Wednesday, September 19, 2018

Housing: a big miss in permits with important ramifications

 - by New Deal democrat

NOTE: I'll have a more comprehensive report up at Seeking Alpha later, and will link to it once it is posted.

Despite a smart month over month increase in starts, this morning's report on housing permits and starts, taken as a whole, was a sharp negative.

It's true that starts, both in total and for single family units only, were higher than their readings from the last two months. This is something that I forecast one month ago, because permits had had a couple of good months, and starts tend to follow permits with about a one month lag.  But they were below every other reading but one for this entire year. 

Permits were another story entirely.  Last month I said that I expected them to stagnate, based on higher mortgage rates this year.  They did even worse than that. Total permits came in at a 12 month low, and are down -5.7% YoY, and down -12% from their March high.  This is recession watch territory. The less volatile single family permits came in at an 11 month low. While they are still up +2.1% YoY, they are down more than -7% from their February high. This is also enough to turn this important long leading indicator negative, as we have gone 6 months without a new high and are down over -5%.

The data isn't up on FRED yet, so here is the Census Bureau's graph:

This, by the way, is in line with the recent weekly data on purchase mortgage applications, which has been running essentially flat YoY.

Bottom line: this is big news with important ramifications

Tuesday, September 18, 2018

A hypothesis for Prof. Krugman: the transmission method was FEAR

 - by New Deal democrat

In his recent column disagreeing with Ben Bernanke, Paul Krugman asks for an explanation as to how a financial panic could lead to years thereafter of a slow recovery. Specifically, Krugman says that he "really really wants to hear about the transmission mechanism."

After all, the financial panic eased in 2009. And yet, outside of the very noteworthy exceptions of corporate profits generally and Wall Street bank profits specifically, the economic recovery was lethargic.

Now, to a great extent, the debate between "credit event" and "housing event" is somewhat a semantic one.  You simply don't get a housing bubble unless there is a credit bubble to enable it. Similarly, absent a credit bubble in consumer lending for either housing (the 2000s) or appliances and furniture (the 1920s), you don't get a big consumer downturn (see, e.g., 2001, in which consumers sailed right through a brief and shallow recession brought on in large part by a stock market bubble. See also the quick late 1980s recovery from the 1987 stock market crash).

But if you are looking for a transmission mechanism that lasted after 2009, as usual you have to look beyond narrow-minded neoclassical economy orthodoxy. Because from a behavioral point of view, the answer looks pretty simple: FEAR.

Behavioral economists have shown that people in general react twice as strongly to the fear of a loss vs. the anticipation of an equivalent gain. A good example in the everyday economy is that consumers cut back spending twice as sharply in the face of an oil price spike, as they loosen their spending in the face of a steep decline in gas prices.

It is crystal clear that the financial panic of September 2008 instilled fear in the vast mass of households. I believe that there is very good evidence that it persisted for most of this decade.

To begin with, here is a graph of consumer confidence as measured by the University of Michigan:

I have zoomed in on 2007-2015, because i want to emphasize that consumer confidence did not rebound meaningfully at all once it crashed in 2008, until about 2014. Furthermore, any time there was a whiff of renewed crisis during that timeframe, confidence plummeted, in the case of the 2011 "debt ceiling debacle," all the way back to its bottom, but also in response to the Deepwater Horizon massive oil spill (2010), the "fiscal cliff" (end of 2012) and the GOP's government shutdown (2013). 

That, ladies and gentlemen, is fear.

Meanwhile, households didn't just deleverage out of debt during the 2008 financial panic, but they continued to deleverage and deleverage and deleverage all the way until late 2014 -- well after housing prices had bottomed (red in the graph below):

and they haven't meaningfully increased their exposure to debt since.

Further, there was a housing boom from 1986-88 without a credit bubble. Afterward house prices declined 10% into the early 1990s:

But the below graph of the personal savings rate shows that, unlike the 1990s, when the household savings rate went into a sustained decline, as household debt levels increased (see first graph above), following the great recession, the savings rate maintained its higher level, with the exception of 2012-13 when a one year 2% rebate of Social Security withholding taxes that resulted in higher spending, which resulted in a one year decline in saving when it expired:

So, I believe a good case can be made that the "transmission mechanism" that Krugman seeks is that the trauma of the 2008 financial crisis instilled a continuing sense of fear in consumers that there might be a repeat, leading to a shunning of debt and a resulting more subdued increase in the consumption that is 70% of the U.S. economy.

