Tuesday, November 20, 2018

October housing permits and starts flat vs. trend

 - by New Deal democrat

This morning's report on housing permits and starts will do nothing to stop the now-received wisdom that higher interest rates, higher prices, (and the impact of the cap on the mortgage tax deduction) has caused this most important cyclical market to cool. On the other hand, they aren't evidence of any intensifying downturn.

While we wait for FRED, here's the Census Bureau's graphic representation of permits, starts, and completions:

Here are the basic important numbers:
  • single family permits  down -0.6% m/m -0.6% YoY
  • total permits -0.5% m/m -6.0% YoY
  • total starts -+1.5% m/m -2.9% YoY
  • 3 month average of total starts +1.0% m/m +3.2% YoY
As usual, let's start with single family permits, which are the least volatile of all the leading housing indicators. These last made a new high 8 months ago, and for the first time since April 2014 they are down YoY. Before that, the last time they were down YoY was in 2011 after the expiration of the stimulus tax credit. They are also down about -4.1% from their peak. While negative, this is not a decline that is consistent with a recession.

Total permits are off -7.6% from their peak, in March .This isn't recession watch territory either.

The 3 month average of housing starts smooths out this much more volatile series. They are down -6.1% from their March peak. The single month peak, due to revisions, is now back in January.

Two months ago I wrote that the poor data had gone on long enough and was deep enough enough to turn this important long leading indicator negative. In the last two months, more data series, such as purchase mortgage applications, have also turned down. This remains true, but the *relatively* good news is that both single family permits and the three month average of housing starts have improved from their August lows of 827k and 1214k, respectively. In other words, there's been a decline from peak, but the trend - for now - is sideways since then.

Since interest rates have risen further in the last several months, I do not expect housing to improve over the next 3-6 months. To the contrary, it will probably worsen at least slightly. In short, this morning's data only reinforces my call that, absent a change of course by the Fed, housing has peaked for this cycle.

Monday, November 19, 2018

Good payroll reports will probably coninue until next spring

 - by New Deal democrat

One of my continuing mantras over the years has been that spending leads hiring. It is simply demonstrable fact that, going back over 50 years, upward or downward changes in trend in consumer spending as revealed by retail sales, happen before similar changes in trend by jobs.

It turns out that there's an even close correlation when we substitute aggregate payrolls (jobs x hours x pay) for the number of jobs alone. Here's what that looks like over the past 50+ years. Real retail sales are in red, real aggregate payrolls in blue, YoY, and averaged quarterly to cut down on noise:

The only exceptions to the rule are the two oil shocks in the 1970s, the Fed-induced recession immediately thereafter in 1981, and the laste 1990s tech boom. Even in two of cases, there is a very slight lead time when we look monthly:

So now let's zoom in on the last 5 years, measured monthly:

The surge in retail spending that started at the time of the hurricanes last year and lasted through this past spring has not completely worked its way through the system. Thus I anticipate that total payrolls in real terms will continue to increase at a good clip for the next several months at least. If I am right that the last couple of months show the beginning of a slowdown in sales, that should become apparent in payrolls by about next spring.

Saturday, November 17, 2018

Weekly Indicators for November 12 - 16 at Seeking Alpha

 - by New Deal democrat

My Weekly Indicators piece is up at Seeking Alpha.

If my reference frames are well- constructed, economic trends ought to start out in the long leading forecast, then start to show up in the short leading forecast, and finally make it through to the coincident nowcast.

Almost 6 months ago, the long leading forecast changed from positive to neutral for the first time.  It's been flirting with further deterioration ever since.  Well, this week ....

As usual, clicking through and reading is a way to help support my putting in the effort to describe and forecast the economy for you.

Friday, November 16, 2018

Credit remains loose, but big borrowers aren't interested; real consumer spending may be stalling

 - by New Deal democrat

We interrupt this coverage of the ongoing Trump Boom (c) to advise you that two more long leading indicators, while still positive, are showing at least some weaknesses.  This story is up at Seeking Alpha.

As usual, reading the story over there is both informative for you and a little $$$ revwarding for me.

Also, as an aside, once corporate profits for Q3 are reported in two weeks as part of the revised GDP report, that will be a good time to do a comprehensive update of the long leading forrecast through 2019.

Thursday, November 15, 2018

Initial markers for a manufacturing slowdown now hit

 - by New Deal democrat

I have a new article that hopefully will get posted by Seeking Alpha later today.  In the meantime ...

