Weekly Indicators for October 3 - 7 at XE.com

 - by New Deal democrat

My Weekly Indicators piece is up at XE.com.  The tailwind to the economy that began in mid-2014 with the decline in oil and gas prices has ended.

September jobs report: mixed news showing further deceleration approaching a peak

- by New Deal democrat

HEADLINES:

• +156,000 jobs added
• U3 unemployment rate rose +0.1% from 4.9% to 5.0%
• U6 underemployment rate unchanged at 9.7%

Here are the headlines on wages and the chronic heightened underemployment:

Wages and participation rates

• Not in Labor Force, but Want a Job Now:  up +255,000 from 5.833 million to 6.088 million  
• Part time for economic reasons: down -159,000 from 6.053 million to 5.984 million
• Employment/population ratio ages 25-54: up +0.2% from 77.8% to 78.0% (tie for post-recession high)
• Average Weekly Earnings for Production and Nonsupervisory Personnel: up $.06 from $21.63 to $21.68,  up +2.6% YoY. (tied for post-recession high)  (Note: you may be reading different information about wages elsewhere. They are citing average wages for all private workers. I use wages for nonsupervisory personnel, to come closer to the situation for ordinary workers.)

July was revised down by -23,000, and August was revised up by +16,000, for a net change of -7,000. 

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.

• the average manufacturing workweek rose 0.1 from 40.7 to 40.8 hours.  This is one of the 10 components of the LEI, and is a positive.
 
• construction jobs rose by +23,000 YoY construction jobs are up +218,000.  
 
• manufacturing jobs fell by -13,000, and are down -47,000 YoY

• temporary jobs - a leading indicator for jobs overall - increased by 23,200 (this made a peak in December, and recently has been stabilizing).


• the number of people unemployed for 5 weeks or less - a better leading indicator than initial jobless claims - increased by 284,000 from 2,290,000 to 2.574,000.  The post-recession low was set 1 year ago at 2,095,000.

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

• Overtime was unchanged at 3.3 hours.
• Professional and business employment (generally higher- paying jobs) increased by 67,000 and are up +582,000 YoY.


• the index of aggregate hours worked in the economy rose by 0.4  from  105.4 to 105.8 

•  the index of aggregate payrolls rose  0.9 from 129.6 to  130.5. 

Other news included:        

• the alternate jobs number contained  in the more volatile household survey increased by  354,000 jobs.  This represents an increase  of 3,036,000  jobs YoY vs. 2,447,000 in the establishment survey.    
   
• Government jobs fell by -11,000.     

• the overall employment  to  population ratio for all ages 16 and above rose from 59.7% to 59.8% m/m and is up +0.5% YoY.   
• The  labor force participation rate rose from 62.8% to 62.9% and is up +0.5% YoY (remember, this includes droves of retiring Bsoomers).     

 SUMMARY

This was a mixed report, continuing to show late cycle deceleration.  

The biggest negative was the uptick in the unemployment rate to 5.0%.  This metric has gone basically sideways since last December, and I suspect we may already have seen the low for this series for this expansion in May at 4.7%.  The broader measures of underutilization -- involuntary part-time employment and those not in the labor force who want a job now -- have also made no further progress this year.The uptick in short term unemployment is also a negative, contradicting the good initial jobless claims reports. Revisions have also been running generally negative all year long. 

Positive news included the headline number, as well as the increases in the employment to population ratio, the labor force participation rate, and aggregate hours and payrolls.  Temporary jobs have come back from lows earlier this year, although not to new highs. Average hourly earnings are also showing YoY strength.

This report does not show recession now or imminently.  But it does contain signs of an economic expansion that may be nearing peak.

This week's data: an upsihift into 2nd gear during Indian Summer

 - by New Deal democrat

After a dismal August, September data is looking more promising.

As I pointed out earlier this week over at XE.com, the short leading indicators of vehicle sales and ISM manufacturing were both modestly positive.

This morning we got yet another new post-recession low in weekly unemployment claims.  Here's the 4 week moving average:

This also is a positive for the next 3 to 6 months.