Monday, September 17, 2018

A detailed look at Industrial Production during this expansion

 - by New Deal democrat

In the past week there's been a little highbrow relitigation of the drivers of the "Great Recession" between Paul Krugman and Ben Bernanke. Bernanke plumps for it having been a "credit event" -- and as to the crisis of 2008, he is clearly correct -- while Krugman says it was primarily a "housing event," although Krugman also acknowledges that he is mainly speaking of the aftermath from 2009 onward. 

Since neither the 10% decline in housing prices between 1989 and 1992, nor the NASDAQ internet bubble of 1999-2000 managed to cause the worst downturn in 75 years, my own view is that it was precisely because there was a credit bubble in the biggest asset that is owned by a majority of Americans -- for which there was no financial help forthcoming to the middle class -- that the effects were so longstanding. Had the government -- as it did for the 1930s Dust Bowl -- bought up or crammed down existing mortgages, and took repayment of the loans out of housing appreciation whenever the owners eventually sold, it is likely that the consumer rebound from the recession bottom would have been much more "V"-ish.

But neither Krugman nor Bernanke, so far as I can tell, mentions a third important reason for the slowness of the recovery: the second installment of the China shock.  Because it is crystal clear that businesses decided, once demand picked up beginning in late 2009, to move plants and hiring overseas.

This is plain when we look at how employment recovered. Services employment recovered in relatively "V"-ish fashion: two years down and three years up. Even goods employment ex-manufacturing came back in more delayed fashion, and is at 97% of peak 2007 levels. But manufacturing employment only began to turn very late and, at 92.5% of peak 2007 levels, is still far behind:

When we look at industrial production itself, a similar pattern unfolds: mining production, led by fracking, took off quickly, while manufacturing industrial production turned more slowly, and has never recovered all the way back to where it was in 2007. In other words, IT'S NOT JUST ROBOTS!!!

At the beginning of this year, I said that a big question for 2018 would be whether the US economy was booming. At that time, I concluded it was not because, while unemployment was very low, wage measures were lackluster, and industrial production had not reached a sustained level of at least 4% that typified the 1960s or late 1990s.

Well, while wages have improved a little, they are still lackluster. But industrial production, measured as a whole, has finally exceeded 4% YoY, at 4.9%, as of August:

But, alas, it turns out that this surge in production is also narrow. When we sort out production between manufacturing and mining, here's what we get:

Manufacturing production growth exceeded 5% per year for almost all of the 1960s, and for much of the 1990s. But even now it is only up 3.1% YoY, while mining has exceed 10% growth YoY for much of the past 10 years.

In short, the "boom" in industrial production is really just an energy sector boom. US manufacturing is only showing mediocre growth.

Saturday, September 15, 2018

Weekly Indicators for September 10 -14 at Seeking Alpha

 - by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

An anomalous surge in demand deposits led to one of the 5 biggest weekly jumps in M1 money supply ever as reported by the Federal Reserve this week.

By clicking on the link and reading, you help reward me for my work by putting a penny or two in my pocket.

Friday, September 14, 2018

Subdued inflation helps gains in real average and aggregate wages

 - by New Deal democrat 

With the consumer price report yesterday morning, let's conclude this weeklong focus on jobs and wages by updating real average and aggregate wages.

Through July 2018, consumer prices are up 2.7% YoY, while wages for non-managerial workers are up 2.8%. Thus real wages have finally grown, ever so slightly, YoY: 

In the longer view, real wages have still been flat -- up only 0.5% -- for 2 1/2 years:

But because employment and hours have increased, real *aggregate* wage have continued to grow:

Real aggregate wages -- the total earned by the American working and middle class -- are now up 26.1% from their October 2009 bottom.
Finally, because consumer spending tends to slightly lead employment, let's compare YoY growth in real retail sales, first measured quarterly (red), with that in real aggregate payrolls (blue):

Since we are two months into the next quarter, here's the monthly close-up on the last 10 years (excluding this morning's decline of -0.1% in real retail sales): 

 Since late last year real retail sales growth has accelerated YoY, and again further this morning, as last August's -0.3% monthly number was replaced by the less negative -0.1% this morning, bringig the YoY% change up to +3.8%.  So we should expect the recent string of good employment reports to continue for at least a few more months.

