Thursday, November 21, 2019

Initial claims weaker, but still not at cautionary levels

 - by New Deal democrat
I’ve been monitoring initial jobless claims closely for the past several months, to see if there are any signs of a slowdown turning into something worse. Simply put, no recession is going to begin unless and until layoffs increase, and the lack of any such increase has been the best argument that no recession is imminent.

My two thresholds for initial claims are:

1. If the four week average on claims is more than 10% above its expansion low.
2. If the YoY% change in the monthly average turns higher.
I’ve also added a threshold for the less leading, but also much less volatile 4 week average of continuing claims at 5% higher YoY.

This week’s reading of 227,000, the second such reading in a row, is certainly weak compared with the past 4 months. As a result, the 4 week moving average of claims, at 221,000, is 9.7% above the lowest reading of this expansion: 

On a YoY% change basis, the 4 week average is very slightly, as in 0.1%, above its level one year ago:

For the first three weeks of November, the average is 221,667 vs. 224,500 for the entire month of November last year, or less by -1.3%:

Although these readings are all weak, they remain positive. Neither threshold for a cautionary recession signal has been met.

Meanwhile, the less volatile 4 week average of continuing claims is 1.8% above where it was a year ago:

This certainly is cautionary, and is consistent with a significant slowdown. But there have been similar readings in 1967, 1985-6, 3 times in the 1990s, and briefly in 2003 and 2005, all without a recession following. So the threshold for continuing claims being a negative has not been met either.

Barring additional poor government policies - I.e., if the economy is left to its own devices - the long leading indicators strongly suggest that the threat of a recession will end by about mid year next year.  Unless initial claims start to be reported in the 230’s, and continuing claims continue to trend  higher, into the 1.770 million range (by mid-December, after which the YoY comparisons for continuing claims get much easier), no interim recession will be signaled.   

Wednesday, November 20, 2019

Slouching towards a producer-led recession?

 - by New Deal democrat

A few months ago I wrote an extended piece at Seeking Alpha about the order of events I would need to see in order to conclude that a producer-led recession, similar to that of 2001, was ready to occur. One of the big components was a change in the Senior Loan Officer Survey.

Well, the Senior Loan Officer Survey for Q3 was reported a couple of weeks ago, and seems to have completely escaped the notice of the economic and financial community.

But it was on my radar. So I have now updated my analysis as to whether we are in for a producer-led recession, over at Seeking Alpha.

As usual, clicking over and reading helps reward me with a penny or two for my efforts.

By the way, SA also finally got around to publishing my housing update from yesterday, and you can read it here.

Tuesday, November 19, 2019

Excellent October housing report is good news for employment

 - by New Deal democrat

I’ll have a more comprehensive report up at Seeking Alpha, and I’ll link to it when it goes up, (UPDATE: It’s finally up, here ) but in the meantime let me just share the least volatile most leading component which is single family permits:

These made a new expansion high. The housing rebound, following lower mortgage rates, is firmly in place.

Additionally, both housing completed and under construction have also increased from recent bottoms. These aren’t as leading as housing permits and starts, but they correlate much more closely with residential building jobs, and they argue strongly that residential construction employment, a leading sector of the jobs market, is likely to continue to increase:

This was a very good report.

Monday, November 18, 2019

A yellow flag from temporary hiring

 - by New Deal democrat

In the conclusion of my latest Weekly Indicators post, I wrote that, except for temporary staffing, I didn’t see any signs of weakness spreading out beyond manufacturing and import/export. Manufacturing, as measured by industrial production, has been in a shallow recession all year. By contrast, the consumer - 70% of the economy - continues to do ok, boosted by lower interest rates for mortgages and somnolent gas prices.

Since there isn’t any other economic news today, let’s take a look at that one yellow flag - temporary hiring.

As I’ve pointed out each month for the past few months, each monthly jobs report this year has started out with a nice, positive number for temporary jobs. But then, with one exception, the number gets revised downward, sometimes substantially, and usually into negative territory.

