Saturday, December 9, 2017

Weekly Indicators for December 4 - 8 at

- by New Deal democrat
My Weekly Indicators post is up at

The big trend is in the near term forecast, while the general underground movement is in the long term indicators.

Friday, December 8, 2017

November Jobs Report: good month, same caveats

- by New Deal democrat

  • +228,000 jobs added
  • U3 unemployment rate unchanged at 4.1%
  • U6 underemployment rate rose +0.1% from 7.9% to 8.0%
Here are the headlines on wages and the chronic heightened underemployment:

Wages and participation rates
  • Not in Labor Force, but Want a Job Now:  rose +53,000 from 5.175 million to 5.238 million   
  • Part time for economic reasons: rose +48,000 from 4.753 million to 4.801 million
  • Employment/population ratio ages 25-54: rose +0.2% from 78.8% to 79.0%
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: rose +$.0.5 from a downwardly revised $22.19 to $22.24, up +2.4% YoY.  (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.)    
Holding Trump accountable on manufacturing and mining jobs

 Trump specifically campaigned on bringing back manufacturing and mining jobs.  Is he keeping this promise?  
  • Manufacturing jobs rose by +31,000 for an average of  +15,000 a month vs. the last seven years of Obama's presidency in which an average of 10,300 manufacturing jobs were added each month.   
  • Coal mining jobs fell -400 for an average of -15 a month vs. the last seven years of Obama's presidency in which an average of -300 jobs were lost each month
September was revised upward by +20,000. October was revised downward by -17,000, for a net change of +3,000.   

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.
  • the average manufacturing workweek was unchanged at 40.9 hours.  This is one of the 10 components of the LEI.
  • construction jobs increased by +24,000. YoY construction jobs are up +184,000.  
  • temporary jobs increased by +16,300. 
  • the number of people unemployed for 5 weeks or less increased by +121,000 from 2,129,000 to 2,250,000.  The post-recession low was set al,ost two years ago at 2,095,000.
Other important coincident indicators help  us paint a more complete picture of the present:
  • Overtime was unchanged at 3.5 hours.
  • Professional and business employment (generally higher- paying jobs) increased by  +46,000 and  is up +548,000 YoY.

  • the index of aggregate hours worked in the economy rose by 0.1%  from 115.4 to  115.5.
  •  the index of aggregate payrolls rose by  0.4%  from 171.1 to 171.7.     
Other news included:           
  • the  alternate jobs number contained  in the more volatile household survey increased by  +183,000  jobs.  This represents an increase of- 1,187,000  jobs YoY vs. 2,071,000 in the establishment survey.      
  • Government jobs rose by 7,000.       
  • the overall  employment to  population ratio for all ages 16 and up fell -0.1% from 60.2% to  60.1 m/m  and is up + 0.3% YoY.         
  • The  labor force participation  rate was unchanged m/m and is also unchanged YoY at 62.7%   

This was a good report on most metrics. Under the headlines, it was slightly weaker than apparent. While the prime age participation rate rose to a new expansion high, measures of underemployment weakened slightly.  

Meanwhile, the revisions were of particular interest. September was initially reported as a loss, the first in 7 years, but is now +38,000. Also, there is a question as to whether we should still take into account the hurricanes, since in the past it has been reported that the aftereffects last more than 2 months.  In this regard, the three month average of +170,000 is in line with the pre-hurricane average.

As usual, wage gains for nonsupervisory workers continue to stink.

So: a good report, doing nothing to alter my opinion that we are late in the expansion, and that the next recession is at grave risk of including actual wage deflation.

From Bonddad

A few points:

The 3, 6, and 12-month moving average of establishment job growth are all about 170.  However, notice that all three area moving sideways for the most of this year.  This tells us the economy will probably continue to print at this level (on average, of course) for the next few months

The 3, 6, and 12-month moving average of goods-producing jobs are all moving higher.  This is good news, but there's a caveat; notice the left-hand scale, which is in the 10,000s.  So 40 is 40,000  Put another way, there just aren't that many jobs in the goods-producing sector of the economy.

The service-producing sector is also growing, but the overall pace is clearly declining, which we also see in the Y/Y percentage change:

Let's turn to a few household report numbers:

The employment/population ratio is still moving higher

But the LFPR is still moving sideways.

Thursday, December 7, 2017

A look at the short leading indicators - December 2017

 - by New Deal democrat

What will the economy look like over the next 3 to 6 months?  I take an updated look over at

Mid-Week Bond Market Round-Up

Declining Inflation Expectations 

The University of Michigan's long-run inflation expectations (top chart) and the 10-year CMT-10 year TIPS rate (bottom) chart are both declining.  The University of Michigan's estimate has always been a bit high; it was 3-3.5% in 2012-2014 and has moved lower to 2.5%.  The bond market measure is lower but probably more accurate.  Either way, both have moved lower by about 50-65 basis points in the last 3-4 years, which has important ramifications for Fed policymakers. 