Thursday, September 13, 2018

August JOLTS report: thriving jobs market, and still-thriving Taboo against raising wages

- by New Deal democrat

Tuesday's JOLTS report once again confirmed the very good employment report from one month ago:
  • Quits made a new all-time high
  • Hires are just below their expansion high of two months ago
  • Total separations made a new expansion high
  • Layoffs and discharges improved, but not to their expansion low made in March
  • Job openings made yet another all-time high

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. To do that, I am varying my past presentations to focus instead on hiring, quits, layoffs, and openings as a percentage of the labor force.  Here's what they look like since the inception of the series (layoffs and discharges are inverted at the 1.5% level, so that higher readings show fewer layoffs than normal, and lower readings show more:

Note the data is averaged quarterly to cut down on noise.

During the last 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
Here's what the four metrics look like on a monthly basis for the last five years (note: Quits and Layoffs and Discharges scaled on right): 

While only Quits made a new expansion high, the trend in quits and Openings has been very positive, while that of actual Hirs and Layoffs has been more mutedly so.

Next, here's an update to the simple metric of "hiring leads firing," (actually, "total separations"). Here's the long term relationship since 2000, quarterly:

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, but the YoY% rate of growth is decelerating.

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 zero at its July 2018 value:

As I noted a month ago when I first presented this graph, while the rate of job openings is at an all time high, the rate of actual hires isn't even at its normal rate during the several best years of the last, relatively anemic, expansion. Meanwhile one month ago quits tied their best level of 2001 (at the end of the tech boom).

In other words, as we saw when we looked at the NFIB data earlier this week, the employer taboo against raising wages is continuing. In response, employees have reacted by quitting at high rates to seek better jobs elsewhere.

So in summary, the July JOLTS report continues to show a thriving employment market, but a market that is not in wage equilibrium, as employers are failing to offer the wages that employees demand to fill openings.

Wednesday, September 12, 2018

Real median household income rose 1.8% in 2017; poeverty rate declined

 - by New Deal democrat

The Census Bureau reported this morning that *real* median household earnings rose 1.8% in 2017.  Here's their presentation graph:

This is another score by Sentier Research, whose monthly estimates have accurately forecast the Census Bureau's (very tardy) annual reports and showed, on an annualized basis, growth in 2017, but on an averaged basis less than that from 2014 to 2015, or 2015 to 2016:

Remember a couple of caveats:

- "households" includes *all* households, including, e.g., year-round college roommates and, especially, retirees. Retirees' income is typically only about 1/2 of that of workers, so hoardes of retiring Boomers are affecting the median.
- "income" is more inclusive than "wages." For example, stock dividends interest on bonds are forms of income.

That being said, real income from full-time employment actually *declined* in 2017:

The difference between the rise in "all workers'" incomes on the left, and that of full-time employees on the right, is the increase in the number of hours worked by part-time workers, including transitioning to full-time employment. Recall that involuntary part-time employment has been declining sharply over the last 18 months:

The poverty rate did decline, so that is a definite plus:

What I still haven't found, and will update when I do, is real median household income by age cohort (that will take care of the issue of the increasing percentage of retiree households).

Tuesday, September 11, 2018

Decelerating trends in 5 long leading indicators

 - by New Deal democrat

I have a new post up at Seeking Alpha, "Five Long Leading Indicators 'On the Cusp'."

The post follows up on my "Weekly Indicators" paradigm with graphs showing what the trends look like for aforesaid five series which have been hovering at the borderlines of being positive to neutral, or neutral to negative, over the past few months.

If you like my work, putting a little jingle in my pocket by clicking the link and reading is a nice thing to do.

The Taboo against raising wages is still thriving among small businesses

 - by New Deal democrat

The National Federation of Independent Businesses (NFIB) put out its monthly confidence and hiring reports over the past few days.