My weekly check on this is the Staffing Index from the American Staffing Association. And that number has been getting progressively worse.

Here is the most recent number, from last week (-7.02% YoY):

Now let’s compare with the worst number during the 2015-16 slowdown that was centered on the Oil Patch (-5.5% YoY):

Finally, here is the 2007-08 comparison:

The YoY comparison declined below -7% in July 2008. By that time, the economy as a whole had already been in a recession for over half a year (although Q2 GDP was positive, and was less than -0.1% away from its Q4 2007 peak).

Finally, let’s take a look at hiring (via JOLTS), firing (initial claims, averaged monthly and inverted), and the unemployment rate (also inverted) for the past five years:

Hiring has slowly trended higher, while new jobless claims are essentially flat. Presumably as a result, the unemployment rate has been ticking slowly lower.

I would expect a decrease in hiring to show up very quickly, and maybe first, in a decline in new temporary hires. But so far the yellow flag in temporary staffing has not shown up in the wider data, and in particular hiring.

Saturday, November 16, 2019

Weekly Indicators for November 11 - 15 at Seeking Alpha

 - by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

Although a few indicators backed off some this week, the overall tone, ex-manufacturing, across all timeframes is positive.

You may be reading a few takes today about the poor nowcasts out of the NY and Atlanta Feds, after yesterday’s face-plant of an industrial production reading. Keep in mind that they are mechanically applying that result and not accounting for the GM strike (which is what I would do if I were in their shoes as well). So take those with a healthy dose of salt for now.

As usual, clicking over and reading rewards me with a couple of pennies for my efforts.

Friday, November 15, 2019

Industrial production tanks on GM strikes; Real retail sales decline slightly

 - by New Deal democrat

First, let me briefly address industrial production, which fell -0.8% in October. On its face this is an awful number. But take it with a big grain of salt: mainly it reflected the GM  strike.

Manufacturing output fell 0.6 percent in October to a level 1.5 percent lower than its year-earlier reading. In October, the strike in the motor vehicle industry contributed to a drop of 1.2 percent for durables. Excluding motor vehicles and parts, the output of durables moved down 0.2 percent.... The production of nondurables was unchanged.... The output of other manufacturing (publishing and logging) fell 1.0 percent.

Even without the GM strike, the number would have been negative. But not nearly as negative as it was. For the record, both utilities and mining (including oil production) were also down substantially, but these tend to be volatile.

So here is the relevant graph, which certainly does show a downturn in the past year. Just take the last downward blip with a grain of salt: 

Now let’s turn to retail sales. Retail sales are one of my favorite indicators, because in real terms they can tell us so much about the present, near term forecast, and longer term forecast for the economy.

This morning retail sales for October were reported up +0.3%, taking back September’s -0.3% decline. Since consumer inflation increased by +0.4%, however, real retail sales declined -0.1% for the month, following another -0.1% decline in September. As a result, YoY real retail sales took a spill but are still up +1.3%.

Here is what the absolute trend looks like. The last two months’ decline remains well within the range of noise:

Others may use other deflators. I use overall CPI because:
1. I’ve been doing it this way for over 10 years. 
2. This is the deflator used by FRED.
3. It has a 70+ year history.
4. Over that 70+ year history, it has an excellent record as a short leading indicator for employment and recessions. That’s the kind of track record I like.

Further, although the relationship is noisy, real retail sales measured YoY tend to lead employment (red in the graphs below) by about 4 to 8 months. Here is that relationship over the past 20 years: 

The recent peak in YoY employment gains followed the recent peak in real retail sales by roughly 6 months, and the downturn in real retail sales at the end of last year has already shown up in weakness in the employment numbers this year. Similarly even with the October decline I expect the recent improvement in retail sales YoY to show up in at least stabilization in the  employment numbers by about next spring. 

Finally, real retail sales per capita is a long leading indicator. In particular it has turned down a full year before either of the past two recessions:

In the last 70 years, with the exception of 1973 and 1981 this measure has always turned negative YoY at least shortly before a recession has begun:

Thus this is a quite reliable indicator. 

