Weekly Indicators for November 30 - December 4 at XE.com

 - by New Deal democrat

My Weekly Indicator post is up at XE.com .

Appropos of Star Wars, we are all familiar with the Millenium Falcon's "hyperdrive."  Well, that's what Thanksgiving seasonality did to the intensifying commodity slump, and some other indicators too.

November jobs report: truly a mixed report, but enough for the Fed

- by New Deal democrat

HEADLINES:

• 211,000 jobs added to the economy
• U3 unemployment rate unchanged at 5.0%

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: down -416,000 from 6.052 million to 5.636 million
• Part time for economic reasons: up 319,000 from 5.767 million to 6.086 million
• Employment/population ratio ages 25-54: up from 77.2% to 77.4%
• Average Weekly Earnings for Production and Nonsupervisory Personnel: up $.01 from $21.18 to $21.19,  up +2.0%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.)

September was revised upward by 8,000.  October was also revised upward by 27,000, for a net change of +35,000.

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

• the average manufacturing workweek was unchanged at 41.7 hours.  This is one of the 10 components of the LEI.
 
• construction jobs increased.by 46,000.  YoY construction jobs are up 259,000.  
 
• manufacturing jobs fell by -1,000, and are up 28,000 YoY.

• Professional and business employment (generally higher-paying jobs) increased by 28,000 and are up 298,000 YoY.


• temporary jobs - a leading indicator for jobs overall decreased by -12,300.


• the number of people unemployed for 5 weeks or less - a better leading indicator than initial jobless claims - rose by 80,000 from 2,326,000 to 2.406,000.  The post-recession low was set 3 months ago at 2,095,000.

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

• Overtime was unchanged at 3.2 hours.


• the index of aggregate hours worked in the economy fell by -0.1% from  104.4 to 104.3. 
 
• The broad U-6 unemployment rate, that includes discouraged workers rose by  0.1% from 9.8% to 9.9%. 

•  the index of aggregate payrolls rose by 0.1%  from 125.6 to 125.7-.

Other news included:      

• the alternate jobs number contained in the more volatile household survey increased by 244,000  \jobs.   This represents an increase  of 2,031,000  jobs YoY vs. 2,609,000 in the establishment survey.  
 
• Government jobs rose  by 14,000.  

• the overall employment  to population ratio for all ages 16 and above was unchanged at 59.3% both m/m and  YoY.  The labor force participation rate rose by 0.1 from  62.4%  to 62.5%  and is down -0.3% YoY (remember, this incl udes droves of retiring Boomers).  

SUMMARY: 

This was actually a mixed report, with some good positives and some nasty negatives.

The positives, in addition to the headline jobs number, included substantial upward revisions in hours and jobs to last month. Those not in the labor force, but who want a job now, dropped by over 400,000 to a new post-recession low, more than outweighing the increase in involuntary part time workers. Construction and high paying professional and services jobs continue to increase. The prime age employment to population ration is now almost exactly halfway back to its peak almost a decade ago.

The negatives were first and foremost, wages, which after inflation, probably declined in November. The YoY change in wages for non-supervisory personnel is back to +2.0%.  My biggest fear is that in the next recession, this will actually go negative, i.e., there will be outright wage deflation. Aggregate hours dropped month over (upwardly revised) month, and aggregate payrolls rose a pathetic 0.1%..  The YoY change in job growth continues to decelerate from its peak a year ago, continuing to signal that we are later in the economic expansion.

This will presumably be enough for the Fed to raise rates, the lack of wage-push inflation be damned.  Hopefully they won't drive the economy into a new recession next year. .

November ISM non-manufacturing confirms consumer growth

 - by New Deal democrat

This morning's ISM services report shows some weakening, but still no cause for any immediate concern.

Note that because the "ISM services" index only has about 8 years of data, in this post I am making use of "ISM non-manufacturing" which dates to 1997.

