Friday, December 14, 2018

Real retail sales very positive; industrial production decent


 - by New Deal democrat

Real retail sales for November, together with the revisions for October, were very positive.

While November sales, both nominally and adjusted for inflation, increased +0.2%, October sales were revised upward to a nominal +1.1%. On an inflation adjusted basis, that translates to +0.8%.

As a result, as of November both real retail sales and real retail sales per capita set new records:



The latter has turned negative more than one year before both of the last two recessions, and so supports the case for no recession in 2019.  The former, on a YoY% basis, tends to be a decent if noisy short leading indicator for employment. Here what YoY growth in real retail sales looks like:



About the least positive thing you can say about this morning's report is that, even with the upward revision to October, real retail sales appear to have downshifted from their earlier strength, as the strong +1.7% real gain from September 2017 drops out of the comparison. This suggests continued positive employment reports in the next few months, but maybe not at the 200,000+ levels of a few months ago.

Meanwhile, November industrial production increased +0.6%, but October was revised downward by -0.3%, so the net result was a +0.3% gain. On a YoY basis, industrial production has also decelerated from a "boom" readings to decently positive ones:



Together, these two reports this morning say that the nowcast remains very good.

Thursday, December 13, 2018

A note on initial jobless claims


 - by New Deal democrat

Initial jobless claims for last week were reported at 206,000 this morning. That is one of the lowest weekly readings during this expansion.

More significantly, the 4 week moving average is back below 10% off its low, within the range of typical noise:



And it is down -4.6% YoY, which as the below graph going back 50 years shows, is actually a quite positive reading:



I continue to expect a slowdown next year, so I am not expecting any substantial improvement in this number, but it is certainly not negative now.

Wednesday, December 12, 2018

Real wage growth: November 2018 update


 - by New Deal democrat

Now that November inflation has been reported (as unchanged), let's update what that means for real wages.

Nominally, wages for nonsupervisory workers grew +0.3% in November. With inflation flat, that means real wages also grew +0.3%: 



Even so, although they are at a new 40 year high, real hourly wages are nevertheless below their peak level set in the early1970s!

On a YoY basis, real wages have risen 1%:


Since 1999, the change in real wages has almost explusively been determined by the price of gas.

Finally, real aggregate wages have now risen 26.8% from their bottom in October 2009:



The total advance during this expansion is only exceeded by the 1960s and 1990s at this point.

On the other hand, growth in real aggregate wages has averaged 2.5% in this expansion, varying from 1% to 8% depending on what has happened with gas prices:



This is a very weak rate of growth, ahead of only the 2000s expansion and on par with the 1980s expansion.

All in all, the grwoth in real wages is good news. It's just nearly good enough compared with the growth in business profits generated by the expansion.

Tuesday, December 11, 2018

The October JOLTS report: very good employment market continues, just below best levels


- by New Deal democrat

Monday's JOLTS report for October was, surprisingly, a little weaker than the employment report from one month ago, that I described at the time as perhaps the best in the entire expansion. But this is a relative statement; basically, most of the series were only a little off their recent best readings:
  • Quits were just below their all-time high in August, and July as well.
  • Hires were just below their August best.
  • Total separations made another new expansion high
  • Layoffs and discharges declined a little from August and September levels (a positive), although they are slightly elevated compared to last spring.
  • Job openings were also just below their all time high in August, as well as September.

