Weekly Indicators for July 3 - 7 at XE.com

 - by New Deal democrat

My Weekly Indicators post is up at XE.com.

This week, for this first time in years, there was a change in the longer term outlook.

June jobs report: great headline, but once again where are the wages?!?

- by New Deal democrat

HEADLINES:

• +222,000 jobs added
• U3 unemployment rate rose +0.1% from 4.3% to 4.4%
• U6 underemployment rate rose +0.2% from 8.4% to 8.6%

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

Wages and participation rates

• Not in Labor Force, but Want a Job Now: down -130,000 from 5.561 million to 5.431 million   
• Part time for economic reasons: up +107,000 from 5.219 million to 5.326 million
• Employment/population ratio ages 25-54: up +0.1% from 78.4% to 78.5%
• Average Weekly Earnings for Production and Nonsupervisory Personnel: up $.04 from $21.99,  to $22.03, up +2.3% 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.)

Holding Trump accountable on manufacturing and mining jobs
 Trump specifically campaigned on bringing back manufacturing and mining jobs.  Is he keeping this promise? 

• Manufacturing jobs rose by +1,000 for an average of +2000 vs. the last severn years of Obama's presidency in which an average of 10,300 manufacturing jobs were added each month.   
• Coal mining jobs were unchanged for an average of +200 vs. the last severn years of Obama's presidency in which an average of -300 jobs were lost each month

April was revised upward by +33,000. May was also revised upward by +14,000, for a net change of +47,000.  

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 +9.1 hour from 40.7 hours to 40.8 hours.  This is one of the 10 components of the LEI.
 
• construction jobs increased by +16,000. YoY construction jobs are up +206,000.  

• temporary jobs increased by +13,400.


• the number of people unemployed for 5 weeks or less increased by +151,000 from 2,154,000 to 2,305,000.  The post-recession low was set 18 months 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 +35,000 and is up +624,000 YoY.


• the index of aggregate hours worked in the economy rose by 0.5 from 106.9 to 107.4  

•  the index of aggregate payrolls rose by +0.8 from 134.0 to 134.8.   

Other news included:          

• the alternate jobs number contained  in the more volatile household survey increased by   +190,000   jobs.  This represents an increase of 1,560,000  jobs YoY vs. 2,238,000 in the establishment survey.    
    
• Government jobs rose by +35,000 .     

• the overall employment to population ratio for all ages 16 and up rose +0.1% from  60.0% to  60.1 m/m  and is  up +0.5%  YoY.     
• The  labor force participation rate rose +0.1%  m/m and is up +0.1% YoY from 62.7% to 62.8%.      

 SUMMARY  

The best thing about this report was the headline number of jobs added, plus the big positive revisions to April and May, which brought the average of the last three months to +191,000.  Most of the leading internals were also positive, suggesting the positive headline news should continue over the next six months. Those not in the labor force but who want a job now also declined to a post-recession low (but still elevated by nearly 1 million above the late 1990s boom.)

While the unemployment and underemployment rates went up, this was balanced by the increase in labor force participation rate. 

One weak spot was that involuntary part-time employment increased slightly.  Also, politically, Trump  has so far actually *underperformed* Obama in the net for manufacturing and coal mining jobs.

But the one big negative -- broken record here -- was wages, which have now grown only +2.3% YoY for nonsupervisory workers.  So while this a a very good late cycle report, my fears are increasing about how bad it will be for workers when the next recession does hit.

La araña

 - by New Deal democrat

Just a little aside....

Here is a photo of the dessert I got yesterday at my favorite local authentic Mexican restaurant:

It is flan with whipped cream, a couple of blackberries, and shaped cinnamon sticks.  I had to laugh when the waiter delivered it.

And yes, "la araña" in Spanish means "the spider."

Reality begins to sink in for GOPer economic confidence

 - by New Deal democrat

While we are waiting for tomorrow's employment report, here's a little something to chew on.

In the immediate aftermath of the Presidential election -- as in, by the end of that week -- Gallup's measure of economic confidence soared, from its 2016 average of roughly -10 to a positive number and to nearly +10 by the end of November:

In fact, while the confidence of Democrats sank, the confidence of GOPers skyrocketed even more.

