Saturday, January 8, 2022

Weekly Indicators for January 3 - 7 at Seeking Alpha


 - by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

Surprisingly, Omicron has not had any wide impact on the coincident data - at least not yet.

On the other hand, the long leading forecast has become weaker, as interest rates have moved in the wrong direction.

As usual, clicking over and reading will bring you up to the virtual moment on where the economy is and where it is going, and will reward me a little bit for organizing that information for you.

Friday, January 7, 2022

December jobs report: more signs of real tightness, while new jobs added are (seasonally?) disappointing


 - by New Deal democrat

There were three big questions I had going into this jobs report: 
1. whether the big decrease in new jobless claims to a half century low would translate to another big top line number in the jobs report
2. is wage growth holding up? Is it accelerating?
3. Would last month’s “poor” 210,000 number of new jobs be revised higher? 

The answers were:
1. The 6 month average of monthly gains has declined significantly, from about 600,000 to 500,000 - still very good, but a significant deceleration in the past 2 months. We still have 3.6 million jobs to go to equal the number of employees in February 2020 just before the pandemic hit. At the current average rate for the past 6 months, that’s about 7 more months.
2. Wage growth is still very high, at 5.8% YoY, a slight deceleration from last month.
3. Both of the last 2 months were revised higher, but November’s revision was only +39,000, still disappointing.

Here’s my in depth synopsis of the report:

  • 199,000 jobs added. Private sector jobs increased 211,000. Government jobs declined by -12,000 jobs. The alternate, and more volatile measure in the household report indicated a gain of 671,000 jobs, the second very sharp increase in a row, and which factors into the unemployment and underemployment rates below.
  • The total number of employed is still -3,049,000, or -2,3% below its pre-pandemic peak.  At this rate jobs have grown in the past 6 months (which have averaged 508,000 per month), it will take another 7 months for employment to completely recover.
  • U3 unemployment rate declined -0.3% to 3.9%, compared with the January 2020 low of 3.5%.
  • U6 underemployment rate declined -0.4% to 7.3%, compared with the January 2020 low of 6.9%.
  • Those not in the labor force at all, but who want a job now, declined -106,000 to 5.713 million, compared with 5.010 million in February 2020.
  • Those on temporary layoff decreased -63,000 to 872,000.
  • Permanent job losers declined -206,000 to 1,703,000.
  • October was revised upward by 102,000, while November was revised upward by 39,000, for a net gain of 141,000 jobs compared with previous reports.
Leading employment indicators of a slowdown or recession

These are leading sectors for the economy overall, and will help us gauge how strong the rebound from the pandemic will be.  These were on balance positive:
  • the average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, declined -0.1 hour to 40.3 hours.
  • Manufacturing jobs increased 26,000. Since the beginning of the pandemic, manufacturing has still lost -219,000 jobs, or -1.7% of the total.
  • Construction jobs increased 22,000. Since the beginning of the pandemic, -88,000 construction jobs have been lost, or -1.2% of the total.
  • Residential construction jobs, which are even more leading, rose by 700. Since the beginning of the pandemic, 46,600 jobs have been *gained* in this sector, or +5.5%.
  • temporary jobs declined by -1,600. Since the beginning of the pandemic, there have still been -57,100 jobs lost, or -5.3% of all temporary jobs.
  • the number of people unemployed for 5 weeks or less decreased by -8,000 to 1,977,000, which is lower than just before the pandemic hit.
  • Professional and business employment increased by 43,000, which is still -35,000, or about -0.2%, below its pre-pandemic peak.

Wages of non-managerial workers
  • Average Hourly Earnings for Production and Nonsupervisory Personnel: rose $0.12 to $26.61, which is a 5.8% YoY gain. This continues to be excellent news, considering that a huge number of low-wage workers have finally been recalled to work, and just below lat month’s high of +5.9% YoY.

Aggregate hours and wages:
  • the index of aggregate hours worked for non-managerial workers rose by 0.3%, which is a  loss of -1.5% since just before the pandemic.
  •  the index of aggregate payrolls for non-managerial workers rose by 1.1%, which is a gain of 9.4% (before inflation) since just before the pandemic.

