Sunday, December 30, 2018

On the government shutdown, Pelosi should go maximalist

 - by New Deal democrat

It's pretty clear that the House GOP has decided to simply punt the government shutdown into the new Democratic House majority's laps.

That new House Democratic majority will have two basic options: (1) go accomodationist; or (2) go maximalist.  I am here to write in support of option #(2).

To recap, before the government shutdown, the Senate had passed a stopgap measure by 100-0. When RW extremists got Trump's ear, he (as usual) welched and refused to sign any bill that did not include funding for his border "wall." The House GOP promptly passed a bill doing so, and there matters have stalled for the last 10 days.

The "accomodationist" option is for the new House majority to pass the bill that is identical to the one that already passed the Senate by 100-0. It is very unlikely that this will work.

In the first place, Mitch McConnell has announced that he will not bring to the Senate floor any bill that will be vetoed by Trump. Since Trump has already indicated he will veto the existing Senate bill, McConnell might simply refuse to bring it back up. Even if he does, it is almost certain that Trump will veto it. Even if the Senate GOP feels they cannot renege on their prior votes, a 2/3's majority must still be found in the House.

And that is where the problem is. It is simply unlikely that enough members of the House GOP are going to roll over so that the bill passes over Trump's veto.It is simply very unlikely that the House will be able to add on new demands once an "accomodationist" bill is defeated. In the far more likely event that the House fails to override Trump's veto, this puts him in the driver's seat, in the kind of negotiation he likes -- where the other side must agree to ever more escalating demands to get his assent.

The "maximalist" option is for the new Democratic House majority to lay out some new demands of their own.  Here are three good candidates, *all* of which might be added on to a House bill: (1) permanent legalization of the Dreamers; (2) permanent codification of DACA; and (3) undoing the piecemeal repealers of the ACA by the prior Congress. If they want to really be mean, they can announce that for every day that the GOP delays in approving the budget, they will deduct $1 Billion from agricultural subsidies in any budget resolution they will agree to. 

Will McConnell and Trump go ballistic? Of course! So what.

You will now have one demand on the GOP side (fund the wall) counterbalanced by three demands on the Democratic side (as stated above). This puts the Democrats in the position of being able to do some horse-trading in order to get a budget bill passed.

It is unlikely that Trump will sign a bill without being able to declare victory on funding for the "wall." Suppose the Democrats, behind closed doors, offer to approve $2.5 billion in funding (that might take over 2 years to be committed, wink wink hint hint), in return for dropping the ACA demand and tempering the DACA demand, while getting full legalization for Dreamers (which is *very* popular). This would be a very positive and doable outcome.

But the only way we are going to get a positive outcome, rather than one that involves incredible pressure being put on Democrats to cave and go crawling on their knees to Trump, is if the House Democratic majority under Pelosi starts out by going maximalist.

Saturday, December 29, 2018

Weekly Indicators for December 24 - 28 at Seeking Alpha

 - by New Deal democrat

My Weekly Indicators column is Up at Seeking Alpha.

Ideally a change in trend in the long leading indicators should, over time, manifest in the short leading indicators.

Well, in the first half of 2018, the long leading indicators went from positive to weak positive to neutral, where they have generally remained ever since.

Now, the short leading indicators have .... Click over and read to find out!

Friday, December 28, 2018

Marking my 2018 forecast to market

At the beginning of every year, I give a forecast for each of the two halves of the year. And at the end of each year, I look back and mark my forecasts to market. In that way I try to be completely transparent, and to keep myself honest.  Since we're at the end of 2018, let's look back to last January and see how I did.

This year the call is pretty easy.  With the exception of a hurricane-induced whipsaw in September and October, for the last year the L.E.I. [Index of Leading Economic Indicators] has improved by about .4% a month. This strongly suggests clear sailing in the first half of 2018.
....  if you wanted an even easier, quick and dirty approach to a short term forecast, you can simply chart weekly initial jobless claims and the S&P 500 (both of which are components of the LEI).  If both of those are still making new lows/highs respectively (and they have been), then the economy should be in good shape for the next few months. 
....They're good and so is the near term economy.
As I wrote at the time, that was a pretty easy call, because there had been a surge last autumn of almost all of the leading indicators. 

