Weekly Indicators for January 30 - Februrary 3 at XE.com

 - by New Deal democrat

My Weekly Indicators post is up at XE.com.

Deceleration in several positive indicators has continued, while consumer spending is giving sharply mixed signals.

January jobs report: good headline, but participation and wages lag

- by New Deal democrat

HEADLINES:

• +227,000 jobs added
• U3 unemployment rate up +0.1% from 4.7% to 4.8%
• U6 underemployment rate up +0.2% from 9.2% to 9.4%

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

Wages and participation rates

• Not in Labor Force, but Want a Job Now: rose +77,000 from 5.662 million to 5.739 million   
• Part time for economic reasons: up +242,000 from 5.598 million to 5.840 million
• Employment/population ratio ages 25-54: unchanged at 78.2% 
• Average Weekly Earnings for Production and Nonsupervisory Personnel: up $.04 from $21.80 to $21.84,  up +2.5% YoY.  (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.)

November was revised downward by -40,000, and December was revised upward by +1,000, for a net change of -39,000. 

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

• 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 increased by +36,000. YoY construction jobs are up +170,000.  
 
• manufacturing jobs increased by +5,000, but are down -53,000 YoY

• temporary jobs increased by 14,900.


• the number of people unemployed for 5 weeks or less increased by +89,000 from 2,379,000 to 2,468,000.  The post-recession low was set over 1 year ago at 2,095,000.

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

• Overtime fell -0.1 from 3.3 to 3.2 hours.
• Professional and business employment (generally higher- paying jobs) increased by +39,000 and are up 574,000 YoY.


• the index of aggregate hours worked in the economy rose by +0.2  from  106.2 to 106.4 

•  the index of aggregate payrolls rose by +0.3 from 132.0 to 132.3. 

Other news included:         

• the alternate jobs number contained  in the more volatile household survey increased by  +547,000 jobs.  This represents an increase  of 1,548,000  jobs YoY vs. 2,,344,000 in the establishment survey.    
   
• Government jobs fell by -10,000.     

• the overall employment  to  population ratio  for all ages 16 and up rose from  59.7%  to 59.9 m/m  and i s up +0.-% YoY.   
• The  labor force participation  rate rose  from 62.7% to 62.9%  and is up +0.2%  YoY (remember, this includes droves of retiring Bsoomers).     

 SUMMARY 

This was  a good report with most of the internals supporting the positive headline jobs number. Both the unemployment and underemployment rates rose, but this was due to a big number of people coming off the sidelines and entering the labor force.

The big concerns remain the same ones we have seen for years: an elevated number of involuntary part-time workers and people outside of the work force who want a job now, leading to a lagging recovery in the prime age labor participation rate.  Wages also are showing no signs of further acceleration in this report. Since YoY wage growth typically declines by over 2% in recessions, I continue to worry about actual wage deflation when the next one hits.

  

This is what economic Indian summer looks like

 - by New Deal democrat

One of the best calls I made a year ago was to forecast that the "shallow industrial recession" would bottom in about March 2016, and a rebound to what I have since come to call "Indian summer," i.e., a period of good economic data after mid-cycle, would occur.

This week we got a good look at what economic Indian summer looks like.

First, real personal income and spending:

Spending is a solid if not spectacular +3% YoY, while the trend growth in income is decelerating a bit, but still positive.

Next, real residential construction spending:

January was the second highest reading of the expansion, behind last March.  Since this tends to follow the quarterly average of housing starts with a one quarter or so lag, and housing starts made a new high in November, I expect this to continue to rise over the next several months. 

Third, ISM manufacturing:

Perhaps even better, ISM new orders were above 60 for the second month in a row.  ISM new orders above 60 (blue in the graph below) have been an infrequent occurrence over the last 30+ years:

They have correlated pretty well with an uptick in real GDP (red in the graph above).

Finally, motor vehicle sales declined month over month, but have remained above 17 million where they have plateaued (a not uncommon occurrence during an expansion) for the last 24 months:

This is all solid, positive data, and with the exception of real income by and large I expect it to continue over the next 2 to 3 quarters.  Indian summer late in an expansion.

