Weekly Indicators for July 29 - August 2 at Seeking Alpha

 - by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

That corporate bond yields fell to new expansion lows yesterday is a BFD.

As usual, clicking over and reading helps reward me for the effort I put in, as well as giving you up to the moment information.

July jobs report: good headline masks signs of serious producer-led slowdown

 - by New Deal democrat

HEADLINES: 

• +164,000 jobs added
• U3 unemployment rate unchanged at 3.7%
• U6 underemployment rate declined -0.2% from 7.2% to 7.0% (NEW EXPANSION LOW)

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 very mixed this month.

• the average manufacturing workweek fell -0.3 from 40.7 hours to 40.4 hours. This is one of the 10 components of the LEI, and will have a big negative impact. THIS IS A SERIOUS DECLINE.
• Manufacturing jobs rose by 16,000. YoY manufacturing is up 157,000, a deceleration from last summer’s pace.
• construction jobs rose by 4,000. YoY construction jobs are up 202,000, also a deceleration from last summer. Residential construction jobs, which are even more leading, rose by 4000.

• temporary jobs rose by 2200.
• the number of people unemployed for 5 weeks or less rose by 240,000 from 1,961,000 to 2,201,000. The post-recession low was three months ago.

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: fell by -279,000 from 5.322 million to 5.043 million
• Part time for economic reasons: declined by -363,000 from 4.347 million to 3.984 million (NEW EXPANSION LOW)
• Employment/population ratio ages 25-54: down -0.2% to 79.5%. This has now declined -0.4% from the peak at the beginning of this year.
• Average Hourly Earnings for Production and Nonsupervisory Personnel: rose $.04 from  $23.42 to $23.46, up +3.3% YoY. This is still a slight decline from the recent YoY% change peak.  (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 +13,000/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 declined -100, an average of 8 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

May was revised downward by -10,000. June was also revised downward by -31,000, for a net change of -41,000.

Other important coincident indicators help  us paint a more complete picture of the present:

• Overtime declined -0.2 hours to 3.2  hours.
• Professional and business employment (generally higher-paying jobs) rose by 31,000 and  is up +367,000 YoY. 
• the index of aggregate hours worked for non-managerial workers declined by -0.2%

•  the index of aggregate payrolls for non-managerial workers rose by 0.1%  

Other news included:            

• the  alternate jobs number contained  in the more volatile household survey rose by 283,000  jobs.  This represents an increase of 1,324,000 jobs YoY vs. 2,246,000 in the establishment survey. This survey, which has been negative three months this year, was a major disconnect from the establishment number. The household survey has a tendency to turn first, and this month it showed up in the establishment survey.
• Government jobs rose by 16,000.

• the overall employment to population ratio for all ages 16 and up rose 0.1% to 60.7% m/m and is up 0.2% YoY.          
• The labor force participation rate rose 0.1% from  62.9% to 63.0% m/m and is up +0.1% YoY.

SUMMARY

This was a decidedly mixed report, but the big positives were in the coincident category, while the biggest negatives were in the leading category.

The positives included a new low in the underemployment rate, including a new low in involuntary part time employment, and continuing if modest gains in the three most leading job categories. The household jobs number also has jumped higher for the second month in a row.

But the negatives were more important in my opinion. Most importantly, the average manufacturing workweek declined seriously, and is down -1.0 hour from its peak, which has almost always presaged a recession. Overall goods producing jobs were only up 16,000, a pathetic share of the total market. The prime age employment to population ratio is now in a significant declining trend from its January peak. Revisions also continued to be negative, and the YoY change in the household jobs survey remains much lower than the establishment survey, two trend changes that have a tendency to change at turning points. The YoY change in the establishment survey is also decelerating.

So, while the headline jobs number continues to be quite good, the underlying internals continue to be most consistent with a producer-led serious slowdown.

July ISM manufacturing, June residential construction both better than expected

 - by New Deal democrat

We got two important leading indicators this morning. Both were better than expected.

First, July data started out with an ISM manufacturing index reading that declined slightly to 51.2, but remained above the neutral level of 50.0. Even more important, the new orders subindex rose slightly to 50.8:

Manufacturing as measured by this index, as well as the regional Fed indexes, has been slow, but has doggedly resisted going into contraction.

June construction spending declined, as did the component of residential construction. But the good news here is that there were substantial upward revisions to the last few months, so the final number was about 1% higher than the initial reading for last month:

Construction spending follows permits and starts with a lag, but is much less noisy. I don’t think we’ve reached bottom yet in this metric, but with the revisions the June number has to be treated as a positive.

One last thing: looking ahead to tomorrow’s employment report, the American Staffing Index had the worst YoY reading of the year so far this week, at -3.7%:



So I’m expecting weak numbers for the leading manufacturing, residential construction, and temporary employment sectors tomorrow, at least as compared with last year, with the most likely negative number being in temporary employment.

