/a | The rolling averages have been slowing since the beginning of 2017. This month the rolling averages remained in contraction – and worsened. Despite the NAR’s assertion that “After two consecutive months of increases, existing-home sales declined in the month of December” – even using their wackiy methodology to determine rate of growth – the rate of growth year-over-year has been in contraction and declining for the last 4 months. |
| December Leading Indicators | Indicating a slowing economy | The Conference Board Leading Economic Index (LEI) for the U.S marginally declined. Also consider:
|
| December Durable Good | n/a | Not issued due to the government shutdown |
| December New Home Sales | n/a | Not issued due to the government shutdown |
| December Container Counts | Indicating a good US economy and bad global economy | Simply looking at this month versus last month – this was a good month for imports and terrible again for exports. The three month rolling averages significantly improved for imports and significantly declined for exports. The three month rolling average for exports is barely positive year-over-year. |
| Surveys | Surveys are indicating a slowing manufacturing sector |
|
| Weekly Rail Counts | Signs economy is improving | The rolling averages and the year-over-year growth is improving and in expansion. There is a correlation between rail growth and economic growth. |
This week the data was mixed with the rail counts strongly showing an improving economy whilst the other data is saying the opposite.
Links To All Of Our Analysis This Past Week
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