Saturday, June 3, 2017

Weekly Indicators for May 29 - June 2 at

 - by New Deal democrat

My Weekly Indicators post is up at  Coincident data turned more mixed this week.

Friday, June 2, 2017

May jobs report: nothing more nor less than a decent late cycle report

- by New Deal democrat

  • +138,000 jobs added
  • U3 unemployment rate down -0.1% from 4.4% to 4.3%
  • U6 underemployment rate down -0.2% from 8.6% to 8.4%
Here are the headlines on wages and the chronic heightened underemployment:

Wages and participation rates
  • Not in Labor Force, but Want a Job Now: down -146,000 from 5.707 million to 5.561 million   
  • Part time for economic reasons: down -53,000 from 5.272 million to 5.219 million
  • Employment/population ratio ages 25-54: down -0.2% from 78.6% to 78.4%
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: up $.03 from $21.97 to $22.00,  up +2.5% YoY.  (Note: you may be reading different information about wages elsewhere. They are citing average wages for all private workers. I use wages for nonsupervisory personnel, to come closer to the situation for ordinary workers.)
Holding Trump accountable on manufacturing and mining jobs

Trump specifically campaigned on bringing back manufacturing and mining jobs.  Is he keeping this promise? 

  • Manufacturing jobs fell by -1,000 for an average of +2500 vs. the last severn years of Obama's presidency in which an average of 10,300 manufacturing jobs were added each month.   
  • Coal mining jobs rose by +400 for an average of +300 vs. the last severn years of Obama's presidency in which an average of -300 jobs were lost each month
March was revised downward by -29,000. April was also revised downward by -37,000, for a net change of -66,000.  

The more leading numbers in the report tell us about where the economy is likely to be a few months from now. These were mixed but on balance positive.
  • the average manufacturing workweek was unchanged at 40.7 hours.  This is one of the 10 components of the LEI.
  • construction jobs increased by +11,000. YoY construction jobs are up +191,000.  
  • temporary jobs increased by +12,900.

  • the number of people unemployed for 5 weeks or less decreased by -181,000 from 2,335,000 to 2,154,000.  The post-recession low was set 18 months ago at 2,095,000.
Other important coincident indicators help  us paint a more complete picture of the present:
  • Overtime rose +0.1 from 3.2 to 3.3 hours.
  • Professional and business employment (generally higher- paying jobs) increased by +38,000 and is up +622,000 YoY.

  • the index of aggregate hours worked in the economy fell  by -0.2  from 114.4 to 114.2  
  •  the index of aggregate payrolls fell  by -0.1   from 168.0 to 167.9.   
Other news included:         
  • the alternate jobs number contained  in the more volatile household survey decreased by   -233,000 jobs.  This represents an increase of 1,865,000  jobs YoY vs. 2,366,000 in the establishment survey.    
  • Government jobs fell  by  -9,,000.     
  • the overall employment to population ratio for all ages 16 and up fell -0.2% from  60.2% to 60.0 m/m  and is  up +0.3%  YoY.     
  • The  labor force participation rate fell -0.2% m/m and is up +0.1% YoY from 62.9% to 62.7%.     

This was generally a positive report, with declines in both the U-3 and U-6 unemployment and underemployment rates, and declines in those who are not in the labor force but want a job, and those who are working part time for economic reasons. YoY nominal growth in wages increased back to +2.5%. Most of the other internals were also positive.

The important negatives were the declines in the employment to population ratio and the labor force participation rate -- which is the real reason for the decline in the unemployment rate.  It's also noteworthy that manufacturing jobs actually declined this month. That both of the last two months were also revised lower is also not a good sign.

All in all, this was a decent late cycle report, nothing less and nothing more.

Thursday, June 1, 2017

Another long leading indicator may have peaked

 - by New Deal democrat

A little noticed aspect of a report last week looks pretty significant.

This post is up at

Wednesday, May 31, 2017

Gas prices on verge of turning negative YoY

 - by New Deal democrat

There are two important aspects to the inflation rate right now. One, as Dean Baker reminds us today, is that most of core inflation has been caused by housing, via "owners equivalent rent."  Take that out, and inflation is only 1%:

The second important aspect is that almost all the variation in headline inflation is due to the price of gas.

At the beginning of this year, I thought one of the big issues would be whether gas prices would continue to increase off their January 2016 bottom at a similar rate as they did last year, or whether the increase would be more subdued. We have a pretty definitive answer at least for now, and it is the latter.

