US Equity Market Week in Review: Upside Break-Out Edition

This is over at XE.com

International Week in Review: Hope for the EU and Concern About Australia Edition

This is over at XE.com

Weekly Indicators for February 9 - 13 at XE.com

 - by New Deal democrat

My Weekly Indicator post is up at XE.com.

While the overall tone is positive, negatives in the coincident indicators increased considerably this week.  With inventories high, we may be starting a correction.

"It's just a recovery in low wage jobs." Not anymore

 - by New Deal democrat

Here is something I've been meaning to post for the last 6 months!  Over the last 5 years, from time to time the National Employment Law Project has posted periodic updates on the types of jobs created since the bottom for jobs in the beginning of 2010.  Each graph is cumulative, i.e., each graph includes the time frame included in the previous graph.  Note what happens over time, in particular with higher paying jobs.

The first update covered the period only through July 2010:

Note that only about 5% of all jobs created in the first few months after the bottom were in the top 2 quintiles.

The next update extended the period through January 2011, and divides into 3 rather than 5 wage brackets:

Note that now, 179,000 of 1,270,000 jobs, or 14% of all jobs created, are in the top 1/3.

The next update was in August 2012:

According to the NELP report accompanying the graph, high wage jobs accounted for 20% of all recovery growth, while mid-wage jobs accounted for 22%, and low wage jobs accounted for 58%.

The next update was February 2014:

By now, according to the NELP, 30% of all jobs created since the bottom in February 2010 were high wage jobs, 26% were mid-wage jobs, and 44% were low wage jobs.

Finally, in August 2014, the NELP published the following graph which covered only the period from July 2013 through July 2014:

According to their report, 33% of all jobs created in that period were high wage jobs, with only 26% mid-wage jobs, and 41% low wage jobs. In an accompanying footnote, they stated that 38% of all jobs created in the first 7 months of 2014 were high wage jobs.

In case it isn't already clear, here is the percentage of high wage jobs created over each time frame:

2/10 - 7/10* 5%

2/10 - 1/11 14%

Q1 2010 - Q1 2012 20%

2/10 - 2/14 30%

7/13 - 7/14 33%

1/14 - 7/14 38%

*(measured by top 2 quintiles)

Since all but the last two measures are cumulative, that means that the most recent job growth in each was even better than reported.  For example, the figures from February 2010 through January 2011 and through February 2014 make it easy to calculate the period from January 2011 to February 2014, which I've calculated for the list below:

1/11 - 2/14:
High wage jobs (2.424 million) 33%
Mid-wage jobs  (1.814 million) 24%
Low wage jobs  (3.211 million) 43%

While low wage jobs in this period predominated over mid-wage jobs, high wage jobs were created at a normal rate.

On the other hand, it is fair to say that since the NELP calculated that higher paying  jobs were disproportionately lost during the Great Recession - chiefly in manufacturing and government - the net change including both the recession and the recovery has still been from high paying towards low paying jobs.

One of my theories has been that this jobs recovery isn't so much different in kind from past job recoveries, but rather different in scale. The limited data I have been able to access suggests that lower wage jobs always come back first, with higher wage jobs increasing later in a recovery. The Great Recession was so deep that it took a long time for lower wage jobs to come back on for higher wage jobs to begin filling in.

On a similar note, here is Prof. Menzie Chinn at Econbrowser posting a graph from Torsten Slok of Deutsche Bank questioning whether it has been a low wage recovery at all:

Discusing Slok's work, Shane Ferro at Business Insider wrote:

What's the difference here? It's all in the methods. 

In the NELP analysis, the division of low, medium, and high jobs is made by lining up each industry's median wage, then dividing that into three equal groups. . . . . 

On the other hand, Slok's buckets aren't equal. He breaks down high, medium, and low wage jobs by occupational groups . . . . 

This delineation means that Slok puts far fewer workers in the low wage bucket than the other two, therefore the number of jobs created in that bucket is necessarily going to be smaller. It's not perfect, but breaking it down by occupation, rather than industry, gets a little more granular about how incomes correlate to each bucket.

I mentioned last week that median wage growth in the fourth quarter, as measured by the Employment Cost Index, outpaced average (mean) wage growth as measured in the monthly jobs reports.  That might just be an anomaly, or it might be the relative increase in higher wage jobs showing up in the official data.

