Saturday, January 15, 2022

Weekly Indicators for January 10 - 14 at Seeking Alpha


 - by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

In addition to Omicron, commodity prices and interest rates are having an impact across the board on the long and short term forecasts and the nowcast. (Just for spite, two weeks ago some RW nut jobs had a fit about my including a meteor as the image for the article, so this week I including an even more graphic representation of the Giant Flaming Meteor of Death).

As usual, clicking over and reading will not only bring you fully up to date, but will pay my pizza tab for the week.

Friday, January 14, 2022

December real retail sales tank; industrial production also declines; consumer slowdown seems nearly certain


 - by New Deal democrat

Two days ago, in connection with consumer inflation, I reiterated that “we certainly are at a point where a sharp deceleration beginning with the consumer sector of the economy is more likely than not.”

I didn’t expect to have it show up so soon! Retail sales, one of my favorite “real” economic indicators, took a nosedive in the month of December, declining -1.9% for the month even before inflation. After inflation, “real” retail sales declined -2.4%. Ouch! 

Thus real retail sales are down -5.1% from their April peak: 

Recall that real retail sales rose 1.8% in October. So I suspect a large part of the decline is that, fearing shortages on the shelves at Christmastime, many consumers advanced their purchases of Christmas gifts by several months. Still, the net decline since September has been -2.2%

Nevertheless they remain 9.2% higher than one year ago. In the past 70+ years before the pandemic hit, real retail sales were only higher YoY briefly in the early 1980s, as well as for about 16 months during the 1940s, 50s, and 60s.

Next, let’s turn to employment, because real retail sales are also a good short leading indicator for jobs.

As I have written many times over the past 10+ years, real retail sales YoY/2 has a good record of leading jobs YoY with a lead time of about 3 to 6 months. That’s because demand for goods and services leads for the need to hire employees to fill that demand.  The exceptions have been right after the 2001 and 2008 recessions, when it took jobs longer to catch up, as shown in the graph below, which takes us up to February 2020:

Now here is the same graph since just before the pandemic hit:

Note the two have been right in line for over half a year. I have written for the past several months that this “argues that we can expect jobs reports in the next few months to average out about even with those from one year ago, which averaged about 500,000 per month.” Although the last two jobs reports started out poor, November followed the pattern of upward revisions, and I expect more such revisions when next month’s jobs report is released. But comparisons will be very difficult YoY beginning in March, which means - to be consistent - that a big slowing of employment growth seems likely by about summer this year.

Finally, real retail sales per capita is one of my long leading indicators. Here’s what it looks like for the past 30 years:

With a -5.3% decline since April, this is a decidedly negative signal. Frankly, it’s recessionary looking out to midyear and beyond. Since it is only one indicator among the array, it isn’t a big concern yet. But it absolutely adds to the evidence that a big consumer slowdown as we go forward this year looks likely.


Before I go, let’s also briefly take a peek at industrial production, which also declined, by -0.1%, this morning. Manufacturing production declined -0.3%. Additionally, November was revised downward for both total and manufacturing production. Here’s the current view:

Both are still higher than they were just before the pandemic. While this isn’t good news, it is within the range of noise, but on the other hand, it is one more bit of evidence for a slowing expansion.

Thursday, January 13, 2022

Continuing unemployment claims make new 45+ year low


 - by New Deal democrat

New claims increased 23,000 last week to 230,000. The 4 week average of new claims increased 6,250 to 210,750:

The big increase is likely affected by seasonality. It’ll be another week or two before we can tell if there is any real change in trend. If there is, it is likely to be a flattening in new claims rather than any significant increase. 

Continuing claims for jobless benefits, meanwhile, declined by 194,000, to 1,559,000:

This is a new 45+ year record low. There haven’t been continuing claims this low since 1974, when the US population was half of what it is now, as shown in the graph below that subtracts 1,559,000 from the actual number:

Last week I wrote: “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.” Wow! Only one week later and the forecast is already correct. I expect even further declines in continuing claims, until the extreme tightness in the labor market brought about by the pandemic starts to loosen its hold.

