Saturday, March 7, 2015

Weekly Indicators for March 2 - 6 at

 - by New Deal democrat

You really need to begin to prepare for a nasty Q1 GDP number.

Friday, March 6, 2015

February 2015 jobs report: headlines great, wages stink, underemployment mixed

- by New Deal democrat


  • 295,000 jobs added to the economy
  • U3 unemployment rate down -0.1% to 5.5%
With the expansion firmly established, the focus has shifted to wages and the chronic heightened unemployment.  Here's the headlines on those:

Wages and participation rates
  • Not in Labor Force, but Want a Job Now: up 180 ,000 from 6.358 million to 6.538 million
  • Part time for economic reasons: down -175,000 from 6.810 to 6.635
  • Employment/population ratio ages 25-54: up +0.1% to 77.3% 
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: unchanged at $20.80,  up 1.6%YoY. (Note: you may be reading elsewhere that wages went up. They are citing average wages for all private jobs. I use wages for nonsupervisory personnel, to come closer to the situation for ordinary workers.)

There were no revisions for December.  January was revised down by -18,000 from 257,000 to 239,000.

The more leading numbers in the report tell us about where the economy is likely to be a few months from now. These were mixed with a downside bias, basically taking back their gains in January.

  • the average manufacturing workweek was unchanged at 41.0 hours.  This is one of the 10 components of the LEI.

  • construction jobs increased by 29,000. YoY construction jobs are up 321,000 YoY.  

  • manufacturing jobs were up ,000, and are up 208,000 YoY.
  • Professional and business employment (generally higher-paying jobs) increased 51,000 and is  up  664,000 YoY.

  • temporary jobs - a leading indicator for jobs overall - decreased by -7,800.

  • the number of people unemployed for 5 weeks or less - a better leading indicator than initial jobless claims - decreased by -48,000 to 2,431,000, compared with December 2013's low of 2,255,000.

Other important coincident indicators help us paint a more complete picture of the present:

  • Overtime decreased by 0.1 hour from 3.5 hours to 3.4 hours

  • the index of aggregate hours worked in the economy rose 0.2 from 102.9 to 103.1.

  • The broad U-6 unemployment rate, that includes discouraged workers decreased from 11.3% to 11.0%
  • the index of aggregate payrolls rose by 0.3%.
Other news included:
  • the alternate jobs number contained in the more volatile household survey increased by 96,000 jobs.  This represents a 2,996,000 million increase in jobs YoY vs. 3,298,000 in the establishment survey. 

  • Government jobs increased by 7,000.
  • the overall employment to population ratio for all ages 16 and above was unchanged at 59.3%,  and has risen by +0.5% YoY. The labor force participation rate declined  -0.1% from 62.9% to 62.8%  and is down -0.2% YoY  (remember, this includes droves of retiring Boomers).

The economy is finally adding a truly good amount of jobs. Unemployment continues to fall. Great.

But with wages for nonsupervisory personnel only up 1.6% YoY, there remains a giant black hole at its center. 

Meanwhile, some measures of underemployment improved, e.g., part-time for economic reasons, and the e/pop ratio for the prime working ages, but on the other hand, those who aren't even in the labor force but want a job now (the supposed "missing workers") increased again.  Not cool.

Thursday, March 5, 2015

Another useful economic indicator: purchases of durable goods

 - by New Deal democrat

I have a new post up at

Personal consumption expenditures for durable goods fails as a mid-cycle indicator, but turns out to be a very reliable long leading indicator.

Another small sign of a slowdown

 - by New Deal democrat

Initial jobless claims rose last week to 320,000.  The four week moving average went up over 300,000 to 305,000.

This is another small sign of a Q1 slowdown.  Mind you, the four week moving average was 307,000 back on January 17, and we still got a very good employment report.  But a miss to the downside in tomorrow's February report looks more possible.

Wednesday, March 4, 2015

Updating two mid-cycle indicators

 - by New Deal democrat

Ultimately I would like to have a set of indicators to describe an entire business cycle: long leading, short leading, coincident, short lagging, long lagging, and mid-cycle.  A mid-cycle indicator is one that turns roughly in the middle of an economic expansion.  It is a way to focus attention.  Are we in the first part of an expansion, or are we at a point where we should begin to watch for a turn down in long leading indicators?

In this post I want to update 2 series which appear to make good mid-cycle indicators: retail sales vs. personal consumption expenditures, and the personal savings rate minus the inflation rate.

First, three years ago, I identified a consistent pattern whereby retail sales grew faster than the broader category of personal consumption expenditures early in an expansion, but slower later in an expansion.  Retail sales constitute about 50% of PCE's.  Note, however, that real retail sales are much more volatile. And, as this graph below (subtracting YoY PCE growth from YoY real retail sales growth through 1997) shows, in a very specific and non-random way:

Retail sales minus PCE's are always negative before the economy ever tips into recession. That's 11 of 11 times. Further, in 10 of those 11 times (1957 being the noteworthy exception), the number was not just negative, but was continuing to decline for a significant period before we tipped into recession.

Essentially these graphs tell us that, in the later part of a business cycle, consumers cut back on discretionary purchases to preserve other spending. Until they do, consumer spending does not support any claim that a recession has begun or is even imminent.

I updated this graph a few times last year, noting that it looked like it was turning.

