Friday, January 5, 2018

December jobs report: late cycle mediocre growth reasserts itself

- by New Deal democrat

  • +143,000 jobs added
  • U3 unemployment rate unchanged at 4.1%
  • U6 underemployment rate rose  +0.1% from 8.0% to 8.1%
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 +43,000 from 5.265 million to 5.308 million   
  • Part time for economic reasons: rose +64,000 from 4.851 million to 4.915 million
  • Employment/population ratio ages 25-54: rose +0.1% from 79.0% to 79.1%
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: rose $.0.07 from  $22.23 to $22.30, up +2.3% 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 +25,000 for an average of  +17,500 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 -63 a month vs. the last seven years of Obama's presidency in which an average of -300 jobs were lost each month
October was revised downward by -33,000. November was revised upward by +24,000, for a net change of -9,000.   

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 fell -0.1 hour from 40.9 hours to 40.8 hours.  This is one of the 10 components of the LEI.
  • construction jobs increased by +30,000. YoY construction jobs are up +210,000.  
  • temporary jobs increased by +7,000. 
  • the number of people unemployed for 5 weeks or less decreased by -18,000 from 2,253,000 to 2,235,000.  The post-recession low was set over 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  +19,000 and  is up +488,000 YoY.

  • the index of aggregate hours worked in the economy rose by 0.1%  from 115.9 to  116.0.
  •  the index of aggregate payrolls rose by  0.7%  from 172.2 to 172.9.     
Other news included:           
  • the  alternate jobs number contained  in the more volatile household survey increased by  +104,000  jobs.  This represents an increase of 1,267,000 jobs YoY vs. 2,055,000 in the establishment survey.      
  • Government jobs rose by 2,000.       
  • the overall  employment to  population ratio for all ages 16 and up was unchanged at 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 mediocre but not bad report.  There was growth in almost all sectors of employment. Participation measures were positive. Aggregate payrolls and hours increased. 

But there were concerning signs of late cycle deceleration as well. The underemployment rate increased for the second month in a row, and the unemployment rate is up from two months ago. Involuntary part-time employment and those outside of the workforce who want a job now both increased. And wage growth is actually declining.

Bottom line: after several months of post-hurricane bounces, we are back to a late cycle dynamic.

Thursday, January 4, 2018

My forecast for H1 2018

 - by New Deal democrat

The first part of my two-part forecast for 2018 is up at

Wednesday, January 3, 2018

What's Up With the Asset Backed and Commercial Paper Market?

Above are three charts for the short-term asset backed market.  Over the last month, we've seen increased spreads.  The overnight market (top chart) is a bit higher.  But the 30-day spread (middle chart) and 90-day spread (bottom chart) have both spiked pretty sharply.  

We're also seeing increased spreads in the short-term commercial paper market.

Commodities and Inflation

Above is a group of charts that track the major commodity ETFs.  There are two groups of prices that could cause inflation to move higher.

1.) Energy prices (second from the left, second row from the top): oil obviously plays into this (upper left hand corner), but so does the price of gas (left chart on the very bottom).

2.) Industrial metals (upper right-hand corner) and copper (third from the top left):  The industrial metals ETF largely tracks copper, which is in the middle of a rally.  But other industrial metals are also increasing, such as palladium.

Is this enough to spur prices higher?  Probably now.  Energy prices only account for about 7% of the overall CPI calculation.  Food prices are responsible for approximatley 13% of CPI, and those are all decreasing.

Tuesday, January 2, 2018

The Oil Chart is Setting Up Very Bullishly To Start the Year

Oil is looking very bullish right now.

On the daily chart (top chart), prices are in a multi-month uptrend.  They recently consolidated gains in a triangle pattern and are now at a 1-year high.  The moving averages are setting up in a bullish manner: they're all increasing, the shorter EMAs are above the longer EMAs and prices are above the EMAs.  The MACD has plenty up upside potential at current levels.

The weekly chart (bottom chart) is also very bullish.  Prices consolidated around the 200-week EMA and have since moved higher.  The MACD is also rising and has plenty of upside room. 

When a security sets up in bullishly in several time frames, the odds of a bullish advance increase.  

This is one of the charts I recently said was key to 2018.