Steven Hayward Continues the Long History of Powerline's Economic Stupidity

As I previously pointed out, Powerline has a long history of being 100% wrong on the economy.  From the "Fed is printing money so inflation will spike" garbage, to "the CRA caused the housing crisis" to the latest "Dodd Frank is crushing small business lending" meme,  these guys have not been able to get one thing right.

Steven Hayward continues that trend.  On October 8th, he argued that interest rates would spike because China was selling treasuries. He concluded:

The Fed may have to raise interest rates whether it wants to or not in order to get more suckers buyers for our bonds.

As usual, he was dead wrong.

The buying has been crucial in keeping a lid on America’s financing costs as China -- the largest foreign creditor with about $1.4 trillion of U.S. government debt -- pares its stake for the first time since at least 2001. Yields on benchmark Treasuries have surprised almost everyone by falling this year, dipping below 2 percent last week.

It’s not the scenario that doomsayers predicted would leave the U.S. vulnerable to China’s whims. But the fact that Americans are pouring into Treasuries may point to a deeper concern: the world’s largest economy, plagued by lackluster wage growth and almost no inflation, just isn’t strong enough for the Federal Reserve to raise interest rates.

“As you develop a more pessimistic view on global growth, inflation, and rates, asset managers are going to buy Treasuries in that environment,” said Brandon Swensen, the co-head of U.S. fixed-income at RBC Global Asset Management, which oversees $35 billion.

If anything, Powerline continues their long and solid history of being a great contrarian indicator.  Do the opposite of what they project and you'll make out like a bandit.

PS: I'm sure that Hayward will print a clarification any day now ...  

Forecasting the 2016 election economy: social issues + the long arc of history

 - by New Deal democrat

This week housing permits will be reported.  That will give us most of the long leading indicators for Q3, and that means we can begin meaningfully talk about whether things like GDP, employment, and personal income will still be positive in Q3 2016.  Since these are some of the better-rated economic indicators found by Nate Silver as predictive of Presidential elections, it also means we can begin to talk meaningfully about whether the incumbent Democrats or the opposition Republicans are likely to win the 2016 election.

But this is a good time to note that, to paraphrase Bill Clinton's famous slogan, "it's not *just* the economy, stupid!"  There are social and moral issues, and unless you think the Vietnam War, the Civil Rights Acts, Watergate, Willie Horton, the Lewinsky affair, and the Swiftboating of Kerry were irrelevant, I submit that they have had an effect on election outcomes.

If the sole determinant of an election were whether or not the economy is in a recession in the 3rd or 4th quarter of the election year, then Dewey would have won in 1948, Stevenson in 1952, Humphrey in 1968, Ford in 1976, Bush in 1992, and Gore in 2000.

Even adjusting to trend, almost all economic indicators weren't just positive, but *very* positive in 1968 and 2000. Humphrey and Gore shouldn't have just won, but won in a landslide.

So clearly the economy isn't the sole determinant of winning the Presidential election.

Probably the best analysis of the relative import of social vs. economic issues was contained in Thomas Schaller's "Whistling Past Dixie," the tome which forecast Obama's winning electoral coalition. Schaller wrote that, in Dixie, social issues are gatekeepers.  Candidates' views on the economy aren't even considered until they pass through a social "screen" of acceptability.  Schaller was writing from the Democratic point of view, but I suspect a similar dynamic plays out on the left.  If there were a candidate with Bernie Sanders' economic populist views, but right wing views on abortion, gun control, and gay rights, would progressives really be interested?  In 2012 GOP Gov. Mike Huckabee of Arkansas was pretty much that, and I recall zero interest in his candidacy by the left.

The bottom line is, I believe voters do in fact vote their pocketbooks, among those candidates whose views on moral or social issues they find basically acceptable.  Thus much effort is expended in campaigns to make the opposing candidate simply morally unacceptable.

