We all expected inflation to arrive: now it’s here

 

 - by New Deal democrat

This morning’s report on April inflation confirmed what we already knew: inflation, both from the demand and the supply side, was coming. Now it’s here.

First of all, take the YoY numbers with a grain of salt. Last April saw actual price declines in the teeth of the worst of the pandemic deaths and lockdowns. Here’s the monthly %change since the beginning of 2020 in total inflation (blue), core, i.e., less food and energy (red), and less energy only (gold):

So let’s delete last April, and look at the price increases in the 11 months since last May:

Total prices are up 4.3% since then, but only 3.0% in the “core” groups, and 2.8% less energy. That’s not enough to excite the Fed into action just yet. 

As I’ve previously pointed out, typically there’s no problem in the economy till CPI excluding gas prices exceeds 3%, and per the above, we’re not there yet.

Further, below I show total inflation YoY (blue), inflation ex-gas (gold), and Fed funds rates (red, /2 for scale). As shown there, spikes in inflation for a month or two typically haven’t caused the Fed to raise rates (see, e.g., 1995, 2003, and 2013):

Last year, the demand-side effects on spending caused by stimulus payments petered out after a few months:

I expect the same to be the case this year.

So the question is whether the supply side bottlenecks persist enough to spook the Fed. While they might start making noises about raising rates if we get another number like this next month, I think it will take at least two more months of big jumps in prices to actually move them into action.

March JOLTS report confirms that month’s strong jobs report

 

 - by New Deal democrat

This morning’s JOLTS report for March confirmed that month’s stellar jobs report. Job openings made a new series high, while layoffs and discharges made a new series low. Hires, quits, and total separations all also moved in the right direction.

This report has only a 20 year history, and so includes only two prior recoveries. In those recoveries: 

• first, layoffs declined
• second, hiring rose
• third, job openings rose and voluntary quits increased, close to simultaneously

The recovery from the worst of the pandemic almost one year ago at first followed this script, but the winter surge, which led to a few month of flat, or worse, jobs reports, disrupted that trend. We now appear to have reverted to that prior trend.

Let’s start out with layoffs and discharges (red) and total separations (blue), showing that these have followed their past patterns, as layoffs rapidly declined to a normal rate after last March and April. As noted above, this month’s report made a new series low:

Next, here is the series-long record of hiring, quits, and job openings:

Here is the zoom-in look at the past several years:

What has been different this time around is that, after rapidly improving, hires declined again until bottoming in December and January. All three are now moving in the right direction.

In the past few months, I have also highlighted YoY changes, but that view is useless now, as comparisons are with the worst of the March and April 2020 lockdowns.

Last month I flagged the issue of whether “hires reassert themselves, as in the past two recoveries, or whether openings without actual hiring continue to soar as they did starting in 2015.” In March both happened, as hires increased and openings made an all-time high. Given the relatively subpar April employment report, the jury is still out on whether hires will continue to increase - as that appears to be the missing link in this jobs recovery.

By the way, I plan on having more to say about Friday’s jobs report, but I will do that in a separate post.

Coronavirus dashboard for May 10: stay the course!

 

 - by New Deal democrat

The story in the US continues to be that vaccinations work!

As of today, the 7 day moving average of new cases is down to a new 8 month low of 40,873 per day. The 7 day moving average of deaths is down to a new 11 month low of 667:

Cases are down 5/6’s from their wintertime peak. Deaths are down over 80%.

And cases are declining, sometimes strongly so, in almost all the 10 worst States, including Michigan, where they are down over 60% (and look how well one of the best States, California, is doing!):

I found only 4 States where the overall trend in the past months could colorably be called increasing vs. sideways or declining - Maine, Oregon, Washington, and Colorado:

Within the week, at least 60% of all US adults will have received at least one dose of vaccine. If we figure that somewhere between 15% to 20% of all Americans have already had COVID, and that is randomly spread out among the remaining 40% of adults, then that puts the total % of adults with natural or vaccinated resistance to the disease at 69% to 72% - likely very close to herd immunity, or at least within striking distance.

That being said, we still have a ways to go to match the champions Israel and the UK, both of which have seen a decline of 95% or more in both cases and deaths - in the case of Israel, about a 99% decline:

Stay the course!

Weekly Indicators for May 3 - 7 at Seeking Alpha

 

 - by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

YoY comparisons remain ridiculous, so seasonally adjusted data, plus comparisons with 2019 where available are more informative.

