Weekly Indicators for September 9 - 13 at Seeking Alpha

 

 - by New Deal democrat

My “Weekly Indicators” post is up at Seeking Alpha.

The imminent likelihood of a Fed rate cut has continued to drive rates down to new 12 month lows (which is good for things like mortgages in particular). Meanwhile consumer spending as measured weekly is also near 12 month highs, which is also very good.

As usual, clicking over and reading will bring you up to the virtual moment as to all the categories of economic data, and put a little lunch money in my pocket for organizing and presenting it to you.

UPDATE: Real median household income for < sigh > 2023

 

 - by New Deal democrat

I’m a little late to this, since FRED took its time updating, but the annual report of median household income for the US was released on Tuesday for 2023. 

This is an important statistic about the well being of, well, the median American household, so one of my pet peeves is that it is only released annually, and with a 9 month delay at that. So Tuesday’s release tells us about where an important metric was about 18 months ago. Yeah, that’s a problem in my book.

In any even, median household income rose a hair under 4.0% in 2023, to a level only exceeded - by 0.7% - in 2019:

That compares very favorably with the average annual gain in the previous 10 years which was 0.7%. On an annual basis, it was only exceeded by 2015 and 2019 in the previous 10 years.

I really wish the Census Bureau would update this statistic at least quarterly, since it is based on the monthly employment report. But since it doesn’t several private research companies have estimated it on their own. Most recently, the mantle has been taken up by Motio Research, which I have highlighted in several previous posts. Here’s their most recent update:

To see how accurate they were in real time, I went back and compared their monthly 2022 and 2023 updates with the official figures. On an average basis, they had real median household *declining* -0.1% in 2023 YoY. But they had 2022 and 2023 exceeding 2019 by 1.6% and 1.5%, respectively. Even on a year-end vs. year-end basis, they only had 2023 exceeding 2022 by 0.9%.

Obviously the private estimates have been missing the mark.

But stay tuned, one year from now we will find out how well households made out this year.

Initial claims still positive, moving into very challenging YoY comparisons (plus a note about the PPI)

 

 - by New Deal democrat

If residual post-pandemic seasonality has been affecting jobless claims statistics, the real acid test is going to begin next week, as for the next 7+ months, any number higher than 220,000 is almost always going to be higher than one year ago.

In the meantime, for this our last week of the seasonal downtrend, initial jobless claims rose 2,000 to 230,000. The four week moving average rose 750 to 230,750. Continuing claims, with the typical one week delay, rose 5,000 to 1.850 million:

Turning to the more important YoY comparisons for forecasting purposes, initial claims were unchanged, the four week moving average was down -0.8%, and continuing claims were higher by 2.2%:

This YoY comparison for continuing claims was the lowest in the past 1.5 years.

Needless to say, these are all positive results which forecast continued economic expansion in the next few months.

Since we are only one week into September, there is not much to say about the implications for the unemployment rate in next month’s report, but here is the updated graph:

Finally, a quick note about the producer price index which was also released this morning. Like employment, goods prices are far more volatile than prices for services, which tend to rise throughout good times and bad. Here is the YoY% look at each:

PPI for services YoY is higher by 2.6%, about average for the past 10 years. For goods it is unchanged YoY, which is not uncommon and is generally a good thing for downstream consumer inflation. On a monthly basis, PPI for goods was also unchanged; for services it rose 0.4%.

Perhaps more significant is that raw commodity prices fell -0.7% in August, and on a YoY basis are down -0.8%:

Such a decline more often than not telegraphs present or short term weakness, but also is a positive coming out of recessions.

An important consideration, therefore, is whether this weakness is a supply side issue (e.g., lower gas prices) or a demand issue (weak global demand at the producer level). 

Both of these may be in play at present. On the one hand, oil prices declined in the past month to the low end of their last two year range. On the other, it appears that China has begun a genuine deflationary spiral, as not only have consumer prices declined there, but there is evidence that in at least some sectors wages have declined as well. This is definitely not good for China, but it may be a boon to the US, since we mainly benefit from the lower prices that are likely to make their way through to consumers without any negative effect on wages. An interesting global situation, with all that implies.

August CPI: further important progress towards 2% YoY level, marred (only) by a surprise uptick in shelter

 

 - by New Deal democrat

August CPI, with the conspicuous exception of shelter, continued to come in tame. And the list of other “problem children” decreased by 1, as only food away from home (restaurants) and transportation services (motor vehicle insurance and repairs) remain.

Let’s get the headlines out of the way:

 - Headline CPI continued increased 0.2% for the month, and decelerated to 2.6% YoY, its best showing since February of 2021. 

 - energy inflation remains non-existent

- there was no inflation at all excluding shelter, as prices were unchanged, and are up 1.1% YoY, the 16th month in a row the YoY change has been below 2.5%.

 - shelter inflation was the only negative surprise, as it remained very elevated, up 0.5% for the month and 5.2% YoY, the highest YoY change in three months.

- core inflation, which includes shelter but excludes gas and food, therefore remained elevated, up 0.3% for the months and 3.2% YoY.