Prof. Douglas Hibbs' "Bread and Peace" model takes at least one moral issue - war - and integrates it into his analysis, which makes use of the number of military casualties during a President's term. This method does at least partially explain Humphrey's loss, and subtracted at least a little from Gore's total (Serbia) and George W. Bush's and McCain's (Iraq and Afphanistan).

It is well beyond my competence to try to incorporate other "moral issue" into an election model.  It is simply well worth it to remember that such issues are important.  If the economy is going well, the opposition will focus on them.  If the economy is doing poorly, there is barely a need.

A second limitation of the model can be filed under "what have you done for me lately?" There is a line of thought that, after two terms of one party, there is an increase in voters restless for change, regardless of what the economy is like.  That certainly helps explain 1968 and 2000, but there aren't enough data points to enable reliable comparison.

That being said, it is certainly interesting that the concept of parties only lasting in power typically through two presidential terms is a relatively recent phenomenon.  In the long arc of US history, it is fair to consider the US as being a rising economic power from its inception through the 1940s, at its apogee in the 1950s and 1960s, and relatively speaking at least being a waning power from at least 1974 on.  Now let's compare against the frequency with which control of the White House shifted from 1800 to 1952:

Democratic-Republicans: 1800-28 (28 years)

Jacksonian Democrats: 1828-40 (12 years)

1840-60: multiple changes of power

1860-1884: Republicans (24 years)

1884-96: 3 changes of power

1896-1912: Republicans (16 years)

1912-20: Democrats 

1920-32 Republicans (12 years)

1932-52: Democrats: (20 years)

Since 1952, however, control of the White House has changed every 8 years with the exception of 1976-92, a single Democratic term followed by 12 years of GOP control.

While the US economy was in its ascendancy, voters were willing to trust a single governing party with control for long periods of time, switching when economic progress stalled.  Only the 20 years of turmoil leading up to the Civil War stand out as different.  Since the US economy reached its relative apogee, voters have behaved as if they felt the parties had no solution to the relative decline in their fortunes.

Although we probably can't measure it in any accurate statistical way, over the long term US voters are behaving as we would expect them to if they were voting on the waxing and waning of their economic well-being.

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Weekly Indicators for October 12 - 16 at XE.com

 -by New Deal democrat

My Weekly Indicator post is up at XE.com .

The employment picture is really coming into focus, in the context of the shallow industrial recession and inventory correction.

Inndustrial production ex-Oil Patch

 - by New Deal democrat

By now I'm sure you know that industrial production not only declined again in September, but has also failed to make a new high in almost a year.

But what happens when we remove mining and utilities, and focus on manufacturing?  Here's what happens:

Manufacturing (blue) continues to be in an uptrend, although it is slightly off (-0.3) of its high two months ago, which is actually pretty darned good considering the strong dollar.

Yes the US is in a shallow industrial recession. But it is focused and limited, and hasn't translated into any downdraft in the consumer economy (see: real retail sales) which is 70% of the total.

The JOLTS report for August continues to underwhelm

 - by New Deal democrat

I continue to be underwhelmed by the monthly JOLTS reports.  Most commentators focus only on the job openings number without paying attention to the pattern of this series during the 2002-07 expansion.

Here is the overall series since its inception:

As an initial matter, while this series looks extremely useful, because there is only 15 years of history, there is only one complete business cycle with which to compare.  During that cycle, hiring peaked well before job openings. As shown above, the peak in hiring (and the trough in voluntary quits, not shown) was the first signal that the expansion was decelerating.

Now let's zoom in on the last year:

Once again, while job openings have skyrocketed, actual hires have stalled.  It is only because August 2014 featured an anomalous decline in hiring that the Hires series has not turned YoY negative.

This suggests to me that (1) we are past mid-cycle, as many other series also show; and (2) there is a labor market disconnect, as employers are not filling a record number of openings.  As to why those openings are going unfilled, I have seen a fair amount of survey information where employers are complaining of not being able to find appropriately skilled candidates.  I suspect that there are one or both of two clauses missing in those sentences, as in:  "We are not able to find skilled candidates [for the wage we want to pay and/or because we refuse to pay for any on-the-job training]."