That being said, all of the coincident and short leading indicators point towards continued strong expansion. The longer leading forecast is much murkier, partly because of some sharp movements in interest rates, and partly because the pandemic, the provision of enhanced unemployment benefits, and filling in jobs lost during the pandemic are in a race with one another.

As usual, clicking over and reading will bring you up to the virtual moment as to what is happening in the economy, and bring me lunch money for school.

April jobs report: well, that was a big miss .... but look at the composition

 

 - by New Deal democrat

HEADLINES:

• +266,000 million jobs added: 218,000 private sector plus 48,000 government. The alternate, and more volatile measure in the household report indicated a gain of 328,000 jobs, which factors into the unemployment and underemployment rates below.
• U3 unemployment rate rose 0.1% to 6.1%, compared with the January 2020 low of 3.5%.
• U6 underemployment rate declined 0.3% to 10.4%, compared with the January 2020 low of 6.9%.
• Those on temporary layoff increased 88,000 to 2,114,000.
• Permanent job losers increased 97,000 to 3,529,000.
• February was revised upward by 68,000, while March was revised downward by 146,000, for a net loss of 78,000 jobs compared with previous reports.

Leading employment indicators of a slowdown or recession

I am still highlighting these because of their leading nature for the economy overall.  These were almost uniformly negative, their worst performance in a year: 

• the average manufacturing workweek was unchanged at 41.6 hours. This is one of the 10 components of the LEI.

• Manufacturing jobs declined 18,000. Since the beginning of the pandemic, manufacturing has still lost -515,000, or 4.0% of the total.
• Construction jobs were unchanged. Since the beginning of the pandemic,  -14,000 construction jobs have been lost, or 0.2% of the total.
• Residential construction jobs, which are even more leading, declined by 1,300. Since the beginning of the pandemic, there have still been almost 30,000 in gains in this sector.

• temporary jobs decreased by 111,400. Since the beginning of the pandemic, there have still been 184,800 jobs lost, or 6.3% of all temporary jobs.
• the number of people unemployed for 5 weeks or less rose fell by 79,000 to 2.414 million, 332,000 more than just before the pandemic hit.
• Professional and business employment declined by 79,000, which is still 685,000, or about 3.2%, below its pre-pandemic peak.

Wages of non-managerial workers

• Average Hourly Earnings for Production and Nonsupervisory Personnel: rose $0.20 to $25.45, which is a 1.2% YoY gain***WHICH IS THE LOWEST YOY GAIN IN THE ENTIRE NEARLY 60 YEAR HISTORY OF THIS SERIES.*** This is a huge reversal of the 5%+ YoY gains recently seen, and reflects the rehiring of low-wage workers in sectors like food and beverage serving. 

Aggregate hours and wages:

• the index of aggregate hours worked for non-managerial workers was unchanged, which is a  loss of -3.6% since just before the pandemic.

•  the index of aggregate payrolls for non-managerial workers rose by 0.7%, which is a gain of 1.4% since just before the pandemic.

Other significant data:

• Full time jobs gained 935,000 in the household report.
• Part time jobs declined 54,000 in the household report.
• The number of job holders who were part time for economic reasons decreased by 583,000 to 5.243 million, which is an increase of 845,000 since before the pandemic began.

SUMMARY

Needless to say, this was a very disappointing report compared with all of the employment-related indicators we have seen in the past few weeks. My main thoughts are that (1) this was compositional; and (2) there is likely to be a substantial revision.

Usually when there is one report that sticks out like a sore thumb compared with other related data, it gets revised significantly. This is particularly so when one looks at the composition of the gains and losses in this report. Consider the following two points:

- there were job gains in food and drinking establishments of 187,000, over 2/3’s of the entire month’s improvements.

- the entire goods-producing sector of the US economy - which has been at very least red hot in the past few months - *lost* 16,000 jobs! This includes job losses in residential construction (housing), which has been going through the roof in recent months.

Another anomaly is that those unemployed less than 5 weeks, which usually correlates fairly closely with initial jobless claims, *increased* by 237,000; plus, both permanent and temporary layoffs *increased*  - a direct contradiction to the big decline in new jobless claims in the past 6 weeks.

Another big compositional change was the big decline in temporary jobs, paired with a huge increase in full time employment. This suggests that previous temps were converted to permanent hires.

Finally, note that the YoY% increase in average wages completely reversed, and made an all-time series low (although still positive).

So, basically, either (1) bottlenecks in supplies caused a complete halt in the goods producing sector including both manufacturing and construction; plus there was an anomalous contraction in professional and business services; or (2) there will be substantial upward revisions to those aspects of the report. I am more inclined to believe that #2 is the primary driver of this relatively poor report than #1.