Weak retail sales are a gas

 - by New Deal democrat

I have a new post up at XE.com about this morning's retail sales report.

Strip out gas, and retail sales have basically been flat for 3 months. So far, it looks like consumers are saving the money they have saved at the gas station.

The Remarkable Depth and Breadth of Deflation

This is over at XE.com

Gas having typical February rebound so far

 - by New Deal democrat

I have a new post up at XE.com.

So far, gas prices are behaving as they have in the past coming off bottoms.

Ugh!

 - by New Deal democrat

I'm going through a bout of blogger ennui. Not much dramatic is happening, and there's no big, changed insight into the immediate future.

I suspect retail sales will disappoint tomorrow, because the weekly numbers for January weren't very strong - it looks like consumers are saving a lot of their gas money.

The latest Eurocrisis is playing out as anticipated. Germany and the Euro institutions are squeezing Greece like a boa constrictor squeezes prey.  They will succeed unless Greece has the will to actually leave the Euro.  If so, then there will be a collective gasp from the rest of the EU as it sinks in that the Euro might actually fracture. That is the point at which a deal might be made.  From the US viewpoint, the Eurocrisis isn't enough to derail our economic expansion, although it will have an impact. The US interest is that there not be a disorderly dissolution of the Euro. An orderly dissolution might even be preferable to the continuation of an intact Euro in its present form.

Almost nobody except for the permabears is calling for a US recession this year.  Mish ridiculously based his call on residential construction, even though residential construction lags permits and starts by about a year. So we know where construction is going to go this year, and it isn't to recessionary levels.

The rest of the usual Doomer crew has moved on to other topics. Since jobs aren't cooperating, the best they've been able to come up with to whine about a scarequote "recovery" is the stagnation in wages (except, of course, we made a 35 year high in average real hourly wages in December).

 Politically, the Democrats aren't going to bother proposing anything serious. So far, the Republicans have accomplished exactly zero - which is the best we can hope for there. Obama has shown no sign of being willing to lift a finger to sign an order raising the maximum pay subject to overtime rules (entirely within his power). So, unless the Supreme Court decides to hold the 20th century unconstitutional (for which, let's face it, there are at least 4 votes),  the economy will probably follow its course undisturbed by Washington.

Which leaves me with nothing big to report to you. I'm still trying to get a better leading indicator for wage growth - without much success.  Aside from that, I've got a bunch of little things I can update, so I will probably inundate you with them.

Just How Sick Is the EU?

This is over at XE.com

Five graphs to watch in 2015: first update

 - by New Deal democrat

At the end of last year, I highlighted 5 graphs to watch in 2015.  Now that we have the January jobs report, and some significant developments in gas prices and mortgage rates, let me update them.

#5.  Mortgage refinancing

The Mortgage Bankers Association reported that refinancing applications soared by about 50% in the last month, as mortgage rates reached new 18 month lows.  Bill McBride has the graph:

Refinancing is coming back to life.  This puts more money in the pockets of the homeowners who get lower monthly mortgage payments.

#4 Gas prices

Here is a graph of gas prices (blue) compared with average hourly earnings (red) since the turn of the Millennium:

With the exception of a few months in the worst of the Great Recession and late 2001 through 2003, an hour's wage now buys more gas than at any time in the last 15 years.  Again, this puts more money in the pockets of virtually all consumers.

#3 Part time employment for economic reasons

This is a graph of part time workers for economic reasons expressed as a percentage of the labor force:

In January this ratio improved slightly, bringing us equivalent to its levels in 1988, but still 2% (about 3 million) above the boom level of 1999 and about 1.5% (2.25 million) above the level of 2007.

#2 Not in Labor force but want a job now:

This also moved in the right direction in January, although it is still about 600,00 above its post-recession low of November 2013 (just prior to Congress's cutoff of extended unemployment benefits) and some 1.9 million above its 1999 and 2007 lows.

#1 Nominal wage growth

After an anomalous decline in average hourly wages in December, between revisions and a big increase in January we have seen the best reading for real average wages since 1979, but nominal wages came in at 2% or less for the second month in a row:

This is the only metric among the 5 I think are most important this year, that has moved in the wrong direction.  The decline in the last 5 months is frankly troubling.