Two weeks ago I wrote an article establishing a manufacturing baseline for my forecast of an economic slowdown by about the middle of next year. I concluded that by saying:
the first thing I am looking for is decelerating growth which will show up in a reading below 15 in the average of  Regional Fed reports, and below 60 in ISM new orders.
The ISM new orders index did fall below 60 to a new nearly 2 year low (but still positive!) at the beginning of this month.

As of this morning, the average of the five Fed regional new orders indexes also declined from 18 to 15*, as the Empire Fed index fell slightly (from 22.5 to 20.4), and the Philly Fed index fell substantially (from 19.3 to 9.1).

This could of course all be noise, but I've made a forecast, I've laid down some markers, and the data is - at least on an initial basis - hitting those markers.

*(okay, technically not "below" 15, but close enough).

Wednesday, November 14, 2018

Real wages unchanged, real money supply increases in October

 - by New Deal democrat

With October consumer price inflation reported, let's update a few metrics.

First of all, while the YoY% growth in real wages increased:

real wages were unchanged month over month, as both nominal wages and consumer inflation both increased by +0.3%:

Real wages have still not even increased 1% in the last 2 1/2 years.

Because, as I noted yesterday, so much of consumer inflation, and therefore real wages, depends on gas prices, and oil prices have been - well - crashing for the past several weeks:

we are likely to see a further decrease in inflation, so consumer purchasing power should increase.

Another measure worth updating for business cycle purposes is real M1, which rose to a new high in October:

as the nominal increase in M1 surpassed inflation handily.

Growth in real M1 had been decelerating, and was on the cusp of turning negative throughout the summer.  But in the last two months it has rebounded. This is a good lesson in not simply projecting the trend in leading indicators forward -- because we never know when that trend may change.

Tuesday, November 13, 2018

Changes in labor bargaining power take up to a decade to be fully effective

 - by New Deal democrat

Sorry for the recent lack of posting on economic matters. Partly it is ennui, and partly it is a near total dearth of data in between the employment report a week ago Friday and tomorrow's CPI report.  Even a couple of quarterly series I usually report on have been inexplicably delayed.

In the meantime, here is a graph from Jared Bernstein that is worth some extended comment. It is the YoY% change in real wages, adjusted by the full CPI (blue) and CPI less energy (gold):

It is worthwhile to remember that, since 1980, YoY inflation has been decelerating on a secular basis:

Bernstein uses this graph to make the point that the changes in "real" wages in the last decade or so have been, more than anything, about the change in gas prices. Very true, but I think we can add some further comments.

1. Generally speaking, in the 1970s and 1980s, YoY real wages kept pace with CPI including gas prices. Beginning with the run-up in gas prices that started in 1999, they didn't. This tells us a lot about the presence of labor bargaining power in the 1970s vs. the absence of labor bargaining power in the last 20 years.

2. Note that YoY real wage gains started to decelerate in the mid-1960s before turning negative in about 1974. Thereafter the negative trend intensified, and only finally ended in the mid-1990s. This is powerful evidence that the massive entry of women into the labor force had a big depressing effect on wages.

3. The depressing effect on wages of a surge in the labor force serves as a natural experiment that powerfully contradicts the narrative by those like Matt Yglesias who incessantly reiterate the claim that immigration raises wages. If that were true, why shouldn't women's participation have had the same effect?

4. Note that renewed long term decelerating trend in real wage growth ex-gas since the late 1990s.

5. The above show us that the trend in "real wages ex-gas prices" gives us two further lessons in how long it takes for the lessons of changes in labor bargaining power to be internalized by both labor and management. It took almost 10 years from the time when women started entering the labor force en masse for the trend in real wages to actually turn negative (vs. deceleratingly positive).  Once that secular force ended, as a whole employers only gradually learned that they could continually reduce annual raises. All of which suggests that it will take up to a decade of increased labor bargaining power for employers to internalize the necessity for bigger wage increases.

Sunday, November 11, 2018

A baseline road map for the 2020 elections

 - by New Deal democrat

Now that the 2018 midterm elections are behind us, let's take a preliminary look at 2020.

It occurred to me that a decent baseline for that election is to simply take the total 2018 House votes for each state, assume that the Presidential vote in 2020 in each state will be the same, and apply that to the Electoral College. Alternatively, you could use the results of the 2018 Senate races in those states where there were races in 2018, and apply those results for those states. That's because the midterm turnout approached Presidential election levels, and Trump is going to engender the same intensity in two years as he did this past week.

So, using the 2018 results as the template for 2020, who wins?