Again, this is an underwhelming report, but if the underemployment rate continues to decline, I anticipate that more and more employers will capitulate on increasing wages for new hires.

Sent from my iPad

Real retail sales show expansion past mid-cycle, but no oncoming recession

 - by New Deal democrat

With September inflation reported this morning, I can update one of my favorite series:  real retail sales.

First of all, real retail sales rose to a new high:

The YoY% growth in real retail sales in comparison with real personal consumption expenditures are an excellent mid-cycle indicator, since reliably the former is both declining and negative the latter before recessions begin, and further the former starts to underperform the latter at about mid-cycle.  Here's what they look like now:

There is increasing evidence that we are past mid-cycle.

Finally, let's look at real retail sales per capita.  These typically peak one year or more before the onset of a recession:

Although population has not been updated past July, since it has been growing at about .06% a month, and since real retail sales are up about .30% in the last two months, we have made another peak.  This is evidence that the economic expansion should continue at least through the 3rd quarter of 2016.

Real aggregate wage growth declines slightly in September, but trend continues positive

 - by New Deal democrat

In my opinion, the single best measure of a labor market expansion is real aggregate wage growth. People don't work just for the hours, or the jobs, but for the cold hard cash they can bring home and save and spend.  How much a growing economy allows them to do that is the best measure of the well-being it is delivering.

I call this the "lump of labor" approach, because sometimes, as in the 1980s and the first part of the 1990s, average wages are declining, but hours are expanding.  Sometimes, nominal wages are growing, but inflation-adjusted wages falter, as in the 1970s. In the present expansion, by contrast, nominal wages and real wages have grown slowly, and hours worked have grown strongly. The current expansion, as opposed to the expansions of the 1950s and 1970s, also gets bonus points for being long-lived.

Now that we know the September inflation rate, I can update this information.  Last month, nominal average wages for nonsupervisory workers grew very slowly.  Prices, however, fell by -.2%, meaning that real wages actually improved.  But aggregate hours work declined, meaning that aggregate real wages declined by -0.1%. Here is the long-term graph going back 50 years:

Real aggregate wages are now 16.8% above their recession trough of October 2009.  It is easy to see that this expansion does not measure up to the 1960s and 1990s, but far outpaced the George W. Bush expansion of 2002-07.

Here's how the current expansion stacks up in comparison to the Reagan expansion of the 1980s:

At this point, 5 years and 11 months after the bottom, the Reagan expansion was slightly better at 18.9%.  Note that about half of that increase came during 1983, whereas in the current expansion real aggregate wage growth started out slowly (as gas prices rose from $1.40/gallon to $3.95/gallon) and then picked up steam last year (as gas prices fell to less than $2/gallon).

As an aside, *if* real aggregate wage growth were to continue for 12 more months at its average pace for the last 6 years, past history going back 50 years strongly implies the democratic nominee will win the presidential election next year.

Q3 2015 update on corporate profits as a leading indicator for quarterly stock prices

 - by New Deal democrat

I have an updated post at XE.com .  If corporate profits are a long leading indicator, and stock prices a short leading indicator, then corporate profits should lead stock prices, at least when those prices are averaged quarterly.

With Q3 in the books for stock prices, where does this relationship stand?

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A thought for Sunday: in which I despair

 - by New Deal democrat

Over the last couple of years, more and  more blogs have closed down.  Sometimes, it is because the person has too many other obligations.  Sometimes, the person has just a few readers, but other great qualities. For example, the best political blogroll I ever encountered was at Frank Chow's now-closed blog.  Recently he made access to the blog private, so even that is gone. 

