Weekly Indicators for November 17 - 21 at Seeking Alpha

 

 - by New Deal democrat

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

Few changes from the last few weeks, but some noteworthy trends include continuing strong consumer spending, but also continuing weakening of transport. Also, in the past month the YoY comparisons in tax withholding payments have waned considerably, but with several opposing possible reasons.

As usual, clicking over and reading will bring you up to the virtual moment as to the state of the economy, and improve the state of my wallet by a penny or two.

October existing home sales, prices, and inventory continue to show slow progress towards rebalancing

 

 - by New Deal democrat

Although the government shutdown is over, most data points - including all having to do with housing - have not been updated, which means that alternate data sources, including the NAR’s existing home sales report, have temporarily become our best look at the housing market. 

As per my context all this year, after the Fed began hiking rates in 2022, mortgage rates also rapidly rose from 3% to the 6%-7% range, where they have remained ever since. Since sales follow mortgage interest rates, existing home sales rapidly declined to 4.0 million annualized, and have remained in that range, generally +/-0.20 million for the past 3.5+ years - and they did so once again in October:

In October, sales were 4.10 Million annualized (blue, right scale), 5,000 annualized above September’s rate. As of our last look two months ago, new home sales (gray, left scale) similarly declined and have similarly stabilized in the 625,000-725,000 annualized range. 

In the past several years I have been looking for the new and existing homes markets to rebalance. Existing home inventory has been removed from the market for over 10 years (likely due in part to absentee rental owners buying increasing chunks of inventory), and really accelerated during the pandemic. This caused an acute shortage of houses for sale, which in turn led to bidding wars among buyers and a spike in prices.

A rebalancing of the market more than anything would require an increase in inventory at least to pre-COVID levels, and a deceleration of price increases, or even outright decreases. Which means that the level of sales themselves was far less important than what the median price for an existing home and inventory are telling us about the ongoing rebalancing of the housing market.

The secular decline in inventory reached a nadir in 2022. This series is not seasonally adjusted, so it must be looked at YoY. In October inventory declined  10,000 from a revised 1.530 million to 1.520 million, exceeding its 2020 level for the same month by 10,000, but still 250,000 below its level in October 2019:

Since inventory was typically in the 1.7 million to 1.9 million range before the pandemic, the chronic shortage still exists, although it is very slowly abating.

For inventory to fully adjust, so must prices. As shown in the below graph, the average price of a new home (gray, left scale, not seasonally adjusted) rose almost 40% between June 2019 and June 2022 before slowly declining about -7% through June 2025. Meanwhile, the average price of an existing home (blue, right scale, not seasonally adjusted) rose about 45% between July 2019 and July 2022 and another 5% from there through July of this year, before seasonally declining:

With seasonal adjustments are not made, my rule of thumb is that a peak (or trough) occurs when the YoY% change is less than half of its maximum change in the past 12 months. Here are the comparisons in the past 12 months:

October 4.0%

November 4.7%

December 6.0%

January 4.8%

February 3.6%

March 2.7%

April 1.8%

May 1.3%

June 2.0%

July 0.2%

August 2.2%

September 2.1%

October 2.1%

While YoY price increases have crept up since July, they remain well below their past 12 month peak of 6.0%, so the fair conclusion remains that, if we could seasonally adjust, house prices are softer than they were last winter and spring.

With prices of existing homes up about 50% from their pre-pandemic levels, and mortgage rates still double what they were in the immediate aftermath of the pandemic, the rebalancing of the market is a long slow slog. Yesterday’s existing home sales report is another data point of very slow progress towards that rebalancing.

Jobless claims: new four year high in continuing claims

 

 - by New Deal democrat

While this morning’s much delayed September jobs report was the big news of the day, the DoL did resume their normal weekly reporting of unemployment claims, so let me in turn resume my normal weekly note of them.

Initial claims declined -8,000 to 220,000 while the four week moving average (whether using the last September report for the first such week, or my tabulation for that week) declined to 224,750. Continuing claims, with the typical one week delay, rose 28,000 to 1.974 million, a new four year high:

On the YoY% basis I use for forecasting purposes, initial claims were up 1.6%, the four week average up 2.6%, and continuing claims up 4.3%:

The new high in continuing claims suggests that the economy has gotten even weaker in the wake of the government shutdown, but the small increase YoY suggests it is not in recessionary territory at this point. Still, one of my mantras is that “hiring precedes firing,” which in this context means that hiring slows down before layoffs increase. It would appear that we are on the cusp of this phase.