 Here is the same graph, but normed so that this month's YoY% wage growth and unemployment rate = 0:  

Compare our present expansion with the previous three.  In the 1980s and 1990s, by the time we improved to 5.7% unemployment, nominal wage growth was approaching 3% YoY.  On the other hand, the 2000s expansion had similar numbers to the present - in fact, YoY growth in nominal wages was still declining. Nominal wage growth only approached 3% YoY as the unemployment rate fell to 5%.  If that is the pattern we are following, then even with if the declining trend in the unemployment rate continues, we won't see a marked improvement in wage growth until the second half of this year.

International Economic Preview For The Week Of February 9-13

This is over at XE.com

Weekly Indicators for February 2 - 6 at XE.com

 - by New Deal democrat

My Weekly Indicator post is up at XE.com.

Low gas prices and low interest rates, and their effect on housing, are still the big story.

US Equity Market Review For the Week of February 2-6; Minor Upside Breakout Edition

This is over at XE.com

     The market is still facing incredibly strong headwinds coming from several different directions, starting with a strong dollar.  Depending on you source, S&P 500 companies get between 40%-55% of their earnings from overseas trade.  Even at the low end of the exposure spectrum, (40%), we’ve still got some pretty major headwinds on the currency front.  And, on that topic, international markets are weak; Japan is coming out of a technical recession, Australia has some underlying issues, Canada has to deal with weak oil prices, China is clearly slowing and the EU is limping along.  Tying these two elements together, profits from weaker overseas economies have to be converted into a strengthening currency, creating a negative double-whammy.  And then there is the negative impact of oil, as that is destroying the earnings of an entire economic sector.  The sum total of these events is to put a tremendous amount of downward pressure on the markets. 

     But, as was shown last week, the US economy is in good shape, providing a solid backdrop for continued earnings growth.  Last week, that was strong enough to overcome bearish sentiment.  But in this environment, it's certainly no guarantee that we'll see continued upward price movement.       

International Economic Week in Review: A General Malaise, Edition

This is over at XE.com

Two economies – Australia and Canada – have recently seen a drop in rates, caused by an overall weakness in their respective economies.  Neither are heading toward a recession, but both are clearly suffering from a certain level of malaise.  Both are also dependent on raw material exports, meaning the drop in commodity prices is seriously harming both.  Japan may be making a slight comeback – at least based on this week’s numbers – but they are hardly out of the deflationary woods yet.  The US and the UK are both showing some really strong results.  And, the EU is also showing some signs of life.  Germany is still growing and Spain is really starting to come alive.  France is slowing, but their numbers have been just barely negative.  Overall, it could be argued that we’re beginning to see positive signs from the EU QE announcement, but we certainly don’t have enough data to make a definitive call.

Nominal and real wages: the agony and the ecstasy

 - by New Deal democrat

Among all of the strong data in today's jobs report, probably the most significant on both the upside and the downside were wages.

First, the ecstasy.  Here is real, inflation-adjusted earnings for production and nonsupervisory personnel (thus taking out the top 10% or so of wage earners) for the last 10 years:

Note this only goes through December, since January inflation hasn't been reported. December set a new high, exceeding by less than $.01 the previous high in 2010.

Here's the longer term view:

Real average wages are now higher than they have been at any time since late 1979.

But here's the agony.  This is the YoY% change in nominal, (i.e., actual) wages:

Not only is there no sign whatsoever of any wage pressures, but YoY% growth in nominal wages has actually decreased.  This is an actual bad sign. With the unemployment rate under 6%, nominal wages growth should be increasing, not decreasing.  Instead, all of the real growth in wages is coming from the collapse in the price of gasoline.

January 2015 jobs report: almost a blowout, wages still a relative weak spot, but real wages make 35 year high

- by New Deal democrat

HEADLINES:

• 257,000 jobs added to the economy
• U3 unemployment rate up 0.1% to 5.7%

Wages and participation rates

• Not in Labor Force, but Want a Job Now: down 87,000 from 6.445 million to 6.358
• Part time for economic reasons: up 20,000 from 6.790 million to 2.810
• Employment/population ratio ages 25-54: up 0.2% to 77.2% 
• Average Weekly Earnings for Production and Nonsupervisory Personnel: up $.07 (or 0.3%) from $20.73 to $20.80, up 2.0%YoY. In real, inflation-adjusted terms, with revisions December's number was a 35 year high, and unless inflation was more than +0.2% in January, which is unlikely, January probably made another 35 year high. 

