Record low labor share: corporate profits are at their most extreme levels ever compared with nonsupervisory payrolls

 

 - by New Deal democrat

An I’ve read a few takes in the past week or so about the declining “labor share” of GDP. To cut to the chase, here’s a link to that exact graph: 

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1QGJI&height=490 

In case you are confused as to what this means, the labor share is defined as the total amount of compensation of employees and proprietors, divided by the value of the output of businesses. A lower labor share means that more of the revenue earned by businesses is going to other items; those items may be things like capital improvements, or more to the point they may be paid out as profits to shareholders. 

What the above graph shows is that labor share was gradually declining by roughly 2%-5% from 1960s until China was admitted to full regular trading status with the US in 1999. Thereafter it immediately plummeted by another 7.5%-10% in the 2000’s as high (and even average) paying manufacturing jobs were vacuumed overseas, primarily to China. After the end of the Great Recession, it stabilized during the 2010’s expansion at about 87.5% of its share in the 1960s. But following COVID, it declined another 2% — and finally, in 2025, it declined 1%, so that at the end of Q3 labor only received about 83% of the benefits of productivity that it did in 1960. 

An even more descriptive way to show this is in the graph linked to below, with norms the nominal values of GDP, corporate profits, and the aggregate payrolls of all nonsupervisory workers to 100 as of 1964, when the lattermost series started (note: shown in log scale so that each relative increment shows equally):

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1QGFV&height=490 

While there were some fluctuations, corporate profits and aggregate payrolls stayed in a reasonably stable relationship until the 1990s, when the tech boom together with a weak labor market skewed it towards profits. Even then, by 2000 the two series had converged again. Thereafter, profits have consistently blown out to the upside compared with nonsupervisory labor compensation. As of Q3 2025, corporate profits are almost double their level relative to labor compensation compared with what they were in 2000. Over time, this amounts to $Trillions(!) that have gone into the stock portfolios of the wealthiest sectors rather than average American households.

It’s no wonder, then, that the other day I saw a graph (sorry, don’t recall the link) showing that the richest Americans relative to all other Americans, now own multiples of wealth even compared against the most concentrated years of the Gilded Age.

It isn’t just in political terms that the US has largely turned into a Banana Republic; in economic terms it already is.

A powerful new tailwind behind the economy: the “real” price of gas

 

 - by New Deal democrat

There’s no new data of note today or tomorrow, so in the meantime (aside from observing Martin Luther King’s birthday) let me take a look at a very important, if small piece of economic data: the “real” price of gas.

Gas price shocks have been important precipitants of a number of recessions in the past 50 years. Conversely, sharp declines in the price of gas (most notably at the end of 2008) were important factors in the bottoming out of recessions and the beginning of recoveries. This also includes summer of 2022, when gas prices declined from $4.93/gallon in June in the aftermath of Russia’s invasion of Ukraine, to $3.70 in September (and ultimately $3.21 in December). When almost all of the other signs of oncoming recession were flashing warning’s the sharp declines in commodity prices, including for gas, completely overwhelmed the negatives, and the robust economic expansion plowed ahead.

But $3/gallon gas means something entirely different in 2026 than it meant the first time it breached that threshold in 2005 in the aftermath of Hurricane Katrina. That’s because incomes are vastly different. In September 2005 the average hourly wage for nonsupervisory workers was $16.19/hour. As of last month it was almost double that, at $31.76.

Which means that the “real” cost of gas was much lower in 2025 than it was in 2005. And in the last two months it has declined significantly again. Throughout most of 2025 it ranged between $3.00 and $3.20/gallon, but as of last week it was $2.78.

And although the mal-Administration in Washington has done many things that have sabotaged the economy, this is a strong countervailing force. How strong? Here’s a link to the long-term “real” price of gas, i.e., gas prices divided by average hourly nonsupervisory wages, going all the way back to the beginning of the 1990s:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1QGuV&height=490 

As of December (the last available period for wages), when gas prices averaged $2.89/gallon, it took just over 9% of an hour, or just over 5 minutes, for workers to earn enough to buy a gallon of gas. That is lower than at any point since the start of the Millennium except for the immediate aftermath of the 2001 recession and the pandemic lockdowns, and briefly in 2016.