It turns out that I wasn't the only one who had that thought. Nate Silver already had the same idea and did that for the House vote. Here's what that hypothetical 2020 Electoral College map looks like:

If you apply the 2018 House votes to the Presidency in 2020, the Democratic candidate wins handily.  As Nate Silver points out, it is a virtual duplicate of the 2012 map.

[Before I go further, let me just note that the above House map has a few glitches. Florida only went Democratic when the votes in House districts where there was no GOP candidate are added. Conversely, in North Carolina, there was a House district without a Democratic candidate. If we were to add just 2/3's of the typical democratic vote in other GOP-dominated districts in NC to that district, then NC flips to the democratic column.]

Next, here's what the 2018 Senate map looked like a couple of days ago. Since then, it appears that the Democratic candidate won in Arizona. For now, let's leave Florida alone:

The only changes in the map for 2020 are that Florida flips to the Republican column, and Montana, Arizona, and West Virginia flip to the Democratic column. Again, the 2020 Democratic candidate wins if we apply this layer over the House map.

In fact, even if we give Florida to the GOP, and don't give Montana, Arizona, and West Virginia to the Democrats, the democratic candidate still wins! 
In short, if the 2020 electorate is the same as the 2018 electorate, Donald Trump is going to be defeated.

What this also tells us is that the upper Midwest is not lost to the democrats, and that the "blue wall" states that Hillary Clinton lost -- Pennsylvania, Michigan, and Wisconsin -- plus Iowa, are the states that the 2020 candidate most needs to focus on. Secondarily, states like Arizona and North Carolina should be targeted for insurance. Florida probably should get demoted to a "plan C" state.

And "urban cosmopolitanism" isn't going to win back the upper midwest. A similar mix of economic issues (e.g., improving, expanding, and enhancing Obamacare) and social issues (particularly those issues most aggrieving women about the Trump-GOP party) are going to be necessary.

 By the way, winning the Presidency in 2020 is not the ball game. There is every reason to believe that a Mitch McConnell-led GOP Senate will engage in maximum obstruction of Presidential appointments. So let's look at the 2020 Senate map (showing which party won those seats in 2014):

There are a slew of seats all over Dixie and the high plains that simply aren't competitive for Democrats.  They will probably need to flip at least 3 of the following 6 seats: Colorado, Iowa, North Carolina, Maine, Montana, or West Virginia. That is probably going to remain an uphill climb.

Saturday, November 10, 2018

Weekly Indicators for November 5 - 9 at Seeking Alpha

 - by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

Interest rattes rose even further this past week, portend further erosion in the housing market.

As usual, not only does reading this post give you of the up-to-the-moment view of the economy, but it also put a little extra $$$ in my pocket.

Friday, November 9, 2018

Big producer price increase in October - if a trend - is a problem

 - by New Deal democrat

In a light data week, this morning's report on producer prices is certainly worth mentioning.  As you may have read elsewhere, headline producer prices rose +0.6% in October, the highest reading in 6 years. The below graph compares that (blue) with commodity prices (red):

As you can see, commodity price increases were within the normal range.

The difference happens when we break down final demand by goods (first graph below, in red) vs. services (second graph):

Producer prices for services were among the 4 highest monthly readings in the past 6 years.

This is important for several reasons.

First of all, producer prices tend to bleed over into consumer prices. But even more importantly at this point, is the potential reaction from the Fed.

If I am right and the economy slows next year, then it is important whether or not the Fed feels free to react by lowering interest rates. That is what happened in 1984, 1995, and 1997. But if the Fed thinks that inflation is beginning to accelerate, it will probably feel that it has no choice but to continue raising rates, even in the face of economic weakness.

In that regard, it is worth pointing out that, despite the monthly increase, YoY producer inflation does not appear to be accelerating on any basis:

Thursday, November 8, 2018

Setting markers for a 2019 slowdown in the jobs market

- by New Deal democrat

How might a slowdown (not a recession, but a decline in growth to the 1%-2% YoY range in GDP) that I've been forecasting for around midyear 2019 manifest itself in the employment arena?

One of my mantras is that "hiring leads firing." In other words, companies slow or stop their hiring plans, or cut back on hours, before they actually start laying people off.

So, one natural place to look is the "hires" component of the Job Openings and Labor Turnover (JOLTS) survey. Here's what the *rate* of hiring looks like over the nearly 20 year life of that survey:

If there is a slowdown, I would expect this rate to plateau, in the 3.7%-3.9% range, similar to its plateauing in 2015-16, when we had the "shallow industrial recession." Obviously there's not enough there to make a call at this point, but this is a data point I'll be watching.

