December jobs report: consistent with a “soft landing,” despite discordance in household data

 

 - by New Deal democrat

My focus remains on whether jobs gains are most consistent with a “soft landing,” i.e., no further deterioration, or whether deceleration is ongoing; and more specifically: 

• Whether there is further deceleration in jobs gains compared with the last 6 month average

• Whether the unemployment rate is neutral or decreasing; or whether there is further weakness; and
• Based on the leading relationship of the quits rate to average hourly earnings, weather YoY wage growth continues to decline slightly

The news on all three was good. The six month average of jobs gained has steadied, at 198,500 an increase from last month. The unemployment rate remained steady at 3.7%. Average hourly wages for nonsupervisory workers also remained steady at 4.3%. 

There is an important caveat about this month’s numbers: data from the household report’s seasonal adjustments was changed. This means that m/m changes in those metrics (which were otherwise very bad) need to be taken with a hefty dose of salt.

Here’s my in depth synopsis.

HEADLINES:

• 216,000 jobs added. On a YoY basis, jobs rounded to up 1.7%, down -0.1% from last month, and the lowest % gain since March 2021 
• Both October and November were revised downward, by -45,000 and -26,000 respectively, for a total of -71,000. This continued the steady drumbeat of downward revisions that we saw almost all last year. The 3 month moving average declined from 180,000 to a new post-pandmic low of 165,000.
• Private sector jobs increased 164,000. Government jobs increased by 52,000.
• The alternate, and more volatile measure in the household report, declined by -683,000. November, which was originally reported as a big rebound of 747,000, was also revised downward to 586,000. More importantly, the YoY% gain in this report - which avoids issues with seasonal adjustment - declined to +1.2%, the lowest since the pandemic lockdowns.
• The U3 unemployment rate remained at 3.7%. The civilian labor force, the denominator in the figure, declned by -676,000, while the numerator, the number of unemployed, rose a tiny 6,000.
• The U6 underemployment rate increased +0.1% to 7.1%, 0.6% above its low of December 2022.
• Further out on the spectrum, those who are not in the labor force but want a job now increased 328,000 to 5.671 million, vs. its post-pandemic low of 4.925 million set last March.

Leading employment indicators of a slowdown or recession

These are leading sectors for the economy overall, and help us gauge how much the post-pandemic employment boom is shading towards a downturn.  These were sharply mixed:

• the average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, declined another -0.1 hours to 40.4, equal to its lows earlier this year and down -1.1 hours from its February 2022 peak of 41.5 hours.

• Manufacturing jobs rose 6,000.
• Within that sector, motor vehicle manufacturing jobs declined 2,100. 
• Construction jobs increased by 17,000.
• Residential construction jobs, which are even more leading, rose by 3,900. This is a new post-pandemic high.
• Goods jobs as a whole rose 22,000 to a new expansion high. These should decline before any recession occurs. They remain up 1.0% YoY, which is an average pace compared with most of the last 40 years, although the trend continues to be slight deceleration.

• Temporary jobs, which have generally been declining late 2022, declined again, by -33,300, and are down about -250,000 since their peak in March 2022.
• the number of people unemployed for 5 weeks or fewer rose 122,000 to 2,191,000.

Wages of non-managerial workers

• Average Hourly Earnings for Production and Nonsupervisory Personnel increased $.10, or +0.3%, to $29.42, a YoY gain of +4.3%. This is unchanged from one month ago, but remains the lowest since June 2021.

Aggregate hours and wages: 

• the index of aggregate hours worked for non-managerial workers fell -0.1%, but is up 1.4% YoY, an improvement from October’s low of 1.0%.

•  the index of aggregate payrolls for non-managerial workers rose 0.2%, and is up 5.8% YoY. This is 0.3% above the YoY low set in October, and  2.7% above the most recent inflation rate, meaning average working class families have more buying power.

Other significant data:

• Leisure and hospitality jobs, which were the most hard-hit during the pandemic, rose another 40,000, which is still -163,000, or -0.9% below their pre-pandemic peak.
• Within the leisure and hospitality sector, food and drink establishments rose 22,100,. This sector has completely recovered from its pandemic downturn. 
• Professional and business employment increased 13,000. These tend to be well-paying jobs, This series has declined by -71,000 since last May, and is currently up only 0.6% YoY. This appears to be mainly fueled by retrenchment in tech jobs.
• The employment population ratio declined -0.3% to 60.1%, vs. 61.1% in February 2020.
• The Labor Force Participation Rate also declined -0.3% to 62.5%, vs. 63.4% in February 2020.

