Saturday, April 7, 2018

Weekly Indicators for April 2 - 6 at

 - by New Deal democrat

My Weekly Indicators post is up at

Last week interest rates declined but spreads tightened. This week interest rates rose and spreads widened.

Friday, April 6, 2018

March jobs report: surprisingly weak

- by New Deal democrat

  • +103,000 jobs added
  • U3 unemployment rate unchanged at 4.1%
  • U6 underemployment rate fell -0.2% from 8.2% 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: fell -35,000 from 5.131 million to 5.096 million   
  • Part time for economic reasons: fell -141,000 from 5.160 million to 5.019 million
  • Employment/population ratio ages 25-54: fell -0.1% from 79.3% to 79.2%
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: rose $.04 from  $22.38 to $22.42, 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 22,000 for an average of +19,000/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 were unchanged 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
January was revised downward by -63,000. February was revised upward by +13,000, for a net change of -50,000.   

The more leading numbers in the report tell us about where the economy is likely to be a few months from now. These were mainly negative.
  • the average manufacturing workweek fell -0.1 hours from 41.0 hours to 40.9 hours.  This is one of the 10 components of the LEI.
  • construction jobs decreased by -15,000. YoY construction jobs are up +228,000.  
  • temporary jobs decreased by -600. 
  • the number of people unemployed for 5 weeks or less decreased by -221,000 from 2,508,000 to 2,287,000.  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 fell -0.1 hours to 3.6 hours.
  • Professional and business employment (generally higher-paying jobs) rose by  +33,000 and  is up +502,000 YoY.

  • the index of aggregate hours worked in the economy fell by -0.2%.
  •  the index of aggregate payrolls was unchanged.     
Other news included:            
  • the  alternate jobs number contained  in the more volatile household survey increased by  +163,000  jobs.  This represents an increase of 2,683,000 jobs YoY vs. 2,261,000 in the establishment survey.      
  • Government jobs rose by 1,000.       
  • the overall employment to population ratio for all ages 16 and up was unchanged at 60.4  m/m  and is up +0.2% YoY.          
  • The  labor force participation rate fell -0.1% to 62.9  m/m and is down -0.1% YoY  

This was a surprisingly weak report. While manufacturing employment continued to gain, and measures of underemployment fell (but not to new lows), most of the indicators fell. Some of these, like aggregate hours, the employment population ratio, and the labor force participation ratio, simply gave back last month's improvement.

But that three of the four leading indicators, plus revisions, in the report declined is not welcome news (although obviously only one month), and wage growth for ordinary workers remains tepid at 2.4%.

If the jobs boost from last autumn's spending by consumers is over, then the slow late-cycle deceleration in jobs growth can be expected to resume.


Here is the quarter on quarter growth rate of jobs since the beginning of this expansion:

The last three months together were still the best in the past year. But my suspicion is that we will see a resumption of the downtrend that began in early 2015 going forward.

Thursday, April 5, 2018

April reports of short leading indicators start out good

 - by New Deal democrat

April reports started out this week with three positive readings of short leading indicators.

First, the ISM manufacturing index, and in particular its new orders subindex, pulled back slightly but remained at very strong levels:

Second, motor vehicle sales came in at a solid --- units annualized:

This series tends to broadly plateau during expansions. If it were to drop below 16.5 million units annualized, especially for longer than one month, that would be cause for concern.

With GM dropping out, the future of this data is uncertain. Vehicle sales ex-GM would still be a worthwhile metric, but unless that is calculated, it will only be useful on a m/m basis until at least there is one year's worth of data -- and that assumes other manufacturers don't follow GM's lead.

Finally, factory orders also increased. Below I am showing the core reading ex-aircraft and defense:

The last three months have seen the highest readings in nearly 4 years. Note that this data series is noisy, and wasn't leading at all in 2008, so it is of very low utility.

In terms of the economy over the next 3 to 6 months, so far, so good in April. Tomorrow we will get two more short leading indicators, manufacturing workweek and short term unemployment, as part of the jobs report.

Wednesday, April 4, 2018

Why I'm expecting a good employment report on Friday

 - by New Deal democrat

ADP reported private payroll growth of 241,000 this morning, which prompted me to recall that two other short leading indicators of employment also suggest that we'll get another good employment report on Friday.

