Saturday, May 9, 2015

Weekly Indicators for May 4 - 8 at

 - by New Deal democrat

My Weekly Indicator post is up at  This week's big move in interest rates is front and center.

Friday, May 8, 2015

April jobs report: much better, but an alarm on leading indicators

- by New Deal democrat


  • 223,000 jobs added to the economy
  • U3 unemployment rate down -0.1% to 5.4%
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: down -111,000 from 6.369 million to 6.258 million
  • Part time for economic reasons: down -125,000 from an upwardly revised 6.705 million to 6.580 million
  • Employment/population ratio ages 25-54: unchanged at 77.2% 
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: up +0.1% from an upwardly revised $20.88 to $20.90,  up +1.9%YoY, a slight increase. (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.)
February was revised higher by +2,000, but March was revised even lower, down -39,000 to +85,000, for a net of -37,000.

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 but with a negative bias for the third month in a row.

  • the average manufacturing workweek fell -0.1 hours from 40.9 hours to 40.8 hours.  This is one of the 10 components of the LEI and so will affect it negatively.

  • construction jobs rose by 45,000. YoY construction jobs are up 280,000.  

  • manufacturing jobs rose 1,000, and are up 178,000 YoY.
  • Professional and business employment (generally higher-paying jobs) rose 62,000 and are up  654,000 YoY.

  • temporary jobs - a leading indicator for jobs overall - rose by 14,100.

  • the number of people unemployed for 5 weeks or less - a better leading indicator than initial jobless claims - increased by 241,000 to  2,729,000, 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 3.3 hours to 3.2 hours

  • the index of aggregate hours worked in the economy rose 0.2 from a downwardly revised 102.8 to 103.0.

  • The broad U-6 unemployment rate, that includes discouraged workers decreased from 10.9% to 10.8%
  • the index of aggregate payrolls rose by 0.4% from a downwardly revised 121.9 to 122.3.
Other news included:
  • the alternate jobs number contained in the more volatile household survey increased by 192,000 jobs.  This represents a 2,799,000 million increase in jobs YoY vs. 2,982,000 in the establishment survey. 

  • Government jobs increased by 10,000.
  • the overall employment to population ratio for all ages 16 and above was unchanged at 59.3%,  and has risen by +0.4% YoY. The labor force participation rate also rose 0.1% from 62.7% to 62.8%  and is unchanged YoY (remember, this includes droves of retiring Boomers).


Of course this was welcome news after a bad March report, which got even worse with downward revisions. Still, the positive news in this report overcame even those revisions.

The best news in the report, beyond the headline numbers, was the positive movement in the underemployment statistics:  both those not in the labor force but who want a job now, and those part time for economic reasons, declined.  YoY wage growth increased, as did aggregate hours and payrolls. The big increase in construction jobs shows how the particularly nasty winter did affect employment.

But the leading portions of the employment report are sounding an alarm. The manufacturing workweek was down.  Overtime was down. Unemployment from zero to 5 weeks increased significantly.  Revisions to prior months were negative.  This is the third month of this negative trend in the leading indicators in the employment report.  In my "Weekly Indicators" column, for the last month I have said that the US is in a shallow manufacturing recession.  Today's report confirms that.

While the Oil patch weakness behind some of that may continue, the big unknown is whether the overly strong dollar continues to kill exports and the manufacturing behind those exports.  My best guess (or hope?) is that the dollar will weaken and the situation will stabilize or abate somewhat.

Thursday, May 7, 2015

Has a strong US dollar precipitated prior US recessions?

 - by New Deal democrat

Yesterday I explained that the reason for the continued YoY weakness in rail transport was primarily coal, and that in turn was caused by the strong US dollar killing exports compared with now-cheaper producers.

Particularly in light of the poor, perhaps negative, first quarter GDP, that raises the question: In the past, has the strong dollar been associated with US recessions?  I discuss this in a new post up at

BTW, according to Recession ALERT, the globe entered recession in February.

Wednesday, May 6, 2015

Unit labor costs increase by 1%+ in Q1

 - by New Deal democrat

The price commanded by labor for a unit of output increased in the first quarter, making a new post-recession high:

This is another sign that wages are finally participating in the expansion:

The only problem with labor costs is if they outstrip the ability of the employer to absorb them and maintain a given profit level.  Since other commodity prices have plummeted (brown in the graph below), and producer prices for final goods have declined but not so much (red),

employers should be OK while employees/consumers benefit from increased wages and flat consumer prices.

What's ailing US rail transport?

 - by New Deal democrat

I have a new post up at, explaining why US rail shipments fell off a cliff in mid-February and haven't recovered since.

Incentives and behavior: psychology vs. economics

 - by New Deal democrat

This morning the NY Times reviews the book "Misbehaving" by Richard Thaler, the current President of the American Economic Association, in which he pillories the dominant Chicago school style of economics:

After so-called behavioral economics began to go mainstream, Professor Thaler turned his attention to helping solve a variety of business and, increasingly, public policy issues. As these tools have been applied to practical problems, Professor Thaler has noted that there has been “very little actual economics involved.” Instead, the resulting insights have “come primarily from psychology and the other social sciences.
To the extent that economists fought the integration of behavioral insights into economic analyses, it seems that their fears were founded. Rather than making the resulting work less rigorous, however, it simply made its economic underpinnings less relevant. Professor Thaler argues that it is actually “a slur on those other social sciences if people insist on calling any policy-related research some kind of economics.”
Professor Thaler's narrative ultimately demonstrates that by trying to set itself as somehow above other social sciences, the "rationalist" school of economics, actually ended up contributing far less than it could have.
Ouch!  That's gotta sting.

