Weekly Indicators for October 12 - 16 at XE.com

 -by New Deal democrat

My Weekly Indicator post is up at XE.com .

The employment picture is really coming into focus, in the context of the shallow industrial recession and inventory correction.

Inndustrial production ex-Oil Patch

 - by New Deal democrat

By now I'm sure you know that industrial production not only declined again in September, but has also failed to make a new high in almost a year.

But what happens when we remove mining and utilities, and focus on manufacturing?  Here's what happens:

Manufacturing (blue) continues to be in an uptrend, although it is slightly off (-0.3) of its high two months ago, which is actually pretty darned good considering the strong dollar.

Yes the US is in a shallow industrial recession. But it is focused and limited, and hasn't translated into any downdraft in the consumer economy (see: real retail sales) which is 70% of the total.

The JOLTS report for August continues to underwhelm

 - by New Deal democrat

I continue to be underwhelmed by the monthly JOLTS reports.  Most commentators focus only on the job openings number without paying attention to the pattern of this series during the 2002-07 expansion.

Here is the overall series since its inception:

As an initial matter, while this series looks extremely useful, because there is only 15 years of history, there is only one complete business cycle with which to compare.  During that cycle, hiring peaked well before job openings. As shown above, the peak in hiring (and the trough in voluntary quits, not shown) was the first signal that the expansion was decelerating.

Now let's zoom in on the last year:

Once again, while job openings have skyrocketed, actual hires have stalled.  It is only because August 2014 featured an anomalous decline in hiring that the Hires series has not turned YoY negative.

This suggests to me that (1) we are past mid-cycle, as many other series also show; and (2) there is a labor market disconnect, as employers are not filling a record number of openings.  As to why those openings are going unfilled, I have seen a fair amount of survey information where employers are complaining of not being able to find appropriately skilled candidates.  I suspect that there are one or both of two clauses missing in those sentences, as in:  "We are not able to find skilled candidates [for the wage we want to pay and/or because we refuse to pay for any on-the-job training]."

Again, this is an underwhelming report, but if the underemployment rate continues to decline, I anticipate that more and more employers will capitulate on increasing wages for new hires.

Sent from my iPad

Real retail sales show expansion past mid-cycle, but no oncoming recession

 - by New Deal democrat

With September inflation reported this morning, I can update one of my favorite series:  real retail sales.

First of all, real retail sales rose to a new high:

The YoY% growth in real retail sales in comparison with real personal consumption expenditures are an excellent mid-cycle indicator, since reliably the former is both declining and negative the latter before recessions begin, and further the former starts to underperform the latter at about mid-cycle.  Here's what they look like now:

There is increasing evidence that we are past mid-cycle.

Finally, let's look at real retail sales per capita.  These typically peak one year or more before the onset of a recession:

Although population has not been updated past July, since it has been growing at about .06% a month, and since real retail sales are up about .30% in the last two months, we have made another peak.  This is evidence that the economic expansion should continue at least through the 3rd quarter of 2016.

Real aggregate wage growth declines slightly in September, but trend continues positive

 - by New Deal democrat

In my opinion, the single best measure of a labor market expansion is real aggregate wage growth. People don't work just for the hours, or the jobs, but for the cold hard cash they can bring home and save and spend.  How much a growing economy allows them to do that is the best measure of the well-being it is delivering.

I call this the "lump of labor" approach, because sometimes, as in the 1980s and the first part of the 1990s, average wages are declining, but hours are expanding.  Sometimes, nominal wages are growing, but inflation-adjusted wages falter, as in the 1970s. In the present expansion, by contrast, nominal wages and real wages have grown slowly, and hours worked have grown strongly. The current expansion, as opposed to the expansions of the 1950s and 1970s, also gets bonus points for being long-lived.

Now that we know the September inflation rate, I can update this information.  Last month, nominal average wages for nonsupervisory workers grew very slowly.  Prices, however, fell by -.2%, meaning that real wages actually improved.  But aggregate hours work declined, meaning that aggregate real wages declined by -0.1%. Here is the long-term graph going back 50 years:

Real aggregate wages are now 16.8% above their recession trough of October 2009.  It is easy to see that this expansion does not measure up to the 1960s and 1990s, but far outpaced the George W. Bush expansion of 2002-07.

Here's how the current expansion stacks up in comparison to the Reagan expansion of the 1980s:

At this point, 5 years and 11 months after the bottom, the Reagan expansion was slightly better at 18.9%.  Note that about half of that increase came during 1983, whereas in the current expansion real aggregate wage growth started out slowly (as gas prices rose from $1.40/gallon to $3.95/gallon) and then picked up steam last year (as gas prices fell to less than $2/gallon).