Other significant data:
  • Leisure and hospitality jobs, which were the most hard-hit during the pandemic, gained 53,000 jobs, but are still -1,222,000, or -7.2% below their pre-pandemic peak.
  • Within the leisure and hospitality sector, food and drink establishments increased 43,000 jobs, and is still -653,000, or -5.3% below their pre-pandemic peak.
  • Full time jobs increased 803,000 in the household report.
  • Part time jobs decreased -275,000 in the household report.
  • The number of job holders who were part time for economic reasons decreased by -399,000 to 3,929,000, which is a decrease of 461,000 since before the pandemic began.
  • Health care employment declined by -3,100, a YoY gain of only 63,300, or 0.4%, despite being the most critical sector during the pandemic.


Two days ago I described the November JOLTS report as being analogous to a reverse game of musical chairs, with jobs being the chairs and potential employees those wanting to sit in them. With a chronic shortage of people being willing to sit in the chairs on offer due to the pandemic, jobs are going unfilled, while virtually nobody is getting laid off. 

Today we learned that the dynamic continued in December, as the unemployment rate fell close to its 50 year lows, at a level only exceeded by one month in 2000, and during 2018-19. This also continued the dynamic of sharp wage increases for non managerial workers.

White collar professional jobs have almost fully recovered to pre-pandemic levels. Construction is not far behind. What are lagging are leisure and hospitality jobs most hard hit by pandemic issues, and - surprisingly - manufacturing. That health care is losing workers while the pandemic is at one of its worst levels is a demonstration of the failure of how the US has been dealing with the pandemic, as Trumpist courts and governors are refusing virtually all efforts at mitigation, and vaccinations are nowhere near the level needed for safety. The Biden Administration is not blameless, as its “vaccination-only” strategy has not worked.

It is also somewhat concerning that the last two months have only averaged a little over 200,000 jobs gained. But the household report, which tends to lead at inflection points, has been *very strong,* and October’s initial gain of 531,000 has since been revised up to 648,000. I suspect that seasonality has reared its ugly head, as the huge number of Christmas holiday jobs typically added has thrown a monkey wrench into pandemic calculations. If so, next month the report for this month (January) will reverse that.

All in all, the jobs sector continues strong, and is getting very tight, but still lagging in terms of filling job openings created by pandemic losses.

The final pieces of the employment picture will not resolve until the pandemic is resolved. 

Thursday, January 6, 2022

Initial and continuing jobless claims: 2022 starts out where 2021 left off


 - by New Deal democrat

The labor market in 2022 started out where it left off in 2021, as new claims increased slightly, by 7,000, to 207,000. The 4 week average of new claims increased 4.750 to 204,500:

Readings this low haven’t been seen in half a century.

Continuing claims for jobless benefits also rose slightly, by 36,000, to 1,754,000:

Except for 2018-19, we haven’t seen continuing claims this low since 1974:

We can expect this situation to continue so long as the pandemic keeps many potential workers (on the order of 4,000,000 or so) on the sidelines. As I wrote yesterday concerning the JOLTS report, it’s like a game of reverse musical chairs where the holders of the chairs can’t get enough people to sit in them. In those circumstances, virtually nobody is going to get laid off. I don’t know if initial claims will go any lower, but I suspect continuing claims will continue to decline to or even below their 2018-19 levels.

In the meantime, I expect another good employment report tomorrow, and I will be really surprised if last month’s initial estimate of a gain of 210,000 jobs in November isn’t raised substantially higher.

Wednesday, January 5, 2022

November JOLTS report: imagine, if you will, a game of musical chairs


 - by New Deal democrat

Imagine a game like musical chairs, except that some players are the chairs (employers) as well as people who want to sit in the chairs (potential employees), and players, both sitters and chairs, are continually entering and exiting the game.

The game would be in equilibrium if the number of sitters and chairs are always equal. If there are more sitters than chairs, sitters will be unsuccessful (unemployed). If there are more chairs than sitters, the chairs will be empty (unfilled job openings). In the former case, we would expect wages to go down (or at least increase more slowly vs. inflation); in the latter, we would expect wages to increase more sharply.

