Saturday, July 9, 2022

Weekly Indicators for July 4 - 8 at Seeking Alpha


 - by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

The 10-2 year Treasury yield inverted again, with very little fanfare. And several other leading indicators deteriorated a little further as well. But as the jobs report showed, the nowcast is still positive.

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

Friday, July 8, 2022

June jobs report: strong headline numbers, betraying numerous signs of rougher times ahead


 - by New Deal democrat

Consumption leads employment. That’s true at bottoms, and it’s true at peaks as well. Since February, when consumption growth started to flag, I have been waiting for it to show up decisively in jobs numbers. In March through May, average growth decelerated from over 500,000/month to 400,000/month.

So in this jobs report, I have been most interested to see if it declined further.

Additionally, I remained interested in whether nominal wage growth was also holding up, or whether it too was beginning to decelerate; and also, whether the leading indicators in the report beginning to show stress.

The answers are that average growth only decelerated slightly further, to 383,000 in the past 3 months; as did wage growth for non-managerial workers, at 6.4% YoY; but the leading indicators turned significantly negative.

Here’s my in depth synopsis of the report:

  • 372,000 jobs added. Private sector jobs increased 381,000. Government jobs fell by -9,000 jobs. 
  • The alternate, and more volatile measure in the household report indicated a  *decline* of -315,000 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 declined -0.4% to 6.7%. THIS IS A NEW ALL-TIME LOW FOR THIS SERIES, WHICH DATES FROM 1994.
  • Those not in the labor force at all, but who want a job now, declined -25,000 to 5.656 million, compared with 4.996 million in February 2020.
  • Those on temporary layoff rose 17,000 to 827,000.
  • Permanent job losers declined -113,000 to 1,273,000.
  • April was revised downward by -68,000, and May was also revised downward by -6,000, for a net decline of -74,000 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 mixed:
  • the average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, declined -03 hours to 40.9 hours.
  • Manufacturing jobs increased 29,000. Since the beginning of the pandemic, manufacturing has now *increased* by 12,000 jobs.
  • Construction jobs increased 13,000. All of the jobs lost during the pandemic  have also been made up. 
  • Residential construction jobs, which are even more leading, declined by -4,500.
  • Temporary jobs rose by 5,400. Since the beginning of the pandemic, about  250,000 jobs have been gained.
  • the number of people unemployed for 5 weeks or less increased by 196,000 to 2,262,000, which is back above its pre-pandemic level by 39,000.

Wages of non-managerial workers
  • Average Hourly Earnings for Production and Nonsupervisory Personnel: rose $0.13 to $27.45, which is a 6.4% 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 0.5% *above* its level just before the pandemic.
  •  the index of aggregate payrolls for non-managerial workers rose by 0.8%, which is only about even with the average inflation gain in the past 3 months.

Other significant data:
  • Leisure and hospitality jobs, which were the most hard-hit during the pandemic, rose 67,000, but are still -1,318,000, or -7.8% below their pre-pandemic peak.
  • Within the leisure and hospitality sector, food and drink establishments added 41,000 jobs, but are still -728,400, or -5.9% below their pre-pandemic peak.
  • Professional and business employment increased by 74,000, which is about 900,000 above its pre-pandemic peak.
  • Full time jobs declined -152,000 in the household report.
  • Part time jobs declined -326,000 in the household report.
  • The number of job holders who were part time for economic reasons fell -707,000 to 3,621,000, which is A NEW 20 YEAR LOW.
  • The Labor Force Participation Rate declined -0.1% to 62.2%, vs. 63.4% in February 2020.


This report had two distinct aspects: the headline coincident numbers were excellent. But the leading indicators were mainly negative.

A three month average gain in jobs of 383,000, while below last year’s torrid pace, is still excellent. The unemployment and underemployment figures were also excellent, in several aspects setting new records. While wage growth decelerated a bit, it is also still very good nominally. With the exception of leisure and hospitality, every significant sector has exceeded their pre-pandemic levels. Aggregate hours also increased nicely.

But when it comes to leading indicators for future employment, and for the economy in general, the news was much more downbeat. Manufacturing hours declined sharply, to the lowest level since August 2020, and are also down 1% YoY, which in the past has coincided with a slowdown and frequently a recession. Residential construction employment declined. Short term unemployment increased. The household jobs number - which while noisy frequently leads at turning points - actually declined for the second time in 3 months. Revisions for the past two months - which also frequently turn in the direction of the near term trend - also were negative for the second month in a row.

All was not negative among leading indicators, however. Manufacturing jobs increased. So did temporary jobs. Also, since the unemployment typically turns up in advance of recessions, that it remains at its low is a positive.

In summary, the good news is that, at present, the jobs market remains very strong. This pretty much rules out the notion that a recession has already begun. But on the other hand, there were plenty of warning signs in this report of rougher times ahead once we get to autumn.

