by Calculated Risk on 5/05/2025 02:14:00 PM

Early in February, I expressed my "increasing concern" about the negative economic impact of "executive / fiscal policy errors", however, I concluded that post by noting that I was not currently on recession watch.

In early April, I went on recession watch, but I'm still not yet predicting a recession for several reasons: the U.S. economy is very resilient and was on solid footing at the beginning of the year, the administration might reverse many of the tariffs (we've seen that before), and Congress might take back complete authority for tariffs.  Also, perhaps these tariffs are not enough to topple the economy.

Over the past weekend, Warren Buffett said:

"We should be looking to trade with the rest of the world, and we should do what we do best, and they should do what they do best ... Trade should not be a weapon.”

In the short term, it is mostly trade policy that will negatively impact the economy. However, there are several policies that will negatively impact the economy in the long run, and I'll discuss those later.

Here is some of the data I'm watching.  

Housing:  Housing is the basis of one of my favorite models for business cycle forecasting.

This graph shows the YoY change in New Home Sales from the Census Bureau.  Currently new home sales (based on 3-month average of NSA data) are up 2% year-over-year.

Usually when the YoY change in New Home Sales falls about 20%, a recession will follow.  An exception for this data series was the mid '60s when the Vietnam buildup kept the economy out of recession.   Another exception was in late 2021 - we saw a significant YoY decline in new home sales related to the pandemic and the surge in new home sales in the second half of 2020.  I ignored that downturn as a pandemic distortion.  Also note that the sharp decline in 2010 was related to the housing tax credit policy in 2009 - and was just a continuation of the housing bust.

The YoY change in new home sales in late 2022 and early 2023 suggested a possible recession.  But as I noted earlier, I was able to look past the pandemic distortion and was able to predict a pickup in new home sales due to the low level of existing home inventory and because homebuilders could offer mortgage incentives that would somewhat offset the sharp increase in mortgage rates.

There are no special circumstances now, and if this measure falls to off 20% a recession seems likely.

Yield Curve: The yield curve is a commonly used leading indicator.  I dismissed it when the yield curve inverted in 2019 and again in 2022. Both times dismissing the yield curve was correct (the recession in 2020 was obviously due to the pandemic, so we will never know if the yield curve failed to predict a recession in 2019).

Here is a graph of 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity from FRED since 1976.

 

The yield curve reverted to normal last year and is currently positive at 0.50.  If this inverts, this might suggest a recession is coming.

Click here for interactive graph at FRED.

Heavy Truck (and Vehicle Sales): Another indicator I like to use is heavy truck sales.  This graph shows heavy truck sales since 1967 using data from the BEA. he dashed line is the April 2025 seasonally adjusted annual sales rate (SAAR) of 403 thousand. Note: "Heavy trucks - trucks more than 14,000 pounds gross vehicle weight."

Heavy truck sales were at 505 thousand SAAR in April, up from 450 thousand in March, and up 0.8% from 501 thousand SAAR in April 2025 (essentially unchanged YoY).

Usually, heavy truck sales decline sharply prior to a recession and sales were solid in April.  It is likely that some April truck buyers rushed to beat the tariffs - and we might see some weakness next month.

And light vehicle sales were strong in April.  

This graph shows light vehicle sales since the BEA started keeping data in 1967.   This is more of a concurrent indicator than heavy trucks. 

Light vehicle sales were at 17.27 million SAAR in April, down 3.1% from March, and up 7.8% from April 2024 as some buyers rushed to beat the tariffs.

Unemployment: Two other concurrent indicators are the unemployment rate (using the "Sahm Rule") and weekly unemployment claims.

Here is a graph of the Sahm rule from FRED since 1959.

The Sahm Rule was at 0.27 in March (Last data at FRED) and increased to 0.30 in April. 

 If this increases to 0.5 it will suggest a possible recession.

And weekly unemployment claims always rise sharply at the beginning of a recession (other events - like hurricane Katrina - can cause a temporary spike in weekly claims).

As I noted earlier, I'm not sure how to estimate the economic damage caused by these tariffs. And they might just go away (no one knows).  There are also boycotts of U.S. goods and less international tourism based on both the tariffs and the inflammatory rhetoric of the new administration.  

None of the leading are suggesting recession.  For now, I'll focus on the leading indicators (especially housing) and I'll update this post monthly while I'm on recession watch.  