As an aside, *if* real aggregate wage growth were to continue for 12 more months at its average pace for the last 6 years, past history going back 50 years strongly implies the democratic nominee will win the presidential election next year.

Q3 2015 update on corporate profits as a leading indicator for quarterly stock prices

 - by New Deal democrat

I have an updated post at XE.com .  If corporate profits are a long leading indicator, and stock prices a short leading indicator, then corporate profits should lead stock prices, at least when those prices are averaged quarterly.

With Q3 in the books for stock prices, where does this relationship stand?

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A thought for Sunday: in which I despair

 - by New Deal democrat

Over the last couple of years, more and  more blogs have closed down.  Sometimes, it is because the person has too many other obligations.  Sometimes, the person has just a few readers, but other great qualities. For example, the best political blogroll I ever encountered was at Frank Chow's now-closed blog.  Recently he made access to the blog private, so even that is gone. 

I admit that I too am close to despair.  In the first place, the economy has been kind of boring in the last couple of years.  At or near mid-cycle, as I have often said.  Beyond that, I frequently feel like I am shouting into the vacuum of the Oort cloud at the long-term deterioration I have increasingly seen over my lifetime.  We didn't use to have wage stagnation.  We didn't use to have an increasingly desperate middle class. We didn't use to have near-daily mass shootings. We didn't use to have a crumbling infrastructure (I have taken to calling the traffic reports in my area the "failing infrastructure report" because all too often a bridge or a rail line or traffic lights or just congestion that was not planned for is the cause of problems).

Worse, the solution from the dominant faction of the Democratic Party is weak-tea rim-shot free-market tweaks.  The solution from the GOP is always to double down on the insanity.  

According to one of the best political books I have ever read, "Whistling Past Dixie," showed, based on reams of polling data, that white working class voters in that region -- unlike such voters in any other region -- treat candidates' positions on "social issues" as a filter.  If a candidate does not make it through that screen, their economic positions don't matter.  Significantly, the reactionary views in that region coincide with the first major immigration into the region -- of Latinos and relocated Yankees -- in 400 years.  The old social order of the descendants of largely Scotch-Irish whites at the top, and the descendants of African slaves beneath them, is being profoundly shaken.

Just this morning, I read an article where struggling South Carolinians are interviewed about stagnant wages.  They all acknowledge the problem, and are angry about it.  

Economic despair is a potent political force. . . .

[When]  you listen to indignant voters[, d]espite the still nascent recovery, a huge number of people in the middle and lower classes say their wages have not budged in years. 

And what was their mindset?  What did they see as the solution.  Here's a sample:

[T]o prosper, the economy has to prosper,” Mr. Lewie said, “and it’s the rich people that produce jobs.”

When asked to assign blame for stagnating wages, he and his wife pointed to the federal government. Regulations and high taxes, he said, not lower wages abroad....

The operative definition of insanity.

Never mind that since at least 1981 we have gone down this road of increasing wealth at the very top, increases in corporate profits, and Federal *DE*regulation.  The results are pretty damn evident if you are not self-blinded.

If it were up to me, countercyclical programs would always be in place, ready to be activated in any downturn. A WPA and CCC would always be on the books.  Infrastructure projects would always be in the hopper.  At 6% unemployment, the projects would automatically be prioritized.  At 7% unemployment, the administrative positions in the WPA and CCC would automatically be filled.  At 8% unemployment, the workers would be hired and the projects started, at pre-set levels of GDP.  The agencies would be automatically wound down as the unemployment rate fell.

Similarly, automatic tax breaks, weighted towards consumers, should be in place, taking effect quarterly or at very least annually as unemployment increased, and then automatically and gradually reversed as unemployment decreased again, with an eye towards running a surplus once an economic expansion were well-established.

All of which would hardly have been a pipe dream in my youth.  One can easily imagine a Lyndon Johnson or a Robert F. Kennedy or one of many other New Deal democrats proposing such a system.  But no more, and certainly not with one party dominated by an adamantly opposed Dixie, and the other dominated by an elite of neoliberal milquetoasts.

I used to say that politically the US has shifted 1 standard deviation to the right since then.  I no longer believe that.  The US is now *2* standard deviations to right of where it was 50 years ago. We have a Supreme Court one vote shy of dismantling the 20th Century, and they don't have much respect for the post-Civil War Amendments either.  We have a strident minority in the House of Representatives that thinks it would be cool  not to pay the bills that they have already incurred on behalf of the US.  We had a GOP President who endorsed torture, saturated surveillance that police can access without a search warrant, and tax rates that could not possibly fund the fiscal obligations of the country. We now have a Democratic President who has made all of these positions permanent.  These are now bipartisan positions.  Johnson and Kennedy would be treated as beyond the pale now.

