Saturday, June 12, 2021

Weekly Indicators for June 7 - 11 at Seeking Alpha

 - by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

Despite the spike in consumer prices in May, long term interest rates like in mortgages declined, largely taking back the increase that occurred earlier this year.

As usual, clicking over and reading will bring you up to the moment, and bring me a penny or two for my efforts.

Friday, June 11, 2021

The spike in inflation is not a concern - yet


 - by New Deal democrat

By now you’ve probably already read a fair amount of commentary on yesterday’s consumer inflation report for May. I’m going to cut to the chase as to my take right off the bat:

1. The primary driver of this inflationary spike is supply bottlenecks rather than increased demand.
2. The inflationary spike has wiped out any “real” wage gains during the past 10 months.
3. The inflationary spike is not a concern - yet. If this continues about 3 more months, it becomes a real concern and I would expect the Fed to act at that point.

To the graphs ...

1. Here’s a look at retail sales (blue) and personal consumption expenditures (gold) since the beginning of 2020:

Just as with last year’s stimulus, the effect of this year’s stimulus has petered out after a few months. Demand has stabilized.

On the contrary, YoY commodity prices have spiked in a fashion last seen when gas prices hit $4.25/gallon in the early part of the Great Recession:

This *can* be a great concern, but note that there have been other spikes approaching 10% YoY in the past 25 years that did not cause recessions or even major slowdowns. Note that those spikes only lasted a few months.

2. Here are average real hourly wages for nonsupervisory workers for the past 3 years, normed to 100 as of February 2020:

As of May, these are up 3% since just before the recession - and not at all since last July. The inflationary spike this year has actually caused them to decline slightly. This will create a problem for consumer spending (70% of the economy) if it continues too much longer.

3. As I’ve said many times before, typically inflation has not been a concern over the past 25 years unless CPI excluding energy (gas) is up 3% YoY or more. As of May, we crossed that threshold:

Another way to look at this is to compare our current trajectory with that which was in place leading up to the pandemic. In the latter part of the last expansion, consumer prices were increasing at the smoothed rate of 2.65%/year. Had that trend continued after February 2020, prices would be up roughly 2.9% since then. With the inflationary spike of the past several months, they are instead up 3.8% since February 2020:

Here’s the bottom line: this is not a big deal if it only lasts another month or two. But if the trend continues longer than that, it will begin to impact consumer spending, and it will get the Fed’s attention. Unfortunately I have no special insight into supply chains; all I know is that it is important that the supply chain bottlenecks be promptly resolved. 

Thursday, June 10, 2021

New jobless claims continue downward trend towards near-normalcy, while continuing claims, well, continue


 - by New Deal democrat

New jobless claims continue to be the most important weekly economic datapoint, as increasing numbers of vaccinated people and outdoor activities have led to an abatement of the pandemic, with both new infections and deaths at their lowest point since the onset of the pandemic in March 2020.

We have already hit my objectives for claims to be under 500,000 before Memorial Day, and to be below 400,000 by Labor Day. My new, final objective is for claims to average 325,000 or below, which would signify a return to normal expansion levels in the past 30 years.

Turning to this week’s report, new jobless claims declined 9,000 to 376,000. The 4 week average of claims declined by 25,500 to 402,500. Both are new pandemic lows. (Note that I have discontinued comparisons of non-seasonally adjusted claims, as the period of lockdown distortions YoY has passed.)

At the peak of the pandemic lockdowns, new claims were running 6 million to 7 million per week. Here is the trend since the beginning of last August:

For the past 3 months, claims had trended down an average of roughly 100,000 per month. In the past several weeks, this has slowed to a rate of decline of roughly 50,000 per month, indicating that the “opening” of the economy is getting nearer to an endpoint. This also implies a slowing down of net job creation from the last 3 months’ levels. At their current level, claims are consistent with early mid-expansion levels in the past:

Continuing claims, which are reported with a one week lag, and lag the trend of initial claims typically by a few weeks to several months, declined 258,000 to a new  pandemic low of 3,499,000. Still, over the past 2 months these have only declined about 7% from roughly 3,750,000:

The long term perspective again shows that these are equivalent to the worst levels of most previous recessions, or early in the expansions, versus at 2,000,000 or below later in strong expansions:

I am not sure if the recent strong declines in new jobless claims will continue from here, as we approach past levels of full or nearly full employment; but the news is definitely good, as we are at least approaching more “normal” expansion levels.

