November jobs report: very positive headlines, but with weak hours and aggregate payrolls

 

 - by New Deal democrat

In the earlier part of this year my Big Theme was that the AI Boom (or possibly bubble) had been counterbalancing a stagnant or even shallowly recessionary rest of the economy. In the last few months that has changed to the economy being in an inflationary expansion, including a slight pick-up in employment and downward drift in unemployment.

After a preliminarily weak report this month, this month came in at the stronger end of that range.

Below is my in depth synopsis.

HEADLINES:

• +165,000 jobs gained. Private sector jobs increased 159,000, while government jobs rose 6,000. The three month average increased to +137,000.
• The pattern of downward revisions to previous months reversed this month, as August was revised upward by +53,000, and September was also revised higher by +31,000 for a total increase of +84,000.
• The alternate, and more volatile measure in the household report, rose sharply for the third month in a row, by +463,000 jobs. Because of the lapse in reporting last October, there is no YoY comparison this month. 
• The U3 unemployment rate declined -0.1% back to 4.1%. 
• But the U6 underemployment rate rose +0.2% to 7.9%.
• Further out on the spectrum, those who are not in the labor force but want a job now rose +234,000 to 6.024 million, well within its recent range.

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 vs. rebounding. These were decidedly mixed.

• The average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, declilned -0.2% to 41.8 hours.

• Manufacturing jobs rose +19,000, the 7th increase in the last 12 months.
• Truck driving, which had reversed its recent decline for three month in a row, was unchanged this month.
• Construction jobs declined -3,000.
• Residential construction jobs, which are even more leading, declined again, by -1,200.
• Goods producing jobs as a whole rose +15,000. 

• Temporary jobs, which had declined by over -650,000 since late 2022, but has reversed higher most of this year, rose again, by 18,600.
• The number of people unemployed for 5 weeks or less rose +72,000 to 2170 million, well within its range over the last 3 years.

Wages of non-managerial workers 

• Average Hourly Earnings for Production and Nonsupervisory Personnel increased $.12, or +0.4%, to $32.75, for a YoY gain of +3.3%. Except for July’s +3.2%, and several months affected by pandemic shutdowns, this equals the lowest since December 2019. This remains less than the 3.7% YoY inflation rate as of September, meaning that these workers are again earning less in real terms.

Aggregate hours and wages: 

• The index of aggregate hours worked for non-managerial workers declined -0.2%, and is up 1.2% YoY.

• The index of aggregate payrolls for non-managerial workers rose +0.2%, and is up 4.6% YoY, and up 0.9% above the YoY inflation rate through September.

Other significant data:

• Professional and business employment continued its recent increasing trend, up +70,000. These tend to be well-paying jobs. This remains above its low from last October, and remains higher YoY as well.
• The employment population ratio reversed its recent declines, rising another +0.1% to 59.3%, vs. 61.1% in February 2020.
• The Labor Force Participation Rate rose +0.1% to 61.9% , vs. 63.4% in February 2020. IMPORTANT: both the EPOP and LFPR are greatly affected by the retiring Boomer population. In the prime age 25-54 demographic, they are virtually unchanged.

SUMMARY

This was one of the most positive reports all year, still consistent with an inflationary expansion, and with mixed but reasonably good internals. The employment gain was weak, and so were the revisions. The unemployment rate declined, and hourly earnings increase well. Weaknesses included an increase in the underemployment rate, a negative number for aggregate hours, and a very weak increase in aggregate payrolls, almost certainly less than the likely increase in inflation this month. Perhaps most importantly, real aggregate nonsupervisory payrolls remain positive YoY, signaling that the expansion is continuing.

The economically weighted ISM averages for November show a strong expansion, weakly growing employment, and even worse inflation

 

 - by New Deal democrat

The economically weighted ISM manufacturing (25%) + services (75%) indexes continue to be the best timely snapshot of the US economy. The manufacturing index has a very good 80 year history as a leading indicator, and the latter now has 25 years under its belt as well. When that average has dipped below 50 on a 3 month basis, the US has been in recession; otherwise, not.

Earlier this week, the manufacturing index continued to show a strong, but very inflationary, expansion. Yesterday, the services index showed the same. And both also continued to show that employment, while growing, remained weak.

