Saturday, April 8, 2023

Weekly Indicators for April 3 - 7 at Seeking Alpha


 - by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha

Probably unsurprisingly, the big news this week was the effect of the revisions to the initial jobless claims data, and also the turning down of several sectors in the monthly jobs report.

Anyway, as usual clicking over and reading will bring you up to the virtual moment as to the data, and reward me a little bit for my efforts in putting it all together.

Friday, April 7, 2023

March jobs report: leading sectors turn down in a pre-recessionary, but still quite positive, report


 - by New Deal democrat

Unsurprisingly, my focus on this report, like the last few reports, was on whether residential construction jobs turned negative or not, whether manufacturing and temporary jobs continued on their downward trajectory, and whether the deceleration in job growth would be apparent.

Some of the deceleration or decline occurred, particularly in the sectors which lead the market overall, while other metrics held steady or even improved, consistent with a still very tight market.

Here’s my in depth synopsis.

  • 236,000 jobs added, the lowest number since December 2020. Private sector jobs increased 189,000, also the lowest since December 2020. Government jobs increased by 47,000. The three month moving average of growth declined 1,000 to 345,000. 
  • The alternate, and more volatile measure in the household report rose by 577,000 jobs. The above household number factors into the unemployment and underemployment rates below.
  • U3 unemployment rate declined -0.1% to 3.5%.
  • U6 underemployment rate also declined -0.1% to 6.7%.
  • January was revised downward by -32,000, and February was revised upward by 15,000, for a net decrease of -17,000 jobs compared with previous reports. 

Leading employment indicators of a slowdown or recession

These are leading sectors for the economy overall, and help us gauge how much the post-pandemic employment boom is shading towards a downturn.  These were mixed, but the overall tenor was neutral to negative:
  • the average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, declined was unchanged at 40.7, down -0.9 hours from February peak last year of 41.6 hours.
  • Manufacturing jobs declined by -1,000.
  • Construction jobs declined for the first time since January 2022, by -9,000.
  • Residential construction jobs, which are even more leading, increased by only 800, but last month’s gain of 1,200 was revised to a loss of -2,400, suggesting January may have been the peak for this sector.
  • Temporary jobs, which have generally been declining late last year, resumed that decline, by -10,700.
  • the number of people unemployed for 5 weeks or less declined -17,000 to 2,272,000.

Wages of non-managerial workers
  • Average Hourly Earnings for Production and Nonsupervisory Personnel increased $.09, or +0.3%, to $28.50, a YoY gain of 5.1%, the lowest YoY gain since July of 2021.

Aggregate hours and wages: 
  • the index of aggregate hours worked for non-managerial workers rose 0.2%.
  •  the index of aggregate payrolls for non-managerial workers rose 0.4%, but continued its deceleration to 7.2% YoY, the lowest since March 2021, although still more than 1% higher YoY than inflation as of the last reading.

Other significant data:
  • Leisure and hospitality jobs, which were the most hard-hit during the pandemic, rose 72,000, only -368,000, or -2.2% below their pre-pandemic peak.
  • Within the leisure and hospitality sector, food and drink establishments added 50,300 jobs, and are now only -75,000, or -0.6% below their pre-pandemic peak. 
  • Professional and business employment rose 39,000. This series has also been decelerating consistently, and is now up 2.3% YoY, the lowest increase since March 2021.
  • The Labor Force Participation Rate increased 0.1% to 62.6%, vs. 63.4% in February 2020.
  • The number of job holders who were part time for economic reasons rose 35,000.
  • Those not in the labor force at all, but who want a job now, declined -178,000 to 4.925 million, its lowest level since December 2019.


As it is so often, this report had a somewhat bifurcated nature. It remained solid in terms of absolute job growth. Further, in general the numbers derived from the Household Survey were very good. But most of the leading internals in the Establishment report were negative.

Let me highlight the leading negatives. All 3 leading sectors of the jobs market have turned down: manufacturing, construction, and temporary jobs. Also, while the manufacturing workweek was unchanged this month, it is at a level which in the past has been consistent with a recession. The drumbeat of negative revisions to prior reports has also resumed. This is solidly pre-recessionary.

