Saturday, November 3, 2018

Weekly Indicators for October 29 - November 2 at Seeking Alpha

 - by New Deal democrat

My Weekly Indicators piece is up at Seeking Alpha.

Several areas, like rail traffic, saw significant rebounds. But interest rates also rose to new expansion highs as well.

As usual, not only does clicking and reading the article bring you up to the moment on what is happening with the economy, it also helps put a little $$$ in my account.

Friday, November 2, 2018

October jobs report: probably the best report of the entire expansion

 - by New Deal democrat

  • +250,000 jobs added
  • U3 unemployment rate unchanged at 3.7%
  • U6 underemployment rate declined -0.1% from 7.5% to 7.4% 
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 +72,000 from 5.237 million to 5.309 million   
  • Part time for economic reasons: fell -21,000 from 4.642 million to 4.621 million 
  • Employment/population ratio ages 25-54: rose +0.4% from 79.3% to 79.7%
  • Average Hourly Earnings for Production and Nonsupervisory Personnel: rose $.07 from  $22.82 to $22.89, up +3.2% 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 +32,000 for an average of +21,000/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 fell -200 for an average of -8/month vs. the last seven years of Obama's presidency in which an average of -300 jobs were lost each month
August was revised upward by 16,000. September was revised downward by -16,000, for no net change.

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 positive.
  • the average manufacturing workweek fell by -0.1 hours to 40.8 hours.  This is one of the 10 components of the LEI.
  • construction jobs rose by +30,000. YoY construction jobs are up +330,000.  
  • temporary jobs rose by +3300. 
  • the number of people unemployed for 5 weeks or less decreased by -8,000 from 2,065,000 to 2,057,000.  The post-recession low was set five 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 +35,000 and  is up +516,000 YoY.
  • the index of aggregate hours worked for non-managerial workers rose by +0.2%.
  •  the index of aggregate payrolls for non-managerial workers rose by +0.5%.     
Other news included:            
  • the  alternate jobs number contained  in the more volatile household survey increased by  +600,000  jobs.  This represents an increase of 2,748,000 jobs YoY vs. 2,516,000 in the establishment survey.    
  • Government jobs increased by +4,000.
  • the overall employment to population ratio for all ages 16 and up increased +0.2% from 60.4% m/m to 60.6% and is +0.4% YoY.          
  • The labor force participation rate rose +0.2% from 62.7% to 62.9 and is up +0.2% YoY.


This was probably the single best report of the entire expansion. The only flies in the ointment were a slight increase in people not in the labor force who want a job now, and a slight decline in the manufacturing workweek. The headline unemployment rate was unchanged at its expansion low.

Aside from that, virtually everything moved in the right direction, in many cases to expansion highs. For the first time, wages for ordinary workers grew over 3% a year. Participation increased across the spectrum. The headline job growth number was excellent, and the more volatile household survey trend was even better.

If this were a Presidential election year, this would be awesome news for the incumbent. Even in a midterm year, this certainly can't hurt as a closing economic argument for the majority party. Regardless of one's ideology, however, this was simply an excellent report.

Thursday, November 1, 2018

ISM new orders posts lowest reading in nearly 2 years

 - by New Deal democrat

The October PMI® registered 57.7 percent, a decrease of 2.1 percentage points from the September reading of 59.8 percent. The New Orders Index registered 57.4 percent, a decrease of 4.4 percentage points from the September reading of 61.8 percent.
On Tuesday I said that "the first thing I am looking for is decelerating growth which will show up in a reading below 15 in the average of  Regional Fed reports, and below 60 in ISM new orders."

The regional Fed average is still above 15, but this morning we got the reduction in the ISM.

Here's what the baseline chart for the regional Fed averages (left) and ISM new orders (right) for 2018 now looks like:

JAN   15   65.4
FEB   20   64.2
MAR   16   61.9
APR   17   61.2
MAY   28   63.7
JUN   24   63.5
JUL   24   60.2
AUG   17   65.1
SEP   20   61.8
OCT 18  57.4

While 57.4 is a very positive reading on an absolute scale, nevertheless this was the lowest ISM new orders reading since November 2016, almost two years ago.

I expect slowing to continue.

