Real retail sales contract; depending on inflation report may signal further job losses

 

 - by New Deal democrat

[Note: An update to my OS the other day has nuked my ability to post graphs. For now, I will post links to FRED graphs that you can access. If I am unable to resolve the problem, drastic action may be reqeured.]

Real retail sales, one of my favorite broad-economy indicators, was finally updated yesterday, although as per most government data releases, it was still somewhat stale, being for September and October. Nevertheless, it does give us some new information, so let’s take a look.

In nominal terms retail sales rose 0.1% in September, and were unchanged in October, but since consumer prices rose 0.3% in September, real retail sales declined -0.2%. CPI for October hasn’t been reported yet, but another 0.3% increase would mean a further -0.3% decline in real sales for October. The below graph, through September, shows real retail sales (blue) and the similar measure of real spending on goods (gray), both normed to 100 as of their peaks in December of last year:

 https://fred.stlouisfed.org/graph/?g=1OTNM 

Both have only exceeded that peak by at most 0.1% this year, and in September both were below it by -0.1%, although the 3 month moving average continued to increase slightly.

When real retail sales turn negative YoY, going back 75 years it has almost always meant a recession (with the very notable exception of 2022-23, which was countered by a steep positive supply shock). Here is what the YoY comparison looks like for both of the above metrics:

 https://fred.stlouisfed.org/graph/?g=1OTNG 

Neither are negative YoY, but both have decelerated sharply since their YoY peaks in early spring. Should the trend continue, they could be negative YoY by December or January.

Finally, because consumption leads employment, here is the update of YoY real sales (/2 for scale) together with employment (red), updated through yesterday’s report:

 https://fred.stlouisfed.org/graph/?g=1OTNB 

The sharp deceleration in YoY growth in consumption has forecast the slide in employment. Should the October CPI release mean a further deterioration in sales for that month, that would forecast even more deceleration - in fact a downturn,- in employment in the immediate months ahead.

Combined October and November jobs report: a hairs-breadth from recessionary, at best

 

 - by New Deal democrat

At Last this morning we got some up to date labor data from the federal government, but only partially. The Establishment Survey was updated for both October and November, while the Household Survey was not conducted at all for October, and so jumps from September to November.

In November virtually all of the other reports, including from the regional Feds and ISM, as well as others, indicated an actual decline in employment. While that didn’t occur, as we will see below, the general tenor was negative, albeit nuanced.

Below is my in depth synopsis. Note that for the Establishment numbers, I give both October and November reads, as well as the two month net change.

HEADLINES:

• -105,000 jobs lost in October; 64,000 added in November for a net change of -41,000.
•  Private sector jobs increased 52,000 in October and 69,000 in November, for a net gain of 121,000. Government jobs declined -157,000 in October (these are mainly the delayed DOGE layoffs), and another -5,000 in November for a total loss of -162,000.
• September was revised downward by -11,000 to +108,000. 
• The alternate, and more volatile measure in the household report, rose by 96,000 jobs since September.
• The U3 unemployment rate rose 0.2% to 4.6%, since September, the highest since September 2021.
• The U6 underemployment rate rose 0.7% to 8.7% since September.
• Further out on the spectrum, those who are not in the labor force but want a job now rose 203,000 since September to 6.136 million, aside from August the highest level since September 2021.

Leading employment indicators of a slowdown or recession

These are leading sectors for the economy overall, and help us gauge how much the post-pandemic employment boom is shading towards a downturn. For the second month in a row they were mainly negative:

• The average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, rose 0.1 hour in both October and November to 41.2 hours, but remains down -0.4 hours from its 2021 peak of 41.6 hours.

• Manufacturing jobs decreased by -9,000 in October and -5,000 in November, the sixth and seventh declines in a row. This series declined sharply in the second half of 2024 before stabilizing earlier this year. It is now at a 3.5 year low.
• Truck driving, which had briefly rebounded earlier this year, declined -1,300 in October and another -4,400 in November, for a total decline of -5,700.
• Construction jobs declined -1,000 in October, but rose 28,000 in November.
• Residential construction jobs, which are even more leading, rose 900 in October and another 3,400 in November for a total of 4,300, making three increases in a row.
• Goods producing jobs as a whole declined -9,000 in October, but rose 19,000 in November, for a net gain of 10,000, after declining earlier this year for 4 months in a row. 

• Temporary jobs, which have declined by over -650,000 since late 2022, declined again in both October, by -12,700, and November, by -5,000, for a total decline of -17,000, a new post-pandemic low.
• The number of people unemployed for 5 weeks or fewer rose 316,000 from September to November,  to 2,543,000, the highest number since the end of 2020.

Wages of non-managerial workers 

• Average Hourly Earnings for Production and Nonsupervisory Personnel increased 0.4% in October and another 0.5% in November, for a net gain of 0.9%, with a YoY gain of +3.9%. This continues to be significantly above the 3.0% YoY inflation rate through September.

Aggregate hours and wages: 

• The index of aggregate hours worked for non-managerial workers was unchanged in October, but increased 0.1% in November, and is up 1.3% YoY, its highest rate since January.

• The index of aggregate payrolls for non-managerial workers rose 0.4% in October and another 0.5% in November, and is up 5.2% YoY, its highest rate since April.

Other significant data:

• Professional and business employment declined -7,000 in October, but rose 12,000 in November, for a net change of 5,000. These tend to be well-paying jobs. This is the fifth decline in a row, and is the lowest number in over 3 years. It is also lower YoY by -0.2%, which in the past 80+ years - until now - has almost *always* meant recession. This is vs. last spring when it was down -0.9% YoY.
• The employment population ratio declined -0.1% to 59.6% from September through November, vs. 61.1% in February 2020.
• The Labor Force Participation Rate rose +0.1% to 62.5% from September through November, vs. 63.4% in February 2020.