In summary, while a two month decline in real retail sales is a negative, this is a small one.  It will take a significant further decline for me to become concerned.

Thursday, November 14, 2019

Initial claims continue to show slowdown, but no imminent recession

 - by New Deal democrat

I’ve been monitoring initial jobless claims closely for the past several months, to see if there are any signs of a slowdown turning into something worse. Simply put, no recession is going to begin unless and until layoffs increase.

My two thresholds are:

1. If the four week average on claims is more than 10% above its expansion low.
2. If the YoY% change in the monthly average turns higher.

As of this week, initial claims continue to be very close to their expansion lows. The 4 week moving average of claims Is 217,000, only 7.7% above the lowest reading of this expansion: 

On a YoY% change basis, the 4 week average is -1.0% below its level one year ago:

In the first two weeks of November(blue), the average is 218,500 vs. 224,500 for November last year (red):

Although these readings are all weak, they remain positive. Neither threshold for a cautionary recession signal has been met.

On the other hand, the less volatile (but less leading) 4 week average of continuing claims is 1.5% above where it was a year ago:

This certainly is cautionary, and is consistent with a significant slowdown. But there have been similar readings in 1967, 1985-6, 3 times in the 1990s, and briefly in 2003 and 2005, all without a recession following. If we were to get readings in this metric more than 5% higher YoY, then I would be concerned.

Bottom line: unless initial claims start to be reported in the 230’s, and continuing claims continue to trend higher, there isn’t a recession in the immediate future (and, based on the improvement in the long leading indicators this year, barring more poor government policies, if there is no recession by midyear next year at the latest, it’s not going to happen).

Wednesday, November 13, 2019

Real average and aggregate wages declined in October

 - by New Deal democrat

October’s consumer inflation reading came in at a surprisingly high +0.4%, which as shown in red in the graph below, was one of the 3 highest in the past two years. Meanwhile average hourly earnings increased less than +0.2% - the second lowest reading in the past two years, shown in blue: 

As a result, real average hourly earnings decreased -0.2% last month, the worst reading since late 2017:

In a longer term perspective, this means that real wages declined to 97.6% of their all time high in January 1973:

On a YoY basis, real average wages remained up +1.7%, as they have been since June, and still below their recent peak growth of 1.9% YoY in February:

Aggregate hours and payrolls have improved significantly since July, so even though they declined -0.1% in October, real aggregate wages - the total amount of real pay taken home by the middle and working classes - are up 30.1%  from their October 2009 trough at the beginning of this expansion:

For total wage growth, this expansion remains in third place, behind the 1960s and 1990s, among all post-World War 2 expansions; while the *pace* of wage growth has been the slowest except for the 2000s expansion.

Tuesday, November 12, 2019

How economists blew the analysis of the manufacturing jobs shock

 - by New Deal democrat

I came across this article yesterday, posted by - to his credit - Brad DeLong, whose argument it eviscerates. Entitled “The Epic MIstake about Manufacturing That’s Cost Americans Millions of Jobs,” it deserves widespread attention. So I am summarizing it here. But by all means go and read the entire piece.

Just to give you the frame of reference, here is the historical graph of manufacturing jobs in the US for the past 50 years:   

After peaking in 1979, the number more or less gradually declined in the 1980s, and then stabilized in the 1990s, before plummeting right after 2000.

As written by Gwynn Guilford, the consensus of economists’ opinion was that while

the US had hemorrhaged manufacturing jobs, losing close to 5 million of them since  2000. Trade may have been a factor—but it clearly wasn’t the main culprit. Automation was.
For a decade or so, this phenomenon had been put forth by Ivy League economists, former US secretaries of treasurytransportation, and laborCongressional Research Services, vice president Joe Biden, president Barack Obama—and by Quartz too, for that matter. In a 2016 New York Times articletitled “The Long-Term Jobs Killer is Not China. It’s Automation,” Harvard economist Lawrence Katz laid out the general consensus: “Over the long haul, clearly automation’s been much more important—it’s not even close.”

