Weekly Indicators for November 11 - 15 at Seeking Alpha

 

 - by New Deal democrat

My “Weekly Indicators” post is up at Seeking Alpha.

More the recent ‘same’ this week: short term and coincident indicators are a little noisy, but continue to say the economic OK. Meanwhile the longer leading indicators are mixed and weighing on future growth.

As usual, clicking over and reading will bring you up to the virtual moment on the economic situation, and reward me with a little contribution towards my lunch money for collating and organizing it for you.

Production turns more negative

 

 - by New Deal democrat

Industrial and manufacturing production slid further in October, by -0.3% and -0.5% respectively. They are also down respectively -1.2% and -1.8% from their late 2022 highs:

It’s a good thing I suppose that manufacturing is no longer such an important part of the American economy, because as the below graph of the past 50 years shows, before 2001 and especially before the Great Recession, and decline YoY *always* coincided with or at least immediately heralded a recession:

But since the accession of China to regular trading status, even downturns of about -5% or more, as in 2015-16 and 2018-19 have not necessarily meant recession.

And as this close-up of the post pandemic record show, on a YoY basis production is only down about -1%:

 So, to reiterate what I wrote earlier this morning, it’s a good thing that consumption particularly of services continues to be positive.

Real retail sales jump nicely, but we’re not out of the woods on consumption just yet

 

 - by New Deal democrat

Let me start with my usual reminder that real retail sales is one of my favorite economic indicators, because it tells us so much about the state of the consumer, and since consumption leads employment, it is a short leading indicator for that as well.

In October retail sales rose 0.4% on a nominal basis. After adjusting for inflation, they rose 0.2%. There were also important positive revisions to September, which increased from a 0.4% gain to a 0.8% gain. The below graph norms both real retail sales (dark blue) and the similar measure of real personal consumption of goods (light blue) to 100 as of just before the pandemic:

Since the end of the pandemic stimulus in spring 2022, real retail sales had been trending generally flat to slightly declining, while real personal consumption expenditures on goods continued to increase. In the last four months, however, real retail sales appear to have broken out to the upside, in accord with the positive trend in real spending on goods, which is very positive.

An important reason why this breakout is so positive is that, on a YoY basis, real retail sales had been negative almost all this year. And over the past 75 years, a negative YoY comparison has usually meant a recession followed shortly (although that wasn’t the case in 2022 and 2023). But with this month’s data, YoY real sales are up 0.3%:

I had been increasingly concerned about the YoY trend in sales over the previous four months. For example, three months I concluded by saying that “the longer real retail sales go without posting a positive YoY number, the more concerned I will be.” The October number plus the September revision takes some of the pressure off.

Finally, real sales are a good if noisy short leading indicator for employment, as shown in the historical pre-pandemic graph below:

Despite the recent uptrend in real sales, since consumption leads employment and a 0.3% YoY gain is still very weak, this continues to forecast that on a YoY basis, job gains are likely to continue to decelerate. As you probably recall, the very poor October jobs report was distorted by hurricane impacts. Most of these will probably be reversed in the November report. But the three month trend of reports in the range of 75,000 to 175,000 appears likely. Here is the post-pandemic close-up:

Obviously this was a very good report. But we’re not completely out of the woods yet.

Jobless claims complete their reversion to pre-hurricane-disruptions trend

 

 - by New Deal democrat

Initial claims have now completely reverted to trend after their recent hurricane-induced blip.

Initial claims rose 3,000 for the week to 217,000, while the four week moving average decreased -5,750 to 221,000. With the typical one week delay, continuing claims declined -11,000 to 1.873 million:

On the more important YoY basis, initial claims were down -4.8% YoY, while the four week average was up +1.3%. Continuing claims were up 3.7%:

As indicated in the first sentence above, this is a complete return to the YoY positive to neutral trend before Hurricanes Helene and Milton hit. 

With the first two weeks of November in, let’s take a look at what this has to say about the near future trend for the monthly unemployment rate. Note this week I am presenting the YoY% changes in all three:

Since the unemployment rate was 3.8% one year ago, initial and continuing claims are forecasting roughly a 5% increase in the unemployment rate; i.e., 3.8% * 1.005 = roughly 4.0%. Anything significantly above that is likely due to the continued effects of the relative ability of new immigrants entering the job market to find their first employment.