The confidence report soared to new high, so the economy is Teh Awesome and happy days are here again! Right?

And look! It's confirmed by the hiring report, which also shows record high plans to hire new workers:

So how have those record hiring plans been working out? Ummm, not so well ....

When it come to, you know, actual hires, small businesses have not added any more workers than they have since 2013. With a big *actual decline* in the month of record desires to hire.

Leading to record numbers of unfilled openings:


So what could possibly be behind this market failure, where employers can't seem to be able to find workers to fill those record openings?

Well, do you see anything in the below chart that sticks out like a sore thumb?  You know, the only things with a dash or red arrow: 

Yeah. *Lowering* compensation plans, and *zero* actual changes to compensation. That will do the trick.

Forget "monopsony" employers. The Taboo against raising wages is very much alive and thriving in small business.

Monday, September 10, 2018

Scenes from the August jobs report

 - by New Deal democrat

1. The strong trend of people entering the jobs market and getting jobs remains intact

Here's a nice graph put together by Kevin Drum at Mother Jones showing both a linear and curvilinear trend line (which are nearly identical) (red) with the prime age employment to population ratio (blue):

The trend is intact and quite positive, despite the one month decline.

2. Involuntary part-time employment is near 25 year low levels

The below graph is of involuntary part time employment as a share of the entire labor force, from which I have subtracted 2.7% to norm the rate at zero:

Involuntary part time employment -- the primary addition forming the basis of the broad U6 underemployment rate -- has dropped to levels only seen for two months in the 2000s expansion, and exceeded for 3 years at the end of the 1990s internet boom.

3. But the percent of those who aren't even looking for work but want a job remains slightly elevated and has started to increase

The below graph is of those "not in the labor force who want a job now" as a percent age of the entire labor force, from which I have subtracted 3.15% to norm the recent low from March to zero:

This has never returned to either 1990s or 2000s levels, and has risen in the last 5 months. It might just be noise, or it might not.

4. Goods-producing employment has been soaring . . . BUT

This graph comes from Matt O'Brien at the Washington Post. Goods producing jobs have recently risen at 35 year highs:

This is mainly due to two things: (1) the post-2016 recovery in the Oil Patch; and (2) truck and railcar production. The latter is *extremely* pro-cyclical, as a mere slowdown in growth at the final goods levels means a sharp downturn in the orders for new trucks and railcars to support that growth.

One important note of caution about this trend: in the past, even a two month sequential decline in the rate of growth of goods producing jobs has usually meant a sharp cyclical slowdown at minimum. I counted only 3 occasions in the last 50 years where that was not the case.

And on that note, August growth slowed down from 3.75% YoY to 3.5% YoY. Since I am expecting a sharp slowdown in the economy by about midyear next year, if a second straight month of deceleration were to be reported next month, that would be a significant yellow if not red flag.

Saturday, September 8, 2018

Weekly indicators for September 3 - 7 at Seeking Alpha

 - by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

We have 4 long leading indicators fluctuating around the points where their ratings change.  This past week they fluctuated in a positive direction.

As usual, clicking over and reading doesn't just inform you about the likely path of the economy going forward, but it rewards me a little bitty bit for putting together the information.

Friday, September 7, 2018

Next Friday could be a very bad day somewhere along the East Coast

 - by New Deal democrat

I think I may have mentioned once or twice that I am a nerd, right? 

So, last year during hurricane season I got hooked on a site called Tropical Tidbits.

The neat thing about this site -- well, from a nerdy point of view -- is that it posts the GFS model forecast, updated every 6 six hours, for the next two weeks! While you normally don't hear forecasts more than five days out, I noticed that frequently the forecast even 10 or more days out can come pretty close. Winter or summer, if the model says there's going to be warmer temperatures and a low pressure system, then it's pretty darn likely that there's going to be warmer temperatures a low pressure system.

It just might be 800 miles away from where the model says it will be.  

For example, one model run put hurricane Jose directly over New York City about 12 days later! Needless to say, that disaster was averted -- but Jose ultimately did pass about 600 miles southeast.

So here's what the model run for 12 Noon next Friday (September 14) looked like as of noon Tuesday September 4:

B o r i n g.