Thursday, July 7, 2022

Jobless claims continue to drift higher, are no longer a positive; but no recession signaled


 - by New Deal democrat

Initial jobless claims rose 4,000 to 235,000 last week, vs. the 50+ year low of 166,000 set in March. The 4 week average also rose by 750 to 232,500, compared with the all-time low of 170,500 three months ago.  Continuing claims rose 51,000 to 1,375,000, which is 69,000 above their 50 year low set on May 6:

Initial claims have now been in an uptrend for 3 months, meaning they no longer qualify as a “positive” in my array of short leading indicators.

Last week I noted that, reviewing the entire 50+ year history of initial claims, “there are almost always one or two periods a year where the four week moving average of jobless claims rises between 5% and 10%. About once every other year for the past 50+ years, it rises over 10%. Typically (not always!) it has risen by 15% or more over its low before a recession has begun. And a longer term moving average of initial claims YoY has, with one exception, turned higher before a recession has begun.”

Both initial and continuing claims are continuing to drift higher, and since there is a very long history that initial claims lead the unemployment rate by several months, in tomorrow’s report it would not be surprising if there were a 0.1% increase in the latter:

But initial claims are not a “negative” yet either, since YoY they are still down almost 45%. So they are not signaling recession.

Wednesday, July 6, 2022

May JOLTS report: a significant deceleration in the underlying jobs market has likely begun


 - 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 has been roughly 10% higher 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.

More importantly for today’s purposes, I 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.

And that, in short, is what appears to have started to happen in May.

[Note: FRED has not updated its graphs yet, so I am using the most recent. I’ll update with current ones when they become available.]
[Now updated.]

Job openings in May declined -427,000 to 11.254 million, a 5 month low:

Quits declined -57,000 to a 4 month low:

Hires declined -38,000, but remained near the top of their 12 month range:

On the other hand, layoffs and discharges increased 77,000 to 1.389 million, and appear to be flattening:

To put the trends in perspective here are the YoY% changes in all of the above metrics since the beginning of 2021, normed to zero at their current levels:

The YoY% change in job openings has slowed sharply to 16.8%, still a very good historical number, as shown in this longer term view of the above graph from 2002-2019:

The increase in quits has also slowed sharply YoY to 11.3%, while layoffs and discharges are up 3.4%, and hires are up 6.5%.

In particular, vs. the 16.8% YoY growth, in the past 6 months openings have only grown 3.0%, and in the past 3 months, have actually declined -0.8%. Openings likely peaked in March. 

In other words, a few employers are starting to throw in the towel. Meanwhile, the trend of workers quitting for better-paying jobs is continuing, but also at a slower pace. As a result, I expect nominal wage growth to slow down.  

Last month I concluded, “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.”

And indeed, this month that average was -0.2% lower. Very slight, and very much within the range of monthly noise, and subject to revision. But it is likely that a significant deceleration in the underlying job market has arrived. We’ll see Friday with the June jobs report.

Tuesday, July 5, 2022

Coronavirus dashboard for July 5: no sign of a BA.4&5 wave in cases yet, as the next variant has appeared in India


 - by New Deal democrat

I haven’t done a Coronavirus dashboard in a couple of weeks, and there have been a few developments, so let’s take a look.

First of all, the BA.4&5 variants continue to increase their share of infections in the US, now at 70% of all cases:

Regionally, BA.4&5 are most prevalent in the South Central States, including Texas, where they make up 75% of all cases; vs. the Northeast and Mid-Atlantic regions, where they make up just short of 60% of all cases, with BA.2.12.1 almost all of the remaining 40%:

Although there has been some alarm among the medical punditry, cases have not significantly increased at all from their 100-110,000 range established back in March. As of today, the seven day average of cases is 102,400, and only once in the past 4 weeks has the average exceeded 120,000. Similarly as of today deaths average only 276/day in the past week, in line with their range since the beginning of May as well:

Some of today’s particular data has to do with lack of reporting over the 4th of July holiday weekend. Nevertheless even before the weekend the trend was flat.

But if BA.4&5 haven’t made a dent in cases or deaths, they absolutely have caused a continued rise in hospitalizations:

Hospital admissions bottomed in early April at just over 10,000. They appeared to be plateauing in June at roughly 30,000, but in the past two weeks have climbed to over 36,000.

This suggests that BA.4&5 are more severe than BA.2 or BA.2.12.1 were, but that medical treatments for more severe cases are much better than they were one year ago, thus preventing any significant increase in deaths.

Although I won’t bother with a graph, in South Africa where these first variants appeared, the upside of the wave lasted 3 weeks with a quintupling of cases, until those variants constituted 90% of all cases; and then the wave rolled all the way back out over the next 5 weeks. Deaths followed with roughly a 2 week lag. Notably there was no BA.2.12.1 wave in South Africa during the spring.