October consumer inflation firms, driven - as usual - by shelter

 

 - by New Deal democrat



Today’s CPI report for October generally showed stable monthly increases, but slight increases in YoY comparisons. But as usual, it was almost all about the usual culprit of shelter, as more fully parsed below; to wit:

 - Headline CPI increased 0.2% for the month, the fourth month in a row of such an increase. The YoY% change slightly accelerated to 2.6%, just above last month’s 2.4% which was the best showing since February of 2021. 

 - On a 3 month annualized basis, prices are increasing 2.4%. On a 6 month annualized basis, they are only increasing 1.4%. 

 - energy inflation remains non-existent, with prices unchanged for the month and down -4.8% YoY.

-  excluding shelter, prices also increased 0.2%, and were up 1.3% YoY, the 18th month in a row the YoY change has been below 2.5%.

 - shelter inflation, after being up only 0.2% one month ago, increased 0.4% again this month, which cause the YoY% increase to rise 0.1% from 4.8%, the lowest YoY increase since February 2022, to 4.9%.

- core inflation remained slightly elevated, up 0.3% for the month and 3.3% YoY, the same YoY increase as last month.

Let’s break this down graphically to better show the trends.

Here are headline (blue), core (red), and ex-shelter (gold) inflation YoY:

Yet again, the only reason for the Fed not to treat inflation as well within its target zone is shelter.

If there is a fly in the ointment, it is that the deceleration in shelter inflation (blue in the graph below) appears to be slowing down. Here is the update vs. the YoY% change in the FHFA Index YoY (red):

Now let’s take a look at the former and remaining problem children. 

The former problem child of new (dark blue) vehicle prices were unchanged this month and are down -1.3% YoY. Used (light blue) vehicle prices rose 2.7% and are down   -3.4% YoY (shown as the change since right before the pandemic, below). It appears that the decline in used vehicle prices is over. I also show average hourly nonsupervisory wages (red) for comparison, showing that wage growth has outpaced new vehicle prices; although with this month’s increase it is the same as used vehicle prices:

As to the remaining problem children; first, electricity (gold) increased 1.2% for the month, and accelerated YoY to 4.5%. Food away from home (blue) increased 0.2% again, and is up 3.8% YoY. Finally, transportation services including vehicle maintenance, repair, and insurance (red) increased 0.4%, and is up 8.2% YoY:

Although I haven’t shown it above, food at home only increased 0.1% monthly, and is up 1.1% YoY. So much for grocery price inflation! Also, as I have previously pointed out, transportation services inflation is a typical delayed reaction to the previous big increase in vehicle prices. The one issue I have no insight into is why electricity prices are rising so much.

Also, medical care services, which increased 0.7% last month and was up 3.6% YoY, this month increased 0.4%, causing the YoY comparison to decrease to 3.8% YoY:

Finally, the CPI release allows me to update several important wage metrics.

First, real average hourly wages increased 0.2% for the month, and are up 1.5% YoY:

Second, real aggregate nonsupervisory payrolls declined -0.2%:

A one month decline in this metric is not terribly concerning, especially considering that nominally aggregate payrolls were severely impacted by the hurricanes last month. Remember that there has *never* been a recession without real aggregate payrolls turning down first.

In sum, this month’s inflation report was a little “hotter” than last month’s, and the renewed increase in shelter is unwelcome; but in the bigger scheme of things, it was one of the more tame reports in the last three years, and does not necessarily suggest any change in the generally decelerating trend of inflation. As usual, it is almost *all* about shelter.

Incomes, immigration, and the election

 

 - by New Deal democrat

On Friday I wrote about how the Fed likely contributed, via hurting aspiring homeowners, to the outcome of the Election last week. Today I want to take a look at another issue - wages.

As it happens, while I was writing this Paul Krugman put up a graph which he says explains the Election results:

This is a variation of a graph I run versions of every month after we get the inflation data, which is real hourly and weekly wages:

As you can see, both are significantly higher than they were in 2019 before the pandemic. After declining in 2022 (in part due to $5/gas), real average hourly wages are close to record highs. On the other hand, real weekly wages are lower than they were throughout most of 2020 and 2021.

But now let’s take a look at the monthly estimate of real median household income through September via Motio Research:

This really puts the difference between 2016-20 and 2020-24 into perspective. Real median household income rose consistently between 2016 and the onset of the pandemic. But for the entire three year period of 2021-23, real median household income went nowhere. In fact it was typically somewhat lower than late 2019. Only in the last few months of this year did it finally break out to the upside.