Let's update where the report might tell us we are in the cycle, remaining mindful of the fact that we only have 18 years of data. Below is a graph, averaged quarterly through the third quarter, of the *rates* of hiring, quits, layoffs, and openings as a percentage of the labor force since the inception of the series (layoffs and discharges are inverted at the 3% level, so that higher readings show fewer layoffs than normal, and lower readings show more):



During the 2000s expansion:
  • Hires peaked first, from December 2004 through September 2005
  • Quits peaked next, in September 2005
  • Layoffs and Discharges peaked next, from October 2005 through September 2006
  • Openings peaked last, in Spril 2007
By contrast during and after the last recession:
  • Layoffs and Discharges troughed first, from January through April 2009
  • Hiring troughed next, in March and June 2009
  • Openings troughed next, in August 2009
  • Quits troughed last, in August 2009 and again in February 2010
Now here's what the four metrics look like on a monthly basis for the last five years: 



Through August, job openings, quits, and hires have all surged higher this year, with openings virtually "on fire." In the last two months of data there's been a pause, but nothing that suggests a downtrend.
.
Next, here's an update to the simple metric of "hiring leads firing," (actually, "total separations"). Here's the long term relationship since 2000 through Q3 of this year: 



Here is the monthly update for the past two years measured YoY:



In the 2000s business cycle, hiring and then firing both turned down well in advance of the recession. Both are still advancing. The recent relative surge in separations might just be noise.  

Finally, let's compare job openings with actual hires and quits. As you probably recall, I am not a fan of job openings as "hard data." They can reflect trolling for resumes, and presumably reflect a desire to hire at the wage the employer prefers. In the below graph, the *rate* of each activity is normed to 100 at its August 2018 value, since that has been the recent peak:



When I first presented this graph, I noted that while the rate of job openings is at an all time high, the rate of actual hires has only just reached its normal rate during the several best years of the 2000s expansion, and is below its rate at the end of the 1990s expansion. 

This year both hires and quits have accelerated, with hiring decisively above its level from the last expansion -- although, as you can see in the first graph above, the *rate* of hiring remains below that of the 2000s expansion. My take has been that employees have reacted to the employer taboo against raising wages by quitting at high rates to seek better jobs elsewhere. If the dam is finally breaking, we should see the hiring rate increase, and quit rate level off.

In summary, the October JOLTS report continues to show a very good employment market, just below its best levels. My expectation remains that this will start to cool down early next year as a slowdown begins to take hold.

Monday, December 10, 2018

Scenes from the November Jobs Report


 - by New Deal democrat

Here are a few noteworthy highlights from Friday's employment report.

1. Temporary help continues positive.

As I wrote a week ago, temporary employment (blue in the graphs below) leads overall employment (red). So it is good news that it continued to grow in November:



Somewhat more ambiguously, the rate of growth has waned a little in the past few months. But is isn't really on a downward trajectory at this point:



Just based on this metric (there are of course lots of others that can be used), employment growth in the general range of 160,000 to 190,000 a month, at least on a 3 month average, looks likely in the immediate future.

2. Wage growth continues to accelerate.

This is the second month in a row that nominal average hourly wages grew at better than a 3% YoY rate for nonsupervisory workers (blue in the graph below). In real terms, YoY wage growth also looks set to continue to increase (red). This is because of the decline in oil prices:



Note that we won't get the inflation report for November until Wednesday. Note also that almost all of the good news in real wage growth in the last 15 years has been due to temporary declines in the price of gas. Finally, note that we still haven't approached the 4% nominal YoY growth we got in the previous economic expansion.

3. Signs of fraying around the edges #1: Not in Labor Force, but Want a Job Now.

This is the number of people who haven't looked for a job at all recently, but say they would like a job. This has trended upward in the last 8 months:



Not a red flag at this point, but probably a yellow one, as in, "pay increased attention."

4. Signs of fraying around the edges #2: part time for economic reasons.

While the U3 unemployment rate held steady last month, the U6 underemployment rate rose by 0.2%. This is primarily due to an increase in the number of people who are involuntarily employed part time:



It is not well known that while the unemployment and underemployment rates are lagging indicators coming out of a recession, they are leading indicators going in. Since they tend to follow the initial jobless claim numbers with a one or two month lag, and those have risen by over 10% since September, it's not a surprise that at least the U6 number rose.

Again, this isn't a red flag, and initial jobless claims will give us a signal first. But it does serve to confirm the recent weakness in initial jobless claims, and confirm that we should "pay increased attention."