Below I've done the same thing I did with ISM manufacturing two days ago: I subtracted 58.2 from the current reading so that it shows exactly at zero (blue).  I also again included ISM manufacturing (red):

There have been 5 times since 1997 that ISM non-manufacturing crossed its current bound to the downside: 1998, 2000, 2002, 2006, and 2011.  The most bearish of those was October 2000, only 5 months before the onset of the next recession.  The non-manufacturing reading was much weaker not just at the onset of the 2008 recession, but for 2 years prior!  On the other three occasions, (1998, 2002, and 2011), there was no recession at all.

Since the 2000 recession is the closest analogue to our current situation -- an industrial slowdown triggered by a strengthening dollar -- obviously there is some cause for concern, and the US$ bears watching exceptionally closely.  At the same time, today's reading like yesterday's motor vehicle sales confirms that the consumer part of the economy continues to outweigh the industrial weakness.

The importance of record November vehicle sales

 - by New Deal democrat

The preliminary information shows that vehicle sales for November set yet another post-recession record: 

( h/t Calculated Risk )

This is definitely *not* something that happens on the cusp of a recession.  If the "shallow industrial recession" I have been writing about for most of this year is deepening, it hasn't deepened enough to take down the consumer.

The 2001 recession was largely driven by a downturn in business investments -- but even there, vehicle sales did decline from a peak one year prior to the commencement of the downturn:

If the global downturn were being imported into the US via the stronger $ with sufficient force to cause not just a more pronounced slowdown, but an outright contraction, it would show up in fewer vehicle  purchases. We're simply not there.

November ISM index confirms intensified deflationary pulse. Can the Fed listen?

 - by New Deal democrat

For the last month in my "Weekly Indicators" column, I have been writing about an intensified deflationary pulse in the US economy.  For example, one month ago in my summary I wrote:

"Several intensified trends are emerging.  The positive trend is increased spending by US consumers as imported deflation finally teams up with a little improvement in wage growth. The negative trends are increased downturns in rail, shipping, and steel - i.e., that part of the US economy most exposed to global weakness - which have been joined by intensified strength in the US$ and a nascent upturn in interest rates courtesy of an anticipated December rate hike by the Fed."

This renewed pulse has now shown up in the November ISM index, which fell to a 3 year low of 48.6.  This is actual bad news, showing an economy that is near contraction.  The silver lining is, we have seen plenty of times before where the ISM index fell to this level without the economy going into recession.  In the below graphs I subtracted 48.6 from the reading, so that the November reading is at the 0 line.  Here is 1948- 1980:

and here is 1981 - present:

A level between 48 and 50 way associated with an oncoming recession 10 times -- and just a mid cycle correction another 8 times.

The simple fact is, the US$ has been accomplishing a tightening without the Fed hiking rates at all.  Here is the chart of the broad trade-weighted US$ since it began its ascent in July 2104:

In November it surged again to new highs.

At some point if the industrial recession becomes deep enough, it could overcome the still-growing consumer economy.   The strengthening US$ was certainly a factor in the 2001 recession:

 At present, however, unlike 2001, neither the yield curve nor housing nor real money supply are playing along. 

But this is a potent reason for the Fed to pull back on their rate hike plans.

New home sales vs. housing permits - how unusual is the divergeance?

 - by New Deal democrat

I have a new post up at XE.com .  The latest housing data from October shows a new high in single family housing permits, but new home sales haven't made a new peak since February.  What gives?  I take a look at the historical record, and find an interesting nerdy nugget.

International, US Equity and US Bond Market Week in Review

International

Bond Market

Equity Market

Weekly Indicators for November 23 - 27 at XE.com

 - by New Deal democrat

My Weekly Indicator column is up at XE.com .  The intensified deflationary pulse that we have seen in the last several months continues.

Corporate profits (through Q3 2015) as leading indicator for quarterly stock prices

 - by New Deal democrat

I have an update up at XE.com, comparing corporate profits through Q3 with stock prices.