Yield Curve Flattening

Since the beginning of the year, the curve has definitely flattened, with most of the movement coming in the short-end of the curve.

Your New Richmond Fed Presidebt

And Explanation of the New Bond Market Conondrum

Declining inflation expectations
Declining r*
Decreased expectations for a fiscal stimulus and increased perception of economic and political risk.
Decreased term premium

Wednesday, December 6, 2017

An astute progressive critique of the Trump Administration from ... CNBC?!?

 - by New Deal democrat

John Harwood of that well known lefty outlet, .... ummm, CNBC .... writes this morning that "Trump has Forgotten his 'Forgotten People':"
He forgot them on health care. Jettisoning his campaign pledge to "take care of everybody" regardless of income, he proposed cutting federal health subsidies for the hard-pressed blue-collar voters who put him into office.
He forgot them on financial regulation. Abandoning talk of cracking down on Wall Street executives who "rigged" the economy to hobble the working class, he seeks to undercut the Consumer Financial Protection Bureau .... 
And he forgot them on taxes. Discarding his vow to reshape taxation for average families at the expense of rich people like himself, he's working with Republican leaders to hand the biggest benefits to corporations and the wealthy.
To the contrary, his budget includes big cuts to Social Security disability program. Meanwhile his much-vaunted infrastructure plan has 'failed to materialize."

But, Harwood points out:
The president hasn't forgotten everything. In lieu of big financial benefits, Trump has steadily given "the forgotten people" one visceral commodity[: ]  affirmation of shared racial grievances.
I think this is a good summary of Trump's domestic policies as revealed by the past year.  On social issues, he has governed exactly as he promised during his campaign, issuing a de facto ban on Muslim immigration, unleashing ICE against Latinos, and fulminating against protesting black NFL players. 

But on economic issues he has behaved exactly like a standard issue country club republican.The requirement that the GOP enact a "replacement" for Obamacare? Gone. Preventing the offshoring of manufacturing jobs? Gone. Enacting at least something like a tariff at the borders? Gone. Actually *doing* something about the opioid crisis, which is strongly correlated with areas of economic distress (as opposed to lip service)? Nothing.

On the one hand, the events of the last 40 years have pretty thoroughly disproved the belief of the young Governor Bill Clinton of Arkansas that moving to the center on economic issues would enable democrats to enact progressive social policies. Clinton himself was thrown out of office after his first term, during which he made those remarks to David Broder. To the contrary, for many working class voters social issues are a filter through which a vote-seeker must pass before they will listen on economic issues. Whether intentionally or not, in a strictly partisan sense Trump is behaving in way that is smart (probably a total accident, I know).

On the other hand, Mitch McConnell just gave an interview claiming that the economy will be helped in 2018 by the tax "reform" that is on the verge of being enacted.  But since the average gain to the bottom 80% of households is going to be on the order of $100/year (or $2/week), and since people react much more strongly to the incurring of actual losses (like the loss of the deduction for state taxes, let along what terminating the mandate is going to do to health care costs; and since the decelerating long leading indicators suggest the underlying economy will be weaker at the end of next year compared with its strength now; I suspect events will not unfold next November in accordance with his hopes.

Tuesday, December 5, 2017

ISM Reports Show Broad Economic Strength: Latest Nowcasts are Strong

The latest ISM reports are out and both show broad strenght.  The new orders and production component of the manufacturing report were very strong (up +.6 to 64 and +2.9 to 63.9, respectively).  The anecdotal comments were very bullish:

The service sector numbers were also strong: production +.9 to 62.2.  New orders were off marginally: -.2 to 62.8.  The comments were a bit weaker:

They highlight several areas of concern: Obamacare uncertainty, a somewhat flat oil sector and hurriance issues still hurting some industries.

     Both of these indciate strong future GDP growth, which we also see in the latest Nowcasts from the Atlanta and NY Fed:

Sunday, December 3, 2017

Monday Morning Bond Market Round-Up

The short-end of the corporate market has risen from 1.91% at the beginning of September to 2.34%.  That's a pretty sharp move for shorter-dated debt.

The 3-5 year section of the corporate market has risne from 2.36%-2.76%.  But current levels are still below previous interest rate highs.

The AAA-10-year spread (top chart) and the BBB-10 year spread (bottom chart) are still very tight.

The JNK ETF is consolidating in a triangle pattern

The IEFs (7-10 year treasuries) are trading right around the 200-day EMA.  

My Weekly Columns Are Up At XE

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US Bond Market Week in Review

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