To the numbers: the headline services index declined -2.7 to 53.8 [recall that any number over 50 indicates expansion]. The three month average was 57.3. Since the three month average for manufacturing was 54.9, the economically weighted average was 56.7 [note: in all of the graphs below, the manufacturing number is gray, and services blue]:

New orders declined -3.9 to a still strong 55.9. The three month average was 57.8. The three month average for manufacturing was 54.8, so the economically weighted of this most forward looking component was 57.8:

The relatively punk metric in these indexes has been employment, which had been in contraction for over a year, before improving in the last few months. This month it rose 1.3 to 51.4. The three month remained slightly in contraction, however, at 49.5. Since the manufacturing employment subindex three month average was 52.1, the economically weighted average continued just barely into expansion at 50.3:

Importantly, the weighted average for employment has lagged the jobs report this year, which may have to do with the fact that the ISM indexes are *diffusion* indexes, i.e., how widespread is the hiring, and the hiring in the jobs report has been more narrowly focused on AI-related industries.

Finally, widespread price increases have been worsening in these indexes this year. This month, the prices paid index for services declined -1.0 to 73.0, its second highest number in over two years, and the three month average rose +0.9 to 73.2. The three month average for manufacturing declined this month to 75.2, meaning that the economically weighted average increased 1.0 to 73.6:

Note that the above graph covers five years instead of just 3, to show that producer inflaton has become almost as bad as during the post-pandemic inflation, with the worst reading since mid-year 2022.

To sum up, in November the economically weighted ISM averages show an economy that remains in reasonably strong expansion, with a very positive leading new orders component. Employment has also improved, but is still only weakly expansionary. And inflation is, on average, getting even worse at the producer level, which bodes poorly for consumer inflation as well. 

Jobless claims continue near historic lows, anticipating a further decline in the unemployment rate

 

 - by New Deal democrat

I will put up my detailed summary of the economically weighted ISM reports for this month a little later today, but first let’s take our regular weekly look at jobless claims.

Initial claims fell to a near historic low of 189,000 last week (only the week of July 18 was  equal). The four week moving average declilned -2,250 to 194,750, a historic low not seen since 1969 - over 55 years ago. With the typical one week delay, continuing claims rose 23,000 to 1.718 million:

On the YoY% basis more important for forecasting purposes, initial claims were down -17.1%, the four week average was down -13.6%, and continuing claims were down -12.4%:

This continues the trend all year long of better and better positive news for the economy in general and the labor market in particular for the next few months.

Finally, let’s take our last look before tomorrow’s jobs report at the leading/lagging relationship between jobless claims and the unemployment rate:

I do not see how the unemployment rate fails to improve over the next few months, to a sub-4% reading. The last time there were these low jobless claims numbers, unemployment was in the 3.6%-3.8% range. We’ll obviously get our next look tomorrow!

Thoughts (and graphs!) on yesterday’s midterm elections

 

 - by New Deal democrat

Well, that was exciting, wasn’t it?

Before I return to my usual economic nerdiness, here’s a few graphs that have stood out to me so far about last night’s election.

First, it looks like Democrats outperformed the polling average by about 1%-2%. That was enough to carry a bunch of “too close to call” races across the finish line. How big a tsunami was it? 

Well, Democrats in total outvoted GOPers by about 13%, the biggest such outperformance by either party since 1976:

So the framing that this election would be “2018+” appears vindicated, as well as that the GOP would suffer its worst shellacking since 1974. In that year, Democrats picked up 49 seats, which in modern times was only surpassed by the GOP pickup of 54 seats in 1994. It’s possible that could be surpassed this year, once all the votes are counted, but even if not, it will be a very large increase

Democrats now control every US Senate seat in the Northeast except for 1 in PA, and including the Great Lakes States, the GOP only has one each in OH and WI, as well as both in IN. Further, Democratic dominance in the Senate extends all the way down the Atlantic Coast to the FL State line, as well as the West Coast:

When we include control of State governments, here is the updated map we get:

The GOP is dominant in Appalachia, the lower Mississippi valley, the Gulf Coast, and the Northern tier of thinly populated mountain and high plains States, and almost nowhere else.

The biggest earthquake of all last night has to be Texas, where not only did we pick up the US Senate seat, but also the Governorship, and control of one of the two State Legislative Chambers. There is still work to do to pick up the second chamber, and of course the GOP “dummymander” is in place until we can manage a trifecta, or after the 2030 Census, whichever comes first.

Further, both NC and GA appear to be following VA’s trajectory on the East Coast. Although the NC Congressional “dummymander” backfired, with a majority of Congressional seats now held by Democrats, the state level legislative gerrymanders will still have to be overcome.