Turning to the second half of 2018, last January after reviewing all of the long leading indicators, I wrote:
To summarize the results: 
  • There is only one outright negative [long leading indicator], and mixed one at that: Corporate bond yields and mortgage interest rates.
  • There are five positives: real M1, the yield curve, credit conditions, corporate profits, and real retail sales per capita.
  • Housing is mixed, neutral to mildly negative for most of the year, but a positive late in the year. Real M2 is also positive for this year, having just turned negative.
My sense is that later 2018 will be weaker than 2017, as the housing market stagnation of Q2 and Q3 2017 feeds through into the coincident indicators. On the other hand, the clear majority of long leading indicators remain positive. Left to its own devices, I do not see any recession for the economy at any point in 2018. 
So now let's take a look at the biggest coincident indicators for the economy.  First, real GDP:

Next, Industrial production:

and finally, employment:

A year ago I thought the forecast for this year was pretty obvious: there would be no recession. And there wasn't.

Turning to the forecast that the first half would be stronger than the second half, Q1 GDP wasn't as strong as 2017 GDP Q2 and Q3 accelerated considerably. So in terms of GDP, the forecast for strength took one quarter longer than expected. Further, both industrial production and employment picked up in the first 8 months of the year (averaging +0.5% for production, and 200,000 jobs) before decelerating beginning in September. So by those two metrics, the forecast was pretty much spot on.

In summary, I think I did a pretty good job forecasting 2018.  I am expecting the 2019 forecast, which I'll post in two parts in January, to be considerably more challenging.

Sunday, December 23, 2018

Light posting through year end

 - by New Deal democrat

Between now and New Year's Day, there are only two scheduled economic reports of any significance -- new home sales and the Case Shiller house price index -- and the former will likely not be posted if the government shutdown continues.

So expect light posting for the next 9 days at this here blog.

I'll still have my usual Weekly Indicators next Saturday. Also (no promises!), but I expect to do a comprehensive housing update, since I haven't done that in two months. And I should do my year end report card, in which I go back to my forecasts for 2018 that I posted last January, and see how well, or poorly, I did. If I am industrious, or if events warrant, a couple of other things might get posted. But that's probably about it.

You're reading the right blog: Trump and the Fed edition

 - by New Deal democrat

CNBC (and a whole bunch of other places), yesterday:
President Trump has discussed firing Federal Reserve Chairman Jerome Powell recently, with his frustration intensifying non recent days
A new risk at the Fed: Donald Trump's power to fire Fed Governors
the Chairman and all of the other appointed governors of the Federal Reserve have exactly the protection against being fired, except "for cause," that covered FBI Director James Comey. 
So, if Trump thought Fed rate hikes were harming his re-election prospects by slowing the economy, and the Fed insisted on raising rates anyway, do I think Trump would fire the Federal Reserve Chair? Or even all of the Governors? 
In a heartbeat.
This has been another edition of "You're Reading the Right Blog."

Saturday, December 22, 2018

Weekly Indicators for December 17 - 21 at Seeking Alpha

 - by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

Continued deterioration in some of the short leading indicators (like, say, the stock market!) is masking some marginal improvement in the long leading forecast. Sentiment on the economy is so negative that it reminds me of the *non*-recession that was telegraphed by weakening data at the end of 1994.

As usual, clicking over and reading should be informative, and it also helps reward me for my efforts.

Friday, December 21, 2018

Could an Oil Patch decline turn a 2019 slowdown into an outright recession?

 - by New Deal democrat

One of the items I mentioned in my piece yesterday at Seeking Alpha was the recent big decline in oil prices. Please go read the piece, it puts a couple of pennies in my pocket! But in that article I referenced the decline in industrial production that was caused by the 2014-15 decline in gas prices. I wanted to follow up a little here. 

