Saturday, March 17, 2018

Weekly Indicators for March 12 - 16 at

 - by New Deal democrat

My Weekly Indicators post is up at

This week most of the data that has been decelerating turned in a more positive performance.

Friday, March 16, 2018

Liveblogging housing, industrial production, and JOLTS

 - by New Deal democrat

This is one of those days when it seems every piece of economic data in the whole world is getting reported simultaneously.

So as the data gets reported, I'll give you three quick takes.

Housing permits and starts for February

While this was a decline from January, so far housing is holding up very well in the face of higher interest rates.

Single family housing permits -- the least volatile of all the numbers -- declined m/m but December remains the expansion high. The series remains very positive.

Overall housing permits -- less volatile than starts -- declined to their lowest level since September, but January remains the expansion high, so this trend remains positive as well.

Housing starts declined m/m from January's expansion high. To take out most of the volatility, I look at the three month moving average. This is the second highest during the entire expansion after last month. So these remain very positive as well.

Finally, there is a category of housing which has been authorizaed but not yet started. January remains the expansion high, and February is second, equal to December.  This tells us there is a lot of construction in the pipeline.

Bottom line: m/m negative, but longer term trend still (somewhat surprisingly) still very positive.

Industrial production

This was also a very positive report.

The overall number was up 1.1%.
Manufacturing was us 1.3%
Mining -- the big reason for last month's decline -- was up nearly 5%.

The DOOOMERS' meme that hard numbers haven't replicated the Fed and ISM surveys refuses to die.  And yet YoY overall production is up nearly 5%, and manufacturing up nearly 3%. That seems pretty good to me.


This data is from January. Like housing, it was generally down m/m, but very positive.  I don't bother anymore with openings, which I consider not just soft, but easily gamed data. As to the hard data:

Hires -- the second highest, but for last October, in the expansion.

Quits -- the second highest of the expansion, except for December's.

Total separations -- the highest of the expansion (which is a positive, since these also start to decline prior to a recession).

Layoffs and discharges -- increased sharply to levels seen in last summer. This is the one negative, since these bottomed in midcycle during the last expansion.

All in all, the three economic reports today painted a picture of continuing positive trends.

Thursday, March 15, 2018

February update: real wages and real spending

 - by New Deal democrat

Now that we have February inflation, let's take an updated look at real wages and real spending.

First of all, real average hourly wages increased slightly in February, but are still -0.6% under their July peak:

But, because the total hours worked surged so much in February, real aggregate wage earnings, which had stalled since July, rose to a new record:

If it's not revised away, this means that the middle and working classes have more income to spend, without dipping more into savings.

Turning to retail spending, real retail sales declined for the third month in a row:

But note that the big surge in sales from November has been untouched, and means that real retail sales remain higher than at any point before then.

This is true even if we adjust for population:

Since population-adjusted real retail sales have been a long leading indicator for the economy, I'm not terribly concerned about the recent small decline at this point.

Wednesday, March 14, 2018

Real M1 and M2 growth the lowest since 2010

 - by New Deal democrat

In view of yesterday's inflation report, I take a look at the recent big deceleration in both real M1 and M2 over at

Monday, March 12, 2018

Labor force participation, unemployment, and wages: an update

 - by New Deal democrat

About a year ago I wrote a series of posts on the relationship between the unemployment rate, labor force participation, and wage growth. Especially in view of last Friday's jobs report, which showed blockbuster hiring, but a continuation of tepid wage growth over 8 years into the expansion, now is a good time for an update.

To recapitulate, history shows that wage growth is lags the economy, and specifically only turns after the unemployment rate begins to decline. More specifically, since 1994, once the underemployment rate has fallen below about 9% (red, inverted in the graphs below), wage growth (blue) has begun to improve:

Meanwhile, the YoY% change in the prime age labor force participation rate turns about one year before wages (green):

On the other hand, the absolute *level* of prime age labor force participation only bottoms *after* wages have turned:

Here is the monthly graph through last Friday, whowing that all three metrics have continued to improve:

In historical context, last year I suggested that the traditional Phillips curve, which posited a relationship between lower unemployment and higher wage growth and inflation, is best seen as a special variant of a broader relationship between the labor force participation rate (i.e., the total of those both employed and unemployed). On a secular basis, the correlation has been that the YoY change in  labor force participation (blue in the graphs below) appears to lead improvement in wage growth (red) by about one year.  Here's the high-inflation, high labor bargaining power 1960s and 1970s: 

and there is the low inflation, low bargaining power era since 1988:

In both of these eras, generally participation led wage growth by about one year.

Last year I  also suggested that a more nuanced cyclical feedback mechanism appeared to be that too rapid an increase in participation will lead either to higher inflation (the 1960s and 1970s) or lower short term wage growth (the 1980s to present. I showed that via a variation on the misery index that double-weighted inflation, in which the only major departures were the Oil shocks of 1974, 1979, 1990, and 2008:

Here is an updated graph of wage growth (blue) and prime age labor force participation (green, right scale) through Friday:

In accord with my hypothesis last year, the continuing surge of participants into the labor force has acted to depress wage growth.

So, in sum, the trends remain positive, but an acceleration of wage growth probably won't happen until this surge subsides.