Then, in the next model run 6 hours later, look what popped up:

That's Florence, about 300 miles off the Outer Banks. 

That run had Florence curving back out to sea, as did the model as of its noon on Wednesday September 5:

But by the 6 p.m. run on Wednesday, it had the hurricane making landfall over North Carolina and continuing northward over Norfolk, VA by 6 p.m. on the night of Thursday the 13th:

By noon of Thursday September 6, it had the hurricane in New York Bay at 6 a.m. on the14th:

Here's what it looks like as of the noon run on Friday September 7:

The latest run has the hurricane making landfall late thursday over the North Carolina outer banks and heading northwest.

In short, it increasingly looks like this: draw a triangle anchored by Bermuda on the southeast and by the Appalachians on the West. Take out the south-easternmost 1/4 of the triangle closest to Bermuda. Florence is going to be somewhere in the remaining 3/4 of that triangle next Friday.

By the way, although I don't have a screenshot, the European model as of this morning had Florence coming ashore near Charleston, SC.
Next Friday could be a very bad day somewhere on the east coast.

(P. S.  I think Iwill update this periodically over the next week and see how well the model does). 
----------------------- Update Saturday September 8: The noon GFS run today has Florence doing a loop-de-loop off the North Carolina coast and never making landfall:

the Euro model, however, continues to show the hurricane track further sourth with a landfall of a major hurricane between Myrtle Beach and Charleston, SC.

August jobs report: overall progress, with some new highs and some givebacks

 - by New Deal democrat

  • +201,000 jobs added
  • U3 unemployment rate unchanged at 3.9%
  • U6 underemployment rate declined -0.1% from 7.5% to 7.4% (NEW EXPANSION LOW) 
Here are the headlines on wages and the broader measures of underemployment:

Wages and participation rates
  • Not in Labor Force, but Want a Job Now:  rose 226,000 from 5.163 million to 5.379 million   
  • Part time for economic reasons: fell -188,000 from 4.567 million to 4.379 million 
  • Employment/population ratio ages 25-54: declined -0.2% from 79.5% to 79.3% 
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: rose $.07 from  $22.66 to $22.73, up +2.8% 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.)  (NEW EXPANSION HIGH)
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 -3,000 for an average of +21,000/month in the past year vs. the last seven years of Obama's presidency in which an average of 10,300 manufacturing jobs were added each month.   
  • Coal mining jobs were unchanged for an average of +50/month vs. the last seven years of Obama's presidency in which an average of -300 jobs were lost each month
June was revised downward by -40,000. July was also revised downward by -10,000, for a net change of -50,000.   

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.
  • the average manufacturing workweek was unchanged at 41.0 hours.  This is one of the 10 components of the LEI.
  • construction jobs increased by +23,000. YoY construction jobs are up +297,000.  
  • temporary jobs increased by +10,000. 
  • the number of people unemployed for 5 weeks or less increased by +117,000 from 2,091,000 to 2,208,000.  The post-recession low was set three months ago at 2,034,000.
Other important coincident indicators help  us paint a more complete picture of the present:
  • Overtime was unchanged at 3.5 hours.
  • Professional and business employment (generally higher-paying jobs) increased by +53,000 and  is up +519,000 YoY.

  • the index of aggregate hours worked for non-managerial workers rose by 0.2%.
  •  the index of aggregate payrolls for non-managerial workers rose by 0.4%.     
Other news included:            
  • the  alternate jobs number contained  in the more volatile household survey decreased by  -423,000  jobs.  This represents an increase of 2,071,000 jobs YoY vs. 2,330,000 in the establishment survey.      
  • Government jobs decreased by -3,000.
  • the overall employment to population ratio for all ages 16 and up decreased -0.2% from 60.5% m/m to 60.3% but is up 0.2% YoY.          
  • The labor force participation rate decreased from 62.9% to 62.7% and is down -0.2% YoY.


This was a mixed report with an overall positive tone.

Most of the negatives, such as the prime age employment population ratio simply gave back the very good numbers from last month and returned us to where we were two months ago. Still, several leading components did decline, such as short time unemployment, past revisions, and employment as measured by the more volatile household survey.