September jobs report: a positive - if stale - report

 

 - by New Deal democrat

First things first: the jobs data we received this morning, like the official data reported earlier this week, is “stale news.” The period canvassed giving rise to this data was over two months ago. As such, aside from the fuller texture which it provides to us, the most important question is how well the alternative data sources accorded with this data.

In a more medium term context, even before this year, my focus had been on whether the economy would have a “soft” or “hard” landing, i.e., recession. The last two reports before the government shutdown were very much “hard landing” reports. Thus my focus now, as it would have been two months ago, is whether the more leading components, as well as the headline numbers, accord with a near term or even imminent start of a recession.

Below is my in depth synopsis.

HEADLINES:

• 119,000 jobs added. Private sector jobs increased 97,000. Government jobs rose 22,000. The three month average rose to +62,000.
• The pattern of downward revisions to previous months continued. July was revised downward by -9,000 to +70,000, and August was revised downward by -26,000 to -4,000, for a net declined of -35,000. 
• The alternate, and more volatile measure in the household report, rose by 251,000 jobs. On a YoY basis, this series increased 1,843,000 jobs, or an average of 154,000 monthly.
• The U3 unemployment rate rose 0.1% to 4.4%, the highest since October 2021, but well below the “Sahm rule” threshold for confirming a recession.
• The U6 underemployment rate declined -0.1% to 8.0%.
• Further out on the spectrum, those who are not in the labor force but want a job now declined by -421,000 to 5.933 million, the lowest since May.

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. For the second month in a row they were sharply negative:

• The average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, rose 0.1 hours to 41.0 hours, but is down -0.6 hours from its 2021 peak of 41.6 hours.

• Manufacturing jobs decreased by -6,000, the fifth decline in a row. This series declined sharply in the second half of 2024 before stabilizing earlier this year. It is now at a 3+ year low.
• Truck driving, which had briefly rebounded earlier this year, declined -6,800.
• Construction jobs rose 19,000.
• Residential construction jobs, which are even more leading, rose 3,900, the first increase after 5 straight declines.
• Goods producing jobs as a whole rose 10,000, after declining for 4 months in a row. 

• Temporary jobs, which have declined by over -650,000 since late 2022, declined again this month, by -15,900, a new post-pandemic low.
• The number of people unemployed for 5 weeks or fewer declined -249,000 to 2,227,000.

Wages of non-managerial workers 

• Average Hourly Earnings for Production and Nonsupervisory Personnel increased $.08, or +0.3%, to $31.53, for a YoY gain of +3.8%, its lowest YoY% gain in 4 years. Nevertheless, this continues to be significantly above the 3.0% YoY inflation rate through September.

Aggregate hours and wages: 

• The index of aggregate hours worked for non-managerial workers rose 0.3%, and is up 1.0% YoY, about average for the past two years.

• The index of aggregate payrolls for non-managerial workers rose 0.6%, and is up 4.8% YoY, near its post-pandemic lows.

Other significant data:

• Professional and business employment declined another -20,000. These tend to be well-paying jobs. This is the fifth decline in a row, and is the lowest number in over 3 years. It is also lower YoY by -0.3%, which in the past 80+ years - until now - has almost *always* meant recession. This is vs. last spring when it was down -0.9% YoY.
• The employment population ratio rose 0.1% to 59.7%, vs. 61.1% in February 2020.
• The Labor Force Participation Rate increased +0.1% to 62.4% , vs. 63.4% in February 2020.

SUMMARY

This was a respite from the last few gloomy reports, as a number of series, most importantly the headline jobs number, rebounded nicely. Construction and goods producing jobs increased, and even government jobs increased , while discouraged workers who want a job and the short term unemployed declined sharply. Real wages and hours held steady, while real aggregate payrolls for nonsupervisory workers rose significantly. The employment population and labor force participation rates also rose. Of note, the headline number for private employment rose by more than all of the alternative data sets that were necessary to use during the shutdown.