In 2014 into early 2015, Oil prices declined by almost 75%, from a little under $110/barrel to a little under $30/barrel. Gas prices declined from close to $4/gallon to about $1.75/gallon:

The recent decline in oil and gas prices, while significant, is less than half of that.

Energy extraction is counted in the "mining" component of industrial production, but even the "manufacturing" component declined between the end of 2014 and mid-2016:

At the time I called it the "shallow industrial recession." While GDP never turned outright negative, real GDP slowed to 1% annualized in Q3 2016 and 0.4% in Q4 of that year. That's a real slowdown!

So, why wasn't there an actual recession?  Because employment, sales, and income continued to rise. As I and almost everybody else said at the time, the big decline in gas prices was a boon to consumers.  And indeed it was, as shown in the below graph of real personal income (red) and real personal spending (blue)(note: in the graph both series are normed to 100 as of the bottom of the recession in 2009):

In fact, as you can see in the graph, both series not only rose, but, especially for spending, both rose a little more steeply in 2016. In other words, the decline in gas prices, which showed up as a decline in inflation, put more "real" money in consumers' pockets, and they spent it, and then some. (Note: the graph does not include this morning's +0.1% increase in real personal income and +0.3% increase in real personal spending for November),

This shows up in the next graph, which is the personal saving rate:

Preliminarily, note that in 2012 there was a 2% FICA tax rebate, which shows up as an increase in the savings rate, which then reversed in January 2013. But notice that consumers kept savings constant in 2015, and then dug into their pockets and spent a little more vs. saving in early 2016. (Note: graph does not show this morning's small decline in the savings rate).

While I claim no expertise whatsoever it what will happen to the price of gas and oil from here, what I can say is that, if prices remain low or continue lower, a smaller version of the 2015-16 pattern in both production and consumption is a good simple model. That in turn suggests that there would be pain in the Oil Patch, flatness in manufacturing production, and a mild increase in income and consumption.

The problem, of course, is that these consequences are piled on top of the slowdown that has already been strongly suggested by the flatness in the long leading indicators for the past 7 months, and the haphazard and generally negative effects of Trump's trade wars that were initiated since then.

In other words, the effects of a knock to "Saudi America" together with the effects of the trade wars, might be enough to turn a slowdown next summer that already looks "baked in the cake" into a recession. I'm not changing my opinion yet, but the argument is powerful, and I'm chewing it over.

Thursday, December 20, 2018

The Fed scrapes Scylla after careening into Charybdis

 - by New Deal democrat

In the past several years, I have described the Fed as trying to steer in between the Scylla of a yield curve inversion and the Charybdis of higher rates wounding the housing market.

Recently several trends have reversed. This offers some relief to housing, but more risks to the economy as a whole. This post is Up at Seeking Alpha.

By the way, several times yesterday and today, the yield curve inversion has spread to the one year vs. five year yield.

Wednesday, December 19, 2018

The Transportation Slowdown

 - by New Deal democrat

Well over 100 years ago, Charles Dow (he of the Dow Jones Industrial Average) posited a theory that industrial and transportation stock prices should move in tandem. Why? Because everything that factories produced had to be transported to market for delivery.

So it is of interest that FedEx said yesterday that its business has been slowing down. And an important trucking transportation metric softened in November, as reported last week.

But readers of my "Weekly Indicators" columns got a heads up over two months ago.

I explain why in a post over at Seeking Alpha.

Tuesday, December 18, 2018

November housing permits boosted by multifamily dwellings

 - by New Deal democrat

November was a *relatively* good month for housing permits, as in, improved *relative* to most of this year, although not at the heights of last winter.

Most importantly, the least volatile number, single family permits, was flat compared with last month, and down -2% from a year ago:

There's no change of trend here.

Total permits did increase decently, and are up (less than 1%) YoY, although below their previous highs of January, March, and April:

The improvement came in multi-unit dwellings, which had a nice pop this month:

These are somewhat of an "alternative good" to single family homes, so the improvement may well reflect the stress of higher sales and mortgage costs.