Here's the graph of gas prices since the beginning of 2014:

And here is the same information shown as a YoY% change:

Gas prices were up less than 3% YoY as of yesterday.if the continue to go sideways for another week or so, they will actually be down YoY.  This is already the case with crude oil prices:

In the last few years, gas prices have made their seasonal peak in June. If we are near the peak for this year, this bodes well for a subdued inflation rate, which means it also bodes well for real wage growth and real median household income, for which here is the latest monthly report:

Sent from my iPad

Monday, May 29, 2017

Of Memorial Day and Confederate statues

 - by New Deal democrat

Memorial Day is a particularly fitting time to write about the issue of Confederate monuments. That's because Memorial Day originated as a day set aside to honor the Civil War dead, not just those who fought for the Union, but those on both sides, including those who died in service of the Confederacy.  It was part of the process of magnanimous victory which enabled the country to heal, perhaps epitomized nowhere better than when both William Tecumseh Sherman and Joseph Johnston served as pallbearers for Ulysses S. Grant.

Part of that process was the erection of monuments in the South to honor their dead, at Civil War battlefields, and also at cemeteries throughout the South. For example, here is one in Foysth Park in Savannah:

I don't remember if it this monument or not, but supposedly there was a mix-up in the deliveries of two civil war statues, and about 50 years later Savannahan's learned that atop their monument was - a Union soldier!  A cemetery in Maine is supposedly watched over by a Confederate.  Go figure.

And at Gettysburg, virtually every State whose troops were included in the clash erected monuments in their honor.  Here is Virginia's:

These two types of monuments, which are either historical battlefield monuments, or are a means of honoring the fallen, are similar to the decorated graves of two British soldiers who fell in the battle of Lexington and Concord in 1775:

I also recall a few years ago that Turkey made a point of its felicitous care of the cemetery of the thousands of fallen Australian and other British Commonwealth soldiers at Gallipoli, shown here:

So I differentiate between Confederate battlefield and cemetery memorials which document a specific historical event or honor the dead, and those which honor the cause of slavery, sedition, and secession, such as monuments to Confederate Generals at County or State buildings.  The only "heritage" being honored there is that of white supremacy.  I doubt very much that black people feel their hearts particularly swelling as they contemplate those statues.

Of course, if those counties and States gave equal prominence to statues commemorating the evil of slavery, such as this:

then maybe they would have a point.

Until then, as far as I am concerned, it is about time for the civic honoring of the Confederacy to end.

Now if we can just remove the status of Andrew Jackson on horseback and in military regalia from the park across the street from the White House:

and give it to the Cherokee to do with as they see fit, we would be making some real progress.

Sunday, May 28, 2017

US Bond Market Week in Review

     Last week, I discussed the views of 4 Federal Reserve presidents to discern their current interest rate policy.  This week’s column finishes that analysis.  I would like to offer a personal thanks to Minneapolis Federal Reserve president Neel Kashkari who responded to a Twitter question and pointed me to his latest essay on his policy stance.  Not only did it make my weekend, but in showed what a wonderfully powerful tool social media could be.

     In an online essay, Dallas Fed President Kaplan described a fairly healthy economy.  He sees a de-leveraged consumer was the primary driver of GDP growth.  He projects a slight increase in non-residential fixed investment.  Regarding the Fed’s goals, he noted that the U-6 unemployment rate was near its pre-recession low, indicating the labor market is near full employment. 

     And the Dallas Fed’s trimmed mean PCE is just below the Fed’s 2% target:


Here is his statement on monetary policy:

Based on these considerations, I have argued that future removals of accommodation should be done in a gradual and patient manner. In that regard, I continue to believe that three rate increases for 2017, including the March increase, is an appropriate baseline case for the near-term path of the federal funds rate. 

     Chicago Fed President Evans also believes the economy is near the Fed’s unemployment and inflation targets.  Consumer spending has been strong thanks to healthy balance sheets and strong job growth.  Business investment has been weak, but the strong dollar has lowered international demand (and therefore the need for domestic investment) while weaker oil prices have hampered the oil industry.  He also made a very interesting point: because we’re in a slower growth environment, the pace of rate hikes will be slower.  Put another way, slow growth means weaker prices pressures which implies a weaker pace of rate increases.  Here is his statement on the pace of rate increases:n

I think the progress made toward the FOMC’s dual mandate goals justifies our recent rate increases, and my current outlook envisions the fed funds rate moving up over the next few years along a path roughly consistent with the median FOMC projection.

     Philadelphia Fed President Harker sees three rate hikes this year.  He sees the following labor market situation: “The unemployment rate has dropped to its lowest point in a decade, quits are up, and we’re starting to see upward pressure on wages. I estimate 2.5 to 3 percent wage growth this year, which is good. It’s what has been missing from this recovery.”  He also believes inflation is already near the Fed’s target.  Here is his statement on monetary policy:

First and foremost, based on the strong economic outlook, I continue to see three rate hikes for 2017 as appropriate. That, as ever, is assuming that things unfold in line with my projections.