Since I have very little faith in the GOP agenda to deliver any uptick in growth, I have been watching and waiting for this confidence to ebb.  It did somewhat beginning in March, but never to the point of coming close to that in the final year of Obama's term. (For the doubters, consider George W. Bush's economic policies.  Despite being the most right-wing since the 1950s, we had the weakest post-War jobs and wage growth on record, and a weak GDP to boot. Where was the trickle-down?)

Until last week.  Last week Gallup's economic confidence index fell to -7:

As shown in the graph, it has since rebounded.  But it appears that after half a year of accomplishing absolutely nothing legislatively, the reality that the economy really hasn't changed at all -- in fact it may be waning just a bit -- is beginning to sink in.

While houses and cars slow down, manufacturing picks up

 - by New Deal democrat

There were conflicting reports on the economy Monday, in the form of June vehicle sales vs. June manufacturing.

This post is up at XE.com.

Happy 8th Independence Day, economic expansion!

 - by New Deal democrat

In lieu of a more traditional Independance Day post, in view of the fact that the economic expansion turned 8 years old this week, I thought I would take a moment to highlight how far we have come.  Because as mediocre as some things are, we have come a long, long way since the dark days of June 30, 2009.

Unemployment has fallen from a high of 10.0 to 4.2%, and underemployment has fallen from 17.1% to 8.4%:

Over 16 million jobs have been added since the bottom in February 2010:

As of May, real median household income just made a  new high (h/t Doug Short):

Since this statistic is skewed by the increasing share of households headed by retirees, the odds are pretty good that working age real median household income is actually doing a little better.

In real terms, the amount of wages paid out to regular nonsupervisory workers has increased by about 22%:

Finallly, real GDP per capita has increased by 11%:

None of this is stellar. In particular, I wish that wage growth were more stout.

But when you compare where we were then with where we are now, there's no contest. So Happy 4th of July, economy!

A prescient forecast by the Senior Loan Officer Survey

 - by New Deal democrat

There has been a spate of Doomish commentary recently (for example, here) claiming that the stalling of commericial and industrial loan growth means that we are heading into, if not already in, a recession.

Aside from the fact that typically in the past, YoY commerical and industrial loan growth has been a lagging rather than leading indicator, bottoming out well after recessions have ended,  over the weekend I was cleaning out some old saved material when I came across the following graph dating from the first quarter of 2015.  The graph compared the percentage of senior loan officers reporting tightening of standards (right scale) for commercial and industrial loans (lagged 6 quarters) to the YoY% change in commercial and industrial loans (left scale):

The relationship forecast that YoY commercial and industrial loans were going to decelerate to about +5% YoY.  I wish I knew whose graph it was, because I would sure like to give them proper kudos! Because that is exactly what has happened since (note that FRED does not permit me to lag one series of data):

Commercial and industrial loans have flatlined, just as forecast by the writer in Q1 2015.

Note, of course that in the last three quarters, the Senior Loan Officers have reported a slight loosening of standards, which suggests that commercial and industrial loans will continue to flatline through about the end of the year, and improve in 2018.

Finally, I have recently noted that the weekly Chicago National Financial Conditions Index does a decent job of forecasting the direction of the Senior Loan Officer Survey itself.  So here is the Chicago NFCI  vs. YoY commercial and industrial loans:

The Chicago weekly survey is forecasting a continued improvement in the Senior Loan Officer Survey when it is reported for Q2 in about a month.

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Weekly Indicators for June 26 - 30 at XE.com

 - by New Deal democrat

My Weekly Indicators column is up at XE.com.

The yield curve abruptly steepened, but on the other hand, real money supply decelerated further.

Brexit, one year later: "a fire across the river"

 - by New Deal democrat

I take a one year retrospectivie look at Brexit, and its (lack of) effect on the US economy, over at XE.com.

Five graphs for 2017: mid year update

 - by New Deal democrat

At the beginning of the year, I identified 5 trends that bore particular watching, primarily as potentially setting the stage for a recession next year.  Now that we are halfway through the year, let's take another look at each of them.

