Saturday, May 6, 2023

Weekly Indicators for May 1 - 5 at Seeking Alpha


 - by New Deal democrat

My “Weekly Indicators” post is up at Seeking Alpha.

Stock prices had been in an uptrend since last October, but on a three month basis that trend has now been broken. Meanwhile several measures of income and consumption have softened even further, without quite rolling over.

As usual, clicking over and reading will bring you up to the virtual moment as to all of the important economic trends, and reward me a tiny little bit for collating and organizing the information for you.

Friday, May 5, 2023

April jobs report: deceleration continues, with sharp downward revisions to previous months’ gains


 - by New Deal democrat

My focus for this report continued to be whether the leading sectors and other indicators  continued to decline, and whether the pace of growth continued to decelerate.

While the deceleration in growth did occur - and substantially so - the leading sectors were decidedly mixed, with some - notably the unemployment and underemployment rates - actually improving.

Here’s my in depth synopsis.

  • 253,000 jobs added. Private sector jobs increased 230,000. Government jobs increased by 23,000. 
  • BUT, February was revised down by -78,000, and March by -71,000, for a total of -149,000. At +165,000, March is now the lowest reading since December 2020, and the three month moving average of growth declined by over -100,000 from 345,000 before revisions to 222,000, again the lowest since the end of 2020.
  • The alternate, and more volatile measure in the household report rose by 139,000 jobs.
  • Despite this, the U3 unemployment rate declined -0.1% to 3.4%. This is because the civilian labor force, the denominator in the figure, declined by -43,000
  • U6 underemployment rate also declined -0.1% to 6.6%.

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 decidedly mixed:
  • the average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, was unchanged at 40.6, down -1.0 hours from February peak last year of 41.6 hours.
  • Manufacturing jobs increased by 11,000.
  • Construction jobs increased by 15,000.
  • Residential construction jobs, which are even more leading, declilned by 1,800. It appears likely that January was the peak for this sector.
  • Temporary jobs, which have generally been declining late last year, declined further, and sharply, by -23,500.
  • the number of people unemployed for 5 weeks or less declined -436,000 to 1,866,000.

Wages of non-managerial workers
  • Average Hourly Earnings for Production and Nonsupervisory Personnel increased $.11, or +0.5%, to $28.62, a YoY gain of 5.0%, the lowest YoY gain since June of 2021.

Aggregate hours and wages: 
  • the index of aggregate hours worked for non-managerial workers declined -0.2%.
  •  the index of aggregate payrolls for non-managerial workers rose 0.3%, but continued its deceleration to 6.7% YoY, the lowest since March 2021, although still 1.7% 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 31,000, -402,000, or -2.4% below their pre-pandemic peak.
  • Within the leisure and hospitality sector, food and drink establishments added 26,800 jobs, and are now only -87,100, or -0.7% below their pre-pandemic peak. 
  • Professional and business employment rose 43,000. This series has also been decelerating, and is now up 2.3% YoY.
  • The Labor Force Participation Rate was unchanged at 62.6%, vs. 63.4% in February 2020.
  • The number of job holders who were part time for economic reasons declined -199,000.
  • Those not in the labor force at all, but who want a job now, increased 346,000 to 5.271 million vs. its best level of 4.761 shortly before the pandemic.


This was a very mixed report. The biggest positives were the increases in manufacturing and construction jobs. Nominal wage growth, while decelerating, continues to be strong. And both the unemployment and underemployment rates tied their multi-decade lows.

The negatives included the reasons *why* the unemployment and underemployment rates were so low: the labor force itself declined, while those who weren’t in the labor force but want a job increased. Temporary jobs and residential construction jobs continued to decline, the former sharply. And perhaps most important of all: for the second month in a row, we have had sharp downward revisions to the previous two months’ numbers. This is something that tends to happen as a recession is about to start, or has already started.

The theme remains deceleration, but no downturn yet.

Thursday, May 4, 2023

Jobless claims hoist yellow flag again; employment and unemployment likely to show further deceleration tomorrow


 - by New Deal democrat

Initial jobless claims rose 13,000 to 242,000 last week, while the 4 week average rose 3,500 to 239,250. Continuing claims, with a one week lag, declined -38,000 to 1.805 million:

This is right in the range of the past 2 months.

YoY initial claims are up 11.0%, the 4 week average is up 10.8%, and continuing claims are up 20.5%:

This is enough to reinstate the “yellow flag” caution, but not across the 12.5% boundary where I would begin to hoist the “red flag” recession warning.

Tomorrow morning we will get the April jobs report, and since initial claims are a leading indicator for the unemployment rate (red in the graph below), here’s what that looks like for the past 18 months:

Initial claims are clearly forecasting an increase in the unemployment rate by 0.2%-0.3% over the next few months, but whether or not there will be an increase tomorrow is impossible to know. But they do certainly suggest there will be no *decrease* in the unemployment rate.

Meanwhile, since real retail sales (showing consumption; blue in the graph below) are a leading indicator for employment (red), here’s the latest update on that comparison:

The gold line represents the quarterly change (*4 to estimate the annualized rate) in job growth.

