Friday, October 11, 2019

Real average and aggregate wages for September

 - by New Deal democrat

Now that we have the September inflation reading, let’s take a look at real wage growth.

First of all, nominal average hourly wages in September increased +0.2%, while consumer prices were unchanged. As a result, after rounding, real average hourly wages for non-managerial personnel increased +0.1%. This translates into real wages of 97.7% of their all time high in January 1973:

On a YoY basis, real average wages were up +1.7%, still below their recent peak growth of 1.9% YoY in February:

Aggregate hours and payrolls improved sharply in the past several months, so real aggregate wages - the total amount of real pay taken home by the middle and working classes - are up 30%  from their October 2009 trough at the beginning of this expansion:

For total wage growth, this expansion remains in third place, behind the 1960s and 1990s, among all post-World War 2 expansions; while the *pace* of wage growth has been the slowest except for the 2000s expansion.

Thursday, October 10, 2019

Initial claims still positive, negative near term recession

 - by New Deal democrat
I’ve been monitoring initial jobless claims closely for the past several months, to see if there are any signs of stress. This is because the long leading indicators were negative one year ago, and many - but not a majority - of the short leading indicators have recently turned negative as well. So I have been on “recession watch.” But no recession is going to begin unless and until layoffs increase.

To reiterate, my two thresholds are:

1. If the four week average on claims is more than 10% above its expansion low.
2. If the YoY% change in the monthly average turns higher.

As of this week, initial claims continue to be very close to their expansion lows. The 4 week moving average of claims Is 213,500, only 12,500, or 6.1%, above the lowest reading of this expansion:  

On a YoY% change basis, the 4 week average is exactly even with where it was one year ago:

The most recent monthly reading, for September, like August, was slightly  (+0.4%) above where it was in the full month of September 2018:

Note that this does satisfy the second prong of my metric above, but I’m not too concerned, because this is versus two of the very best monthly readings in the entire expansion.

The less volatile 4 week average of continuing claims is also running -0.4% below where it was a year ago:

In short, there is simply no sign whatsoever of any stress in the jobs market that we could expect to see in the immediate months preceding a recession. The recession risk for Q4 of this year is rapidly receding.

Wednesday, October 9, 2019

August JOLTS report: nearly all employment measures now neutral

 - by New Deal democrat

This morning’s JOLTS report for August showed a decline in all metrics m/m as well as a slowing trend overall.

To review, because this series is only 20 years old, we only have one full business cycle to compare. 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 April 2007 
as shown in the below graph (quarterly, normed to 100 as of May 2018): 

Here is the close-up on the past five years (monthly):

As you can see, in today’s report all four metrics declined. Job openings have completely rolled over, and both quits and total separations have essentially been stagnant for over a year. This is shown even better by displaying the YoY% changes in all four metrics:

Only quits are in any significant sense above where they were a year ago. Hires and separations are flat. This is very similar to where we were at the end of the 2016 slowdown, but also to where we were in early 2007 before the Great Recession:

Next, here is the history of the “hiring leads firing” (actually, total separations) metric, first quarterly through Q2 of this year:

And now monthly for the past three years through August:

As is again apparent, both hires and fires have essentially gone sideways for over the last twelve months. It is possible this is just a pause, like 2016 — or it could be that both are at a  turning point. 
Finally, For completeness’ sake, below are total layoffs and discharges. Note that these turned up appreciably in the six months or so before the Great Recession. the silver lining today is that, just as with initial jobless claims, there is no sign of any weakness at this point:

In summary, the main takeway is that deceleration in nearly all metrics has now reached neutral levels. We are hampered by the limited history of this report from reading too much more into it. But it is certainly *not* a “good” or “strong” report.

Tuesday, October 8, 2019

Scenes from the September jobs report

 - by New Deal democrat

Yesterday I shared the best good news from the September jobs report released last Friday: there’s a good argument that the economy has reached “full employment,” although we could do even better if real wages improved more. Today let’s look at the bad news, which comes from examining the leading indicators for employment.

That there has been a jobs slowdown is by now well established. In the last 8 months, per the more reliable establishment report, 1,135,000 jobs have been added, an average of 142,000 per month, which If we subtract temporary census hiring of 26,000, becomes 139,000. And keep in mind that the number of jobs added between March 2018 and March 2019 is going to be reduced from roughly 210,000 to 167,000 per month:  

Next, the three leading sectors of employment I track are temporary help (blue in the graph below), manufacturing (gold), and residential construction (red). Here’s what they look like compared with 2018, showing the slowdown this year:

Don’t be fooled by the better-looking bars for August and September in temporary help. At I pointed out a few weeks ago, this year there have been almost relentless downward revisions in that number between the initial report and the final one two months later.  That pattern held up for July and August’s revisions on Friday. Below I’ve listed the original number for the last three months on the left, followed by the first and then final revisions to the right:

JUL +2200 -7300* -10,500
AUG +15,400 +14,500*
SEP +10,200 —-
*1st revision only

In other words, against the September gain you have to include the further 4,100 in losses for the prior two months.  And I strongly suspect both August and September will have further downward revisions.