Susan Houseman, an economist at the Upjohn Institute, and her colleagues, examined microdata available from the Federal Reserve, and discovered that this entire rationalization was based on technological improvements in only one industry — computers. As the article states, once they 

 strip[ped] away the computers industry output from the rest of the data[, t]hat revealed just how the rest of manufacturing was doing—and it was much worse than what Houseman and her colleagues expected.
“It was staggering—it was actually staggering—how much that was contributing to growth in real [meaning, inflation-adjusted] manufacturing productivity and output,” says Houseman.

The culprit was “quality improvement.” The computing power of your smartphone is probably millions of times better than the Univac computer of the 1950s. In fact, it’s much better than its ancestor of only 10 years ago. So your new smartphone is clearly worth “more” than an equivalently priced smartphone of 10 years ago.

The problem is, this quality improvement was assumed to be general across all of American industry. It wasn’t. Strip away computer quality improvement, and, well:
according to Houseman’s data, without computers, manufacturing’s real output expanded at an average rate of only about 0.2% a year in the 2000s. By 2016, real manufacturing output, sans computers, was lower than it was in 2007.

Here’s the nut graph (if the formatting doesn’t show properly, the important thing to know is that the light blue line well below the others is real manufacturing output less computers):

To put this in more dinosaurian terms, imagine if American factories were churning out exactly as much of exactly the same stuff in 2019 as they had been in 1969. Obviously we would say that there was no growth at all. But now make one change: where in 1969 automakers were churning out 10 million 1969 Chevy Impalas, in 2019 they are churning out 10 million 2019 Honda Accords. OK, modern Accords are light-years better than the Impalas of long ago,  but we wouldn’t say that American industry across the board had improved. 

That’s the mistake that economists made. Take away improvements in the computer industry, and American manufacturing really hasn’t made any progress at all - and still there are 4.5 million fewer jobs in manufacturing than there were at the end of 1999. And all of those jobs outside of the computer industry were due not to automation, but to trade.

Since the 2016 election, I’ve been leery of choosing sides between the “economic anxiety” trope and the “they’re all racists” theory, because I don’t see them as necessarily inconsistent. A white racist who is content with how things are going might vote for, e.g., Barack Obama, while that same racist, if stressed, will look for a scapegoat - like Mexicans and Muslims - to blame. Obama himself in a “Kinsey gaffe” referred to people “who cling to their guns and their religion.” That’s why in 2016 the national election result tracked so well with the economic voting models, while among the hardest-hit places in the 2016 “shallow industrial recession” were those of the upper Midwest that put Trump over the top.

Monday, November 11, 2019

November leading reports point to slowdown, no recession

 - by New Deal democrat

The leading indicators reported so far this month show that, while manufacturing continues flat or even in contraction, there’s no significant indication that it has spread to other important sectors like residential construction or motor vehicle sales. And without the weakness spreading to their sectors, this looks similar to 2016, where there was a slowdown but no recession.

This article was posted last week at Seeking Alpha. As usual, clicking over and reading rewards me with a penny or two for my efforts.

Saturday, November 9, 2019

Weekly Indicators for November 4 - 8 at Seeking Alpha

 - by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

The biggest story of the week was the move higher in long term interest rates. This means that the “yield curve inversion” you’ve read so much about in the past year is over. At the same time, long term interest rates (e.g., for mortgages) haven’t moved back high enough to pose a danger to the housing market. In other words, they’re at a “sweet spot.”

A note on the political implications: my specialty is telling you what the economy is likely to look like a year from now. And one year from now is the 2020 Presidential election. That all of the recent news in the long leading indicators has been improvement means that the economy is very likely to be doing better on Election Day than it is now. Which means that the incumbent candidate’s approval is likely to be higher then than it is now. That doesn’t necessarily mean that Trump wins, but it is fair to say that it does mean that if the Democratic candidate wins, it will be by a lower margin than the present polling suggests. (I owe you this in a much more detailed post, but I wanted to give you the Cliff’s Note version now.)

