Saturday, June 4, 2022

Weekly Indicators for May 30 - June 3 at Seeking Alpha


 - by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

The slow drip, drip, drip of decelerating or declining data is continuing, as among other things, the YoY increase in withholding tax payments from workers has declined significantly in the past month.

As usual, clicking over and reading will bring you up to the virtual moment in what is happening in the economy, and reward me a little bit for my efforts.

Friday, June 3, 2022

May jobs report: a little softening, but very positive; non-managerial workers are now working *more* total hours than before the pandemic


 - by New Deal democrat

Like the past few months, I was most interested in three main issues:

1. Is the pace of job growth decelerating?  (Yes, but it is still very strong by historical standards)
2. Is wage growth holding up? Is it accelerating? (It is still strong, but decelerated again slightly)
3. Are the leading indicators in the report beginning to flag? (Not yet)

We still have 822,000 jobs, or 0.5% of the total 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 of 505,000 jobs added per month, that’s 2 months from now. Perhaps even more importantly, non-managerial workers are now working in total *more* hours than they did before the pandemic hit.

Here’s my in depth synopsis of the report:

  • 390,000 jobs added. Private sector jobs increased 333,000. Government jobs increased by 57,000 jobs. 
  • The alternate, and more volatile measure in the household report indicated a gain of 321,000 jobs. The above household number factors into the unemployment and underemployment rates below.
  • U3 unemployment rate was unchanged 3.6%, 0.1% above the January 2020 low of 3.5%.
  • U6 underemployment rate *rose* 0.1% to 7.1%, 0.2% above the January 2020 low of 6.9%.
  • Those not in the labor force at all, but who want a job now, declined -178,000 to 5.681 million, compared with 4.996 million in February 2020.
  • Those on temporary layoff declined -43,000 to 810,000.
  • Permanent job losers were unchanged at 1,386,000.
  • March was revised downward by -30,000, but April was revised upward by 8,000, for a net decline of -22,000 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 whether the strong rebound from the pandemic will continue.  These were positive:
  • the average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, was unchanged at 41.3 hours (but last month was revised down -0.1%).
  • Manufacturing jobs increased 18,000. Since the beginning of the pandemic, manufacturing is now down only -17,000 jobs, or -0.1% of the total.
  • Construction jobs increased 36,000. All of the jobs lost during the pandemic, plus another 774,000, have been made up. 
  • Residential construction jobs, which are even more leading, increased 5,000. Since the beginning of the pandemic about 60,000 jobs have been gained in this sector.
  • Temporary jobs rose by 19,300. Since the beginning of the pandemic, about  250,000 jobs have been gained.
  • the number of people unemployed for 5 weeks or less declined by -161,000 to 2,066,000, which is 57,000 *lower* than just before the pandemic hit.
  • Professional and business employment increased by 75,000, which is about 800,000 above its pre-pandemic peak.

Wages of non-managerial workers
  • Average Hourly Earnings for Production and Nonsupervisory Personnel: rose $0.15 to $27.33, which is a 6.5% YoY gain, down from its 6.7% peak at the beginning of this year.

Aggregate hours and wages:
  • the index of aggregate hours worked for non-managerial workers rose by 0.3%, which is now 0.2% *above* its level just before the pandemic.
  •  the index of aggregate payrolls for non-managerial workers rose by 0.8%, which is a gain of 14.0% (before inflation) since just before the pandemic.

Other significant data:
  • Leisure and hospitality jobs, which were the most hard-hit during the pandemic, rose 84,000, but are still -1,345,000, or -7.9% below their pre-pandemic peak.
  • Within the leisure and hospitality sector, food and drink establishments added 46,100 jobs, and is still -750,700, or -6.1% below their pre-pandemic peak.
  • Full time jobs rose 733,000 in the household report.
  • Part time jobs declined -325,000 in the household report.
  • The number of job holders who were part time for economic reasons rose 295,000 to 4,328,000, which is still below their level before the pandemic began, although it is 611,000 above their low this past January.
  • The Labor Force Participation Rate rose 0.1% to 62.3%, vs. 63.4% in February 2020.


One month ago, while the Establishment report was very good, the Household report was not good at all. This month both sides of the jobs report were very positive.

