DAILY UPDATE (November 21st to 24th -- October 2019 Home Sales Picked-Up Following a Deeper September Decline / Amidst Usual Nonsense Volatility, the Monthly Gain in October Housing Starts Was Not Meaningful / Housing Starts Remained Down by 42% (-42%) and Building Permits Down by 35% (-35%) from Recovering Pre-Recession Highs / In Response to Weak October Production and Retail Sales, Both the New York Fed and the Atlanta Fed Slashed Their Respective Model Forecasts of Fourth-Quarter Real Annualized GDP Growth to 0.3% (0.4% Post-Housing Starts) and 0.4% / October 30th FOMC’s “Sustainable, Moderate Economic Growth” Is Gone / Expanded FOMC Accommodation Is Needed and Market Expectations Should Shift Accordingly / Deepening Recession, With October 2019 CASS Freight Index Dropping Year-to-Year for the 11th Straight Month / Indications of a Deepening Downturn and Risk of GDP Contraction by Year End / October Industrial Production Continued to Collapse, Down 0.8% (-0.8%) in the Month, Still Down by 0.5% (-0.5%) Separate from the Auto Strike / Both Mining and Manufacturing Were in Sharp Monthly Decline, with Deteriorating Annual Growth / Second Consecutive Real Month-to-Month Decline in October Retail Sales Was First Since the Disastrous 2018 Holiday Season / Boosted by Gasoline Prices, Both October PPI and CPI Monthly Inflation Hit Seven-Month Highs of 0.4%, Exceeding Consensus Expectations

• L A T E S T .. N U M B E R S .. October 2019 Existing-Home Sales Rose 1.9% in the Month (National Association of Realtors - see press release at www.nar.realtor under research/ housing statistics for details). October monthly Existing-Home Sales rose by 1.9%, following a downwardly revised drop of 2.5% (-2.5%) [previously down by 2.2% (-2.2%)] in September. This series is of better quality than the Census Bureau’s nonsensically volatile New-Home Sales estimates.

(November 19) Six-Month Smoothed October 2019 Housing Starts and Building Permits Both Inched Higher, Despite Regular Nonsense Monthly Volatility (Census Bureau and HUD). The headline monthly gain of 3.8% in October Housing Starts, which followed a revised 7.9% (-7.9%) [previously 9.4% (-9.4%)] plunge in September, was not meaningfully different from zero at the 90% confidence interval, as had been the case in September. In contrast, the usually stable monthly change in the dominant Single-Unit category of the Building Permits series was meaningful, up by 3.2% in the month of October, following a revised gain of 0.7% [previously 0.8%] in September. With six-month smoothed Building Permits and Housing Starts both beginning to notch higher, those series remain meaningfully shy of ever having recovered their pre-recession highs, down respectively by 35.4% (-35.4%) and 42.2% (-42.2%) from peak activity.

(November 14) October 2019 CASS Freight Index Showed 11th-Straight Month of Annual Decline and Downtrending 12-Month Moving Average (www.CassInfo.com, see https://www.cassinfo.com/freight-audit-payment/cass-transportation-indexes/cass-freight-index). The October Index declined year-to-year for the eleventh straight month, down by 5.9% (-5.9%), paralleling the pattern of annual declines seen at the onset of the Great Recession. After warning for the fifth straight month that its Index was “signaling an economic contraction,” Cass also noted: “... material increases in the rates of decline, signal... the contraction is getting worse, ” and added “... we see a growing risk that GDP will go negative by year’s end.”

Separately, the Index’s 12-month moving average declined month-to-month for its eleventh straight month. Those year-to-year and 12-month-moving-average metrics neutralize seasonality in this unadjusted series. ShadowStats regularly follows and analyzes the CASS Index as a highest-quality coincident/ leading indicator of underlying economic reality. We thank CASS for their permission to graph and to use their numbers in our Commentaries.

(November 15) October 2019 Industrial Production Activity and Its Key Manufacturing and Mining Sectors Continued to Plunge, Amidst Collapsing Year-to-Year Growth Not Seen Since the 2015-2017 Mini-Recession (Federal Reserve Board). In context of the GM Auto Strike, October Production Dropped by 0.84% (-0.84%) in the month, with Manufacturing down by 0.63% (-0.63%) [FRB estimated ex-strike that Production was down by 0.5% (-0.5%), with Manufacturing down 0.1% (-0.1%)]. In GDP accounting, strikes are included. October Capacity Utilization slowed to 76.7% from an unrevised 77.5% in September. Amidst some upside revisions to recent Oil and Gas Production, October Mining activity continued to collapse, down by 0.68% (-0.68%) in the month, reflecting a deepening annual plunge in Oil and Gas Exploration. Exploration was down by 18.95% (-18.95%) year-to-year in October, versus an unrevised September drop of 13.88% (-13.88%), with respective monthly declines of 5.09% (-5.09%) and 5.49% (-5.49%). Utilities declined by a random 2.57% (-2.57%) in October, having gained a revised 1.87% (previously 1.36%) in September.

