Total US building permits peaked in December 2021.

1/ The number of housing units under construction peaked in October 2022.

2/

Most investors are told to "watch the consumer" to gauge economic health.

After all, consumer spending is nearly 70% of GDP.

But this leads to a highly lagged and potentially misleading interpretation of underlying economic health.

Let's see why.

1/ "The consumer looks healthy."

This is one of the most overused phrases in financial TV.

It leads to flawed conclusions, particularly the notion that consumer spending drives the business cycle.

2/

The U.S. labor market looks strong, until you strip out government and health care...

What’s left is a weakening private economy with falling jobs growth, hours growth, and real income.

Here’s how growing government is crowding out the real engine of growth 🧵

1/10 Government spending has surged to 35.3% of GDP as of Q1 2025, well above the growth-optimal level.

Research shows that once government exceeds ~25% of GDP, economic outcomes start to deteriorate.



2/10

https://x.com/EPBResearch/status/1942889846848016444

Where does the US economy stand today?

Is the economy strong, or is it vulnerable to new geopolitical shocks?

Here's how to analyze exactly where the economy stands at any time 🧵

1/ With endless economic news, it's challenging to grasp the economy's current standing accurately.

A structured process is crucial for filtering data to inform business and investment decisions.

2/

Cracks Are Spreading in the U.S. Labor Market

The labor market hasn’t collapsed.

But beneath the surface, key employment metrics are deteriorating 🧵

1/13 I analyzed 5 critical labor market ratios, and they tell a consistent story.

Labor demand is falling, but layoffs haven’t meaningfully started yet.

Here’s what that means for the broader business cycle 👇

2/13

National data shows a housing market in perfect balance, but extreme regional differences exist.

Some states have low inventory and continue to show strong pricing.

11 states have high inventory and major price pressure.

Here's the breakdown of the US housing market 🧵

1/25 Inventory in the new construction market is at the highest level since the 2008 housing crisis, and this is leading to a massive divide in the housing market.

2/25

New residential building permits is one of the best leading indicators of recessions.

Here's how you can easily make it even better.

(And what it's saying now)...

1/ Building permits are a great leading indicator because they are an early step in the residential construction process.

We know that residential construction is a critical part of the business cycle, so getting an early lead on this is important.

2/

Tariffs on, tariffs off.

No one knows the next policy move.

But here's the economic reality of how tariffs impact the economy and why they should be used carefully...🧵

1/ The arguments or the stated goals of tariff policy are clear – protecting current American jobs from unfair foreign competition, reshoring manufacturing plants and high-paying jobs, and closing large trade deficits.

2/

The labor market is holding together on the surface, but concerning details appear under the hood.

No quitting and no hiring, but also no firing yet.

Here's the real story behind the US labor market.

1/ To start, the health and vibrance of the labor market comes from the goods economy of construction and manufacturing.

So this is where we focus.

If you need a primer on why, check this out:

2/

https://x.com/EPBResearch/status/1866564552055566727

Real retail sales are now lower than the pre-pandemic trend line.

Real sales volume has moved sideways for over two years!

Is the consumer in trouble?

1/ Retail sales are reported in nominal dollars, or including inflation.

Historically, retail sales increased at a 4.2% annualized pace.

About 2% of that was price, and 2% was unit growth.

2/

Q1 GDP growth is estimated at -2.4% per the Atlanta Fed.

Is a recession hitting now?

Here's what's actually going on 👇

1/ First, the Atlanta Fed GDPNow model is a rolling estimate that gets better with more data.

So at the start of a quarter, the model is mostly estimates and the GDP output is not accurate.

As the estimated data gets replaced with real numbers, the model is more accurate.

2/

Durable goods are the most high-powered, high-velocity area of personal spending.

This includes:

- Motor vehicles & parts
- Home Furnishings
- Recreational Vehicles

We still haven't fully reversed the surge of durables spending after the pandemic.

Here's why it matters.

1/ The economy has four primary categories:

- Private consumption
- Private investment
- Net exports
- Government spending

2/

The heavy truck sector is at a critical point.

Right now, truck sales are stable, but truck production is tumbling.

Here’s the story in the truck sector, why you should follow it, and why it matters.

1/ One of the most important economic indicators is vehicle sales.

The economy runs on housing and vehicles because both have a major consumption and production cycle.

These are also large, financed purchases, meaning they are highly influenced by monetary policy.

2/

New home sales are one of the best leading indicators of the broader economy.

Right now, new home sales are at a critical juncture.

Here’s what’s happening and why it matters for the rest of the economy.

1/ New home sales tend to peak and roll over before the broader economy enters a downturn.

This happened in 2005 before the housing crisis.

2/

Will AI really replace all the jobs?

If AI is truly transformative, we should see an explosion in worker productivity.

Is this happening? Has this ever happened before?

Let's see...

1/ The best metric to look at is real GDP per worker.

This is different from real GDP per capita, which includes people who don’t work.

Real GDP per worker measures how much output the average worker can produce.

2/

The Fed hiked rates faster than ever, but the economy hasn't responded like normal.

Is something broken? Not quite.

The answer (like usual) lies in housing.

Here’s what's going on and why it matters...

1/ Leading indicators, like building permits, show where growth and employment are headed.

They're not magic—they’re mechanical.

You need a permit to start construction.

2/

Conceptually, the quits rate is a leading indicator of labor market conditions.

1/ A high quits rate means employees are confident quitting because they believe finding a new, better-paying job will be easy.

2/

Stock prices used to be a good leading indicator.

Not anymore.

A Thread. Prior to the 1990s, stock prices would decline before drops in earnings.

At times, stock prices would anticipate a decline in earnings that would not materialize.

But prices would generally lead earnings which slightly led the economy.

New housing inventory is at the highest level since 2008.

But that is only one piece of the puzzle.

Here's the full story. The single-family housing market is made up of new construction homes and existing homes.

Most people interact with the existing market because it is much larger and because not all regions of the country have a lot of construction.

2/11

I analyzed the top 10 sectors of the labor market.

These are the two most important.

Thread.

1/ The labor market is the most important component of the economy since job losses are a required part of the recessionary process.

2/

The residential construction sector still has some backlogs, but we estimate that things will return to a normal state in 2-3 months.

1/6 Residential construction is essential to the US economy, significantly influencing GDP, inflation, employment, and Fed policy.

Major backlogs accumulated in 2021 & 2022 allowed residential employment to avoid contraction despite a major shift in monetary policy.

2/6