Economic Data Tracker –
Housing weakness continues

Trend watch and what’s new this week

The effects of Hurricane Ian on the activity-based data appear to be leveling off (slides 5 and 6). For instance, restaurant bookings dropped 1.0% compared to pre-pandemic levels from up 1.1% in the prior week. Also, air passenger counts jumped 10.3% week over week, with the weekly average inching up 15.84 million, while hotel occupancy jumped to a 10-week high. Additionally, weekly jobless claims dropped by 12,000 last week, including -3,856 in Florida.

On slide 7, we highlight the back-to-work barometer, which is slowly inching closer to 50% of pre-pandemic levels. It varies greatly by industry as well as by geography.

More weakness within housing

Several key housing metrics were released this week, nearly all of which weakened significantly. We attribute all of this to dramatically higher mortgage rates, which are now above 7.2% nationally. Of course, higher rates hurt housing affordability.

Existing home sales (slide 8) dropped for the eighth straight month and the ninth time in 10 months. Meanwhile, prices fell for the third month in a row. Prices continue to be supported by low inventories, which remain more than 35% below the 2019 average.

On slide 9, new building permits actually rose 1.4% month over month, helped by multi-family, which jumped 8.2% MoM. However, single family permits dropped for the seventh straight month in September. Also, new housing starts dropped in September with weakness from both multi- and single family. 

Additionally, we show the National Association of Home Builders (NAHB) traffic of prospective buyers index and the NAHB Housing Market Index, which gauges homebuilders’ confidence. Both have weakened considerably in 2022, nearing the lows of the pandemic.

Weakness elsewhere, too

On slide 10, we show the Index of Leading Economic Indicators, which dropped in September. The August figure was revised upward to unchanged; otherwise, it hasn’t risen since February ’22. Again, that is a recession red flag, which – at the very least – suggests continued slower growth ahead.

On slide 11, we show a key metric within the freight gauges, unit volumes of shipping containers, which dropped sharply in September. It was the fourth straight MoM decline pulling it under the long-term trend, which is not a good sign for overall economic growth. 

Our take

The rebound in the activity-based data following Hurricane Ian is encouraging. Although it is fairly common to see activity recover, seemingly nothing in the past two years has been typical. Importantly, it shows the resilience of the U.S. economy and the American people.

That said, we are growing concerned that other activity has rapidly deteriorated. For example, shipping volumes dropped sharply in September and are now under long-term trend. Moreover, the massive cue of incoming container ships waiting to offload at U.S. ports has shrunk dramatically (through mid-October). Similarly, rail freight dropped in September. There is certainly seasonality within shipping and freight. The swift decrease in volumes may also be evidence that big box retailers are rightsizing their inventories to better match demand. Nonetheless, it’s a signal of weakness.

Housing has been in freefall for much of 2022, which we believe is a direct result of the Federal Reserve’s aggressive interest rate increases to rein in inflation. Alas, housing activity will likely continue to struggle for the foreseeable future; however, tight supply should blunt a significant pullback in prices nationally

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