On the "firing" front, the easiest place to look is the weekly initial jobless claims report, particularly in the less volatile 4 week moving average.  Here's what that looks like over the past 5 years:

Again, note that from roughly spring 2015 through spring 2016, the decline in weekly jobless claims almost stalled out.  Here's what the same data looks like measured as a YoY% change:

During the "shallow industrial recession," the YoY% decline in new jobless claims rose from roughly -10% to -5%, with a fair amount of noise.  I would be looking for a similar move over the next 8 months, to the range of -5% or even flat YoY. [Note: the spike upward in late 2016 was due to the hurricanes, leading to a similar spike downward one year later.]

On a weekly basis, this means I am looking for initial jobless claims to stay above 200,000, except for an occasional weekly outlier, and for the 4 week average, which at midyear this year was in the 220-225,000 range, to be in the range of 207,500 to 220,000 at midyear 2019.

Needless to say, I am also looking for monthly employment gains to decline back significantly below 200,000 by that time.

Wednesday, November 7, 2018

Final thoughts on the 2018 midterms

 - by New Deal democrat

Here are six takeaways from last night's results:

1. It *was* a wave election in the popular vote, but it was blunted by gerrymandering:

Here's a tweet by Sam Wang:

Even though Democrats won the popular vote by 9.2%, they only eked out 12 seats over a majority, and came about 4 seats short of Nate Silver's median projection:

By contrast, in 2010, a smaller vote advantage led to a 63 seat gain for the GOP.

 2. The Senate races were effectively nationalized

Here's a current map of the state of the Senate (except we know Feinstein won re-election in California):

With the exception of Joe Manchin in West Virginia, all of the incumbent Democratic Senators in red states either lost, or are slightly behind, in their races. The blue vs. red re-alignment is nearly complete in the Senate.  This is going to be an ongoing problem if the GOP remains the party of old white rural people, since rural states are vastly over-represented in the Senate.

3. Governorships were *not* nationalized, although the upper midwest returned "home" to the Democrats

Three of the New England staes, plus Maryland, elected GOP governors. Meanwhile Wisconsin, Michigan, and Illinois returned to Democratic governors.

I expect the true 2020 battlegrounds to be the 3 "blue wall" states that have possibly returned to the fold, plus North Carolina, if that state's Supreme Court, now controlled by Democrats, throws out the GOP's gerrymander on state Constitutional grounds.

4. Florida is red. Virginia is blue.

Democrats keep losing close races in Florida, because the influx of old, white retirees from the midwest to the Gulf coast outweighs the growth of the minority vote. It's possible that felon re-enfranchisement will make up the difference, but I'm not holding my breath.

Meanwhile the Democrats have both Senate seats, the Governorship, and 3 more House seats in Virginia. Last year they roared back to a tie (minus one vote!) in VA's lower state house. If they pick up the upper chamber next rear, Virginia's re-alignment will be complete.

5. White voters lie about their intentions when an African-American candidate is running.

In both Florida and Georgia, the black candidate came in 3%-5% under their polling. I do not believe that was an accident.

6. Finally, beware the lame duck "smash and grab"

Like jewel thieves making a quick getaway, I expect the GOP to inflict as much damage as possible on the budget, Medicare, Medicaid, Social Security, Obamacare, and anything else they can get their hands on, between now and December 31, figuring that voters will forget by 2020.  It's going to be bad, so brace yourself.

And now, back to the boring economy.

Tuesday, November 6, 2018

Live-blogging the 2018 Democratic ripple? Wave? Tsunami?

 - by New Deal democrat

I'm close to calling it a night, maybe one more post.  The summary is that there was no blue wave, just enough of a high blue tide to apparently take control of the House. the GOPers wone the lion's share of the close races. But the Democrats won just enough to flip the House.

And white voters lie to pollsters about their voting intentions when a black person is on the ballot.

Hopefully we'll pick up the governorship in Wisconsin, so that we get most of the upper midwest back.


11:05 - NBC calls two bellwetherupstate NY races for the Democrat, Brindini and Faso.
---------11 pm - In Maine, GOPer Poliquin holds a small lead over Democrat Golden.
In North Carolina, GOPer Ted Budd leads Democrat Kathy Manning with a majority of votes counted.-------
10:40 - Mixed results in NY and NJ so far. In upstate NY, with about 34% of the vote in, Democrat Faso leads GOPer Delgado by a substantial margin. The situtation is reversed in NJ, where GOPer MacArthur leads Democrat Kim. In PA, GOPer Brian Fitzpatrick also leads Democrat Scott Wallace.

