Viewpoints: July 2024

The Federal Reserve Bank of Philadelphia’s state coincident indexes in June were mixed. Connecticut saw a robust increase of 1.1 percent from May, and Maine rose .7 percent. However, 14 states registered declines, with Massachusetts off nearly .5 percent (obviously some diversity in the performance of New England states!). Over the three months since March, 9 states had increases of more than 1 percent, with Montana up 2.1 percent, but 9 had no change or declines over that period, led by Kansas’s .65 percent drop. The diversity in New England, now localized on the north shore of Long Island Sound, was also evident at this frequency, with Connecticut up 1.9 percent and Rhode Island down .2 percent. Over the last 12 months, Arizona saw an increase of 4.3 percent, with 7 other states up more than 3 percent. However, a full dozen states had growth under 1 percent, and 5 of those saw declines, led by Rhode Island’s 1.2 percent drop.

The independently estimated national figures of growth over the last 3 (.6 percent) and 12 (2.7 percent) months appear to be roughly in line with the state numbers.

State labor markets were yet again mixed to moderate in June, though the number of states with unemployment rates under 3.0% diminished. Eight states had statistically significant gains in payrolls, all in the range of .4 to .6 percent. North Carolina’s increase of 23,100 (.5 percent) was the largest, though California’s statistically insignificant rise of 22,500 was nearly as big.

Eight states had statistically significant increases in their unemployment rates in June and one showed a decline. The increases were no more than .2 percentage point, but Connecticut’s rate dropped .4 percentage points to 3.9%. The highest unemployment rates were in DC (5.4%), California (5.2%), Nevada (5.2%), and Illinois (5.0%). No other state had rates as much as a point higher than the national 4.1%. Alabama, Hawaii, Iowa, Maine, Maryland, Minnesota, Mississippi, Nebraska, New Hampshire, North Dakota, South Dakota, Tennessee, Vermont, Virginia, Wisconsin, and Wyoming had rates of 3.0% or lower, with both South Dakota at 2.0%.

Puerto Rico’s unemployment rate was unchanged at 5.8%, while the island’s job count fell by 900.

Auto and light truck assemblies sprinted 21.1% month-to-month (not annualized) in June to a seasonally-adjust annualized level of 13.1 million units, the highest level of monthly of production since July 2015. In May, retail dollar inventories of motor vehicles (and parts) relative to dollar retail sales of them continued their upward trend, reaching 1.93, the highest since April 2020, when Covid infections were in their early stage. The retail inventory-to-sales ratio of motor vehicles will artificially rise higher in June due to the surge in June assemblies and the curtailment of sales related to the computer hacking of car/truck dealers last month. But discounting the likely increase in the I/S ratio in June because of the hacked software, retail inventories of motor vehicles are starting to look a bit excessive, albeit below the ratio to sales pre-Covid. (See Chart 1 for these data.)

I thought that by 2023 the US economy would have entered a recession. My favorite recession indicators, the yield spread between the Treasury 10-year security and the federal funds rate and changes in real “thin-air” credit, both suggested a recession was imminent. When the yield spread enters negative territory and remains negative for as long as it has of late (see Chart 1), since 1970, a recession has occurred. But not this time. Similarly, when the yield spread persists in negative territory, typically, real thin-air credit (depository institution holdings of loans, securities and reserves deflated by the Gross Domestic Purchases chain-price index) contracts and a recession is underway (see Chart 1). The percent contraction in real thin-air credit of late has been the largest since the Great Depression. But still no recession. It’s been a long time coming, but I do believe the US economy finally stands on the precipice of a recession.