And finally, my pet project of Kansas bore fruit last night, with both the US Senate seat flipping Blue, and the Democrat also claiming victory in the Governor’s race. Only the lower House of the state legislature was up for election last night, and while the Democrats didn’t win, they broke the GOP supermajority.

Lastly, the generational shift to Democrats was also apparent last night:

When the younger Democratic cohorts come out to vote, Democrats win. Among older voters, the GOP majority isn’t so much the bulk of Boomers, but rather “generation Jones” and Gen-X, i.e., those people born in the 1960s and early 1970s who formed their core political beliefs during the Carter/Reagan/ GWBush years, and are at their peak propensity to vote now.

Thoughts on today’s midterm elections

 

 - by New Deal democrat

My thoughts on how today’s midterm elections might shake out are expressed pretty well by this thread by MTSW on Bluesky:

Recall that poll forecasts themselves, in addition to all the problems he cites, *themselves* move the electorate, as do reports on who has been voting early. So I expect the polls to be wrong. The question is, how broadly and in which direction? There’s evidence that late deciders have been shifting towards Democrats, but that’s about as far as I trust those results.

But I think the above framing is a good one: today is likely to be “2018+.” The anti-T—-p hatred is hotter. Unlike past elections, his demand for total devotion means that no GOPer’s have been able to run campaigns based on their alleged “independence” or bipartisan credentials. In November 2018 consumer inflation was 2.5% YoY, and gas cost $2.86/gallon. T—-p hadn’t gotten the US involved in a war; and the 2018 tax cuts, as opposed to last year’s Big Bad Billiionnaire Bust-Out Bill, didn’t come into effect until after the midterm elections.

So while in my head I am very cautious, in my heart I am expectiing a 1974-style shellacking. We’ll see.

What I will be watching:

1. Per Dan Guild, Florida counts its votes very quickly. Frequently you will know how the vote has been breaking by 8:30 pm eastern time, and almost certainly by 9 pm. While the gerrymanders are likely to work, there is a governor’s race, where the average poll has the Democrat losing by about 4%. This in contrast to the 58% to 40% blowout in 2022, and the 52% to 47% loss in 2018. So I will be looking to see how the governor’s race appears to be panning out compared with those benchmarks. 

2. Two Senate contests on the East Coast can also give us some early information: Susan Collins in Maine (D+3% on average) and Lindsay Graham’s sister in SC (D-1% on average). If either of those gets called early - and in which direction - it will give us a good sense of how other races are likely to break.

3. Three Congressional races in the Virginia Tidewater: VA-2, -1, and -5. VA-2, which includes lot of military voters in places like Virginia Beach, has been perennially close, on the order of 51%-49% to 53%-47% in favor of whichever party goes on to win nationwide. I will be looking to see who wins, and whether there is a breakout towards the Democratic side. The other two districts have been rated “toss-up” (VA-1) and “lean GOP” (VA-5). But the former averaged a 10%-13% in favor of the GOP incumbent in 2018, 2022, and 2024. In the latter district, the lean has been in favor of the GOP by 6% in 2018, and about 15% in 2022 and 2024. If either of these flip, it will be a very bad night for the GOP. If both do, it will be catastrophic. Even if they don’t flip, it the GOP margin is close enough, it will be a long night for the GOP nationwide.

4. A few outliers: Did voters in Michigan who responded to polls hide anti-MOOSlim feeling? If so, El Sayed might lose. Have White voters in the Deep South been enervated by the economy and/or corruption, vs. Black voters burning with homicidal rage at the gutting of the VRA? If so, there could be upsets where Black Democratic candidates in Mississippi, Arkansas, and/or Louisiana pull off victories.

We’ll find out soon enough.

September JOLTS report: another indication of an improved labor market

 

 - by New Deal democrat

This morning’s JOLTS labor market report for September, which parses labor market turnover by hires, layoffs, and quits, among other things, continued the string of positive trends in this sector this year, as all four major components moved in a good direction.

The first graph below shows the “soft statistic” of job openings (blue), actual hires (red), and quits (gold), all normed to 100 as of just before the pandemic:

Both hires and quits have had a sideways trend for the past two years. As noted above, in September all of these improved. Hires increased 131,000 to 5.402 million, and were up 3.4% YoY. Quits increased 321,000 to 3.365 million and were up 4.9% YoY. The “soft” metric of openings, which has had a slightly increasing trend this year, and outside of recessions for the past 25 years, increased 343,000 to 7.523 million, and were up 4.9% YoY. Nevertheless, both hires and quits remain below their pre-pandemic levels of 2019.