Puts a different gloss on why so many people might remember the former Administration more kindly than that of Biden, doesn’t it?

Further, another important way in which the signal is more complicated is that those who switched jobs since the beginning of the pandemic have consistently seen higher wage growth than those who stayed in the same jobs, via the Atlanta Fed’s wage growth tracker:

While the Atlanta Fed does not have a cumulative measure, I wanted to take a look at how job stayers had fared since the 2020 election compared with job switchers. It turns out that the average wage growth for those who stayed on the same job in the past four years was only 20.1%, while the (hypothetical) wage growth for a person who switched jobs every year was 25.5%. Since inflation over that time cumulatively was 20.6%:

this means - most importantly - that the *average* wage growth for a person who stayed in the same job during the entirety of the Biden Administration was a little *less* than inflation. And because that is just the median, that means that a very significant percentage of people - perphaps 25%, perhaps 40% - saw wage growth *significantly* below inflation.

I encountered several such people in the week before the Election, and even though they had voted Democratic in the past, they were seriously considering voting for Trump this year.

This ties in with one other hot button issue: immigration.

The CBO has estimated that an additional 5-6 million immigrants over the average have entered the U.S. between 2022 and this year, a huge jump over the typical number before the pandemic:

These immigrants subsequently became new entrants to the job market, which presumably made their experience more like job switchers than job stayers. By contrast, it is probable that native born older workers skewed in the direction of job stayers. When the situation is looked at that way, the potency of the immigration issue in this Election makes some sense, given the anger by some workers who feel that immigrants are making out better than them.

As Dan Guild wrote this morning, “if this election had been held nine months later and it became clear inflation was tamed, consumer sentiment would have reached the high 80s (even considering the partisan split), and Biden would have been close to 50% approval. This was always a race against time.”

And the Democrats lost that race.

On Remembrance Day

 

 - by New Deal democrat

Today in the US is officially Veterans Day, in which we salute the service of all veterans. But it started - and still continues in some countries - as Remembrance Day, a somber memorial to all those who were killed in World War 1, which ended on November 11, 1918. That is more how today feels to me now.

In behavioral economics, Hymen Minsky eludicated the brilliant theory that “stability breeds instability.” Basically, the more successful the guardrails erected to protect an economic system, the more players will try to take advantage of testing those guardrails until eventually, they give way catastrophically.

World War 1 was a demonstration that “stability breeds instability” applies to political systems as well.

In 1914 Europe had experienced almost a full century of relative peace, following the end of the Napoleonic wars. The only major conflict on the continent during that time was the Franco-Prussian war, which lasted only 6 months. During that period of stability Europe continued to make progress in science and industrialization, probably reaching the zenith of its relative global power as the 20th century dawned.

Human nature being what it is, as time progressed and the wars were forgotten, the monarchs made ever more aggressive military noises, “pushing the envelope” of the European system, ultimately rooting for its collapse it what was sure to be a brief triumphant march to victory for [insert empire’s name here].

Not so much.

In the aftermath of World War 2, primarily but not exclusively under the leadership of the US, a new global political and economic system was erected, including the United Nations, NATO, the European Common Market (now the EU), and US allies Japan and South Korea in Asia. 

The Cold War between the USSR and US was conducted within this framework. There were some terrible regional conflicts, e.g., the Korean, Vietnam, and Afghanistan wars, but these were contained. With the exception of the Cuban missile crisis, there never was a direct military superpower confrontation. Even things like the Berlin airlift was carefully scripted to avoid escalation.

World War 2 ended almost 80 years ago. A majority of people alive today do not remember Korea, Vietnam, the first Gulf War, or even the collapse of communism in 1989-91.

And in places like Ukraine and Taiwan, we see the escalating “pushing of the envelope.” Meanwhile the US has just elected a President who has made it clear he would like the US to pull out of NATO. 

I firmly believe that we are witnessing the final collapse of the post-WW2 order.

And so today, Remembrance Day, I have thought about Vera Brittain’s sad memoir of World War 1, “Testament of Youth.” 

In the most recent TV adaptation, the first scene is Brittain swimming in a pond with her brother and three of his school chums. She falls in love with one of them, Roland, and by the time he leaves for the front they are fiancées.

And one after another, all 4 die.

