Boston. June 10, 1768. British customs officials seized the Liberty, a sloop owned by wealthy colonial merchant and prominent Son of Liberty John Hancock. The vessel, carrying cargo of Madeira wine, was confiscated under the suspicion of smuggling and violating the widely despised Townshend Acts. Per the reporter on the scene to eyewitness: “Well, the minute they tied her up to the HMS Romney – this massive British wahship flaunting its guns in ouah haahbah – the whole town went absolutely mental. A massive crowd maached down the docks, and I tell ya, we gave those Redcoats a propah Bahston greeting. We pelted ’em, smashed their windows to pieces and dragged the custom collector’s fancy pleasuah boat right up to the Common and bahnd it to ashes.” Ok, so we took artistic license there. But the riot that broke out because of Hancock’s alleged customs violation was real; it forced British officials to flee to Castle William in Boston Harbor. The dramatic confrontation marked a critical escalation in the pre-Revolutionary struggle. In direct response, the British deployed regular troops to occupy Boston later that year.
Two hundred fifty-eight years later, U.S. trade is anything but seizing up. Through April, the volume of goods imports ran 5.0% above the 12-month average (orange line). This level was consistent with showings during Trade War 1.0, COVID-19 and Trade War 2.0, but was well below the respective 10% and 20% peaks of the last two episodes. While the U.S. is grabbing products from the rest of the globe at a quickened pace, the world procured American goods 9.0% above trend in both March and April (dark blue line). The major deviation compares to the involuntary post-pandemic reopening impulse. Since the mid-1990s inception of these data series, maximum bullish readings (not illustrated) topped 10% in June 1997 before the Asian currency crisis and in March 2010 after the Great Recession ended. The Iran War’s pull ahead is the main factor generating the latest U.S. export heat that’s nearing fundamentally overvalued levels.
There was good news in yesterday’s U.S. economic calendar. Existing home sales rose 3.2% month-over-month (MoM) to May’s 4.17 million seasonally adjusted annual rate (SAAR), up from April’s 4.04 million SAAR (purple line). Per the National Association of Realtors (NAR), “More Americans are on the move, with home sales rising to the highest level since December. This is great news for the housing market and the economy.” Moving Expectations, the mean probability of changing primary residence over the next 12 months as defined by the New York Fed’s Survey of Consumer Expectations, countered NAR’s optimistic overture, falling to 13.92% in May, bottom fishing the slump in place since 2023. Moreover, the latest figure was the sixth lowest on record since the survey’s 2013 inception. The best we can say for Existing Home Sales, especially in the context of NAR’s leading Pending Home Sales, is that they lack escape velocity.
Viable optimism for home sales’ prospects would be brandished in a noticeable improvement in unemployment. The National Federation of Independent Business (NFIB) Small Business Economic Trends report gave a glimpse to that effect in the drop in three-point drop to 7% for “Poor Sales” as small businesses’ single most important problem. On the surface, this unemployment rate tracker’s hitting a two-year low suggests escape velocity is not far fetched. But as Tuesday’s Feather noted, Labor Costs (as the biggest Main Street concern) rose to a record 14%, up five points from April, robbing votes from Poor Sales in the process. If Poor Sales were on an improving track, why did NFIB Sales Expectations fall to a 13-month low, its sister Economic Outlook drop to a 19-month low and business owners’ Expansion Outlook remain at a two-year low?
Separately, we have a bone to pick with the NAR. Year-over-year (YoY) comparisons for seasonally adjusted (SA) and not seasonally adjusted (NSA) data, by definition, should not differ from one another. Why, then, has the YoY path for SA Existing Home Sales improved to an eight-month high of 3.2% (teal line) when the NSA Sales track eased to a four-month low of 0.0% YoY (lilac line)? Real estate agents report home sales into the Multiple Listing Service in raw NSA form. Danielle asked Jonathan, “Wouldn’t UNCH YoY NSA theoretically scrub seasonality?” Jonathan’s response, “It would. Theoretically, NSA YoY changes should match SA YoY changes,” which prompted Danielle’s retort: “And yet you can drive a Mack Truck through them.”
An examination of home price appreciation gets us back on track, especially as the consumer price index (CPI) tees up this morning. The Existing Single-Family Home Median Price trend came in at a 1.3% YoY rate (light blue line). This subdued pace has run below the low-oscillating YoY trajectories for both CPI rent measures for 16 straight months — Owners’ Equivalent Rent, at 3.3% in April, (OER, yellow line), and Primary Rent, at 2.8% YoY (red line). There’s no doubt that the NAR series is a higher beta version of CPI rent gauges. The value add comes from median home price inflation’s persistence. In sum, when home prices run above rental inflation for an extended period, it presses higher CPI rents that run underneath it for a prolonged period. That’s where we find ourselves today, with the disinflationary influence shining through.
That brings us to expectations for today’s May CPI. Expectations for the headline, at 0.5% MoM, and Core, at 0.3%, might be too high, especially if April’s strong 0.5% monthly gains for OER and Primary Rent eased sharply to their prior 0.2% six-month averages. We think you’d be wicked smaht to take the undah.