Monday, December 9, 2019

Scenes from the November jobs report


 - by New Deal democrat

Let’s take a more detailed look at last Friday’s November jobs report, in particular a discussion of the more leading sectors.

First, let’s update the three leading sectors of employment that I have been tracking: temporary help (blue in the graph below), manufacturing (gold), and residential construction (red). Here’s what they look like compared with 2018, showing the slowdown this year (Note: the big decline in manufacturing in October was the GM strike, which as expected was reversed in November):   



Residential construction looks like it has rebounded from its losses earlier this year, more confirmation of the rebound in the long leading housing sector.

As for temporary help, it continues to defy the gloomy weekly statistics that have been worsening this year in the American Staffing Association report. On the other hand, the pattern of downward revisions has persisted. This year there have been almost relentless downward revisions in that number. That pattern was mixed for September and October, as the downward revisions in the first were almost exactly matched by the upward first revision to the latter. Below are the original number for the last four months on the left, followed by the first and then final revisions to the right:

JUL +2200 -7300* -10,500
AUG +15,400 +14,500 +9,500
SEP +10,200 +20,100 +9,900
OCT -8100 +3800*
NOV +4800
*1st revision only


Next, the average manufacturing workweek remains down 0.9 hours per week YoY from its peak. Although I only show data from 1983 onward below, going back 70 years there have only been 2 occasions where such a decline lasted longer than one month without a recession happening (1953 and 1966). In the modern era shown, only in 1985 and 1995 for one month apiece were there 1 hour declines without a recession following. A look at the YoY% change in manufacturing hours for the past 35 years also shows that such losses have *always* led to actual YoY losses in manufacturing jobs:



So, despite the rebound in November, we should expect more and significant actual losses in manufacturing jobs going forward. And, like temporary help, the revisions for manufacturing employment have all been downward for six of the past seven months:


APR +4. +3 (-1)
MAY +3 +2 (-1)
JUN +17 +10 (-7)
JUL +16 +4 (-12)
AUG +3 +2 (-1)
SEP -2  +2  (+4)
OCT -36 -43 (-7)*
NOV +54 
*1st revision only

For the first 11 months of 2019, manufacturing has only added 34,000 jobs.

More broadly,  since January of  this year, only 97,000 jobs have been added in the entire goods-producing sector:



Further,there have been YoY losses in goods-producing jobs before all of the past 3 recessions, and going back 70 years, counting 12 recessions, in all but 3 there has been steep deceleration before and actual losses no later than two months into the recession, with only 2 false positives (1966 and 1985). This is consistent with at very least a severe slowdown.

Where there has not been a slowdown is in the (non-leading) services sector, which remains at roughly 1.5% growth YoY:



To sum up with regard to the leading sectors, Friday’s report was indeed good, but given the revisions, not quite as good as it appeared at first blush.

Finally, I wrote on Friday that the blowout good report negatived recession in the immediate short term. On Saturday Mike Sherlock took issue with many such similar claims

Pointing to the ISM manufacturing slowdown, a slowdown in small firms’ hiring, the manufacturing workweek, and the narrowness of the 2015-16 slowdown, concluding “people ought to discuss the actual data instead of making baseless claims.”

So I thought I would go back and take a look at the actual 70 years of data.

Since Friday’s report showed a m/m gain of 0.175%, I made a two graphs together showing the m/m% gain for the last 80 years, from which I subtracted -0.175%, so that any showing equal to November’s would be at the zero line, and only those showings better than November would be positive.

Here’s what I got:  



The two time periods are significantly different. During the post-war boom through 1974, it wasn’t uncommon at all to have readings equal to or better than November’s right before a recession began. In fact it happened just prior to every recession except for 1955 and 1957. Since 1974, though, it is a different story. Only in 1981, when the Fed raised rates sharply, was there a reading as good as November’s within 3 months of the onset of a recession. Prior to the last two recessions the lag was much, much greater. In either time frame, the three month rolling average was less than 0.175%/month leading up to recession - but of course it is now as well.