Bank of England Predicts Inflation Will Overshoot Their 2% Target

This is over at XE.com

A Not So Gentle Reminder to Republicans About Their Obstruction of President Obama From Day 1

I was against the Iraq war for two reasons. First, the Bush administration’s argument that oil revenue would pay for the war effort seemed far-fetched. While I didn’t perform even the most rudimentary of calculations to support my instincts, the persistent $500 billion dollar deficits that existed for the remainder of Bush’s presidency more than validated my economic intuition. Second, was Congressional testimony from an army officer who argued that emotional problems would be far lower due to the different combat methods employed by the U.S. armed forces. Subsequent spikes in soldier suicides indicate this prediction was also wrong and that my initial analysis was correct. So, while I would love to publicly state that my opposition to the war was grounded on a deeply held philosophical set of principles, it in fact was based on the far less romantic grounds of economic analysis.

It was also during this time that the political right began to attack the political left as unpatriotic and treasonous for their opposition to Bush’s Iraq operation. This didn’t occur in more mainstream settings. But conservative radio hosts such as Rush Limbaugh and Fox news personalities such as Bill O’Reilly and Sean Hannity were quick to make these allegations. I mention this because I’m beginning to hear similar suggestions from conservative friends related to my opposition to President Trump. I’ve recently been told at various times that Hillary should tell her supporters to get in line and that I look like a fool for my opposition.

To this I would note that Republicans aggressively opposed Obama’s presidency from day 1. On January 16, 2009, Rush Limbaugh proclaimed on his show that he hoped Obama would fail. The Republicans decided to oppose Obama’s agenda before his inauguration (From the Hill on 8/12/12 New book details GOP’s early opposition to Obama stimulus):

“The New New Deal,” authored by Time Magazine's Michael Grunwald, quotes Vice President Joe Biden as saying seven different Republican senators had told him before the Obama inauguration that the GOP would oppose Obama's agenda en masse, and it reports that then-House Minority Whip Eric Cantor (R-Va.) surprised members of the GOP leadership team by vowing in a private meeting that no Republicans would support the Democratic recovery plan.

On February 19, 2009, Rick Santelli of CNBC gave an on-air anti-Obama rant that many credit with starting the tea party movement, whose protests started in earnest in the spring of 2009 -- not long after Obama was sworn in as president. And let’s not forget the birther movement, which was not only designed to de-legitimize president Obama but was also championed by none other than President Trump. He didn't disavow his propagating this obviously racist theory until several months ago -- and then only in a very half-hearted way. And this is before I mention over 100s if not 1000s of racist postings, photo-shops and words directed at president Obama during his entire presidency (Just one example: how many other presidents have been told "you lie" during a state of the union speech?).

So, to my conservative friends, please note that your side of the political aisle was more than obstructionist during Obama’s term. And a not insignificant amount of this was racist in tone and delivery. Please forgive me if I think your critique of my opposition to Trump rings hollow.

Increasing Mortgage Rates May Increase Downward Pressure on Housing Demand

Today, the Financial Times reported that mortgage rates hit a 2017 high.   The following chart from the St. Louis FRED's system is a bit behind the article's data, but it also shows that mortgage rates are higher:

At what point does this impact the housing market?  We don't know -- there is no basic rule of thumb linking basis point increases in mortgage rates with home sales.  However, data shows that both new and existing home sales may be peaking:

The above chart shows new and existing home sales.  Both sets of data are recalibrated to a base 100 beginning on the last day of the last recession.  Existing sales (in red) have been reported at the same level (~110 on the chart) since July 2105.  This is by far the larger market.  New homes sales (in blue) increased in 2H 2016, but have since printed at approximately the same level.  

At some point, interest rates will increase to a level where they will construct demand.  

My second half forecast for 2017

 - by New Deal democrat

I already have said that the economy will remain quite positive in the first six months of this year.

My forecast for the second half of this year is now up at XE.com.

Jazz Shaw: Economic Moron of the Highest Order

     Here's the title of a recent Jazz Shaw piece: "And Starbucks wonders why their sales are flat."

Any competent economic writer would have gone to any website that publishes financial information to verify that point.  For example, I recently went to Morningstar and found the following:

You'll notice that there are annual figures for the chain.  Notice that each column shows a higher number than the previous year.  Those are called "increases" and they directly contradict Mr. Shaw's claim.  

A moral writer would print a retraction -- or at least a clarification.  But remember who we're dealing with here.  

About the Trump stock market surge. Corporate insiders ...

 -by New Deal democrat

Donald Trump might want to stop touting how well the stock market has been doing since his election.

Here is Barron's graph of insider trading as of Saturday:

Ouch!

But wait a minute .... This is January, and in January corporate insiders get dump trucks full of stock options that they might decide to cash in, so no big deal.

Or so I thought.