On November 11, 1918, Brittain, now a nurse, walks zombielike down a London street as around her people rejoice at 11 a.m., the precise time of the Armistice. The adaptation concludes with her once again going for a swim in that same pond, all alone; her brother, her fiancée, and the two other young men all dead and gone unto eternity.

A few days ago there was a comic strip, maybe xkcd, that consisted of two panels, the first of which said “Those who do not remember their history are doomed to repeat it.” 

The second panel says, “And those who *do* remember their history are doomed to watch helplessly as others repeat it.”

On this Remembrance Day I somberly contemplate the end of the post-WW2 order and the human price that will be paid.

Weekly Indicators for November 4 - 8 at Seeking Alpha

 

 - by New Deal democrat

My “Weekly Indicators” post is up at Seeking Alpha.

Surprisingly, corporate profits have come in relatively light in Q3. And there’s lots of noise in the coincident indicators as well.

A forecast in flux? Maybe. As usual, clicking over and reading will bring you up to the virtual moment as to the state of the economy, and reward me with a penny or two for collating the information and presenting it to you in a coherent format.

How the Fed helped Doom the Democrats

 

 - by New Deal democrat

This is not a formal post about Tuesday’s election. But with the benefit of “revealed preference” a/k/a 20/20 hindsight, it’s pretty clear that the Fed rate hikes were an important part of why Kamala Harris and the Democrats failed.

Because we may or may not be experiencing a “soft landing” in the economy, but it came at a steep price to some important demographics.

Let me start by going back to a graph I ran a few times about 18 months ago, when just about everyone including me thought that a recession was at least fairly likely. This is the graph of the *steepness* of the Fed rate hikes:

Between March 2022 and August 2023 the Fed hiked rates by 5.25%, even in nominal terms the steepest rate hike regimen in 40 years.

Further, in “real,” inflation adjusted terms rates went from -8.3% in May 2022 to +2.0% only 13 months later:

Even now rates in real terms are 2.7% higher than one year ago (graph above norms that value to zero for easy comparison). Outside of the 1980s this is one of the highest such “real” levels in the past 60+ years, and in most of those cases it was right before recessions.

Not only is the current *level* of “real” interest rates very high, but it was a throttling that occurred very quickly, as is shown in the below graph which takes the same data as above, and measures the YoY change in the *pace* of Fed rate hikes or decreases (red line shows the same data minus shelter inflation, more on which below):

Only the Volcker rate hikes of 1980 were steeper.

In other words, in the last 2.5 years of Biden’s term, the Fed hiked rates to extremely constrictive *levels* compared with inflation, and it hiked on a much *faster* basis.

This is a recipe for a drastic slowdown in consumer behavior, and it hit one group the hardest: young people trying to buy a home, move up to a bigger home, or rent an apartment for the first time.

To wit: mortgage rates topped 7%, the highest level since the turn of the Millennium. As a result, monthly mortgage payments on equivalently priced housing nearly doubled.

To make matters worse, the price of houses (dark blue) increased nearly twice as fast as the pace of wage increases, while the cost of rent (light blue), after initially being restrained during the COVID moratorium, also rose faster than wages:

So if you are the typical demographic for a new homebuyer or renter, the Fed rate hikes killed you. And that shows up very much in housing starts and permits:

Starts declined -31.7% through July from their 2022 peak, and the less volatile permits declined -20.4% through their lows in May. Outside of the near recession of 1966 and the mid-1980s, this is the only time such levels of decline have not coincided with a recession.

And on Tuesday, the preliminary evidence is that young people took it out on the Democratic ticket, either by voting for Trump, or just staying home.

As a postscript, just on time for a new GOP Administration to arrive, the Fed is helping out by a rate-lowering regimen.

Jobless claims: back to almost completely normal and neutral

 

 - by New Deal democrat

Initial jobless claims continued their return to normalcy this week, as they increased 3,000 to 221,000. The four week moving average declined -9,750 to 227,250, which is tied for the lowest number except for two weeks in five months. Continuing claims, with the typical one week delay, rose 39,000 to 1.892 million:

As per usual, the YoY% comparisons are more important for forecasting purposes. And here, the hurricane effects have almost all disappeared. Initial claims are higher by only 2.3%, the four week moving average higher by 7.3%, and continuing claims up by 3.8%:

Adding a line (light blue) for the biweekly YoY% in claims helps show this even better. Here it is over the past year:

On a biweekly basis, claims are actually *down* -0.5%. For the last three weeks, they are higher by 3.4%. 