November was revised upward by 65,000 from 358,000 to 423,000, and December was revised from 252,000 to 329,000. The net revision was +147,000.

Since the economic expansion is well established, in recent months my focus has shifted to wages and the chronic heightened unemployment.  The headline numbers for January show a surge in employment over the last few  months, and also rebounded off of the decrease in wages from December.

Those who want a job now, but weren't even counted in the workforce were 4.3 million at the height of the tech boom, and were at 7.0 million a couple of years ago.  Since Congress cut off extended unemployment benefits over one year ago, they have risen to 600,000 higher November 2013 post recession low of 5.6 million.

On the other hand, the participation rate in the prime working age group has come back almost half from its post-recession low towards its pre-recession high.

After inflation, real hourly wages for nonsupervisory employees from December to January probably rose by +0.4% or more, in part because because lower gas prices will again show deflation. The  nominal YoY% change in average hourly earnings is +1.9%.

The more leading numbers in the report tell us about where the economy is likely to be a few months from now. These were mixed by with a positive bias.

• the average manufacturing workweek rose 0.1to 41.0 hours.  This is one of the 10 components of the LEI, and will be a positive.


• construction jobs increased by 39,000. YoY construction jobs are up 308,000 YoY.  


• manufacturing jobs were up 22,000, and are up 228,000 YoY.

• Professional and business employment (generally higher-paying jobs) up 39,000 and is up 715,000 YoY.


• temporary jobs - a leading indicator for jobs overall - decreased by -4,100.


• the number of people unemployed for 5 weeks or less - a better leading indicator than initial jobless claims - increased by 25,000 to 2,318,000, compared with December 2013's low of 2,255,000.

Other important coincident indicators help us paint a more complete picture of the present:

• Overtime declined by 0.1 hour to 3.5 hours


• the index of aggregate hours worked in the economy rose 0.2 from 102.7 to 102.9.


• The broad U-6 unemployment rate, that includes discouraged workers increased from 11.2% to 11.3%
• the index of aggregate payrolls rose by 0.7% to 121.5.

Other news included:

• the alternate jobs number contained in the more volatile household survey increased by 759,000 jobs.  This represents a 2,994,000 million increase in jobs YoY vs. 3,207,000 in the establishment survey. 


• Government jobs decreased by -10,000.

• the overall employment to population ratio for all ages 16 and above rose 0.1% from 59.2% to 59.3%,  and has risen by +0.5% YoY. The labor force participation rate rose 0.1% from 62.5% to 67.2%, but is down -0.1% YoY  (remember, this includes droves of retiring Boomers).

SUMMARY:

This was pretty close to a blowout report, particularly with the upward revisions to the prior 2 months.  For the last three months we are averaging over 300,000 jobs per month.  The employment to population ratio in the prime working age group has risen significantly for the second month in a row, and has now made up almost half of its recession decline.  Most of the internals, including the leading internals, were positive.  Wages rebounded, completely taking back their December decline and then a little.  There is a reasonable chance that, in real terms, the average real wages for nonsupervisory employees made a 35 year high.

The relative negative still remains wages.  Nominal wage growth isn't accelerating at all.  All of the real wage growth is coming from a decline in inflation due to gas prices.

Trends in per capita real adjusted gross income: updated through 2013

 - by New Deal democrat

On Monday personal income and spending for December were reported, with the most noteworthy monthly news being that it confirmed the prior retail sales report that consumers primarily saved rather than spent their gas price savings (although December was higher than every other month except November).

Secondly, real personal income finally rose above the December 2012 spike (just prior to the "fiscal cliff") to set a new record:

Now let's adjust by population (blue) and by the civilian labor force (red), on an annual basis:

Whether we adjust by population as a whole, or by just the labor force, per capita real personal income has generally grown throughout the last 20 years.

Although it is not nearly as broad a measure as the Bureau of Economic Statistics' "personal income" metric, another way in which per capita income might be looked at is as real per capita adjusted gross income, i.e., the income reported to the IRS on tax forms.