In 2008, a majority of the country was ready for significant change.  It got Obamacare and not much else.  Instead, Obama co-opted and then defenestrated the netroots Progressive movement. So, 2008 was a "failed turning point," after which, as in 1989 Tiananmen Square, or 1848 Europe, the reactionary elites double down. 

As bad as things are now for the middle class, the next recession is out there.  I am terrified that when it comes, wages, which have only been up 2.5% YoY at their very best during this expansion, will go into outright deflation, opening the door to a wage-price deflationary spiral.  In other words, unless policies are changed, the next recession is likely to be even worse than the last one.

In the meantime, especially if Hillary Clinton is the democratic nominee, the best available choice is going to be more reformist neoliberal nibbling around the edges.  That means there is no real chance for economic progress until 2020, and maybe even 2024.  And I am not immortal.  I think I will die in a US which has turned into a Latin American-style plutocracy, a land of profoundly unequal and stultified opportunity, with no prospect of a turnaround in sight.

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Weekly Indicators for October 5 - 9 at XE.com

 - by New Deal democrat

My Weekly Indicator piece is up at XE.com.

The US data got just a skosh weaker.

Whilesaler inventories and sales show shallow industrial recession ongoing

 - by New Deal democrat

I have a new post up at XE.com.  The shallow industrial recession is real, and is not abating yet.

Ruh roh: Labor Market Conditions Index forecasts further deterioration in monthly jobs growth

 - by New Deal democrat

As I wrote several months ago, the Labor Market Conditions Index is a good leading indicator for YoY growth in employment.  Based on its deceleration, I forecast that monthly jobs growth was likely to decline to less than 200,000 in the months ahead.

Here's the graph I ran at that time:

The LMCI was updated earlier this week, and the news isn't good, with the Index coming in at zero.  So here is an updated look at the same relationship, zoomed in on the last 10 years:

The LMCI is forecasting further YoY deterioration in jobs growth.  Even a few 5-digit increases cannot be ruled out.  The silver lining is, it is not forecasting an outright YoY decline in jobs.  Similar periods of weakness occurred in 1984, 1994, and 2002 without there being a recession. Even in those periods leading up to recession, generally speaking the LMCI crossed zero into negative territory well before the recession began.

Bottom line:  not good news, but this expansion isn't Doomed yet.

Population adjusted jobs growth: how weak (or not) is this recovery?

 -by New Deal democrat

I've long thought that the typical mode of presentation of the jobs recovery -- i.e., number of jobs created -- is unsatisfactory, because it fails to take into account demographics.  

Suppose, for example, you get 200,000 jobs created per month on average over a year.  Whether that is good or bad depends on whether the population in which those jobs are being created is growing by 100,000 or 300,000.  In the former case, 100,000 more members of the labor force have jobs; in the latter, 100,000 moe members of the labor force are unemployed!

Just adjusting for population isn't enough, since due to increased healthy longevity and demographics, the percentage of the population that is retired is growing strongly, and ought not to be counted.

So what we want to do is count the number of jobs as a percentage of the labor force, or alternatively by those of working age (below, I am using ages 16-64).  What does this jobs recovery look like under those conditions?  Below are 3 variations on that theme.  As we'll see, measured that way the jobs recovery still isn't great, but it is solidly in the middle of the pack.

First, let's look at the "employment rate" which is simply 100 minus the unemployment rate:

As an initial observation, the post-WW2 era of US economic dominance that ended in 1974 stands out.  Employment rates of 94%+ were the norm, and half of the time exceeded 95%.  Since then, our current level of 94.9% has only been exceeded during the tech boom of the late 1990s and briefly at the end of the housing boom 10 years ago.

But how strong has the current recovery been?  For that, let's see how the employment rate, as graphed above, changed on a YoY basis:

While the current recovery got off to a slow start, it has measured better YoY growth than since the early 1980s. In general, the post-WW2 job recoveries grew much faster YoY than those since 1983.  As we'll see below, however, that is tempered by the fact that many of them, especially in the 1950s, were short-lived.

Second, let's look at the YoY% change in employment growth compared against the working age population, age 16 through 64:

Here the current expansion does look very weak. But not quite so bad as it might first appear.  Here's the percentage of jobs added in this recovery, now 5 1/2 years old, as a share of population ages 16-64:

This growth of 5.7% is still better than the 1971-74 expansion, which added less than 5%, and 5 /12 years later was only up 1.6%:

It is also light years better than the George W. Bush expansion, which not only added a miserable 1.7% jobs at its best, but 5 1/2 years later was negative!