Since I'm not the only one who from time to time publishes this graph, I thought I would find the record of corporate transactions that included last January.  Surely it would show the same pattern.  Well, here's one from last May:

Ooops.

Not only did corporate insiders *not* sell in January 2016, and not only do the last two peaks, at about 40:1, come nowhere near the 60:1 ratio from this past week, but at least one of those last two spikes in insider selling, in October 2015, was followed shortly thereafter by a stock market downturn of over 10%:

On second  thought -- go ahead and crow, Donald!

A thought for Sunday: of heartlessness, confidence and conviction

 - by New Deal democrat

First of all, let me join in full in the following from Calculated Risk:

These are not normal times, and I can't just post economic data and remain silent on other issues.
Mr. Trump's executive order is un-American, not Christian, and hopefully unconstitutional. This is a shameful act and no good person can remain silent.

I believe that the sheer heartlessness of Trump's Order is a feature, not a bug.  It is designed for maximum media coverage in order to show his supporters that he is delivering on his promises.

It is likely that in a longer timeframe this will backfire, as the cruelty of separating families, turning away children, and refusing entry to people who already had legal permission to live here via visas and even green cards, turns people against Trump and his enablers.

Once upon a time, for academic reasons I read the same book that Trump was rumored to have by his bedside in NYC: the english translation of the full text of Adolf Hitler's speeches. Hitler's argument for getting ordinary Germans to go along with his extreme anti-Semitic agenda was masterful. It went in essence like this: "I know that there are a very few good Jews, and you may know a few of them.  But the vast majority of Jews, who you don't know, are evil.  In order to get rid of the vast majority of evil Jews, we have to sweep up a few of the good ones. So don't worry, we will take care of it."  By getting people to overlook their own experience with Jews they knew, he prevailed.

In contrast - for example - gay rights triumphed when enough people knew gays in their ordinary lives, and realized that they were no different from anybody else. So they were unable to see any valid reason to discriminate against them.

This ban is much more like the second situation than the first. Hitler argued that he might have to inflict hardship on a few good people in order (allegedly) to get to the mass of bad apples.  Trump is inflicting a lot of harm on a mass of good people in order (allegedly) to get to a few bad apples.

And we haven't even gotten to the point yet when the same heartlessness is going to be inflicted on DREAMers.

Second, a few days ago I pointed out that economic confidence has actually spiked again in the week after Trump's inauguration. But that does not appear to be translating into actual spending so far.  In fact it is possible that the opposite is happening.

Here is a look at  Gallup's economic confidence measure since its inception:

See that big downward spike in 2011?  That's the debt ceiling debacle, where Congress threatened to default on debts the US had already incurred.  Lots of economic data headed south at the same time, leading to ECRI saying (incorrectly) that a recession was imminent.

But consumer spending by Gallup held up throughout. Notice the *absence* of any observable movement in 2011 in that measure:

That consumers told Gallup they were still spending as before was my first sign that ECRI was wrong.

Now here is that same consumer spending graph over the last two years:

If you don't see any substantial upward movement particularly at the end, you would be correct.  Consumer spending is very seasonal, with a big peak in the Christmas season, and a smaller bounce for back-to-school sales.

While December spending by consumers was up YoY, so far January is flat.

http://www.gallup.com/poll/201584/consumers-set-nine-year-high-december-spending.aspx

So while there has been a big spike in confidence (very partisan, as GOP confidence has risen more sharply than the decline shown by Democrats), so far it appears not to have translated into conviction via actual spending.

Weekly Indicators for January 23 - 27at XE.com

 - by New Deal democrat

My Weekly Indicators post is up at XE.com.

Midrange indicators remain strong. Long leading indicators are very mixed, and what is going on with consumer spending?

Q4 GDP: and the news from the long leading indicators is . . .

 - by New Deal democrat

I discuss the two long leading indicators found in this morning's GDP release, as well as further information from housing, over at XE.com.

In case you thought Trump was imploding . . .

 - by New Deal democrat

For those of you who may be cocooned in the liberal blogosphere, I'm afraid I must administer a cold slap in the face. 

Here is the graph of Gallup's Economic Confidence Survey from its inception nearly 10 years ago.  Notice that spike to new highs right at the end?

Let's zoom in for a closer look, as in the last 3 months:

The first surge of +10% in confidence happened right after the November elections Democrats got less confident, but nearly 40% of GOPers became increasingly confident in the economy.

The second surge of +10% (from +8 to +18) happened starting on January 20.

Trump is solidifying his support.