10_30 - Georgia, along with Florida, look like the dark spots for the Democrats tonight.  In the House: in Georgia, Lucy McGrath  (D) has apparently lost against Karen Handel (R).

If the Dems can knock out Scott Walker in Wisconsin, the recompense may be the upper midwest coming back. And beating Kris Kobach in Kansas is also pretty sweet.

10:20 - In NC,  GOPer holds a slight lead over Demovrat McCready.
10 PM - EVERY VOTE COUNTS. With 94% of the vote in, about 250,000 total votes, in VA's 2nd District, Democrat Elaine Luria leads Republican Scott Taylor by 40 votes.

AAAAAND, NVC says she has won!

9:45 - It looks like a VA House district may flip after all.  With 97% of the vote counted, Spandberger leads Brat by about 2,000 votes. Brat would have to pick up something like 70% of the remaining votes to pull back ahead.

9:40 - With 34% of the vote in, MacArthur (r) leads Kim by over 20% in NJ.

9:30 Aaaand, not so fast in Virginia. Spanberger has just pulled slightly ahead of Brat, and Luria has pulled even with Taylor, each with about 90% of the vote counted.

Also, do the elctecion boards in NY, NJ, and PA know that this is election day and maybe they should start couting, you know. votes?

9 pm - More bad news out of Florida: it looks like Rick Scott is going to defeat incumbent democrat Bill Nelson. He is ahead by 1% with 80% of the vote counted.

And now NBC says the R's have also picked up the Indiana Senate seet by defedating Democrtic incumbent Joe Donnelly.

8:50 A little good news: NC-9 Dan McCready (D) vs. Mark Harris (R) - McCready holds a slight lead with 15% of the vote in.

And Menendez won the "vote for the crook, it's important" election in NJ

8:40 This is big, and it's bad news: it looks like DeSantis is beating Gillum in Florida.


FL-26 Debbie Mucarsel-Powell vs. Carlos Curbelo (R) - Democrats projected to flip the seat. This was a D slight lean.

UPDATE 8:20 -- all 3 of the close Virginia races are breaking against the Democrats:

VA-2 Elaine Luria (D) vs. Scott Taylor (R) - 8:15 with 60% of the vote in, Taylor leads 52%-48%
VA-5 Leslie Cockburn (D) vs. Denver Riggleman (R) -UPDATE 8 pm EST: NBC projects Riggleman victory. 8:20 with 80% of the vote in, Riggleman leads by 10% 
VA-7 Abigail Spanberger vs. Dave Brat (R) - Brat leading by 1% with 80% of the votes counted

Here are the East Coast races I am especially keeping an eye on.

It'll be a bad night for the Democrats if they don't win the following races:

NJ senator - Bob Menendez (D) vs. Bob HUgin (R)

Maine governor- Janet Miils (D) Shawn Mills (R)

In the House:
ME-2 Janet Golden (D) vs. Bruce Poloquin (R)
NY-19 Antonia Delgado (D) vs. John Faso (R) 

On the other hand, it'll be a long night for the GOP if they don't win these races:

In the House:
GA-8 Lucy McGrath  (D) vs. Karen Handel (R) 
NC-13 Kathy Manning (D) vs. Ted Budd (R) 
VA-2 Elaine Luria (D) vs. Scott Taylor (R) 

Here are the toss-ups and slight leans:

Toss up
Georgia - Stacey Abrams (D) vs. Brian Kemp (R)

D-slight favorite
Florida governor - Andrew Gillum (D)  vs. Ron DiSantis (R) 

D-slight favorite
Florida senator -  Bill Nelson (D) vs. Rick Scott (R)

House of Representatives

D-slight favorite
FL-26 Debbie Mucarsel-Powell vs. Carlos Curbelo (R)

NY-22 Anthony Brindisi (D) vs. Claudia Tenney (R)
NJ-3 Andy Kim (D) vs. Tom MacArthur (R) 

R-slight favorites
VA-5 Leslie Cockburn (D) vs. Denver Riggleman (R) -UPDATE 8 pm EST: NBC projects Riggleman victory
NC-9 Dan McCready (D) vs. Mark Harris (R) 
VA-7 Abigail Spanberger vs. Dave Brat (R) 
PA-1 Scott Wallace (D) vs. Brian Fitzpartrick (R) 
FL-15 Kristen Carlson (D) vs. Ross Spano (R)

I'll update these as we start to see results.