But there were negative signs as well. Manufacturing continued to shed jobs, as did trucking, temporary help, and professional and business jobs. The unemployment rate also rose to a new multi-year high, although this was in large part due to the sharp increase in the labor force. Also of note, this report confirmed two negative readings in the last five months. During those five months, payrolls have risen only 193,000 in total, or 38,600 per month on average.

All things considered, this was a positive - if stale - report.

Partially updated jobless claims data suggest unemployment rate at or near top end of 2025 range

 

 - by New Deal democrat

There was no new official data reported this morning, including the normal monthly report on housing permits, starts, and construction. Yesterday the Department of Labor did partially update several weeks of jobless claims data, which helps us estimate what might happen with the unemployment rate when the September jobs report is finally released tomorrow.

Unadjusted initial claims were reported as 237,750 for the last week (a grand total of 38 claims higher than my calculation, probably reflecting the inclusion of the Virgin Islands. This translated to 232,000 as adjusted. Unadjustted continuing claims for the last two weeks were reported as 1,674,170 and 1,708,565 respectively, both of which were significantly lower than the number I was able to tabulate from the data reported by the States. This translated into 1.947 and 1.957 claims as adjusted, very close to my estimates.

In any event, although several weeks of data remain missing for now, here is what the updated graph of each looks like:

Continuing claims (right scale) are near the top of their 2025 range, while initial claims (left scale) are in roughly the middle of theirs.

Remember that initial claims are the more leading but noisier indicator for the unemployment rate, while continuing claims are closer to coincident, but carry more signal. When we compare continuing claims (right scale) with the unemployment rate through August (left scale), it suggests that in tomorrow’s report the unemployment rate is likely to be 4.2% or 4.3%:

This would be in line with the top range of the unemployment rate this year so far.

Tomorrow will be a busy day, as in addition to the delayed jobs report, we are likely to get the first timely updated jobless claims report (possibly with more back details) as well as existing home sales from the NAR.

August factory orders rebounded from early summer lows

 

 - by New Deal democrat

As with yesterday, the good news is that important official economic data is being reported again. The bad news is that it is very stale, as in covering last August.

Still, one important area that private data did not cover well during the shutdown was orders and spending on durable goods, both for manufacturers and consumers. So even if the data is stale, at least it gives us more information than we had before.

To wit, durable goods orders for August confirmed what we have been seeing in some of the manufacturing indexes, which is a slight rebound from this spring. Headline durable goods orders increased 2.9%, while total manufacturing orders increased 1.4%. Core capital goods orders (subtracting defense and aircraft) rose 0.4%:

Here is what the post-pandemic view looks like (normed to 100 as of February 2020):

And here is what the monthly change in new orders looks like (*4 for scale) compared with the more up-to-date regional Fed metrics from NY and Philly:

Finally, one marker of a recession is when sales go down, but inventories increase - because that means cutbacks in manufacturing and layoffs of employees. In August, shipments declined by a little over -0.1%, while the tiny increase in inventories rounded to unchanged:

Again, with the important caveat that this data is almost three months old, it suggests that  manufacturing found its footing after this spring’s chaotic uncertainty about tariffs, and the national trend is likely to follow the slightly improving trend we have seen from the regional data during the shutdown.

August construction spending: strong nominal headline masks neutral real trend in the deep rear view mirror

 

 - by New Deal democrat

The good news is, with the end of the government shutdown, economic data reporting resumed this morning. The bad news is, we are now in the latter part of November, and the construction spending report issued this morning was for all the way back in August. In fact, the last time I updated this information here was back at the beginning of September. So, since the information in this morning’s report is already stale, I am going to keep this brief.

When we last got information, for July, it continued the trend of declining since the summer of 2024 once we adjusted for the cost of construction materials.

In nominal terms, together with revisions, in August that reversed. For the month, total construction spending (blue in the graph below) rose 0.2%,  while residential construction spending (red, right scale) increased 0.8%, the third advance in a row for both metrics in nominal terms:

Adjusted by the cost of construction materials, however, residential construction spending declilned slightly, by less than -0.1%:

Although this is higher than readings this past spring, it looks more like stabilization than an actual turnaround - and once again, we are talking about August data, so it gives us almost no currently significant insight.