The JOLTS report for November, released yesterday morning, continued to show that there are far more chairs than there are those wanting to sit in them. As a result, wages have continued to increase sharply - even accelerate a little more.

To the details . . .

Job openings (blue in the graph below) decreased by -529,000 to 10.562 million, a little below the July peak of 11.098 million. Voluntary quits (the “great resignation,” gold, right scale) increased 370,000 to 4.527 million - a new record high. Actual hires (red) increased  191,000 to 6.697 million, in line with the past few months, and better than the early part of this year:

Layoffs and discharges (violet, right scale in the graph below) increased 19,000 from last month’s record low to 1.369 million. Total separations (blue) increased 382,000 to 6.273 million:

In summary, we continue to have near-record high job openings and low layoffs, new record high quits, with still-strong hiring and total separations; i.e., little progress is being made towards establishing a new equilibrium.

Further, as indicated in last month’s jobs report, wage gains YoY have continued to accelerate, up 5.9% in November, the highest since 1982 except for April and May 2020:

Returning to my rubric of musical chairs, due to the pandemic, there is a persistent shortfall - currently on the level of about 4 million - in the number of people willing to sit in the seats on offer from potential employers. They either are fearful of coming down sick, don’t want to face irate customers, or have to stay home to provide care to their children either due to lack of childcare options or closed schools.

Because of this persistent shortfall, those willing to sit in the chairs can “trade up” to a more desirable chair. As each potential sitter does so, the lowest 10% or so of chairs are consistently left vacant. To fill those chairs with bodies, employers have to offer more money. But so longs as the shortfall persists, there will always be rotating number of vacant chairs, and those potential employers with those empty chairs will have to continually offer more compensation to get people to sit in them.In other words, wages will continue to rise until the potential employer can no longer make any profit off the potential employee for that job.

Because the JOLTS data has only been around for 20 years, there are only two jobs recoveries with which to compare the present situation. 

In order for the situation to resolve, the first thing I want or expect to see is a further increase in monthly hiring. At the same time, or shortly thereafter, I would expect to see a significant decline in voluntary quits. Only after these two things have occurred would I expect to see a substantial downturn in job openings, and I would not expect to see any significant increase in layoffs until all of those other trends are in place.

In November, we didn’t get an *increased* surge in hiring, and far from declining, quits increased. In other words, we are nowhere near to resolving the current jobs market imbalance - the best situation for employees in half a century.
One postscript: I also want to make note of one specific jobs sector. Below is the quits rate (left scale) and number (right) for employees in the health care sector:

Both made new records, and are roughly 30% higher than at any time previous to the pandemic. In other words, employees in a critical sector are leaving their jobs in droves. To me, this points to the utter failure of a system which has been coddling defiant anti-vaxxers and their families. But more on that in my next Coronavirus Dashboard.

Tuesday, January 4, 2022

First data releases of 2022 confirm manufacturing strength, construction slowdown


 - by New Deal democrat

The first December data, the forward-looking ISM manufacturing report, has been released. Yesterday construction spending for November was also released. Let’s take a look at both.

The ISM index, especially its new orders subindex, is an important short leading indicator for the production sector. In December the index declined from 61.1 to 58.7, as did the more leading new orders subindex, which declined from 61.5 to 60.4 (note the breakeven point between expansion and contraction is 50):

Both the total index and the new orders subindex ran extremely hot throughout 2021, and the moderate decrease in December remains consistent with a “hot” manufacturing sector. This continues to forecast a strong production side of the economy through mid year 2022.

Turning to construction, during November in nominal terms overall spending including all types of construction rose 0.4%, from an upwardly revised 0.4% for October, while spending on the leading residential sector rose 0.9%. Both made new all-time highs:

Adjusting for price changes in construction materials, which jumped 2.1% in November, “real” construction spending declined -1.6% m/m, and “real” residential construction spending declined -1.1%. In absolute terms, “real” construction spending has declined sharply - by -18.8%) - since its peak in November 2020,  while “real” residential construction spending has declined -15.1% since its post-recession peak in January of this year:

While total construction spending declined by more than it had before the Great Recession, the decline in residential construction spending, while increasingly substantial, remains nowhere near the big decline it suffered before the end of 2007, in this series that only dates from 1993. Comparing it with single family permits (gold), below:

confirms the slowdown since one year ago, but not a recession level decline.

