Leading employment indicators, real wages and payrolls, and the consumer nowcast recession indicators

 

 - by New Deal democrat

Typically in the quiet week after the jobs report, I take an extended look at some of the trends. With the significant “hot” CPI print yesterday, I am splitting that up. Tomorrow I’ll take a look at the unemployment side, as part of my weekly update on jobless claims. Today I’ll briefly update the leading employment indicators, which will segue into an important discussion of the health of the average American consumer in view of the recent acceleration in inflation. In particular, I will update my “consumer nowcast” recession system.

First, let’s take a look at the leading employment sectors, almost all of which are in the goods producing secotr (blue). This includes manufacturing (gold), construction (orange), and the more leading residential construction (red):

As you can see, with the exception of residential construction, all of these bottomed roughly at the end of last year, and have improved this year. Residential construction has reversed again in the past several months, but that hasn’t been enough to undo the wider, positive signal. And although I won’t show it, the remaining portion of construction is nonresidential construction, which includes things like AI data centers.

Two other items are the average weekly hours of manufacturing workers (red, right scale) and truck driving (blue, left scale):

The former has been very positive for many months, while the latter has improved slightly even with the burden of the spike in diesel prices due to the Iran war.

These positive leading sectors tell us that, left to its own devices, the economy - and overall employment - should continue to expand over the next 4-8 months.

But yesterday’s CPI print tells a very different story of different employment indicators; namely, real wages and payrolls.

First here is what average hourly (blue) and weekly (orange) wages look like deflated by CPI, normed to their highs in February of this year:

Both metrics are down -0.8% from that peak. Further, the former is now down an estimated -0.4% YoY, while the latter is down -0.8%. While these aren’t strong recession indicators, their turning down often does presage one.

More importantly, as I’ve written any number of times, is real aggregate payrolls. In particular, I track real aggregate nonsupervisory payrolls (red), which have a 60 year history of being an excellent leading and coincident indicator. In the below graph, I also include total payrolls including supervisory jobs (blue). Both of are normed to 100 as of their peak this past January:

The former is down -0.2% since then, and the latter is down -0.3%. While this is a long period of time to be down from peak before a recession, typically the retreat is on the order of -0.6% before a recession actually begins. Additionally, within +/-2 months of a recession onset, typically these turn down YoY. As of next month, if there is no improvement from this month, the former will be down -0.2% YoY, and the latter by -0.1% YoY.

The above discussion is very important on its own for forecasting purposes, but on a more fundamental level, if wages and payrolls are not going up in real terms, where is growth in consumer spending coming from?  Which leads me to my “consumer nowcast,” which holds that if real incomes aren’t going up, then spending must be fueled by either refinancing at lower interest rates (needless to say, not happening now!), or spending equity from increased home or stock prices. If neither of those is available either, then consumers are likely to retrench (i.e., their aggregate savings rate will increase), bringing about a consumer-led recession.

So the next graph includes the above two real payrolls data, and also adds house prices as measured by the FHFA (gold), and the S&P 500 stock prices index (purple), both also normed to 100 as of January of this year:

As you can see, house prices have barely increased also. As a result, home equity loans have increased relatively modestly, by 5.4% YoY through Q3:

But as you can also see, stock prices are up over 10% from the beginning of this year. In fact, on a YoY basis, up until several weeks ago, they were higher by 15%-20% YoY. And this is the only significant remaining source of consumer spending.

While credit card debt has increased by roughly 4% YoY, and population growth has not been a significant factor (thanks to actual and threatened deportations, as well as the complete shutdown of the asylum system (except for White South Africans), the US population has only grown 0.2% YoY so far this year). Aside from that, credit growth has mainly tracked inflation:

Finally, despite the bad news on real incomes, consumers have not pulled in their horns. The savings rate, which just declined to 3.8%, is among the lowest levels since the onset of the pandemic, and although I won’t show the longer term graph, it is also among the lowest readings outside of the 2000’s housing bubble period:

Pulling this all together, I see an economy which is improving - for the moment - but almost entirely based on AI data center construction and its related stock market Boom. Should this reverse, consumers will have no new source left to fuel increased spending, and then I would expect the negative signal in real aggregate payrolls to come to fruition.

