Leading sector benchmark job revisions were almost all seriously negative

 

 - by New Deal democrat

Before I get to the main point at hand, let me make a quick note about this morning’s existing home sales report for January: it was more of the same. Sales remained within the sideways range they have been in for nearly the past three years; prices were nearly flat YoY, up only 0.3%; and inventory was above its post-pandemic levels but well below pre-pandemic levels. 

But on to the main course. I have seen a surprising amount of commentary on the Seeking Alpha investment site that yesterday’s jobs gain of 131,000 for January means that employment is on the upswing, completely neglecting that one month does not make a trend, that revisions have been relentlessly downward, and that January is perhaps the most difficult month for the BLS to accomplish seasonal adjustments — in January there were 2,649,000 layoffs! It’s just that the adjustment mechanism expected even more.

By far more important for the trend, and in particular the trend for the leading indicators within the jobs report, were the revisions to the past 12+ months of data. And as we saw from the headline adjustment, it was very large and very bad. So let’s start there, and then go through the most important leading sectors and metrics.

The total adjustment over the relevant data was nearly a -1,000,000 jobs. For the year 2025, the adjustment was just over -400,000, causing a previous 584,000 gain to turn into only a 181,000 gain, for an average of only 15,000 jobs added per month:

Even worse, for the eight months from April through the end of the year, a grand total of only *12,000* jobs were added, and no that’s not a typo. That’s 1,500 jobs per month! That’s about as close to recessionary as you can get without actually being in one (that we know of, at this point).

So let’s turn to the leading sectors, starting with manufacturing. There a -166,000 decline through December since Mary 2024 turned into a -251,000 decline, before its very slight 5,000 increase in January:

Next, here is construction. There, a slightly increasing trend throughout the year that added 14,000 jobs turned into a declining trend through October that ended up with a net -1,000 decline for the year:

But even the rebound since October disappear when we look at the even more significant residential construction sector. There, an increase through March followed by a slightly declining trend thereafter, resulting in a -1,400 decline for the year turned into a nearly relentless decline since March 2024 that ended with a -12,900 decline during 2025:

The entire rebound in construction was because of nonresidential building construction (and asociated specialty trades, not shown below):

Through October of last year revisions added 3,700 jobs, and then 12,000 more since.

For the goods producing sector as a whole, the -90,000 decline from its April peak through December turned into a nearly relentless-184,000 decline from a peak in July 2024 through last October, before increasing 49,000 since (again, all due to nonresidential building construction and associated specialty trades):

In short, *all* of the leading employment sectors of the economy declined during 2025. The only significant leading indicator in employment that remained postive was the average workweek in manufacturing, but even that did not improve:

Finally, let’s turn to aggregate nonsupervisory payrolls. We won’t know what the “real” number was for January until we get tomorrow’s CPI report, but since there was a nominal 0.8% gain last month, it is likely the “real” number will be positive as well. Here the revisions subtracted roughly -1% from the previous trend, but retained an almost identical positive trajectory:

Decomposing the metric, revisions indicated a -0.6% decline compared with the previous index for aggregate hours worked:

But the previous vintage showed a 0.7% gain for the year, which was reduced to 0.4%, but still a gain.

This further compensated for by a 0.2% increase in average hourly earnings over the year ending in December:

In other words, while the absolute number for aggregate payrolls was revised downward, the upward *trend* remained intact. That, along with the intract trend of increased average weekly hours in manufacturing, were the sole leading positives that came out of the benchmark revisions. All of the others were negative.

This feeds into the dominant “K-shaped economy” narrative which I believe is correct: the AI data center boom has led to a stock market boom, which - aside from being a likely source of the increase in nonresidential construction employment - has been feeding a “wealth effect” increase in spending by the top 10%-20% of consumers.

Unresolved post-pandemic seasonality likely continues in jobless claims

 

 - by New Deal democrat

Unresolved post-pandemic seasonality likely continues to rear its head. This is a probable explanation for yesterday’s strong monthly gain in employment, and it appears to be behind the trend in this morning’s jobless claims report as well. 

Later this morning as promised yesterday I will discuss at some length the nature and implications of the revisions to the last 12+ months’ employment data in yesterday’s jobs report. But first, let’s take our usual look at weekly jobless claims. 