So, credit to Mish for raising a fair point. But I think the data from the modern era, where manufacturing is much less a component of the jobs picture is the most applicable. So I still think the November report is strong evidence against a recession before February.


Sunday, December 8, 2019

The endowment effect and the taxation of wealth


 - by New Deal democrat

As you may recall, I am reading the histories of a number of past Republics which have had various levels of success. Without getting too far ahead of myself, it appears that one constant is that, once plutocratic oligarchies are entrenched, they will refuse to yield power or money, even to the point of destroying democratic or republican institutions.  In other words, David Frum‘s observation that "If conservatives become convinced that they can not win democratically, they will not abandon conservatism. They will reject democracy" is true not just at the present, but across history.

I raise this in the context of Elizabeth Warren’s proposal for a “wealth tax.” Leaving aside its practicality or even Constitutionality, the above historical observation is probably at the root of the apoplexy with which plutocrats have reacted against it.

A further context to consider this issue is what psychologists and behavioral economists call “the endowment effect.” The endowment effect describes the consistent result that people would rather retain something that they have acquired - even if by charity, chance, or gift - than earn the  same thing when they do not own it. Put another way, people's maximum willingness to pay to acquire something is typically lower than the least amount they are willing to accept to give it up, even when there is no cause for attachment, or even if the item was only obtained minutes ago, and was not in any way “earned.”

This paradigm is applicable to taxation. Consider payroll tax withholding. Suppose a person’s income tax liability were $10,000. In strictly economic terms, they should be indifferent to paying that lump sum at the end of the tax year, or having it withheld at $385 per biweekly paycheck. But it is almost certain that the former situation would lead to a lot of anger at the end of the year, while the latter once started would be barely noticed. In the former case, the government is trying to take away the “endowed” $10,000, while in the latter case the taxpayer never even receives the money.

A “wealth tax” is like the former situation, and is likely to engender the strongest angry reaction. And it certainly appears to be the case from several thousand years of history that it oligarchs will be willing to trash everything else in order to keep their “endowment.”

Obviously this points to the importance of equitable interception of income before it vests in the recipient, I.e., withholding taxes. But in a case such as the US, where that horse has long ago left the barn, it argues for a recapture that at least minimizes the endowment effect. 

That, I think, is the estate or inheritance tax. I prefer the latter, because it emphasizes the fact that the heir has not “earned” the wealth, vs. the former which has been demogogued as a “death tax.” And it does make a difference. One of the Koch brothers, for example, could leave either $250 to every American household, or $40 Billion to their sole surviving heir. The estate tax would be identical, but the inheritance taxes would be very much different!

By no means am I suggesting that the wealthy would roll over for a robust inheritance tax. But I am suggesting that the reaction would be much less intense than for a “wealth tax.” That means a much better chance of the tax “sticking,” and a much better chance that the wealthy would not destroy our representative democracy to avoid it.

Saturday, December 7, 2019

Live-blogging the Fifteenth Amendment: December 7, 1868


 - by New Deal democrat

In the Senate: 

“Mr. Craving asked, and by unanimous consent obtained, leave to introduce a joint resolution proposing an amendment to the Constitution of the United States: . . .

“No State shall deny the right of suffrage or abridge the same to any male citizens of the United States twenty-one years of age or upwards except for participation in rebellion or other crime and also excepting Indians not taxed; but any State may exact of such citizen a specific term of residence as a condition of voting therein, the condition being the same for all classes.”
. . . .   

“Mr. Pomeroy asked and by unanimous consent obtained, leave to introduce a joint resolution proposing an amendment to the Constitution of the United States: . . . 

“The basis of suffrage in the United States shall be that of citizenship, and all native or naturalized citizens shall enjoy the same rights and privileges of the elective franchise; but each State shall determine by law the age of the citizen and the time of residence required for the exercise of the right of suffrage, which shall apply equally to all citizens, and also shall make all laws concerning the time, places, and manner of holding elections.”
——

In the House of Representatives:

“Mr. Kelley introduced a joint resolution proposing an amendment to the Constitution of the United States . . .