Wednesday, January 12, 2022

Consumer inflation lessens in December; real wages increase, but a consumer slowdown remains likely


 - by New Deal democrat

Consumer prices increased 0.5% in December, a deceleration from the past several months. But this is still well above the typical monthly increase in prices pre-pandemic: 

On a YoY basis, at 7.1% consumer inflation is the highest since the big Reagan recession of 1981-82. My favorite measure, CPI ex energy, is also up 5.6% YoY, and tied for the worst since the 1981-82 recession as well:

Inflation in new and used vehicle prices has risen again to over 20% YoY; and gas prices YoY are still up at levels that in the past have been associated with economic slowdowns or recessions:

As I have been forecasting for months, house price increases have fed through into rents and “owners equivalent rent,” which has continued to increase:

Interestingly, in both prior cases where owners equivalent rent surged after house prices did - 2001 and 2006 - the surge in overall consumer prices (gold in the graph below) quickly ended and went into reverse:

In both cases, however, the Fed had aggressively raised interest rates in the meantime, helping to cause a slowdown (2006) or recession (2001), which in turn led to lower inflation.

The bond market fully expects the Fed to do the same thing this year. Below I show the yield on the 10 year Treasury (blue), 2 year Treasury (red), and Fed funds rate (black):

Note that in recent decades bond market investors have almost always anticipated the Fed’s move, bidding up yields on the 2 year bond in advance of Fed interest rate hikes. There have been some false positives (1996, 2002, 2011) but more often the bond market has been right.

Now let’s talk about “real” wages. To cut to the chase, this month the news was positive.

Average real hourly wages increased in December by 0.2%, although they are still -1.2% below their interim peak last December:

Additionally, real aggregate payrolls, an overall measure of consumer health, also increased 0.3% in December, and returned to equal their peak from September:

For the past 50+ years, when aggregate real wages have retreated from peak for 3 to 9 months, a recession has typically followed:

To sum up, while real wage growth has slowed down or halted, depending on which measure we use, they have not gone into reverse. This is consistent with taking a near term recession off the table for now. On the other hand, as I wrote last month, “we certainly are at a point where a sharp deceleration beginning with the consumer sector of the economy is more likely than not.” While perhaps I would modify that by dropping the descriptor “sharp,” a deceleration in the consumer sector remains supported by December’s inflation report.

Tuesday, January 11, 2022

Coronavirus dashboard for January 11: good news and bad news


 - by New Deal democrat

With no new economic releases today, let me give you a brief update on the fast-moving Omicron wave.

First, the good news: as I pointed out yesterday, several States that were hit hardest first by Omicron look like they are hitting or have already hit peak:

This is an increase from just several days ago. In fact, right now the only early hit State that has not peaked is Hawaii (not shown).

Several other countries that were hit hard early by Omicron also appear to have peaked: the UK and Portugal, in addition to South Africa, where the strain was identified first:

If the Omicron wave peaks in 30 to 45 days after onset, then the US as a whole is likely to peak between this coming weekend and the end of this month.

That’s the good news.

The question becomes, what happens next? I have been hopeful that between vaccinations and prior infections, we would reach a point where any subsequent wave would be much less in severity. The State that has been the best candidate for a bellwether of this hypothesis is Rhode Island, which has both a very high vaccination rate (1st graph below), and a very high rate of previous infections (2nd graph below).

Despite the fact that over 75% of Rhode Island’s population was fully vaccinated, and perhaps 40% or more of its population having been infected even before December, Omicron hit it hard, with over 8% of the entire State’s population having *confirmed* infections in the last 45 days. That in itself is not such a big deal. Portugal, with 90% of its population fully vaccinated, also got hit hard by Omicron infections.