Starts, which tend to lag permits by a month or so, still reflect the poor readings of the last few months there:

Probably some of the improvement in permits in November was due to mortgage rates, which declined a little at both the beginning and end of November:

Note, however, that mortgage rates are still above where they were when we had the housing peak last winter, and prices are higher as well. So, while I expect continued improvement in December, I don't think there's enough of a boost to push housing to significant new highs.

Monday, December 17, 2018

The US economy did not boom in 2018

 - by New Deal democrat

At the beginning of each year, I try to identify economic series that I think will be most important in the next 12 months.  This year I asked: Is the US economy going to enter a Boom in 2018?

There is no standard definition of a Boom. But in my lifetime there have been two occasions when the "good times" feeling was palpable, and the economy was working extremely well on a very broad basis: the 1960s and the late 1990s tech era. During both times,  employment was rampant and average people felt that their situations were going well.

Back in January I identified five markers that, taken together, marked off the two eras as unique: 
  •  the low unemployment rate 
  •  the duration of a very good rate of growth of industrial production
  •  strong growth in real average hourly wages
  •  strong growth in real aggregate hourly wages, and 
  •  increasing inflation.
Now that the year is ending, let's update all of these.

1. Unemployment remains very low

In both the 1960s and late 1990s, the unemployment rate (note that the U6 underemployment rate wasn't reported in its current configuration until 1994, and so is not helpful), hit 4.5% or below for extended periods of time:

While these weren't the only two periods of low unemployment, they are among those that stand out.

We had already hit that marker at the beginning of the year, and through the course of the year, it has only improved:

The unemployment rate is now the lowest in 48 years, since 1970.

2. Industrial production did briefly boom, but has backed off.

During both the 1960s and 1990s, production grew at or over 4% a year for extended periods of time, not just right after the end of a recession.  At the beginning of this year, production was under 4%:  

It did surge above 4% during the three months of the third quarter, but for the last two months YoY growth in industrial production is back below 4%:

3.  Real average hourly wages failed to ignite

In contrast to other expansions, during the 1960s and the late 1990s, real average hourly earnings also grew at roughly 1% YoY or better, and even exceeded 2.5% growth for significant periods:

During the current expansion, by contrast, real wages have only grown by more than 1% when gas prices have declined dramatically. In 2018, the situation continued: real average hourly wages grew by no more than 0.3% YoY until the last three months, when a big decline in gas prices caused consumer inflation to subside, leading to a YoY rate of growth of exactly 1% in November:

4. Real aggregate payrolls continue to grow modestly

 During the 1960s and 1990s booms (as well as some other expansions), real aggregate earnings grew at a rate of 4% YoY or better, for extended periods of time:

By contrast, during this expansion, and continuing this year, real aggregate payrolls have averaged growth of about 2.5% a year:

This is decent, but it's simply not a boom.

5. Inflation has waned

The fifth and final  marker of a Boom -- probably as the byproduct of the first four -- is an increase in the YoY rate of inflation:

A boom means that resources are getting constrained, so bidding for them intensifies.

The rate of consumer inflation did increase throughout the first half of this year, but since July has waned, and with one month's data left to go, is only 0.1% higher (2.2% vs. 2.1%) than the rate of inflation at the beginning of the year:

To sum up, the production side of US economy, which was doing well at the beginning of 2018, did briefly boom during the summer, but the consumer side never joined it. Only one of the five markers of a boom -- low unemployment -- persisted through the year. The US economy did not boom in 2018, and if anything is likely to decelerate sharply in 2019.

Saturday, December 15, 2018

Weekly Indicators for December 10 -14 at Seeking Alpha

 - by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

A decline in mortgage rates unsurprisingly appears to have caused a rush in applications to lock in those rates. Plus one more anomaly ....

Friday, December 14, 2018

Real retail sales very positive; industrial production decent

 - by New Deal democrat

Real retail sales for November, together with the revisions for October, were very positive.

