Saturday, February 10, 2018

Weekly Indicators for February 5 - 9 at

 - by New Deal democrat

My Weekly Indicators post is up at

Even with their 10% correction, stock prices melted up so much in the last few months that they have not even made a new three month low. Since that is my predetermined marker -- taking emotion out of the process -- for measuring whether stocks are a near term positive or not, they remain a positive!

Friday, February 9, 2018

Fraying at the edges? *relative* underemployment increases

 - by New Deal democrat

This is a post I've been meaning to put up all week (after all, this week was going to be very slow on data and news, right?).

As the expansion gets more and more mature, the *relative* performance of certain measures of improvement become more interesting.  One of those is the comparison between U3 unemployment, and the broader U6 underemployment measure.

While we only have about 25 years of data, so caution is warranted, generally speaking, during that time as the expansion has improved, an increasing number of the more marginally employable find jobs. As a result, U6 declines faster than U3. Later on, as the expansion begins to wane, U6 underemployment has weakened first:

Another way of looking at this is to subtract the U3 unemployment figure from that of the broader U6 measure:

Note that in both the 1990s and 2000s, this remainder started to rise before U3 itself bottomed.

More important for the present, note that this remainder of U6-U3 has risen slightly in the last 2 months, as the unemployment rate has held steady and the underemployment rate has risen by 0.2%.

Yet another way to look at this is to chart the YoY change in this remainder:

Note the slight weakening in this metric as well.

It might just be noise, but on the other hand it could be an early sign of weakness starting in the job market. If so, that doesn't mean a recession is near, as in the next 3 to 6 months. But it bears continued watching.

Once more into a the market abyss

 - by New Deal democrat

So the stock market is down 10% as of this writing, which takes us all the way back to --- three months ago!

Really? This is what you're worried about?

A little context. Here's a graph of the S&P 500, normed to 100 as of September 1, 2017:

The market went up 16% in 5 months, or +.75% each and every week.  That translates into an annual rate of +48%!  A 48% annual gain coming out of a recession isn't a big deal. Coming 9 years into a bull market, that, dear reader, is a blowoff. 

Even if you figure that corporate profits were going to be up 5% YoY this year, and even if you figure that the recent tax cut for corporations was going to add 10% to that -- well, the market added all of that in already, didn't it?

And now that froth has been poured off.

To reiterate, the vast majority of other leading indicators, both long and short, are inconsistent with a recession starting in the next 3 to six months. Just this week, the Senior Loan Officer Survey, the JOLTS report, and initial jobless claims all pointed to continued expansion. As did last week's ISM manufacturing new orders numbers, as do the regional Fed reports, as do mortgage applications, as do the recent monthly housing reports.

If the vast majority of data says we're not heading into recession, then it is very, very unlikely that this correction is going to turn into something long-lasting.

In the last few days, I've gotten pushback that good leading indicators are bad, because they must be close in time to a bottom. Nonsense! 

Let me introduce you to Lee Adler at the Wall Street Examiner, who wrote:

Record low claims are the patina of policy success ....  These record claims represent a bubble that was born out of and is joined at the hip with the financial engineering bubble that has been metastasizing in the US economy for a generation.
Just one problem: this quote comes from November 2015, when initial jobless claims were averaging 270,000 per week.

See the problem? 

In my opinion, If you are middle or working class, and you have some money in the market via a 401k or similar, and you can't stand a 10% downturn, then you shouldn't be in the market at all, but rather devote that money to a cash-type of portfolio that allows you to sleep at night and not worry about your future.  One rule of thumb I set for myself way back 25 years ago when I first got interested in this stuff, is what I called "the Turtle Method," as in turtle vs. hare. That rule of thumb was that, for every month's expenses I had saved, I could invest 1% of my assets. So if I had 10 months of savings, I could invest 10% of my total assets.  That way I could sleep at night.

Bottom line: there are a lot of major problems in this country right now. How the economy is doing isn't one of them, and that is very unlikely to change in the next 3-6 months.

Thursday, February 8, 2018

Credit got looser in Q4 2017

 - by New Deal democrat

There are times the economy is boring.  Ok, ok, especially boring. To the point where I don't have much to say.

This isn't one of those times.  I have stuff worked out in my brain or in the early drafting stages to last over a week. Like an important point of data in last week's jobs report I meant to post earlier this week, but haven't written because thank you stock market!

Anyway, I knew the Senior Loan Officer Survey was coming out, which I track because it is a long leading indicator, but I hadn't read anything.

Turns out there was a good reason for the silence.  It was the opposite of DOOOOMMM!!!

So here is my take, up at

Jobless claims make another record low

- by New Deal democrat

One reason not to get excited about the last week's stock market swoon is that it isn't being confirmed by any other short term leading indicators.  Most significantly, jobless claims.

The 4 week moving average of new jobless claims has fallen below 225,000. This is yet another 40 year record low. In fact, with the exception of six weeks in the early 1970s, it's a new 50 year low.

