Weekly Indicators for October 9 - 13 at XE.com

 - by New Deal democrat

My Weekly Indicators post is up at XE.com.

This week there was a significant change in one of the long leading indicators, and that is enough for me to downgrade my long term outlook from mildly positive to neutral.

They are monsters

 - by New Deal democrat

The President and his GOP majorities in Congress are monsters. As one commentator on NPR put it yesterday afternoon, the President's default mode is to toss an armed hand grenade into a room in order to create chaos.  He can then pick out the most vulnerable, and use that leverage to enter into a win-lose deal.

Meanwhile, having been emboldened by the 2011 Debt Ceiling Debacle, the Congressional GOP majorities, who haven't been able to legislate affirmatively, have become specialists in taking hostages and threatening to shoot them unless their agenda is enacted.

Trump and the GOP Congress combined have, as of this morning taken at least four hostages:

DREAMers - the DACA program is being terminated. After an initial claim that a deal had been made to protect young people who had been brought to the US as children and know of no other home, the malAdministration is now taking a hard line, refusing to protect the nearly 1 million enrollees from deportation unless it gets its entire immigration policy enacted.

SChip recipients - this program, which provides medical insurance coverage for over 8 million  lower income children, was allowed to expire on September 30.  Despite assurances from the Congressional GOP that it would be re instituted promptly, nothing has been done.

Puerto Ricans - Unlike Texas, Louisiana, and Florida, which are GOP majority states, the malAdministration never provided prompt aid to the over 3 million Puerto Ricans, and is threatening to withdraw the aid before basic services are restored.

Recipients of Obamacare subsidies - the malAdministration is refusing to make subsidy payments under the ACA to insurers who enroll those who have less than 2.5 times the income of the Federal poverty level, which includes about 7.5 million people who have enrolled under Obamacare.

That's a total of close to 19,000,000 hostages.

All four groups are not GOP constituencies.  Further, three of the four groups of hostages have in common that they aren't presently able to vote, although SChip children do grow up and Puerto Ricans can move to the mainland, and SChip children have parents and Puerto Ricans already have lots of relatives on the US mainland, all of whom can vote.

They are monsters. Real harm is being inflicted on a significant share of the US populace, out of little more than spite. People will die as a result.

Do you think those 19,000,000, or their parents, relatives, and friends, might be motivated to vote in 2018 and 2020?

-From Bonddad

These last 9 months have been incredibly disheartening.  I've watched as the toddler-in-chief (boy do I wish I coined that term) has continued to bully, threaten and in general do whatever he can to harm other people.

Today's executive action to eliminate insurance subsidies was unconscionable.  It will leave millions without health insurance.  It is a move that the entire health care complex voiced disapproval of.  Hospital stocks tanked on the market open.   

It is one of the worst policy decisions ever undertaken by a US President.

Real money supply: the slow deceleration continues

 - by New Deal democrat

I made the point a few weeks ago that the non-financial long leading indicators had turned at least neutral if not negative, while the financial ones were still positive.

But I've particularly had my eye on real money supply, especially M2.  This post is up at XE.com.

And in an update, as of this morning's consumer inflation number, Real M2 growth has fallen slightly below 3.0% YoY, which turns it from a positive to a neutral.

There Is No Commodity Based Inflation

Consider the following charts (the top three area daily; the bottom is weekly):

All prices are either declining or stable.  The only major ETF that is showing strength is the industrial metals ETF (this is a weekly chart):

This explains why non-food and energy prices are subtracting from prices:

This is one reason why overall inflation is so week globally.

Hurricane adjusted initial claims for the week of September 30: 243,000

 - by New Deal democrat

I am repeating an exercise I undertook in 2012 when Superstorm Sandy disrupted the initial claims data: estimating what the initial jobless claims would have been, but for the hurricanes.  Since this morning initial claims for the first week of October were reported at 243,000, this will probably be the last week in which this exercize is necessary.

In 2012, I created the hurricane adjustment by backing out the affected states (NY and NJ) from the non-seasonally adjusted data, which gave me the number of initial claims filed in the other 48 states.  I compared that with the same metric one year earlier, and multiplied by the seasonal adjustment to arrive at the number if the affected states had the same relative number of claims during the given week, as all of the unaffected states.

This tells us whether or not the hurricane disruptions are masking any underlying weakness in the economy.

This year I backed out Texas starting 4 weeks ago, added Florida 3 weeks ago, and Puerto Rico last week.

The state by state data is released with a one week delay.  So what follows is the analysis for the week of September 23, the number for which was reported at 272,000.

Here is the table for the Week of September 24 in 2016 vs. September 23 this year:

Metric                              2016                   2017

Seasonally adjusted:       248,000              258,000

Adjustment for total:       1.23                   1.26

Not seasonally adjusted: 200,456             204,662 

Florida claims:                 7,275                 18,902
Puerto Rico claims:         1,621                 328 (!)*
Texas claims:                   14,323               17,063               

NSA claims ex-FL,TX,PR:177,237           172,369

FL, TX, PR as % of total: 11.6%                   n/a

2017 w/ FL,TX, PR adjustment:  n/a          194,988

*Yes, Puerto Rico really was lower this year, presumably because offices were not open or claimants were otherwise unable to file.

In 2016 the weekly seasonal adjustment was 1.23. This year it was 1.26 Multiplying the non-seasonally adjusted total of 194,988 by 1.23 gives us 240,000. Multiplying by 1.26 gives us 246,000.

Thus the hurricane-adjusted initial jobless claims number for the week of September 23, 2017 is 243,000.

Here are the hurricane-adjusted numbers for previous four weeks:
Sept. 2:  239,000.
Sept. 9:  229,000.
Sept. 16: 237,000
Sept. 23: 246,000

The four week hurricane adjusted average is 239,500.