Weekly Schedule

by Calculated Risk on 5/05/2025 11:56:00 AM

Today, in the Real Estate Newsletter: ICE Mortgage Monitor: Home Prices Continue to Cool

Brief excerpt:

House Price Growth Continues to Slow

Here is the year-over-year in house prices according to the ICE Home Price Index (HPI). The ICE HPI is a repeat sales index. ICE reports the median price change of the repeat sales. The index was up 2.4% year-over-year in March, down from 3.5% YoY in February. The early look at the April HPI shows a 1.9% YoY increase.

• Improved inventory levels are providing more options and a softer price dynamic for homeowners shopping this spring

• Annual home price growth cooled to a revised +2.4% in March from +3.5% at the start of the year, with an early look at April data via ICE’s enhanced Home Price Index suggesting price growth has cooled further to +1.9% which would mark the slowest growth rate in nearly two years

• Early April data also shows home prices rose by a modest 0.1% in the month on a seasonally adjusted basis, which would mark the softest single month growth since late 2023 when mortgage rates had climbed above 7.5%

• If recent seasonally adjusted gains persist, the annual home price growth rate would cool further in Q2

• Single family prices were up by +2.1% from the same time last year, with condos down -0.4%, marking the first such annual decline since 2012

• All in, nearly half of major markets are seeing condo prices down from last years levels, with the largest declines in Florida, especially in areas heavily impacted by last year’s hurricanes

There is much more in the mortgage monitor.

There is much more in the newsletter.

by Calculated Risk on 5/05/2025 10:00:00 AM

(Posted with permission). The ISM® Services index was at 51.6%, up from 50.8% last month. The employment index increased to 49.0%, from 46.2%. Note: Above 50 indicates expansion, below 50 in contraction.

From the Institute for Supply Management: Services PMI® at 51.6% April 2025 Services ISM® Report On Business®

Economic activity in the services sector expanded for the 10th consecutive month in April, say the nation's purchasing and supply executives in the latest Services ISM® Report On Business®. The Services PMI® registered 51.6 percent, indicating expansion for the 56th time in 59 months since recovery from the coronavirus pandemic-induced recession began in June 2020.

The report was issued today by Steve Miller, CPSM, CSCP, Chair of the Institute for Supply Management® (ISM®) Services Business Survey Committee: “In April, the Services PMI® registered 51.6 percent, 0.8 percentage point higher than the March figure of 50.8 percent. The Business Activity Index registered 53.7 percent in April, 2.2 percentage points lower than the 55.9 percent recorded in March. This is the index’s 59th consecutive month of expansion. The New Orders Index recorded a reading of 52.3 percent in April, 1.9 percentage points higher than the March figure of 50.4 percent. The Employment Index stayed in contraction territory for the second month in a row; the reading of 49 percent is a 2.8-percentage point increase compared to the 46.2 percent recorded in March.

“The Supplier Deliveries Index registered 51.3 percent, 0.7 percentage point higher than the 50.6 percent recorded in March. This is the fifth consecutive month that the index has been in expansion territory, indicating slower supplier delivery performance. (Supplier Deliveries is the only ISM® Report On Business® index that is inversed; a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases.)

“The Prices Index registered 65.1 percent in April, a 4.2-percentage point increase from March’s reading of 60.9 percent and a fifth consecutive reading above 60 percent. The Inventories Index registered its third consecutive month in expansion territory in April, registering 53.4 percent, an increase of 3.1 percentage points from March’s figure of 50.3 percent. The Inventory Sentiment Index expanded for the 24th consecutive month, registering 56.1 percent, down 0.5 percentage point from March’s reading of 56.6 percent. The Backlog of Orders Index registered 48 percent in April, a 0.6-percentage point increase from the March figure of 47.4 percent, indicating contraction for the eighth time in the last nine months.

“Eleven industries reported growth in April, a drop of three from the 14 industries reported in January and February. The Services PMI® has expanded in 55 of the last 58 months dating back to June 2020. The April reading of 51.6 percent is 1 percentage point below the 12-month average reading of 52.6 percent.”

Miller continues, “April’s change in indexes was a reversal of March’s direction, with increases in three (New Orders, Employment and Supplier Deliveries) of the four subindexes that directly factor into the Services PMI®. Of those four, only the Business Activity Index had a lower reading compared to March. Employment continues to be the only one of these subindexes in contraction territory, with two straight months of contraction. From December through February, all four subindexes were in expansion. Regarding tariffs, respondents cited actual pricing impacts as concerns, more so than uncertainty and future pressures. Respondents continue to mention federal agency budget cuts as a drag on business, but overall, results are improving.”
emphasis added

This was below consensus expectations.

by Calculated Risk on 5/05/2025 08:11:00 AM

Altos reports that active single-family inventory was up 2.1% week-over-week.