And adjusted for population growth, it is a new all-time low.  

As a practical matter, virtually nobody is getting laid off.  This is not an economy that is about to roll over.

Wednesday, February 7, 2018

December JOLTS report continues good news

 - by New Deal democrat

For the last several years, I kept banging away at the fact that "job openings" are soft data that can simply reflect that companies are trolling for resumes, or looking for the perfect, cheap candidate (good luck with that!). Since I've made my point, let's confine ourselves to the hard data of hiring, firing, quits and layoffs.

Last month I noted that, especially averaged quarterly, the JOLTS report tracks the employment report closely. Since that has picked up in the last few months, I wrote that
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.
Was it?

Historically, hiring leads firing.  While the one big shortcoming of this report is that it has only covered one full business cycle, during that time hires have peaked and troughed before separations: 

Here's what that looks like over the last 24 months:

Last month I wrote:
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.
That wasn't the case specifically m/m this month, but I still anticipate that total separations (including voluntary quits, which did go up in December) to follow.

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 voluntary quits vs. layoffs and discharges on a monthly basis for the last 24 months:

Last month I wrote:
With hiring increasing again, if the pattern from the last decade holds, I would expect quits to improve somewhat as well. 
That did happen in  this month's report. As in the last business cycle, quits are still rising, and involuntary separations remain off their bottom, although the good news is that they have fallen in the last several months.
Bottom line: this was a good report.   At the same time, it remains 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  quits follow?

Errr, ahem . . .

 - by New Deal democrat

Me, yesterday at 9 a.m. eastern time:

So my best guess is that we will see a climax in panic -- maybe at 9:35 this morning! -- with roughly a 10% decline, and then nervous bouncing along that bottom for the next several weeks.

Just sayin'.

Tuesday, February 6, 2018

A comment about the markets for the average reader

 - by New Deal democrat

This is a post aimed at the generally Progressive audience of this blog who followed us over from way back in our days at Daily Kos, rather than the financially sophisticated audience who have picked us up since (but of course everybody is welcome to read and appreciate!).

Anyway, at times like this over 10 years ago Bonddad used to write posts like "A comment about the markets" for the DK audience, explaining the "significance" of the market action. So in that tradition ....

First of all, don't base any investing decision on advice from anyone you read online -- including me.  If you are concerned enough, go talk to a registered financial professional. In particular, at times like this, the Doomers are going to come out of the woodwork, especially at places like Daily Kos. It got to the point that in years past, I used to use the "Pied Piper of Doom" at DK as a contrary indicator.  I once even called the bottom of a market selloff similar to the present one *in real time* based on his panicky post.

That being said. here's my take based on over 25 years of watching the markets closely, and seeing this kind of selloff maybe 20 times. Moves of 3% or more a day are based on emotion, either euphoria (less likely) or panic (more likely!), or more recently, "algorithms gone wild!" (think of the "flash crash." That is a very bad basis on which to make a decision about your money.

Because I am a nerd, and I always show you graphs, here's a three-pack to put this in perspective.  First, here is the entire 1990s, the second half of the biggest bull market in history:

Looks like a pretty relentless move up, doesn't it?

Well, about once a year, some sort of panic would set in.  There would be about a 10% selloff, including some panicky days like yesterday, Doomish analysts would come out in droves on CNBC, and at about the 10% mark, a famous maven like Elaine Gharzarelli, would had correctly foretold the 1987 crash, would come on and say something like that her "crash warning" for a 25% drop had been activated. And at almost exactly that moment, the markets would bottom.

Here, for example, is 1996:

Usually the bottom would actually be at about -9.8% or -9.9%. Why? Because big players would have programs set to buy at 10% off. To be sure to get in, other big players would get in front of the move just before the 10% level -- and so it would never actually arrive.

These annual -10% spikes were typically heralded by some change in the market "story," on the order of an increase in inflation or fears of renewed Fed tightening. But they didn't fundamentally alter the economy, and so the 10% was recovered typically within a few months, as it was in 1996.

The worst such move happened in 1998 during the Asian Currency Crisis, when an early hedge fund called "Long Term Capital Management" went bust.  The former was a significant concern, because southeast Asian economies looked set to roll over. The latter sparked fears of a wider financial meltdown.  Here's what that downturn looked like:

The Fed stepped in, arranging for the debt to be mopped up, and it was off to the final blowoff top!

The common thread here is, that in almost all cases, these selloffs in retrospect look like V-shaped spikes, as the fundamental underlying economy reasserts itself.

The exceptions, obviously, were 1929 and 2008, where the underlying economy was really fragile, and subject to a debt-deflation vicious cycle.

As I wrote as recently as last week, the "long leading indicators" for the economy do not forecast any fundamental downturn this year. Interest rates haven't spiked that much, housing data just made new highs within the last several months, and credit is still ample. The stock market, by contrast, is a "short leading indicator," forecasting only a few months ahead.  Why should I expect a short leading indicator to lead the long leading indicators?