Monday, November 5, 2018

Trump's final pre-midterm job approval

 - by New Deal democrat

As promised, following up on yesterday's post, here is Gallup's final Trump job approval rating, as of the last weekend before Election Day:

At very least, it sure looks like his fear-mongering about immigrants hasn't helped, and it may have backfired.

I will blog on the election results tomorrow night. Regular economist blogging should resume Wednesday.

Sunday, November 4, 2018

As predicted, a deeply unpopular Trump stomped on the GOP message; early races I'll be watching Tuesday night

 - by New Deal democrat

As I wrote a few weeks ago, whatever message Congressional GOPers might have wanted to put out (like, "our tax cuts helped spur the best economy in years!") got stomped on by Donald Trump.

As it turns out, (please be sitting down for this) he was being truthful when he talked about momentum having been going his way. Here's Gallup's weekly polling through last Sunday:

Until the bomb attempts and several mass shootings derailed things, his approval ratings in the weeks following the Kavanaugh confirmation were the best since spring 2017.

Then, during the week of actual and attempted mass murder he went down 4 points. 

Trump being Trump, he had to grab back the limelight, so he blamed the press (and even the victims for not having armed guards in their place of worship!), and amped up the anti-immigrant volume, thus guaranteeing the the ugliest face of the GOP is what has been last shown to the public before Tuesday's polling.

I'll update this post with Gallup's final pre-midterms weekly number when it comes out tomorrow.

By the way, Gallup also supplied a nifty chart of Presidential and Congressional approval for each of the last 10 midterms in addition to current polling:

Only George W. Bush had worse numbers in 2006, and only the Congressional democrats had worse numbers in 2014.

Just based on those numbers, I would expect the incumbent President's party to take a pasting.

We ought to get some clues from some east coast races early Tuesday night. So here's a handy list of the tightest ones, that I will be particularly watching:


Toss up
Georgia - Stacey Abrams (D) vs. Brian Kemp (R)

D-slight favorite
Florida governor - Andrew Gillum (D)  vs. Ron DiSantis (R) 

D-higher favorite
Maine governor- Janet Miils (D) Shawn Mills (R)

D-slight favorite
Florida senator -  Bill Nelson (D) vs. Rick Scott (R)

D-higher favorite
NJ senator - Bob Menendez (D) vs. Bob HUgin (R)

Most of the contested races for governor or senator are in the midwest and mountain west, so the issue in the East is whether there are any upsets. Florida, of course, is perennially tight. Meanwhile NJ voters have been asked to hold their noses and "vote for the crook, it's important." If there is a race where bashful voters lied to pollsters, the NJ senate race is it.

House of Representatives

D higher favorites
ME-2 Janet Golden (D) 5/8 vs. Bruce Poloquin (R)
NY-19 Antonia Delgado (D) 5/8 vs. John Faso (R) 

D-slight favorite
FL-26 Debbie Mucarsel-Powell 5/9 vs. Carlos Curbelo (R)

NY-22 Anthony Brindisi (D) 1/2 vs. Claudia Tenney (R)
NJ-3 Andy Kim (D) 1/2 vs. Tom MacArthur (R) 1/2

R-slight favorites
VA-5 Leslie Cockburn (D) vs. Denver Riggleman (R) 5/9
NC-9 Dan McCready (D) vs. Mark Harris (R) 5/9
VA-7 Abigail Spanberger vs. Dave Brat (R) 4/7
PA-1 Scott Wallace (D) vs. Brian Fitzpartrick (R) 3/5
FL-15 Kristen Carlson (D) vs. Ross Spano (R) 3/5

R-higher favorites
GA-8 Lucy McBarth (D) vs. Karen Handel (R) 5/8
NC-13 Kathy Manning (D) vs. Ted Budd (R) 7/10
VA-2 Elaine Luria (D) vs. Scott Taylor (R) 5/7

Outside of California and a few seats in the upper midwest, the east is really where most of the action is in the House of Representative races. If there are upsets in the "slight favorites," that will give us a lot of information as to whether or not there is a "blue wave." Meanwhile, if democrats lose both "higher favorited" races, their ability to take the House is in real trouble. Contrarily, if the GOP loses one or more the the races where they are "higher favorites," be on the lookout for a blue tsunami!

I plan on watching the returns and following these races Tuesday night, so I will update this post with  results as they come in.

Saturday, November 3, 2018

Weekly Indicators for October 29 - November 2 at Seeking Alpha

 - by New Deal democrat

My Weekly Indicators piece is up at Seeking Alpha.