SUMMARY

Looking at this from the perspective of the meet two month changes, it was a poor report with only a few bright spots.

Let me note the bright spots first: construction employment, and wage growth. Despite the pounding that the housing market has taken, residential construction employment made a new post-pandemic high in November. And the residential sector was relatively the weakest one within construction. Non-residential construction employment rose sharply - I suspect due to AI-data center building.

Additionally, wages grew sharply in both October and November, which also powered a sharp rise in aggregate payrolls, a very good sign. Additionally, manufacturing showed signs of life as the average workweek in that sector rose.

But these were outweighed by all the negatives. On net, jobs contracted by -41,000 since the last report. Unemployment rose 0.2%, and underemployment rose by 0.7%, both to multi-year highs. Both short term new unemployment and those who want a job are not even looking rose to close to post-pandemic highs. Employment declined in manufacturing, trucking, and temporary help - all leading sectors. And while labor force participation rose, the employment to population ratio declined.

Right now the only sectors holding employment afloat are health care, which on net accounted for all of the gains in the past few months, as well as construction (likely mainly related to AI data center spending). In the seven months since April, only 119,000 jobs have been added, an average gain of only 17,000 jobs per month. And that’s before the likely downward revisions which will be made once the QCEW is integrated into the results.

In summary, the jobs market is either a hairs-breadth above contraction, or actually in contraction.

What do vehicle miles traveled and gas usage tell us about the economy?

 

 - by New Deal democrat

Today is the last day of our data drought before the onslaught of delayed reports that begins tomorrow with the November jobs report and CPI. 

In the meantime, there is a commenter on another economics site who generally believes that everything is OK as along as vehicle miles traveled YoY stay positive - and as of October, the rolling 12 month average was higher by 1.0%. Others robustly disagreed. So I thought I would take a look.

In the first place, here is the 12 month rolling average of total vehicle miles traveled for the past 50+ years in absolute terms:

[I am having a problem with Google giving me access to my photos, so instead here is a link to a FRED graph of the YoY% change in the 12 mile moving average of vehicle miles driven:

 https://fred.stlouisfed.org/graph/?g=1ONkm ]

It’s pretty obvious that total mileage traveled turned down, or at least decelerated markedly, at the onset of or shortly before all of the recessions in the past 50 years except for the pandemic.

But of course that just tells us that it is a *coincident* indicator, best for confirming in the rear view mirror what other data has already been suggesting. Notably, only in 1979 and 2000 did it turn down or decelerate in advance; in 1981, it did not turn down until months after the recession had already started.  Further, there was a significant deceleration beginning in the summer of 2005 that did not correlate to any recession in the next year; and for 4 entire years after the Great Recession miles traveled were completely flat, punctuated with several periods of small declines that did not coincide with recession, and so would have been very wrong signals had they been followed at the time.

Instead, I think that over the long term total vehicle miles traveled have told us that almost all US recessions in the past 50 years have at least in part been due to oil price shocks. And indeed the deceleration in miles traveled in 2005 coincided with gas prices hitting $3/gallon for the first time in the wake of Hurricane Katrina, and the four year period after the Great Recession was characterized by what I called at the time the “oil choke collar”; i.e., every time the economy would pick up, gas prices would shoot to $4, cooling the economy down, which would result in gas prices sinking back to $3, and the cycle would repeat.

In support of this, here is the YoY% change in vehicle miles traveled compared with the YoY change in the price of gas (red, /10 for scale) and for the period predating that statistic, the price of oil (orange, /20 for scale):

[To be supplied]

The oil price shocks stand out, as the YoY change in prices coincides with a sharp downturn in miles traveled. When the shock ends, vehicle miles recover. By contrast, in the 2001 recession and the pandemic there were no spike in gas prices, and the downturn or deceleration in usage was caused by other things.

Similarly, when we look at vehicle miles traveled compared with real GDP (red), we see a strong although not perfect (nothing ever is!) correlation:

[To be supplied]

 

In general, this suggests that we should expect at least a deceleration if not a downturn in vehicle miles traveled roughly coincident with the onset of recession. So here is the close-up of the past four years:

[To be supplied]

Through October, YoY vehicle miles traveled were generally steady, suggesting no recession had begun as of that time - but giving us no information with which to forecast.

But there is a very similar metric, which is gasoline product used, which is updated every week, and thus is current through the first week of December, and here is the story it tells:

[Liink to E.I.A. Data and grap of 4 week average of gasoline usage]

The four week average was significantly negative YoY through most of the summer before recovering in September into October. But for the past five weeks since the beginning of November, it has been very negative.

So, if the signs were positive into October, the decline in usage since then does not bode well for the November data were are about to be deluged with starting tomorrow.

Weekly Indicators for December 8 - 12 at Seeking Alpha

 

 - by New Deal democrat

My “Weekly Indicators” post is up at Seeking Alpha.

While there were no significant changes in the ratings, two big stories stand out: (1) the nearly total re-normalization of the yield curve in response to Fed interest rate cuts; and (2) evidence of further deterioration in the labor market.

The problem with Fed rate cuts, of course, is if they are in response to an economy that is about to roll over into recession. Yes, they lay the groundwork for a recovery, but you have to go through the recession first!

As usual, clicking through and reading will bring you up to the virtual moment as to the state of the economy, and reward me with a penny or two for my efforts in collecting and organizing the data for you.

Three important fundamentals-based indicators of the consumer economy: are they turning?

 

 - by New Deal democrat

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.