At their current rate of growth, BA.4&5 are going to constitute 90% of cases in the US in only about 2 more weeks. Wastewater site Biobot shows no nationwide increase of cases through June 29, and regionally cases actually decreasing in the South and West, and only increasing in the Northeast:

The worst case scenario may be represented by Texas, where BA.4&5 infections are at the highest level of any region in the US. In that State cases and deaths have both tripled, with deaths lagging by about 2 weeks, just as in South Africa, suggesting that these variants are more virulent than BA.2 or BA.2.12.1:

A tripling of cases nationwide would be roughly 350,000 cases at peak. But Texas, like South Africa, never had that much of a BA.2.12.1 wave, and that seems to make a big difference.

Thus, because the rest of the nation has not followed this trajectory, a more conservative trajectory might be that in the next few weeks perhaps cases increase to 140,000-150,000 per day. But based on current nationwide evidence they may even remain in their current range and never increase beyond 120,000.

And then what? By now I have come to expect that continued mutations that optimize transmissibility will continue to appear. Since BA.4&5 are well into their course, I went looking to see if the next variant is on the horizon.

And it is. Variant BA.2.75 appears to have begun in India, and is now spreading to other countries such as New Zealand. According to local medical authorities in India, it is the most transmissible variant yet. That’s presumably what we will all be dealing with this autumn.

Monday, July 4, 2022

Independence Day, 2022


 - by New Deal democrat

The opening paragraph of the Declaration of Independence:

 When in the Course of human events, it becomes necessary for one people to dissolve the political bands which have connected them with another, and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature’s God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.”

Lincoln’s acceptance of the Illinois US Senate nomination, 1858:

“We are now far into the fifth year, since a policy was initiated, with the avowed object, and confident promise, of putting an end to slavery agitation.

“Under the operation of that policy, that agitation has not only, not ceased, but has constantly augmentedIn my opinion, it will not cease, until a crisis shall have been reached, and passed. ’A house divided against itself cannot stand.’

“I believe this government cannot endure, permanently half slave and half freeI do not expect the Union to be dissolved - I do not expect the house to fall - but I do expect it will cease to be divided. It will become all one thing, or all the other.

“Either the opponents of slavery, will arrest the further spread of it, and place it where the public mind shall rest in the belief that it is in course of ultimate extinction; or its advocates will push it forward till it shall become alike lawful in all the States.”

On this Fourth of July, let us hope that our current crisis will be passed without the fall of democrat government under the rule of law.

[Abraham Lincoln’s burial chamber]

Sunday, July 3, 2022

There is no ‘compromise’ to end the issue of abortion - but there may be a ‘least worst’ modus vivendi


 - by New Deal democrat

I have written before that the typical divide between “economic” and “social” issues isn’t quite correct. Most “social” issues, it turns out, are really “moral” issues, where some people are opposed because they believe the activity to be allowed is immoral.

While it is usually not too difficult to find a compromise on economic issues, asking someone to compromise on a matter of morality is usually a lost cause.

That being said, even for moral issues, a doctrine of “live and let live” usually works, so long as neither side requires the other side to personally act in accordance with the opposing view. For example, nobody else is actually harmed by allowing two consenting adults to get married, regardless of their gender. At the same time, I wouldn’t require a baker who is opposed to gay marriage to bake a cake for the couple in his proprietary business (and would you *really* want to eat such a cake, not knowing what extra “ingredients” may have been added?).

But that doesn’t work with abortion, because one side believes the act of the other side is inherently murder. There is no zone of “let live,” because one side unalterably believes that there is a third party involved.

Nevertheless, Daniel Conkle, a Professor Emeritus of Constitutional Law at the Indiana University Law School, penned an editorial for Politico in which he wrote that, after Dobbs’ reversal of Roe v. Wade (note: I’ve changed the order of several paragraphs for clarity):

“our current reality [ ] will lead to conflict and litigation between states…. Partisan polarization will be exacerbated, and the risk of abortion-related violence will grow. Our precarious social fabric will be torn apart, further imperiling our already weakened sense of commonality and nationhood.

“[Further, w]ithout something close to a consensus, abortion laws [will] always be ripe for reversal if the next election.

“To avoid these consequences, lawmakers will have to meet in the middle.

“To be potentially viable, a national compromise would include four elements. First, it would permit abortion during a specified period of gestation, without restriction, during the few first months of pregnancy. Second, it would prohibit abortion later in pregnancy. Third, even after this point in pregnancy, there would be exceptions to the abortion prohibition. And fourth, the congressional compromise would be national in scope, with federal law controlling the issue of abortion and preempting state law to the contrary. The fourth element, federal preemption, bears emphasis. 