The positives showed continued improvement in some problematic areas. Most importantly, nominal YoY wage growth for ordinary workers increased to an expansion high of +2.8%. Involuntary part time employment continued to fall, as did the broad underemployment rate.

Overall, we continue to make progress, and so long as short term leading indicators of consumption continue to do well, so should employment.

Thursday, September 6, 2018

August producer data goes in the opposite direction from the consumer

 - by New Deal democrat

I have a new post, "Producers are Hot*, but Consumers Maybe Not," up at Seeking Alpha.

in which I contrast the white hot ISM manufacturing report with the lackluster motor vehicle sales and residential construction -- the two biggest durable consumer purchases.

As usual, not only is reading it hopefully informative, but also compensates me a little bit for the work I put in.

Tuesday, September 4, 2018

July residential construction spending: pause or peak?

 - by New Deal democrat

While the ISM manufacturing index came in very hot this morning (I'll wait for graphs to update before I discuss in any detail), residential construction spending continued its recent flatness.

To recap, while construction spending lags housing sales, permits, and starts, it has the virtue of being the least noisy of any housing metric, and it still does lead the economy as a whole.  Here's what it looks like (blue) through July compared with single family housing permits (red):

Its reading in July, while up from June, was below that for February, April, and May.

Here are the same two metrics as YoY% changes, starting from midyear 2014:

It is apparent that the rate of growth of both is still positive, but has very much decelerated.  In fact, the YoY% growth in residential construction spending is the lowest in 6 years.

Residential construction is consistent with both a pause in housing growth, and a cyclical peak. House prices are likely to continue to rise, putting more pressure on housing. So the big question is, what happens to mortgage rates in the next few months?

Monday, September 3, 2018

Brad DeLong hops aboard the "Employers have a Taboo against raising Wages" bandwagon

 - by New Deal democrat

For Labor Day Prof. Brad DeLong posted a talk on the implications (or not) of the US being near "full employment."

The arguments on a few of the pages will be familiar to readers of this blog:

My only significant quibble here is that "Job Openings" rates from both the JOLTS reports and the NFIB (Small Business) survey have been soaring for over 2 years. If employers knew that they had to pay higher wages to attract workers, but didn't want to be locked in, why would they bother posting the job openings at all? That, to the contrary, they are posting job openings at record rates strongly suggests they *haven't* learned yet that they must pay higher wages.

A thought for Labor Day, 2018

 - by New Deal democrat

US voters will continue to vote for alternating partisan "waves" in Congress, and for "outsiders" however chancey for President, until the problem depicted in the below graph is solved:

Sunday, September 2, 2018

Trump's base: not the white working class, but white evangelicals -- all men and lesser-educated women -- who believe the ends justify the means

 - by New Deal democrat

Via Digby:
1. Trump has always been unpopular with college-educated voters
[A] Pew Research assessment ... [using a] validated voter survey (they matched voter file with the survey respondents) showed white women narrowly preferring Trump to Clinton by 2 points - 47 percent to 45 percent. ... the Pew data suggests white women have always been, at best, ambivalent about Trump. 
... Clinton won (white college-educated voters ) voters by 17 points! 
... if you compared Trump’s current standing with the Pew data[,] Trump took 38 percent of college-educated voters in 2016, and his current standing with these voters is….37 percent. Their vote preference in 2016 (38 percent Trump to 55 percent Clinton), pretty much mirrors their vote preference for 2018 - 39 percent Republican to 54 percent Democrat.
2. But the biggest determinant is whether a voter is evangelical
Mike Podhorzer, AFL-CIO’s political director, suggests that ... [w]hat really distinguishes a Trump-supporting white voter from one who doesn’t isn’t education or even gender, it's whether or not that voter is evangelical. 
Using a data set from Public Religion Research Institute, Podhorzer broke out white voters by gender, education and whether they identified as evangelical. The gap between white voters who approve and disapprove of Trump by gender was 25 points. By education (college versus non-college) it was about the same at 26 percent. But the gap in perceptions of the president between white voters who are evangelical and those who aren’t was a whopping 60 percent!
This evangelical support gap transcends education and gender. For example, among white evangelicals, college-educated men and non-college educated men give Trump equally impressive job approval ratings (78 percent and 80 percent respectively). But, among white men who aren’t evangelical, the education gap is significant. Those without a college degree give Trump a 52 percent job approval rating, while just 40 percent of those with a college degree approve of the job he’s doing.
White evangelical women without a college degree give Trump a 68 percent job approval rating, while those with a degree give him a much lower, though still positive 51 percent approval rating. Meanwhile, Trump’s approval among white, non-evangelical women without a college degree is 35 percent, just five points higher than the 30 percent approval rating he gets from white, non-evangelical college-educated women.
Podhorzer’s analysis leads to two conclusions. First, ... Trump’s base is evangelical white voters, regardless of education level. Second, white non-evangelical, non-college women are the ultimate swing voters.