#5 Gas Prices

One potential pressure point on the economy was gas prices, which appear to have made a long- bottom in January of 2016. As they began to rise, consumer inflation has increased from non-existent to almost 3%. So the issue was, will they rise even further and drive inflation even higher?

And the answer so far this yeear has been a resounding "No!"  Typically it has taken a 40% YoY increase in gas prices to shock the consumer.  Gas price increases did briefly approach that point early in the year, but since then they have retreated all the way to being negative YoY:

This has actually helped boost real wages, as we will see further below.

#4 The US$

Another potential pressure point on the economy was a big increase in the relative value of the US$, which was part of the shallow industrial recession of 2015.  The $ started to rise again after the November election.  Here too after an initial spike, the data has calmed down again:

#3 Residential construction spending vs. mortgage rates 

Another data point which rose sharply after the November election was interest rates.  Generally speaking, home building changes in the opposite direction of interest rates.  So would the increase in interest rates (e.g., mortgages) cause new residential construction to back off?

Although as I have written in the past several weeks, the slowdown has appeared in permits and housing starts -- and new home sales have turned flat in the last few months, the slowdown hasn't yet filtered through into actual residential construction spending:

Residential contruction spending is a very smooth, un-noisy series, but it does lag permits and starts by a few months,. Note that typically it has taken a big change in mortgage rates about 9 to 12 months to feed through into residential contructioni spending. It hasn't yet this year.

#2 The Fed Funds rate vs. consumer inflation

If consumer inflation rose past the magic 2% Fed target, would the Fed chase it?  The Fed's preferrred measure is personal consumption expenditures, but consumer inflation YoY as of March was up +2.8%, but due to gas prices as discussed above, inflation is now back down under 2%.  Nevertheless the Fed has hiked interest  rates twice:

The yield curve has begun to compress, but it is still positive. Still, it will be difficult to avoid an inversion in interest rates should the Fed stay on its current course with several more hikes.

#1 Real retail sales vs. real average hourly earnings

The final graph comes from my "alternate" recession forecasting model which turns on consumers running out of options to to continue increasing purchases (i.e., no interest rate financing, no wage real wage increases, and no increasing assets to cash in). The long term relationship has been that sales lead jobs, and jobs lead nominal wage increases, but real sales vs. wages are somewhat more nuanced. In the inflationary era, through the early 1990s, YoY wareal wage growth actually slightly led sales. In the deflationary era that dates from the alter 1990s, if anything the two are a mirror image, but in every case but 2001 (where real wage growth just decelerated rather than declined), both have been negative going into recessions:

 Focusing on the last 20 years marking the deflationaary era, at present real retail sales continue to be positive, and with gas prices and overall inflation down, real YoY wages have turned positive again:

I would expect to see both sales and wages stall out before the onset of the next recession.  Neither is presently the case.

This  has been "the little expansion that could."  In its 8 year history, it has dodged all kinds of problems without being derailed.  Like so much before them, the problems from the end of last year have been fading away. Only the problem of the Fed raising rates looks like a serious near-term issue.  

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Weekly Indicators for June 20 - 24 at XE.com

 - by New Deal democrat

My Weekly Indicators piece is Up at XE.com.  No major changes from last week.

New Home Sales stall, but no downturn

 - by New Deal democrat

Well, the May new home sales report is out.  The good news is, it did not confirm last week's negative reports in housing permits and starts.

This post is up at XE.com.

The post-hike flattening yield curve

 - by New Deal democrat

An inversion of the yield curve has always signaled at very least a steep slowdown, and usually an oncoming recession. With the Fed hiking short term rates, where do we cut and now?

Below are two graphs, using the Dynamic yield curve tool from Stockcharts.com. In both cases the dark red line is the yield curve as of several days ago (post-hike). The light red line is the previous yield curve from the beginning of this year (first graph) and from last month (second graph):

Note that the curve is pivoting around a point between the 2 and 5 year yields, at about 1.5%. 

At this point, the yield curve is still positive, but if the trend continues, another two rate hikes should be enough to invert at least part of the curve.

