Saturday, September 3, 2022

Weekly Indicators for August 29 - September 2 at Seeking Alpha


- by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

The consumer portion of the economy continues to benefit from lower gas prices, while the producer side continues to suffer from higher interest rates.

As usual, clicking over and reading will bring you up to the virtual moment on the data, and reward me a little bit for my labor. Speaking of which, enjoy the last days of summer over this Labor Day weekend!

Friday, September 2, 2022

August jobs report: despite a good headline number, the decelerating trend resumes


 - by New Deal democrat

I have written a number of times since February that the short leading indicators have signaled that we should expect weaker monthly employment reports, with both fewer new jobs and a higher unemployment rate. That was completely *not* the case in July, In August, would the decelerating trend kick in again?

That it did. Since February the 3 month average in new jobs has decelerated from over 500,000 to 378,000. And this month the unemployment rate increased to a 6 month high.

Here’s my in depth synopsis.

  • 315,000 jobs added. Private sector jobs increased 308,000. Government jobs increased by 7,000. 
  • The alternate, and more volatile measure in the household report indicated a  gain of 442,000 jobs. The above household number factors into the unemployment and underemployment rates below.
  • U3 unemployment rate rose 0.2% to 3.7%.
  • U6 underemployment rate rose 0.3% to 7.0%.
  • Those not in the labor force at all, but who want a job now, declined -351,000 to 5.549 million, compared with 4.996 million in February 2020.
  • Those on temporary layoff declined -0,000 to 782,000.
  • Permanent job losers increased 187,000 to 1,354,000.
  • June was revised downward by -105,000, and July was also revised downward by -2,000, for a net decrease of -107,000 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 -0.2 hours to 40.9 hours.
  • Manufacturing jobs increased 22,000, and are at a level higher than before the pandemic.
  • Construction jobs increased 16,000, also at a level higher than before the pandemic. 
  • Residential construction jobs, which are even more leading, rose by 2,300.
  • Temporary jobs rose by 11,600. Since the beginning of the pandemic, nearly 300,000 such jobs have been gained.
  • the number of people unemployed for 5 weeks or less rose by 143,000 to 2,223,000, slightly above its pre-pandemic level.

Wages of non-managerial workers
  • Average Hourly Earnings for Production and Nonsupervisory Personnel rose $0.10 to $27.68, which is a 6.1% YoY gain, a further decline of -0.1% 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 was unchanged which is above its level just before the pandemic.
  •  the index of aggregate payrolls for non-managerial workers rose by 0.3%, which was higher than inflation for the month, but at just under 0.7%averaged over 3 months remains slightly below the average inflation gain monthly in that period.

Other significant data:
  • Leisure and hospitality jobs, which were the most hard-hit during the pandemic, rose 31,000, but are still about -7% below their pre-pandemic peak.
  • Within the leisure and hospitality sector, food and drink establishments added 18,200 jobs, but are still about 600,000, or -5% below their pre-pandemic peak.
  • Professional and business employment increased by 68,000, over 1,000,000 above its pre-pandemic peak.
  • Full time jobs declined -242,000 in the household report.
  • Part time jobs increased 413,000 in the household report.
  • The number of job holders who were part time for economic reasons rose  225,000 to 4,149,000.
  • The Labor Force Participation Rate increased 0.3% to 62.4%, vs. 63.4% in February 2020.


This report was positive, but much more mixed than last month’s report. The overall employment gain continued strong by historical standards, with gains in manufacturing, construction, and high paying professional and business jobs, as well as temporary positions. The hard-hit leisure and hospitality sector also continued to recover. The labor force participation rate also increased. Although the YoY pace of wages decelerated, it was still strong.

But there were lots of disappointing and outright negative indicators as well. Full time jobs decreased; the household gain was driven by part time employment. Average hours in manufacturing, which lead manufacturing jobs, declined to a 12 year low, and are down -0.5% YoY, a change in line with past steep slowdowns and recessions. Aggregate hours, a more finely grained measure than the number of jobs, were completely flat. Revisions to past months were negative, re-asserting a pattern that has been in place most of this year.

Most of all, both the unemployment and underemployment rates rose. As I have written a number of times in the past several months, I have been expecting this, as it was telegraphed by the rise in initial jobless claims.

My take is that this report is in line with a weakening jobs picture, although the headline number of gains remained historically strong.

Thursday, September 1, 2022

A respite in manufacturing in August, continued decline in construction in July


 - 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 August, after two months of showing slight contraction, the leading new orders subindex improved to 51.3, indicating expansion. The overall index also continued to show expansion, with a reading of 52.8 for the second month in a row:

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.

