- by New Deal democrat
The late Jeff Miller (“Old Prof” at Seeking Alpha) used to say that you have to leave your ideological priors at the door in order to properly analyze the stock market. The same is true in analyzing incoming economic data. In particular, despite the fact that, unlike T—-p 1.0, T—-p 2.0 knows where the levers are to affect economic policy, and he has been doing his chaotic best to pull and push all of them, the US economy has refused to be driven into a ditch. At least, so far.
Which is an introduction to what was undeniably a good jobs report last Friday. I’ve read a little skepticism that the numbers weren’t fudged by the T—-p Administration, but any such attempt would undoubtedly be leaked. Indeed, there is an online community called “Friends of the BLS” to which I belong, which was organized early last year for the precise reason of providing pushback and communication should any such attempt be made.
So without further ado, let’s look at some of the leading indicators and otherwise important trends from the report.
First of all, in every monthly summary I write, I highlight the leading jobs sectors. These are all in the goods-producing (and transporting) sectors of the market. Historically going all the way back to World War II, they turn south first. That’s not what’s happening now: with only one exception, every single one has been trending higher since late last year. That includes manufacturing, trucking, general construction and goods production as a whole:
Even residential construction employment (right scale), which has continued to deteriorate this year, turned up in August.
Further, hours worked in manufacturing employment is one of the 10 “official” leading indicators, and it too has turned higher in the last 24 months, and at 41.7 hours is not just at its post-pandemic high, but among the highest readings in the past 40+ years:
Another indicator that leads going into recessions, although it lags coming out, is the unemployment rate. Below I show the “official” rate of 4.1% as reported (blue), together with the two datapoints (number unemployed divided by civilian labor force, red) that make up the rate, since they go out several decimal points further than the official rate:
I’ve been pounding the table for months that the very low numbers in the weekly jobless claims report forecast continued downward pressure on the unemployment rate, and the red line in particular makes clear that that is exactly what has been happening.
The one area of concern in the report continues to be income-related, in the form of average hourly wage growth YoY and real aggregate nonsupervisory payrolls. Here’s the long term historical look at the YoY% change in average nonsupervisory hourly wages:
At 3.3%, although it is about average for the past 45 years, it is at its lowest growth since the pandemic, and the big decline is of a piece with what happened during and after every recession during that time period except for COVID.
Additionally, as shown in the graph below, nominal YoY% growth in nonsupervisory payrolls is at 4.3% (dark blue). Inflation (red) is currently at 3.3%:
The below bar graph shows the same information monthly for the past year. If inflation is higher than 0.3% for August, then real aggregate nonsupervisory wage growth will decline close to its post-pandemic low point:
Currently the Cleveland Fed estimates that this Friday’s inflation report will come in at 0.4%. If so, it will be the 7th month that real payrolls have been lower than their peak in January. And real payrolls could turn negative YoY, an excellent coincident recession market, as soon as November.
Obviously the Joker in what happens with all of this data is the price of oil, with no sign whatsoever that the closure of the Strait of Hormuz is set to reverse, and US strategic reserves having been drained to multi-decade lows.