Anyway, as usual, clicking over and reading my post at Seeking Alpha should be educational for you, and reward me a little bit for my efforts.

Friday, November 8, 2019

Scenes from the October employment report: leading sectors remain poor

 - by New Deal democrat

Yesterday I discussed unemployment and labor force participation from last week’s jobs report, which with the significant exception that better wage growth would probably lead to more people deciding that they’d like a job, remains very positive. Today let’s look at the bad news, which is the same as last month’s: leading indicators for employment are weak to negative.

To begin with, in the last 9 months, per the more reliable establishment report, 1,358,000 jobs have been added, an average of 151,000 per month, including census hiring, a distinct slowdown from 2018’s pace of 205,000: 

Next, let’s update the three leading sectors of employment that I have been tracking: temporary help (blue in the graph below), manufacturing (gold), and residential construction (red). Here’s what they look like compared with 2018, showing the slowdown this year (Note: the big decline in manufacturing last month was the GM strike, which will presumably be reversed in November):

While residential construction may be rebounding a little, don’t be fooled by the better-looking bars for August and September in temporary help. As I have pointed out before, this year there have been almost relentless downward revisions in that number between the initial report and the final one two months later.  That pattern held up yet again for August and September. Below are the original number for the last four months on the left, followed by the first and then final revisions to the right:

JUL +2200 -7300* -10,500
AUG +15,400 +14,500 +9,500
SEP +10,200 +20,100 ———*
OCT -8100
*1st revision only

In other words, the net change from the initial September report to the initial October report was -3200.

Further, the average manufacturing workweek is now down 1 full hour per week YoY from its peak. Although I only show data from 1983 onward below, going back 70 years there have only been 2 occasions where such a decline lasted longer than one month without a recession happening (1953 and 1966). In the modern era shown, only in 1985 and 1995 for one month apiece were there 1 hour declines without a recession following:

The issue with October’s data is whether this was affected by the GM strike as well. If it was, the number should rebound in November.

A look at the YoY% change in manufacturing hours for the past 35 years shows that such losses have *always* led to actual YoY losses in manufacturing jobs (but only sometimes to recessions):

So we should expect more and significant actual losses in manufacturing jobs going forward.

And, like temporary help, the revisions for manufacturing employment have all been downward for the past six months:

APR +4. +3 (-1)
MAY +3 +2 (-1)
JUN +17 +10 (-7)
JUL +16 +4 (-12)
AUG +3 +2 (-1)
SEP -2  -5 (-3)*
OCT -36 (GM strike)
*1st revision only

More broadly, there have been YoY losses in goods-producing jobs before all of the past 3 recessions, and going back 70 years, counting 12 recessions, in all but 3 there has been steep deceleration before and actual losses no later than two months into the recession, with only 2 false positives (1966 and 1985): 

So far this year, only 44,000 jobs have been added in the entire goods-producing sector (again, this may in part reflect the GM strike in October):

This is consistent with at very least a severe slowdown.

Where there has not been a slowdown is in the (non-leading) services sector, which remains at roughly 1.5% growth YoY:

In summary, to reiterate what I wrote last month, the leading indicators in the employment report strongly suggest that the goods-producing portion of the US economy is probably in a shallow recession right now, and that we should expect further losses in that sector. The economy in general and jobs in particular are being kept in expansion by consistent growth in the services sector.

Thursday, November 7, 2019

Scenes from the October employment report: full employment?

 - by New Deal democrat

Last Friday the household jobs report - the one that tells us about unemployment, underemployment, and labor force participation - has been particularly strong in the past three months. This has driven some impressive gains in labor force participation and the unemployment rate.