The issue with continuing claims has become more complex, as this week they finally - slightly - broke out of a flat trend since the beginning of March. The picture has become much more clouded as half of the States have announced early terminations of supplemental pandemic benefits. The picture is further clouded by the sputtering rate of new vaccinations, with the Appalachian, Deep South, and Interior West sections of the country showing low vaccination rates, and an ongoing pandemic that is *not* coming to an end. I think we are going to see two tracks going forward from here, as near-normalcy does return to the more vaccinated parts of the country, while attempts to return to normalcy fail in the laggard regions. 

Wednesday, June 9, 2021

Coronavirus dashboard for June 9: the high correlation between partisan lean, vaccination rates, and new cases


 - by New Deal democrat

No big economic news today, so I wanted to follow up on Monday’s post, in which I described the correlation between the number of new COVID cases and States in which there were high vaccination rates vs. ones with low rates. 

The both sad and maddening point is, vaccination rates correlate strongly with partisan lean, and so do the present level of COVID cases.

First, here is a graph of vaccination rates by partisan lean (via the NYT):

This is pretty compelling: States with strong Democratic leans almost all have higher vaccination rates than almost all States with GOP leans.

Now let’s break out new infection levels.

First, here are those States which Biden won but which have higher rates of new infections than the US average (as of this morning, Pennsylvania is no longer one of them):

And now here are the States that Trump won that high higher rates of new infections:

As you can see, there are only 8 States that Biden won that have above-average new infections, and all but 2 are under 8 per 100,000. On the other hand, there are 15 States that Trump carried that have above-average new infections, and 5 of them are above 8 per 100,000.

Now, here are the States that Biden won that have below-average rates of new infections:

Including the entire US Northeast, these amount to 18 States plus the District of Columbia.
Here are the States that Trump won with below-average rates of new infections:

There are only 9 of these.

The simple fact is, while the correlation isn’t perfect, it’s clear that States that Biden won have significantly higher rates of vaccinations, and significantly fewer new cases of COVID. And by and large, the Biden-won States are showing continued declines, while many of the Trump-won States are only showing slight declines, and in a few cases no declines at all.

Tuesday, June 8, 2021

April JOLTS report: evidence of a huge disconnect in the jobs market


 - by New Deal democrat

This morning’s JOLTS report for April confirmed anecdotal evidence that there have been a huge amount of unfilled job openings, and a comparatively weak level of actual hiring. Job openings soared to a level over 20% higher than at any point in the series before March. Meanwhile actual hires are less than 1% above their pre-pandemic high. Voluntary quits increased to an all-time high, while layoffs declined to a new all-time low. Total separations also increased.

This report has only a 20 year history, and so includes only two prior recoveries. In those recoveries: 
  • first, layoffs declined
  • second, hiring rose
  • third, job openings rose and voluntary quits increased, close to simultaneously
The recovery from the worst of the pandemic almost one year ago at first followed this script, but the winter surge, which led to a few month of flat, or worse, jobs reports, disrupted that trend, and now there is yet another new pattern.

Let’s start out with layoffs and discharges (red) and total separations (blue), showing that these have followed their past patterns, as layoffs rapidly declined to a normal rate after last March and April. As noted above, this month’s report made yet another new series low:

Next, here is the series-long record of hiring (blue), quits (green, *1.75 for scale), and job openings (red):

Here is the zoomed-in look at the past several years:

What has been different this time around is that, after rapidly improving, hires declined again until bottoming in December and January, and have risen only tepidly since.

Two months ago I flagged the issue of whether “hires reassert themselves, as in the past two recoveries, or whether openings without actual hiring continue to soar as they did starting in 2015.” In March both happened, but in April, as I anticipated given the relatively subpar April employment report, the increase in actual hires is definitely lackluster.