Finally, the boom in spending on building manufacturing plans continued to wane, after an explosive boom following the Biden infrastructure bill:

The August decline of -0.9% is the 10th decline in the past 12 months. While the buildout of new plants continues at a very strong pace, the trend (which is more important for the direction of the economy) is a decline.

Although the nominal headline increases are nice, I take this as no better than a neutral report

Jobless claims continue slightly elevated YoY

 

 - by New Deal democrat

Hopefully for the last time . . . As I have done since the beginning of the government shutdown, the unadjusted number of initial and continuing claims can be calculated based on reporting by the States, plus DC, and Puerto Rico. Then, by applying the same adjustment as was used for the same week last year, the seasonally adjusted number can also be estimated closely as well. This post covers initial claims for the week ending November 8, and continuing claims ending November 1.

Since my forecasting method relies on the YoY% changes, it is almost never an affected by that seasonality.  So tabulated, for the week ending November 8, unadjusted initial claims totaled 237,712 vs. 230,810 in 2024, an increase of 3.0%.  

Last year this week the seasonal multiplier was *0.94853. Applying it gives us an estimated seasonally adjusted number of 226,000.

We can similarly calculate the four week moving average, since the last four weeks of claims were 230,000, 220,000, and 225,000, as well as this week’s 226,000. That gives us an average of 225,250, which is 3,750, or 1.7% higher than the 221,500 of one year ago.

Using the same methodology, unadjusted continuing claims for the week ending November 1 totaled 1,715,989 vs. 1,647,230 last year, an increase of 4.2%.

The seasonal adjustment for the applicable week last year was *1.13645. Applying it gives us an estimate of 1.950 million continuing claims, or -4,000 lower than one week ago. Still, continuing claims throughout the government shutdown have all been close to their highest levels since 2021, which was 1.968 million this past July. 

Aside from the 2024 hurricane related distortions during October, this continues the general neutral trend that was in place before the shutdown, i.e. higher than one year ago but much less than 10% higher, forecasting a weakly expanding economy for the next several months.

Weekly Indicators for November 10 - 14 at Seeking Alpha

 

 - by New Deal democrat

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

The trends of strong retail spending, a weak US$, and strength in commodity prices all continue. But in recent weeks withholding tax payments have waned. While there can be a number of causes for that, it definitely merits a caution flag as to job creation.

As usual, clicking over and reading will bring you up to the virtual moment at to the state of the economy, and reward me with a little lunch money for my efforts in collecting and collating it for you.

The student loan shock

 

 - by New Deal democrat

Earlier this week, I wrote about 4 current shocks to the US economy (tariffs, medical insurance increases, SNAP payments, and AI related layoffs), but I should have included a 5th as well: the effect of the end of the student loan repayment moratorium.

As a quick refresher, the Biden Administration enacted a student loan payment moratorium during COVID. That moratorium ended at the end of September 2023. As a result, monthly student loan payments rose from about $1 Billion per month to as high as $7 Billion:

Unsurprisingly, the amount of student loans in serious delinquency rose sharply, from about 1% during the moratorium to almost 15% ( ! ) in Q3 of this year:

Since student loans cannot be discharge in bankruptcy, one coping strategy is to allow other types of loans, such as credit card debt and auto loans, to go into delinquency. And that is what we have seen happen ever since the moratorium was ended:

It’s unclear if this stressor has given rise to more bankruptcies or not. Via Bankruptcy Watch, here is the weekly YoY data as of last week:

Put this together with the other shocks I described earlier this week, and it is a wonder the US was not already in recession even before the government shutdown started. It resembles very much the “austerity” program that was tried in the UK and other European countries after the Great Recession, which retarded their recoveries to a great degree.

Finally, I should note that there has been at least one very deep recession in the past caused primarily by fiscal shock; namely, the recession of 1938, which was largely due to the abrupt ending of some New Deal stimulus programs. That recession was not fully ended until World War 2-related industrial production surged.

Light vehicle sales and transportation of goods: the next recession caution shoe may have dropped

 

  - by New Deal democrat

Although the temporary continuing resolution was signed last night, reopening the Federal government through January, needless to say the reporting of economic statistics has not yet resumed, meaning that this morning’s scheduled reports on consumer inflation and retail sales for October were not released. So we must continue to rely on private data to give us a sketch of the current economic situation.