“No State shall deny to or exclude from the exercise of any of the rights or privileges of an elector any citizen of the United States by reason of race or color.”
. . . . 

“Mr. Broomall introduced a joint resolution proposing an amendment to the Constitution of the United States . . .

“Neither Congress nor any State by its constitution or laws shall deny or restrict the right of suffrage to citizens of the United States on account of race or parentage of such citizens; and all qualifications or limitations of the right of suffrage in the constitution or laws of any State based upon race or parentage, are, and are hereby, declared to be, void.”
. . . . 

“Mr. Stokes introduced a joint resolution proposing an amendment to the Constitution of the United States . . .
 
“No State shall make or enforce any law which shall deprive any citizen of the right of the elective franchise on account of race or color.”

[Source: Congressional Globe, 40th Congress, 3rd Session, pp. 6, 9, 11.] 
  
In view of the gutting of portions of the Voting Rights Act in the Shelby County case, and the subsequent passage of numerous voter suppression laws, and also the ongoing crisis of extreme gerrymandering, for several years I have wanted to write a series examining those issues from the viewpoint of the Congress that passed the Fifteenth Amendment 150+1 years ago. Finding the debates in the record of Congress proved diabolically hard, which is why I didn’t undertake this task one year ago. Recently the index in Prof. Eric Foner’s book “The Second Founding,” which discussed the post-Civil War Amendments in great detail, proved very helpful in locating many (although not all!) of those debates in the record.

So - no promises, because this involves reading about 1000 pages of tiny script in the Congressional Globe (the forerunner to the Congressional Record)! - I hope to follow this post up with day-by-day highlights of that debate, on the dates the statements were made, many of which clearly set forth the Congressional intent, and anticipated many of the issues we face now, 150 years later.

Notice the difference between the two Senate proposals and the three House proposals. The Senate proposals would codify a broad right to vote, and allow certain exceptions or qualifications to that right. The House proposals, on the other hand, narrowly prohibit racial discrimination in the right to vote, while being silent on other qualifications and notably not conferring a Constitutional “right to vote.” 

Of course, we know which version ultimately was enacted. The reasons why will become apparent as we watch the debates progress.

Weekly Indicators for December 2 - 6 at Seeking Alpha


 - by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

After a spell where all of the time frames were positive, there is a little darkening in the long and short term forecasts.

As usual, clicking over and reading helps reward me with a penny or two for my efforts it bringing you up to the moment information.

Friday, December 6, 2019

November jobs report: an excellent report for ordinary working households that takes recession off the table for now


 - by New Deal democrat

HEADLINES
  • +266,000 jobs added
  • U3 unemployment rate down -0.1% from 3.6% to 3.5%
  • U6 underemployment rate down -0.1% from 7.0% to 6.9%
Leading employment indicators of a slowdown or recession

I am highlighting these because many leading indicators overall have strongly suggested that an employment slowdown is here. The following more leading numbers in the report tell us about where the economy is likely to be a few months from now. These were positive:
  • the average manufacturing workweek rose 0.1 hour  from 40.4 hours to 40.5 hours. This is one of the 10 components of the LEI and is positive.
  • Manufacturing jobs rose by 54,000 (but would have risen by 13,000 were it not for workers returning from the GM strike). YoY manufacturing is up 76,000, a sharp deceleration from 2018’s pace.
  • construction jobs rose by 1,000. YoY construction jobs are up 146,000, also a deceleration from summer 2018. Residential construction jobs, which are even more leading, rose by 1800.
  • temporary jobs rose by 4800. 
  • the number of people unemployed for 5 weeks or less increased by 52,000 from 1,968,000 to 2,020,000.