I admit that I too am close to despair.  In the first place, the economy has been kind of boring in the last couple of years.  At or near mid-cycle, as I have often said.  Beyond that, I frequently feel like I am shouting into the vacuum of the Oort cloud at the long-term deterioration I have increasingly seen over my lifetime.  We didn't use to have wage stagnation.  We didn't use to have an increasingly desperate middle class. We didn't use to have near-daily mass shootings. We didn't use to have a crumbling infrastructure (I have taken to calling the traffic reports in my area the "failing infrastructure report" because all too often a bridge or a rail line or traffic lights or just congestion that was not planned for is the cause of problems).

Worse, the solution from the dominant faction of the Democratic Party is weak-tea rim-shot free-market tweaks.  The solution from the GOP is always to double down on the insanity.  

According to one of the best political books I have ever read, "Whistling Past Dixie," showed, based on reams of polling data, that white working class voters in that region -- unlike such voters in any other region -- treat candidates' positions on "social issues" as a filter.  If a candidate does not make it through that screen, their economic positions don't matter.  Significantly, the reactionary views in that region coincide with the first major immigration into the region -- of Latinos and relocated Yankees -- in 400 years.  The old social order of the descendants of largely Scotch-Irish whites at the top, and the descendants of African slaves beneath them, is being profoundly shaken.

Just this morning, I read an article where struggling South Carolinians are interviewed about stagnant wages.  They all acknowledge the problem, and are angry about it.  

Economic despair is a potent political force. . . .

[When]  you listen to indignant voters[, d]espite the still nascent recovery, a huge number of people in the middle and lower classes say their wages have not budged in years. 

And what was their mindset?  What did they see as the solution.  Here's a sample:

[T]o prosper, the economy has to prosper,” Mr. Lewie said, “and it’s the rich people that produce jobs.”

When asked to assign blame for stagnating wages, he and his wife pointed to the federal government. Regulations and high taxes, he said, not lower wages abroad....

The operative definition of insanity.

Never mind that since at least 1981 we have gone down this road of increasing wealth at the very top, increases in corporate profits, and Federal *DE*regulation.  The results are pretty damn evident if you are not self-blinded.

If it were up to me, countercyclical programs would always be in place, ready to be activated in any downturn. A WPA and CCC would always be on the books.  Infrastructure projects would always be in the hopper.  At 6% unemployment, the projects would automatically be prioritized.  At 7% unemployment, the administrative positions in the WPA and CCC would automatically be filled.  At 8% unemployment, the workers would be hired and the projects started, at pre-set levels of GDP.  The agencies would be automatically wound down as the unemployment rate fell.

Similarly, automatic tax breaks, weighted towards consumers, should be in place, taking effect quarterly or at very least annually as unemployment increased, and then automatically and gradually reversed as unemployment decreased again, with an eye towards running a surplus once an economic expansion were well-established.

All of which would hardly have been a pipe dream in my youth.  One can easily imagine a Lyndon Johnson or a Robert F. Kennedy or one of many other New Deal democrats proposing such a system.  But no more, and certainly not with one party dominated by an adamantly opposed Dixie, and the other dominated by an elite of neoliberal milquetoasts.

I used to say that politically the US has shifted 1 standard deviation to the right since then.  I no longer believe that.  The US is now *2* standard deviations to right of where it was 50 years ago. We have a Supreme Court one vote shy of dismantling the 20th Century, and they don't have much respect for the post-Civil War Amendments either.  We have a strident minority in the House of Representatives that thinks it would be cool  not to pay the bills that they have already incurred on behalf of the US.  We had a GOP President who endorsed torture, saturated surveillance that police can access without a search warrant, and tax rates that could not possibly fund the fiscal obligations of the country. We now have a Democratic President who has made all of these positions permanent.  These are now bipartisan positions.  Johnson and Kennedy would be treated as beyond the pale now.

In 2008, a majority of the country was ready for significant change.  It got Obamacare and not much else.  Instead, Obama co-opted and then defenestrated the netroots Progressive movement. So, 2008 was a "failed turning point," after which, as in 1989 Tiananmen Square, or 1848 Europe, the reactionary elites double down. 