But let’s not overlook the positives in the Household Survey. Both the unemployment and underemployment rates declined, and participation increased. Jobs are obviously still easy to get, as those out of the labor force who nevertheless want a job declined to a 3+ year low, and indeed except for 2019, the lowest number since 2008. And while aggregate payroll growth is decelerating, it is still growing at a rate higher than inflation.

To sum up: pre-recessionary, but we aren’t at the recession yet.

Thursday, April 6, 2023

Revisions cause initial claims, the last positive leading indicator, to capitulate

 - by New Deal democrat

Initial and continuing claims underwent some serious revisions with this week’s release. Rather than attempt an explanation myself, here is the nub of the BLS’s own explanation:

Beginning … [this week], the methodology used to seasonally adjust the national initial claims and continued claims reflects a change in the estimation of the models.

Seasonal adjustment factors can be either multiplicative or additive. A multiplicative seasonal effect is assumed to be proportional to the level of the series. A large increase in the level of the series will be accompanied by a proportionally large seasonal effect. In contrast, an additive seasonal effect is assumed to be unaffected by the level of the series….

Prior to the pandemic, the unemployment insurance claims series used multiplicative models to seasonally adjust the claims. Starting with March 2020, Bureau of Labor Statistics (BLS) staff, who provide the seasonal adjustment factors, specified both of the UI claims series as additive. After the large effects of the pandemic on the UI series lessened, the seasonal adjustment models were once again specified as multiplicative models. Statistical tests show that the UI series should, in normal times, be estimated using multiplicative adjustments.

The revisions go all the way back to June 2021. As a result, the all-time lows in both the weekly and 4 week average of initial claims that were reported last spring got vaporized: the all-time lows revert back to the 1960s. Continuing claims were also revised substantially higher for last spring. All three series were also revised substantially higher beginning with the weeks of late January. All of the sub-200,000 readings since then have been erased. Instead, claims have steadily risen to close to 250,000, and continuing claims have gradually risen to over 1.8 million. 

Including those revisions, this week initial claims rose 18,000 to 246,000. The 4 week average declined 4,250 to 242,000. Continuing claims with a one week delay rose 6,000 to 1,823,000.

Here is what those revisions to weekly initial claims look like:

Here are the revisions to the 4 week average:

And here are the revisions to continuing claims:

Finally, here are the YoY% changes to all three:

Because the revisions go back more than a year, the YoY% change in the numbers did not change very much compared with last week. Including the revisions, initial claims are now up 6.5% YoY (vs. 15.8% as reported last week), and continuing claims are up 11.6% (vs. 12.2%). The more important 4 week average is up 10.8% (vs. 11.0%).

Last week I wrote that the 4 week average of initial claims had crossed the 10% threshold for a yellow flag caution. I require two months in a row, and would need to see an increase to 12.5% YoY or above to warrant the actual red flag recession warning.

But even if initial claims improve somewhat from here, with these revisions the last positive leading indicator has capitulated.

Wednesday, April 5, 2023

One of the last of the positive short leading indicators rolls over

 - by New Deal democrat

The only economic release today of any significance was the ISM non-manufacturing index, which tracks services. It is only about 25 years old, and is not a leading indicator the way its sibling manufacturing index is, but for the record in March it showed slight expansion at 51.2. Here is its entire history:

Its new orders subindex came in at 52.2. Lest you think that it sounds an “all-clear,” in December 2007, the first month of the Great Recession, the index came in at 54.4, and new orders at 53.9. The history is, services decline only after goods. Goods lead into the recession, then services join.

In that vein, yesterday we got confirmation that one of the last short leading indicators which had not turned down, has finally unequivocally done so. Durable goods orders (blue) and consumer durable goods orders (red) both declined for the second month in a row. Meanwhile capital goods orders less defense and aircraft (gold) also declined slightly, and remain below their high from last August, having trended essentially sideways since then:

At this point there is not a single short leading indicator - including even initial jobless claims - that has not retreated from their best level. Aside from jobless claims, the only other short leading indicator showing signs of life is stock prices as measured by the S&P 500. These made a new 3 month high in early February, and haven’t made a new 3 month low since last October, so for the short term count as a positive:

But if they fail to make a new 3 month high by early May, they too will retreat to a neutral. And of course, they remain below their all-time high from January 2022.