New jobless claims: 1st target achieved!

 

 - by New Deal democrat

New jobless claims continue to be the most important weekly economic datapoint, as increasing numbers of vaccinated people and outdoor activities have led to an abatement of the pandemic - new infections are the lowest in 9 months, and deaths are at their lowest point in a year. 

Eight weeks ago I set a few objective targets for new claims: to be under 500,000 by Memorial Day, and below 400,000 by Labor Day. Subject to revisions, this week we hit the first target, as seasonally adjusted claims declined 92,000 to 498,000. 

On a unadjusted basis, new jobless claims declined 107,390 to 504,670. The 4 week average of claims also declined by 61,000 to 560,000. All of these were new pandemic lows.

Here is the trend since last August: 

To put these in perspective, last year in March and April we were seeing news claims on the order of 6 million to 7 million per week! On the other hand, the current level of claims was typical of recessions in the 50 years prior to the pandemic:

Continuing claims, which are reported with a one week lag, and lag the trend of intitial claims typically by a few weeks to several months, rose slightly off last week’s pandemic lows. On an unadjusted basis, they rose 2,533 to 3,786,096, while after seasonal adjustment they increased 37,000 to 3,690,000:

The long term perspective again shows that these are equivalent to the worst levels of most previous recessions:

Tomorrow I expect the April jobs report to show a gain of well over 1,000,000 jobs, and possibly closer to 2,000,000. And because this week’s jobless report will be part of May’s reference period for jobs, it bodes well as a starting point for next month as well.

The long leading indicator of credit conditions has just been updated by the Fed

 

 - by New Deal democrat

The easing or tightening of credit conditions has a good track record as a long leading indicator, giving us information about whether the economy will be expanding or contracting in 12+ months.

The Fed just updated its Senior Loan Officer Survey for Q1, which covers both the easing or tightening of credit supply on the one hand, and demand for credit on the other. I have a report on this over at Seeking Alpha, discussing its implications for the next year.

As usual, clicking over and reading brings you valuable new information, and rewards me just a little bit for my efforts.

Coronavirus dashboard for May 4: Keep the faith; vaccinations work!

 

 - by New Deal democrat

While there has been some renewed DOOOMishness in the press about whether the US will ever reach “herd immunity” or not, I remain more sanguine.

Here’s the overall picture of cases and deaths from the past 12 weeks (note: the wintertime peaks no longer show in this close-up):

The incipient “4th wave” has already receded, and deaths have continued to very slowly decline. Both cases and deaths are now 80% below their peaks.

Both cases and deaths have also all but vanished among the heavily vaccinated senior citizens:

COVID is now, relatively speaking, a young person’s disease. The one item of real concern is the decided increase in cases among those aged 14-17, suggesting that reopening schools in the face of new variants that transmit much more easily and are more infectious to young people was a terrible mistake. Hopefully approval of the vaccines for teenagers, apparently to happen shortly, together with summer vacation, will take care of this issue before fall classes begin.

As a percentage of the total population, people partially and fully vaccinated continue to increase:

This probably had much to do with the fizzling of the “4th wave.”

Keep in mind that we *know* that 10% of the US population has had *confirmed* COVID infections. Estimates of how high the true number of infections is, run as high as 33% of the entire population. If this group is randomly distributed between those vaccinated and those not vaccinated, then the total % of the US population with resistance to COVID is probably about 2/3’s - in short, getting pretty close to the threshold where “herd immunity” might come into play.

In other words, if a relatively small percentage of vaccine “resistors” change their minds (and there is evidence for some of that happening), and the disease continues to spread for a short while among the unvaccinated, those two occurrences alone might push us over the “herd immunity” threshold in several months.

Keep the faith!

ISM manufacturing, construction spending show modest declines, but the Boom is still ongoing

 

 - by New Deal democrat

It’s the first of the month, which means we get our first look at April data in the form of the ISM manufacturing index, as well as March construction spending.

Manufacturing has been running not just red hot, but white hot in the past few months. Although it pulled back a little in April, it is still in the range of historic highs:

The leading new orders index is just below 65, which is slightly below its best levels of the past year, but above every other level but 5 months in every other year going back to 2005.

The manufacturing Boom is still ongoing.

Nominally both total and residential construction spending in March made new all-time highs:

But when we deflate by the cost of construction materials, spending has actually declined since the beginning of the year:

It is still running hot compared with the last 10 years, however.

Bottom line: modest declines in both of these very leading sectors, but nothing to be concerned about at this point.