As bad as things are now for the middle class, the next recession is out there.  I am terrified that when it comes, wages, which have only been up 2.5% YoY at their very best during this expansion, will go into outright deflation, opening the door to a wage-price deflationary spiral.  In other words, unless policies are changed, the next recession is likely to be even worse than the last one.

In the meantime, especially if Hillary Clinton is the democratic nominee, the best available choice is going to be more reformist neoliberal nibbling around the edges.  That means there is no real chance for economic progress until 2020, and maybe even 2024.  And I am not immortal.  I think I will die in a US which has turned into a Latin American-style plutocracy, a land of profoundly unequal and stultified opportunity, with no prospect of a turnaround in sight.

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Weekly Indicators for October 5 - 9 at XE.com

 - by New Deal democrat

My Weekly Indicator piece is up at XE.com.

The US data got just a skosh weaker.

Whilesaler inventories and sales show shallow industrial recession ongoing

 - by New Deal democrat

I have a new post up at XE.com.  The shallow industrial recession is real, and is not abating yet.

Ruh roh: Labor Market Conditions Index forecasts further deterioration in monthly jobs growth

 - by New Deal democrat

As I wrote several months ago, the Labor Market Conditions Index is a good leading indicator for YoY growth in employment.  Based on its deceleration, I forecast that monthly jobs growth was likely to decline to less than 200,000 in the months ahead.

Here's the graph I ran at that time:

The LMCI was updated earlier this week, and the news isn't good, with the Index coming in at zero.  So here is an updated look at the same relationship, zoomed in on the last 10 years:

The LMCI is forecasting further YoY deterioration in jobs growth.  Even a few 5-digit increases cannot be ruled out.  The silver lining is, it is not forecasting an outright YoY decline in jobs.  Similar periods of weakness occurred in 1984, 1994, and 2002 without there being a recession. Even in those periods leading up to recession, generally speaking the LMCI crossed zero into negative territory well before the recession began.

Bottom line:  not good news, but this expansion isn't Doomed yet.

Population adjusted jobs growth: how weak (or not) is this recovery?

 -by New Deal democrat

I've long thought that the typical mode of presentation of the jobs recovery -- i.e., number of jobs created -- is unsatisfactory, because it fails to take into account demographics.  

Suppose, for example, you get 200,000 jobs created per month on average over a year.  Whether that is good or bad depends on whether the population in which those jobs are being created is growing by 100,000 or 300,000.  In the former case, 100,000 more members of the labor force have jobs; in the latter, 100,000 moe members of the labor force are unemployed!

Just adjusting for population isn't enough, since due to increased healthy longevity and demographics, the percentage of the population that is retired is growing strongly, and ought not to be counted.

So what we want to do is count the number of jobs as a percentage of the labor force, or alternatively by those of working age (below, I am using ages 16-64).  What does this jobs recovery look like under those conditions?  Below are 3 variations on that theme.  As we'll see, measured that way the jobs recovery still isn't great, but it is solidly in the middle of the pack.

First, let's look at the "employment rate" which is simply 100 minus the unemployment rate:

As an initial observation, the post-WW2 era of US economic dominance that ended in 1974 stands out.  Employment rates of 94%+ were the norm, and half of the time exceeded 95%.  Since then, our current level of 94.9% has only been exceeded during the tech boom of the late 1990s and briefly at the end of the housing boom 10 years ago.

But how strong has the current recovery been?  For that, let's see how the employment rate, as graphed above, changed on a YoY basis:

While the current recovery got off to a slow start, it has measured better YoY growth than since the early 1980s. In general, the post-WW2 job recoveries grew much faster YoY than those since 1983.  As we'll see below, however, that is tempered by the fact that many of them, especially in the 1950s, were short-lived.

Second, let's look at the YoY% change in employment growth compared against the working age population, age 16 through 64:

Here the current expansion does look very weak. But not quite so bad as it might first appear.  Here's the percentage of jobs added in this recovery, now 5 1/2 years old, as a share of population ages 16-64:

This growth of 5.7% is still better than the 1971-74 expansion, which added less than 5%, and 5 /12 years later was only up 1.6%:

It is also light years better than the George W. Bush expansion, which not only added a miserable 1.7% jobs at its best, but 5 1/2 years later was negative!

