Saturday, August 6, 2022

Weekly Indicators for August 1 - 5 at Seeking Alpha


 - by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

Several important metrics have reversed course in the past month. Interest rates, especially mortgage rates, have declined (in the case of mortgages, by 1 full % from their peak. As many have pointed out, gas prices have fallen by about $1/gallon from their peak as well. That is putting more money into consumers’ pockets for other things. And stock prices have also reversed, nearing a 3 month high.

While that doesn’t negative the message of the long or short leading indicators in the past, it certainly can change their forecasting meaning going forward. In other words, even if we have a recession - which looks nearly certain by now - it *might* be short and shallow.

As usual, clicking over and reading will bring you fully up to date, and reward me with a penny or two for my efforts.

Friday, August 5, 2022

July jobs report: in which an absolute positive blowout make me happily wrong; all pandemic job losses now recovered


 -  by New Deal democrat

As I wrote earlier this week, the short leading indicators for both jobs (real retail sales) and the unemployment rate (initial jobless claims) have each signaled that we should expect weaker monthly employment reports, with both fewer new jobs and a higher unemployment rate. I have been noting this ever since February, when consumption growth started to flag, It already had shown up by last month, as the 3 month average in new jobs decelerated from over 500,000 to 383,000.

Secondarily, as of last month we were only 550,000 jobs shy of the pre-pandemic level. Would we finally get there?

The complete opposite happened in July, as job gains surged and the unemployment rate declined further. Together with the upward revisions to the last two months, as of now there are 22,000 MORE jobs than there were just before the pandemic. Further, the skew of those jobs is away from lower paying sectors towards higher paying ones. Here’s my in depth synopsis:

  • 528,000 jobs added. Private sector jobs increased 471,000. Government jobs increase by 57,000. 
  • The alternate, and more volatile measure in the household report indicated a  gain of 179,000 jobs. The above household number factors into the unemployment and underemployment rates below.
  • U3 unemployment rate declined 0.1% to 3.5%, equal to the January 2020 low.
  • U6 underemployment rate was unchanged at 6.7%, tied for its all-time low.
  • Those not in the labor force at all, but who want a job now, rose 254,000 to 5.910 million, compared with 4.996 million in February 2020.
  • Those on temporary layoff declined -36,000 to 791,000.
  • Permanent job losers declined -107,000 to 1,166,000.
  • May was revised upward by 2,000, and June was also revised upward by 26,000, for a net increase of 28,000 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 completely positive:
  • the average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, rose 0.1 hour to 41.1 hours.
  • Manufacturing jobs increased 30,000, and is at a level higher than it was before the pandemic.
  • Construction jobs increased 32,000. All of the jobs lost during the pandemic  have also been made up in this sector. 
  • Residential construction jobs, which are even more leading, rose by 2,900.
  • Temporary jobs rose by 9,800. Since the beginning of the pandemic, over 250,000 such jobs have been gained.
  • the number of people unemployed for 5 weeks or less declined by -182,000 to 2,080,000, which is also below its pre-pandemic level.

Wages of non-managerial workers
  • Average Hourly Earnings for Production and Nonsupervisory Personnel: rose $0.11 to $27.75, which is a 6.2% YoY gain, a further decline of -0.2% from last month and 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 above its level just before the pandemic.
  •  the index of aggregate payrolls for non-managerial workers rose by 0.8%, which is below the average inflation gain of 0.9% in the past 3 months.

Other significant data:
  • Leisure and hospitality jobs, which were the most hard-hit during the pandemic, rose 96000, but are still -7.1% below their pre-pandemic peak.
  • Within the leisure and hospitality sector, food and drink establishments added 74,100 jobs, but are still about 635,000, or -5.1% below their pre-pandemic peak.
  • Professional and business employment increased by 89,000, which is about 1,000,000 above its pre-pandemic peak.
  • Full time jobs declined -71,000 in the household report.
  • Part time jobs increased 384,000 in the household report.
  • The number of job holders who were part time for economic reasons increased 308,000 to 3,924,000, above last month’s 20 year low.
  • The Labor Force Participation Rate declined another -0.1% to 62.1%, vs. 63.4% in February 2020.