Let’s break this down graphically to better show the trends.

Here are headline (blue), core (red), and ex-shelter (gold) inflation YoY:

To repeat what I have said for months, the only reason for the Fed not to treat inflation as well within its target zone is shelter.

Turning to the big remaining issue of shelter, the upside surprise appears to be due to an upward spike in owners equivalent rent (red), which spiked higher by 0.5% in the month, vs. actual rent (blue), which increased 0.37%, and so was rounded up to 0.4%:

As a result, shelter on a YoY basis increased YoY, here shown vs. the FHFA Index YoY (blue), which has rolled back over:

This was an unpleasant surprise, but may be a quirk of unresolved post-pandemic seasonality or a one-month wonder, as the leading indicators for shelter inflation all continue to point towards continued deceleration.

With gas prices down for the month, energy showed -0.8% *deflation* and is down -4.0% YoY:

The former problem children of new (dark blue) and used (light blue) vehicle prices were unchanged and down -1.0% for the month, are are down -1.8% and -10.4% YoY respectively (shown as the change since right before the pandemic, below). I also show average hourly nonsupervisory wages (red) for comparison, showing that wage growth has actually outpaced vehicle prices (meaning the remaining problem there is interest rates for financing):

Note that used vehicle prices have given back over 50% of their post-pandemic gain.

Electricity (gold) also ended its run as one of the remaining problem children, as it declined -0.7% for the month and is up 3.9% YoY. That leaves food away from home (blue), up 0.3% and transportation services including vehicle maintenance, repair, and insurance (red), up 0.9%. On a YoY basis they remain up 4.0%, and 7.9% respectively, although even those two items are trending downward:

As I have previously pointed out, the last item is a typical delayed reaction to the previous big increase in vehicle prices.

Finally, the CPI release allows me to update the very important metric of real aggregate nonsupervisory payrolls, which once again made a new record high:

Ordinary workers have more spending money, in real terms, than they have ever had before. There has *never* been a recession without that turning down first.

In conclusion, the Fed has really had all the ammunition it has needed to cut interest rates for months. With the sharp YoY deceleration in the headline rate in August, it has even more. If we remove shelter from the core index, that too is only up 1.8% YoY. The outstanding question is whether the Fed has waited too long, and a recession will occur before lower interest rates turn around the now-tepid labor market.

Leading indicators from Friday’s jobs report: not too bad, not bad at all

 

 - by New Deal democrat

There’s no big economic news today or tomorrow, so let’s take a more detailed look at the leading indicators from Friday’s jobs report. It turns out, the news wasn’t nearly as bad as the headline employment number.

Let’s start with the negative stuff. The simple story is, manufacturing is in a funk. Employment in manufacturing declined -24,000, which is tied for a two year low. Meanwhile, trucking employment declined -1,400  (in the graph below, both numbers are normed to 100 as of their post-pandemic peak):

The big decline in trucking last August was the Yellow Trucking bankruptcy. What is interesting is not only that other firms did not pick up any apparent slack, but that employment has declined again back to that low.

Manufacturing, and the trucking transportation used to deliver those goods, are both leading sectors, although the former in particular is less important than it was before the turn of the Millennium (hello, normalized trade with China).

But if manufacturing was bad news, the other leading sector of construction employment, including total (dark red), residential (light red), and nonresidential (gold) all continued to increase:

And not even all news from the manufacturing sector was bad, as average weekly hours - one of the 10 “official” leading economic indicators - increased 0.1 hour:

After a steep decline from late 2021 through early 2023, the manufacturing workweek has stabilized for over a year. Although I won’t put up the graph, there is evidence that since the 1980s, an important inflection point is the 40.5 hours level. Above that, a decline has usually meant only a slowdown, not a contraction. And as you can see, we are above that level.

Both manufacturing and construction are components of the goods-production sector of the economy, and that headline number also continued to increase, albeit more slowly than before:

I would expect total goods-producing jobs to turn down before any recession begins (because services employment almost never turns down except late in deep recessions).

Turning back to some negative news, consistent with the general trend in the unemployment rate, the number of short term employed (blue) rose to a new 2+ year high last month. Because people file for unemployment after they get laid off, I also include the monthly average for initial jobless claims (red). Both series are normed to their post-pandemic lows. In the case of short term unemployment, I have used the 3 month average because the series is so noisy:

Here is the historical comparison of each. Initial claims are more volatile on a cyclical basis, but the trend is much less noisy in the shorter term, making them a much better short leading indicator:

As I have been noting consistently every week, jobless claims, unlike the unemployment rate, are *not* forecasting any recession.

Finally, although most of the revisions to June and July were negative, that wasn’t the case with one of my favorite fundamentals-based leading indicators, real aggregate nonsupervisory payrolls. July’s reading was revised upward, meaning we set yet another record:

On Friday we found out that *nominal* aggregate payrolls increased 0.4% in August. Barring the very unlikely event of a nasty upside surprise in consumer inflation on Wednesday, we set another record for real aggregate payrolls in August as well.

Basically, outside of the manufacturing sector, the leading elements of employment remain positive and forecast continued growth through the end of this year.