Several areas, like rail traffic, saw significant rebounds. But interest rates also rose to new expansion highs as well.

As usual, not only does clicking and reading the article bring you up to the moment on what is happening with the economy, it also helps put a little $$$ in my account.

Friday, November 2, 2018

October jobs report: probably the best report of the entire expansion

 - by New Deal democrat

  • +250,000 jobs added
  • U3 unemployment rate unchanged at 3.7%
  • U6 underemployment rate declined -0.1% from 7.5% to 7.4% 
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 +72,000 from 5.237 million to 5.309 million   
  • Part time for economic reasons: fell -21,000 from 4.642 million to 4.621 million 
  • Employment/population ratio ages 25-54: rose +0.4% from 79.3% to 79.7%
  • Average Hourly Earnings for Production and Nonsupervisory Personnel: rose $.07 from  $22.82 to $22.89, up +3.2% 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 rose +32,000 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 fell -200 for an average of -8/month vs. the last seven years of Obama's presidency in which an average of -300 jobs were lost each month
August was revised upward by 16,000. September was revised downward by -16,000, for no net change.

The more leading numbers in the report tell us about where the economy is likely to be a few months from now. These were mainly positive.
  • the average manufacturing workweek fell by -0.1 hours to 40.8 hours.  This is one of the 10 components of the LEI.
  • construction jobs rose by +30,000. YoY construction jobs are up +330,000.  
  • temporary jobs rose by +3300. 
  • the number of people unemployed for 5 weeks or less decreased by -8,000 from 2,065,000 to 2,057,000.  The post-recession low was set five 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 +35,000 and  is up +516,000 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 +0.5%.     
Other news included:            
  • the  alternate jobs number contained  in the more volatile household survey increased by  +600,000  jobs.  This represents an increase of 2,748,000 jobs YoY vs. 2,516,000 in the establishment survey.    
  • Government jobs increased by +4,000.
  • the overall employment to population ratio for all ages 16 and up increased +0.2% from 60.4% m/m to 60.6% and is +0.4% YoY.          
  • The labor force participation rate rose +0.2% from 62.7% to 62.9 and is up +0.2% YoY.


This was probably the single best report of the entire expansion. The only flies in the ointment were a slight increase in people not in the labor force who want a job now, and a slight decline in the manufacturing workweek. The headline unemployment rate was unchanged at its expansion low.

Aside from that, virtually everything moved in the right direction, in many cases to expansion highs. For the first time, wages for ordinary workers grew over 3% a year. Participation increased across the spectrum. The headline job growth number was excellent, and the more volatile household survey trend was even better.

If this were a Presidential election year, this would be awesome news for the incumbent. Even in a midterm year, this certainly can't hurt as a closing economic argument for the majority party. Regardless of one's ideology, however, this was simply an excellent report.

Thursday, November 1, 2018

ISM new orders posts lowest reading in nearly 2 years

 - by New Deal democrat

The October PMI® registered 57.7 percent, a decrease of 2.1 percentage points from the September reading of 59.8 percent. The New Orders Index registered 57.4 percent, a decrease of 4.4 percentage points from the September reading of 61.8 percent.
On Tuesday I said that "the first thing I am looking for is decelerating growth which will show up in a reading below 15 in the average of  Regional Fed reports, and below 60 in ISM new orders."

The regional Fed average is still above 15, but this morning we got the reduction in the ISM.

Here's what the baseline chart for the regional Fed averages (left) and ISM new orders (right) for 2018 now looks like:

JAN   15   65.4
FEB   20   64.2
MAR   16   61.9
APR   17   61.2
MAY   28   63.7
JUN   24   63.5
JUL   24   60.2
AUG   17   65.1
SEP   20   61.8
OCT 18  57.4

While 57.4 is a very positive reading on an absolute scale, nevertheless this was the lowest ISM new orders reading since November 2016, almost two years ago.

I expect slowing to continue.

Wednesday, October 31, 2018

Some good news on workers' wages

 - by New Deal democrat

There was some good news this morning about workers wages. The quarterly employment cost index showed a q/q increase of +0.9% for wages (red in the graph below), and +0.8% for overall compensations (blue) (which includes things like medical benefits). Nominal YoY increases were +3.0% and 2.8%, respectively:

Unlike "average hourly earnings" (green in the graph above), which are reported monthly as part of the jobs report, the employment cost index is a median, rather than an average, measure. This avoids the distortion caused by a few high-wage earners. It also keeps the perecentage of workers in each occupation constant over time, in order to measure the change in compensation for the same job. In other words, as of the third quarter of this year, 50% of all occupations, as a weighted average, got an increase of +3.0% or more in wages over the past year.