Inventory is now up 19.2% from the seasonal bottom in January and is increasing.  

Usually, inventory is up about 10% from the seasonal low by this week in the year.   So, 2025 is seeing a larger than normal pickup in inventory.

The first graph shows the seasonal pattern for active single-family inventory since 2015.

Click on graph for larger image.

The red line is for 2025.  The black line is for 2019.  

Inventory was up 32.9% compared to the same week in 2024 (last week it was up 31.0%), and down 16.0% compared to the same week in 2019 (last week it was down 16.1%). 

Inventory passed 2020 same week levels this week and is also above the peak for last year (2024).  

It now appears inventory will be close to 2019 levels towards the end of 2025.

This second inventory graph is courtesy of Altos Research.

As of May 2nd, inventory was at 744 thousand (7-day average), compared to 729 thousand the prior week. 

Mike Simonsen discusses this data regularly on Youtube

by Calculated Risk on 5/04/2025 06:13:00 PM

Weekend:
• Schedule for Week of May 4, 2025

Monday:
• At 10:00 AM ET, the ISM Services Index for April.   The consensus is for a reading of 50.6, down from 50.8.

From CNBC: Pre-Market Data and Bloomberg futures S&P 500 are down 12 and DOW futures are down 80 (fair value).

Oil prices were down over the last week with WTI futures at $58.29 per barrel and Brent at $61.29 per barrel. A year ago, WTI was at $80, and Brent was at $84 - so WTI oil prices are down about 27% year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $3.14 per gallon. A year ago, prices were at $3.63 per gallon, so gasoline prices are down $0.49 year-over-year.

by Calculated Risk on 5/04/2025 09:22:00 AM

Most analysts expect no change to FOMC policy at the meeting this week, keeping the target range at 4 1/4 to 4 1/2 percent.    Market participants currently expect the FOMC to also be on hold at the June meeting, with the next rate cut in July, and one or two more rate cuts later in the year.

From BofA:

The May FOMC meeting looks like a placeholder: policy rates on hold and no change in Chair Powell’s tone from his recent speeches. He will probably reiterate that the Fed is assessing the total impact of all policy changes by the Trump Administration, not just trade policy in isolation. We think the bar for a June cut is high, but Powell is unlikely to rule it out at this stage.
emphasis added

Projections will NOT be released at this meeting. For review, here are the March projections.  

The FOMC participants’ midpoint of the target level for the federal funds rate is now at 4.0% at the end of 2025 (3.9%-4.4%) and the long run range is 2.6% to 3.6%.   This is fewer rate cuts than market participants expect.

Since the last projections were released, economic growth has been below expectations (but distorted), the unemployment rate was close to expectations, and inflation at expectations.

The BEA's advance estimate for Q1 GDP showed real growth at -0.3% annualized. There is a wide range of estimates for Q2 GDP, but it is forecast to be close to 2.0%.  That would put real growth for Q1 over Q1, at 1.8% - in the range of the March FOMC projections for Q4 over Q4.  

However, Q2, Q3 and Q4 all saw solid growth last year - and we haven't seen the impact of policy changes on hard data yet - so it is likely Q4 over Q4 GDP will be below the March forecast range.

GDP projections of Federal Reserve Governors and Reserve Bank presidents, Change in Real GDP1
Projection Date	2025	2026	2027
Mar 2025	1.5 to 1.9	1.6 to 1.9	1.6 to 2.0
Dec 2024	1.8 to 2.2	1.9 to 2.1	1.8 to 2.0

¹ Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

The unemployment rate was at 4.2% in April and after averaging 4.1% for Q1.  The forecast for the Q4 unemployment rate is likely low.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents, Unemployment Rate2
Projection Date	2025	2026	2027
Mar 2025	4.3 to 4.4	4.2 to 4.5	4.1 to 4.4
Dec 2024	4.2 to 4.5	4.1 to 4.4	4.0 to 4.4

² Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

As of March 2025, PCE inflation increased 2.3 percent year-over-year (YoY). There will likely be some increase in PCE inflation from policy, but this appears to in the forecast range.

Without policy changes (tariffs) it appears inflation would be below the FOMC forecast!