While November sales, both nominally and adjusted for inflation, increased +0.2%, October sales were revised upward to a nominal +1.1%. On an inflation adjusted basis, that translates to +0.8%.

As a result, as of November both real retail sales and real retail sales per capita set new records:

The latter has turned negative more than one year before both of the last two recessions, and so supports the case for no recession in 2019.  The former, on a YoY% basis, tends to be a decent if noisy short leading indicator for employment. Here what YoY growth in real retail sales looks like:

About the least positive thing you can say about this morning's report is that, even with the upward revision to October, real retail sales appear to have downshifted from their earlier strength, as the strong +1.7% real gain from September 2017 drops out of the comparison. This suggests continued positive employment reports in the next few months, but maybe not at the 200,000+ levels of a few months ago.

Meanwhile, November industrial production increased +0.6%, but October was revised downward by -0.3%, so the net result was a +0.3% gain. On a YoY basis, industrial production has also decelerated from a "boom" readings to decently positive ones:

Together, these two reports this morning say that the nowcast remains very good.

Thursday, December 13, 2018

A note on initial jobless claims

 - by New Deal democrat

Initial jobless claims for last week were reported at 206,000 this morning. That is one of the lowest weekly readings during this expansion.

More significantly, the 4 week moving average is back below 10% off its low, within the range of typical noise:

And it is down -4.6% YoY, which as the below graph going back 50 years shows, is actually a quite positive reading:

I continue to expect a slowdown next year, so I am not expecting any substantial improvement in this number, but it is certainly not negative now.

Wednesday, December 12, 2018

Real wage growth: November 2018 update

 - by New Deal democrat

Now that November inflation has been reported (as unchanged), let's update what that means for real wages.

Nominally, wages for nonsupervisory workers grew +0.3% in November. With inflation flat, that means real wages also grew +0.3%: 

Even so, although they are at a new 40 year high, real hourly wages are nevertheless below their peak level set in the early1970s!

On a YoY basis, real wages have risen 1%:

Since 1999, the change in real wages has almost explusively been determined by the price of gas.

Finally, real aggregate wages have now risen 26.8% from their bottom in October 2009:

The total advance during this expansion is only exceeded by the 1960s and 1990s at this point.

On the other hand, growth in real aggregate wages has averaged 2.5% in this expansion, varying from 1% to 8% depending on what has happened with gas prices:

This is a very weak rate of growth, ahead of only the 2000s expansion and on par with the 1980s expansion.

All in all, the grwoth in real wages is good news. It's just nearly good enough compared with the growth in business profits generated by the expansion.

Tuesday, December 11, 2018

The October JOLTS report: very good employment market continues, just below best levels

- by New Deal democrat

Monday's JOLTS report for October was, surprisingly, a little weaker than the employment report from one month ago, that I described at the time as perhaps the best in the entire expansion. But this is a relative statement; basically, most of the series were only a little off their recent best readings:
  • Quits were just below their all-time high in August, and July as well.
  • Hires were just below their August best.
  • Total separations made another new expansion high
  • Layoffs and discharges declined a little from August and September levels (a positive), although they are slightly elevated compared to last spring.
  • Job openings were also just below their all time high in August, as well as September.

Let's update where the report might tell us we are in the cycle, remaining mindful of the fact that we only have 18 years of data. Below is a graph, averaged quarterly through the third quarter, of the *rates* of hiring, quits, layoffs, and openings as a percentage of the labor force since the inception of the series (layoffs and discharges are inverted at the 3% level, so that higher readings show fewer layoffs than normal, and lower readings show more):

During the 2000s expansion:
  • Hires peaked first, from December 2004 through September 2005
  • Quits peaked next, in September 2005
  • Layoffs and Discharges peaked next, from October 2005 through September 2006
  • Openings peaked last, in Spril 2007
By contrast during and after the last recession:
  • Layoffs and Discharges troughed first, from January through April 2009
  • Hiring troughed next, in March and June 2009
  • Openings troughed next, in August 2009
  • Quits troughed last, in August 2009 and again in February 2010
Now here's what the four metrics look like on a monthly basis for the last five years: 