Yesterday I read a news article (sorry, didn’t bookmark it) that appeared to anticipate all of the trends we saw in this report. Of people who lost jobs early in the pandemic, many of the older workers have chosen simply to retire (hence the record in voluntary quits). Others cited, in roughly equal percentages, (1) problems with child care, (2) job offers unattractive compared with continued enhanced unemployment benefits, and (3) that the jobs on offer paid significantly less than the jobs they had before the pandemic.

It is pretty obvious there is a disconnect in the jobs market, and all 3 of the above items are going to have to be addressed in some fashion.

Monday, June 7, 2021

Coronavirus dashboard for June 7: a Tale of Two Pandemics: the Vaccinated States vs. the Idiotic States


 - by New Deal democrat

The drive towards “herd immunity” via vaccination has slowed to a crawl. The slowing is almost entirely driven by Trump-voting States in the South and West. Those Idiotic States are continuing to suffer from an ongoing pandemic, while in the Biden-voting States of the Northeast, Midwest, and California, the pandemic has all but ended.

Here are the details.

Daily vaccinations have declined precipitously in the past 7 weeks, and are now only about 1 million per day:

If the US were to stay at 1 million per day, it would take the rest of the year to get everyone vaccinated. And unfortunately there is no reason to believe that the rate of new vaccinations won’t continue to decline.

As a result, as shown in the graph below, there is every reason to believe that the US will tip out at roughly 60% of the population having received at least one dose, and only 50% fully vaccinated (note this includes all children including those under 12 for whom the vaccines have not been approved). (For the record, I still think we will achieve 70%+ of all adults having immunity between vaccinations plus those previously infected with antibodies).

The distribution of the population who have been vaccinated vs. unvaccinated is hardly random. As shown in the below map, the South and interior West almost uniformly have lower vaccination rates than the Pacific Coast, Midwest, and Northeast:

And this completely non-random pattern is very apparent when we break down new COVID cases by region.

The best region is the Northeast:

All States except for Maine and Pennsylvania are below an average of 40 cases per 100,000 per day, and the worst State - Maine - is at 5.2. Half of the States are close to or under 2 per 100,000 per day, which is a pandemic that is well under control.

The next best region is the Midwest, plus Maine for comparison:

Nebraska and South Dakota are also under 2 cases per 100,000 per day. I suspect herd immunity via the large number of already infected people comes into play in those States. Only Missouri and Indiana have a higher rate of cases than Maine. And all of the States, except for Missouri (also highlighted) continue on a downward trajectory.

The next best region is the South, plus Maine and Missouri for comparison:

Maryland and Virginia are close to or under 2 per 100,000 per day. About half of the remaining States in the region show a *slowly* declining trajectory, but have fewer cases per capita than Maine. The other half, including the large State of Florida, show a pandemic that is ongoing. I have also highlighted West Virginia, which aside from the last observation, is the worst of the lot.

Finally we come to the West, which is the worst performing region, plus Maine, Missouri, and West Virginia for comparison:

California is very close to 2 per 100,000 per day. Several other States are lower than Maine. But most are worse than Missouri, and 3 - surprisingly including Colorado (which is nevertheless clearly in a declining trend) and Washington State (which may finally be declining) - are worse than West Virginia. Wyoming is the worst of all States, with 11.9 cases per 100,000 per day, a pandemic that continues to rage, and with no sign of any decrease at all.

Finally, here is a graph of the 10 worst States together, plus Missouri which is slightly below that level:

Just to emphasize the point, here are the 10 lowest States by rate of those fully vaccinated:

MS 28%
AL 29%
WY 32%
LA 32%
AR 32%
TN 32%
ID 33%
UT 33%
GA 33%
OK 34%

All 10 of these States are in the South and West. Four of them are among the 10 worst States for new infections. By contrast, all of the 6 New England States are above 50% for those fully vaccinated, and of those only Maine is at a problematic level, although clearly declining.

“Those who cannot see must feel.” Those regions with populations who refuse to get vaccinated will continue to see the pandemic spread through the unvaccinated until they reach “herd immunity” the hard way. Those regions whose populations have embraced vaccinations are likely to achieve “herd immunity” and the de facto end of the pandemic within the next 45 days.