Dear Prof. DeLong: wherein I say you are wrong, trade agreements have harmed manufacturing employment. I: Germany actually undercuts your case

 - by New Deal democrat

Prof. Brad DeLong in an article earlier this week made a bold claim:  that "US trade agreements have not substantially harmed manufacturing employment. Period."    I am making the equally bold claim that he is wrong.  There are at least two major points in his article that I believe are plainly incorrect.

First, in making his case that US manufacturing jobs have disappeared because of efficiency and the strg dollar, Prof. Brad DeLong invokes comparisons to Germany.  Let me quote him at length: 

Germany is widely believed to have a first-rate manufacturing sector, yet it has seen the same pattern as the US 

Consider a country that has, everyone agrees, done everything right as far as nurturing its manufacturing sector is concerned: Germany 

....  One possible baseline, given how many people hold up Germany as a model for the way it has protected its manufacturing, is to assume that under the best policies, the US would have matched Germany. It would have shed about 50 percent of its manufacturing job share since 1971, rather than the 62 percent that we did shed. That would have given the US today manufacturing employment equal to 12.2 percent rather than 8.6 percent of nonfarm employment. That represents a gap between reality and one theoretical alternative world of 5.4 million manufacturing jobs. Call that the excess shrinkage of US manufacturing.

Respectfully, Professor, your comparison with Germany is a misleading one. Let's start with a comparison of the number of manufacturing jobs in Germany vs. the United States since 1975:

The only reason that both are conquerable starting in the 1970s is because Germany's %age collapsed in tne early 1990s, as part of the integration of Soviet East Germany into the unified country. Take that away and the experience in the two countries isn't even close. Since 1995, Germany has only lost about 10% of its manufacturing jobs. The US at its worst after the Great Recession lost over 1/3 since 1995.

So it is more accurate, using your own yardstick,to  call that addition 2/3 loss of manufacturing jobs "the excess shrinkage of US manufacturing." 

To be fair, DeLong does mention the integration of East Germany into the whole, but he never explains why this doesn't spoil his comparison. What Germany did wasn't on par with NAFTA.  It was on par with admitting Mexico as a state in the US!  Yeah, I think if Mexico were admitted as a US state, manufacturing employment in the newly united whole would be a lot lower.

And what DeLong does say about East Germany actually *undercuts* his argument:

When those artificial supports for bad businesses disappeared, did East Germany's workers move on to more productive work? Yes, most of them did. Many moved to West Germany and its more robust economy. Some, however, did not. And enough wound up on the dole that the sociological aftershocks are still being felt today: Even 25 years later, unemployment in the former East Germany is 3 percentage points higher than unemployment in the former West Germany. But consider this too: An East Germany that was only 40 percent as well off as West Germany in 1989 is now 80 percent as well off as West Germany. It is very hard to say that the  shedding of inefficient, unproductive, and low-wage manufacturing jobs was a minus for East Germans. 

In the first place, those 3% additional unemployed might disagree with you.  But to return to my Mexico analogy, if 20 years after admitting Mexico as a US state, Mexico had improved from 40% to 80% as well off as the pre-existing US isn't the issue. The issue under this circumstance is, whether or not the pre-existing US was better off.

In other words, take East Germany out of the equation, and focus solely on the areas of former West Germany, and maybe you've got a point.

In fact, when we take a broader view of manufacturing employment in other countries, we see that Germany is the outlier among "strong labor" countries:

Italy, France, Japan, and Canada all have had far less a loss of manufacturing jobs than the US.

Bottom line: That 2/3's of the loss of manufacturing jobs in the US is in excess of Germany is strong evidence that Germany has NOT had the same pattern as the US.  It actually undercuts Prof. DeLong's position.

Site note

 - by New Deal democrat

My apologies for the lack of posting this week.  The proprietor of this here site is enjoying a cruise to an Undisclosed Location, and I have been involved full-time in a real-life project that needed a bunch of decisions right away.

Fortunately, basically nothing has happened so far in the world of nerdy economic data, so its not like you missed anything important.

Hopefully later today regular boring nerdiness will resume.

Newt Gingrich is right

 - by New Deal democrat

Yeah, I know, stopped clock and all that.

But Newt Gingrich summed up what is going to matter for a Trump Presidency and GOP Congressional dominance:

“Ultimately this is about governing,” said former House Speaker Newt Gingrich, who has advised Mr. Trump. “There are two things he’s got to do between now and 2020: He has to keep America safe and create a lot of jobs. That’s what he promised in his speech. If he does those two things, everything else is noise.”