To begin with, gains in employment as measured by the household survey (red in the graphs below), as opposed to the larger (and, yes, more reliable) payrolls survey (blue), have totaled 1,222,000 in the last three months:

One month ago this gave us the lowest unemployment rate in the past 50 years, and the U6 underemployment rate is also at its lowest level, save for one month, since the series began in 1994. Each ticked up by +0.1% in October. In the below graph, both metrics are normed to zero at their lowest levels:

And even beyond that, those who aren’t even in the labor force, but say they want a job now, are less than 0.1% above their lowest level of all in comparison with the total labor force:

The only remaining weakness, and it is a significant one, is in the area of participation in the labor force. While participation in the labor force in the prime age group (red in the graph below) has jumped by +0.8% from July, and generally since 2017 has had the biggest YoY increases since the last of the baby boomer generation came of age 35 years ago:

During the employment boom of 1996-2001, prime age participation and employment were both as much as 1.6% higher than  they are now. In the below graph both prime age labor force participation and the prime age employment-population ratio are normed to zero at their October readings of 82.8% and 80.3% respectively, to show how the present level compares with earlier expansions (prior to 1987, the levels were never as high as presently):

Since the U6 underemployment rate is near record lows, as is the share of people who aren’t even in the labor force at present but say they want a job now, this shortfall is *by definition* people who told the Census Bureau that they *don’t* want a job now — chiefly because of disability or caring for family members (children or parents), in addition to those who are retired.

The reason for this shortfall is probably that wage growth (measured nominally, which is how employers give out raises) remains below that of previous expansions in the past 35+ years:

YoY real wage growth is +1.75% as of one month ago, which is pretty good, but is almost entirely driven by changes in the price of gas.

In short, increased wage growth would almost certainly draw more of those on the sidelines into the labor force.

Wednesday, November 6, 2019

A note about turnout in yesterday’s elections

 - by New Deal democrat

I haven’t seen any information yet on how turnout in last night’s elections, particularly in Virginia, which was an “off-off year” election, i.e., no statewide races at all, only state legislative and local races.

The state of Virginia keeps turnout statistics online back to 1976. The bottom line is, clearly something happened in the late 1990s that drove down turnout, which has been reversed in the last two years.

In the 5 “off years” with statewide races between 1977 and 1993, turnout averaged 61.6% of registered voters.

By contrast, turnout in the “off-off years” between 1979 and 1995, turnout averaged 54.6% of registered voters. That’s a 7% decline. 

Now, here are the same figures for the 10 state elections thereafter.

In the 5 “off years” with statewide races between 1997 and 2013, turnout averaged 44.8%, a decline of almost 17%.

In the 5 “off-off years” between 1999 and 2015, turnout averaged 31.0%, a decline of over 23%!

Two years ago, 2017, was the first “off year” election after Trump’s win. Turnout was 47.6%, a bounce from the five previous “off year” elections but nowhere near the previous averages.

We don’t have information yet from yesterday, but here’s what happened in the House district that ended in an exact tie two years ago, that was won by a drawing from a hat by the GOP candidate, which gave the GOP a 51-49 majority (that’s right, exactly *ONE VOTE* made all the difference between which party was in control of the House of Delegates.):


2017 (the tie):


Turnout, at 20,000, was a lot closer to the 2017 “off year” 24,000  than the 2015 “off-off year”  14,000, probably about 39%. If that figure is representative of the statewide average, only a little less than half of the drop-off from the 1977-95 period will have been made up.

Big progress, but clearly still a long way to go.

UPDATE: This comes from Chaz Nuttycombe: median turnout in the Senate races was 41%, and for House of Delegates races was 40%, so pretty close to my estimate.

Tuesday, November 5, 2019

September JOLTS report: mixed with “hard” positives and a “soft” negative

 - by New Deal democrat

This morning’s JOLTS report for September was mixed, with a decline in job openings and an increase in layoffs, but advances in hiring and voluntary quits.