Updating two mid-cycle consumer spending patterns

 - by New Deal democrat

Three years ago, I identified a consistent pattern whereby retail sales grew faster than the broader category of personal consumption expenditures early in an expansion, but slower later in an expansion.  Retail sales constitute about 50% of PCE's.  Note, however, that real retail sales are much more volatile. And, as this graph below (subtracting YoY PCE growth from YoY real retail sales growth through 1997) shows, in a very specific and non-random way:

Retail sales minus PCE's are always negative before the economy ever tips into recession. That's 11 of 11 times. Further, in 10 of those 11 times (1957 being the noteworthy exception), the number was not just negative, but was continuing to decline for a significant period before we tipped into recession.

So what does it look like now?  Here is the updated graph of the YoY% change in real personal consumption expenditures (blue) vs. real retail sales (red):

This strongly suggests we are in the late stages of the economic expansion.  Both are decelerating YoY, retail sales more than personal consumption expenditurres.

Secondly, the YoY% growth in personal consumptioin expnditures on durable goods tends decelerate before spending on non-durable goods.  Here is the graph of that relationship through the 1980s:

and here it is through the present:

This also suggests that we are getting later in the cycle, but interestngly, durable goods are holding up much better than nondurable goods.  

At the same time, none of these have turned negative -- just less positive.  There is no imminent threat of a downturn.

Revised Q3 GDP: there's good news, and there's bad news

 - by New Deal democrat

I have a new post up at XE.com discussing this morning's revisions to Q3 GDP.

While the revision was positive, the news regarding long leading indicators was significantly mixed.

One long term indicator changes to Yellow

 - by New Deal democrat 

One long leading indicator has turned from green (positive) to yellow (caution): mortgage rates.

Since middle class wages peaked in the 1970s, the ability to refinance debt at lower interest rates has been an important coping mechanism.  Particularly since the 1980s, whenever 

•  real wages have stagnated,
•  the effects of refinancing debt have dwindled, and
•  the ability to cash in an appreciated asset has stalled,

the middle class has retrenched by curtailing its debt load, thereby bringing about a recession.

(You can read a post from me on this, dating from the blogosphere's primitive era, here.)

As the below graph shows, each of the last 3 recessions has occurred after a period of 3 years (red) where mortgage rates have failed to make a new low:

The failure of mortgage rates to make a new low is not the *signal* for a recession.  Rather, it has been a necessary predicate.

As the below graph of mortgage rates and refinancing applications from Mortgage News Daily shows, we just passed the 3 year marker since rates made a new low during the week of November 19, 2012:

As a result, refinancing applications are stuck near their lows.  The boost to consumer spending from the last bout of refinancing has run its course.

In the 1980s and 1990s, the great long term bull market in stocks gave rise to the ability to cash in that asset.  But stocks have failed to make a new high in 6 months and have been basically flat all year:

In the 2000s, of course, it was home equity that was cashed out.  The below graph of the Case Shiller index shows that, in an apples to apples comparison of pair counts, house prices have gained little this year, and are well below their 2006 highs:

Fortunately, largely due to the collapse in gas prices, real wages have made new highs several times this year:

On a YoY basis, gas prices have continued to decline.  And we are now finally at the point in the labor market recovery where some upward pressure on wages should start to materialize.

Through the 3rd quarter, there is no sign of household debt retrenchment:

So there is no sign of any imminent downturn.  And so long as real wages continue to improve, the economic expansion should continue.

But the fundamentals underlying improvement to the lot of the middle class have moved into the yellow, "caution" zone.

Week in Review: International, US Bond Market and US Equity Market

International Week in Review

US Bond Market Week in Review

US Equity Market Week in Review

Weekly Indicators for November 16 - 20 at XE.com

 - by New Deal democrat

My Weekly Indicators post is up at XE.com .

The recent intensification in commodity delcines, the dollar surge, and globally depressed commerce is continuing.

