Saturday, February 10, 2024

Weekly Indicators for February 5 - 9 at Seeking Alpha


 - by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

Most notable is that two of the long leading indicators - interest rates and corporate profits - have turned from very negative to at very least neutral, increasingly suggesting better economic news ahead.

As usual, clicking over and reading will bring you up to the virtual moment as to the economy, and reward me a little bit for my efforts.

Friday, February 9, 2024

And now for something completely different: portents of DOOOM


 - by New Deal democrat

The lion’s share of the employment news recently has been very good. But not all of it. In particular, several of the annual revisions to the Household jobs Survey, and several other measures of employment and unemployment have been downright gloomy.

Since I haven’t discussed them at any length, I thought I would collect them all here.

First, there’s been a marked divergence between the Establishment jobs survey (red in the graph below) and the smaller, noisier Household survey (blue) ever since March of 2022. In the latter, about half of all the growth in jobholding was recorded in the two months of December 2022 and January 2023. For the entire 21 month period, jobholding has only increased by 1.9%, far below the payroll employment pace:

Some of this has to do with the annual revision, which is entirely included in the January number each year, rather than revising each of the past 12 months. For example, without the population revision, the month over month gain between December and January this year would have been +239,000 rather than -31,000.

But that issue disappears when we measure YoY% changes, and in the Household survey, jobholding is only up 0.6% YoY in January. The below graph subtracts that to show January at the 0 level, to easily compare earlier times when the YoY growth has been the same:

With the exception of single months during 1996 and 2013, YoY jobholding growth has never been this slow since the 1950s without occurring shortly before or after a recession.

My suspicion is that the current downward spike will prove to be like the two above, but there is other, similar information that gives me pause.

Both the Establishment and Household survey numbers are estimates based on sampling. By contrast, the QCEW survey, which is released quarterly with a 6 month lag, is not a survey but rather the actual number of jobs gained or lost based on employer tax withholding, which must be reported to the government, and includes about 97% of all establishments. The most recent update, for Q2 2023, was reported in early December. Here it is, shown in comparison to both the Estabslishment and *adjusted* Household job numbers (via Menzie Chinn at Econbrowser):

Like the Household survey, the QCEW showed a nearly complete pause in job growth in 2022 after Q1, although it increased more strongly in the first half of 2023. We won’t get the Q3 update until the end of this month, but for Q2 of last year it was up 2.2% YoY vs. the Establishment jobs gain which averaged 2.5%.

And further reason to worry that the Household survey may have been giving a better but more pessimistic reading on jobs growth comes from withholding tax payments. Again, these are not surveys but rather the total amount of income tax withheld for all employees nationwide. 

Matt Trivisonno of the Daily Jobs Update has been updating the YoY changes for the full 365 days compared with the previous 365 days the year before, updated every workday. Here’s what his long term graph (minus the last 90 days) shows:

In October and early November of last year, tax withholding payments for the previous 365 days were only averaging about 0.75% more than they were for the 365 day period ending in early November 2022. With the exception of the year following the 2018 tax law changes, and the 2002-03 near “double-dip” recession, since the beginning of the Millennium this has only occurred during recessions.

Similarly, the State of California’s Treasury Department updates its withholding tax payment information once or twice a month. At the end of January, they showed that December’s payrments were only 1% higher than in 2022, and January’s were -1% *lower:*

And the Department of the Treasury updates their income statement daily. While I can’t show you a graph, their Statement for January 31 of this year shows $1,122.1 Billion withholding tax payments collected since the beginning of the fiscal year on October 1 vs. $1,112.6 Billion collected over the same 4 month period the year before, an increase of only 0.9%.

While there may be other issues going on, e.g., a decline in the aggregate $ amount of stock options exercised, or the effect of a 7% increase in tax brackets due to inflation, this 0.9% is a paltry gain, even if we were to treat it as indexed to inflation rather than nominal.

In addition to the above issues with employment gains, there are several components of un- and under-employment which are contrary to the dominant narrative.

Every Thursday recently I have been pointing out that continuing employment claims (dark blue in the graph below) are running at a higher YoY% rate (presently about 11% higher YoY) vs. the better YoY comparisons in initial claims (light blue), the 4 week average of which is only about 5% higher (note - graph ends at 2019 to avoid the huge spike during the pandemic; both series subtract their current YoY comparison so that it shows at the 0 line):

Contra the story with initial claims, continuing claims have only been 10% or more higher YoY in the past 60 years when a recession is beginning.