Contrast this with a statement by Brad Delong just a few days ago:
Arthur Burns was right: you [economists] are better-positioned than any other group to help us make the right choices, at the level of the world and of the country as a whole, but also at the level of the state, the city, the business, the school district, the NGO seeking to figure out how to spend its limited resources–whatever.''''[Why?] I would say:....
  • Economists know about systems, and how systems work:
  • Supply and demand
  • Opportunity cost
  • General equilibrium
  • Incentives and behavior
(my emphasis)

Excuse me??? Didn't Thaler just hand you your head on point number 4?

Here's a nice, simple question.  How do you get more of a behavior?

  • Economists say: increase the incentive
  • Psychologists say: variable reinforcement
These are two apparently contradictory answers.

Now, I suspect that if a psychologist put a rat in a cage with two bars dispensing food pellets, and one dispensed a pellet on a variable schedule, and the other always dispensed two pellets, the rat is going to press the lever that gives him more food.  Score one for Econ.

But suppose, after the rat learns to press that lever, I divide the cage in such a way that, once the rat chooses one bar, it is very difficult to get over to the unchosen bar.  The rat makes its choice ("two pellets all the time, please"), and now I start cutting back on the pellets, and only periodically and variably dispensing a pellet.  Now I am going to get a ton of bar-pressing for diminishing rewards. Score one for Psych.

Now think about annual compensation schemes by large corporations.  The metrics constantly vary, and the weighting of each metric varies.  The employee-rat having made its choice (by accepting employment), the employer-experimenter tries to maximize the desired behaviors by the employees by variably dispensing ever-slightly-decreasing and sporadic rewards. Since the employee doesn't know which job aspect will be the most rewarded in the next year end compensation scheme, the employee tries to do the most of all of them.  Variable reinforcement, thank you very much.

And to bring this back to the big economic issue, one thing we know about humans is that we try - asymmetrically - to avoid actually realizing losses.  In 1929, in order to forestall repossession of goods bought on installment payment plans, consumers stopped spending money in far larger proportion to the initial downturn.  Similarly, in September 2008, in order to prepare for the sudden emergency that Bush et al told them might only be days away, consumers en masse simply stopped spending.
To refresh your memory, on September 19, 2008, the NY Times reported that, "As the Fed chairman, Ben S. Bernanke, laid out the potentially devastating ramifications of the financial crisis before congressional leaders on Thursday night, there was a stunned silence at first. Senator Christopher J. Dodd [said] the congressional leaders were told “that we’re literally maybe days away from a complete meltdown of our financial system, with all the implications here at home and globally."  And on September 24, it reported, "President George W. Bush on Wednesday warned Americans and legislators reluctant to pass a historic financial rescue plan that failing to act fast risks wiping out retirement savings, rising foreclosures, lost jobs, closed business and “a long and painful recession.”

Professor Delong's statement that economists best know about incentives and behavior stands in stark contrast with his concession a few days earlier that a new macroeconimc paradigm was needed, and he honestly didn't know what that should be:
This entire structure is now in ruins. Our social-democratic income distribution has been upending in an appalling manner by the Second Gilded Age. Our government, here in the U.S. at least, has been starved of proper funding for infrastructure of all kinds since the election of Ronald Reagan. Our confidence in our institutions' ability to manage aggregate demand properly is in shreds--and for the good reason of demonstrated incompetence and large-scale failure. Our political system now has a bias toward austerity and idle potential workers rather than toward expansion and inflation. Our political system now has a bias away from desirable borrow-and-invest. And the equity return premium is back to immediate post-Great Depression levels--and we also have an enormous and costly hypertrophy of the financial sector that is, as best as we can tell, delivering no social value in exchange for its extra size. 
We badly need a new framework for thinking about policy-relevant macroeconomics given that our new normal is as different from the late-1970s as that era's normal was different from the 1920s, and as that era's normal was different from the 1870s.
So long as economists think that they are the ones who know the best about human incentives and behavior, they are going to continue to stumble along in the dark and their public policy prescriptions are likely to inflict much unnecessary harm on millions of people.

Tuesday, May 5, 2015

A rantette about China-related data

 - by New Deal democrat

It's getting hard to find Doomer dataporn.  Maybe that's a contrarian sign?  Even the DK Doomers have moved on from the economy to other reasons by we are going to hell in a handbasket. There's ZH of course, but that is mainly C-level stuff.  Mish is still capable of taking a deep dive into the numbers, and is worthwhile.  Then there is Naked Capitalism, which twice a day posts thorough linkfests that usually have one or two items of good info.

This morning NC's linkfest led me to an article about how Chinese shipping data shows were all DOOOMED.   That in turn led me to the HSBC Chinese factory PMI, which the latest clickbait at Business Insider telling me is in contraction, and at a one year low.  OMG!!!

Except when I go find a longer term graph of the HCBC Chinese PMI, here's what it shows:

Apparently Chinese manufacturing has been in a state of contraction, with respites of mediocre expansion, ever since 2011!  Pretty amazing for the secularly fastest-growing economy on the planet.

That doesn't mean the index is useless.  Its upward and downward moves might well correlate with faster or slower rates of expansion.  If we add, say, +5 to every reading, then we might actually start getting concerned if it drops below 45.

But this is why I put very little faith in any number attempting to describe China, especially if it has to rely on the accuracy of domestic Chinese data.  Someday out there China is going to go into an actual recession, but the CCP has far too much at stake than to allow poor data to be accurately reported.  Which is why I generally treat data about the Chinese economy as emanating from a block box. In a darkened room.  In the dead of night.  At the time of a new moon.