Reclaiming Common Sense

We received good data regarding Existing Home Sales, New Home sales and Weekly Unemployment claims. But let's focus on the momentary inverted yield curve.


The week this column started with an article discussing prior inverted yield curves and whether or not this was a good indicator for future recessions. We received solid existing home sales data, a huge upward revision to the already good June new home sales data, solidly low unemployment claims data, and seriously good new home sales data. All the data points to an expanding economy.


(Aug. 19) There has been a considerable amount of discussion that the 2 year - 10 year rate curve inverted this week. This rate inversion has been discussed since at least the 1990s. The article "2-10 Rate Inversion is not the best predictor of a Recession" examined the inversion data and the jobs data since 1979. The inversion have to last months, not just moments.


(Aug. 20)  We received the July Jobs Report earlier this month. This column publishes a variety of articles regarding the Current Population Survey (CPS) jobs and unemployment data and the Current Employment Statistics (CES) workers and wages data. This column produced an article on the Teen Participation Problem during August of 2018. "July's Aging Population: Teen Participation Spiked" examined the participation rates, employment level, and unemployment level of the workforce by age group. Those workers 16-19 and 20-24 are still "underparticipating" and those over the age of 60 are still "overparticipating."


(Aug. 21) The July existing home sales (EHS) data was the second highest amount of July sales since July 2007. The June Existing Home Sales was a disappointment.  The July Existing home sales data revealed that another July Average Sales Price Record was set. We saw the recorded non-seasonally adjusted (NSA) EHS data jump higher than the June NSA EHS data. The July data nearly matched the May data. to say that "July Existing Home Sales Surpass Expectations" is an understatement. Oh, the yield curve inverted momentarily.


(Aug. 22) The weekly unemployment claims report received "Headline News at the bottom of the Hour" coverage from 2007 through roughly July of 2016, as the "Seasonally Adjusted (SA) First-time Unemployment (FTU) claims streak FACT (False Assertion Considered to be True) received "wall-to-wall coverage. They were discussing the SA FTU level being under 300,000 claims.  Last week we had 21 weeks of non-seasonally adjusted first-time unemployment (FTU) claims under 200,000 claims. The best year prior to that was 1967 with 19 weeks and then 1973 with 13 weeks under 200,000 claims. This week the NSA FTU fell to 169,613.This was the "Fourteenth Week under 200,000 First-time Claims," non-seasonally adjusted. The yield curve inverted briefly on Thursday.


(Aug. 23)  This Friday we received the July New Home Sales data. This column had projected that new home sales would exceed last year's level of 52,000 units. We hit 53,000 units. The headlines elsewhere were that New Home Sales fell by 12%. How could this be? The majority of the coverage ignored that hey June sales data were revised up by 9,000 units, from a modest 57,000 units to a remarkable 66,000 units. New home sales tend to peak during March, April, or May, so the annualized rate of sales "always" declines during July. The annualized rate of sales spiked for June from 646,000 units to 728,000 units. This month that annualized level dropped to 635,000. It is important to note that the official level for July 2018 was just 609,000. We are on-track for our best sales year since 2007.This is all covered in "July New Home Sales Better than 2017 and 2018." Guess what? The yield curve inverted momentarily on Friday.


The discussion of a potentially inverted yield curve has been ongoing for weeks. It seemed to reach a fever pitch last week. This discussion led to an investigation into the times where were have nearly had a yield curve inversion and when we did have a yield curve inversion. We have a strong economy. Last week the retail sales data came in "stronger than expected." This week we had a rebound from the weak June Existing Home Sales data with the best July existing home sales month since July 2015. First-time Unemployment claims dropped to levels not normally seen during the third week of August. The new home sales data for July was deceptively good. We are on track for the best new home sales year since 2007. Should we  ignore what is happening month after month (existing home sales, new home sales, weekly unemployment claims) and focus on what is happening momentarily? No.


It's the Economy.