Finally, perhaps the best measure of all is the change in jobs vs. the labor force -- since this is basically all persons in the market for a job (I would also include those not in the labor force who want a job now, but that series only started in 1994):

Here the current jobs expansion looks pretty robust, not just improving strongly but lasting longer than many other recoveries.

Just as with our first measure, let's see how this has changed on a YoY basis:

With the exception of the year 1983, this expansion looks as strong as any other expansion since 1974, and stronger than the George W. Bush expansion. In fact, measured either compared with past peaks in employment, or 5 1/2 years from its start, this expansion is #5 out of 10 expansions since 1950:

Year start	Peak	5 1/2 years after start
1950	15%+	12.4%
1954	4%-	-0.8%
1957	5%+	5.4%
1961	15%	11.6%
1971	2%+	-1.2%
1975	5%+	3.3%
1982	9%+	8.2%
1992	10%+	7.6%
2003	2%-	-1.3%
2010	n/a	7.4%

As shown in the chart above,  the current jobs expansion is behind the expansions of 1950, and those of the 1960s, 80s, and 90s, but better than those of 1955, 1958, both expansions of the 1970s, and the George W. Bush expansion.

In summary, when we measure the number of jobs created in this expansion on relevant population-weighted bases, it is a middling expansion, not great, but not so slow as commonly represented.

"Low interest rates have failed to stimulate the economy"

 - by New Deal democrat

There's a persistent Doomer meme that "low interest rates/quantitative easing have failed to stimulate the economy."

It's utter bunk.

Let me show you a period of really low interest rates:

We see Fed rates between 0.5% and 1.5% and long term rates generally between 2% and 2.5%.

Growth must have been pathetic, right?

Now let's add in real, inflation adjusted gross domestic product, and the dates:

That's some real pathetic, errr, umm, 10% and 15%+ growth!

Now let's take a look at how the Fed's low rates and quantitative easing since the Great Recession have played out:

Unsurprisingly, lower long term interest rates as helped along by quantitative easing sparked lots of purchase and refinance mortgage applications. The "taper tantrum" of let 2013 caused both to crater.  

So, yeah, low interest rates and quantitative easing have failed to stimulate the economy, as long as you ignore, you know, history.

No: Dodd Frank Did Not Cause the Slow Recovery

The latest piece of, well, CRAP from Powerline is that Dodd Frank Caused is solely responsible for the slow recovery.

The AEI originated this meme.  It comes from Peter Walliston, who propagated the argument that the CRA caused the financial collapse in 2007-2008.   The Federal Reserve debunked this argument a long time ago.

Thankfully, Barry Ritholtz over at Bloomberg has proved what a crock this most recent claim is.  

Why the US consumer expansion is still outweighing the industrial recession: houses and cars

 - by New Deal democrat

I have a new post explaining this up at XE.com .

Underemployment and wages: September 2015 update

 - by New Deal democrat

About the only bright spot in Friday's jobs report was the 400,000+ decline in the number of involuntary part time workers.  So far this year, the number of those employed part time involuntarily has declined by -754,000, or about 1/2% of the workforce.

The best way to look at this is as a percentage of the workforce:

In January 1994, when the modern series began, 3.788% of the labor force was involuntarily employed part time. As of September of this year ,it was 3.852%.  While this isn't too bad, a "good" number would be under 3%.

The changes in 1994 subtracted about 1% from the calculation of involuntary employment.  To give an idea how our present situation compares to pre-1994 data, here it is, subtracting 1%, and then another 3.788%, so that any situation better than currently shows as a negative number, and any worse than the present shows as a positive number:

This is consistent with the idea that we need to see about another 1% decline for this to  be a "good" number.