Finally, here is what the other 3 big coincident monthly indicators aside from payrolls look like, normed to 100 as of last October:

Real personal income less government transfers looks like it may have made a peak as well. Real manufacturing and trade sales jumped in January, but with a -0.8% decline in its real retail sales component in February, manufacturing and wholesale sales will have to jump in February in order to avoid a decline in that as well.

Not only do I continue to believe that a recession is near at hand, but there is a non-trivial possibility that, after revisions are all in, the NBER will determine that a cycle peak occurred in January, nonfarm payrolls notwithstanding.

Tuesday, April 4, 2023

February JOLTS report shows further *relative* weakening in the jobs market


 - by New Deal democrat

The February JOLTS report showed a weakening in almost all important trends.

The strongest component of the entire series has been job openings. I tend to place lower significance on this, because there is ample evidence that companies have “gamed” this metric either to build up a bank of resumes, or else to suggest that their growth is strong (whether or not that is truly the case). Well, even so job openings (blue in the graph below, normed to 100 as of February 2020) declined -632,000 to 9.931 million, the lowest number since spring of 2021. Actual hires (red) declined -164,000 to 6.163 million (also the lowest since spring 2021), while quits (gold) increased 146,000 to 4.024 million:

Note that an increase in voluntary quits is a good thing, because it indicates confidence by the person quitting that they can find a new job relatively easily. But even with February’s increase, quits remain below their 2021-early 2022 monthly levels.

For comparison’s sake, here is the rest of the history of all three series up until the pandemic:

Finally, layoffs and discharges declined -215,000 to 1.504 million, also good. But this number only reverses January and takes us back to recent levels. The overall increasing trend (a negative) is clear:

Again, for comparison purposes, here is the rest of this series:

For about the last year, I have been paying particular attention to job openings, because it is only when they revert close enough to pre-pandemic levels that we are likely past the period of “reverse musical chairs” whereby employees find it easier to find higher paying jobs (for the record, I look favorably upon this period of labor strength, after decades of employers having the upper hand). That final capitulation of the job market, while not an absolutely necessary predicate to a recession, would likely be the icing on the cake.

On Friday March nonfarm payrolls will be reported. Because initial jobless claims have remains so positive, I do not expect an appreciable weakening of that number, but a continuation of the decelerating trend remains likely. I will be especially looking at the leading sectors, like manufacturing and residential construction, to see if those have turned negative.

Monday, April 3, 2023

Both manufacturing and construction continue to contract


 - by New Deal democrat

As usual, we start the month with data on last month’s manufacturing activity, and the previous month’s construction activity. This month, both were negative.

The ISM manufacturing index, which has had an excellent record as a leading indicator for the past 75 years, declined to 46.3, its lowest level since the pandemic recovery began. The new orders index, which is the best leading component, also declined to 44.3, above only December’s 42.5 low:

According to the ISM, levels below 48 have historically been consistent with recessions. Needless to say, that’s what the index says about manufacturing now (and consistent with what the new orders indexes of the regional Feds have been saying for months).

February total and residential construction spending also both declined, the former by -0.1%, the latter by -0.6%. Total construction spending, the laggard of the two, appears to be peaking, as it has only increased 0.2% since last November. Residential construction spending, the most leading component, may be bottoming out, as it has only declined -0.8% since November:

Since these are nominal readings, I have been deflating them by the special PPI for construction materials, which declined sharply between last May and December, but has risen in the two months since. Here’s what the deflated numbers look like:

In real terms, both have turned down, and the leading residential number has been declining almost consistently for a year.

In short, both leading sectors of manufacturing and construction are likely in contraction.

Sunday, April 2, 2023

Weekly Indicators for March 27 - 31 at Seeking Alpha


 - by New Deal democrat

I keep forgetting to put up this link on Saturdays, but you know where to find it: my Weekly Indicators post is up at Seeking Alpha.

The good thing about high frequency indicators is you can see what is happening with trends much more quickly than with monthly releases. The bad thing is that the drip-drip-drip can take forever!

Anyway, the fallout from SVB continues in the credit sector; and corporate profits look like they might take a major hit in the Q1 reporting season, which starts in a couple of weeks.

If you haven’t already done so, clicking over and reading will bring you up to date, and reward me a little bit for organizing the data for you.