Last week initial claims declined -5,000 to 227,000, while the four week moving average increased 7,000 to 219,500. With their typical one week delay, continuing claims rose 21,000 to 1.862 million. The below graph shows the last three years to highlight the post-pandemic seasonality issue:

In case it isn’t apparent immediately, for the last three years claims have risen from lows at the beginning of each year towards midyear, and then declined during the second half of the year. That appears to be happening again this year so far.

Which is yet another reason that I pay more attention to the YoY changes in this data. So measured, initial claims were higher by 4.5%, the four week average higher by 1.0%, and continuing claims by 1.3%:

This is the second week in a row that the data has been higher YoY, after a steady stream of lower YoY readings that began last July. It’s too soon to know if this is the beginning of a change in the trend or not, but it at least merits further attention. At the same time, unless readings go higher YoY by over 10%, it does not suggest economic contraction ahead.

Finally, particularly in view of yesterday’s -0.1% decline in the unemployment rate, let’s update the graph of comparison of that with initial and continuing claims, as to which there is a 60 year history of the latter leading the former:

The decline in claims that occurred all last autumn did indeed show up in the decline in the unemployment rate, with the important caveat that the annual revisions in the Household Survey data which gives rise to that rate were delayed until next month, so the numbers might change a little.

January jobs report: superb monthly gains, but the birds came home to roost for 2025

 

 - by New Deal democrat

This is the month the birds came home to roost, at least for the year 2025. While the month over month numbers were almost all positive, some strongly so (a repeat of what we saw last January as well, so beware unresolved seasonality), the benchmark revisions were brutal. Which is likely what the Administration was telegraphing in bright neon flashing lights the past few days. In particular, the *entire* gains for 2025 were reduced from 584,000 to 181,000 - an average of only 15,000 jobs gained per month. Also, the normal yearly revisions to the Household Survey, which gives us things like the unemployment rate, did not take place as usual this month, but have been delayed until next month. 

As per usual, I am going to report on the monthly changes below. But I anticipate there will be *much* more to say once I have digested the revisions for all of the important leading numbers. 

Below is my in depth synopsis.

HEADLINES:

• 130,000 jobs added. Private sector jobs increased 172,000. Government jobs declined -42,000. The three month average rose to +73,000.
• The pattern of downward revisions to previous months continued. November was revised downward by -15,000 to +41,000, and December was revised downward by -2,000 to 48,000, for a net decline of -17,000. 
• The alternate, and more volatile measure in the household report, rose by 528,000 jobs. On a YoY basis, this series increased 689,000 jobs, or an average of 57,000 monthly.
• The U3 unemployment rate declined -0.1% to 4.3% compared to its recent high of 4.5%.
• The U6 underemployment rate declined -0.4% to 8.0%.
• Further out on the spectrum, those who are not in the labor force but want a job now declined by -399,000 to 5.809 million..

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. These were almost all very positive:

• The average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, rose 0.3 hours to 41.4hours, now down only -0.2 hours from its 2021 peak of 41.6 hours.

• Manufacturing jobs rose 5,000.
• Truck driving jobs declined -4,300.
• Construction jobs rose 33,000.
• Residential construction jobs, which are even more leading, rose 300.
• Goods producing jobs as a whole rose 36,000. 

• Temporary jobs rose 9,100.
• The number of people unemployed for 5 weeks or fewer declined -134,000 to 2,155,000.

Wages of non-managerial workers 

• Average Hourly Earnings for Production and Nonsupervisory Personnel increased $.12, or +0.4%, to $31.95, for a YoY gain of +3.8%, a rebound from its post-pandemic low of 3.6%. This continues to be significantly above the 2.7% YoY inflation rate as of the most recent report.

Aggregate hours and wages: 

• The index of aggregate hours worked for non-managerial workers rose 0.4%.

• The index of aggregate payrolls for non-managerial workers rose 0.8%, and is up 5.1% YoY.

Other significant data:

• Professional and business employment rose 34,000.
• The employment population was unchanged at 64.8%.
• The Labor Force Participation Rate increased +0.1% to 62.5%.

SUMMARY

On a monthly basis, this was a very good report. Almost everything moved in the positive direction. In fact, the only negatives were a decline in trucking jobs and the continuing drumbeat of downward revisions to previous months. Everything else — positive, coincident, and lagging indicators of the employment market — were positive. 

But before you break out the champagne, keep in mind that the revisions to the past 12 months were very bad. For all of 2025, less than 200,000 jobs were added. Even with this month’s good report, the 12 month increase was only 359,000 jobs, or an average of 30,000 per month.