And so far this month, the price of gas has declined even further, to $2.78 as of last week. While of course I have no crystal ball with which to forecast the future price of gas, should the new even lower range be sustained, that is going to put yet another powerful tailwind behind the consumer economy (in part because we know that consumers pay a lot of attention to the very noticeable price of gas), possibly saving it one more time from going into recession.

Weekly Indicators for January 12 - 16 at Seeking Alpha

 

 - by New Deal democrat

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

With the yield curve close to completely normal and mortgage rates at or near 3 year lows, and the housing market reacting to those, the longer range picture is improving.

But what is going to drive (in more ways than one) the immediate future is that gas prices are at the lowest they have been in almost 5 years:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1QC7I&height=490 

This is similar to, although much smaller than, the big unwind of prices in 2022 that created a positive supply shock saving the economy from recession. 

As usual, clicking over and reading will bring you up to the virtual moment as to the state of the economy, and reward me just a little bit for collecting and organizing the data for you.

Industrial production sets new post-pandemic high in December - but mainly due to utilities

 

 - by New Deal democrat

Industrial production is much less central to the US economic picture than it was before the “China shock,” but it remains an important if diminished economic indicator, particularly since the month it has peaked in the past has typically been the month the NBER has chosen as the economic cycle peak.

In December, headline industrial production (blue in the graph linked to below) rose 0.4%, with previous months revised higher 0.2% on net, establishing a new post-pandemic high, although it remains -1.3% below its 2018 all-time high.  Manufacturing production (red) increased 0.2%, and prior months were also revised higher by 0.2%, but it remained slightly below its September 2025 post-pandemic high:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1QzOo&height=490 

The difference between the two is mainly due to utility production, which rose 2.6% for the month, and was higher by 2.3% YoY. And all of 2025 on average set new all-time records for production, most likely driven by AI data center needs:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1QzOv&height=490 

Despite the influence of utility production, this was a positive report, adding to the evidence we have seen in durable goods orders and regional Fed manufacturing reports in the past few months indicating that manufacturing production in particular has been improving. This in turn is most likely due to the lack of new tariff gyrations, and producers having found a modus operandi to deal with the effects of previously imposed tariffs.

That being said, the next comprehensive report on personal income and spending will be crucial to determining whether the autumn lull or downturn in important coincident economic data ended after the end of the government shutdown or not.

Important scenes from the (recessonary?) December jobs report; was July a cycle peak?

 

 - by New Deal democrat

Last Friday I summarized the jobs report as “show[ing] a contracting jobs market in all important metrics except the headlines (which, for the record, were positive).  …[A]lmost] all of the important leading metrics … were negative, [including the] goods-producing sectors - manufacturing, construction (including residential construction), and temporary jobs - declined, as did the goods-producing sector as a whole. [And] “…[To] be clear: the jobs market is being entirely held up by service providing jobs, which tend to rise even in the earliest stages of recessions. [In short,] This is a jobs report which is ringing the alarms for imminent recession.” 

Let me elaborate on that with several important graphs as linked to below.

Since last April, the total number of jobs in the economy (pending benchmark revisions) has grown by a whopping 93,000. That’s under 12,000 per month! On a YoY basis, total jobs have increased only 0.4%. Going all the way back to WW2, only once has YoY job growth decelerated to such a paltry level (in July 1952) without there being a recession:

  https://fred.stlouisfed.org/graph/fredgraph.png?g=1Qx7s&height=490 

Indeed, with only one exception during WW2 (1944), by the time job growth has decelerated this much, a recession had already begun.

Goods-producing jobs have always led the way. These peaked in April, and have declined by -90,000 since. They are now down YoY -0.3%. Only three times since WW2 - in 1952, 1967, and 1986 - have there been such declines without a recession, and in all cases where there was, with the same exception of 1944, the recession had already begun:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1Qx93&height=490 

A similar situation obtains for aggregate hours worked by nonsupervisory personnel. These are up only 0.7%. This series started in the early 1960s. With the exception of 1967 and single months during 1986 and 1996, before the pandemic such paltry increases had always meant recession:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1Qxa8&height=490 

To be fair, since the pandemic there have been 6 equivalent or worse YoY comparisons without a recession occuring.