While the stock market hasn't made a  new high in nearly two months, it hasn't had much of a correction either:

Tis is also a positive for about 3 to 6 months from the last high.

Yesterday we got August factory orders (blue in the graph below).  The "core capital goods" reading tends to be smoother, and is more of a leading indicator (red):

This hasn't exactly been setting the world on fire, but note that core capital goods have turned up in the last few months.

Finally, yesterday also saw the September ISM services reading.  Since ISM no longer allows FRED to publish their data, here is the entire history of the indicator from another source (ignore the Doomish noise about big one month declines):

Note that services never fell below 50 (showing contractioin) until the 9/11 terrorist attacks -- by which time the 2001 recession was almost over -- and also didn't fall below 50 until the month that the Great Recession began.  In other words, ISM services is at best a coincident, and is probably a slightly lagging, indicator.

So the short leading indicators are aligned positive, even though the positivity may be pretty tepid.  The coincident indicator released yesterday is in conformity with that.

Bonddad's Wednesday Linkfest

Mester Argues for Rate Hike (BB)

Federal Reserve Bank of Cleveland President Loretta Mester said the economy is ripe for an interest-rate increase and repeated that the Fed’s November meeting should be viewed as “live” for a policy decision, despite its proximity to the U.S. presidential election.

“I would expect that the case would remain compelling” for a rate hike when the Federal Open Market Committee gathers in Washington Nov. 1-2, the week before Americans head to the polls, she told Kathleen Hays in an interview on Bloomberg Television Monday. Mester added that politics wouldn’t affect the decision.

Mester was one of three voters on the FOMC to dissent in favor of hiking when policy makers decided on Sept. 21 to leave interest rates unchanged. Following the meeting, Fed Chair Janet Yellen said she didn’t see any evidence that low unemployment was triggering a rise in inflation that required an increase.

Sterling is Taking a Beating

5-Year Chart of the PoundEuro

5-Year Chart of the Pound/Dollar

IMF Warns on Global Growth (IMF)

Based on preliminary data, global growth is estimated at 2.9 percent in the first half of 2016, slightly weaker than in the second half of 2015 and lower than projected in the April 2016 WEO. Global industrial production remained subdued, but has shown signs of a pickup in recent months, and trade volumes retreated in the quarter through June after several months of sustained recovery from the trough of early 2015 (Figure 1.1). The recent weak momentum is mostly a product of softer activity in advanced economies.

Banks Net Interest Margin Has Been Declining For Years

1-Year Chart of the Financial Sector ETFs

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Government Spending on R&D is At a 60 Year Low (BB)

Bonddad's Thursday Linkfest

I'm a financial adviser with Thompson Creek Wealth as well as a tax and business attorney with The Law Office of Hale Stewart.


ISM Rebounds

Decade/Decade Growth in Per Capita GDP

The SPYs Are Still Range Bound

Oil is Approaching Resistance With Plenty of Room to Run

1-Year Chart of the XLEs

1-Year Chart of the XLEs A/D Line

More signs of economic Indian Summer

 - by New Deal democrat

Appropriately enough for this time of year, September economic data started off with both an ISM manufacturing report and motor vehicle sales that were modestly positive.

This post is up at XE.com .

A Minor Note on Trump's Tax Returns

One of the greatest things about the internet is all sorts of people can write about a topic they don't know anything about and publish it.   This is exactly what's happening withTrump's tax returns.  All sorts of yahoos are making all sorts of guesses about what lurks beneath the surface.

Most of what you're reading bullshit.  Here's why: we've only seen 3 pages from tax returns that contain a single piece of tax information: a $916 billion dollar loss.  Until we have all of his federal returns that explain not only every penny of that loss (pre-1995) and its potential application (post-1995) we know nothing.  

Here's where this tax lawyer would start his analysis if I had the information: what are the components of his massive 1995 loss?  Losses are tax gold because they offset income.  And because they're so wonderful from a planning perspective, a loss as large as $915 billion would immediately attract IRS attention.  I'm assuming that, due to the loss's magnitude, the IRS has already audited this figure, probably multiple times.  But I'd at least like to know it's general components and how it was calculated.  I'm assuming (there's a dangerous word in the legal businsss) that depreciation accounts for most of it.  This is real estate tax 101 and wouldn't surprise anyone in the tax business.  