Fourth-Quarter 2019 Industrial Production is in early trend for its third quarterly contraction in the last four quarters. The same holds true for the Manufacturing sector, while the Mining sector is on track for its second consecutive quarterly decline. Again, the GM strike will add downside pressure to the Fourth-Quarter 2019 GDP estimate. Separately, October 2019 Manufacturing remained 5.5% (-5.5%) shy of ever having recovered its pre-recession peak activity. In the 101-year history of Industrial Production, that reflects a record 143 consecutive months and counting (one-month shy of a full 12 years) of economic non-expansion, as measured in the Federal Reserve Board’s monthly surveying.

(November 15) Early Signal for a Second Consecutive, Holiday Season with Weak Retail Sales (Census Bureau). Despite small downside revisions to September and August activity, the nominal October 2019 Retail Sales gain of 0.27% was weaker than the headline 0.36% October CPI-U, meaning negative real growth. As usual in the often-nonsensical Retail Sales data, the headline change was not meaningful, with the 90% confidence interval encompassing zero growth.

Before inflation adjustment, nominal October Retail Sales gained 0.3% (0.27% at the second decimal point), having declined by an “unrevised” 0.3% (-0.3%) [0.33% (-0.33%), previously 0.25% (-0.25%)] in September, having gained a revised 0.56% [previously 0.57%, initially 0.36%] in August. As regularly calculated by the Saint Louis Fed, net of 0.36% monthly CPI-U inflation, Real Retail Sales declined by 0.09% (-0.09%) in October, having declined by 0.35% (-0.35%) [previously 0.28% (-0.28%)] in September. Quarterly Real Retail Sales slowed to a revised annualized 4.0% [previously 4.1%] gain in 3q2019, versus 4.6% in 2q2019. If Real Retail Sales hold at the October level in November and December, 4q2019 would show a quarterly decline of 0.64% (-0.64%). Year-to-year real sales slowed to 1.31% in October 2019, versus a revised 2.30% [previously 2.34%] in September, and a revised 2.35% [previously 2.56%] in August.

• S Y S T E M I C .. R I S K S -- (Updated November 20th) FOMC POLICY – Collapsing Economic Numbers Should Drive an “Unexpected” December 11th Easing. As Fourth-Quarter 2019 GDP estimates continue to crash (New York Fed and Atlanta Fed GDP models both show 0.4%), market sentiment increasingly should shift towards a December 11th FOMC easing, with increasingly likely selling pressure on the U.S. Dollar and flight to safety in gold (see Flash Update No. 14 and pending Commentary No. 985).

October Federal Reserve Cut Targeted Fed Funds Rate by the Expected Quarter Point to a Range of 1.50% to 1.75%; Fed’s Balance Sheet Expansion Will Continue into Mid-2020 (FOMC, October 30, see Flash Update No. 13). Everything was just perfect, then, per the FOMC, with “sustained, moderate expansion,” except for crashing Industrial Production, collapsing Freight Activity and the FOMC’s inability to stabilize short-term domestic liquidity. Despite the Fed’s Spiel then of perfect economic balance, again, it should be easing anew by the December 2019 Meeting. The headline FOMC fantasy economy and stable liquidity remains anything but happy and stable.

• IMPEACHMENT RISKS - Impeachment of the President by the House of Representatives Remains Problematic; In the Event of Impeachment, Chances Appear Nil of Conviction in the Senate (Updated November 20th; see discussion in Flash Update No. 9). If financial markets begin to see a credible threat of Presidential impeachment and removal from office, such would exacerbate already-negative market risks, roiling the U.S. Dollar, stocks and the economy, and triggering flight-to-safety in precious metals. In the second week of public hearings by the House, the outlook has not changed. The Democrats always have had enough votes along party lines to Impeach, yet the House is up for re-election in the year ahead. Reflecting the thinking of some of the finest legal minds, and in the context of ongoing political shenanigans, election risks and the “evidence” in hand so far, it remains problematic that the Democrat-controlled House will marshal enough votes to Impeach. If the House does Impeach the President, chances of Conviction in the Republican-controlled Senate appear to be nil. Meaningful developments will be updated.

• A L E R T –- ShadowStats’ Recession Forecast Remains in Place, With U.S. Economic Activity in a Deepening Downturn, Complicated/ Intensified by Deteriorating Political Circumstances; Watch for Accelerating Flight from the Dollar and Stocks into Gold (Updated November 5th). With U.S. stocks indices at all-time highs, consider that gold has outperformed equities since the stock-market highs of a year ago. Beyond intensified near-term financial-market risks from negative economic, liquidity and political issues, the ShadowStats broad outlook in the weeks and months ahead remains for: (1) a rapidly intensifying U.S. economic downturn, reflected in (2) mounting selling pressure on the U.S. dollar, against currencies such as the Swiss Franc, (3) continued flight to safety in precious metals, with upside pressures on gold and silver prices, and (4) increasingly high risk of extraordinarily heavy stock-market selling.

• P O S T I N G .. S C H E D U L E S .. Postings of SHADOWSTATS CONCURRENT ANALYSES OF NEW DATA: New-Home Sales (Census Bureau, HUD) will be released November 26th at 10:00 a.m. ET. ShadowStats analysis should post by 1:00 p.m. ET.

SHADOWSTATS COMMENTARIES: Commentary No. 985 economic review will post in the next day or two. Subscribers receive direct concurrent e-mail advice of Commentary postings, along with related links.

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