Saturday, January 13, 2018

Weekly Indicators for January 8 - 12 at

 - by New Deal democrat

My Weekly Indicators post is up at

This week a lot of the data was affected by holiday seasonality, because it was for the week of New Year's Day.

Friday, January 12, 2018

Real wages in 2017

 - by New Deal democrat

Now that we have the report on consumer prices for December, let's take a look at what happened with real wages in 2017.

Consumer prices increased +0.1% in December, and wages for non-managerial workers rose 0.3%,  This for that month the average worker earned 0.2% more.

For the year, the nominal wages of non-managerial workers rose 2.4%, while prices increased 2.1%, meaning that for the entire year workers saw a whopping 0.3% increase in real pay:

Here's a close-up of the last 5 years:

But because inflation accelerated slightly in the second half of the year, and nominal pay increases slackened, real pay has actually decreased roughly -0.8% since peaking in July, and is barely up at all over the last 24 months.

Next let's take a look at the real aggregate pay that non-managerial workers earned in 2017.  I like this measure because it tells me how much the economy as a whole has delivered to the middle and working class during the economic expansion.  Here's the graph:

For the entire expansion, real aggregate pay has increased ~23%.  On a YoY basis, aggregate real payrolls increased about 2.5%, about the average for this expansion:

In other words, consumers have more money in the aggregate, but only because the number of hours and jobs in the economy has increased, and almost not at all because their individual hourly pay increased in real terms in 2017.

Thursday, January 11, 2018

Hiring leads firing: adding initial jobless claims to the mix

 - by New Deal democrat

In yesterday's post, I pointed out that, in the JOLTS data, hiring leads firing.

A more frequent and timely measure of firing is the weekly initial jobless claims, which also almost always turn significantly in advance of recessions. I have a post up at, looking at hiring vs. firing this way.

Wednesday, January 10, 2018

JOLTS report confirms November payrolls strength

 - by New Deal democrat

I'm changing my presentation of JOLTS data somewhat compared with the last year or two.  At this point I've pretty much beaten the dead horses of (1) "job openings" are soft and unreliable data, and should be ignored in contrast with the hard "hires" series; and (2) the overall trend is that of late expansion but no imminent downturn.

So let's start a little differently, by comparing nonfarm payrolls from the jobs report with what should theoretically be identical data: total hires minus total separations in the JOTLS report, monthly (first graph) and quarterly (second graph):

While there can be a considerable disparity in any one month, once we start looking longer term there is an incredibly tight fit.

For our immediate purposes, it's likely that the strength in the JOLTS hiring data over the last several months is the same trend as the very good post-hurricane October and November jobs reports, both of  which showed that more than 200,000 jobs had been added. While any given month can be off significantly, it's a fair bet that when the December JOLTS report is released in one month, it too will be weaker, just as was the December jobs report.

Next, my mantra is that hiring leadis firing, so that part of the presentation is still important. To reeiterate, the major shortcoming of this report is that it has only covered one full business cycle. In that cycle, in acord with my mantra, hires peaked and troughed before separations: 

Here's what this data looks like monthly for the last 24 months:

Just as at the bottom of the Great Recession, at the end of the "shallow industrial recession" of 2015, hiring (red) troughed first, followed later in 2016 by separations (blue).  With hiring up, I expect the level of separations to also increase (note some of these are voluntary) in the next few months as well.

Further, in the previous cycle, after hires stagnated, shortly thereafter involuntary separations began to rise, even as quits continued to rise for a short period of time as well:

[Note: above graphs show quarterly data to smooth out noise]

Here are hires vs. separations on a monthly basis for the last 24 months:

While quits remain at expansionary high levels, they seem to have stagnated in the last 6 months. With hiring increasing again, if the pattern from the last decade holds, I would expect quits to improve somewhat as well. 

Meanwhile the good news is that involuntary separations have fallen in the last several months, even if we average the last two. At the same time, they remain above thei bottom they established a year ago: 

Once again the report yesterday was a good one, mirroring November's jobs report, but on the other hand, it is very consistent with being late in the cycle. Since hiring leads firing, what I am looking for next is at what point dies hiring stagnate, and will it be confirmed by continued stagnation in quites?

Tuesday, January 9, 2018

A US economic Boom in 2018?

 - by New Deal democrat

For the last several years, I have tried to identify several graphs that most bear watching over the ensuing 12 months. This year, in addition to watching bond yields like everybody else, the data that most bears watching, it seems to me, can be summed up in the question: Is the US economy about to enter a Boom?

The recent economic news has almost all been good. In particular the unemployment rate has dropped as low as 4%. Meanwhile, the GOP certaionly believes -- I most certainly don't -- that the recent tax changes are going to unleash a torrent of Capex spending and wage increases (as opposed to mergers, acquisitions, stock buybacks and executive pay bonanzas).

So, is the economy on the verge of firing on all cylinders?

There is no standard definition of a Boom. But since I am a fossil, in my lifetime I have experienced two times when it certainly felt like the economy was working extremely well and on a very broad basis: the 1960s and the late 1990s tech era.  The "good times" feeling of both eras was palpable. Employment was rampant and average people felt that their situations were going well.

What distinguished those to eras from all the other economic expansions?  I found five markers that stand out, and two that, oddly, didn't.  

Let's start with the first marker: the unemployment rate (note that the U6 underemployment rate wasn't reported in its current configuration until 1994, and so is not helpful). In both the 1960s and the late 1990s, the unemployment rate 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, in particular vs. the 1970s and 1980s, none of which expansions hit such a low mark. 

Now let me examine the two markers that didn't make the cut.  You would think that industrial production and capacity utilization would be making strong new peaks during Booms vs. other expansions. But that isn't the case. industrial production (blue, left scale below) has made new peaks during each expansion, while capacity utilization (red, right scale) has been relentlessly declining:

What does stand out at least somewhat is the duration and rate at which industrial production grew during both Booms. 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  

So the rate of growth of industrial production is the second marker of a Boom.

The third and fourth markers iare the rate of growth of real average earnings for non-managerial employees, both individually and in the aggregate.  During the two Booms, in contrast to other expansions, real average hourly earnings also grew at roughly 1% YoY or better:

Meanwhile, real aggregate earnings grew at a rate of 4% YoY or better:

Here's what three of those markers look like when put together in one graph:

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:

So, to summarize, when they occur together, the five markers of an economic Boom are the following: 

1. An unemployment rate under 4.5%
2. YoY industrial production growth of at least 4%
3. YoY real wage growth of at least 1%
4. YoY real aggregate wage growth of at least 4%
5. Increasing YoY inflation.

As we begin 2018, only the first and last markers are present: we have low unemployment, and at least temporarily, the YoY inflation rate is higher than it was a year ago. But industrial production is not growing as fast as either of the last two Booms, and real wage  growth has continued to be lackluster.
Based on my lieffetime experience, while the US economy is currently doing pretty well in general, it is not anywhere near a Boom, at least not yet.
I'll continue to track these indicators during 2018.

Sunday, January 7, 2018

Weekly Indicators for January 1 - 5 at

 - by New Deal democrat

My Weekly Indicators post is up at

There was a very positive start to 2018.

Sorry about the late posting -- computer issues.