“The average American isn’t paying attention to this stuff,” he added. “They are going to look around in late 2019 and early 2020 and ask themselves if they are doing better. If the answer’s yes, they are going to say, ‘Cool, give me some more.’”

It is fair to say Trump specifically promised the Americans who voted for him 5 main things:

1. he will crack down on asylum seekers (Muslims)

2. he will deport illegals, and build a bigger wall between the US and Mexico

3. he will bring back manufacturing jobs

4. he will repeal Obamacare

5. he will not make cuts to Social Security and Medicare

I suspect he is going to make good on #1, 2, and 4.

It is a bad time to be a Muslim or illegal immigrant.  In particular, it is a very bad time to be a "DREAMer" who signed up for DACA.  Unless the Obama Administration destroyed the data on the way out the door, the easiest way for Trump to make good on deporting illegals, is to knock on every door of the 800,000 DREAMers who signed up for DACA, and deport them and every other member of their families.  It is going to be absolutely heartrending for those who had no say in their being here illegally, and have only known the US as their home for the last 10, 20, or even 30 years.

Similarly, repealing Obamacare may or may not be a disaster depending on whether or not the repeal is delayed, and what if anything the "replacement" is.

I suspect he is going to fail at bringing back manufacturing jobs. During Obama's years, until 2015, these were growing at about 100,000 or so a year:

If Trump fails to add about 10,000 manufacturing jobs a month, his working class voters are not going to be happy.  That's without even considering the fact that he and Congress are likely to have to deal with a recession during his term.

On #5, we know what Paul Ryan wants to do.  Is Trump going to honor his promise, or betray his voters?

It is safe to say that if he fails at #3 and #5, he and his GOP Congress will be swept away, and I do not think most Americans want DREAMers deported even if they dislike illegal immigration.

As a progressive -- as a New Deal democrat -- I believe the next 2 to 4 years are going to be awful for American society, and for the world in general.  But at the end of the day, Newt Gingrich is right.  And I believe those currently in power are going to fail dismally at governance as they will be judged by the American people.

Real aggregate wage growth: Barack Obama's final record

 - by New Deal democrat

Particularly in view of the massive protests yesterday, which were probably the biggest grassroots protests in US history since the 1960s, there is much to be written about the deep and intense division in this country, both economically and politically.  I anticipate writing about this in depth in the near future.

But before that, let's take one last look at one important aspect of Obama's economic record.

In my opinion the best measure of how average Americans are doing in an economic expansion isn't jobs, and it isn't wages per hour.  Rather, it is real aggregate wage growth.  This is calculated as follows: 

• average wages per hour for nonsupervisory workers
• times aggregate hours worked in the economy
• deflated by the consumer price index

This tells us how much more money average Americans are taking home compared with the worst point in the last recession.

Why do I believe that this is the best measure of labor market progress?  Let me give you a few examples.

First, compare an economy that creates 1 million 40 hour a week jobs at $10/hour, with an economy that creates 2 million jobs at 10 hours a week at $10/hour.  If we were to count by job creation, the second economy would be better.  But that's clearly  not the case.  The second economy is paying out only half of the cold hard cash to workers as the first.

Next, let's compare two economies that both create 1 million 40 hour a week jobs, but one pays $10/hour and the other pays $12/hour.  Clearly the second economy is better.  It is paying workers 20% more than the first.

Finally, let's compare two economies that create 1 million 40 hour a week jobs at $10/hour.  In the first economy, there are 3% annual raises, but inflation is rising 4%.  In the second, there are 2% annual raises, but inflation is rising 1%.  Again, even though the second economy is giving less raises, it is the better one -- those workers are seeing their lot improve in real, inflation-adjusted terms, whereas the workers in the first economy are actually losing ground.

In each case, the economy creating more jobs, or more hourly employment, is inferior to the economy  that pays more in real wages to its workers,  In other words, the best measure of a labor market recovery is that economy which doles out the biggest increase in real aggregate wages.

In short, at the end of the analysis, people generally work not for hours, and not for jobs themselves, but for the cold hard cash that is put in their pockets.  That's why I believe that real aggregate wage growth is the best measure of a labor market recovery.

With that introduction, here are real aggregate wages for the entire past 50 years: 

So how does the current expansion compare with past ones?  Here is the graph, normed to 100 at the post-recession bottom in real aggregate wages in October 2009:

To compare, here is a chart I created several years ago showing the real aggregate wage growth in every economic expansion beginning with 1964:

* start of series

The most recent trough for aggregate real wages was in October 2009.  So  far, real wages grew 20.7%, or just shy of .25% per month, as of July, 81 months after the last bottom.