To review, because this series is only 20 years old, we only have one full business cycle to compare. During the 2000s expansion:

  • Hires peaked first, from December 2004 through September 2005
  • Quits peaked next, in September 2005
  • Layoffs and Discharges peaked next, from October 2005 through September 2006
  • Openings peaked last, in April 2007   
as shown in the below graph(averaged quarterly through Q3): 

Here is the monthly data for the past five years:

As you can see, hires and total separations are at or near their peaks. Quits have declined in the past two months from their all time high, but are still slightly higher YoY. On the other hand, job openings (which I consider “soft” data) have completely rolled over, and are actually negative YoY.

Next, here is the history of the “hiring leads firing” (actually, total separations) metric  quarterly through Q3 of this year:

While both hires and fires essentially went sideways in late 2018 and through the first half of this year, in the third quarter, after revisions, both shot up to new highs. 
Finally, For completeness’ sake, below are total layoffs and discharges. Note that these turned up appreciably in the six months or so before the Great Recession, with the quarterly average, shown in red, up 15% from its bottom - a similar level of increase that has historically been shown before recessions in YoY initial jobless claims during their lengthier history:  

These did sharply increase in September, but the three month average hasn’t increased nearly enough to be a source of concern yet.

One month ago, the deceleration in nearly all metrics had reached neutral levels. With revisions, this month’s “hard” hiring and total separations metrics have resumed a positive trend, while quits are weakly positive, layoffs and discharges are neutral, and only the “soft” job openings metric is negative.

With only one complete previous business cycle to go on, it is difficult to form any judgment from these cross-currents.

Monday, November 4, 2019

Q3 GDP points away from a producer-led recession

 - by New Deal democrat

In the past 60 years, most recessions have been consumer-led, and have been preceded by both increases in mortgage rates in excess of 2% and/or increases in the price of gas by 40% or more per year. Usually the Fed has been hiking rates by 2% or more, and the change in YoY inflation has also increased by 2% or more. Housing starts typically went down by 25% or more, and that fed through the rest of the economy over the next 12-24 months. The bottom line is that consumer budgets became stressed, so they cut back on spending. When real consumer spending per capita declined, a recession began.

The most notable exception was the recession of 2001. Housing went down by a maximum of 12.5%, and picked back up before the recession began. Real personal consumption expenditures were flat to slowly rising throughout the recession, except for immediately after the 9/11 attacks. 

What went down in 2001 were corporate profits, which fell by 20% or more adjusted by unit labor costs.

This leads me to the current situation. Mortgage rates went up by only 1.5% at the most between 2016 and 2018. While the Fed did hike rates over 2% in total, the hikes were very gradual. The change in YoY inflation never increased more than 1.2%. Oil prices did rise more than 40% YoY for most of 2018, but from very low levels, and for the past 12 months have *decreased* on a YoY basis by an average of 20%. Real wages, which were flat for most of 2016 and through 2017, have increased pretty consistently since early 2018 as well. Real retail sales and real consumption expenditures have risen to new highs.

In short, as I have said a number of time, “the consumer is alright.” There is no sign of a cutback in real per capita consumer spending that has led nearly all recessions. If a recession is going to happen now, it would have to be producer-led, like 2001. And that means, a substantial decline in corporate profits would happen first.

Which leads me to the point of today’s post. As of Friday, according to FactSet, Q3 corporate earnings are only 2% below their Q4 2018 peak, and they never went down more than 10%:

Further, the first estimate of Q3 GDP was released last week. Both long leading indicators in that report, real private residential investment and proprietors’ income, increased. In other words, no sign there of the kind of producer-led turndown that we would need to see before a 2001-style recession were to begin.

I discussed the Q3 GDP report with accompanying graphs last Friday at Seeking Alpha. As usual, clicking over and reading should be educational for you as well as rewarding me for my efforts.

Saturday, November 2, 2019

Weekly Indicators for October 28 - November 1 at Seeking Alpha

 - by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

The last long leading indicator that I was concerned about, corporate profits for Q3, resolved to the upside this week, according to FactSet. This means that all of the long leading indicators which had been negative a year ago are gone. Short leading indicators also slightly improved this week.

As usual, clicking over and reading should bring you up the moment on the economy, and also rewards me with a penny or two for my efforts.

