Saturday, May 27, 2023

Weekly Indicators for May 22 - 26 at Seeking Alpha


 - by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

Several of the indicators that popped higher one week ago sank back lower this week. The overall picture remains very slight positivity in the coincident numbers. Meanwhile stock prices continued to make several new 3 month+ highs, but several long leading indicators, including corporate profits as reported in  revised GDP and interest rates, turned more negative.

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 efforts.

Friday, May 26, 2023

April report for real personal income and spending adds to the evidence that a cyclical peak might ultimately be dated to January


 - by New Deal democrat

As I’ve repeated for the past several months, at present the report on personal income and spending is co-equal to the employment report as the most important monthly data. And for the second month in a row, the results were very mixed. And also, like yesterday, revisions played a big role, this time to the downside.

Nominally, personal income rose 0.4%, and personal spending rose 0.8%. Because the applicable deflator rose 0.4%, real personal income was unchanged, and real personal spending rounded to up 0.5%. And real disposable personal income rose less than 0.1% rounding to unchanged.

Since the pandemic began, real income is up 3.3% (vs. a reported 4.0% in March), and real spending is up 8.2% (vs. 7.6% in March). Because much of this was distorted by several rounds of stimulus, here’s the view normed to 100 as of July 2021, also including real disposable personal income (gold), which is much more affected by gas prices:

Note that net revisions added 0.1% to the increase in spending, but revisions subtracted a large -0.7% from income.

Revisions also affected the pesonal savings rate, which was also revised down -0.6% for March from 5.1% to 4.5%, and then declined another -0.4% in April to 4.1%. Due to the “paradox of saving,” while this decline in a negative for individual households, it is good for the economy as a whole, since consumption makes up 70% of economic activity, and consumption leads employment.

In the long term, though, this rate of saving is very low, only exceeded to the downside in the 50 years prior to the pandemic by the period from November 2004 through September 2008:

Finally, let’s turn to the indicators that the NBER uses to determine the onset of and end of recessions, two of which were updated this morning.

The good news is that real personal income less government transfers (blue in the graph below) rose 0.2% in April to a new high. The bad news is that this is against some very big downward revisions for the past 6 months, meaning that April’s “record” is actually -0.6% below where we thought we were in March, and less than 0.1% above its now-previous record of last September:

The other big coincident indicator used by the NBER updated today, real manufacturing and trade sales for March, declined another -0.6% from their recent high in January:

Here is what all of the “big 4” coincident indicators, including industrial production and nonfarm payrolls, look like each normed to 100 as of their respective peaks:

Two of the four - industrial production and real manufacturing and trade sales - are down from their peaks. A third, real personal income less transfer receipts, has essentially been flat since last September. Only jobs have continued to increase significantly.

Further, on a YoY basis, real personal income less government transfers is up 1.2%, industrial production is up 0.2%, and real manufacturing and trade sales are up 0.7%. The historical record going back over half a century shows that when all three of these coincident indicators have been at their current YoY levels they are now, with *no* exceptions a recession was already underway:

In summary, while there was good news on real personal spending and on real personal income less government transfers; there were very negative revisions to income. While it remains unlikely, together with yesterday’s report of negative Gross Domestic Income for Q1, including the average of GDP and GDI; this report increases the chances that ultimately the NBER will discount the continuing growth in nonfarm payrolls and declare that there was a cyclical peak in January.

Thursday, May 25, 2023

Initial claims: revisions rear their ugly head again


 - by New Deal democrat

Revisions are a permanent hazard in reporting on economic data. That was very much in evidence in this week’s jobless claims report.

Not only was last week’s number revised down by -17,000, but the initial report of 264,000 two weeks ago is now all the way down to 231,000! Big difference.

Anyway, the current report indicates a weekly uptick of 4,000 to 229,000. The 4 week moving average was unchanged at 231,750. Continuing claims, with a one week delay, declined -5,000 to 1.794 million:

On a YoY% basis, after revisions claims are currently up only 6.5%, and the more important 4 week average only 7.2%. Only continuing claims continue to show big gains of 25.3%:

Most importantly, after revisions the 4 week average has never crossed the 12.5% threshold, and has been below 10% for the last two weeks. Should claims be below 10% YoY as well, I will remove the yellow flag - pending revisions.

Wednesday, May 24, 2023

Financial markets in past fiscal crises; the “gold standard” of employment reports shows big deceleration in Q4 of last year


  - by New Deal democrat

I have a post up at Seeking Alpha on how stocks, bonds, and consumers behaved during the 3 fiscal crises of the last decade. Hint: recessions are always disinflationary.

Also of interest: the “gold standard” of employment data is the Quarterly County Employment and Wages report, which is not a sample, but the full census of 95% of all establishments. Unfortunately, it has two drawbacks: (1) it does not get reported until almost 6 months later, and (2) it can be revised for a full year or more afterward.