October CPI: another hot month for inflation; plus, the last revenge of last year’s government shutdown

 

 - by New Deal democrat

One year ago we were in the midst of the longest government shutdown on record. As a result, there was no consumer inflation report for last October. Which means that this month is the last revenge of that shutdown - for all but a few items, there is *no* official YoY measure. 

But as usual, I have a workaround that will at least enable us to estimate all YoY% changes +/-0.1%. Except as noted, the YoY growth in all items below is based on the average of last year’s September and November reports, normed to “1”. Thus, e.g, a 4% rise in headline inflation shows as “1.04.”

And what it shows is that this October was yet another “hot” month for inflation, revealing higher numbers spreading out into more areas.

With that out of the way, let’s begin. In October, consumer prices (blue) rose 0.4%, and on a YoY% basis accelerated an estimated further 0.3% to 4.0%. Core CPI excluding food and energy (red) rose 0.3% for the third month in a row, aceelerating 0.2% on an estimated YoY basis to 2.8%. Excluding shelter (gold), CPI rose 0.4%,  and accelerated sharply on an estimated YoY basis from 3.5% to 4.2%:

Energy remained the main culprit, as prices rose 0.7% for the month, and were up an estimated 20.3% YoY:

There was good news and bad news for shelter, which is 1/3rd of the entire index. The good news is that it is now running significantly lower than headline inflation. The bad news is that it accelerated on a YoY basis for the second month in a row. Specifically, after rising 0.4% in September, it rose another 0.3% in October, and on an estimated YoY basis, rose  another 0.1% to 3.3% YoY (blue).  Of it’s two components, Owner’s equivalent rent rose 0.3% monthly and accelerated 0.2% to 3.5% estimated YoY, while actual rent of primary residence rose 0.2% and accelerated 0.1% to an estimated 2.9% YoY:

Electricity prices also continued to be a significant problem child, as prices rose a sharp 0.9%, although they only rose an estimated 3.7% YoY against very good comparisons last autumn. On an estimated YoY basis, they are higher by 20.4%:

Transportation services - mainly motor vehicle maintenance and repair, and insurance  - also continued to be a problem child, up 0.6% for the month, although only an estimated 3.8% YoY:

Last month’s silver lining continued this month, as motor vehicle prices continued to be somnolent. New vehicle prices (red) rose 0.2% for the month, and were only higher 0.7% YoY, and while used vehicle prices (gold) declilned -1.2% for the month, and they were once again lower YoY by -3.3%. The average for all motor vehicles (blue) declined -0.5% monthly, and was unchanged YoY. Note that this is one category for which the source data is not from the government, and thus we have actual YoY comparisons. The below graph is normed to 100 as of just before the pandemic:

Now that we have the inflation report, tomorrow I will take a closer look at some fallout from last Friday’s employment report. Teaser: this is not going to be good for real wages and payrolls.

More thoughts (and graphs!) about last Tuesday’s election, and the route to 2028

 

 - by New Deal democrat

Tomorrow we’ll get the as usual very important consumer inflation report. There’s no big economic news today, so let me fire off some additional thoughts, and graphs, about last Tuesday’s midterm elections.

1. Victory has many parents

Let me start out with this Bluesky post that was repeated by Dana Houle:

I’ve seen posts saying that massive voting by Blacks, especially Black women, powered last Tuesday’s victories. That was true:

I’ve also seen posts saying that massive turnout by Hispanics powered last Tuesday’s victories. That was also true:

I’ve seen posts saying that younger voters, and in particular younger educated White voters, powered last Tuesday’s victories. That was also true:

I’ve seen posts saying that a majority of White women finally voted for Democrats. That was also true:

And finally, I’ve seen posts saying that the utter disgust by some GOP-leaning voters, repudiating the corruption of the T—-p Administration, were a crucial part of last Tuesday’s victories:

 That was also at least partly true:

The point here is that you don’t suddenly get a D+13 electorate just by turning out the same people you did in 2022 and 2024. There was increased turnout by Blacks, Latinos, and young people (and there is considerable overlap between the last two, since in the past several decades more Hispanics have been born than Whites). And there were several other important demographic components, which I’ll note further below.

2. The incoming Congress will be in opposition; don’t expect it to be able to enact significant legislation.

I’ve already seen lots of posts insisting that Democrats must enact this or that social or economic legislation.

