Saturday, May 13, 2017

Weekly Indicators for May 8 - 12 at

 - by New Deal democrat

My Weekly Indicators column is up at  This week is "steady as she goes."

Friday, May 12, 2017

This week's jobs and real wage reports continue to show late cycle improvement

 - by New Deal democrat

Let's catch up on some of the jobs information we got this week.

I seem to be nearly alone in my analysis that JOLTS reports from the last year have been largely underwhelming.  The report for March, released earlier this week, doesn't change my opinion.

My perennial complaint has been that job openings aren't necessarily real, and that the more important metric is actual hires.  But now, both are going sideways:

Here's the YoY view, showing the complete lack of progress in the past year:

This looks very late cycle to me.

The story is only a little better on Quits, which have also flattened out:

But quits haven't turned down YoY:

Taken together, this looks very much like the "mature" expansion as of 2006.

Turing to the Labor Market Conditions Index, it has recently turned up:

Last year never got negative enough for me to be really concerned. The recent strength is inconsistent with any imminent downturn in the economy.

 Finally, yesterday I wrote that the recent downturn in gas prices appeared to herald at least a mild resurgence in real wage growth.  This morning's CPI report  means that wages for average American workers rose slightly more than inflation last month, i.e., real wages grew slightly. to a level less than 0.1% under last July's high:

We've had some signs of consumer retrenchment in the last few months, but that may be passing, as evidenced by the increase in real retail sales also reported this morning:

The overall picture remains that of a late cycle expansion.

Thursday, May 11, 2017

Real wage growth looks set to resume

 - by New Deal democrat

Since nominal nonsupervisory wages have been growing at a rate of between 2.2%-2.6% for the last 18 months, all of the variation in *real* wages has been because of changes in the rate of inflation.  And that, in turn, has been primarily due to changes in the price of gas: 

When gas prices plummeted beginning in late 2014, real wages started to rise. When gas prices started to rise again one year ago, real wages went flat, and even declined a little.

This lack of real wage growth is the prime culprit behind the recent downturn in spending, as measured both by real retail sales, and real personal consumption expenditures:

That looks likely to change, and for the same reason: gas prices.

In the last several months, oil prices at first flattened, and in the last several weeks have turned down significantly:

Oil prices are actually *down* now YoY.

Gas prices aren't negative YoY at this point, but have also started down (h/t GasBuddy):

As I've pointed out numerous times over the last few years, gas prices are the chief determinant in the variance in the headline inflation rate.  In the below graph, I've divided the change in gas prices by 16, and subtracted -1.8% for the typical underlying core inflation rate, for the last 20 years:

The relationship isn't perfect, but it's pretty darn good.

Note the recent deceleration in YoY gas prices, now up only about 7%.  That translates to a continued abatement in YoY inflation to just a little over 2%. And that doesn't even count the effect of the downdraft in oil prices last week.

In short, the downturn in oil prices suggests that at least mild real wage growth is about to resume.

Tuesday, May 9, 2017

Credit conditons eased up slightly in Q1

 - by New Deal democrat

Yesterday the Senior Loan Officer Survey results for Q1 were reported, validating the much more timely weekly forecasting of the Chicago Fed Financial Conditions indexes.

This post is up at

Monday, May 8, 2017

Strong growth in labor force participation is correlated with weak realwage growth

 - by New Deal democrat

Prof. Jared Bernstein has a piece in the Washington Post today (and at his blog) noting that, even with much improved unemployment and underemployment rates, wage growth is still subpar.

One item I wanted to add to the conversation is the inverse correlation between the prime age labor force participation rate and wage growth.  As I I've pointed out several times in the last few months, most recently on Friday, more than 1% of the prime working age population has left the sidelines and entered the workforce since the beginning of 2016. This surge of participation has only been equalled twice in the last 30 years -- in 1989 and 1995, as shown in the graph below:

In terms of supply and demand, this surge in participation means a big increase in the supply of potential workers. If the demand for labor has not changed materially, then we ought to expect lower wages to be paid to the new workers hired than would otherwise be the case.

So I created a scatterplot, shown below, of the YoY% change in prime wage labor force participation (left scale) vs. the YoY% change in real wages (bottom scale), averaged quarterly:

While in the middle part of the range, there does not appear to be any relationship, at the more extreme parts of the range, there clearly is.  Big increases in real wages (the far right of the graph) only happen in situations where there is a decline in labor force participation, or at best a slight increase.  Similarly, big decreases in real wages only happen when there is a big increase in labor force participation.

In short, while correlation does not necessarily mean causation, it certainly looks like the surge in labor force participation we have seen since the beginning of last year is part of the reason why nonsupervisory wages have grown so meagerly.