This print means we are not out of the woods, but on the other hand aren’t in a recession now.

Turning to construction for July, the report indicates a nominal decline of -0.4%, although June’s original - 1.1% decline was revised to only -0.5%. The more leading residential sector declined -1.5%, although June’s original -1.6% decline was revised higher to -1.1%:

Adjusting for price changes in construction materials, which declined -0.6% for the month, “real” construction spending actually increased +0.1% m/m, and residential spending fell -0.9% m/m. Here is what “real” construction spending looks like for the past several years:

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. 

While residential construction spending lags other housing data, such as permits, starts, and sales, it has the virtue of being much less noisy. Over a period of several months, it is almost pure signal. And what this tells us is - unsurprisingly at this point - the housing decline is real, and will likely be reflected as a negative component of Q3 GDP.

More good news on jobless claims


 - by New Deal democrat

Initial jobless claims, which had been in an almost relentless uptrend from the end of March until several weeks ago, declined again this past week.

Initial claims declined -4,000 to 232,000, while the 4 week average also declined -4,000 to 241,500. Continuing claims, which lag somewhat, increased 26,000 to 1,438,000, a 4.5 month high:

I mainly put this down to the decline in gas prices since early June relieving the system of some stress. This also puts a recession on hold for the immediate future.

Wednesday, August 31, 2022

In which I parse and war-game the Trump “special master” litigation


 - by New Deal democrat

And now, for something completely different .. .. 

While I have zero special knowledge about Federal criminal procedure, I *do* pay very close attention to “tells” in human behavior. (See, for example, my parsing of Bill Barr;s ‘summary’ of Mueller’s report summary, in which i accurately forecast what cherry-picking elisions Barr had made to Mueller’s document, which actually concluded things quite different from what Barr claimed.) So far, the response to Judge Cannon’s preliminary Order to appoint a special master as to the MAL search warrant documents has played out according to my view of those “tells.”

There are three such “tells” in this litigation:
1. Judge Cannon issued her preliminary order on a Saturday.
2. That preliminary order nowhere includes the term “attorney-client” privilege.
3. The DoJ split its response into two parts, filing one Monday and one Tuesday.

All three of those things were choices. Why did the actors make those choices? The likely reasons behind those choices tell us a lot about their mindset.

1. Judge Cannon issuing her preliminary order on a Saturday. This tells me that the Judge viewed this matter as an *emergency.* 

She came to work *on*a*Saturday* and issued an order Saturday night. Further, although she did not enjoin any government behavior, she ordered them to reply on an emergency time schedule. Why was this an issue that couldn’t wait until Monday? Why not have Trump’s attorneys call their DoJ counterparts Monday and get them on a phone conference with the Judge, where she could order them to accept service electronically and set forth a briefing schedule, on an expedited basis if needed, before ruling? 

Because she deemed the matter an emergency.

Once we understand that, it puts a very different gloss on her behavior last week advising Trump’s attorneys of the deficiencies in their pleadings. This was not simply patiently lecturing inexperienced counsel. No; this was a judge who viewed the matter before her as an emergency, but as to which the initial pleading was insufficient to allow her to issue the order she wanted to issue. So, she gave plaintiff’s counsel a road map covering 5 issues towards adequacy, and told them to have the information to her by close of business Friday. 

When they still didn’t quite do that, and in particular never effectuated service of process on the defendant, she accepted their papers anyway and issued her preliminary ruling. 

This further tells me she had her mind already made up, probably as early as when she first received Trump’s filing. She literally (yes, literally) pre-judged the issue, issuing a ruling, subject to whatever subsequent papers she might receive. It would not surprise me at all - in fact, I consider it more likely than not - that she already had a draft opinion ready Friday. All that was needed were paragraphs beginning, “The Federal government has argued…” and “These arguments are unpersuasive because …”.

2. The silence of the preliminary order on the scope of the proposed “special master’s” authority.

The commenters who are not alarmed with the Judge’s order generally took the position that a special master for attorney-client privilege would almost certainly be moot by the time the government replies, so there will be nothing for a special master to do. So the Court was just cutting to the chase.

For example, here’s Berkeley law professor Orin Kerr:

“I don’t think this amounts to much either way. It’s effectively an indication that the judge wants to hear from DOJ and is going to have a hearing. I assume DOJ will say the search is done, so there’s no search left for a special master to oversee.“

And Popehat:

Eh. She may just be cutting to the chase. She’s a recent ex-AUSA and understands the issues. And judges frequently jump fast on post-search special master requests.”