As  shown in the above chart, four of the past 7 recoveries have been better.  Three were worse. The peak so far in this wage recovery is only 0.1% lower than Carter's, and 0.9% lower than Reagan's.  

Obama's wage recovery is the second longest on record, surpassed only by Clinton's, but it is also the second weakest in terms of monthly wage growth, beating only George W. Bush's.  The  peak in Reagan's wage recovery, at +21.6%, actually happened during George H.W. Bush's presidency. The peak so far in Obama's recovery is 20.7%, but there may be further improvement this year.

In short, Obama finished his term with about average real aggregate wage growth -- not spectacular, but not awful either.

Weekly Indicators for January 16 - 20 at XE.com

 - by New Deal democrat

My Weekly Indicators post is up at XE.com.

Consumer spending measures have really softened. Two of the three I track are almost certainly affected by online purchases vs. brick and mortar.  But not Gallup's poll of consumers, which also has turned soft. It's at least a valid concern whether this is a reflection of gas prices finally affecting real wage growth enough to begin to bite.

The labor force participation rate vs. the unemployment rate

 - by New Deal democrat

This is the third of four installments looking at whether and by how much people get drawn into the labor force as economic expansions progress.  This is part of a broader look at how close we might be to "full employment."

In the first installment, I showed that if we norm for the long term secular trends, both men's and women's participation in the labor force does go up during economic expansions; i.e., as the economy improves, more and more people who aren't interested in working decide that they do want a job.

In the second installment, I showed that wage growth appears to have very little if any value in forecasting or even correlating with increased labor force participation.  If anything, the correlation appears to run the other way:  increased labor force participation correlates with lower real wages at least over the longer term, but not in any consistent way.

Now let's take a look at whether tightness in the labor market as shown by the unemployment rate correlates with an increase in labor force participation.  Because the U-3 rate has a much longer history than the broader U-6 underemployment rate, that is what I am using.  Note also that for purposes of scale (this will be important later) I am dividing the YoY change in the unemployment rate by 4.

Here is the YoY% change in labor force participation for men, +0.3% to norm for the secular declining trend, compared with the unemployment rate (inverted so that a decrease in the rate shows as an increase in the graph). I've split this up into three time series better to show the relationship.  First, here is 1950-64:

1964-1990:

1989-present:

In the 1950s, there is no discernible correlation.  But beginning in the 1960s, and all the way up until the present, there does appear to be a significant correlation between a decrease in the unemployment rate and an increase in men's participation in the labor force.

Now here is women's participation, -0.3% through the 1990s to norm for the secular trend of their entry into the labor force during that time.  First, here is 1950-1965:

1965-1995:

1996-present:

With the exceptions of the late 1950s-early 1960s, and the recovery since the Great Recession, once again there does appear to be a significant correlation between a decrease in the unemployment rate and an increase in women's participation in the labor force (but note the poor relatinship in the present expansion, which will be dealt with in the last installment).

Remember that I told you to keep the division of the YoY change in the unemployment rate by 4 in mind?  That's because the above graphs suggest that, although it is a very noisy relationship, a back of the envelope estimate is that for every 1% change in the unemployment rate, there is a .25% change in the labor force participation rate for both men and women.

Not only is there a significant correlation between the unemployment rate and labor force participation, but it appears from the above graphs that the unemployment rate *leads* labor force participation by 1-2 years.  This is also shown  when we compare the difference in the YoY change in the two: 

Compared with trend, the LFPR outperforms later in the expansion as the unemployment rate flattens and then begins to rise, while it under performs relative to trend when the unemployment rate begins to turn down early in a recovery.

In the last few months, the unemployment rate has declined to new lows.  That suggests that in the next 12-24 months, the LFPR will increase compared with trend.  If the unemployment rate were to decline another 1% to 3.5%, thereafter we should expect roughly another +.25% YoY increase in the LFPR compared with trend, which translates into a very slight nominal increase.

But this relationship, while important, isn't the end of the story.  Because we still have the issue of retiring Boomers, and we still have the fact that women's labor force participation barely budged for 6 years after the end of the Great Recession.  A year ago I wrote a series on the "child care cost crush." So in the final installment, I will take a look at these issues.

December housing permits report: good news

 - by New Deal democrat

The December housing permits report this morning portends good news for the economy in 2017 for several reasons.

This post is up over at XE.com.