One of the most important blind spots for data during the shutdown has been on durable goods production and purchasing. According to the paradigm discussed by Prof. Edward Leamer 20 years ago, the typical procession of a downturn begins with housing, then durable goods such as motor vehicles, then consumer goods spending, and finally the coincident production and employment sectors.

The housing sector has been recessionary, and worsening, for many months, as units under construction and real residential construction spending turned down sharply earlier this year. Another early warning sector, heavy truck sales, also turned recessionary in the past few months.

But what of the next shoe to drop - motor vehicles sales? For that we do have some insight via manufacturer and dealer reports of sales, and indirectly by motor vehicle shipments information.

Let’s begin with motor vehicle sales.  Here’s the historical look at heavy truck vs. light vehicle sales for the past 50 years (through August). Note that heavy truck sales typically turn down first, and turn down decisively months before the onset of recessions, vs. light vehicle sales, which are much more noisy and thus give a much more muddied signal:

While the official US DoT report for October was not released, via Bill McBride, Omdia (formerly reporting as Ward’s Auto) reported that in October light vehicle sales came in at 15.3 million units annualized, the lowest in 15 months:

Here is the close-up of the past five years, with light vehicle sales normalized by -15.3 million units so that October shows at the zero line:

Typically the three month moving average of light vehicle sales have had to decline about -10% YoY for a clear recession signal, and often that hasn’t occurred until the very cusp of the recession. For a clear signal now, we’d need to see monthly sales of 14.2 million vehicles annualized, so even though October’s number was among the lowest in the past three years, we aren’t there yet.

But even more recent weekly data from the AAR showing YoY transportation of motor vehicles released just this morning not only confirms the downturn, but suggests that it has intensified in the past few weeks:

In the last week, rail transport of motor vehicles and parts was down -9.4% YoY, and has been negative for the past four weeks. These are presumably vehicles being shipped to dealers, so this suggests that sales have continued to slump, and manufacturers’ shipments have been cut back.

If light vehicle sales have declined, suggesting at least a yellow caution signal from that sector, further data released just this morning suggests that the four economic shocks I outlined earlier this week (plus one I didn’t mention, the effect of the resumption of student loan repayments) are having a significant effect on sales in the wider goods producing sector.

First, here is this morning’s update on rail intermodal traffic from the AAR:

This includes motor vehicles as well as many other goods. Note that this too has declined YoY in recent weeks. As of this week, it was down -8.7% YoY.

This negative trend was reinforced this morning by the Cass Freight Report for October, which showed a -7.8% YoY decline in truck shipments:

Here is a longer term historical view of Cass Freight shipments together with rail intermodal traffic YoY. 

Typically it has taken a -10% decline in truck shipments to be consistent with an oncoming recession, together with a smaller decline, on the order of -5%, for rail intermodal traffic. 

Ordinarily I have a lot of cautions about relying too much on the Cass metric. It correlates well with manufacturing data, bust as we have seen several times in the past 10 years, a signficant downturn in manufacturing is not enough to warrant a recession call. Further, the Cass index tends to come in more negative than the official freight report, currently suspended, from the GoT.

But in the past few months the Cass Report has been sending a signficant negative signal.

I should point out that as of this week consumer retail spending continues to hold up well, up 5.9% YoY as of this week, as measured by Redbook:

In fact generally speaking it has improved since July, in consonance with the stock market’s gains fueling a wealth effect.

To reiterate what I wrote at the beginning of this post, alternate private data can only provide us with a sketch of the state of the economy. More thorough official data, in particular as to sales, income, production, and inflation, are absolutely necessary. But the private data we do have for the past month and a half warrants a yellow caution flag for sales of motor vehicles and other important durable and consumer goods.

In other words, the next shoe may have dropped.

Important thought for the day: lessons from SuperNanny

 

 - by New Deal democrat

From Avika M. Cohen, “Litigation Disaster tour guide”:

——-

Ppl need to understand what's happening here. The GOP response to the shutdown was: You're gonna cave, or we're going to hurt vulnerable people by shutting off SNAP. The Dems, unwilling to let that happen, caved. Having watched that, the GOP is now saying: "Give us what we want on abortion or we'll hurt people who need ACA subsidies.”