Through August, job openings, quits, and hires have all surged higher this year, with openings virtually "on fire." In the last two months of data there's been a pause, but nothing that suggests a downtrend.
Next, here's an update to the simple metric of "hiring leads firing," (actually, "total separations"). Here's the long term relationship since 2000 through Q3 of this year: 

Here is the monthly update for the past two years measured YoY:

In the 2000s business cycle, hiring and then firing both turned down well in advance of the recession. Both are still advancing. The recent relative surge in separations might just be noise.  

Finally, let's compare job openings with actual hires and quits. As you probably recall, I am not a fan of job openings as "hard data." They can reflect trolling for resumes, and presumably reflect a desire to hire at the wage the employer prefers. In the below graph, the *rate* of each activity is normed to 100 at its August 2018 value, since that has been the recent peak:

When I first presented this graph, I noted that while the rate of job openings is at an all time high, the rate of actual hires has only just reached its normal rate during the several best years of the 2000s expansion, and is below its rate at the end of the 1990s expansion. 

This year both hires and quits have accelerated, with hiring decisively above its level from the last expansion -- although, as you can see in the first graph above, the *rate* of hiring remains below that of the 2000s expansion. My take has been that employees have reacted to the employer taboo against raising wages by quitting at high rates to seek better jobs elsewhere. If the dam is finally breaking, we should see the hiring rate increase, and quit rate level off.

In summary, the October JOLTS report continues to show a very good employment market, just below its best levels. My expectation remains that this will start to cool down early next year as a slowdown begins to take hold.

Monday, December 10, 2018

Scenes from the November Jobs Report

 - by New Deal democrat

Here are a few noteworthy highlights from Friday's employment report.

1. Temporary help continues positive.

As I wrote a week ago, temporary employment (blue in the graphs below) leads overall employment (red). So it is good news that it continued to grow in November:

Somewhat more ambiguously, the rate of growth has waned a little in the past few months. But is isn't really on a downward trajectory at this point:

Just based on this metric (there are of course lots of others that can be used), employment growth in the general range of 160,000 to 190,000 a month, at least on a 3 month average, looks likely in the immediate future.

2. Wage growth continues to accelerate.

This is the second month in a row that nominal average hourly wages grew at better than a 3% YoY rate for nonsupervisory workers (blue in the graph below). In real terms, YoY wage growth also looks set to continue to increase (red). This is because of the decline in oil prices:

Note that we won't get the inflation report for November until Wednesday. Note also that almost all of the good news in real wage growth in the last 15 years has been due to temporary declines in the price of gas. Finally, note that we still haven't approached the 4% nominal YoY growth we got in the previous economic expansion.

3. Signs of fraying around the edges #1: Not in Labor Force, but Want a Job Now.

This is the number of people who haven't looked for a job at all recently, but say they would like a job. This has trended upward in the last 8 months:

Not a red flag at this point, but probably a yellow one, as in, "pay increased attention."

4. Signs of fraying around the edges #2: part time for economic reasons.

While the U3 unemployment rate held steady last month, the U6 underemployment rate rose by 0.2%. This is primarily due to an increase in the number of people who are involuntarily employed part time:

It is not well known that while the unemployment and underemployment rates are lagging indicators coming out of a recession, they are leading indicators going in. Since they tend to follow the initial jobless claim numbers with a one or two month lag, and those have risen by over 10% since September, it's not a surprise that at least the U6 number rose.

Again, this isn't a red flag, and initial jobless claims will give us a signal first. But it does serve to confirm the recent weakness in initial jobless claims, and confirm that we should "pay increased attention."

Saturday, December 8, 2018

Weekly Indicators for December 3 - 7 at Seeking Alpha

 - by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

The long leading forecast has now been negative for four weeks in a row. Please remember that clicking and reading, besides being educational, helps reward me for the work I put into this.