Friday, November 1, 2019

October jobs report paints a portrait of a full (or nearly full) employment economy

 - by New Deal democrat

  • +128,000 jobs added (+148,000 ex-Census)
  • U3 unemployment rate up +0.1% from 3.5% to 3.6%
  • U6 underemployment rate up +0.1% from 6.9% to 7.0% 
Leading employment indicators of a slowdown or recession

I am highlighting these because many leading indicators overall strongly suggest that an employment slowdown is coming. The following 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 fell -0.2 from 40.5 hours to 40.3 hours. This is one of the 10 components of the LEI and is negative.
  • Manufacturing jobs declined by -36,000 (but would have risen by +6,000 were it not for the GM strike). YoY manufacturing is up 49,000, a sharp deceleration from 2018’s pace.
  • construction jobs rose by +10,000. YoY construction jobs are up +148,000, also a deceleration from summer 2018. Residential construction jobs, which are even more leading, rose by +2,900.
  • temporary jobs declined by -8,100. September’s strong number, however, was revised even higher to +20,100.
  • the number of people unemployed for 5 weeks or less rose by -100,000 from 1,868,000 to 1.968,000.

Wages and participation rates

Here are the headlines on wages and the broader measures of underemployment:
  • Not in Labor Force, but Want a Job Now: declined by -127,000 from 4.880 million to 4.753 million 
  • Part time for economic reasons: rose by 88,000 from 4.350 million to 4.438 million 
  • Employment/population ratio ages 25-54: rose +0.2% from 80.1% to 80.3% (NEW EXPANSION HIGH). 
  • Average Hourly Earnings for Production and Nonsupervisory Personnel: rose $.04 to $23.70, up +3.5% YoY. (Note: you may be reading different information about wages elsewhere. They are citing average wages for all private workers. I use wages for nonsupervisory personnel, to come closer to the situation for ordinary workers.)  

Holding Trump accountable on manufacturing and mining jobs

 Trump specifically campaigned on bringing back manufacturing and mining jobs.  Is he keeping this promise?  
  • Manufacturing jobs rose an average of +4000/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 -100, an average of -67 jobs/month in the past year 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 51,000. September was also revised upward by 44,000, for a net change of +95,000.

Other important coincident indicators help  us paint a more complete picture of the present:
  • Overtime remained at 3.2  hours
  • Professional and business employment (generally higher-paying jobs) rose by 22,000 and  is up +402,000 YoY. 
  • the index of aggregate hours worked for non-managerial workers rose by 0.1%
  •  the index of aggregate payrolls for non-managerial workers rose by 0.3%  
Other news included:            
  • the alternate jobs number contained  in the more volatile household survey rose by 241,000  jobs.  This represents an increase of 1,928,000 jobs YoY vs. 2,093,000 in the establishment survey. 
  • Government jobs declined by -3,000 (+17,000 ex-census).
  • the overall employment to population ratio for all ages 16 and up was unchanged at 61.0% m/m and is up 0.4% YoY.    
  • The labor force participation rate rose +0.1% from 63.2% to 63.3% and is up 0.4% YoY.


This was a very good report with few negatives, which were chiefly in manufacturing.

In particular, it is looking even clearer that we may be at practical “full employment.” The prime age employment population ratio has matched its high point of the 1980s and 2000s expansion, and was only higher for 15 months in 1999-2000. Those not in the labor force but who want a job now are also at a 25 year low as a share of the labor force. Meanwhile, nonsupervisory wages remained at an expansion high YoY at +3.5% (except for one month, and still below peak YoY changes in the past 3 expansions).

The negatives were the slight tick upward in the unemployment and underemployment rates (and the GM strike was not big enough to account for those). The manufacturing workweek declined further, a bigger warning for job losses to come. Temporary jobs, including revisions were flat, so they are above July’s trough but below last autumn’s peak.

Reasonably speaking, with revisions, this report paints a portrait of a full or nearly full employment economy with a few soft spots, and wages that still ought to be making more progress.