There is every reason to believe that the Dems will cave. And if they don't, Republicans will run on "we put up a bill to extend the subsidies, the Dems filibustered it because they want to kill babies, they own the expiration" Which will make vulnerable Dems even more likely to cave.

Thing is, when you teach a bully that they can get what they want by bullying, they don't just stop. They go back to that well over and over again.

There are certain fights that you need to either never pick in the first place or be certain you're willing to see all the way through. The shutdown was one of them.

How many clients have we had the "if you're going to do this you need to be willing to see it through, because here's what happens if you start it and then buckle, please factor that into your decision about whether you want to start" conversation with? We're lucky to have so many who get it.

https://bsky.app/profile/akivamcohen.bsky.social/post/3m5fev6mhpc22 

This was one of the constant lessons of SuperNanny. How often, following SuperNanny’s instructions, would the parents put a spoiled toddler to bed despite the child’s crying, and then after 15 or 20 minutes of continued shieking, mom (usually) couldn’t stand it any more, and run to the toddler’s bedroom door. Sometimes SuperNanny would have to physically intervene to talk them out of it, because it was the worst thing they could do.

The 4 shocks jolting the US economy towards recession

 

 - by New Deal democrat

This week the normal empty period for new data after the monthly jobs report is of course compounded by the government shutdown. There is no noteworthy new private data coming out until Thursday, so don’t be surprised if I play hooky tomorrow.

But today let me follow up on some macro analysis. 

A few months ago I pointed out that, going back 60 years, every US recession has been associated with a shock to the system. In other words, the normal progression of interest rates, building, sales, income, and jobs have caused waxing and waning in sectors of the economy, but haven’t by themselves been enough to cause it to contract. For that, you needed an economy that was vulnerable, and a shock administered to that vulnerable economy.

Sometimes it has been an oil shock (1974, 1979, 1991, and partly 2007). Sometimes it has been an interest rate shock (1969, 1974, 1979, 1981). Sometimes it has been a financial shock (2001, 2008). And of course in 2020, it was the Giant Flaming Meteor of Death a/k/a COVID. I don’t mean to suggest that these recessions have been monocausal, just that a shock to the system has always been a part of the equation.

Going into 2025, the US economy was certainly vulnerable. High interest rates had taken a toll on the housing market. Employment, especially in manufacturing, was waning. The post-COVID spike in vehicle prices, repairs, and insurance, was still making its way through the system.

But this year, at least 4 shocks have been administered to the system, some (likely) transitory, but some more chronic:

1. Tariffs

2. Medical cost increases.

3. The suspension of food stamp benefits.

4. AI-related layoffs.

Let’s briefly discuss each of these in turn.

1. Since “Liberation Day” at the beginning of April, almost $200 Billion in tariffs have been imposed, an increase of over $100 Billion since 2024. In Q3, this was roughly 3x the amount collected before this year, and 6x the amount collected just before the 1st T—-p Administration:

The evidence so far is that in the aggregate companies are bearing about half of the increased burden, and are passing on about half of the burden to customers. In October alone, $60 Billion in tariffs were collected. If customers paid half of that by way of price increases, that amounts to $50 for every man, woman, and child in the US. That may not be a significant burden for affluent households, but for lower income households it is going to have a real impact.

2. Medical cost increases. As part of the Big Bad Billionaire Bust-out Bill, Obamacare subsidies were ended. Since about 90% of all Obamacare enrollees make use of these subsidies, that means that 22 million people are directly affected:

These households are either going to have to pay (in some cases astronomical) increases for the cost of coverage, or drop medical coverage completely. If they pay, that is another shock to the household budget; if they don’t, it affects the coverage, and the profits of insurers and health care providers. The proposed ending of the government shutdown will make this effective immediately.

3. The suspension of food stamp benefits. As has been widely reported this month, about 44 million people in the US make use of food stamps:

To the extent meager household income has to be diverted to buy that food, needless to say it is not available for any other kind of consumption (including payment or rent or utilities). While the ending of the government shutdown should mean the resumption in payments, keep in mind that the proposed continuing resolution only lasts through January. In other words, in 75 days we are right back here, and the successful use of SNAP benefits as a fiscal weapon this time means it will surely be implemented again then.