The underlying national trend in initial jobless claims has remained very positive during the period of hurricane disruptions. Unless the disruptions remain significant in next week's report, this will be my last hurricane-adjusted update. 

August JOLTS show strength in hiring, but continued slow deceleration in the labor market

 - by New Deal democrat

More and more commentators seem to be noticing that the disconnect between the "soft data" of openings in this survey and the "hard data" of actual hires is not a good thing. As I have pointed out many times, openings can be just chumming the water for resumes, or even laying the groundwork to hire foreign workers. The disconnect betrays an unwillingness to pay new hires more, or to engage in on the job training.

That disconnect continued in this week's report for August. Openings continued to run about 10% higher than actual hires:

The report does give us a very granular view of the labor market, with the major shortcoming that it has only covered one full business cycle.  To recap, in the last business cycle, hires peaked and troughed before separations: 

Further, hires stagnated, and shortly thereafter involuntary separations began to rise, even as quits continued to rise for a short period of time as well:

 

[Note: above graphs show quarterly data to smooth out noise]

Here are hires vs. separations on a monthly basis for the last several years:

Once again for this report, even while quits have continued to rise, involuntary separations bottomed a year ago, and have risen  on a quarterly basis ever since.  Here's the monthly view of the last several years: 

The recent surge in layoffs and discharges is actually similar in scale to that just before the last recession.

As I pointed out earlier this week, both the Establishment and Household employment surveys show a decelerating pace of job creation. The decelerating pace of hires and quits, and accelerating pace of layoffs and discharges, while still net positive, show a similar slow deterioration..

New Things are Afoot ... Soon

Hey all,

This is Bonddad.  Yes, the real bonddad (because, of course, there are thousands of people impersonating me on the web). 

I haven't really been around here for ... awhile.    That will be changing soon.  NDD and I (and some other people) have some new projects in the works that will be very cool.

Just wanted to give you a heads up, as it were.

BD

One more scene from the September jobs report: late cycle deceleration continues

 - by New Deal democrat

The rate of year over year job growth is probably the single best mid-expansion indicator, in part because there is very little noise in the Establishment survey jobs data YoY.  But, as the below graph shows, going back all the way to 1948, while it is noisier the Household survey YoY jobs data also traces out the same pattern with very few exceptions (notable the early 1950s and the mid 1960s):

Even a cursory glance at the graph shows that we are on the decelerating side of that indicator.  Here's a close-up of the last 10 years:

Although the Establishment and Household numbers moved in very different directions this month, viewed in context both show a significant downshift in 2017 from the last few years.

Yesterday I noted that if leisure and hospitality jobs had grown by their 12 month average of +27,000 in September vs. their actual -111,000, the September Establishment survey would have  grown by a relatively weak 105,000 (yes I know it is more complicated than that, but it is a good K.I.S.S. estimate). Since in September 2016 jobs grew by +249,000, even with that hurricane adjusted estimate, YoY job growth would have decelerated to 1.3%.

In the past-WW2 era, typically late-cycle deceleration was accompanied by (and generally caused by) an increase in inflation and an increase in Fed interest rates to chase after it. The few times there were multiple YoY peaks in job growth (the 1960s, 1980s, and 1990s), the Fed engineered "soft landings" where it lowered rates after initial raises.

Per Tim Duy, who has a good record of Fed-watching, even in the absence of rising inflation,  they seem bound and determined to raise rates again in December.  A December rate hike shouldn't be enough to push the economy into a later recession, but it should put further downward pressure on job growth in 2018.

Scenes from the September jobs report

 - by New Deal democrat

On Friday I highlighted the difference between the results of the establishment survey and the household survey.  A 2006 paper from the BLS (pdf) explaining the differences in how jobs are counted in the two surveys shows us why:

Interviewers from the Census Bureau contact households and ask questions regarding the labor force status of members of the household during the calendar week that includes the 12th day of the month. The broad coverage of the CPS encompasses ... workers temporarily absent from work without pay. 

.... 

[In the Establishment survey, b]usinesses report the number of persons on their payrolls who received pay during the pay period that includes the 12th day of the month. Workers who did not receive pay during the pay period are not counted.

Thus an employee at, say, Barnacle Bill's Seashore Restaurant, who wasn't paid during the week of Hurricane Irma because the restaurant was closed, doesn't get counted in the Establishment survey, but *does* get counted in the Household survey.

Thus, although the household survey is the smaller sample, and thus subject to much more noise, it probably gave us a much truer picture of the labor market for the whole of September.  While the employment gain itself (906 thousand!) was insane, and surely not accurate, the ratios of unemployment, underemployment, and participation in the survey probably picked up the true  trend of improvement.

So let's look at those.  First of all, here is the U6 underemployment rate.  I've subtracted 8.3% from the result, to better show how the present situation compares to the last two expansions:

In the last expansion, the underemployment rate newer got below 7.9%. The late 1990s was a genuine boom.

Next, here is the employment to population ratio for the prime age workforce of 25 to 54:

We are 1.3% below the peak of the last expansion.  Again, the figure for the 1990s shows what a real boom looks like. Since that demographic is about 125 million people, that 1.3% equates to a little over 1.6 million people.

So if we were to get another 1.6 million jobs over and above population growth, plus growth of about 400,000 full time jobs vs. part time jobs to convert the involuntarily part time employed, that would get us to full employment.

Finally, here's a graph of the last 12 months of leisure and hospitality employment from the Establishment survey:

In the 11 months before September, an average of 27,000 jobs were added each month. If we replace the -111,000 jobs lost last month with the +27,000 average of previous months, the Establishment survey would have shown a gain of 105,000 jobs.  Of course, this wasn't the only sector affected by the hurricanes, but that number, while still relatively weak, is probably closer to the actual trend.