Friday, December 7, 2018

November jobs report: another good report with some signs of deceleration

 - by New Deal democrat

  • +155,000 jobs added
  • U3 unemployment rate unchanged at 3.7% 
  • U6 underemployment rate rose 0.2% from 7.4% to 7.6% 
Here are the headlines on wages and the broader measures of underemployment:

Wages and participation rates
  • Not in Labor Force, but Want a Job Now:  rose +88,000 from 5.309 million to 5.397 million   
  • Part time for economic reasons: rose +181,000 from 4.621 million to 4.802 million 
  • Employment/population ratio ages 25-54: unchanged at 79.7% 
  • Average Hourly Earnings for Production and Nonsupervisory Personnel: rose $.07 from  $22.89 to $22.95, up +3.1% 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 +27,000 for an average of +20.000/month in the past year 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 rose +400 for an average of +75/month vs. the last seven years of Obama's presidency in which an average of -300 jobs were lost each month
September was revised downward by -13,000. October was revised upward by +1,000, for a net change of -12,000.

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 40.8 hours. This is one of the 10 components of the LEI.
  • construction jobs rose by +6300. YoY construction jobs are up +71,400.  
  • temporary jobs rose by +8300. This is positive, but marks continued deceleration from its 12 month average of +15,000.
  • the number of people unemployed for 5 weeks or less rose by +69,000 from 2,057,000 to 2,126,000.  The post-recession low was set six months ago at 2,034,000.
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 +32,000 and  is up +563,000 YoY.
  • the index of aggregate hours worked for non-managerial workers rose by +0.1%.
  •  the index of aggregate payrolls for non-managerial workers rose by +0.7%.     
Other news included:            
  • the  alternate jobs number contained  in the more volatile household survey increased by +233,000  jobs.  This represents an increase of 2,759,000 jobs YoY vs. 2,443,000 in the establishment survey.    
  • Government jobs decreased by -6,000.
  • the overall employment to population ratio for all ages 16 and up was unchanged at  60.6% m/m and is +0.5% YoY.          
  • The labor force participation rate was unchanged at 62.9% m/m and is up +0.2% YoY.


This was another good report. The worst that can be said is that it is a deceleration from last month's excellent report, which I described as overall the best of this entire expansion. Perhaps the most positive aspect of this report was the nice pop in aggregate payrolls, up 0.7%, and that nominal wages for average workers coninued to increase more than 3% YoY.

There was a little fraying around the edges, as involuntary part time employment, the U-6 underemployment rate, and the number of those who aren't even looking but would like a job now all increased. Temporary employment, a particularly good leading indicator for overall employment, shows continued signs of deceleration (growth, but at a slower pace).

Bottom line: clear sailing in the present and in the near future, with some grayish clouds perhaps on the horizon.

Thursday, December 6, 2018

Consumer spending looks like classic later cycle pattern

 - by New Deal democrat

There were a couple of reports earlier in the week that shed some light on several important sectors.

First, October residential construction spending was reported. This series lags the housing sales data, but has the advantage of being smoother than any other series, including single family permits. Here they are for the last 20 years:

As you can see, residential construction peaked at the beginning of this year and has begun a downward trajectory. It is currently off about -5%, which is about the same % it declined in 1999 (a *very* slight decline) before the 2001 recession - a business and employment recession that consumers pretty much sailed right through. I'm not anticipating this turning back up until permits do.

Second, November motor vehicle sales were reported, at 17.4 units, down -0.5% from one month before, but well within the range of this metric since the beginning of 2015 (Note: graph below only goes through October):

As you can see, it is very typical for vehicle sales to plateau like this until less than a year before a recession begins.

Since housing and cars are the two biggest consumer durable purchases, this signals that neither leading sector is growing, very typical for late cycle behavior.

In fact, the change in consumer purchasing behavior between the earlier vs. later part of expansions is so well-established that variations on it are two of my mid-cycle indicators. I went back and took a look at where we stand and, well, the results are interesting. That will be the subject of a follow-up post.