“It means that the congressional compromise would displace and nullify state abortion policies. There would be the same right to abortion in red and blue states alike, subject to the same limitations

Scott Lemieux of Lawyers, Guns, and Money writes that this is exactly what Roe v. Wade codified.

Actually, no. The majority in Roe very succinctly themselves added a summary of their holding, to wit:

“To summarize and to repeat:

“(a) For the stage prior to approximately the end of the first trimester, the abortion decision and its effectuation must be left to the medical judgment of the pregnant woman's attending physician.

“(b) For the stage subsequent to approximately the end of the first trimester, the State, in promoting its interest in the health of the mother, may, if it chooses, regulate the abortion procedure in ways that are reasonably related to maternal health.

“(c) For the stage subsequent to viability, the State in promoting its interest in the potentiality of human life may, if it chooses, regulate, and even proscribe, abortion except where it is necessary, in appropriate medical judgment, for the preservation of the life or health of the mother.”

In the companion case of Doe v. Bolton, the Court defined health as "all factors – physical, emotional, psychological, familial, and the woman's age – relevant to the well-being of the patient."

There are three major differences between Roe and Professor Conkle’s proposed compromise:

1. Conkle says abortion should be permitted “during the first few months of pregnancy. Roe drew the line at viability, which in the 1970s was at 6 months, but due to progress in medicine, has moved earlier by 2 to 4 weeks during the 5th month.

2. Conkle says abortion would be prohibited “later in pregnancy.” Contra Lemieux’s assertion, paragraph “(c)” of the Roe opinion explicitly stated that the State *may* - but does not have to - regulate or forbid abortions. In other words, Roe permitted abortions right up until the moment of birth, if a State were to so decide.

3. Further, the definition of “health” as set forth in the companion Doe case went far beyond physical health with regard to permitting abortions after viability, including “emotional, psychological [and] familial” issues, including ones that may be transient in nature.

To go back to my initial paradigm, is there any sort of “grand bargain” to be had? I think not, in the sense of a compromise where all parties feel the outcome is satisfactory enough to live with. Those who believe that human life begins at conception and is at all points thereafter sacred, consider abortion murder. They are not going to compromise by allowing “some” murder. On the other hand, there are those who believe that abortion should be available on demand at all times. They are not going to be interested in the above proposed compromise either.

But if there is no “compromise” to be had in the generally accepted meaning of the word, there probably is a middle zone where the minimum number of people feel unalterably and implacably opposed, which in the long run is probably what society ought to aim for. With one exception Professor Conkle’s proposal comes pretty close.

For over 40 years, polls have shown that most Americans are comfortable with first trimester abortions, and become increasingly opposed as it gets later in the second trimester. A law which permitted abortion through the first trimester, and perhaps up until quickening (the historical dividing point which occurs when fetal movement can be felt, usually during the fourth or early fifth month) would likely meet with wide approval.

Further, a law which forbade abortion except for serious *physical* health complications to the mother thereafter, or to prevent the birth of a severely deformed newborn which was doomed to a brief and painful life, would probably also find wide acceptance.

So far, this is basically Conkle’s proposal.

Where I part company with Conkle is as to his final prong, namely that there would have to be a uniform nationwide law. In fact, I think exactly the opposite is true. Once the parameters are set, there ought to be room for local variation. For example, first trimester abortions are permitted, while abortions after viability are banned with the physical health exception I specified above. In between those boundaries, reasonable regulations, restrictions, and prohibitions could vary between jurisdictions.

In fact, I would go further than just making a matter of State differences. I think the best chance of finding an accommodation would allow localities to differ; e.g., rural Mississippi might be an abortion desert, while Jackson, Mississippi might adopt a more liberal rule. Basically, the majority’s ox doesn’t get gored in their local area; but they can’t gore the ox of the majority in the locality next door; and those who need to travel to accommodate their need don’t have to travel too far.

We already have an example of allowing this variability in US history, with the issue of prohibition. After over 50 years of profound agitation, the 18th Amendment to the US Constitution was adopted, enshrining nationwide the sale or consumption of alcohol. Thus, by the way, taking away from average Americans a right they had always had - something that Dobbs just did, the first time the Supreme Court has done so in over 200 years.

After only 14 years, the 18th Amendment was repealed by the 21st. But the repeal specifically allowed States to set their own policies, including prohibition, if they so chose. Three States - Kansas, Oklahoma, and Mississippi - kept statewide prohibition for years afterward, with Mississippi - the last holdout - only repealing prohibition in 1966. The other States allowed a welter of regulations, including “dry” counties, some of which still exist.

The abortion issue may yet be a fundamental issue tearing this country apart. But if it is ever to be relatively minimized as an issue, a proposal like Conkle’s but allowing state and local variation within certain boundaries is how that is going to be achieved.