Next week the big hurricane effects will drop out of the four week average, and all indications are that we will be completely back to normal.

And the takeaway is that the numbers are slightly higher YoY. This is not a “positive” result, but it is completely neutral and not recessionary at all (remember: to trigger even a yellow flag I would need monthly claims to be higher by 10% YoY. For a red flag it would take two consecutive months higher by 12.5% or more).

The economically weighted ISM average indicates economy expanding nicely, but likely in latter stage of the cycle

 

 - by New Deal democrat

[I was busy doing my civic duty the past few days. I’ll have something to say about the election at some point later, but not now.]

Yesterday the ISM services report came in very strong for the second month in a row, with the headline at 56.0 and the more leading new orders subindex at 57.4:

This is important, because services are roughly 3/4’s of the economy.

To reiterate, because manufacturing is of diminishing importance to the economy, and was in deep contraction both in 2015-16 and again in 2022 without any recession occurring, I now use an economically weighted three month average of the manufacturing and non-manufacturing indexes, with a 25% and 75% weighting, respectively, for forecasting purposes.

Here are the last six months, including September, of both the manufacturing (left column) and non-manufacturing index (center column) numbers, and their monthly weighted average (right) :

MAY 48.9. 53.8. 52.5

JUN 48.5. 48.8. 48.7

JUL. 46.8. 51.4. 50.2

AUG. 47.2. 51.5  50.4

SEP. 47.2. 54.9  53.0

OCT. 46.5. 56.0  53.6

And here is the same data for the new orders components:

MAY 45.4. 54.1. 51.9

JUN. 49.3  47.3. 47.8 

JUL.  47.4. 52.4. 51.2

AUG. 44.6. 53.0. 50.9 

SEP.  46.1. 59.4. 56.1 

OCT. 47.1. 57.4. 54.8

The three month economically weighted headline number is 52.4, and for the more leading new orders index is 54.0.

The gist of this is pretty clear: while goods production is in contraction, services provision is expanding strongly. The expansion is in good shape for the immediate future. If there is a caution here, it is that as expansions age, goods production tends to wane while services continue to grow. This suggests pretty strongly that, even if no recession is close at hand, the expansion is likely in its latter half.

Weekly Indicators for October 28 - November 1 at Seeking Alpha

 

 - by New Deal democrat

My “Weekly Indicators” post is up at Seeking Alpha.

There’s always some noise in the high frequency data, and this week that noise was in the positive direction, as almost all of the coincident data shows strength.

On the other hand (and this is the economy we’re talking about, there’s always an “other hand,” long term interest rates increased, which made a major dent in mortgage related markers. This is called a “bearish steepening,” becuase the yield curve gets more un-inverted, but not because of lower rates.

As always clicking over and reading will bring you up to the virtual moment as to the state of the economy, and reward me a little bit for correcting and organizing it for you.

ISM manufacturing poor again in October

 

 - by New Deal democrat

As usual, next week there will be a dearth of economic data, so I’ll report on construction spending then.

In the meantime, we got another poor ISM manufacturing report, with the total index declining to 46.5, the lowest reading this year, while the more leading new orders component increased 1.0 to 47.1. As a refresher, any reading below 50 means contraction.

Because manufacturing is of diminishing importance to the economy, and was in deep contraction both in 2015-16 and again in 2022 without any recession occurring, I now use an economically weighted three month average of the manufacturing and non-manufacturing indexes, with a 25% and 75% weighting, respectively, for forecasting purposes.

Including October, here are the last six months of both the headline (left column) and new orders (right) numbers:

MAY 48.9. 45.4

JUN 48.5. 49.3

JUL. 46.8. 47.4

AUG 47.2. 44.6

SEP 47.2. 46.1

OCT 46.5. 47.1

Here is what they look like graphically:

The three month average for the manufacturing index is 47.0, and for the new orders component 45.9. For the past two months, the average for the non-manufacturing headline has been 53.2 and the new orders component has been 56.2. That means the threshold for the October non-manufacturing numbers is roughly 49 and 41 (!)  respectively for the economically weighted average not to forecast recession. That seems pretty unlikely.

October jobs report: Milton mayhem!

 

 - by New Deal democrat

Well, I warned you . . . .

I expected a downdraft from the hurricanes, especially Milton, and also the Boeing strike. And boy did we get one!