That isn’t going to happen. The most likely scenario over the next 2 years is that the only thing that is going to be enacted into law are new budgets and nothing else. That’s because the GOP in the Senate will likely continue to filibuster every progressive piece of legislation that passes the House, and even if the Senate provides 60 votes, T—-p will almost certainly veto that legislation, and Congress won’t be able to overcome those vetoes. 

What the incoming Congress can do is hold lots of investigative hearings, and pass in the House, and get 50+ votes in the Senate, for progressive legislation, thus providing a template for Democratic candidates in 2028, including for President, to promise the American people if they are elected. There may also be a few cases where enough GOP Senators defect that particularly incompetent and/or corrupt members of the Administration can be impeached and removed.

That’s what we should expect of the new Congress. One other, open, question, is how they handle their subpoena power. Since we should expect wholesale flouting of subpoenas by Administration-aligned witnesses, the question is whether the Congress responds by going mewling to the Federal Courts, or whether it reinvigorates its power of inherent contempt.

3. The GOP will be hobbled in 2028

Will T—-p try to run for a 3rd term? Maybe, if he thinks he can get away with it. But the signs are that he does not expect to live much longer, so the more likely scenario is that he allows for a successor. But there is no way he is going to allow any daylight between his positions (whatever they may be at any given hour) and the GOP Presidential candidate. This is always a problem for those of the same party running to succeed a two-term President, but it will be exacerbated in 2028 as T—-p continues to demand slavish obeisance to his cult.

And, like most authoritarian regimes, competency has been selected against in favor of bootlickers. It’s clear that both Vance and Rubio want to run, as well as DeSantis; but all three are wooden imitations of T—-p without the charisma. This does not bode well for the GOP in 2028. Their best chance is if a member of the “never-T—-p” faction is able to secure the nomination; but again, the cult is likely still to be a majority of the GOP primary electorate.

4. The 2028 electorate is not going to be the 2026 electorate

That being said, let’s return to the issue of demographics. Because the one group that still voted overwhelmingly GOP in 2026, by 80% White evangelical Christians, did *not* have any increase in turnout. In fact, I have seen one estimate (based on a Fox News poll) that they only constituted 17% of the 2026 electorate, vs. 23% in 2024. 

They will be back in 2028, as will the Wall Street ‘tax cuts uber alles’ crowd.

In short, while there is 2 full years of news and history ahead of us, at least preliminarily we should not expect a D+13 electorate in 2028. It is going to be a harder slog.

5. Demographics is still destiny

But progress will still be made, one funeral at a time. Let me re-run several graphs from 10 years ago that I have returned to a number of times. 

Here is the 2016 vote by age group:

And here is the historical graph of voting in Presidential elections by age group, defined by the year in which they turned 18:

The very blue Greatest Generation is all but gone, as is most of the Silent Generation. The tail end of that generation that was born during WW2, has always trended Blue. The first part of the Baby Boom trended red, while the middle group (basically 1951-57) that came of age during Nixon’s Administration, has always been very Blue. But then along came “Generation Jones” and at least the first half of Gen X - those born roughly between 1958 and 1972, who were disgusted with Carter and have always venerated Reagan, viewing the ‘Alex Keaton’ character from the 1980s sitcom ‘Family Ties’ as their role model. They are rock-solid GOP, and they are all now over 50 years old, the demographic of peak voting.

As an aside, that may explain why Florida, the 7th oldest State in the country, resisted the Blue wave:

Finally, every age group which has followed, with the possible exception of those who were disenchanted with the Biden Administration, has trended deep Blue:

The first few years of that age group have also reached age 50. In other words, we can expect a Bluer and Bluer electorate over time for the next several decades.

The trek back from the deep Abyss is not guaranteed to succeed. But it had to begin with a first step. That’s what last Tuesday was.

Weekly Indicators for November 2 - 6 at Seeking Alpha

 

 - by New Deal democrat

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

While none of my three time frames has turned negative, the decay from positivity has spread from the long leading time frame to the short leading one. Meanwhile, led by consumer spending, the coincidental fime frame has stayed very positive.

But as I’ve written many times in the past year, the wealth effect from the AI Boom (or bubble) in the stock market has had a lot to do with underwriting that consumer spending.

Will the sell-off in that sector of the market affect consumer spending? We may soon find out.

As usual, clicking over and reading will bring you up to the virtual moment as to the state of the economy, and will bring me a little lunch money as my reward for collecting and collating it for you.

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.