     NY Fed President is also on the record for 2 more rate hikes:

The Fed has penciled in two more rate hikes this year and Fischer said Friday this remains his forecast.

“So far, I haven’t seen anything to change that,” he said.

He stressed the Fed is “not tied” to a total of three rate hikes this year and the actual pace of tightening depends on the data.

     The lone dissenter from recent rate hike talks is Neel Kashkari of the Minneapolis Fed. He offered his reasoning in a recent essay.  First of all, he notes that most Fed governors are treating the 2% inflation target as a ceiling rather and the median estimate of prices.  He offered the following analogy:

For example, if you are driving down the highway alongside a cliff, you will err by steering away from the cliff, because even one error in the other direction will cause you to fly over the cliff. In a monetary policy context, I believe the FOMC is doing the same thing: Based on our actions rather than our words, we are treating 2 percent as a ceiling rather than a target. I am not necessarily opposed to having an inflation ceiling. The European Central Bank has a 2 percent ceiling instead of a symmetric target. However, I am opposed to stating we have a target but then behaving as though it were a ceiling.

This is a very important point, which I believe to be largely correct.  He also noted that other inflation measures – specifically expectations and labor costs -- are also contained.  And unlike other Fed governors, he believe there is sufficient labor market slack to warrant maintaining the current rate policy.  Here, he cites the employment to population’s ratio as evidence:

He also references the still high U-6 rate for support (however, see Dallas President Kaplan’s analysis above).  Overall, I would expect Kashkari to continue being the lone dissenter.

     A large majority of Fed governors are in the hawkish camp now.  Unless there is a fundamental change in the economy, expect at least 2 more rate hikes this year.

US Equity and Economic Review

     On Friday, the BEA released their second estimate of 1Q GDP.  This was better, with a 1.2% Q/Q growth rate and 2% Y/Y increased.  Best of all, PCEs, investment and exports all posted Y/Y gains:

While the overall growth rate is still disappointing, first quarter GDP growth has been subject to a strong seasonality for most of this expansion, so there’s not a lot of reason to worry yet. 

     Durable goods were up slightly, but continued to print in the 220,000 – 240,000 range:

     Finally, this week, we learned more about the U.S. housing market.  Existing home sales fell 2.3% M/M but rose 1.6% Y/Y.  However, the 3, 6 and 12 month average annual pace of existing sales is still rising:

 New Home sales declined a large 11.4%, but were up .5% Y/Y:

The chart shows that large drops are rare, but not unprecedented.  There have been 4 such declines in the last 5 years.  Regional data highlights the weak areas:

In both charts, the red line represents the region with the sharpest decline.  In the top chart it’s the Midwest region while in the bottom chart, it’s the West region.  But as with existing home sales, the 3, 6 and 12 month average annual pace of sales growth is increasing:

Mortgage rates aren’t the culprit:

While both 15 and 30 year mortgages rose after the election, current levels are still low by comparison to other times in this expansion.

      Economic Conclusion: overall, the U.S. economy is still in good shape.  While 1Q growth was 
still slow, the second estimate did contain an increase.  Durable good sales are still within the 220,000-240,000 range, indicating that while orders are not increasing, they are at least being sustained.  Although the monthly housing market data was weaker than we’d want, the trends are still positive. 

    Market Analysis: The good news this week is the SPYs finally broke through the upper 230s, which had provided resistance since the beginning of March:

The MACD indicates there is additional upside momentum if the market wants to continue rallying.  The problem is the small and midcap indexes failed to confirm the rally:

 This is not fatal; it could simply be that these indexes will move higher in the next few weeks.  But also consider that 3 of the 4 leading industry sectors are defensive:

Health care, consumer staples and utilities sectors are leading the market higher. 

     Despite the small SPY rally, the market is still expensive, with both the current and forward PEs high.  As I’ve concluded for the last few years, we need continued earnings and economic growth for the market to continue meaningfully higher. 


International Economic Week in Review

     Let’s delve into the country specific data.

     The Bank of Canada maintained their current .5% interest rate policy this week, offering the following assessment of the Canadian economy:

The Canadian economy’s adjustment to lower oil prices is largely complete and recent economic data have been encouraging, including indicators of business investment. Consumer spending and the housing sector continue to be robust on the back of an improving labour market, and these are becoming more broadly based across regions. Macroprudential and other policy measures, while contributing to more sustainable debt profiles, have yet to have a substantial cooling effect on housing markets. Meanwhile, export growth remains subdued, as anticipated in the April MPR, in the face of ongoing competitiveness challenges. The Bank’s monitoring of the economic data suggests that very strong growth in the first quarter will be followed by some moderation in the second quarter.