Let me be clear: if there were no special factors, this report would be recessionary, period. And there were some signs of real weakness in this report that do not appear to be hurricane-related. But Hurricane Milton, as well as the strike, had an impact, so take this report with a gigantic helping of salt.

Here is what the BLS had to say in releatant part:

“Hurricane Milton struck Florida on October 9, 2024, during the reference periods for both surveys. Prior to the storm’s landfall, there were large-scale evacuations of Florida residents.

“In October, the household survey was conducted largely according to standard procedures, and response rates were within normal ranges.

“The initial establishment survey collection rate for October was well below average. However, collection rates were similar in storm-affected areas and unaffected areas. A larger influence on the October collection rate for establishment data was the timing and length of the collection period. This period, which can range from 10 to 16 days, lasted 10 days in October and was completed several days before the end of the month.

“…. It is likely that payroll employment estimates in some industries were affected by the hurricanes; however, it is not possible to quantify the net effect[s] … because the establishment survey is not designed to isolate effects from extreme weather events. There was no discernible effect on the national unemployment rate from the household survey.”

Below is my in depth synopsis.

HEADLINES:

• 12,000 jobs added. Private sector jobs *declined* -28,000. Government jobs increased by 40,000. 
• The pattern of downward revisions to the last two months resumed. August was revised down ward by -81,000, and September by -31,000, for a net decrease of -112,000.
• The alternate, and more volatile measure in the household report, showed a decrease of -368,000 jobs. On a YoY basis, this series has only risen by 216,000 jobs, which remains consistent with recession, as it has for months. On the other hand, it is an improvement from two months ago, where there was an actual YoY decline.
• Surprisingly, the U3 unemployment rate remained steady at 4.1%, which also means the “Sahm rule” recession indicator is no longer in effect. The rounding of data was particularly important this month. If we go out a couple more decimal points, the rate increased from 4.051% in September to 4.145% - almost a 0.1% increase.
• The U6 underemployment rate also remained steady at 7.7%, still 1.3% above its low of December 2022.
• Further out on the spectrum, those who are not in the labor force but want a job now declined -31,000 to 5.666 million, vs. its post-pandemic low of 4.925 million in early 2023.

Leading employment indicators of a slowdown or recession

These are leading sectors for the economy overall, and help us gauge how much the post-pandemic employment boom is shading towards a downturn. This month they were almost all negative:

• the average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, declined -0.1 hour to 40.6 hours. This remains down -0.9 hours from its February 2022 peak of 41.5 hours, but on the other hand is only -0.2 hours below its 18 month high.

• Manufacturing jobs declined -46,000. This is the second month in a row for this decline.
• Within that sector, motor vehicle manufacturing jobs declined -6,000. 
• Truck driving declilned -100.
• Construction jobs increased 8,000.
• Residential construction jobs, which are even more leading, rose by 1,300 to another new post-pandemic high.
• Goods producing jobs as a whole declined -37,000. Because these typically decline before any recession occurs, in the absence of special factors this would be a serious red flag for oncoming recession.

• Temporary jobs, which have generally been declining late 2022, fell by another -49,000, and are down -577,000 since their peak in March 2022. This appears to be not just cyclical, but a secular change in trend.
• the number of people unemployed for 5 weeks or fewer declined -34,000 to 2,112,000.

Wages of non-managerial workers

• Average Hourly Earnings for Production and Nonsupervisory Personnel increased $.12, or +0.4%, to $30.48, for a YoY gain of +4.1%. Their post pandemic peak of 7.0% in March 2022. This was also 0.2% higher than their recent low in July. Most importantly, this continues to be significantly higher than the 2.4% YoY inflation rate as of last month.

Aggregate hours and wages: 

• the index of aggregate hours worked for non-managerial workers *declilned* -0.3%, but remains up 1.1% YoY, only slightly below its trend for the past 12+ months.

•  the index of aggregate payrolls for non-managerial workers was rose 0.1%, and is up 5.2% YoY. These have been slowly decelerating since the end of the pandemic lockdowns, and that trend continued this month, which was just slightly above the post-pandemic low. Nevertheless, with the latest YoY consumer inflation reading of 2.4%, this remains powerful evidence that average working families have continued to see gains in “real” spending money.