Wages and participation rates

Here are the headlines on wages and the broader measures of underemployment:
  • Not in Labor Force, but Want a Job Now: increased by 78,000 from 4.753 million to 4.831 million 
  • Part time for economic reasons: decreased by -16,000 from 4.438 million to 4.322 million 
  • Employment/population ratio ages 25-54: unchanged at 80.3%
  • Average Hourly Earnings for Production and Nonsupervisory Personnel: rose $.07 to $23.84, up +3.7% YoY. Last month was revised higher with a YoY rate of +3.8% a new expansion high. (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.)  

Holding Trump accountable on manufacturing and mining jobs

 Trump specifically campaigned on bringing back manufacturing and mining jobs.  Is he keeping this promise?  
  • Manufacturing jobs rose an average of +6,300/month in the past year vs. the last seven years of Obama's presidency in which an average of +10,300 manufacturing jobs were added each month.   
  • Coal mining jobs increased by 300, an average of 100 jobs/month in the past year vs. the last seven years of Obama's presidency in which an average of -300 jobs were lost each month
September was revised upward by 13,000. October was also revised upward by 28,000, for a net change of 41,000.

Other important coincident indicators help  us paint a more complete picture of the present:
  • Overtime declined -0.1 hour from 3.2  hours to 3.1 hours
  • Professional and business employment (generally higher-paying jobs) rose by 38,000 and  is up +417,000 YoY. 
  • the index of aggregate hours worked for non-managerial workers rose by 0.2%
  •  the index of aggregate payrolls for non-managerial workers rose by 0.5%  
Other news included:            
  • the alternate jobs number contained  in the more volatile household survey rose by 83,000  jobs.  This represents an increase of 1,790 000 jobs YoY vs. 2,204,000 in the establishment survey. 
  • Government jobs rose by 12,000.
  • the overall employment to population ratio for all ages 16 and up was unchanged at 61.0% and is up 0.4% YoY.    
  • The labor force participation rate declined -0.1% from 63.3% to 63.2% and is up 0.3% YoY.

SUMMARY

Obviously this was an excellent report, which it has to be said was completely at odds with the manufacturing and consumption data that has been reported in the past month.

There were very few weak spots: short term unemployment rose slightly, as did those not even in the labor force who nonetheless want a job, and overtime.

Everything else was positive to strongly positive. Aside from the headline employment number, the standout was non-supervisory wages, which rose 3.7% in November after a revised 3.8% YoY rate in October, a new expansion high. Almost all of the leading indicators in employment were also positive. In particular temporary jobs, completely contradicting private data, have risen strongly in 3 of the past 4 months. Involuntary part time employment also fell to a new expansion low. Aggregate hours and payrolls also rose strongly. Revisions were positive.

Bottom line: this report completely takes recession out of the picture for the next several months, and was good news for ordinary working households.

Thursday, December 5, 2019

Initial jobless claims still a positive; what I’ll be watching for tomorrow


 - by New Deal democrat

As I’ve said a number of times over the past few months, the lack of an increase in initial jobless claims is the best argument against any oncoming recession. If businesses aren’t laying employees off, those same people are consumers who are going to continue to spend, which is 70% of the total economy.

This morning’s initial jobless claims report continues the streak. At 203,000, it is the lowest since April. Averaging it with last week, due to the change in Thanksgiving this year gives us 215,000 for the two weeks - right in line with the average for over the past year.

The four week moving average is 217,750, only 7.9% higher than April’s low of 201,500 - and below my 10% threshold for concern. The monthly average for November was 216,400, which is -3.7% below last November’s, also a positive:


Even the less leading but less volatile 4 week average of continuing claims is only +0.4% higher than one year ago, well below my +5% YoY threshold for concern:

Since initial claims leads the unemployment rate, my anticipation is that tomorrow’s jobs report will see unemployment remain at 3.6% +/-0.1%:


Tomorrow I will also again be particularly interested in manufacturing, residential construction, and temporary employment, the markers for all of which indicated contraction in the past month. Here is the update on temporary jobs from the American Staffing Association:


The pattern has been that the initial estimate for all has been positive, with substantial downward revisions in both temporary jobs and manufacturing. So I will be paying extra attention to the revisions in these, and to the goods producing sector in general, tomorrow.