Here's the second thing I'd want to know: was this applied as a net operating loss (NOL under section 172 of the code?  I'm assuming (again, dangerous word) that he applied it against future income, which is allowed under the code.  But, again, this is 100% conjecture and will be until we see the post-1995 returns.

Here's what I can say were certainty: Trump had a really shitty year according to his 1995 tax returns. I mean really shitty.  In my opinion, 

1.) The IRS has probably audited the loss at least once and probably multiple times.  It's probably legit.

2.) The size of the loss invalidates his claims to superior business acumen.  Instead, it shows that he really doesn't know what he's doing. 

And this is before we note that Trump is a 3-year old with no impulse control and clear white power mentality.  But that's for another day.  

      

Bonddad's Tuesday Linkfest

I'm a financial adviser with Thompson Creek Wealth as well as a tax and business attorney with The Law Office of Hale Stewart.

Part and Full Time Wage Growth (Macroblog)

Utilities Sector Sells Off to 200 day EMA

Colombia Peace Deal Rejected

Weekly Chart of the Colombian ETF

ISM Manufacturing Rebounds

Global Economy is Slowing

In true Sisyphean fashion, the world economy is faltering yet again, unable to gain much elevation and sliding back into the low growth morass it has been stuck in for some time.

Major advanced and emerging market economies appear to be converging to a low-growth environment characterised by weak investment, stagnant productivity and tepid private sector confidence. 

ACA Needs Changes

1-Year Chart of the Health Care Provides ETF

Ratio of XLV/SPY

Bonddad's Monday Linkfest

I'm a financial adviser with Thompson Creek Wealth as well as a tax and business attorney with The Law Office of Hale Stewart.

A Closer Look At the Final 2Q16 GDP Report

A Closer Look At Last Month's PI Report

For the Last 30 Days, the SPYs are Simply Moving Between a High and Low 

Technology and Financials Are Still Outperforming

Oil Has Broken Out to the Upside

2 Month Charts of the Energy ETFs

It's Not What Trump's Return Revealed; It's Who Leaked It

First, here's the relevant code section:

(a) Deduction allowed
There shall be allowed as a deduction for the taxable year an amount equal to the aggregate of (1) the net operating loss carryovers to such year, plus (2) the net operating loss carrybacks to such year. For purposes of this subtitle, the term “net operating loss deduction” means the deduction allowed by this subsection.
(b) Net operating loss carrybacks and carryovers
(1) Years to which loss may be carried
(A) General ruleExcept as otherwise provided in this paragraph, a net operating loss for any taxable year—
(i) shall be a net operating loss carryback to each of the 2 taxable years preceding the taxable year of such loss, and
(ii) shall be a net operating loss carryover to each of the 20 taxable years following the taxable year of the loss.

(26 U.S.C. 172)

Trump's tax advisers were correct when they noted that the loss would allow Trump to earn the equivalent amount of income over the next 20 years.  This is a rudimentary tax concept; every tax adviser would make the exact same observation.

The political optics of this news story are deadly.

Here's the really important point:  The key to this news story is a single piece of information among literally thousands of numbers and individual data points.  Whoever leaked this information knew enough about taxes to know what to leak and no more.  

If I was going to make a guess: someone really close to Trump who was intimately familiar with Trump's finances and who also didn't have a professional code of confidentiality.

Weekly Indicators for September 26 - 30 at XE.com

 - by New Deal democrat

My Weekly Indicators post is up at XE.com. The recent "wobbliness" continues, but with a different cast of characters each week.

On a side note, real life has continued to occupy so much time that my blogging activity has been very limited.  That is likely to continue for 2 or 3 more weeks.  That's a shame, because there are some changes afoot that I would like to share.

In general, while the shallow industrial recession of 2015 did end in about March of this year, the subsequent rebound is proving pretty shaky.  Some Doomish relationships have appeared that should not be disregarded.  I am confident that we are not in a recessioin now, nor is one imminent, but there are more and more signs that make me think that, in terms of baseball, we are maybe in the top of the 8th inning for this expansion.