OPEC’s decision to increase oil production had a strong negative impact on western Canada, which had seen a boom of tar sands related activity.  But according to the central bank, the adjustment is now over.  They also describe a standard series of economic cause and effect events, starting with a declining unemployment rate:

The jobless rate dropped from 7.3% at the beginning of 2016 to its current level of 6.5%.  This has increased consumer confidence, which translates into higher consumer spending:

Y/Y retail sales increase have risen from 1% in 2015 to their current strong pace of just under 7%.  And the other half of the economic equation – businesses – are also increasing their activity:

The top chart shows the Canadian PMI index, which has risen strongly since the beginning of 2016.  This has translated into strong gains in industrial production, as shown in the second chart.

The combination of these developments has led to an increase in Canadian GDP:

The above data indicates that Canada has recovered nicely from oil’s price drop.

     The ONS released the 1st revision to the UK’s 1Q GDP report.  Overall GDP increased .2% from the previous quarter:

This is one of the weakest readings for from the UK since 2012. Moreover, the Q/Q number has weakened in the last 9 quarterly reports.  This is translating into a slightly lower Y/Y growth rate:

 Here is a breakdown of report’s component parts:

 This quarter, investments (in grey) was a large driver, which has greatly offset by a large decline in exports (in yellow).  It’s natural to ask if the post-Brexit slowdown predicted by a number of economists and analysts is now here.  We’ll need at least another quarter of data to make that determination.

           The only news from the EU was the latest Markit numbers: manufacturing rose to a 6-year high of 58.4; services marginally decreased .2 to 56.2; the overall number was unchanged at 56.8.  But the report contained this very positiveanalysis:

With backlogs of work across the two sectors registering the second-largest rise in six years, firms again took on staff at a pace rarely seen in the survey’s history in order to expand operating capacity. The overall rise in employment was the second-largest since August 2007, with manufacturing adding jobs at the steepest rate in the survey’s 20-year history. Service sector job gains matched those seen in April, sustaining the best spell of employment growth that the tertiary sector has enjoyed since early-2008.

In recent public commentary, the ECB noted a very important feedback loop was occurring: job gains were increasing consumer confidence which, in turn, was supporting increased consumer spending.  Here is the data:

The top chart is the EU unemployment rate, which has consistently decreased for the last 4 years.  That has supported retail sales (bottom chart), which have steadily increased over the same period of time.

     Finally, there were two pieces of economic data from Japan.  The market number decreased marginally, falling .2 to 52.  And prices remain weak: overall, they increased .4 while core prices were unchanged.

A thought for Sunday: no, Trump approval *still* isn't imploding. BUT ...

 - by New Deal democrat

Democrats continue to delude themselves about Presidential approval polls -- with one very big possible exception.

In the first place, can we all agree that Trump has had a particularly nasty last several weeks? Including firing Comey, blabbing secrets to the Russian ambassador, blabbing about our submarines to the Philippines' now-dictator, compromising the intelligence sources of Israel (and then confirming it!) and later Britain, and reports of multiple occasions with multiple officials in which he blatantly appeared to be attempting to shut down a criminal investigation?

Can you imagine what the public opinion polling would look like after several weeks like that, for virtually any past US President, let alone if the president were Hillary Clinton?

Well, here is what Trump's looks like as of today:  

His approval stands at 41%, right in the middle of where it has been since he assumed office in January.

A variation of the Trump-support-is-imploding mantra showed up later in the week when FiveThirtyEight wrote that "Trump's Base is Shrinking" based on strong vs. weak approval. Typically this is the graph that was shown:

This was contrasted with the strong vs. weak disapproval graph from the Vox article:

But once again, this looks like Democrat  self-delusion.  Here's Rasmussen's graph of strong approval minus disapproval graph so far for Trump: 

The FiveThirtyEight article was published at the passing moment when trong disapproval was slightly more than twice as common as strong approval. Now the level is back to where it has been on average for the last two months.

Here's the second big problem: the metric, which has only been published since 2008, was far wide of the mark in the 2012 election where, despite a negative number, Obama handily won re-election. (Since both 2008 and 2016 did not involve incumbents, the metric really didn't apply there at all.):

Democrats really need to disabuse themselves about any notion that Trump's support is imploding in any meaningful way, at least as to he himself. In presidential elections, even those who somewhat approve or disapprove tend to vote.


But there is one potential jewel in the detritus of the data: the difference between strong approval and strong disapproval may be a K.I.S.S. way to forecast the midterm Congressional elections.

Why? Because in midterms, only those with strong enough motivations come out to vote -- and the strength of their opinions looks like a pretty good proxy for their motivation.
In other words, what this is telling us is that if the midterms were to take place with a net disapproval rating on par with that found by FiveThirtyEight, there would probably be a Democratic wave. So it will be worthwhile to check strong approval vs. disapproval from time to time, to see how well it forecasts the 2018 midterm election results.