This report was an unexpected blowout, plain and simple. All of the pandemic job losses have been made up. We are near or at all-time lows in both the unemployment and underemployment rates. *All* of the leading indicators in the report were positive, meaning we should not expect the jobs sector to roll over anytime in the immediate future. Temporary layoffs declined. The only area still lagging is in the lower-paying leisure and hospitality sector, while there are almost 1,000,000 *more* higher paying jobs in the professional and business sector.

There were a few warts. Average hourly earnings once again did not keep up with inflation, a significant negative. The decline in unemployment was helped by a *lower* labor force participation rate. The number of full time jobs actually declined.

The strength of the jobs market has been the best reason why the US is not currently in a recession. This report added to that argument.

On the other hand, I want to caution that some of the great news in this report may be due to comparisons with the distortions of the last two summers, particularly with regard to temporary and education jobs. In other words, we might give this back come September. Leading indicators are still leading, and unless consumers use their new gas savings to spend on other stuff, I still expect job gains to flag in coming months. But for this month, I was very happily wrong.

Thursday, August 4, 2022

Jobless claims continue their relentless climb


 - by New Deal democrat

Initial jobless claims rose 6,000 to 260,000 last week. More importantly, the 4 week average, which has been rising relentlessly, rose another 6,000 as well to 254,750, an 8 month high.  Continuing claims also rose 48,000 to 1,417,000, the highest since April:

Initial claims have usually risen by 15% or more over its low, and turned higher YoY before a recession has begun.  There is a clear uptrend in all the numbers, with the 4 week average of initial claims over 50% higher than its low. Claims remain on track to turn higher YoY in November, which would signal an imminent recession.

To reiterate what I’ve said several times in the past two weeks, I anticipate (more likely than not) a slight upturn in the unemployment rate in tomorrow’s jobs report.

Wednesday, August 3, 2022

Coronavirus dashboard for August 3: is this what endemicity looks like?


 - by New Deal democrat

Confirmed cases nationwide (dotted line below) declined to 121,700, still within their recent 120-130,000 range. Deaths (solid line) are also steady at 431, within their recent 400-450 range as well:

Hospitalizations have plateaued in the past 10 days reported in the 45-47,000 range, and as of July 30 were 46,100. A commenter at Seeking Alpha who works in a hospital wrote to me that the big increase in the past several months has been people showing up with unrelated issues testing positive for COVID, I.e., “patients with COVID:”

Biobot has not updated since one week ago, showing as of then a 10% drop in COVID virus in wastewater, consistent with a “real” case count of about 360,000.

The CDC updated its variant tracker yesterday, showing BA.4&5 making up 97% of all cases. They also included a new subvariant, BA.4.6, in their analysis, indicating it constituted 4% of all cases, or 1/3rd of the BA.4 total:

It is primarily a factor in the northern Great Plains, where it makes up 9% of all cases.

But it has not been particularly growing in the past month, nor does it seem to be replacing BA.5. Similarly, while a few cases of BA.2.75 are showing up in most States, they are not showing up in the CDC data at all. I have not seen any medical commentary on either subvariant in the past week. 

Regionally there has been a small decline of confirmed cases in the West, while the other three regions are steady:

In fact, the only noteworthy changes in any State are that NY and NJ both show small declines:

Unless a new variant shows up imminently, I suspect we are entering a period of decline in cases and deaths.

Tuesday, August 2, 2022

JOLTS report for June amplifies likelihood of substantial downturn in job growth, upturn in unemployment

  - by New Deal democrat

Before we get to the JOLTS report for June, which was released this morning, I wanted to make a point about the overall trend in employment. Because, the two best short leading indicators for employment and unemployment are both pointing South.