But the Judge’s Order nowhere limits the proposed special master to attorney-client issues. The relevant sentence reads:

“the Court hereby provides notice of its preliminary intent that it intends to appoint a special master in this case.”

If the Court had intended to limit the scope of a special master’s review to attorney-client issues, as Kerr and Popehat seemed to think, it could have specified so. It did not. And Trump clearly wants the purported issue of “executive privilege” visited as well.

In short, a telling omission.

3. Why did the DoJ issue its response in two parts?

I think the DoJ team assigned to this case was at least as smart as I am, and figured out the same things I lay out above (and a lot more of course).

If I were the DoJ, faced with the above, given the emergency deadlines,  I would have appointed two teams to draft two different sort of responses: (1) a more milquetoast, courteous response targeted at attorney-client privilege; and (2) a planet-killing space lasers response blasting all of the reasonably possible deficiencies in both Trump’s pleading, and the Judge’s proposed order.

Monday morning’s filing was on the order of version (1) above. I think it was a test. If the Judge really did just intend to limit the special master to attorney-client privilege, and not upend the entire DoJ investigation for reasons she considered emergent, this was her opportunity to either withdraw her original order as moot, or to grant more time to fully brief the issue. Certainly she hadn’t worried about procedural niceties on Saturday; why not give her the same opportunity on Monday?

When the Judge did not respond to the first brief, the DoJ followed up with a motion to allow an extra-long (planet-killing laser cannon) second brief. Again, the judge could have extended the briefing schedule (since attorney-client matters appear to be moot). She didn’t.

AT this point the DoJ had to figure that it was looking at a worst case scenario in terms of the ruling that the judge intended to make. So the DoJ filed a (probably toned down and a little more polite) final version of its planet-killing space laser brief Tuesday night.

A few closeting comments.

4. A petition to intervene amicus curiae was filed by a number of prominent criminal attorneys. The court may not grant the petition, but it itself is noteworthy for the legal broadsides it fires at both Trump’s attorneys and the judge. 

The movants - all prominent members of former GOP Administrations write in part:
“ First, the relief sought is unprecedented. The former President has not cited—and Amici are not aware of—any precedent involving the appointment of a special master to adjudicate a claim of executive privilege (as opposed to attorney-client privilege)…

“ Second, Congress has established a specific procedure, set out in the Presidential Records Act (“PRA”), through which a former president may challenge a sitting president’s invocations of (or refusals to assert) executive privilege…. including the requirement that any challenge by a former president to the Executive Branch’s rejection of his claim of privilege be brought in the jurisdiction available under the PRA, the United States District Court for the District of Columbia…. [This] court [ ] is statutorily precluded from hearing the matter.

“ Third, the appointment of a special master to adjudicate the claims of executive privilege would be a waste of time because the claim of executive privilege against the Executive Branch in this case is manifestly frivolous.… it is abundantly clear that the Executive Branch, including the President and the Acting Archivist of the United States, have determined that the records at issue should be reviewed by the U.S. Department of Justice (“DOJ”) and the Federal Bureau of Investigation.“

Shorter version: “Judge, if you do what you apparently are planning to do, you will be expressly and flagrantly violating statutes and rules governing the judiciary, Expect to be mercilessly shot down on appeal.”

5. I think the DoJ would have preferred *not* to publish the photo of classified documents which has gotten so much publicity today. Even the limited information disclosed - most importantly, the dates of the documents, in conjunction with the type of information they cover - gives US adversaries a glimpse of how close in time to certain events the US had important information about them, and the means by which it gained that intelligence.

I think the inclusion of this document is a figurative slap across the face of Judge Cannon, warning her graphically about how egregious and blatant Trump’s violations were, and whether she tacitly approves of this behavior by interfering with the Intelligence Services processing of damage potentially done by Trump’s potential use of this material, found not coincidentally in a desk drawer with his passports.

6. Despite how devastating the DoJ response apparently is, it is important to remember that this judge, on Friday, publicly declared that she had made up her mind on an issue before the other party had an opportunity to respond to the request, without even proper service on the defendant, without asking for any sworn factual assertions by the plaintiff, and to provide information to her about, inter alia, highly classified documents that goes beyond normal search warrant practice.

There is no substantial reason to believe that she will change the conclusion she obviously arrived at last week. So prepare for the judge to completely disregard the information put forward by the DoJ, and issue an unprecedented, broad, and novel ruling.

June house price indexes show no peak yet; no respite likely in the “official” consumer housing measure


 - by New Deal democrat

Yesterday the Case Shiller and FHFA house price indexes were updated through June (technically, the average of April through June.