Further, because the average manufacturing workweek is down almost 1 full hour per week YoY (blue in the graph below), we should expect more actual losses in manufacturing jobs going forward:

Before 1980, manufacturing jobs’ growth or decline typically followed hours by roughly 2 months. Since then, the time period has lengthened to more like 6 months. 

Here’s the close-up look for the past several years:

If a similar pattern is followed to what happened in 2016, by the end of next spring, we should expect *no* net YoY in manufacturing jobs, which means at minimum a decline of over -20,000 more jobs during roughly the next 8 months.

And, like temporary help, the revisions for manufacturing employment have all been downward for the past five months:

JAN +13 +17 [+4]
FEB. +4. +8. [+4]
MAR -6. -3. [+3]
APR +4. +3 (-1)
MAY +3 +2 (-1)
JUN +17 +10 (-7)
JUL +16 +4 (-12)
AUG +3 +2 (-1)*
SEP -2  —-  —-
*1st revision only

This year so far only 46,000 manufacturing jobs have been added to the entire economy, compared with 188,000 in the first 9 months of 2018.

More broadly, there have been YoY losses in goods-producing jobs before all of the past 3 recessions, and going back 70 years, counting 12 recessions, in all but 3 there has been steep deceleration before and actual losses no later than two months into the recession:

So far this year, only 65,000 jobs have been added in the entire goods-producing sector:

This is a paltry gain of 0.3%. A continuation of this trend for just 3 more months would be at very least consistent with a severe slowdown.

Even more broadly, although the household report has been very good for the past two months, the aggregate hours worked by all non-managerial personnel has not improved that much. Below is a graph of the q/q % change going back over 50 years. Only once, in 1966, has there been a decline for more than one quarter without a recession taking place shortly:

This figure did turn positive in Q3, but not by much.

Finally, let me turn to one forecast I made in the past month that didn’t quite pan out. I wrote then that “initial jobless claims have trended only slightly lower in the past 18 months, and are flat over the past 12. The unemployment rate has continued to trend slightly lower, but I expect that to end in the next several months, with no new lows, and more likely a drift sideways at 3.7% or even slightly higher to 3.8% or even 3.9%.”

Well, instead the unemployment rate dropped to 3.5% (blue in the graph below):

I am going to be stubborn here. I think the drop in the unemployment rate in September was a byproduct of a particularly good sample in the volatile household report. Unless initial claims turn significantly lower, I still expect the unemployment rate to move up 3.6% or 3.7% in the next few months.

The bottom line here is that the goods-producing portion of the US economy is probably in a shallow recession right now, and employment there has plateaued at best. The services portion, however, is still doing decently as reflected in the good numbers that have been posted by consumers.

Monday, October 7, 2019

Have we finally reached “full employment”?

 - by New Deal democrat

As I noted on Friday, the household report - the one that tells us about unemployment, underemployment, and labor force participation - was particularly good. In fact, the last two months together have been so good that, at least by some measures, we may finally have arrived at “full employment.”

Let’s start with the basics. Gains in employment as measured by the household survey (blue in the graphs below), as opposed to the larger (and, yes, more reliable) payrolls survey (red), were 590,000 and 391,000 in the last two months, respectively. Those were the biggest gains in nearly a year: 

At 3.5%, that gave us the lowest unemployment rate in the past 65 years (except for a few months in 1968-69):

The U6 underemployment rate is also at its lowest level, save for one month, since the series began in 1994:

And even beyond that, when we add in those who aren’t even in the labor force, but say they want a job now, we are at the lowest level of all:

By all of the above measures, it certainly looks like we have finally reached “full employment.”

Further, participation in the labor force in the prime age group (red in the graph below) jumped by +0.6% from July, tying its highest rate of this expansion, at 82.6%:

In the below graph, both prime age labor force participation, and the prime age employment-population ratio of 80.1% are normed at the zero level, to show how the present level compares with earlier expansions (prior to 1987, the levels were never as high as presently):

Prime age EPOP is within 0.2% of its highest level in both the 1980s and 2000s expansions. During the boom of the late 1990s, both were significantly higher. Only by that measure are we not now at “full employment.”

The late 1990s was the one time since the 1960s that real wage growth really boomed. I suspect real wages are the reason for both the recent improvement (due to big minimum wage increases in a number of states) and also why participation still lags the 1990s (because real wages haven’t improved enough to lure enough people out of continuing education, or to alter the trade-off of the cost of child care for others).

In summary, I think there is a good argument that we have reached “full employment,” but not “booming employment,” because wage growth is still tepid.