I’ll have more to say either later today or over the next few days once I break out the revisions for each significant statistic.

Real retail sales turn down monthly and YoY in December, boding poorly for employment

 

 - by New Deal democrat

Real retail sales, one of my favorite broad-economy indicators, was updated through December this morning — still stale by one month, as under normal circumstances January’s numbers would have been released this week. 

Still, with consumer spending being about 70% of the entire economy, this is one of the most important economic reports of the month, and along with real personal spending, the two best measures of that sector. Further, because of their leading albeit noisy relationship with employment, they are particularly important right now, with job creation on the verge of turning down. 

Nominally, retail sales were unchanged in December, after a downwardly revised +0.5% in November. After taking the monthly 0.3% increase in prices into account, real sales were down -0.3%. Since there was no October CPI report, the best we can say about November is that in real terms sales (blue in the graph below) were higher by 0.2% compared with September:

But so calculated, real retail sales in December were down -0.4% from their September peak. Further, if you believe, as I do, that the shutdown shelter kludge removed about 0.2% from consumer inflation during the September-November period, then the comparison becomes similarly worse.

Note that the above graph also shows the similar but more comprehensive measure of real personal spending on goods (gold), which did make a new high as of its most recent report for November. 

Beyond that, real retail sales turned back negative YoY for the first time since September 2024. Going back 75 years (although I won’t bother with the long term historical graph), a decline in YoY real retail sales has almost always meant a recession (but both the obvious exception in 2023!):

This is particularly salient because as I wrote above consumption leads employment. With the YoY comparison deteriorating in late 2025 and now negative, needless to say this bodes poorly for employment in the early months of this year.  Here is the update of YoY real sales and real personal spending on goods (/2 for scale) together with employment (red):

Last month I concluded that “This sharp deceleration in YoY growth in consumption forecast the slide in employment, and suggests that the jobs reports in the next several months will get no better.” This month’s report adds to the evidence. We’ll find out if that was true in January tomorrow.

Expect shelter inflation to continue abating in the next few CPI reports

 

 - by New Deal democrat

There’s no significant economic news until Wednsday’s jobs report, as to which Scott Bessent gave an interview this morning on CNBC which amounted to, “Don’t Panic!!!” Which I am sure inspires confidence in everybody (I’ve been expecting downward revisions to much of last year as part of the annual benchmarking, so that could be primarily what we will see).

Anyway, another important report later this week will be an updated CPI, as to which the important dynamics are shelter (where I’ve been expecting disinflation) and all other components (as to which I’ve been expecting re-inflation).  In any event, the BLS finally updated its “New-“ and “All Tenants Rent Index” last week. 

To recapitulate, the “New Tenants” index is very leading, but very noisy; whereas the “All Tenants” index is less leading, but generally does follow the “new tenants” index, but leads with far closer correlation the shelter component of CPI.

In Q2, the new tenants measure fell off a cliff, with an actual negative YoY number, at -2.4%, while the All Tenants component remained  positive, at +3.3% YoY. As per above, both led the shelter component of CPI:

In the Q3 report released last week, the “New Tenants” component rebounded to +1.2%, while the “All Tenants” component disinflated further, to 2.9% YoY:

Unfortunately, I haven’t been able to find a graph showing the updated “All Tenants” component, which is why I showed you the first graph above.

As I’ve been updating over the past several months, the FHFA and Case Shiller repeat home sales indexes (not shown) have been at nearly 15 year lows in the vicinity of +1.5% YoY for the past few months. The latest New- and All-Tenants Rent index confirms that disinflation in the rental market.

Because both of these lead CPI for shelter with a substantial delay, this is potent information suggesting that this important component of the CPI is going to continue to show slowing inflation from its last reading of +3.2% YoY (itself a 4 year low) in the months ahead.

Weekly Indicators for February 2 - 6 at Seeking Alpha

 

 - by New Deal democrat

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

The main movement this week was in the speculative commodity or asset area, where Bitcoin crashed and gold and silver also broke trend, taking down the broad commodity baskets with them.

But as has been true for the past number of months, it really has been the case that “the stock market is the economy,” as paper wealth gains drive real spending by the top 10% of so of consumers.

As usual, clicking over and reading will bring you up to the virtual moment as to the state of the economy, and bring me a penny or two to buy my lunch.