Because the Case Shiller index is not seasonally adjusted, the best way to show them is YoY. Here are YoY% changes for the last 2 years of each (although the FHFA *is* seasonally adjusted, and increased only +0.1% for the month to a new record):

Remember, my rule of thumb for non-seasonally adjusted data is that the peak is most likely when the YoY gain declines to only 1/2 of its maximum in the last 12 months. By that standard, although both decelerated to 12 month lows, at +18.0% and 16.2% respectively, this is not much below their recent highs of 20.6% and 19.3% earlier this year. 

Also, the FHFA has a tendency to turn slightly ahead of the Case Shiller index, and the FHFA YoY gains appear to have peaked in February, slightly ahead of Case Shiller.

Anyway, these two indexes are telling us - with a delay - that prices did not peak during the spring. 

Remember that the median price for new homes appears to have peaked in April (below data *is* seasonally adjusted):

Additionally, below are the YoY% changes for every month in median existing home sales prices for the past 15 months (again, the NAR does not seasonally adjust this data):

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]
May 2022 +14.8%
June 2022 +13.4%
July 2022 +10.8%

The price of existing homes appears to be close to a peak as of the last 4 months.

Put all this together, and the result is that while prices for new homes probably peaked several months ago, existing home prices were still increasing as of mid year. It will take another month or two to know if they peaked during the summer.

Finally, as I have written many times over the past 9 months, the CPI measure of housing, “owners equivalent rent,” lags actual house prices by about a year or more. Here are the YoY% changes of the house price indexes vs. OER(*2 for scale) over the past 20 years:

Through July, YoY% increases in OER have continued to accelerate. They may have more to go, or they may be close to their peak YoY. But I do not expect any meaningful downturn in OER, which plus rents contribute a full 1/3rd of the entire value of the CPI, aside from contributions from lower gas prices I see very little relief in the official inflation measure for months to come.

Tuesday, August 30, 2022

July JOLTS report: the broad deceleration in the game of reverse musical chairs (generally) continues


 - by New Deal democrat

I have been writing since early this year 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 gives employees the upper hand, as there are almost always higher paying jobs on offer for which they can apply. I‘ve also posited that the dynamic would only slow down once some employers throw in the towel, and the number of job openings signficantly declines. 

By now, it is almost certain that openings peaked in March. So the question becomes, how much do they have to decline before the reverse game of employment musical chairs stops? 

This morning’s report showed that job openings increased, by 1.8%, for the first time since March, to 11.239 million. They remain down -5% from March, and only 4.2% higher YoY (the lowest YoY reading since February 2021). Here’s the 2 year trend:

Actual hires declined -74,000 to an 11 month low of 6.382 million, and are actually *down* YoY. The decelerating trend is clear:

Both quits and total separations also declined, by -74,000 and -80,000 respectively, to 9 month lows:

The decline in voluntary quits is also now clear.

Finally, layoffs and discharges declined -2,000 to 1,398,000, about average for the past 15 months, but 136,000 above their low in December 2021:

With the positive exception of increased job openings, this report showed more deceleration in all the other facets of the job market. I read this as the game of reverse musical chairs slowing down, but that employees still have the upper hand.

Remembering that this report is for July, and August data will start with the jobs report on Friday, although we had a great number last month, I suspect that was something of an outlier, and that we are going to see a significant slowdown in job gains compared with earlier this year, and quite possibly a small increase in the unemployment rate, as well as a slight slowdown in nominal wage gains.

Monday, August 29, 2022

Continued good news for consumers on gas prices


 - by New Deal democrat

There’ll be lots of economic news starting tomorrow, but for today let’s pause and take a look at the energy situation.

Here’s a look at oil prices in the past year up through yesterday from CNBC:

And here’s a look over the same time period from Gas Buddy:

Here’s a close-up of gas prices for the past month:

Gas prices follow oil prices with typically a delay of several weeks. Oil prices peaked in early June, and gas prices at mid-month. Oil prices appear to have started stabilizing at the beginning of August, and gas price declines slowed down a couple of weeks later.

Finally, here’s the comparison of oil prices and gas prices (through last Wednesday, averaged weekly. Since there are 42 gallons in a barrel of oil, I’ve divided oil prices by 42 to show the mark-up at retail:

With oil apparently stabilizing in the $90/barrel range, I expect gas prices to stabilize about where they are now, in the vicinity of $3.70-$3.90/gallon nationwide. This is only a short term forecast as to gas, and a nowcast as to oi.; I am not forecasting where oil prices will go from here.

But this is still very good news for consumers compared with the last 6 months.