Inflation projections of Federal Reserve Governors and Reserve Bank presidents, PCE Inflation1
Projection Date	2025	2026	2027
Mar 2025	2.6 to 2.9	2.1 to 2.3	2.0 to 2.1
Dec 2024	2.3 to 2.6	2.0-2.2	2.0

PCE core inflation increased 2.6 percent YoY in March.  This is in the range of FOMC projections for Q4.

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents, Core Inflation1
Projection Date	2025	2026	2027
Mar 2025	2.7 to 3.0	2.1 to 2.4	2.0 to 2.1
Dec 2024	2.5 to 2.7	2.0-2.3	2.0

by Calculated Risk on 5/03/2025 07:04:00 PM

From STR: U.S. hotel results for week ending 26 April

The U.S. hotel industry reported mixed year-over-year comparisons, according to CoStar’s latest data through 26 April. ...

20-26 April 2025 (percentage change from comparable week in 2024):

• Occupancy: 65.1% (-1.0%)
• Average daily rate (ADR): US$161.98 (+4.2%)
• Revenue per available room (RevPAR): US$105.40 (+3.2%)
emphasis added

The following graph shows the seasonal pattern for the hotel occupancy rate using the four-week average.

Click on graph for larger image.

The red line is for 2025, blue is the median, and dashed light blue is for 2024.  Dashed purple is for 2018, the record year for hotel occupancy. 

The 4-week average of the occupancy rate is tracking below both last year and the median rate for the period 2000 through 2024 (Blue).

Note: Y-axis doesn't start at zero to better show the seasonal change.

The 4-week average will mostly move sideways until the summer travel season.  We will likely see a hit to occupancy during the summer months due to less international tourism.

by Calculated Risk on 5/03/2025 02:11:00 PM

At the Calculated Risk Real Estate Newsletter this week:

Click on graph for larger image.

• Case-Shiller: National House Price Index Up 3.9% year-over-year in February

• Freddie Mac House Price Index Mostly Unchanged in March; Up 3.0% Year-over-year

• Fannie and Freddie: Single Family Serious Delinquency Rates Decreased in March

• Inflation Adjusted House Prices 0.8% Below 2022 Peak

• Final Look at Local Housing Markets in March and a Look Ahead to April Sales

This is usually published 4 to 6 times a week and provides more in-depth analysis of the housing market.

by Calculated Risk on 5/03/2025 08:11:00 AM

The key report scheduled for this week is the March trade balance.

The FOMC meets this week and no change to the Fed funds rate is expected.

----- Monday, May 5th -----
10:00 AM: the ISM Services Index for April.   The consensus is for a reading of 50.6, down from 50.8.

----- Tuesday, May 6th -----
8:30 AM: Trade Balance report for March from the Census Bureau.

This graph shows the U.S. trade deficit, with and without petroleum, through the most recent report. The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

The consensus is the trade deficit to be $129.0 billion.  The U.S. trade deficit was at $122.7 billion in February as importers rushed to beat the tariffs.

----- Wednesday, May 7th -----
7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

2:00 PM: FOMC Meeting Announcement. No change to to the Fed funds rate is expected at this meeting.

2:30 PM: Fed Chair Jerome Powell holds a press briefing following the FOMC announcement.

----- Thursday, May 8th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for initial claims of 223 thousand, down from 241 thousand last week.

----- Friday, May 9th -----
No major economic releases scheduled.

by Calculated Risk on 5/02/2025 07:56:00 PM

Note: Mortgage rates are from MortgageNewsDaily.com and are for top tier scenarios.

For deaths, I'm currently using 4 weeks ago for "now", since the most recent three weeks will be revised significantly.

Note: "Effective May 1, 2024, hospitals are no longer required to report COVID-19 hospital admissions, hospital capacity, or hospital occupancy data."  So, I'm no longer tracking hospitalizations.

COVID Metrics
	Now	Week Ago	Goal
Deaths per Week	378	461	≤3501
1my goals to stop weekly posts. 🚩 Increasing number weekly for Deaths. ✅ Goal met.

Click on graph for larger image.

This graph shows the weekly (columns) number of deaths reported since Jan 2023.

Although weekly deaths met the original goal to stop posting in June 2023 (low of 314 deaths), I've continued to post since deaths are above the goal again - and I'll continue to post until weekly deaths are once again below the goal.

Weekly deaths are now decreasing following the winter pickup and are nearing the lows of last June.

And here is a graph I'm following concerning COVID in wastewater as of May 1st:

This appears to be a leading indicator for COVID hospitalizations and deaths.  This has been moving sideways recently.

Nationally COVID in wastewater is "Low".