Jobless claims: Holiday seasonality enters in a big way

 

 - by New Deal democrat

The good news is, we are back to the normal weekly jobless claims releases. The really good news is that this week’s number, except for one week in 2022, was a new 50 year low! The bad news is that Holiday seasonality is very much in play, so take the good news with multiple grains of salt.

To give you an idea of how much seasonality, look at the decline that was seasonally “expected” vs. the actual number, per this week’s report:

“The advance number of actual initial claims under state programs, unadjusted, totaled 197,221 in the week ending November 29, a decline of 49,419 (or 20.0%) from the previous week. The seasonal factors had expected a decrease of 21,172 or -8.0% from the previous week.”

But to the numbers: seasonally adjusted initial claims declined -27,000 to 191,000 last week, and the four week moving average declined -9,500 to 214,750. With the typical one week delay, continuing claims declined -4,000 to 1,939,000:

To show you the seasonality at work, here are the last two years starting November 1 of non-seasonally adjusted claims (orange) vs. seasonally adjusted (blue):

A big decline in claims always occurs during Thanksgiving week. This year’s decline was signficantly bigger than the two prior years.

As per usual, the YoY% changes are more important for forecasting purposes. So measured, initial claims were down -15.1%, the four week average down -1.9%, and continuing claims up 3.6%:

Needless to say, this is positive. But I strongly suggest we wait for next week’s inevitable big seasonal increase, and average the numbers before popping any champagne corks.

ISM services for November generally positive and improving

 

 - by New Deal democrat

Probably the most important economic news this entire week was this morning’s ISM services report. Services are about 75% of the economy, and this report was for November, which means it is the most wide-ranging and current datapoint we have at the moment.

And the news on this front was almost all good. The headline number (blue in the graph below) improved to 52.6 from last month’s 52.4. Employment was less bad, improving to 48.9 from 48.2. Prices paid decelerated (a good thing) from 70.0 to 65.4. The only (slight) disappointment was that new orders (gray) were less positive at 52.9 vs. last month’s strong 56.2 [note: all graphs via TradingEconomics.com]:

My short term economic forecast gives 75% weight to this metric (gray) and 25% to the manufacturing survey (blue), and also averages over 3 months to cut down on noise. For the headline number, the three month economically weighted average was 51.0:

For the more leading new orders metric, the economically weighted three month average was 52.0:

Needless to say, both of these were expansionary if weakly so, but with evidence of a slightly improving near term forecast.

The retreat in the prices paid metric was particularly good news in comparison with preceding months:

But as with the manufacturing survey, the regional Fed surveys, and this morning’s ADP report, the bad news (even if “less bad”) is that employment appears to be contracting:

For the working and middle class as a whole, the question is whether payroll gains via wages more than make up for th apparent slight loss in the number of jobs. Unfortunately, for that at the moment we only have shadows on the wall.

Production weakens while private employment declines

 

 - by New Deal democrat

Although not published by the federal government itself, the Fed’s measure of industrial production relies on some federal data, and thus it was not updated during the government shutdown - which means that this morning’s update is likewise stale, being for September.

Industrial production has been much less central to the US economy since the “China shock,” but it remains important for the goods producing sector. In September, headline industrial production rose 0.1%, while manufacturing production was unchanged. The above graph normalizes both measures to April 2022. As you can see, between spring 2022 and late 2024, production generally declined before surging in the first six months of this year. Total production exceeded that level just barely in July, while manufacturing production has stalled without reaching that level:

Here is the longer term historical look since before the “China shock”:

Finally, I would be remiss without noting the poor ADP employment report for November this morning. The below graph shows industrial and manufacturing production for this year, together with the ADP employment trend and the official payrolls number, all normed to 100 as of April:

Employment has stalled since then, and production *may* have during this summer, but there have been plenty of noisy such periods before. So far consumer spending fueled by the surging stock market and the resulting “wealth effect” have more than counterbalanced that weakness.

Still flying blind

 

 - by New Deal democrat

There are no significant updated data releases today - which is disconcetering, considering how far behind we are over three weeks after the end of the government shutdown.

How far behind are we?

One area that is important for determining if the consumer economy is close to a turn is spending on big ticket items - vehicles and other durable  consumer goods.