So, what does it show now?  Here is a 25 year history of the relationship, measured YoY:

Here is a close-up since the end of the last recession:

Two trends are apparent.  The first is that PCE growth has generally been approaching,equal to, or slightly greater than real retail sales growth for the past five quarters.  The second is that both are increasing, just as they did in the second half of the 1990s. This supports the notion that the midpoint has been reached, and probably passed, but that a downturn in nowhere near.

The second mid-cycle indicator I want to update is the real personal savings rate. This is, essentially, a measure of economic confidence. How much of their paychecks do consumers feel they need to save over and above the rate of inflation? Here's the answer, going back over 50 years:

Note that in every single economic expansion except the 1980-81 double-dip, at some point from about the middle to 3/4 mark, there is a steep decline in the real personal savings rate from its peak of about 5%.  Further note that in every single recession, the real personal savings rate increases as consumers seek to buttress their balance sheets.  Generally speaking, as an economic expansion goes on, consumers expose themselves to too much risk, either due to overconfidence, or the need to stretch their finances to keep up.

I do not think we have seen the relevant 5% decline yet, even though it has happened twice during this expansion.  The December 2012 - January 13 decline is an artifact of income shifting due to the fiscal cliff.  The early 2010 decline is too early, and is the result of the big run-up in gas prices after the end of the Great Recession (inflation went up, so the real savings rate went down).  

Similarly, I am not concerned by the recent rise in this metric, which is also an artifact of the plunge in gas prices. To show you why, let's compare our current situation with the 1986 and 2006 steep declines in the price of oil and gasoline (red in the graphs below).  First, here's 1986:

and here's 2006:

In each case, the initial reaction by consumers was to pocket the savings (for 12 months in 1986, for 3 months and declining thereafter in 2006). That appears to be what has happened in the last few months as well.  

To summarize, one mid-cycle indicator looks like it has been reached, the other has not.

Tuesday, March 3, 2015

More signs point to a slowdown in Q1 US growth

 - by New Deal democrat

I have a new post up at

There are accumulating signs of a slowdown in the US economy this quarter. Not anything like last year's horrible -2.9% quarter, and probably not negative at all, but a real slowdown on the order of only +1% or so annualized growth.

Monday, March 2, 2015

Wages in the service sector lead

 - by New Deal democrat

Some of the most interesting relationships I've ever uncovered have been the result of total serendipity.  So it was last week when I examined the relationship between wages in the goods-producing vs. service sectors of the economy.

I found that tepid GDP growth is correlated with lackluster growth in jobs in the goods-producing sector, and that wage stagnation is primarily found in the goods-producing vs. service sector.

Here is something I found totally by chance:  wage growth both peaks and troughs in the service sector almost always before it peaks and troughs in the goods-producting sector.

Here are two graphs going back 50 years of the YoY% change in wage growth.  The goods-producing sector is in blue, sercices in red.. First, here's 1954 to 1982:

And here is 1983 to the present:

In every instance but one in the last 50 years (1980) growth in service wages peaks before growth in goods-producing wages.  In all but two (the early 1990s and 2012), growth in service sector wages bottom before those in goods-producing industries.

In 2014, service sector growth started down, followed by the goods-producing industires.  If we see an increase in the growth of service sector wages, it is a good bet that manufacturing and construction will follow.

Unfortunately, because the goods-producing sector has shrunk to a small share of the overall labor force over time, while service sector wage growth led overall wage growth in the 1960s and 1970s:

since then the service sector has so dominated the labor force that since the 1980s, the two measures have become coincident:

So, an interesting phenomenon, but of limited forecasting value.

Sunday, March 1, 2015

A thought for Sunday: when will Happy Days be Here Again?

 - by New Deal democrat

My overarching theme about the economic news for the last 5 years is that it has been "positive, but not good enough." Hardly like striking up "Happy Days are Here Again," as claimed by a few Doomers.

But in the last year monthly job creation has run over 200,000, and the unemployment rate has dropped below 6%.  While the economy is by no longer awful, it's really only doing so-so. Involuntary part-time employment, and the number of truly discouraged workers remain high. And wage increases still stink. 

So, I thought I would lay out what would really cause me to think the economy was downright good?  I came up with two levels.

  • U-3 unemployment below 5%
  • involuntary part-time employment of persons below where it has been in the past with 6% unemployment (about 4% of the labor force, or about 500,000 fewer persons than now)
  • people out of the work for but who want a job now equal to where it has been in the past with 6% unemployment (about 5.75 million people, or about 600,000 fewer persons than now)
  • nominal wage growth of 2.5% YoY or more
  • real wage growth of 1% YoY or more
  • continuing job creation at 200,000 a month or more
If those things happen, the economy is doing pretty good but not great.

  • U-3 unemployment below 4.5%
  • Involuntary part-time employment of persons below where it had been in the past with 5% unemployment (about 3% of the labor force, or about 2.1 million fewer people than now)
  • the number of people out of the work force but who want a job now equal to the number in the past with 5% unemployment (about 5 million, or about 1.4 million fewer than now)
  • nominal wage growth of 3% YoY or more
  • real wage growth of 1.5% YoY or more
  • continuing job creation of 200,000 a month or more
If those things happen, you can begin to strike up the band.

There's a pretty good chance that we pass the first test this year. It's not clear we will ever pass the second in this economic expansion.

And of course, even if the current economy were going like gangbusters, that still wouldn't solve the long-term problems of income inequality and institutionalized barriers to children being able to overcome the US's increased class stratification.