Notice that recently the rate of annual growth in average hourly wages for nonsupervisory workers has also been increasing.  We're still not at the best levels of the 2000s expansion, which itself was no great shakes -- and in real, inflation-adjusted terms wages only outpaced inflation by +0.7% -- but still, this is some unalloyed good news.

Housing has peaked*

*(unless the Fed lowers interest rates)

- by New Deal democrat

My comprehensive look at September housing data is up at Seeking Alpha. The downtrend in housing statistics has been sustained and severe enough for me to make the call that housing has peaked, by most measures, between last November and this past March.

This does not mean that I am calling for a recession at this time. But it does mean that this long leading indicator is now a firm negative. There are three constributing factors to this turn in the market:

1. Interest rates have risen (to roughly 5% for 30 year mortgages)
2. unlike 2014, when a similar but not quite so severe rise in interest rates only caused a temporary pasue in the market, house prices as a multiple of household income are at or near new peaks.
3. the capping of the Federal deduction for state and local taxes has really hit markets in California and the northeast megalopolis.

None of the three factors look likely to abate in the near future. Thus I expect the trend in housing to remain below the recent peaks.

What *is* a possibility (and for what it's worth I believe this plays a role in Bill McBride's belief that housing hasn't peaked yet) is that, if inflation remains subdued, the Fed could react to a softening economy next year by reversing course and lowering interest rates, thus breaking the downtrend.

In any event, as usual, heading on over to Seeking Alpha to read my long article should hopefully be informative for you, and it rewards me with a little $$$ for my efforts.

Tuesday, October 30, 2018

The Housing Affordability Crisis

 - by New Deal democrat

This morning both the Case-Shiller House Price Indexes for September, and Third Quarter Median Asking Rent were reported, as was the rental vacancy rate.  Together they reveal that all types of shelter costs, whether housing or apartments, are at or near record levels.

The Case Shiller 20 City index was reported up 5.5% YoY, and the National Index was up 5.8% YoY. Meanwhile median household income, as reported by Sentier Research one month ago, was only up 2.8% YoY.  So while the media is generally reported the "good news" that house prices are appreciating less than the 6%+ rate they had been recently, "real" homeownership costs continue to be near a record multiple of household income, as shown in this graph from Political Calculations:

Meanwhile median asking rent increased about 5% just in the last Quarter, and is up over 10% from one year ago:

Because, *relatively speaking,* renting is still less expensive than purchasing a house, the rental vacancy rate continues near record lows:

A few years ago, HUD put out a report speaking of a "rental affordability crisis." I think we are past that now. All forms of housing costs, whether ownership or renting, are at crisis levels.

Monday, October 29, 2018

Setting a baseline for a manufacturing slowdown

 - by New Deal democrat

If I am right that by roughly midyear 2019 the economy will experience a substantial slowdown, then we ought to start seeing a deceleration in the leading indicators for manufacturing soon. Additionally, if rail transportation is accurately signaling that a slowdown is already hitting due to the impact of Trump's tariffs and China's retaliation, producers ought to be noticing the effects almost immediately, and begin to react.

Which makes me think that manufacturing new orders, as measured monthly by five of the regional Feds and also the ISM, ought to start slowing down by the end of this year.

To establish a baseline, I've gone back and obtained the average of the five Fed regional reports (first column), and the ISM new orders index reading (second column) since the beginning of this year.  Without further fanfare, here they are:

JAN   15   65.4
FEB   20   64.2
MAR   16   61.9
APR   17   61.2
MAY   28   63.7
JUN   24   63.5
JUL   24   60.2
AUG   17   65.1
SEP   20   61.8
OCT 18  N/a

The ISM Manufacturing Index, including new orders for October, will be reported Thursday morning.  Here's what it looked like through August:

Readings above 60 are particularly strong. So the first thing I am looking for is decelerating growth which will show up in a reading below 15 in the average of  Regional Fed reports, and below 60 in ISM new orders.

Saturday, October 27, 2018

Weekly Indicators for October 22 - 26 at Seeking Alpha

 - by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

Weakness, which had been confined to the long leading indicators, is now showing up in some of the short leading indicators as well.

Meanwhile, Trump's tariffs look like they are taking an immediate bite out of economic activity. In other words, all of that front-running that boosted inventory accumulation that showed up in Q3 GDP may be ending, replaced by a hole that has opened up under the mainly agricultural goods which have been the targets of China's retaliation.