SUMMARY

This month’s report was complicated by annual revisions to seasonal adjustments in the household report. As a result, the generally very poor numbers in that portion of teh report need to be taken with lots of salt, although the YoY comparisons are not affected. Meanwhile, the establishment report, which gives us job gains and losses in various sectors, was generally positive and did not show any marked deceleration compared with earlier in 2023.

On the positive side, manufacturing, construction, and goods producing jobs generally continued to incrrease. These should all roll over before any recession were to begin. Residential construction in particular continued to rebound. Leisure and hospitality jobs continued to make up lost ground. Professional and business jobs staged a slight rebound. Nominal YoY wage growth was steady, and above inflation. Only the continued decline in temporary help jobs, and a decline in vehicle manufacturing jobs, were blemishes, with a more concerning drop in aggregate hours worked by nonsupervisory personnel.

For the record, the household report showed big declines in the number of employed, the labor force participation ratio, the employment population ratio, and those who are not employed but want a job now. The underemployment rate rose slightly, as did the level of short term unemployment. Only the headline unemployment rate, and the number of unemployed, remained steady.

Overall, to return to the theme with which I began this note, December’s employment situation was consistent with a “soft landing,” and did not show any signficant continued deceleration in the important metrics I have been monitoring.

Initial claims: the return of “almost nobody is getting laid off”

 

 - by New Deal democrat

We’re back to the virtuous scenario where almost nobody is getting laid off.

Initial jobless claims for the last week of December declined -18,000 to 202,000, the lowest since October. More importantly, the 4 week average declined -4,750 to 207,750, the lowest since last January. With the usual one week delay, continuing claims declined -31,000 to 1.855 million (since FRED glitched this morning, entering the data for “December 20*24*, I’m not including a graph at this point).

On a YoY% basis, initial claims were down -1.9%, and the more important 4 week average was down -0.7%. Continuing claims were up 12.4%, which nevertheless was the lowest increase since the end of last March.

For purposes of forecasting the effect on the “Sahm rule” measure of the unemployment rate, the entire month of December averaged 210,400 claims, 200 fewer than December 2022, or -0.1% YoY. Needless to say, this does not suggest the “Sahm rule” is going to be triggered anytime soon.

[Note: if FRED fixes its glitch, I will update with better graphs later]

ISM manufacturing index remains in contraction, and the trend in vehicle sales may have turned down as well

 

 - by New Deal democrat

The ISM manufacturing index, where any value below 50 indicates contraction, once again came in negative for both the total index, at 47.4, and the more leading new orders subindex, at 47.1. Both have been indicating contraction for more than a year:

Which begs the question. Because, despite a nearly flawless 75 year history as a leading indicator, there has been no recession.

An important reason is that the ISM is a *diffusion* index, not a weighted one. And a very important but narrow part of manufacturing, motor vehicles, has been very positive - at least until a few months ago.

As reported last week by the BEA, in November light vehicle sales (blue in the graph below) declined by -127,000 on an annualized basis, to 15.319 million units, while heavy truck sales (red) rose by 27,000 annualized, to 478,000 units:

Light vehicle sales peaked, at least for the near term, last June at 16.060 million units. Perhaps more importantly, heavy truck sales peaked last May at 565,000 units.

That’s because heavy truck sales reliably turn early, and are much less noisy. And only twice in the past 50 years have they declined on a percentage basis as much as they have in the past 8 months without heralding a recession, in 1987 and 2016.

This goes back to the importance of yesterday’s construction spending data, and residential construction in particular. With manufacturing being less of a share of the US economy than it was before the “China shock” that started in 1999 when that nation became a regular trading partner of the US, construction has assumed a more important role as a leading indicator for expansions and recessions. And as we have seen with building units under construction as well as residential construction spending, that sector of the economy, unlike manufacturing, has not turned down.

New Year, same old labor market deceleration

 

 - by New Deal democrat

This morning’s JOLTS report for November continued the same trend of labor market deceleration that we have seen since the blazing hot boom of 2021.

Job openings declined -62,000 to 8.790 million, the lowest level since March 2021. Actual hires fell sharply, by -363,000 to 5.465 million, the lowest since the pandemic lockdown month of April 2020. Quits declined by -157,000 to 3.471 million, the lowest since February 2021. The below graph norms each to 100 as of right before the onset of the pandemic:

Both hires and quits are actually *lower* than before the pandemic. While this isn’t recessionary, it points to the normalization of each metric at very least. Since openings are a “soft” number that can be influenced by phantom postings, I discount them somewhat, except for their value in showing the trend.