While this is not kept graphically by either the IRS or the St. Louis FRED, I have created the following table showing real adjusted gross income from 1993 through 2011 (the last year available at the IRS site), adjusted per capita both by population, and by the size of the civilian labor force (+those not in the labor force but who want a job now).  The second measure is not perfect, but does make a reasonable approximation of taking into account the wave of Boomer retirements (all figures in $Trillions):

Year	Pop adjusted	CLF adjusted		Year	Pop adjusted	CLF adjusted
1993	4.813	4.356		2001	6.008	6.014
1994	4.864	4.486		2002	5.682	5.699
1995	5.015	4.726		2003	5.676	5.680
1996	5.214	5.010		2004	5.950	5.974
1997	5.520	5.534		2005	6.231	6.345
1998	5.854	5.721		2006	6.528	6.495
1999	6.123	6.048		2007	6.708	6.685
2000	6.365	6.365		2008	6.322	6.295
avg 1993-2000	5.471	5.258		avg 2001-08	6.138	6.148
2009	5.628	5.625		2013	6.103	6.420
2010	5.824	5.887
2011	5.823	5.911
2012	6.194	6.388		avg 2006-13	6.141	6.213

As with other measures, I suspect that shifting income forward from 2013 to 2012 due to concerns about tax law changes at the time of the "fiscal cliff" largely explains the decline shown in the IRS data in 2013 from 2012.  Since part-timers as well as full-timers are included in the number of people who reported wages and salaries, I also suspect that the big increase in the percentage of part-time workers beginning with the onset of the Great Recession is largely responsible for why the result for years 2009-13 is almost uniformly lower than that of years 2004-08.

Since the IRS separately breaks out the reporting of wages and salaries, another interesting way to slicing their data is to divide the total amount of wages and salaries reported, divide by the number of returns, and then adjust for inflation.  The resulting figure gives us the average real wage or salary of all persons reported to the IRS.

In theory this should be identical or nearly identical to the BLS's  "aggregate wages paid" index from the monthly jobs report, adjusted for inflation. Aggregate wage information is only available on the St. Louis FRED site from 2007 on, but here's what that looks like:

Now let's compare real average wages reported to the IRS (first column below) with real aggregate wages from the monthly jobs report (second column):

2004   $54,373            
2005   $54,514            
2006   $55,187 (high)
2007   $54,850               112.4
2008   $54,315               110.3
2009   $53,462               105.8
2010   $53,504               106.0
2011   $52,969 (low)     107.4
2012   $54,370               109.8
2013   $53,791               112.8
2014   n/a                       115.8

Based on the aggregate wages data from 2014, I expect the IRS data to show a significant increase in real per capita wages in 2014 when they are reported a year from now.

 That being said, there is no doubt that overall the results are consistent with longer term stagnation in real wages.

Real median wages surged in Q4 2014

 - by New Deal democrat

Something that hasn't gotten much attention from last Friday's GDP report is the brisk increase in real median wages during the 4th quarter of last year.

While the monthly jobs report gives us average wages, median wages aren't reported monthly.  There are several quarterly measures, including usual weekly earnings (which will be the subject of a separate post), and the Employment Cost Index, which is reported as part of GDP.

Here is the quarterly % change in the ECI for wages since the inception of the series in 2001:

In the 4th quarter, we had nearly a 1% increase, the best showing since the last time gas prices plummeted in late 2008.  The other two times the ECI grew by 0.5%+ in a quarter, in 2001 and 2006,  also coincided with substantial declines in the price of gas.

What is perhaps most noteworthy is that median wages grew more than average wages during the fourth quarter.  Here's a graph comparing average wages on a quarterly basis, with median wages from the ECI, normed to be equal at the end of the Great Recession:

As a result, median wages are now also within 0.5% of their highs.  Average wages are only 0.2% below their 35 year high.

That median wages grew faster than average wages suggests that higher wage jobs grew significantly relative to lower wage jobs, a long-awaited boon.

Why Did Australia Cut Rates 25 BPs?

This is over at XE.com

We probably hit bottom in oil and gas prices last week

 - by New Deal democrat

I have a new post up at XE.com.

I have been looking for the bottom in oil and gas prices, which tend to be very seasonal.  I think we saw it late last week.

We'll see!