Today is one day of quiet before a slew of updated statistics, including the November jobs and inflation reports, are to be reported next week (it is unclear whether others originally scheduled for next week, like building permits and starts, will also be updated). There was some housing and rental inventory and pricing data for Q3 released yesterday, but I will integrate reporting on that when the next housing data comes out.

Which means that today is a good day to highlight three fundamental datapoints that have in the past been very (although not perfectly!) reliable, all of which either may have just turned or may be on the verge of turning, down.

One fundamentals-based indicator which has a very long history (as in over 70 years) that has been a very good long leading indicator is per capita real retail sales, i.e., retail sales adjusted for both population and inflation (red in the graphs below). This on average turns down about a year before a recession begins. When people begin to cut back on spending for their households, unless things change it isn’t too long before it cascades into things like employment and hours of work, triggering a recession. Like many other indicators, it misfired in 2022-23 when a tsunami of supply-sided deflation created a positive “real” shock - but there is no such deus ex machina lurking now.

A second similar indicator is real personal consumption spending on goods, which is a broader measure of spending, and uses a different deflator (gold). In the graphs below below I have also normed it by population.

Finally, as I have pointed out many times, real aggregate payrolls of nonsupervisory workers has an almost perfect record of turning in the months before a recession has begun, going back over 60 years (blue). This is fundamentals-based as well; when workers in real terms are earning less money in the aggregate, they have less to spend, and this is usually an immediate trigger for a recession.

With all of that as background, here are all three indicators normed to 100 as of last December:

Neither real retail sales nor real spending on goods per capita have ever matched that level since, although their three month moving average has continued to improve in a decelerating fashion. Meanwhile, real aggregate payrolls have increased by 1.2% since, although only 0.3% of that has been during the last six months.

Typically, the immediate recession signal is when these indicators turn negative YoY. Here’s what that metric looks like now:

All of these have decelerated, several sharply, since the March-April timeframe when consumers and producers alike were front-running tariffs. None have turned negative yet, although if their present rate of deceleration continues, that is likely to occur within 4-6 months of their last datapoint for September. Next week all of them are scheduled to be updated through November, so we will have a much more current view of whether fundamental economic conditions are stormy for the average American household.

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