4. Finally, as I noted on Friday, layoffs as counted by Challenger Gray were at their second highest monthly level since the COVID lockdowns, and the highest October level in a quarter of a century. Many of these were concentrated in tech companies, as live human beings were replaced (or, “replaced”) by AI algorithms:

While this hasn’t shown up in any appreciable increase in new jobless claims, as I noted yesterday the number of continuing claims is close to its highest level in over three years. If this continues, it seems very likely we’ll see it show up in an increase in initial claims as well.

So there you have it: four somewhat independent shocks to the US economic system that individually or collectively might be enough to push it over the edge into a recession. In that regard, let me re-post this graph of the likely combined impacts of tariffs and the Big Bad Billionaire Bust-out Bill on household incomes by percentile:

This only includes the first two of the 4 shocks described above.

Needless to say, the shutdown of official government economic data could hardly have come at a worse time. While we have reasonable proxies for the employment situation, alternative data for income, sales, and spending is spotty. In particular, how has spending on durable goods by companies and consumers held up during this period? Have they cut back, or have stock market gains and the wealth effect so generated more than overbalanced the above described shocks. We simply don’t know. Assuming government data releases resume shortly, I will be particularly focused on that information.

Tabulated state level jobless claims continue neutral trend

 

 - by New Deal democrat

As I have done since the beginning of the government shutdown, the unadjusted number of initial and continuing claims can be calculated based on reporting by the States, plus DC, and Puerto Rico. Then, by applying the same adjustment as was used for the same week last year, the seasonally adjusted number can also be estimated closely as well.

Indeed, since my forecasting method relies on the YoY% changes, it is almost never an affected by that seasonality. 

So tabulated, for the week ending November 2, unadjusted initial claims totaled 216,238 vs. 212,743 in 2024, an increase of 1.6%.  

Last year this week the seasonal multiplier was *1.0388. Applying it gives us an estimated seasonally adjusted number of 225,000.

We can similarly calculate the four week moving average, since the last four weeks of claims were 224,000, 230,000, and 220,000, as well as this week’s 225,000. That gives us an average of 224,750, which is -2,000, or -0.9% lower than the number of 226,7500 one year ago. Of note, this is the last week in which the 2024 comparison will be affected by the hurricanes that temporarily depressed claims for several weeks in October. Excluding that week, the average of the three last weeks this year is slightly higher.

Using the same methodology, unadjusted continuing claims for the week ending October 25 totaled 1,711,947 vs. 1,646,920 last year, an increase of 3.9%.

The seasonal adjustment for the applicable week last year was *1.14152. Applying it gives us an estimate of 1.954 million continuing claims, or -7,000 lower than one week ago. Still, continuing claims during the government shutdown have all been close to their highest levels since 2021, which was 1.968 million this past July. 

For graphic comparison, here are initial claims (blue), the four week average (red), and continuing claims (gold) all normed to 0 as of this week’s tabulation, compared with their readings in the past two years before the shutdown:

As with the past several weeks, absent hurricane distortions this continues the general neutral trend of initial and continuing claims, higher than one year ago but much less than 10% higher, forecasting a weakly expanding economy for the next several months.

Weekly Indicators for October 3 - 7 at Seeking Alpha

 

 - by New Deal democrat

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

This was the week that the 800 pound gorillas of Wall Street reported Q3 earnings, and - to use a World Series type metaphor - hit it out of the park. 

Meanwhile down in gruntland, the amount of goods being moved from ports to markets hit a major air pocket.

More signs of a “K shaped”, or bifurcated economy where Wall Street titans are doing well, fueling upper income spending, while down below there are signs of exhaustion.

As usual, clicking over and reading will bring you up to the virtual moment as to the state of the economy - with data almost entirely unaffected by the government shutdown - and reward me with a penny or two of lunch money for my efforts in collecting and organizing it for you.

October employment situation: stagnant hiring, increased firing, continued wage growth

 

 - by New Deal democrat

On a normal first Friday of the month, I would be crunching the official jobs report data to try to provide not just a coincident report on the jobs market, but also to focus on the leading indicators within that report, such as the manufacturing and construction sectors and also aggregate real payrolls. For the second month in a row, I can’t do that. But what I can do is aggregate some of the most reliable alternate sources for the state of the labor market; and fortunately, there is no big divergence among those: they all point to a stagnant but not meaningfully contracting jobs sector.