With those caveats, YoY employment through December of last year decelerated from 4.3% at the end of Q3 to +2.6%, and a total of 152,318,000 jobs:

This compares with the monthly jobs report which was up +3.2% YoY (red, left scale) at 154,535,000 jobs (blue, right scale):

We had a similar disconnect for Q2 data, which subsequently got revised away.

Tuesday, May 23, 2023

New home sales and prices: yet another confirmation of a bottom in sales, while prices continue to decline YoY


 - by New Deal democrat

The last of the monthly updates for new home construction, new home sales, was reported this morning. And it continued the theme from the other data (permits, starts, existing home sales); namely, the bottom in sales appears to be in, while prices are still declining.

First, on sales: new home sales increased 27,000 on an annualized basis to 683,000 (red in the graph below). But as I’ve said many a time, this series is very noisy and heavily revised. 683,000 is exactly what last month’s report claimed for March (blue):

So, as usual, take this month’s gain with a grain of salt.

Nevertheless, the value of this series is that it very often is the first data series to turn. We can see this when we compare the above monthly data with single family permits (red):

While single family permits is almost all signal and little noise, single family home sales both peaked and troughed first in the post-pandemic world.

By the way, purchase mortgage applications also have trended basically sideways since last autumn’s peak in mortgage rates (via

Second, another of my long-time mantras is that prices (red in the graph below) follow sales (blue). Since prices are not seasonally adjusted, we have to compare YoY:

Sales peaked first and have made a trough. Prices peaked a year later, and as of this morning’s first estimate, made a new multi-year low, off -8.2% YoY.

Because the price data is also noisy, below I’ve compared it with the YoY% change in the FHFA purchase only index (blue):

Since the latter data is only through February, when it is updated next week we should expect a further YoY decline.

Of course, as indicated above, all of this is predicated on mortgage rates not making new highs. As of yesterday, mortgage rates were just below 7%, only about 0.20% below their October 2022 highs:

Should this renewed move higher in rates persist, we can expect a re-test of housing sales and construction lows a few months from now.

Monday, May 22, 2023

Labor has gained since the pandemic, but corporations have been sucking up the lion’s share of those gains


 - by New Deal democrat

I neglected to add a link to my Weekly Indicators piece at Seeking Alpha on Saturday, so here it is.

Also, I’ve been trying to understand why, with all of the long and short leading indicators lined up in almost classic formation, no recession has started yet. I discussed that in another piece at Seeking Alpha as well (basically, a big decline in gas prices can do wonders for consumers, and the still-tight labor market is keeping wages ahead of inflation (especially since consumer inflation is being bigly distorted upward by how house prices and apartment rents are calculated).

And on the score of average American wage-earners keeping ahead of inflation, I thought I’d make a few observations in light of the question of whether monopoly pricing is a big part of the continuation of higher inflation, pace Menzie Chinn at Econbrowser.

First of all, yes average working and middle class Americans have been keeping ahead of inflation, especially as measured since before the pandemic started, as this first graph below does for real average hourly earnings (blue), real aggregate payrolls (purple), and real personal income (gray):

Real average hourly earnings are up 1.9% compared with right before the pandemic, real aggregate payrolls are up 4.5%, and real personal income is up 4.0%. 

And as the below longer term graph shows, all three of these measures are at new highs compared with any time before the pandemic:

So, to reiterate: yes, average Americans have done significantly better financially since the pandemic started, thanks in very large part to the two rounds of stimulus in 2020 and 2021 that acted as bridges during the time that part of the economy (restaurants and entertainment venues) were largely shut down.

But now . . . Let’s put that in perspective of how well corporations have done since the pandemic.

The first below graph is the exact same graph as the first one above, but with the addition of corporate profits after taxes (red), also deflated using CPI for uniformity):

All of a sudden those consumer gains are reduced to squiggles, as corporate profits increased by over 80% compared with right before the pandemic at their highest, and are still over 50% higher.

And here is the longer term version of that graph as well:

There were (justified!) complaints about corporate profits hiving off almost all the economic gains going all the way back to the 1990s - which now look like molehills compared with recent mountains.

Another good way of looking at this is by way of labor’s share of productivity gains, normed to 100 as of the last Quarter just before the pandemic started:

Labor share did increase sharply, and is still ahead of where it was at the end of 2019 by 1.2%. Even as of the last measurement (Q1 2023), it is still ahead of any time during the last expansion of 2009-2019.

But measured over the longer term, labor share is still pitiful:

And even by 1990 labor’s share of productivity gains had been gradually going down ever since the end of WW2.

To put it simply: labor was gifted with massive stimulus in response to the pandemic in 2020 and 2021. And over time corporations with market power have been sucking up the lion’s share of those gains.