Monday, January 3, 2022

Grading my 2021 forecasts

 - by New Deal democrat

Critical self-examination is, or at least ought to be, part of the process of making forecasts. After all, how can you learn if you don’t see how earlier hypotheses panned out? As I have usually done, let’s take a look back at how I forecast 2021 was going to look, to see how well I did.

To make a long story short, according to the long and short leading indicators I track, there was never any real doubt that the economy was going to continue to expand. The only issue was how strong or weak the expansion might be.

Last January, the  short term indicators suggested that the expansion would slow down in the first half of 2021: 

“the pandemic is still in control. The LEI has been consistently positive, but at a sharply decelerating rate, for the past 8 months. That suggests a continued but slowing expansion through spring into early summer.”

The long term forecast at that point for the latter part of 2021 was even better:

“There are 6 positives . . . There is 1 mixed indicator . . . [and] There is 1 negative . . . .

“In conclusion, the long leading indicators support a firm, even strong expansion through the remainder of 2021, the pandemic is controlled or resolved via vaccinations and intelligent Federal policy.”

At the same time, the housing market and corporate profits as reported in the Q4 2020 GDP report sounded a caution for later in the year:

“these [housing sales, real residential investment, and proprietor’s income] are a caution flag that, while the economy is likely to boom - or close to it - this year once the pandemic is contained, by year-end that growth may slow considerably

“Put the data points together and, while they are not a warning, they are a yellow cautionary flag that gains in the economy brought about by the 2020 housing boom may abate if not reverse by year-end 2021.”

At midyear, I updated the forecast for the second half of 2021 based on the short term indicators. The conclusion was again straightforward:

“with very few exceptions all of the indicators for the next 6 months of the economy, through and past the end of the year, are very positive, confirming in the short term the message of the long leading indicators in the second half of 2020.”

updated that a little later in the teeth of the Delta wave:
“My base case for this year has been that with Federal stimulus and accommodating monetary policy, as the economy reopened from the worst levels of the pandemic, there has been an outright Boom. The pandemic - and the response thereto - remains an exogenous dispositive factor. But with 62% of adults fully vaccinated, another 11% partially so, and with final approval of one vaccine likely to lead very quickly to widespread public and private vaccine mandates, I expect its impact to wane considerably once the Delta wave crests and just as quickly recedes.

“And so, true to my "just the facts, ma'am" approach, I am forecasting that the economy will continue to expand broadly over the next 6 months.”

So, as fo the end of 2021, what do the coincident indicators look like for the year?

Here is real GDP growth measured quarter over quarter:

The economy did indeed continue to grow, and with the exception of Q3 of 2021 (which at +0.6% annualized was still average for the past 10 years), grew very strongly compared with the entire 10 year expansion that preceded the pandemic.

Here are the “big 4” coincident indicators, including industrial production, jobs, real income, and real sales through November:

With the exception of February and November, all of the months were positive, and especially so in spring and summer.

In conclusion, the long and short term leading indicators did their jobs very well in forecasting the expansion, even Boom, of 2021. The one portion where I fell short had to do with the course of the pandemic in the latter part of the year, as the stubborn minority of anti-vaxxers allowed COVID a large reservoir of available new victims to infect, especially as the super-infectious Omicron variant came along at year end.

In the next several weeks, I will post my short and long term forecast for 2022 using the very same methods that were so successful last year.

Sunday, January 2, 2022

Weekly Indicators for December 27 - 31 at Seeking Alpha


 - by New Deal democrat

The last edition of Weekly Indicators for 2021 is up at Seeking Alpha.

I have been watching restaurant reservations for the first signs of the economic impact of Omicron. Well . . . .

Additionally, interest rates are hitting an important milestone this week, that is changing some of their ratings, and with that the reading of the long leading forecast.

As always, reading the post should bring you up to the moment, and reward me a little bit for bringing the information to you in a cohesive, logical format.