Real retail sales are plainly forecasting continued deceleration in jobs growth. Deceleration in the YoY rate, as well as deceleration in q/q growth suggests a gain of less than 325,000 tomorrow. A negative outlier would be anything less than 200,000.

Additionally, tomorrow I’ll be looking for continued deterioration in the leading sectors of manufacturing, construction, and temporary employment, along with the manufacturing workweek and an increase in short term unemployment. 

Wednesday, May 3, 2023

The un(der)employment rate leads wage growth: 2023 update


 - by New Deal democrat

I had already planned on taking an updated look at wage growth today, but there was a little flutter on twitter about job openings and last week’s Q1 wage and benefits data, so that sealed the deal.

To wit: as I used to write many times during the last expansion, wage growth is a long lagging indicator. It tends to increase only after unemployment (or even better, underemployment) falls to a level where labor begins to have some bargaining power. For the underemployment rate, this was about 9%. It took over half a decade after the Great Recession for the U6 rate to hit that marker:

So the below graph subtracts the U6 rate from 9% (red), so that any rate lower than 9% shows as a positive, compared with the YoY% change in  average nonsupervisory wages (light blue) and wages measured by the quarterly employment cost index (dark blue):

Because the underemployment rate went to over 20% in the first few months of the pandemic, the below continuation graph eliminates those months and picks up in the last quarter of 2020:

As the labor market got tighter, wages growth continued to accelerate.

Economist Jason Furman made a similar point several days ago comparing the job openings rate with wage growth. Here’s his graph:

A graph of the quarterly % changes in wage growth in nonsupervisory wages and the employment cost index does not particularly correlate with the quarterly % change in job openings:

But the YoY% change in wages do correlate with the absolute level of job openings:

As the level of employment continues to reach post-pandemic equilibrium, the level of job openings will continue to decline, and the underemployment rate will likely increase. This will cause wage growth to decelerate as well.

Tuesday, May 2, 2023

March JOLTS report shows labor market about halfway to pre-pandemic normalization

 - by New Deal democrat

The title of this piece is an important to clue the relative nature of this morning’s Job Openings and Labor Turnover report for March.

For the last several years, the jobs market has been a game of “reverse musical chairs,” where there are always more chairs than participants. Those employers whose chairs weren’t filled had to increase their wage and/or benefits offerings, or go without. This was good for labor, but certainly put pressure on prices as well.

Because the jobs market has remained so strong, it has been unlikely that a recession would start unless the situation with job openings returned to at least close to its pre-pandemic levels. Only then could there be enough layoffs to actually be consistent with a negative monthly jobs number.

This morning’s report, as indicated in the title, indicates we are about half the way there. Job openings (blue in the graphs below) declined -384,000 to 9.590 million annualized (from a peak of 12.027 million 12 months ago, vs. 7 million just before the pandemic), while actual hires (red) declined a whopping -1,000 to 6.149 million (vs. a peak of 6.843 million in November 2021 and 6 million just before the pandemic), and voluntary quits (gold) declined -129,000 to 3.851 million (vs. a peak of 4.501 million in November 2021 and 3.5 million just before the pandemic:

All of the above are at roughly 2 year lows. 

Here is the longer term view of all 3 metrics from the series inception, better to show the current situation with the historical one before the pandemic hit:

All three remain at levels higher than at any time before the pandemic hit.

Additionally, layoffs and discharges increased 248,000 to 1.805 million annualized, also roughly a 2 year high):

Here is the longer term historical record for layoffs. Note that before the pandemic, the current level would be quite low:

It would be wrong to simply project this month’s declines forward, but the overall trend is very clear.

All of the above remains consistent with a positive, even strong jobs report this coming Friday by historical standards. But, together with the increase in initial jobless claims (which are a leading indicator for the unemployment rate), it is likely that the report will be weak by the standards of the past 12 months, and the unemployment rate is more likely than not to increase.

Monday, May 1, 2023

Manufacturing and construction start out the month’s data to the negative side


 - by New Deal democrat

As usual, we start the month with reports on last month’s manufacturing, and construction from two months ago.

The ISM manufacturing index has a 75 year record of being a very reliable leading indicator. According to the ISM, readings below 48 are consistent with an oncoming recession. And there, the news is not good. Not only has the index been below 50 for the past 6 months, it has been below 48 for the past 5, even though in April it rose from 46.3 to 47.1. Just as bad, the new orders subindex, which is the most accurately leading component, has been in contraction since last summer, although it too rose in April from 44.3 to 45.7:

Needless to say, this indicator has been forecasting and continues to forecast recesion.

Construction was mixed, but the most leading component continued to contract as well. Total construction rose 0.3% nominally in March, but only after February was revised significantly downward. But residential construction spending declined -0.2%:

For the past several years, I have been adjusting the nominal numbers by the PPI for construction materials. This had been declining, but rose 0.5% in March, which means that the deflated number for total construction declined, and that for residential construction declined even more:

Not an auspicious start to the month; with the significant caveat that these two sectors make up less of the economy than they used to several decades ago, and as we saw last Friday, consumer spending on services, while decelerating, remained historically strong.