Next, here is the number for those Not in the Labor Force, but who Want a Job Now (NILFWJN):

The modern version of this series also started in January 1994.  We are currently at the same number as we were at the end of 1994.  Again, not terrible, but not "good" either.

Finally, let's look at the updated U6 underemployment rate (blue) and compare it with the YoY% of wage growth (red):

In the above graph, both are set to "0" at the latest values.  if this expansion is like the last 2, nominal wage growth should start to pick up about now. 

US Bond Market Week in Review: Did the Window Close, Edition?

This is over at XE.com

US Equity Market Week in Review: The Bulls Need Earnings, Edition

This is over at XE.com

Weekly Indicators for Semptember 28 - October 2 at XE.com

 - by New Deal democrat

My Weekly Indicator post is up at XE.com .

The consumer portion of the US economy continues to expand.  The industrial portion, most exposed to global weakness, continues to be negative.

International Economic Week in Review: Japan Flashing Warning Signs, Edition

This is over at XE.com

Told you so: weakening job growth edition

 - by New Deal  democrat

After averaging over 200,000 during 2014 and the first half of 2015, the last two months have featured job growth beginning with a "1."    A surprise? Well . . .

Here's me on August 11, 2015, The Lbbor Market Conditioins Index as a Leading Indicator:

"As shown in the graph below, the [Labor Market Conditions Index] consistently leads the YoY% growth in jobs by 6 - 12 months, but YoY job growth (red) is a much smoother measure:

"....

"Since  the LMCI does lead the much smoother YoY growth in jobs, it strongly suggests that YoY payroll growth is going to decline over the next 6 months or so.  And that can only happen if those payroll numbers generally come in under 225,000, and probably even below 200,000 through next winter."

And here I am two days later, More Evidence we are past the midpoint for jobs growth:

"[U]nsurprisingly housing permits lead jobs growth as well:

"While a steep decline to a stall in housing, as happened in 2014, has not always led to a stall in jobs, usually it has led to at least some weakening, sometimes slight, sometimes very marked.  Since the lead time varies between 6 to 18 months, we are about due for last year's weakness in housing to lead to some weakness in payrolls."

As I get to say from time to time, you are reading the right blog.

September jobs report: a downshift in the trend in employment growth

- by New Deal democrat

HEADLINES:

• 142,000 jobs added to the economy
• U3 unemployment rate unchanged at  5.1% 

With the expansion firmly established, the focus has shifted to wages and the chronic heightened unemployment.  Here's the headlines on those:

Wages and participation rates

• Not in Labor Force, but Want a Job Now: up 23,000 from 5.932 million to 5.935 million
• Part time for economic reasons: down  -447,000 from 6.483 million to 6.036 million
• Employment/population ratio ages 25-54: unchanged at 77.2% 
• Average Weekly Earnings for Production and Nonsupervisory Personnel: unchanged at $21.08 ,  up +1.9%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.)

July was revised downward by -22,000.  August was also revised downward by -37,000, for a net change of -59,000.

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

• the average manufacturing workweek fell -0.2 hours from 41.8 hours to 41.6 hours.  This is one of the 10 components of the LEI and so will affect it negatively.
 
• construction jobs increased.by 8,000.  YoY construction jobs are up 199,000.  


• manufacturing jobs decreased by -9,000, and are up 92,000 YoY.

• Professional and business employment (generally higher-paying jobs) increased by 31,000 and are up 604,000 YoY.


• temporary jobs - a leading indicator for jobs overall - rosse by 4,600.


• the number of people unemployed for 5 weeks or less - a better leading indicator than initial jobless claims - rose by 268,000 from 2,095,000 (the post-recession low) to 2.363,000.

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

• Overtime declined -0.2 hours from 3.3 hours to 3.1 hours.


• the index of aggregate hours worked in the economy declined by 0.2 from  104.0 to 103.8. 
 
• The broad U-6 unemployment rate, that includes discouraged workers fell by -0.3% from 10.3% to 10.0%. 

•  the index of aggregate payrolls declined by -0.3% from 124.6  to 124.3 .