The good news in November was that layoffs also declined sharply, by -116,000 to 1.527 million. This is in accord with the decline in weekly initial jobless claims we have recently seen:

Finally, four months ago I premiered a comparison of the quits rate (blue in the graph below) and average hourly earnings (red). This is because the former has a 20+ year history of leading the latter, which I have in the past described as a “long lagging” indicator that turns well after most other metrics. Here’s the update on that comparison for this month:

As noted above, we had a big decline in quits in November. While this may in part be a seasonal adjustment issue post-pandemic, it does point to a continued softening in the YoY% gains we can expect in average hourly wages in the months ahead.

So: simply put - more deceleration, but still positive vs. recessionary.

Construction spending continued to increase in November

 

 - by New Deal democrat

I’m feeling a little under the weather today, so I am going to keep this brief.

Total construction spending rose 0.4% in November, while residential construction rose 1.1%:

Keep in mind that these are nominal numbers, affected by the cost of construction materials.

Typically residential construction moves in tandem with building units under construction. Here’s that comparison:

The resilience in construction is an important reason why the US did not enter recesion last year, despite the anemic reports on manufacturing.

Final COVID-19 update for 2023: mainly good news (at least on a comparative basis)

 

 - by New Deal democrat

Here is the status of the COVID-19 pandemic as of the end of 2023. It’s mainly “good news,” at least on the comparative scale. But as (now) per usual, we are in the midst of the Thanksgiving through New Year’s surge.

Let me start with infections, which these days can only be inferred from wastewater sampling. Per Biobot, we currently have as many infections as we did one year ago at this time (and three years ago as well, to the extent we can trust the skimpy early sampling). In fact, only the original Omicron explosion was signficantly worse than where we are now:

Also as per usual for this time of year, the Northeast (Yellow in the graph below) and the Midwest (light purple) are the worst affected regions, probably because they are the coldest regions, leading to much more indoor gathering:

But if infections are just as bad as they have been for 2 of the past 3 years at this time, hospitalizations are running only about 70% of last year’s levels at this time (first and last bars below):

And deaths are running at about 60% of last year’s at this time:

The comparisons are even better when we compare hospitalizations over the entire pandemic:

Hospitalizations are only about 30% of what they were at this time at the end of 2020, and only about 20% of what they were during the Omicron wave.

Deaths are 10% or less of where they were at year end 2020 or year end 2021:

To put some numbers on it, for the 9 months starting April 1 through December 31 each year (measured by the closest reference week),

 - in 2020 there were 367,000 deaths

 - in 2021 there were 289,000 deaths

 - in 2022 there were 96,000 deaths

 - in 2023 so far there have been 39.000 deaths. This will probably rise to about 42,000 once updates are complete for the last 3 weeks of December.

That’s a decline of almost 90% from the first year of the pandemic.

Last year at this time the BA.4&5 variants were fading, as an alphabet soup of new candidates created more infections. Within a month, XBB had emerged the clear winner:

XBB remained the dominant variant almost all this year. Only in the past month has it been supplanted by JN.1:

Although there won’t be another update until Friday, as I type this JN.1 probably accounts for about 2/3rd’s of all new infections - which would be equivalent to the entire recent surge.

To summarize: COVID has become endemic. Very little in the way of mitigation remains, either by mask-wearing or uptake of the newest booster shot. Despite this, hospitalizations are much improved, and deaths a shadow of what they were early in the pandemic. Some of this is probably better treatments, like Paxlovid, some is better care generally with better understanding of the virus, and much of it is doubtless that a population that has almost universally suffered at least one infection, and many if not most have been vaccinated multiple times, is far harder for the virus to waylay. Some, alas, is also that the most vulnerable have already been killed by the virus, so they aren’t around now.

I will continue to update from time to time in 2024 if something of particular significance happens.

The economic graph of the year for 2023

 

 - by New Deal democrat

I’ll put up the final Coronavirus update of the year later today, but before we leave 2023, let me put up the graph that I think explains about 90% of the economic data this past year. And here it is:

This was a graph I created, and included in a piece called “Why the Index of Leading Indicators failed” over at Seeking Alpha.

Here’s the explanation: the situation just before the pandemic is lines S1, D1. The two rounds of stimulus pushed demand to the right (i.e., higher demand) even as supply tightness constricted (also acting to move prices higher) as shown in lines S2, D2.  The subsequent relaxation of supply constrictions that began in 2022 and continued in 2023 pushed prices down to a point of equilibrium where demand is greater, shown at point S3, D3. This is in contrast to the normal expectation that commodity prices decline due to demand destruction, as shown by line S2 where it intersects with dotted line D4.

Perhaps the biggest single component of this was the return of gas prices to their longer term trend after the spike to $5 in the first half of 2022:

In short: the story of the economy in 2023 was that lower producer prices generally, and at least one important decline in consumer prices, enabled higher consumer demand without igniting any further inflation.