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By New_Deal_democrat November 2, 2016 11:29 am
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Houses, cars, and rents point to consumer under pressure
The two biggest expenses for most consumers are shelter and transportation.  Prior to a recession, typically the first sector to pull back is housing (more than a year before the onset of a turndown), and subsequently car and truck purchases (about 6 months before the t urndown).
 
This year both housing (with the exception of single family home sales) and vehicle purchases have been basically flat. Meanwhile rents continue to rise on a YoY basis, and are the basis for almost all of the inflation in the CPI.  Let's take a look. 
 
Yesterday September construction spending was reported.  This typically lags permits and starts, but it does have the advantage of being less noisy.  Below we can see that both housing starts (blue) and residential   constructioin spending (red) have been essentially flat for over a year:
 
 
This showed up as a downturn in real residential spending in Q2 and Q3 GDP:
 
 
If this most leading consumer sector is flagging, vehicles (reported for October yesterday) aren't giving any impetus to the economy eaither:
 
 
Vehicle sales tend to plateau for long periods during an expansion. Typcially they turn down 10% YoY prior to or at the onset of a recession:
 
 
We're not seeing that.
 
So if houses and cars aren't driving the expansion, neither are they dragging it into contraction either.
 
One specific source of consumer stress has been rents.  The Q3 rental survey was released last week, and it showed continued tightness in vacancy rates:
 
 
While q/q rents were flat, and down about 3% from their peak 2 quarters previously, they are still up 5% in the last year, and 10% in the last 2 years:
 
 
Since shelter, in the form of owners' equivalent rent, is about 40% of the Consumer Price Index, this surge in the cost of shelter is almost the entire driver behind the +1.5% YoY rise in inflation:
 
 
As you can see, when you take out shelter, consumer inflation continues to be just about non-existent, although the end of gas price declines are likely to change that.
 
All of which means that I think it would be a serious mistake for the Fed to raise interest rates next month.Further, I expect to update my look at the universe of long leading indicators next week, and at this point the outlook looks less sanguine.
 
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