So my best guess is that we will see a climax in panic -- maybe at 9:35 this morning! -- with roughly a 10% decline, and then nervous bouncing along that bottom for the next several weeks.

If you are an average worker, and don't own stocks (including in your 401k), you should do what you should always be doing: observing how things are going at your employer. Has there been a weakening of orders or customers? If yes, prepare for possible layoffs. If no, there's no reason to think this market downturn is going to change that.

Even if you do have securities in, e.g., your 401k, how did you feel about stocks a few months back when they were at this level? Were you satisfied? If so, why should you feel differently now? Some of the worst financial moves I have witnessed were people who sold in the panic of 2008, and never bought back.  But if you are losing sleep now,  imagine how you will feel in the face of a genuine 25% pullback, say, in the next recession. That means you should go turn to a financial professional and have a plan that you can sleep with.

In short: don't get emotional about this selloff. Give it the ol' fish-eye. Make and stick with a long-term plan.

And, to repeat, don't make financial moves based on what you read from some dude or gal online, and that includes me.  I am not a certified financial planner, and I am not trying to give you financial advice to buy or sell.


P.S. One thing which could cause more turmoil within a few days is if there is another government hutdown, and it lasts a lot longer than the last one. All the signs are that the GOP in the House intends to continue to pass "shrot term" fixes, with long term goodies that they want, and blackmail the D's with the release of one hostage at a time (and I don't think the Dremeres are ever going to be released).  So far the marekts are downplaying any big fallout.

Monday, February 5, 2018

Why I'm not impressed by January's 2.9% YoY wage growth

 - by New Deal democrat

I wanted to follow up on why I dissented Friday from the near-consensus take that workers finally got a nice raise, with many citing hikes in the minimum wage. As you may recall, the YoY% change in the average hourly earnings of all employees rose 2.9% as of January.  

That was the story in, for example, Marketwatch:
Average hourly wages jumped 9 cents, or 0.3%, to $26.74, according to the Bureau of Labor Statistics. That means wages have increased 2.9% over the last year — the biggest gain since the end of the Great Recession in June 2009.The federal minimum wage is $7.25 an hour and hasn’t increased since 2009. But many states and municipalities enacted laws to raise the wage this year.
Even progressive sources like The American Prospect touted the number, under the headline, "The Proof is in: Minimum Wage Hikes Work":
{A]verage hourly earnings for private-sector workers increased by 0.34 percent this month, and 2.9 percent over the past year.Wage levels have struggled to gain traction in recent years, even as the labor market has tightened. But for labor economists and workers alike, these most recent increases could be a sign that wages might finally be on the upswing, thanks to progressive state policies. In the new year, 18 states across the country—from Florida to Maine, and from Washington state to Michigan—hiked their minimum wages, bringing $5 billion in additional pay to 4.5 million workers, according to the Economic Policy Institute.
The reason I dissented is that the YoY% increase for nonsupervisory workers was only 2.4% -- right in the range it has been for over a year.  As Jared Bernstein, who called the number "A Nice Wage Pop,"  pointed out:
There were some weak spots in the report. Wage growth for the lower-paid 80% of the workforce that have production or non-managerial jobs was up only 2.4%, implying that faster wage growth last month mostly benefited higher-paid workers.

Both types of workers are literally from the same survey -- i.e., the one measure is a subset of participants in the whole survey.  So if minimum wage hikes were responsible for the big YoY increase, we should see it in their hourly wages.

In January's case, we don't.

Since nonsupervisory workers account for about 80% of all workers (h/t Bill McBride), we can back them out of the total figure, and calculate the YoY% increase in wages for managers.

Here's what the monthly percentage increase in hourly wages looks like for January:

While regular workers saw nominal wages go up a little under 0.2% per hour, their bosses saw wages go up 0.8% per hour!

Here's what the YoY% rate looks like:

It looks like bosses got, on average, a 2% bonus over and above their regular January wage, bonuses which were not shared with workers. And these are nominal numbers, so if consumer prices wewnt up 0.2% in January (we don't know yet), workers got nothing, while their bosses got a nice pop.

That's why I dissent.

Fly, Iggles, fly!

 - by New Deal democrat

Congratulations to the Philadelphia Eagles on their first ever Super Bowl victory!

Yes, Philly sports fans have a boorish reputation, but they are fiercely devoted to their teams. They have been long suffering in frustration as the Eagles tempted them many times before. over the last half century, coming close under Dick Vermeil, Andy Reid, and also the likes of Buddy Ryan and even Chip Kelly in his first season.

Last night they refused to succumb to the Patriots, with a bunch of gutsy and very effective offensive calls, satisfying millions nationwide who were rooting for the underdogs and/or hate the Patriots dynasty.  So congratulations today!

And one last thing:

What's the matter with North Dakota?!?