Let me start with the number of jobs, and then follow with alternatives to the unemployment rate. And further, let me start with the three best sources: the ISM reports, the regional Fed reports, and ADP.

To begin with, the ISM reports are diffusion indexes. They don’t report the number of gains or losses, but whether more firms than not are hiring vs. firing. Any number below 50 means more firms are letting people go than hiring them, and ss I reported Wednesday, ISM services showed slight contraction, at 48.2. The ISM manufacturing report had previously also shown contraction for October, at 46.0:

Since services account for about 75% of all jobs, the economically weighted number is 47.6 for the month. This would translate to a continued downturn in jobs in the goods producing sector, to a virtual standstill or even small losses in the service-providing sector as well.

The next source is the 5 regional Fed reports from NY, Philly, Richmond VA, Kansas City, and Dallas. These are also diffusion indexes, with the balance point at zero, so a positive number is expansion, a negative one contraction. As I reported last week, here are the numbers from the five manufacturing reports (1st line) and services reports (2nd line):

NY 6.2; Philly 4.6; Richmond -10; Kansas City 1; Dallas 2.0; AVERAGE 0.8

NY -5.2; Philly -0.5; Richmond 0; Kansas City -4; Dallas -5.8; AVERAGE -3.2

Unlike the ISM manufacturing report, the regional Fed reports show slight gains in the manuacturing employment sector; but like the ISM services report, significant contraction in the services employment sector.

Next, as has been widely reported, ADP indicated that 42,000 private sector jobs were added in October. As the below graph by Prof. Jason Furman shows, the average of the last three months is approximately 0:

Bank of America’s internal data also showed further deceleration over the past two months from the last officially reported numbers:

A gain of only 0.5% for the entire last 12 month period suggests no monthly growth at all in either September or October.

Finally, although I have no idea whether this new source is reliable or not, Revelio Labs reported that in October -9,100 jobs were lost:

Weakness was also shown in new job postings by Indeed, which declined further in October. Note that this source has closely matched the job openings data from the JOLTS series:

Another important metric in the monthly jobs report is wages. These are also covered by some of the regional Fed reports as well as ADP.

Here are the manufacturing (1st line) and services (2nd line) diffusion indexes from the regional Fed reports for October:

Manufacturing: NY n/a; Philly n/a; Richmond 15; Kansas City n/a; Dallas 14.2; AVERAGE 14.6

Services: NY 25.9; Philly 38.3; Richmond 17; Kansas City 21; Dallas 10.7; AVERAGE 22.6

The economically weighted average from both indexes is 16.5, indicating that wage increases continue at a strong pace.

ADP similarly reported continued strong wage growth, at 4.5% YoY for job stayers, and 6.7% for job switchers:

Finally, let’s take a look at unemployment measures.

As I often say, jobless claims lead the unemployment rate. Initial jobless claims are noisier but more leading; when combined with continued claims they carry more signal but lead only slightly. Here is what both measures looked like compared with the unemployment rate as of the last official reports:

Since the shutdown, initial claims have varied between 220,000 and 230,000, and on a four week moving average basis have been slightly lower than one year ago, while continuing claims have been in the 1.930 to 1.960 million range, close to the top of their readings in the past three years. This suggests that the unemployment rate would be no lower than, and likely slightly above its range from one year ago, which was 4.1%-4.2%:

This would put this month’s likely unemployment rate at between 4.2% to 4.4%.

Further, as was widely reported yesterday, Challenger Gray indicated that there were 153,000 job cuts in October, the highest for this month in several decades, and with one exception the highest since the pandemic lockdowns:

And Bank of America indicated that unemployment insurance checks directly deposited into its account, while slightly down from September, were 10% higher YoY - an even bigger YoY increase than official continuing claims:

To summarize, the best alternative jobs data we have for October are almost all in accord. There were roughly no job gains at all, +/- about 40,000. Meanwhile wages continued to grow at a relatively fast pace, in accord with the official data from earlier this year. And the unemployment rate was steady to slightly higher compared with earlier.