Comparing total real labor compensation growth across economicexpansiions

 - by New Deal democrat

With few exceptions, people don't get a job for social reasons.  They go to work each day in order to earn money to purchase necessities, discretionary goods, and to save for future needs.  In short, they work because of cold, hard cash. 

That's why I think the defining element of a labor market recovery after a recession is not the number of jobs created, but rather the amount of cold, hard cash it is delivering to workers.  That is measured by real aggregate wages.  This number is the product of average hourly earnings for nonsupervisory workers, times average hours worked, times the number of jobs, and then divided by the consumer price index

As of the last employment report, we are now exactly 6 years past the trough in real aggregate wages from the Great Recession.  So how does the current expansion stack up?  Here are the graphs of all economic expansions going back to 1964 (the inception of the series) with the result indexed to 100 at the bottom.  First up is the big picture from 1964-present:

Here is our current expansion:

The current expansion trails three others.  The best is 1964-70:

The next best is the 1990s tech boom:

And the 3rd is the Reagan era of the 1980s:

But the current expansion also is better than 3 others.

Here is the early 1970s:

Here is the late 1970s:

These two delivered more wage growth initially, but it didn't last because the economy fell back into recession quickly.  

But the worst by any measure is the George W. Bush expansion of a decade ago:

This delivered weaker wage growth, over a short period, and fell back into the worst recession in 75 years.

So here is the handy comparison chart of real aggregate wage growth during all of the expansions of the last 50 years:

Trough	Peak	#months	Real wage growth %		Wage growth at 6 years
1/64*	8/69	67*	30.2		28.5%
11/70	5/74	30	18.5		12.4%***
4/75	3/79	47	20.8		11.4%***
7/80	1/81	6	2.4		n/a
11/82	10/89	83	21.6		20.1%
2/92	11/00	105	33.8		23.3%
4/03	9/07	53	10.5		9.5%
10/09	7/15**	69**	17.8**		17.8%

*start of series

**to date

***Measured through the next recession, as recovery was short-lived

Bottom line: the current expansion isn't great, but it hasn't been poor either.  If it lasts another year or so, it may overtake the 1980s to land in third place.

Psssst! Single family housing permits at nearly 8 year high

 - by New Deal democrat

Don't tell anybody!  I have a new post up at XE.com, showing how single family vs. multi-unit construction have gone in separate directions, due to the continuing distortions of the NYC program that ended in June.

Industrial production: oil patch down, manufacturing at new high

- by New Deal democrat

You will probably read some commentary from the usual suspects about how yet another negative industrial production number means that We Are DOOMED!

But it looks rather different when we take out the Oil Patch.  Below is a graph of overall industrial production (blue), manufacturing production (red), and mining production (green), all normed to 100 as of last December:

Yes, industrial production as a whole is showing a shallow recession.  But, despite the big hit to exports due to the strong US$, manufacturing production made a new all-time high in October.  The Oil Patch continues to hurt in a big way, and this is what is bringing down the overall number.

In short, the broader US economy continues to move forward.

UPDATE:  Below is a graph of manufacturing employment (red) vs. mining employment (green), both normed to 0 as of last December as well:

Although it has taken a small hit in the last few months, manufacturing employment is still up since last December.  Mining, on the other hand, is sucking wind.  The net decline has been about -100,000 jobs, or about -10.000 a month.  This has not been nearly enough to overcome the continued growth in services employment.

The US is primarily a service economy, and the hit to the Oil Patch is just not enough to take it down.

ECRI's "Deceptive" wage growth is actually pretty common

 - by New Deal democrat

I have a new post up at XE.com .

ECRI has some new commentary claiming that wages are only growing because aggregate hours are declining, to which I say, "Huh?!?"  The historical record says this isn't uncommon at all.

International, Bond Market and Equity Market Columns Are Up At XE.com

International

Bond Market

Equity Market

Weekly Indicators for November 9 - 13 at XE.com

 - by New Deal democrat

My Weekly Indicators piece is up at XE.com .  The deflationary pulse intensified further this week.