Wednesday, October 31, 2018

Some good news on workers' wages

 - by New Deal democrat

There was some good news this morning about workers wages. The quarterly employment cost index showed a q/q increase of +0.9% for wages (red in the graph below), and +0.8% for overall compensations (blue) (which includes things like medical benefits). Nominal YoY increases were +3.0% and 2.8%, respectively:

Unlike "average hourly earnings" (green in the graph above), which are reported monthly as part of the jobs report, the employment cost index is a median, rather than an average, measure. This avoids the distortion caused by a few high-wage earners. It also keeps the perecentage of workers in each occupation constant over time, in order to measure the change in compensation for the same job. In other words, as of the third quarter of this year, 50% of all occupations, as a weighted average, got an increase of +3.0% or more in wages over the past year.

Notice that recently the rate of annual growth in average hourly wages for nonsupervisory workers has also been increasing.  We're still not at the best levels of the 2000s expansion, which itself was no great shakes -- and in real, inflation-adjusted terms wages only outpaced inflation by +0.7% -- but still, this is some unalloyed good news.

Housing has peaked*

*(unless the Fed lowers interest rates)

- by New Deal democrat

My comprehensive look at September housing data is up at Seeking Alpha. The downtrend in housing statistics has been sustained and severe enough for me to make the call that housing has peaked, by most measures, between last November and this past March.

This does not mean that I am calling for a recession at this time. But it does mean that this long leading indicator is now a firm negative. There are three constributing factors to this turn in the market:

1. Interest rates have risen (to roughly 5% for 30 year mortgages)
2. unlike 2014, when a similar but not quite so severe rise in interest rates only caused a temporary pasue in the market, house prices as a multiple of household income are at or near new peaks.
3. the capping of the Federal deduction for state and local taxes has really hit markets in California and the northeast megalopolis.

None of the three factors look likely to abate in the near future. Thus I expect the trend in housing to remain below the recent peaks.

What *is* a possibility (and for what it's worth I believe this plays a role in Bill McBride's belief that housing hasn't peaked yet) is that, if inflation remains subdued, the Fed could react to a softening economy next year by reversing course and lowering interest rates, thus breaking the downtrend.

In any event, as usual, heading on over to Seeking Alpha to read my long article should hopefully be informative for you, and it rewards me with a little $$$ for my efforts.

Tuesday, October 30, 2018

The Housing Affordability Crisis

 - by New Deal democrat

This morning both the Case-Shiller House Price Indexes for September, and Third Quarter Median Asking Rent were reported, as was the rental vacancy rate.  Together they reveal that all types of shelter costs, whether housing or apartments, are at or near record levels.

The Case Shiller 20 City index was reported up 5.5% YoY, and the National Index was up 5.8% YoY. Meanwhile median household income, as reported by Sentier Research one month ago, was only up 2.8% YoY.  So while the media is generally reported the "good news" that house prices are appreciating less than the 6%+ rate they had been recently, "real" homeownership costs continue to be near a record multiple of household income, as shown in this graph from Political Calculations:

Meanwhile median asking rent increased about 5% just in the last Quarter, and is up over 10% from one year ago:

Because, *relatively speaking,* renting is still less expensive than purchasing a house, the rental vacancy rate continues near record lows:

A few years ago, HUD put out a report speaking of a "rental affordability crisis." I think we are past that now. All forms of housing costs, whether ownership or renting, are at crisis levels.

Monday, October 29, 2018

Setting a baseline for a manufacturing slowdown

 - by New Deal democrat

If I am right that by roughly midyear 2019 the economy will experience a substantial slowdown, then we ought to start seeing a deceleration in the leading indicators for manufacturing soon. Additionally, if rail transportation is accurately signaling that a slowdown is already hitting due to the impact of Trump's tariffs and China's retaliation, producers ought to be noticing the effects almost immediately, and begin to react.

Which makes me think that manufacturing new orders, as measured monthly by five of the regional Feds and also the ISM, ought to start slowing down by the end of this year.

To establish a baseline, I've gone back and obtained the average of the five Fed regional reports (first column), and the ISM new orders index reading (second column) since the beginning of this year.  Without further fanfare, here they are:

JAN   15   65.4
FEB   20   64.2
MAR   16   61.9
APR   17   61.2
MAY   28   63.7
JUN   24   63.5
JUL   24   60.2
AUG   17   65.1
SEP   20   61.8
OCT 18  N/a

The ISM Manufacturing Index, including new orders for October, will be reported Thursday morning.  Here's what it looked like through August:

Readings above 60 are particularly strong. So the first thing I am looking for is decelerating growth which will show up in a reading below 15 in the average of  Regional Fed reports, and below 60 in ISM new orders.