While the pace of jobs growth isn’t as blistering as previously, it is still excellent by ordinary standards. The unemployment rate is still near historic lows. The leading sectors are almost all positive, indicating growth should continue. Wage growth is still very strong. With the exception of labor and hospitality, plus education, almost all sectors of the jobs market have made up, or almost entirely made up, their pandemic losses. In another two to three months we are likely to have more jobs than we did before the pandemic hit. What’s more, non-supervisory workers in total are now working a total of *more* hours than they did before the pandemic hit.

About the only soft spots were the upward tick in the underemployment rate, part of which was the continued increase in involuntary part-time workers, the 0.2% decline from best levels in the manufacturing workweek, and the second month in a row of downward revisions to previous reports. 

In short, a little softening, but still very positive.

Thursday, June 2, 2022

April JOLTS report: record low layoffs, still near record high quits and job openings


 - by New Deal democrat

Late last year I introduced the idea that the jobs market was similar to a game of musical chairs, where employers added or took away chairs, and employees tried to best allocate themselves among the chairs. Because of the pandemic, there have been  several million fewer players trying to sit in those chairs, leaving many empty. Additionally, there is 10% greater demand for goods and services in total in the past year than there was before the 2021 stimulus payments. As a result, wages have continued to increase sharply, as employers attempt to attract potential employees to sit in the continuing big number of empty chairs.

I’ve further posited that the game of musical chairs will only slow down once some employers throw in the towel, and the number of job openings signficantly declines.

In April, as yesterday’s Census Bureau JOLTS report shows, the game of musical job chairs in the jobs market has actually intensified to all-time levels. Specifically, both job openings and quits made all-time highs, and total separations during their entire 20 year history were only higher in March and April 2020.

Layoffs and discharges (violet, right scale in the graph below) declined -170,000 to 1.246million, a new all-time low. Total separations (blue) declined -215,000 to 6.033 million (graph starts in June 2020 for reasons of scale):

For all intents and purposes, nobody is getting laid off.

Meanwhile, job openings (blue in the graph below) declined -455,000 to 11.4 million vs. their all-time high of 11.855 million one month ago. Voluntary quits (the “great resignation,” gold, right scale) declined -25,000 to 4.424 million. Actual hires (red) declined -59,000 to 6.586 million, vs. February’s all-time high of 6.832 million:

Importantly, there has been a sharp *deceleration* in the rate of YoY growth of both quits (to 10.2%) and job openings (to 23.0%). But those rates still constitute red hot growth vs. virtually any other time in the past 20 years:

In particular, in the past 6 months, vs. 23.0%, openings have grown at a 5.6% annualized rate, and in the past 3 months, at a 4.2% annualized rate. Openings could have peaked in March, or may continue to slowly rise for another 3 or 6 months.

In summary, the competition by employers to attract employees is still near a record. Employers aren’t laying anybody off, and the trend of workers quitting for better-paying jobs also continues at a near record pace. As a result, I expect wages to continue to increase sharply. Only when the trend in job openings rolls over, based on a 3 month average, do I expect to see a change in the underlying job market.

Initial claims stabilize, yet another 50+ year low in continuing claims


 - by New Deal democrat

Initial jobless claims declined 11,000 to 200,000 last week, continuing above the recent 50+ year low of 166,000 set in March. Meanwhile the 4 week average declined 500 to 206,500, compared with the all-time low of 170,500 set eight weeks ago.  Meanwhile continuing claims declined 34,000 to yet another 50 year low of 1,309,000:

Initial claims have trended slightly higher over the past 2.5 months, indicating a little cooling in the white hot employment market, but no real trend change. The almost complete lack of layoffs, and the attendant “Great Resignation” in favor of jobs with higher pay remains  the brightest spot in the entire economy.

Wednesday, June 1, 2022

Manufacturing and construction continue to be positive for the months ahead


 - by New Deal democrat

Let’s take a look at the new month’s first data, on manufacturing and construction.

The ISM manufacturing index, and especially its new orders subindex, is an important short leading indicator for the production sector. In May both increased, by 0.7 to 56.1, and by 1.6 to 55.1, respectively. The breakeven point between expansion and contraction is 50, so these both remain solidly positive, if not white hot like they were during last year’s Boom (new orders shown in graph below):

This forecasts continued economic expansion on the production side through summer into early autumn.

Meanwhile, construction spending rose 0.2% in nominal terms in April, and March’s number was revised up 0.2% to 0.3%. The more leading residential sector rose 0.9%, both thus making new highs:

On a YoY basis, nominal residential construction spending is up 18.4%.