Other news included:      

• the alternate jobs number contained in the more volatile household survey decreased by  -236,000  jobs.  This represents an increase of 2,193,000 jobs YoY vs. 2,708,000 in the establishment survey.  


• Government jobs rose  by 24,000. 

• the overall employment  to population ratio for all ages 16 and above fell -0.2%  from 59.4% to 59.2%,  and has risen by 0.2%  YoY. The labor force participation rate also fell -0.2% from  62.6% to 62.4% and is down -0.5% YoY (remember, this incl udes droves of retiring Boomers). 

SUMMARY: 

Last month we had a "meh" headline jobs number with great internals.  This month we had a "meh" headline number with poor internals.  From a second month of sub-200,000 job growth to manufacturing hours to revisions of past months to declining e/p and labor force participation ratios to declining aggergate hours and payrolls, this was a poor report -- which basically took back last month's great report.

If you want a bright spot, it was the continued big decline in involuntary part time workers, which also drove down the U6 unemployment rate to 10.0%.  Below this number is where I expect nominal wage growth to finally improve.

This decline in employment trend growth is something I have seen for a number of months, as last year's poor housing market feeds through the rest of the economy this year.  This decline is also obviously about the continuing international deterioration feeding through the strong US$ to  a shallow industrial recession (but a continuing consumer expansion) here.

Watching the housing market python digest interest rates through sales, then prices, and then inventory

 - by New Deal democrat

I have a new post showing trends in the housing market up at XE.com .

Right now is a good time to show how changes in intrest rates feed through first to sales, then prices, and finally inventory.  It's the econo-geek version of watching a python digesting a meal.

Oil May be Forming A Double Bottom on the Weekly Chart

This is over at XE.com

Corporate Yields Are Widening

This is over at XE.com

Atrios publishes a misleading graph

 - by New Deal democrat

I'm just never going to score well on the "plays well with other progressives" conduct rating. The use of misleading or dishonest, cherry-picked statistics sets me off, whether it is done by a right wing nut case or a left winger.  Hell, my coblogger Bonddad has made a cottage industry of calling out John Hinderacker for that stuff.

Anyway, what got my blood boiling this morning was a post from Atrios, entitled "Recovery," making use of the following graph:

Originally I was going to call this dishonest, but I'll settle for "misleading."

To be sure, I don't dispute the overall point, which is that the wealthy have disproportionately gained during this 6+ year expansion, while wages for the middle/working classes have remained stagnant.  Outside of Bernie Sanders, I know of no candidate for President seriously making an issue out of this.

So why am I so annoyed with Atrios?  Because he chose the cheap shot with a misleading statistic rather than honest analysis.

The source of the above graph is Pavline Tcherneva of the Levy Institute.  I have no beef with her whatsoever, and I had a perfectly civil and helpful exchange with her earlier this year.

But here is what the graph does.  It measures the growth in incomes over *ENTIRE* previous expansions (measure from income peak to income peak), vs. the first 3 years of Obama's. The last bar in the graph indicates that it runs through 2012.

In other words, the graph compares one apple with a bunch of oranges.  To be comparable, it should have compared the first three years of income growth in other expansions vs. Obama's.  That's the first gripe.

But above and beyond that, it isn't even current, by a factor of nearly 3 years!

As it happens, since Tcherneva based her graph on the work of Emanuel Saez, and he has already published a preliminary update through 2014, I can show you what the distribution of income gains since the start of the expansion looks like more currently:

Through 2014, the wealthy had seen a share of income gains comparable with both the Clinton and Bush 2 expansions.  The bottom 90% fared much better during the Clinton years than either Bush 2 or Obama.  And of course, the Obama expansion isn't over yet.

BTW, Saez should be publishing his final 2014 report shortly. Since from Clinton peak to Bush 2 peak, the lower 90% only saw a 1% income gain, it should be interesting to see if that has was surpassed in 2014.

US Equity and Economic Review: The Market Continues to Meander, Edition

This is at XE.com