It's fairly clear that the justification that evangelicals have for supporting Trump is that, no matter how vile he is personally, no matter how many laws and norms he flouts, he is being used by God to do God's work.

Which brings to mind the story attributed to Sir Thomas More in the 1960s film "A Man for All Seasons":

  • Roper: So now you'd give the Devil benefit of law!
    More: Yes. What would you do? Cut a great road through the law to get after the Devil?
    Roper: I'd cut down every law in England to do that!
    More: Oh? And when the last law was down, and the Devil turned round on you — where would you hide, Roper, the laws all being flat?

Saturday, September 1, 2018

Weekly Indicators for August 27 - 31 at Seeking Alpha

 - by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

Several of the long leading indicators have deteriorated further.

Friday, August 31, 2018

Comments on personal consumption expenditures: the September anomaly and the Fed's 2% inflation ceiliing

 - by New Deal democrat

Let me make a few comments on yesterday's report on personal income and spending. Well, actually, just the spending part for now.

First, there is a long-time relationship going back 60 years in the data whereby the YoY% growth in retail sales is higher in the first part of an economic expansion, and lower in the latter part, compared with wider measures of spending, such as personal consumption expenditures (PCE's).  In fact, it is so reliable it is one of my "mid-cycle" indicators.

Well, it hasn't been that way for the past year. Here's the graph:

YoY retail sales have been higher than PCE's in the past year -- and the YoY growth has been rising. So has the economic cycle been rejuvenated?

Probably not, although the tax cut that took effect in January probably is having an effect.

It all seems to boil down to an anomalously huge monthly surge in retail sales, even after adjusting for inflation, last September. It is easily seen in this next graph, which shows the monthly change in real retail sales (red) vs. real PCE's (blue):

That's a 1.4% real, inflation-adjusted increase in retail sales in just one month!

How anomalous? Well, here's the same graph expanded back to October 2009:

Only three other months are comparable (1.0% or above), and only one of them, at the beginning of the expansion, is significantly larger.

The suspicion has been that the spike in spending was due to the hurricanes along the Gulf Coast and perhaps also the California wildfires.  If that's true, then in two months we'll see that spike drop out of the YoY comparisons, and the normal long-term relationship between retail sales and PCE's should assert itself. We'll see.

A second point I want to make is about the Fed's asymmetric 2% inflation "target." In practice, it is actually a ceiling. We had a report by the Fed staff earlier this week warning that if they don't move to increase rates now, inflation could get out of control.

Well, core PCE's are the Fed's favorite inflation metric. They are shown in blue in the graph below, which subtracts 2%, so that 2% YoY core PCE inflation is at the zero line:

I want to call your attention to two things.  First, the gold line is the 10 year Treasury rate. Note than in mid-2013 it spiked from roughly 1.5% to 3%. That was the "taper tantrum," when the Fed announced it was going to taper off its quantitative easing. This occurred with core PCE growing at less than 1.5%. Second, the red line is the Fed funds rate. The Fed started raising rates with core PCE's running only a little over 1%.

In other words, despite the fact that core PCE inflation running significantly below the Fed's alleged "target," it stopped easing and started tightening. Now that it has arrived at their "target," they are talking about the need to tighten more aggressively to prevent inflation. 

You know, in things like workers' wages.

That's a ceiling, not a target. And if anything, the asymmetric risks run the other way. But apparently the only way the Fed is going to have an "OH SHIT" moment is if there is actual wage deflation in the next recession.