First, as I have written dozens of times over the past 10+ years, consumption leads employment, not the other way around. More specifically, real retail sales tend to lead employment levels by about 3 - 6 months. Here is the history from 1994 until just before the pandemic:

Now here is the past two years:

Flat or even negative YoY changes in consumption have not historically been compatible with continued strong employment growth, to say the least. We have already seen some slowing, from an average of 550,000 to 380,000 jobs gained per month, in the past half year, and the above graph strongly argues for a much more significant deceleration.

Second, initial jobless claims are an excellent short leading indicator for the unemployment rate, also with a 3 - 6 month lead time. Here is the history since the 1960s until just before the pandemic:

And here is the past two years:

Since its end of March bottom, the average number of initial jobless claims has risen enough to suggest a 0.1% or even 0.2% increase in the unemployment rate is very close.

Which brings us to this morning’s JOLTS report, because I have been writing for the past number of months that, because of the pandemic, there have been several million fewer persons looking for work, leaving a huge number of unfilled job vacancies, particularly in the face of a roughly 10% higher jump in demand. This has created a sharp increase in wages, but more to today’s point, I have further posited that the dynamic would only slow down once some employers throw in the towel, and the number of job openings signficantly declines. 

Last month I wrote that “Openings likely peaked in March.” This morning we got confirmation, as job openings declined for the 3rd straight month, down -605,000 in June to 10.698 million; down -10% from March to an 11 month low; and only 8.6% higher YoY. In other words, they are very likely to be *down* YoY next month. Here’s the 2 year trend:

Actual hires declined -133,000 to a 10 month low as well. The decelerating trend is now easy to see:

Both quits and total separations also declined, by -37,000 and -86,000 respectively, to 8 month lows:

The deceleration in voluntary quits is now also apparent.

Finally, layoffs and discharges declined -89,000 to 1,327,000, about average for the past 12 months:

While any one jobs report can be noisy, it is much more likely than not that we are going to see a significant further slowdown in job gains, a likely small increase in the unemployment rate, and also a deceleration in wage gains, in Friday’s jobs report.

Monday, August 1, 2022

July manufacturing and June construction spending: leading components of both are negative


 - by New Deal democrat

As usual, the new month’s first data is for manufacturing and construction. Here’s a look at each.

The ISM manufacturing index, and especially its new orders subindex, is an important short leading indicator for the production sector. In July, for the second month in a row, the leading new orders index showed slight contraction, declining -1.2 from 49.2 to 48.0. The overall index - and all the other components, such as supplier deliveries, continued to show expansion, but also declined from 53.0 to 52.8:

This index has a very long and reliable history. Going back almost 75 years, the new orders index has always fallen below 50 within 6 months before a recession, and in three cases did not actually cross the line until the first month of the recession itself - although the recession did not begin until after the total index fell below 50, and in fact usually below 48.

In other words, this metric strongly suggests that it is likely that the economy will enter recession no later than Q1 of next year, and possibly much sooner (but probably not now).

Meanwhile, construction spending declined - 1.1% in nominal terms in June, while May was revised up slightly to +0.1%. The more leading residential sector declined -1.6%, although May was revised sharply higher, from -0.1% to +0.8%:

YoY nominally total construction is up +8.3% (down from +11.7% in February of this year) and residential construction is up +15.4% (down from +34% one year ago).

Adjusting for price changes in construction materials, which declined -0.6% for the month, “real” construction spending declined -0.5% m/m, and residential spending fell -1.0% m/m. Thus in absolute terms, since December 2020, “real” construction spending has declined by -20.4%, while “real” residential construction spending has declined -9.5%:

The decline in residential construction spending, while substantial, is less than its 2018-19 decline, and was nowhere near the -40.1% decline it suffered before the end of 2007. 

For the past few months I have been making the point 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.” In the past two months, it appears that has happened.

In sum, both reports - for manufacturing and construction - are negatives going forward.