Ed "Call Center" Morrissey's Complete Economic Stupidity on Display Yet Again

     Today, we have this gem of complete and total ignorance from Ed Morrissey from Hot Air:

The problem occurred when the federal government — spurred by both parties, but starting with Bill Clinton’s administration — attempted to artificially increase demand in home ownership by subsidizing increasingly risky mortgages. That actually started with interventionist regulation: a revision to the Community Reinvestment Act in 1999. That put pressure on banks to expand lending and lower standards for approvals; later, Congress would step up subsidizing such loans through Fannie Mae and Freddie Mac, which then sold the mortgages on the bond markets with the implicit guarantee from the federal government.  That created a huge but artificial increase in demand that drove housing values way up, delinking them from their traditional relationship to the rate of inflation. Suddenly lots of people saw their equity as an ATM, so consumer spending rapidly increased, and politicians of both parties took credit for great economies and rising home ownership.

This analysis has been debunked numerous times.  The latest is from Barry over at the Big Picture. Barry offers detailed and nuanced analysis, which means it's already far above Ed "I ran a call center so I'm qualified to write about economics" Morrissey's head.  If you're really interested, you can search Barry's site for "CRA;" he's taken this meme down several times.

Ed's an economic idiot; he keeps trying to write something of substance, only to prove on a regular basis that those who ran call centers aren't qualified to write about economics.

Here's the key point for me:

The housing bubble was global.  So either the CRA somehow caused all these other countries to engage in risky lending, or something else was going on.

Bonddad's Thursday Linkfest

I'm a financial adviser with Thompson Creek Wealth as well as a tax and business attorney with The Law Office of Hale Stewart.

Men Without Work

Durable Goods Unchanged

1-Year Chart of the XLI

Italy Downgrades Forecast

Italy has downgraded its economic forecasts, presenting the country with a worse fiscal outlook than expected and limiting prime minister Matteo Renzi’s chances of proposing a big economic stimulus before the December referendum that will determine his fate. 

The Italian cabinet approved the new projections overnight, slashing its estimate for gross domestic product growth this year to 0.8 per cent from a pace of 1.2 per cent predicted in April. Next year, Rome is expecting growth of 1 per cent, compared with a previous estimate of 1.4 per cent.

1-Year Chart of the EWI

Bonddad's Wednesday Linkfest

I'm a financial adviser with Thompson Creek Wealth as well as a tax and business attorney with The Law Office of Hale Stewart.

Brexit's Impact on U.S. Will be Small

Overall, the U.K. vote to leave the European Union left several sources of uncertainty for the global economy in its wake. Short-term and longer-term uncertainty are likely to lead to some reduction in U.K. GDP and potentially longer-run growth, but the transmission to the United States is likely to be small. First, exports are a relatively small share of U.S. GDP, and exports to the United Kingdom are less than 1 percent of GDP. Second, while longer-term uncertainty will likely lead to a longer-term reduction in U.K. GDP, the transmission to the United States is likely to be much smaller. Provided that financial conditions across Europe do not become too strained, the evidence suggests that heighted uncertainty is a major concern for the United Kingdom, a modest concern for the European Union, and a relatively minor concern for the United States.

Oil Continues to Consolidate

QQQs and SPYs Don't Have Much Upside Room Based on the Number of Stocks About the 50 and 200 day EMA

Bonddad's Tuesday Linkfest

I'm a financial adviser with Thompson Creek Wealth as well as a tax and business attorney with The Law Office of Hale Stewart.

New Home Sales Drop 7.6% M/M/Increase 20.6% Y/Y

1-Year Chart of the XHB ETF

Mario Draghi on the Pros and Cons of the EU Outlook

On the positive side, incoming information continues to point to the euro area economy being resilient to global and political uncertainty, notably following the UK referendum outcome. The initial impact of the vote has been contained and the strong financial market reactions, such as equity price falls, have largely reversed.