Existing home sales: positive, but contain your enthusiasm

 - by New Deal democrat

It's a slow economic news week, but while we are waiting for new home sales Friday, we did get existing home sales today.

It was a good report. Not only was there an increase month over month, but it was the 3rd highest number for this entire expansion:

Even better, the three month moving average made a new high for this expansion.

But contain you enthusiasm, because even though existing home sales are about 90% of the market, they are the least economically important (because of all the activity that goes into building a new house).

The bad news is that prices made a new all time high, and inventory remains very constrained.

Absent housing, consumer inflation is running at only a little over 1%. The Fed raising rates is not going to bring on new inventory, and only make the inventory that does exist more expensive for mortgage borrowers.

So now we wait for Friday.

A further look at the housing slowdown

 - by New Deal democrat

As promised, I have a further look at last week's poor housing permits and starts numbers, and especially in the context of interest rates.

This is up at XE.com.

May industrial production: no change in trend

 - by New Deal democrat

This was a post I meant to put up Friday, but was pre-empted by the important housing news.

May industrial production came in unchanged. But that didn't stop Doomers, who had been silent about April's big increase in manufacturing, from trumpeting its 0.4% decline (go ahead, just try to find their acknowledgement of April's good number. You won't.).

So, let's put industrial production in perspective. First, here is the overall stat:

The uptrend since a year ago is still intact.

Next, let's break it down by manufacturing (blue) and mining (red):

The uptrend in each of these since a year ago also still looks intact.

Here is a bar graph of the m/m change in manufacturing:

The 0.4% decline is well within the range of normal monthly volatility.

So there's nothing in the May report which causes me to think that any economic downturn is imminent.

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A thought for Sunday: "Time goes by, so slowly . . . "

 - by New Deal democrat

It's Sunday, so I take a break from nerdy econ analysis and speak my mind.

Last November 9 we woke up to a living nightmare. The next four years were bound to be awful. The only question was, how awful?

The very tiny silver lining as of now is that, so far, it has been about as limited an awful as it could reasonably be.

The simple fact is, those things that the Executive could worsen all on his own, he is doing so.  But those things that require Legislative action or Judicial approval have either not materialized or have been stopped in their tracks.

The Executive has almost unlimited freedom of action in foreign policy, so it was a foregone conclusion that China and Russia were going to seize the opportunity to expand their power and influence, and they are doing so. Taiwan is already suffering diplomatically, and it isn't a good time to be one of the Baltic States either. The EU is looking aghast at Trump's view of NATO, and will probably vivify their moribund "European Defense Force" at least until 2021.

It is also pretty clear that Trump means to erase Obama from the history books, if for no other reason than Obama humiliated him at the 2011 White House correspondents dinner. So every Executive Order or program undertaken by Obama is being systematically obliterated. This includes deferral of action against illegal immigrants/undocumented workers. There's not much that can be done there, but even so, the Courts have occasionally stepped in, and Trump himself seems to want to allow the Dreamers to stay.

It was also always going to be a bad time to be a Muslim in the US, but even there, the Judiciary has stepped in, stopping Trump's travel ban.

And where Trump needs Legislative action, with the exception of the appointment of Gorsuch to the Supreme Court, so far there has been a big fat goose egg. I figured that Congress would repeal Obamacare in toto by January 31, and get around to the "replace" part approximately never.  Instead, due to Trump's own insistence on a replacement, as of now there is no repeal at all (the House bill is, right now, only a bill).

There's no tax cut for billionaires. There's no raiding of the SS and Medicare trust funds. The privatization infrastructure scam hasn't even gotten a hearing in Congress. And on and on.

Bottom line: there has been no legislation of significance out of the Trump/GOP Congress whatsoever. None. Zilch. Nada.

And we are over 30% of the way from the last Congressional elections in November 2016 to the next ones in November 2018. If they can manage this same record just twice more, we are almost home (maybe).

We are also 10% through Trump's four year term. In four weeks we'll be 1/8 of the way through.

As the lyrics of "Unchained Melody" say, "Time goes by, so slowly..." but time is passing and there will be an end.  In the meantime, so far things are as "least awful" as we could reasonably have hoped.