Next, let’s compare all three of the above series. What I want to show you in this link is the order in which the declines have typically occurred:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1QxaU&height=490 

Historically, the pattern has been: first, goods-producing jobs turn negative YoY (red); then aggregate hours worked (gold); and finally total employment (blue). Interestingly, 2025 has been somewhat unique in that YoY hours worked have held up better than total employment - but the pattern will not be broken if hours decline more precipitously from here than jobs. As noted above, YoY goods producing jobs have already turned negative.

Finally with regard to the employment report, real aggegate nonsupervisory payrolls did decline in December from a record high in November:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1Qxcl&height=490 V

These had grown only 0.3% from March through September, but jumped 0.5% higher as of November, due to a strong 0.7% nominal advance in payrolls, plus the kludged CPI numbers for those months, that added only 0.2%. Had shelter been more accurately calculated in that CPI report, it is likely that real aggregate payrolls would only have advanced 0.2% or even 0.1% instead of 0.5%. So while it is fair to say that this metric is not recessionary through December, a more accurate reading for the past 9 months may be closer to flat.

Which brings me to a link to one final graph, which is the most updated values for the 4 most important series the NBER takes into account when calculating recessions: payrolls, industrial production, real income less government transfers, and real manufacturing and trade sales, all of which have been normed to 100 as of July. The graph also included nominal total business sales for reasons I will describe below:

https://fred.stlouisfed.org/graph/fredgraph.png?g=1QuhH&height=490

Note that several of the series have not been updated beyond September or October. The point is, only two of the series - payrolls and real personal income - have exceeded their readings in July, both in September, and both by only 0.1%. Further, since total business sales declined in both September and October, and they do not take inflation into account, it is almost certain that real manufacturing and trade sales did so as well.

In other words, there may have been at least a small cycle peak in July, with at least a shallow downturn during the autumn, and in particular during the government shutdown. Whether if so it was pronounced enough, or will last long enough, to qualify as a recession  (pending revisions!) is completely unkown. But the leading metrics in the December employment report are not auspicious.

Jobless claims continue to be very positive, near multi-decade lows

 

 - by New Deal democrat

First, usually the week following the employment report is very quiet, and I put up “scenes from the report” with some important graphs. With all the releases catching up on old data this week, I haven’t done that; but because jobless claims are the only significant data this morning, I intend to put up a very important update on those “scenes” later this morning.

With that out of the way, let’s take our usual look at new and continuing jobless claims. I’ve noted a couple of times lately that there has been a “regime shift” from the end of last June towards lower YoY numbers. And that very much continued in this morning’s data.

Initial claims declined -9,000 last week to 198,000. Aside from a few weeks in the past 3+ years, there have been no numbers under 200,000 since the end of the 1960s! The four week average also declined -6,500 to 205,000. Similarly, aside from the last 3 years, 2018 and 2019, this is the lowest number in over 50 years. Finally, with the typical one week delay, continuing claims declined -19,000 to 1.884 million:

. 

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1QwzS&height=490 

There is a significant caveat, in that as shown in the graph linked to above, this is *very* similar to the post-pandemic unresolved seasonality we have seen in the past few years, notably exactly two years ago. 

All that being said, as usual it is the YoY comparisons that are more important for forecasting purposes. In that regard, initial claims were down -8.5% and the four week average down -3.5%. Only continuing claims remained higher, at 1.8%:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1QwAc&height=490 

The analysis remains that *very* few people are getting laid off (possibly some of this is due to immigrants in some industries either quitting or getting deported), but those who are laid off are having a more difficult time finding new jobs. I’ll have more to say about that later this morning.

Finally, although I won’t bother with a link to a graph this week, the lower numbers portend a decline in the unemployment rate in the next several months. One year ago the unemployment rate was averaging 4.1%-4.2%, vs. the 4.4% in the December report, so I am expecting at least a small further decline ahead.

The bottom line is that jobless claims continue to forecast a growing economy in the months ahead.