Finally, perhaps the best measure of all is the change in jobs vs. the labor force -- since this is basically all persons in the market for a job (I would also include those not in the labor force who want a job now, but that series only started in 1994):

Here the current jobs expansion looks pretty robust, not just improving strongly but lasting longer than many other recoveries.

Just as with our first measure, let's see how this has changed on a YoY basis:

With the exception of the year 1983, this expansion looks as strong as any other expansion since 1974, and stronger than the George W. Bush expansion. In fact, measured either compared with past peaks in employment, or 5 1/2 years from its start, this expansion is #5 out of 10 expansions since 1950:

Year start	Peak	5 1/2 years after start
1950	15%+	12.4%
1954	4%-	-0.8%
1957	5%+	5.4%
1961	15%	11.6%
1971	2%+	-1.2%
1975	5%+	3.3%
1982	9%+	8.2%
1992	10%+	7.6%
2003	2%-	-1.3%
2010	n/a	7.4%

As shown in the chart above,  the current jobs expansion is behind the expansions of 1950, and those of the 1960s, 80s, and 90s, but better than those of 1955, 1958, both expansions of the 1970s, and the George W. Bush expansion.

In summary, when we measure the number of jobs created in this expansion on relevant population-weighted bases, it is a middling expansion, not great, but not so slow as commonly represented.

"Low interest rates have failed to stimulate the economy"

 - by New Deal democrat

There's a persistent Doomer meme that "low interest rates/quantitative easing have failed to stimulate the economy."

It's utter bunk.

Let me show you a period of really low interest rates:

We see Fed rates between 0.5% and 1.5% and long term rates generally between 2% and 2.5%.

Growth must have been pathetic, right?

Now let's add in real, inflation adjusted gross domestic product, and the dates:

That's some real pathetic, errr, umm, 10% and 15%+ growth!

Now let's take a look at how the Fed's low rates and quantitative easing since the Great Recession have played out:

Unsurprisingly, lower long term interest rates as helped along by quantitative easing sparked lots of purchase and refinance mortgage applications. The "taper tantrum" of let 2013 caused both to crater.  

So, yeah, low interest rates and quantitative easing have failed to stimulate the economy, as long as you ignore, you know, history.

No: Dodd Frank Did Not Cause the Slow Recovery

The latest piece of, well, CRAP from Powerline is that Dodd Frank Caused is solely responsible for the slow recovery.

The AEI originated this meme.  It comes from Peter Walliston, who propagated the argument that the CRA caused the financial collapse in 2007-2008.   The Federal Reserve debunked this argument a long time ago.

Thankfully, Barry Ritholtz over at Bloomberg has proved what a crock this most recent claim is.  

Why the US consumer expansion is still outweighing the industrial recession: houses and cars

 - by New Deal democrat

I have a new post explaining this up at XE.com .

Underemployment and wages: September 2015 update

 - by New Deal democrat

About the only bright spot in Friday's jobs report was the 400,000+ decline in the number of involuntary part time workers.  So far this year, the number of those employed part time involuntarily has declined by -754,000, or about 1/2% of the workforce.

The best way to look at this is as a percentage of the workforce:

In January 1994, when the modern series began, 3.788% of the labor force was involuntarily employed part time. As of September of this year ,it was 3.852%.  While this isn't too bad, a "good" number would be under 3%.

The changes in 1994 subtracted about 1% from the calculation of involuntary employment.  To give an idea how our present situation compares to pre-1994 data, here it is, subtracting 1%, and then another 3.788%, so that any situation better than currently shows as a negative number, and any worse than the present shows as a positive number:

This is consistent with the idea that we need to see about another 1% decline for this to  be a "good" number.

Next, here is the number for those Not in the Labor Force, but who Want a Job Now (NILFWJN):

The modern version of this series also started in January 1994.  We are currently at the same number as we were at the end of 1994.  Again, not terrible, but not "good" either.

Finally, let's look at the updated U6 underemployment rate (blue) and compare it with the YoY% of wage growth (red):

In the above graph, both are set to "0" at the latest values.  if this expansion is like the last 2, nominal wage growth should start to pick up about now. 

US Bond Market Week in Review: Did the Window Close, Edition?

This is over at XE.com

US Equity Market Week in Review: The Bulls Need Earnings, Edition

This is over at XE.com

Weekly Indicators for Semptember 28 - October 2 at XE.com

 - by New Deal democrat

My Weekly Indicator post is up at XE.com .

The consumer portion of the US economy continues to expand.  The industrial portion, most exposed to global weakness, continues to be negative.