At the same time, the substantial weakening of the foreign demand outlook since June is expected to dampen export growth. Along with other factors, it will continue to pose downside risks to the euro area’s growth prospects. According to the September ECB staff macroeconomic projections, annual real GDP growth is expected to increase by 1.7% this year, and by 1.6% in each of the next two years.

Latest Markit Numbers

OECD Report on Trade

Over the past few years, the rate of global trade growth has halved relative to the pre-crisis period, and it declined further in recent quarters, with the weakness concentrated in Asia. While low investment has played a role, rebalancing in China and a reversal in the development of global value chains could signal permanently lower trade growth, leading to weaker productivity growth. Lack of progress – together with some backtracking – on the opening of global markets to trade has added to the slowdown. 

BOJ Head Kuroda's Observations On the New BOJ Policy

The first point is that, during the three years since the introduction of QQE, Japan's economic activity and prices, as well as financial conditions, have improved substantially, and Japan's economy is no longer in deflation. 

The second point is that, despite such a positive turnaround, the price stability target of 2 percent has not been achieved.

The Bank has come to the conclusion that it can facilitate the formation of a yield curve, which is deemed most appropriate for achieving the price stability target of 2 percent, through the appropriate combination of a negative interest rate and JGB purchases. 

The fourth point is the impact of monetary easing on the functioning of financial intermediation...Although the direct impact of these developments on economic activity as a whole is unlikely to be substantial, it is possible that such developments can cause uncertainty regarding the sustainability of the financial functioning in a broad sense, in that they could have a negative impact on economic activity through a deterioration in people's confidence. In facilitating the formation of an appropriate yield curve, the Bank should take account of these points. 

Dallas Fed on August's and September's Economic Numbers

Economic indicators released in August and September have been mixed. Consumption spending got off to a strong start in the third quarter, and employment growth slowed but remains solid. However, the more timely purchasing managers’ surveys were unusually downbeat. Still, forward-looking indicators and professional forecasts point to stronger growth in the second half of the year. Inflation remains muted and below the Federal Reserve’s target rate of 2 percent, with goods and services inflation exhibiting differing trends.

Little Stevie Hayward of Powerline: Still an Economic Jackass

Today, Little Stevie Hayward of Powerline has a post up titled, "Don't Look Now, But."  It's his usual cut and paste job masquerading as economic analysis.  He first points to the weak state of corporate earnings, noting they are headed for another decline.   But, it's obvious that he has no idea what's behind this number.  The big issue is weak oil company revenues.  Consider this chart from Factset.com:

Notice the very large drop in energy revenues.  China's switch from a manufacturing economy to one driven by consumer demand is another cause (Stevie might want to take a look at information from the RBA -- that's Reserve Bank of Australia -- for context).  In fact, 7 industries reported positive earnings growth.  So, this isn't exactly the Armageddon he's predicting. 

He then notes the China and Japan are selling treasuries.  Let's place that move in context.  Here's a chart of the 30-year treasury yield for the last 30+ years:

Interest rates have been declining for the last 40 years.  There's a lot of reasons for this.  To get caught up on that, read Bernanke's Global Savings Glut theory or Larry Summers Secular Stagnation argument.  Which little Stevie Hayward won't do, because it uses big words and contains math.  

  

  I realize that criticizing Little Stevie Hayward of Powerline is like shooting fish in a barrel.  He's that stupid.  But, so long as he keeps writing, I'll keep pointing out how incredibly stupid he is.

New home sales continue uptrend as expected from lower mortgage rates

 - by New Deal democrat

All things being equal, lower mortgage rates typically translate into increase new home sales -- and even though August was a decrease from July, in 2016 that relationship is holding fast and is the most positive aspect of the important and leading housing market.

This post is up at XE.com.

Bonddad Monday Linkfest

Weekly Performance of US Sectors

RRG Chart for US Industries

1-Year Chart of the XLKs

RRG Graph of the XLKs 10 Largest Members

Financial Performance of 10 Largest XLK Members

1-Year Chart of the XLFs

1-Year RRG Chart of the Largest XLF Members

Financial Performance of the 10 Largest XLK Members