First, consumer spending leads employment. I began tracking this nearly 10 years ago during the Great Recession. In autumn 2008 real retail sales fell off a cliff, but when they landed with a ker-SPLATT!!! a few months later and stopped falling, it was a signal that economic growth would probably follow in a few more months - and it did. I have continued to note this occasionally during the last nearly 9 years of expansion.

Well, a few months ago -- probably due to repairs necessitated by the hurricanes, and the fires in California -- there was a surge in consumer spending. The below graph compares YoY real consumer expenditure growth (blue) vs. jobs growth (red):

You can see that consumer spending leads employment by generally 3-6 months.  Here's a closeup of the last several years:

You can see the bump last autumn in spending. That ought to still be feeding through to some extra growth now.

Second, the unemployment rate is likely to decrease as well. This is because initial jobless claims lead the unemployment rate by about 1-3 months, as shown in the graph below (and although I won't bother showing this time, the relationship goes back 50 years!):

In the last two months, initial claims have dropped to yet more 45 year lows. The unemployment rate should be following.

While this doesn't change the longer term trend that we are in the decelerating part of the expansion, and the signs are that consumer spending growth has paused again in Q1 2018, in the short term of the next couple of months the jobs reports should be bearing good news.

Tuesday, April 3, 2018

Residential construction spending portends slowdown for remainder of2018

 - by New Deal democrat

Yesterday's February report on private residential construction spending is of particular importance to the overall direction of the economy this year.

In terms of their order in leading the economy, the housing data I track runs in this order:
  • new home sales (but these are very volatile and heavily revised, so the signal to noise ratio is low)
  • permits (much less volatile)
  • single family permits (even less volatile - signal to noise ratio is high)
  • housing starts (more volatile than permits, but have the advantage of being "hard" economic activity)
  • residential construction spending (the least volatile of all of the data, even though less leading)
  • residential fixed investment (part of quarterly GDP, so the last reported)
There is also the weekly mortgage applications report, which recently has tracked new home sales better than the other series, but has had compositional issues in the past.

Here are the two least volatile series, single family permits (blue) vs. inflation-adjusted private residential construction spending (red) for the last 15 years:

You can see the relative advantages of each. Single family permits are more leading, but somewhat more noisy, while residential construction spending is not noisy at all, but follows a few months after permits.

Notice the flattening of the blue line for the last year or so. That becomes more apparent when we look at the q/q percent change in construction spending (nominal in the two graphs below):

Since we only have the first two months' data for 2018, let's look at the same data m/m for the last year:

Even nominally, so far the first quarter of 2018 is showing growth at a rate of +0.2% q/q.

While we had slowdowns even more than this in 1994, 1996, and 2010 without recessions following, actual downturns in 1999 and 2006-07 did presage the recessions.

A look on a YoY% basis through February shows that single family permits have increased at about a 10% YoY pace, while real residential construction spending is only up about 4% YoY:

Finally, residential construction spending tends to correlate closely with private residential fixed investment in the GDP report:

The good news is that real private residential construction spending is still positive, so that adds to the evidence that no actual downturn in the economy will happen in the next 9 to 12 months, but on the other hand the bad news is that this is "hard" evidence of an impending *slowdown* in growth for the remainder of this year. 

Monday, April 2, 2018

An update on the yield curve

 - by New Deal democrat

When the Fed embarked on its tightening several years ago, I likened it to trying to steer between the Scylla of higher long rates that would kill the housing market, and the Charybdis of an inverted yield curve.

So, how are they doing?  This update is up over at

Sunday, April 1, 2018

A thought for Sunday: 2018 arctic ice cover

 - by New Deal democrat

The National Snow and Ice Data Center reports that the peak in arctic ice cover this winter was the second lowest on record, just slightly above that of one year ago. The three next lowest peaks were in the three years just prior:

All of these are something like three standard deviations below the norm from 1980-2010.

The biggest abnormality this winter was that the Bering Sea between Alaska and Siberia did not freeze until very late. This encouraged the formation of persistent low pressure over the area, sending the jet stream high into the arctic from the Pacific for most of the season. And since what goes up must come down, that it did east of the Rockies

Since this is a US government web site, I am surprised that it is still available.