Here is the same graph for layoffs, which declined -127,000 to 1.641 million, and were down -9.6% YoY:

Layoffs have been running at close to their lowest post-pandemic levels over the past ten months, and their declining trend since late last year is of a piece with what we have been seeing in the very low level of initial and continuing jobless claims each week.

Let’s also update the comparison of the quits rate (blue, right scale), which has been suggested to lead YoY average hourly wages (red, left scale):

Like the number of hires and quits, for the past year the quits rate has been close to completely flat. That argues that *nominally* average hourly wages YoY should be stabilizing at a 3.4%-3.5% rate. 

Last month I concluded that “the general takeaway from this report is a jobs sector that has normalized in a low hire, low fire trend.” This month I can add that the trend, like other reports from the labor market, has been improving.

In the goods producing sector, AI continues to soar, and everything else continues to languish

 

 - by New Deal democrat

As usual, we start out the month with reports on two important sectors of the economy, manufacturing and construction, via the ISM manufacturing report (for October) and the construction spending report (for September). And the economy continues to look as it has all year, with an inflationary expansion in manufacturing, and lackluster construction with the huge exception of AI data centers.

Let’s start with the ISM manufacturing report. Between this report and the ISM services report which will be released on Wednesday, we get an excellent snapshot of the economy at the beginning of each month. The former in particular has been around for almost 80 years, and has had an excellent record. 

The headline index rose +1.0 for the month to 55.5. For forecasting purposes, I average the last three months, which comes out to 54.9 (recall that the dividing line between expansion in contraction is 50):

The more leading new orders subindex rose +0.2 to 55.5, although the three month average declined slightly to 54.8:

The upshot of these two numbers is that the manufacturing expansion can be expected to continue at least through the end of this year.

Recently the employment subindex in this report has also improved into expansion, albeit at a subdued level. This also continued this month, as it declined -0.3 to 52.4. The three month average also declined slightly, by -0.1, to 52.1:

Finally, the negative new on inflation also continued this month, as the prices paid subindex declined -2.7 to 75.2. The three month average, however, rose +1.4 to 74.8, rising even closer to its post-pandemic inflationary peak:

This report reminded me of the regional Fed reports for the last month, which suggested that while the expansion is intact, the second derivative may be declerating, i.e., the rate of growth has been peaking; and further that its inflationary component is accelerating, which is not good for downstream consumer prices.

Finally, keep in mind that for forecasting purposes, I weigh manufacturing at 25%, and the other 75% from the ISM services report, which has been running quite positive for many months.

If manufacturing is in good shape (except for prices), construction is not in good shape at all - except for AI data center construction. Nominally total construction (blue in the graph below) declilned -1.9% in September, and is down -2.7% YoY. The more leading residential construction sector (red) also declined, by -5.4% for the month, and is down -8.8% YoY. Since the price of construction materials (not shown) rose 0.7% in September and was up 17.0% YoY, the declines were even more negative. Here’s the absolute values nominally:

And here are the YoY% comparisons:

The particularly important negative is that residential construction, a long leading sector, continues to worsen.

The news was “less dismal” in manufacturing construction spending, which rose for a change, up 0.2% for the month, but remains down -19.2% YoY and about 30% from its September 2024 peak. The “relatively” good news is that this number has been running almost completely flat for the last three months, and is only down -0.6% since June:

Both residential and manufacturing construction remain recessionary, plain and simple.

Finally, nonresidential construction, which includes but is by no means limited to AI data center related construction, continued to rise, up 1.1% for the month, and up 1.8% YoY:

But this is misleading. While unfortunately I can’t show you a graph, while total nonresidential construction spending nominally increased $7.647 Billion for the month, and $17.406 Billion YoY, but AI data center related construction spending rose by more, up 8.282 Billion for the month, and up $45.752 Billion YoY. In other words, take out the AI data center Boom and nonresidential construction is continuing to decline as well.

My conclusion this month is the same as it was last month: “Basically the goods-producing sector of the US economy includes the AI Boom, which is continuing, and everything else, which is somewhere between outright recessionary to slightly expanding. And the expansion is very inflationary.”