Other significant data:

• Professional and business employment fell -47,000. Moreover, there were significant revisions to this series, which now show a relentless decline for the last five months. These tend to be well-paying jobs. As of this month, they are only higher YoY by 0.1% - a very low increase that has *only* happened in the past 80+ years immediately before, during, or after recessions. 
• The employment population ratio declined -0.2% to  60.0%, vs. 61.1% in February 2020.
• The Labor Force Participation Rate declined -0.1% to 62.6%, vs. 63.4% in February 2020. The prime 25-54 age  participation rate declined -0.3% to 83.5%, vs. 84.0% in July, which was the highest rate during the entire history of this series except for the late 1990s tech boom.
• Of particular importance this month is the change in those on temporary layoff, up 214,000, vs. permanent job losers, up 153,000. This suggests that about 60% of the negative news this month was transient, but about 40% of the decline was more structural.

SUMMARY

To reiterate what I said in the opening, if there were no special factors, this report would be outright recessionary. Private jobs declined, manufacturing declined, motor vehicle production and trucking employment declined, goods producing jobs as a whole declined, professional and business jobs declined; and finally, the unemployment rate, before rounding, rose 0.1%. This is recessionary.

While -44,000 of that decline appears to have been the strike at Boeing, now resolved, on the other hand, leisure and hospitality jobs, of which Florida has plenty, only declined -4,000 in October. And the downward revisions to professional and business jobs are very concerning. 

Again, to reiterate my last bullet point above this summary, as a back of the envelope estimate, I would take 60% of this month’s decline as temporary, but 40% real. Since this report showed a -211,000 decline in new jobs from September’s +223,000 pace, my best guess as to what this report would have shown in the absence of Milton and the Boeing strike is an increase of +127,000 jobs.

September personal income and spending: another positive report across the board

 

 - by New Deal democrat

The monthly personal income and spending report is now the most important report of all, except for jobs. That’s becuase it tells us so much about the state of the consumer economy. It is the raw material for several important coincident indicators that the NBER looks at, as well as several leading indicators on the spending side.

This month’s report for September was absolutely solid if not stellar, as every single important number was positive.

To begin with, nominal personal income rose 0.3%, and spending rose 0.5%. After adjusting for PCE inflation, which rose 0.2%, the former increased 0.1%, and the latter rounded to a gain of 0.4% (graph normed to 100 just before the pandemic). Both are at all-time highs:

In historical terms, spending on goods tends to rise more during the early part of an expansion, and be overtaken by real spending on services in the latter part of an expansion. Additionally, spending on services tends to rise even during recessions. So the more important component to focus on is real spending on goods. This rose a strong 0.7%. Meanwhile - par for the course - real spending on services increased 0.2%. Again, both made another all-time high:

On a YoY growth basis, real spending on services remains slightly higher than real spending on goods, at 3.2% vs. 2.8%.

Prof. Edward Leamer’s business cycle model indicates that spending on durable goods (dark blue, left scale) tends to peak first, before nondurable or consumer goods (light blue, right scale). In September the former rose 0.4%, and the latter 0.8% in real terms, yet again both at all time highs (the former excepting the two binge-spending stimulus months in 2021):

As indicated above, PCE inflation rose +0.2% for the month. On a YoY basis, PCE inflation is 2.1%, the lowest since February 2021 and only slightly higher than its average during the five years before the pandemic:

To reiterate a point I’ve made many times, with the exception of shelter costs in the CPI, the Fed’s inflation target has really been met.

While it wasn’t a negative, if there was a slight blemish in this report it was that the saving rate declined -0.2% to 4.6%. This compares with January’s recent high of 5.5%. The below graph subtracts -4.6% so that the current reading shows at the zero line, indicating that the current rate is now a little below the average rate in the decade before the pandemic:

The willingness to spend more and save less in a lower inflation environment speaks to consumer confidence. On the other hand, it does leave consumers a little more vulnerable to an adverse economic shock.

Finally, as indicated above this report goes into the calculation of two important coincident indicators. The first is real personal income less government transfer payments. This rose 0.1%, still another all-time record:

Second, with the usual one month delay, real manufacturing and trade sales rose less than 0.1%, rounding to unchanged, nevertheless ever so slightly at a new all-time record:

This was the third excellent report in a row, and blows away any speculation that the economy might not be still expanding. The only soft spots were real spending on goods, which continues to grow slightly less than for services, suggesting we are later than halfway through this expansion; and the slight decline in the personal saving rate. Everything else was, well, just fine.