Weekly Indicators for October 10 - 14 at XE.com

 - by New Deal democrat

My Weekly Indicator post is up at XE.com.  Between energy, commodities, the US$, and mortgage applications, there has been a slight but noticeable darkening of the picture.

September retail sales: positive with one fly in the ointment

 - by New Deal democrat

As you all probably already know, real retail sales is one of my favorite metrics.  I haven't looked at it in a little while, so this morning's report is a good opportunity to catch up.

The below graph shows nominal (blue) and real (red) retail sales.  

With a nice +0.6% increase in September, nominal retail sales are at another record.  So long as consumer prices have not increased by more than 0.2% (we'll find out next week), real retail sales set another record as well.

Further, sales lead jobs.  The direction of the YoY rate of change in retail sales tends to lead YoY payroll growth by 6 - 12 months.  Here are the last 10 years ending August:

This argues that YoY job growth is likely to be stable to slightly decelerating in the next few months, a somewhat contrary signal to that given by the Labor Market Conditions Index released several days ago.

Finally, the one fly in the ointment is that, between anticipated inflation in September, plus normal population growth of about .075% per month, it is unlikely that real retail sales per capita will be better than flat compared with June and July:

Real retail sales per capita is a long leading indicator, and this suggests it will have made no improvement over the last 4 months.

JOLTS, Labor Market Conditions index consistent with late 2017 recession

 - by New Deal demorat

I continue to be unimpressed with the Job Openings and Labor Turnover Survey (JOLTS), as showing post-mid cycle deceleration for over a year.   I have found what I hope is a better way to present my argument, so that you can see why the report is less than heartening.

First, here is a comparison of job openings (blue), hires (red), and quits (green, right scale).  Because there is only one compete past business cycle for comparison, lots of caution is required. But in that cycle, hires and quits peaked first, while openings continued to rise before turning down in the months just prior to the onset of the Great Recession:

Through today's report for August, 2016 looks very much like 2006, or even early 2007.

To better show you my concern, let's look at this same data as expressed in YoY% changes:

Although there's lots of noise in the squiggles, the pattern of maximum growth at mid cycle gradually declining under zero prior to the onset of the 2008 recession is evident.  Here is a close-up of the years 2005-08 to show you the deceleration of quits and hires from their peaks in late 2005, and the flatness of hires before declining in the months just before the recession:

Now let's look at the same time frame up until this month's release:

You can see similar peaks of quits and hires in late 2014, and the general flatness in hires over the last year. The rates of YoY change are equivalent to those at the end of 2006.

If the same pattern as the last economic cycle were to hold for this one, JOLTS would show continued deceleration before rolling over into an actual recession about 12 months from now.

Meanwhile the LMCI has been slightly negative virtually all this year.  As shown in the graph below, this is consistent with slowdowns (as in 1985 and 1995) as well as prior to recessions:

Still, the LMCI has not declined nearly as much as it typically has prior to most of the recessions in the last 50 years.  At the same time, note that the LMCI does a pretty good job forecasting the direction of the YoY change in employment (red).  So the YoY trend in the monthly jobs report is likely to continue to decelerate.

While I'm not forecasting any actual negative monthly job reports in the near future, the YoY payrolls graph still shows continued deceleration. Here is a bar graph of the monthly gain in jobs for the last 3 years, minus 150,000, better to show the deceleration from the peak of nearly 2 years ago:

The 4th quarter of last year showed job increases of over 250,000 per month.  It is a virtual certainty that the job reports for this quarter are going to average much less.

In summary, both the LMCI and the JOLTS reports have been adding to the accumulating evidence that we are getting late in the expansion, if we only go by these two metrics, and we follow the 2001-07 template, a recession could begin within about 12 months.  Which means that this month's housing data, as well as the long leading business profit and residential investment data in the first Q3 GDP estimate will take on added importance.

Does the recent stagnation in the unemployment rate mean we're DOOOMED?

 - by New Deal democrat

The unemployment rate has varied between 4.7% and 5.1% over the last 12 months.  Does that mean a recession is near, or even already here?  I examine this at XE.com.

Bonddad's Tuesday Linkfest

Oil's Rebound

Is Rallying the Energy Sector

Here's the Valuation of the 10 Largest Holdings of the XLEs

And a 1-Year Chart Of All the Members

Five graphs for 2016: Q3 update

 - by New Deal democrat

At the beginning of this year, I identified graphs of 5 aspects of the economy that most bore watching.  Now that we are 3/4's through the year, let's take a look at each of them. 

#5 The Yield Curve

The Fed attempted to embark on a tightening regimen last December.  The question became, would the yield curve compress or, worse, invert, an inversion being a nearly infallible sign of a recession to come in about 12 months.  It turned out that the weakness in the world economy plus Brexit caused a moderate compression just at the long end: 

After the June Brexit vote, the 10 year treasury fell to all time lows (typically long rates only start to fall once the tightening cycle has caused the economy to weaken). Indeed, weakness in the economy has put the Fed back on hold all this year.   The bottom line is that the yield curve is still quite positive when seen in a historical perspective.

#4 The trade weighted US$

Perhaps the biggest story of 2015 was the damage done by the 15%+ surge in the US$ that began in late 2014 -- which not only harmed exports, but pretty much cancelled out the positive effect on consumers' wallets by lower gas prices.

Here there has been a big change:

Against all currencies, the US$ has recently ben in the range of unchanged to +3% YoY  - a  more  typical if still elevated range.  Against major currencies, the US$ has actually declined YoY for most of this year..   This is good news.

#3 The inventory to sales ratio

An elevated ratio of business inventories to sales means that businesses are overstocked.  This has frequently but not always been associated with a recession.  I have been using the wholesalers invenotry to sales ratio, since it has fewer secular issues.  This ratio increased has fallen significantly  since its high in January:

 

The good new is that  this kind of fall  tends to happen as a recession ends.  the bad news is that it hasn' fallen more, telling us that the inducstrial economy is still weak.

#2 Discouraged workers

While 2015 saw a big improvement in involuntary part time employment, this trend has completely stalled in the last 12 months: 

We are still at least 1,500,000 above a "good" number.  Worse, this kind of stall is something that we see as a cycle is approaching its peak.

#1 Underemployment and wages

The single worst part of this economic expansion has been its pathetic record for wage increases. Nominal YoY wage increases for nonsupervisory workers were generally about 4% in the 1990s, and even in the latter part of the early 2000s expansion.  In this expansion, however, until recently nominal increases  averaged a pitiful 2%, meaning that even a mild uptick in inflation is enough to cause a real decrease in middle and working class purchasing power.  
There is increasing consensus that the primary reason for this miserable situation has been the persistent huge percentage of those who are either unemployed or underemployed, such as involuntary part time workers. 

This expanded "U6" unemployment rate ( minus 10%)  is shown in blue in the graph below, toether with YoY nominal wage growth (minus 2%):

In the 1990s and 2000s, once the U6 underemployment rate fell under 10%, nominal wage growth started to accelerate.  U6 has been under 10% for close to a year,, and there has been some mild improvement off the bottom.  More than anything, the US needs real wage growth for labor, and the present nominal reading of  2.6% still isn't nearly good enough.  With the expansion in deceleration mode well past mid-cycle, it is not clear at all how much further improvement we are going to get before the next recession hits.  

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

\

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