The problem is the next graph, which shows deaths:

Rhode Island has had a higher death rate in the past month than the US as a whole, or any Census Region. In fact, it is in the top 10 States for rate of deaths at the moment.

I should point out this has not been true of Portugal, which has not had any increase in deaths at all during the Omicron wave - at least not so far:

But if prior infections do not build up appreciable resistance to reinfection, at least over the medium term, then with about 1/4 or more of its population dead set against being vaccinated, the US is in some real long term trouble.

Monday, January 10, 2022

Coronavirus dashboard for January 10: how “mild” Omicron is depends upon how much you lag the data


 - by New Deal democrat

So, how “mild” or not, is Omicron? It depends on whether you lag the data on hospitalizations and deaths or not.

The original story out of South Africa was that Omicron was extremely mild. Despite a huge spike in infections, deaths barely budged. As Omicron took hold in Europe and the US, South Africa disappeared from the picture.  Which is too bad, because here is what has been happening with deaths: 

In the past week, deaths in South Africa tripled. Mind you, deaths - so far, anyway - at 13x their pre-Omicron low, are nowhere near the 80x+ increase in cases. But the point is, deaths lag cases, and until you wait about a month to see how deaths play out, you really don’t know how “mild” Omicron is.

And the bad news for the US is, compared with South Africa and even the UK, Omicron hasn’t been as “mild” so far, as shown in the below set of graphs comparing cases, hospitalizations, ICU admissions, and deaths (again, so far):

A week ago, the story in the US was still how “mild” Omicron has been, as shown in this graph of cases, hospitalizations, and deaths from New York City (perhaps the earliest hard hit metro area):

There’s just one problem with the above graph: hospitalizations and deaths aren’t shown with any sort of lag. Deaths on January 2 are compared with hospitalizations on January 2 and new cases on January 2.

But when you put in an appropriate lag, the situation looks much different, as in the below graph in which deaths are lagged 21 days for NYC and two other metros:

Or the below graph, including ICU patients with a 14 day lag compared with infections:

All of a sudden, Omicron doesn’t appear that much milder at all.

This is something I’ve been following since the onset of the Omicron wave. Since hospitalizations started to spike about 10 days after the onset of the wave, i crunched data with a 10 day lag. While I don’t have a graph to show you, I can tell you that each time I have done this, it gives me a result of hospitalizations increasing at a rate of between 65% to 80% of cases. ICU admissions lag hospitalizations by only a day or two, and have gone up at about 50% of the rate of cases. Because the Omicron wave only started in earnest on December 15, 3 1/2 weeks ago, we are only beginning to see the trend in deaths.

But we already have more hospitalizations for COVID than we have ever had before in the US, and the system is beginning to break down - and we haven’t even reached the peak yet. As a society, the US seems to have just given up.

Since I hate only passing on gloom and doom, let me give you a few rays of daylight.

First, the Omicron wave seems to have already peaked in several places where it hit early: Puerto Rico, DC, and New Jersey. In two other places, New York and Hawaii, it hasn’t peaked yet:

Finally, Omicron is infecting so many people that within a month or two it is going to be difficult for COVID to find a victim who doesn’t have at least some resistance via vaccinations or prior infection:

About 62% of the US population has been fully vaccinated (but only about 36% being boosted as well, according to the CDC). Another 12% have received at least one dose. And over 18% have had *confirmed* cases. The likelihood is that, including asymptomatic infections or infections of people who didn’t bother to get tested, at least double that percentage, somewhere on the order of 40% of all Americans, have been infected.

If we just randomly assign that 40% of infected people among all those vaccinated and unvaccinated, that’s roughly 85% of the US population that should have at least *some* resistance to renewed infection. Another month of Omicron is probably going to take that up to 90%.

It’s possible there is a doomsday variant out there, but it’s more likely that, as COVID becomes endemic, each wave displays less and less virulence, not because they are inherently “milder,” but simply because the vast majority of the population has some, increasing, level of immune resistance.