Courtesy of Redbook, which updates retail shopping weekly, we know that last week was the best YoY comparison in almost three years, up 7.6%:

But this does not cover the expensive items which tend to turn down first. Real retail sales, which do include motor vehicles, have been updated through September (blue), but manufacturers new orders for consumer goods are only updated through August (red):

Even worse, while nominal manufacturers sales have been updated through August (blue), but real manufacturing and trade sales (red) are only available through July:

Nominal motor vehicle sales have just been updated this morning through August:

And the BEA’s last update of the number of light weight vehicles (blue) and heavy truck sales (red) is only available through August as well:

The lag is just as bad for the very important housing sector, where housing permits, sales, and units under construction are only updated through August:

And real residential fixed investment as a share of real GDP was last updated for Q2:

But the biggest laggard of all is the QCEW, the “gold standard” for growth in the jobs sector, to which the monthly reports are ultimately benchmarked, which was last updated in August for Q1:

Hence my continued focus on the regional Fed manufacturing and services reports, as well as the nationwide manufacturing and services ISM surveys, as it does not appear this situation is going to be remedied for another month at least.

November ISM manufacturing report indicates deepening stagflationary contraction

 

 - by New Deal democrat

Normally we begin each month with reports on both construction spending and manufacturing. But even though th federal shutdown has been over for more than three weeks, data releases have been both very sparse and very stale. In particular, construction spending for August was just released two weeks ago. There was no updated report this morning, and as far as I can tell no target date for the September release. 

Which means that the ISM manufacturing and services reports will continue to be of heightened importance this month and probably next month as well.

Last week I updated the regional Feds’ manufacturing reports, which showed something of a rebound, but with widespread increases in prices paid and stagnation in employment.

Today’s ISM manufacturing report was significantly weaker. There was contraction across the board, except for prices paid, which increased to 58.5 (a reminder that 50 is the dividing line between strength and weakness). New orders declined to 47.2, employment to 44.0, and the headline number to 48.2. 

For forecasting purposes, I use an economically weighted three month average of the manufacturing and non-manufacturing indexes, with a 25% and 75% weighting, respectively.

With today’s report, the three month average for the headline number is 48.7. The more significant news is that the three month average of the more leading new orders subindex declined to 48.6. Here is a look at both the total index (blue) and new orders subindex (gray) for the past three years (via Tradingeconomics.com):

Both remain slightly better than their low points in 2022-23, which is noteworthy because there was no recession then.

As I indicated above, for the economy as a whole the weighted index of manufacturing (25%) and non-manufacturing (75%) indexes is more important. In the non-manufacturing report, the averages of the last two months for the headline and new orders numbers have been 52.1 and 53.3, respectively. Pending the ISM report on services on Wednesday, the economically weighted headline number is 51.2, and the new orders average is 52.1. These containue to be expansionary if only weakly.

Last month I started to report on the prices paid and employment subindexes, as in the absence of current employment or inflation data are more important now. 

Prices paid (the ISM does not report on prices received downstream) increased from 58.0 last month to 58.5 this month, although it remains substantially lower than the 60.0+ readings from this summer, suggesting as with the regional Fed indexes that there is still widespread pricing pressure, but it is getting integrated into companies’ models. The graph below shows the last five years better to compare the current situation with the immediate post-pandemic inflation):

The low point remains employment, which sank from 46.0 last month to 44.0, among the lowest readings since the pandemic:

To sum up, unlike the regional Fed manufacturing reports, the ISM manufacturing report for November indicates a manufacturing sector sinking further into contraction on both the production and employment fronts, but facing stagflationary price pressures. Because this report is national in scope (vs. only 5 Fed districts) I would give this measure more weight. And given the pronounced weakness in the regional Fed services reports, Wednesday’s ISM services report assumes even greater importance.

Weekly Indicators for November 24 - 28 at Seeking Alpha

 

 - by New Deal democrat

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

In the aggregate, consumer spending remains robust. On the other hand, as I pointed out yesterday with my aggregation of the various regional Fed reports on manufacturing and services, the largest sector of the US economy appears to be stagnant, or even shrinking somewhat. Another big sign that there may have been another ratchet downward in the economy is the deceleration in the YoY withholding tax payments since the beginning of the fiscal year in October (also when the government shutdown started. 

Of interest is the latest update from early November from California, which is 1/8th of the entire US population. There, withholding tax payments have continued to be very strong, up almost 10% YoY in October. If tax changes from the “Big Beautiful Bill” were driving the recent deceleration, i.e., taxpayers waiting until more favorable treatment next year, I would expect tech-heavy California to have lower comparisons than the rest of the country. But the reverse is true, suggesting that it is sluggish job growth that has been driving the sharp deceleration in payments. 

In any event, as usual clicking over and reading will bring you up to the virtual moment as to the state of the economy, and reward me a little bit for my efforts collecting and collating it all for you.