Adjusting for price changes in construction materials, which declined -0.2% for the month, and have been almost exactly unchanged since January, “real” construction spending rose 0.4% m/m, and residential spending rose 1.1% m/m. In absolute terms, “real” construction spending has declined sharply - by -16.7% - since its peak in November 2020,  while “real” residential construction spending has declined -9.4% since its post-recession peak in January of last year, and has risen by about 6% in the past six months:

While total construction spending has declined by more than the -10.4% it did before the Great Recession, the decline in residential construction spending, while substantial, at its worst was only as bad as its 2018-19 decline, and was nowhere near the -40.1% decline it suffered before the end of 2007. In general these two series have been helped considerably by the fact that the cost of construction materials has stopped rising this year.

Mindful of the fact that it takes awhile for the downturn in mortgage applications, sales, and permits to filter through into actual construction, especially with record numbers of housing units permitted but not yet started, these two reports point to continued growth, albeit at a slower pace than last year, in manufacturing and construction in the next few months.

Tuesday, May 31, 2022

House prices: signs and portents of an approaching peak?


 - by New Deal democrat

House prices increases were still going strong through March, as reported this morning in both the Case Shiller and FHFA house price indexes. The Case Shiller national index rose 2.1% for the month and 20.5% YoY, the biggest YoY% gain ever, while the FHFA purchase only index rose 1.5% for the month, and 19.0% YoY.

In the first graph below I also include the quarterly YoY% gain in the median price of all houses sold from the Census Bureau’s home sales report (gold), which increased 15.9% YoY:

While both the FHFA and Case Shiller indexes are at or near record YoY gains, quarterly median house prices from the Census Bureau are down significantly from 21.8% YoY in Q3, which was the highest YoY% gain since 1973. The FHFA gain also decreased slightly. These are of interest because the Census Bureau’s measure, while very noisy, tends to be the first to turn, and the FHFA has in the past slightly led the Case Shiller number.

In this second graph below of the past 5 years, I also include the monthly median new home sales price from the Census Bureau (black):

The monthly number from the Census Bureau is *very* noisy, so I don’t put much much stock in any particular month, but the decelerating trend from last summer is clear.

Finally, while I can’t show you graphically the YoY% change in prices in existing homes from the NAR, since they only allow FRED to show one year, below are the YoY% changes for every month in median existing home sales prices for the past 12 months:

Apr 2021 +19.1%
May +23.6% [peak]
Jun +23%
Jul +20%
Aug +15%
Sep +13%
Oct +13.1%
Nov +13.9%
Dec 2021 +15.8%
Jan 2022+15.4%
Feb 2022 +15%
Mar 2022 +15%
Apr 2022 +10.4% [lowest]

Since the NAR data is not seasonally adjusted, the YoY% change is the only valid way to measure. My rule of thumb for non-seasonally adjusted data is that, when the YoY% change declines to less than half of its largest change, the peak (if we were able to seasonally adjust) has probably occurred. In April, that threshold was crossed - although so far only for one month.

In summary, the best seasonally adjusted data indicates that, through March, the surge in house prices was still ongoing. But the most leading data series, which unfortunately aren’t seasonally adjusted, show signs of a slowing in house price appreciation, and one data series - from the NAR - may indicate that prices, could we seasonally adjust, peaked in April, although I would definitely want to see if that is an anomaly, or if the trend continues in May and June.

Prices follow sales. And sales are down significantly. It would not surprise me if the peak in house prices happened this summer. But while we have some ambiguous signs and portents, we’re not there yet.

Monday, May 30, 2022

Memorial Day 2022


 - by New Deal democrat

Memorial Day is that most somber of national observances, in which we remember all those, of whatever race, creed, color, or nationality, who gave their lives so that government of the People, by the People, and for the People shall not perish from the Earth.

In past years I have included photographs of famous Civil War and World War 1 and 2 graveyards, as well as Arlington National Cemetery.

This year let me focus on several others who gave all in defense of the Republic.

This is a photo of the 54th Massachusetts Infantry Regiment, the unit whose story was made into the 1999 Oscar winning movie “Glory:”

The 54th suffered roughly 42% casualties, including the death of their commander, leading the failed Union assault on Battery Wagner on Morris Island, South Carolina. Of 600 men, over 280 men were killed, wounded, captured, and/or missing and presumed dead.

This is Officer Brian Sicknick, the US Capital Police Officer who was killed by the insurrectionists who attempted to stage a coup on January 6, 2021:

May all those who gave their lives in the defense of the Republic Rest In Peace, and be remembered forever.