The “real,” wage adjusted price of gas isn’t at privation levels yet

 

 - by New Deal democrat

Back in the “before” days, as in January, before the Iran war, I wrote about how low gas prices were actually a tailwind for the economy. Because since the start of the Millennium over 25 years ago, they had only been so low compared with average hourly wages on only 3 occasions: after the 2001 recession, late in the Great Recession, and during the COVID lockdowns. Put another way, it only took about 7 minutes of work to buy a gallon of gas. This leaves a lot left over for other consumption - just as it did at the end of the two non-COVID recessions.

Needless to say, that has changed. But by how much, really? On the one hand, as I’ve pointed out previously, on a percentage basis this is the biggest one-month spike in gas prices since the 1970s. We’ll find out just how badly that effected the CPI for March this coming Friday.

But how much of the “tailwind” has been taken away? That’s what the updated graph below, of the “real” cost of gas compared with average hourly nonsupervisory wages, shows:

The “size” of the spike is about equal to the 2005 Katrina spike, and less that the 2022 Ukraine invasion spike. But in relative terms, it has not come anywhere close to the 2008 spike that helped exacerbate the Great Recession, nor the Ukraine invasion spike. Nor, for that matter, what I used to call the “Oil Choke Collar” of the early 2010’s, when gas prices put a lid on the velocity of any expansion in the early years of the last recovery. In order to approach the level of those shocks, we would need to see gas prices of $5/gallon, at minimum.

The gas price information doesn’t go all the way back to the 1970’s, but the price of oil, specifically West Texas Crude, does. So here is the same graph, of oil prices relative to average hourly nonsupervisory wages, going all the way back to before the first oil shock:

Here you can see that just before the start of the Iran war, the “real” price of oil was equivalent to the levels it was at from 1986-99, when gas prices were not a consumer issue at all. The current spike has not taken us back up to the levels of either the first Gulf War spike of 1990 nor the second oil shock of 1979-80.

The bottom line here is that, although this price spike is enough to marginally change consumer behavior, it isn’t yet at the point where in the past it has created a sense of real privation (in 1974 the spike was accompanied by an embargo that resulted in gas rationing). That isn’t to say it couldn’t get there in another month or two. Although I won’t bother with a graph, according to GasBuddy the national average has risen as much as another $0.12 in April up to $4.11. To reiterate, my sense is that a real sense of privation isn’t likely to kick in unless gas prices reach $5/gallon.

Weekly Indicators for March 30 - April 3 at Seeking Alpha

 

 - by New Deal democrat

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

After zigging upward last week, interest rates zagged downward - but not as much - this week, enough to change the ratings on some interest rate sensitive indicators, like mortgages. And consumers continue to spend, despite all the shocks and sluggishness in things like the labor market in the past 15 months.

As usual, clicking over and reading will bring you up to the virtual moment as to the state of the economy, and give me a little extra jingle in my pocket next time I go to the local bookstore.

March jobs report: the birds that came home to roost play an April Fool’s joke, shrieking “Nevermind!”

 

 - by New Deal democrat

I described two months ago as “the month the birds came home to roost.” Last month, pace Edgar Allen Poe, I said the birds were screeching “recession!”

This month, Poe’s birds decided to play with us, screeching instead: “Nevermind!”

This was a good report with mainly good internals, with one large exception.

Below is my in depth synopsis.

HEADLINES:

• 178,000 jobs gained, the biggest number since December 2024. Private sector jobs increased 186,000, while government jobs declined -8,000. The three month average rose from a puny +6,000 to +68,000.
• The pattern of downward revisions to previous months did continue. While January was revised upward by +34,000, February was revised downward by -41,000, for a net decline of -7,000. 
• The alternate, and more volatile measure in the household report, declined by -64,000 jobs. On a YoY basis, this series DECLINED for the second month in a row, by -561,000 jobs, or an average of -47,000 monthly.
• The U3 unemployment rate fell -0.1% to 4.3%. 
• The U6 underemployment rate rose +0.1% to 8.0%.
• Further out on the spectrum, those who are not in the labor force but want a job now rose by +66,000.