Initial claims for July remain lower, thus positive

 - by New Deal democrat

I have started to monitor initial jobless claims to see if there are any signs of stress.

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.

Here’s this week’s update. [NOTE: I’ll add the relevant graphs later.] UPDATE: graphs added.

Initial jobless claims last week were 215,000. This is in the lower part of its range for the past 18 months. As of this week, the four week average is 5.0% above its recent low: 

Last July, initial claims averaged 215,250. Thus the monthly YoY comparison, at 211,500, or -2.7% lower, and so also remains positive: 

Finally, let’s compare the YoY% change in initial claims (blue) with continuing claims (red):

Comparisons have been  getting closer to crossing the threshold from lower to higher,  but for the past several weeks have trended a little lower, which is more positive.  This. week the  comparison was -2.7% YoY.  So far - this is most consistent with the 1984, 1994, and 1996 slowdowns, and not a recession.

The housing choke collar

 - by New Deal democrat

I have a new post up at Seeking Alpha, discussing how, even though sales went down last year, and have already bottomed, house prices have as usual, followed into decline with a lag.

Beyond that, I discuss the concept of a “housing choke collar,’ similar to the “oil choke collar” I used to write about in 2010-14, whereby prices repeatedly approach the tipping point of unaffordability, causing sales to drop off, causing interest rates and prices to decline, making housing more affordable ... and the cycle repeats.

One item that didn’t make it into that article, because I was trying to be concise and not digress, was this graph of the median income of renters that Kevin Drum posted a couple of weeks ago:


Kevin Drum has repeatedly been trying to make the case that, really, housing hasn’t gotten expensive at all compared to historical values — and gotten a lot of blowback (correctly, imo). His take on the above graph is that it shows that renters aren’t stressed at all.

I think the graph actually shows that buying a house has gotten so expensive that it has been prices out of an increasing slice of middle-class incomes, and so people higher up the income scale have been forced into renting.

Anyway, as usual clicking over and reading my piece at Seeking Alpha should bring you up to date on the housing market, and helps me out for my efforts with a little cash in my wallet.

June 2019 personal income and spending

 - by New Deal democrat

The wage-earner/consumer remains in decent shape, and a lack of inflation (continued low gas prices!) continues to be able to hide a multitude of sins. That’s the message from this morning’s June report for personal income and spending.

Nominally, income rose +0.4%, while spending rose +0.3%. Since inflation as measured by the PCE price index only increased 0.1%, that means both real income and real spending rose +0.3 and +0.2%, respectively:

Here’s the same data YoY:

As I’ve written about many times over the past ten years, earlier in the cycle retail sales tend to grow more than the broader measure of personal spending; later in the cycle retail sales decelerate first. Here’s what that looks like updated through June:

This continues to look like a later-cycle consumer who is in pretty decent shape for the moment. And probably will be until either inflation picks up, or international trade weakness bleeds into a broad producer-led slowdown.

One final note. Something interesting is happening with the savings rate (i.e., the percentage of their income that people don’t spend) — it has been gradually rising, by a total of 2%, over the past several years. Why is that interesting? Because, here is the long term picture:


An increase in personal saving over the course of an economic expansion is something that hasn’t happened in almost 50 years! I’m not sure what exact dynamic is in play, so I won’t commment further. But it is very interesting, and I’m mulling it over.

Trump’s trade wars can still lead to a producer led recession

 - by New Deal democrat

I wrote a piece last week for Seeking Alpha explaining that, while the consumer side of the economy is doing reasonably well, a recession could still com in via the producer side.

https://seekingalpha.com/article/4278010-producer-led-recession-remains-viable

As usual, clicking over and reading should be educational for you, and puts a penny or two in my pocket.

Thus, the idea that no recession can happen absent a 20% YoY slide in new home sales is not correct. In fact, the 2001 recession happened with only a 10% decline from the very top to bottom in sales (and less than that YoY) that ended about 6 months before the recession even began. The decline in new home sales from top to bottom in 2018 was similar.

One item that didn’t make it into that post was to note that the ISM manufacturing index, especially the new orders subindex, should give early warning of any producer downturn.


ISM won’t let FRED publish their data anymore, so here’s a graph I created back in 2012 or so showing the relationship going all the way back to 1948. Note that the new orders subindex can decline to about 45 and still be a false positive. In 2000-01, it declined to 40 before the recession actually began:

As of last month it stood at exactly 50.0, as shown in the more updated graph of the new orders subindex from Briefing.com:

The July ISM index will be released on Thursday. The average of the regional Fed indexes is a hair above 0, with the final region - Texas - due to report later this morning. I’ll update the average once they report. 
UPDATE: New orders in the Texas manufacturing survey increased slightly. This is enough to keep the average of the five regions just slightly positive.