Sunday, October 6, 2019

A TV watching recommendation: “David Makes Man”

 - by New Deal democrat

“Well, we all have a face
That we hide away forever
And we take them out
And show ourselves when everyone has gone”

 - Billy Joel, “The Stranger”

“No one here is exactly what he appears.” - G’Kar, Babylon 5

“David Makes Man” is a loosely autobiographical coming of age drama created bt Terell Alvin McCraney, (executive produced in part by Oprah Winfrey) centered on the academically gifted 14 year old African American “David,” who lives in the projects of Homestead, Florida with his single mother and his little brother. His father, who he has never met, is a college professor with whom his mother, when a student, had a brief affair. During the day, he attends a magnet school where he is known at “DJ.” To the drug-dealing gang members at “the Ville,” as the housing project is known, he is “Dai”: 

Those alternative names are a sign of the central theme of this drama. For, pace Billy Joel, David wears different faces that he takes out depending on the circumstances. Sometimes the alternative “Davids” appear physically - in fact, it isn’t entirely clear that David doesn’t suffer from dissociative disorder, a la “Mr. Robot.” His mentor is a drug dealer named “Sky” who shows up not only in the projects but also, oddly, along David’s bus ride to school, and urges him to betray his best friend at school, saying “the first kill is the hardest.” We learn Sky’s secret at the end of the pilot episode.

Between the abject poverty of David’s family - the electricity and the phones in their apartment have been turned off depending on which bill his mom has paid - and David’s need to overperform at school in order to get into the prep high school he desires, his life is a constant pressure cooker of tension, and at times David looks like he is about to physically explode. Several of the adults in his life note that he always pauses before he answers a question, and in a few scenes we actually see his internal mental gyrations as he wrestles with what information if any he should give out. And it is easy to see why: people make mistakes, and in the extremes of poverty, any mistake can have disastrous, even fatal, consequences.

There is another element in duality in the series as well: it isn’t clear at all whether David is a hero or an anti-hero. There are strong elements of both “Breaking Bad” and even “The Godfather” in David. He agrees to serve as a look-out for the drug dealers during the pilot, and later on, steals a scrip pad. And I wouldn’t trust him any more than I would trust Michael Corleone - he has the ability to straightforwardly and earnestly tell a blatant lie. Later in the season, there is even a scene between David and Sky’s son Raynan, one of the drug dealers, which recapitulates the scene in The Godfather where Michael rather than Sonny is shown to be the strategic master in the crime family. In short, it’s not clear at all which path David is going to ultimately choose.

But what I like the best about this series is how three-dimensional the characters are. As G’Kar warned in the 1990s science fiction series Babylon 5, nobody is exactly what they appear. For example, the drug dealers aren’t two dimensional bad guys, but fully realized personalities with humane and even tender sides. Raynan is jealous of the mentoring Sky did for David, but also tells David that he views him like the little brother he never had, and genuinely reaches out to help him. The toughest of the drug dealers, Shinobi, is revealed to have a big secret of his own, and later in the season we will see him reduced to shocked immobility in grief, as well as putting on a respectful, polite face in a discussion with an elderly white woman in a pharmacy’s waiting room. There is also a football lineman-sized drag queen who has taken in a 17 year old trans runaway, even though he could get charged with kidnaping, or worse.

Even the authority figures at school are conflicted. For example, his advanced placement teacher, played by Phylicia Rashad, saves David from a dream-ending suspension in the first episode, but never lets him know it, and in fact, treats him like dirt relentlessly to his face.

Then there’s his biracial friend, Seren, who lives in a dream suburban home, with his unbelievably bigoted and severe white mother and his successful black stepfather. It is a secret about his stepfather that triggers the fight between David and Seren at school in the opening of the pilot episode. Why that is we only find out clearly at the end.

It is in the context of betraying Seren that Sky tells David that “the first kill is the hardest,” meaning that the high school he wants to go to will probably only take one of the two of them. Ominously, Sky whispers that advice again into David’s ear at the end of the episode, suggesting that if not Seren, somebody else is going to figuratively if not literally be killed by David in pursuit of his ambition later on.

“Making man” I have learned, is slang for turning 18 years old. David faces a slew of decision points in his life, where he must ultimately choose which is going to be his “real” face. This is a richly textured drama that hooked me in the first 15 minutes I watched, and I unhesitatingly recommend it to you.

Episode 7 of the first season will be shown on the OWN network Wednesday night. Most prior episodes are available on demand, and the pilot episode can be streamed for free on YouTube.


UPDATE: There is lots of imagery in the series about David “coming from water.” That David’s image is reflected in a water puddle in the above poster is no accident. If you look carefully, you can see that what appears in the water is not an exact mirror image. There is a version where the entire reflection is shown, and an animated one where Sky appears and disappears. Here it is, and it is ominous:

This is an older David who is very much the successor to Sky. Of course, the more charitable interpretations is that it is just the stronger and more confident older self that David wants to be.