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 mainly positive:

• The average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, fell -0.1 hour to 41.4hours, but still is now down only -0.2 hour from its 2021 peak of 41.6 hours.

• Manufacturing jobs rose +15,000, only the second increase in the last 12 months.
• Truck driving declined another -800.
• Construction jobs rose +26,000.
• Residential construction jobs, which are even more leading, rose +3,100, continuing the trend of stabilizing since last April.
• Goods producing jobs as a whole rose +43,000.. 

• Temporary jobs, which have declined by over -650,000 since late 2022, declined again this month, by -4,400, but remained above their post-pandemic low set last October.
• The number of people unemployed for 5 weeks or fewer declined -181,000.

Wages of non-managerial workers 

• Average Hourly Earnings for Production and Nonsupervisory Personnel increased $.05, or +0.2%, to $32.07, for a YoY gain of +3.4%, its lowest YoY% gain since the pandemic. While this remains higher than the YoY inflation rate through February, even that is among the lowest gains in the past three years — and it is very much likely to change once March’s CPI is reported.

Aggregate hours and wages: 

• The index of aggregate hours worked for non-managerial workers increased +0.2%, and is up only 0.7% YoY, below average for the past two years.

• The index of aggregate payrolls for non-managerial workers rose 0.3%, and is up 4.1% YoY, close to its post-pandemic low of 4.0% set last June.

Other significant data:

• Professional and business employment (for a change!) rose +2,000. These tend to be well-paying jobs. This remains above its October low, it remains lower YoY by -0.4%, which in the past 80+ years - until now - has almost *always* meant recession.
• The employment population ratio declined -0.1% to 59.2%, vs. 61.1% in February 2020, and its lowest since October 2020.
• The Labor Force Participation Rate declined -0.1% to 61.9% , vs. 63.4% in February 2020, and its lowest since November 2020.

SUMMARY

As I wrote at the opening above, this was a good report, but with a few significant negatives. 

Let’s start with the good, which obviously include both the headline number and the decline in the unemployment rate and short term unemployed, as has been telegraphed by extremely low initial jobless claims. Goods producing jobs increased, including manufacturing, construction, and residential construction jobs. Professional and business jobs had a positive month, for a change. 

There were some negatives, including a decline in the manufacturing work week, EPOP and LFPR. Truck driving jobs continued to decline. And the underemployment rate rose slightly. 

But the most significant negatives had to do with wages. The increase in hourly nonsupervisory wages was among the lowest since the pandemic, and the YoY% change was the lowest. Aggregate hours for nonsupervisory also had a relatively small gain. Which means that, even nominally, the gain in aggregate nonsupervisory payrolls was close to its post-pandemic low. Consumer prices last March were unchanged. If the Cleveland Fed’s estimate of a 0.8% gain this March is accurate, that will mean March CPI will come in a 3.2% YoY. The estimated *real* gain in YoY nonsupervisory payrolls would only be 0.9%, the lowest since the pandemic, and a major cause for concern.

So it is very possible that this rosy-looking outlook could change by the end of next week, but for today the birds that came home to roost have played an April Fool’s joke: “Nevermind!”

Jobless claims continue near historic lows; I expect the unemployment rate to decline

 - by New Deal democrat

 With the stock market flailing around trying to keep its head above water, jobless claims along with consumer spending are the only two metrics that solidly support a continued economic expansion (ok, maybe ISM manufacturing is trending in that way as well).

But to the point of this post: last week initial jobless claims declined -9.000 to 202,000 — again, near historic 50+ year lows. The four week moving average declilned -3,000 to 207,750. Meanwhile, with the typical one week delay, continuing claims rose 25,000 to 1.841 million, still significantly below the 1.900+ we were seeing for most of last year:

[NOTE: For some reason FRED has not gotten around to posting these this morning, so here is the equivalent graph from TradingEconomics.com]:

As per usual, the YoY% changes are more important for forecasting purposes. So measured, initial claims were lower by -9.4%, the four week average down -6.8%, and continuing claims down -1.9% [Since TradingEconomics doesn’t have the YoY comparisons, you’ll have to imagine this until FRED gets around to it].

