How's The Recovery Doing: A Look At The Data

by: Modeled Behavior

By Karl Smith

We’ll get GDP later this morning, but as always I don’t know that there is a whole lot to be gleaned from it. Its fairly backwards looking and typically doesn’t tell us anything we don’t already know.

Its useful as a summary stat for people who are not deep in the weeds but can you say that you looked at any GDP report current or past and said “Ah, just looking at Census and BLS data I couldn’t really get a sense for what direction the economy was moving in at the time but now I get it” That means the information content is pretty low.

A couple of things that are of interest. New Claims bounced back and pretty strongly. There was a little more weakness here than I expected and so that always downgrades our estimate of the chances the recovery will catch. Nonetheless, its looking pretty good.

This recovery has shown more churn than in the past, and so we have had stronger job growth relative to new claims as compared to the last 25 years.

FRED Graph

Whether that pattern holds will be interesting because the post Global Financial Crisis relationship suggests that we could be getting close to blisteringly fast job growth.

FRED Graph

In the upper 300K range.

So a key question is – is the reduction in new claims showing a normalization between the relationship between new claims and job growth or is it suggesting even faster job growth. I actually don’t have a good angle to think about that problem.

The durable goods jump was noticeable enough for me to want to dig further

FRED Graph

Naturally, I thought this likely autos

That seems to be right

FRED Graph

New home sales came in at a record low which is not surprising. What is just nutty to my eyes is inventory.

FRED Graph

There is nothing wrong with this from a micro perspective. Sales have been at record lows for years. There is no reason to carry excess inventory. However, we are looking at a deviation from trend as strong as the peak of the housing bubble. Moreover, because the numbers are small rather than large the rate at which the market could tighten if things turn exceeds the rate at loosened from the last turn.

This bit of data isn’t new but just to give us a sense of where we are, here is debt service as a percentage of personal income.

FRED Graph

I know I have views on debt that are hard for people to square with, but I hope it makes sense when I say the burden of debt is related to how large you actual debt payments are as a fraction of your income.

So, if you owe 100K at 20% this is going to be more burdensome than 1000K at 1%.

Now because net income payments can be negative one can of course make money from accumulated debt but I’ll try to be good and leave that along for now.

The point here is that the actual debt burden facing households is low and since disposable income has room to rise, it could go lower. This leaves a lot of room for more purchases.