These are very good comparisons. While most of the data has been very weak, it is just very hard to imagine an economic downturn occurring with for all intents and purposes no layoffs.

Finally, since tomorrow is jobs day, and jobless claims lead the unemployment rate, here is our final look for the month. First, here are the 4 week average of initial claims (blue) vs. the unemployment rate (noisier but more leading):

And here are continuing claims (blue) vs. the unemployment rate (much less noisy albeit less leading):

I expect the unemployment rate to decline, or at very least not increase tomorrow. We’ll see then.

March ISM manufacturing shows expansion, but at an inflationary price

 

 - by New Deal democrat

While much of the official government data is still delayed, months after the end of the shutdown, privately sourced data remains fully up to date.

And March data started out with the ISM manufacturing index, which was our second piece of (mainly) good news of the morning.

The headline ISM number (blue in the graph below) rose 0.3 to 52.7 (recall that any number above 50.0 indicates expansion). The more leading new orders subindex (gray) did decline 2.3 from 55.8 to 53.5, but obviously that is also still positive. The three month averages, which smooth out a little volatility, improved to 52.6 and 55.5:

One of the surprises since last autumn has been the rebound in manufacturing despite the tariff situation, even though much of it is likely due to AI data center construction. 

Goods production is only about 25% of the US economy, so normally I weight it against the comparable services numbers, but this month there is really no need, since services have been above 50, indicating expansion, consistently since late last summer.

The bottom line is, this number suggests continuing expansion in the next few months - although I feel compelled to add that I doubt much of the impact of higher fuel costs and associated interruptions from the Iran war debacle has made it through into the index numbers yet.

Several other components of the index are worth noting this month as well.

First, the “less bad” trend in employment continued in March, as it declined very slightly, -0.1, to 48.8. But all three months so far this year have been significantly better than the dismal readings that began last February:

There was one important negative in the report, however - prices paid. These shot up to 78.3, the highest number since June of 2022:

This continues the sharp inflationary pulse that started in February. 

So, while the ISM manufacturing index indicates expansion, it is an inflationary expansion, which is going to put continued upward pressure on interest rates, and tend to keep the Fed on the sidelines in terms of any hope of further rate cuts in the immediate future.

Some good news for a change: real retail sales rebounded in Febuary

 

 - by New Deal democrat

After all these months, we are still feeling the effects of the government shutdown last fall.  Normally construction spending is released on the first day of the month for the second previous month - in today’s case, that would be for February. But half a year after the shutdown began, February and March construction spending are both scheduled to be released on May 7. As I’ve said a number of times already, this is simply not the way a first world country should operate.

But in today’s case, we at least get a consolation prize in the form of retail sales, one of my favorite broad-economy indicators, for February - about three weeks later than normally scheduled. And for a change compared with most recent data, it was good news.

Nominally, retail sales rose 0.6% in February. After taking the monthly 0.3% increase in consumer prices into account, real sales up 0.3%. The below graph also shows the similar but more comprehensive measure of real personal spending on goods (gold, right scale):

Even so, real retail sales remain -0.4% below their peak last August, and indeed below most of their levels from last year. 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. 

February’s good number also means that on a YoY% basis, after a one month flirtation with trending negative, real retail sales have rebounded to +1.3%:

Since consumption leads employment, this is also good news for the latter in the next few months, after deteriorating through most of 2025. Here is the update of YoY real sales and real personal spending on goods (/2 for scale) together with employment (red):

But most likely the deterioration in spending last year has not been fully absorbed by employment yet. This morning ADP reported that private payrolls only grew by 18,000 in March. We’ll find out on Friday if a similarly poor number is true in the official jobs report.