A similar story is told when we compare the U6 underemployment rate (dark blue below) to the U3 unemployment rate (light blue). While the latter is at the same level it was a year ago, the U6 rate is 0.5% higher (again, graph subtracts this to show both current levels at the 0 line for easier historical comparison):

With the exception of the 2002-03 near “double-dip” recession scare, the U6 rate has only had this increase since its inception 30 years ago at the onset of recessions.

To reiterate: all of the above data runs counter to most of the jobs-related data I track, in addition to the very positive income, spending, and much improved real sales data that dominate the economy. But all of them - especially the tax withholding and QCEW data - are worth keeping an eye on, to see if they continue to suggest that the economy is weaker than the most popular survey series have been showing.

Thursday, February 8, 2024

Initial jobless claims confirmatory of continued expansion


 - by New Deal democrat

Initial claims continue at their very low level, declining -9,000 to 218,000 last week.  The four week moving average rose 3,750 to 212,250. With the usual one week lag, continuing claims declined -23,000 to 1.871 million:

For forecasting purposes the YoY% change is more important. YoY weekly claims are down -0.9%, the 4 week moving average up 4.4%, and continuing claims up 10.8%:

Both weekly and the four week average of claims are well within the range of forecasting continued expansion. While continuing claims are elevated, and in the past few months sparked some speculation that they signified recession, and taken by themselves, they would, initial claims always precede them. Instead, continuing claims - as usual - have followed initial claims, and are nar their lowest YoY gains in the past year.

The last full month of initial claims, for January, continues to suggest that if anything, the unemployment rate will decline in coming months:

The first week of February data is confirmatory. The Sahm rule is not going to be triggered in the near future.

Wednesday, February 7, 2024

Scenes from the January jobs report: revisions changed the picture in the Establishment Survey


 - by New Deal democrat

Last Friday’s jobs report contained a number of annual revisions which change what the trend line for the last year looks like. Particularly the extent to which there has been continued deceleration, or even a downturn, in a number of significant statistics in the Establishment Survey.

In the below graphs, the original numbers are in blue, the revised numbers in red.

First, in December the YoY% change in jobs created had trended down to +1.7%. With revisions, that increased to 2.0%, and in January it was 1.9%. In the past 6 months, to the extent there has been further deceleration, it has only been from July’s 2.1%:

A similar increase happened to average hourly earnings for nonsupervisory workers. In December the YoY% change was reported as 4.3%. With revisions, it became 4.6%. January saw an increase to 4.8%, almost equal to the YoY% change last August:

A particular weak spot in job creation has been in the higher paying sector of professional and business employment. This had shown an outright decline ever since last spring. There were downward revisions for the earlier months of 2023, and a renewed uptrend in the last two months instead:

While YoY job creation in this sector is still a relatively meager 0.9% (not shown), it is not so poor as the 0.5% which in the past had only happened during recessions.

The revisions weren’t all positive. Aggregate hours of nonsupervisory workers was revised downward for the past 20 months:

Aggregate hours as revised are no better now than they were last August.

But the combination of higher hourly pay and fewer hours meant there was no effect on aggregate payrolls for nonsupervisory workers:

Since this last measure - aggregate payrolls - adjusted for inflation has not changed, the most important coincident indicator of expansion vs. recession remains quite positive.

Tuesday, February 6, 2024

The Senior Loan Officer Survey makes an important turn


  - by New Deal democrat

The Senior Loan Officer jSurvey is a long leading indicator, telling us about credit conditions that typically turn worse a year or more before the economy turns down, and improve just at the economy is ready to turn up.

The one downside is that the information is only reported Quarterly, and with a one a one month lag. Which is a way of saying that data for Q4 of last year was only reported yesterday.

And yesterday’s report was pretty important. Because, for the first time in several years, it was almost entirely positive.

There are two series that have a long enough record to give us a lot of information. The first is whether banks are tightening or loosening standards. Since tightening is shown as an increase, this is one of those series where higher means worse. In Q4, more banks tightened than loosened standards, the percentage of banks so doing decreased sharpl:

This is what happens coming out a reecssions.

The second series, demand for commercial and industrial loans, is almost as positive (and confusingly, in this one higher does mean better. Two of of three measures also showed improvement:

Again, demand has decreased, but not nearly as sharply as before, and this is typically what has happened coming out of recessions.

It has been a long time since the long leading indicators have turned up. But led by interest rates, it appears that has begun to happen.

Monday, February 5, 2024

Travelin’ Man


 - by New Deal democrat

I’m on the road today, so no post. Fortunately, the data is light, so no big deal.

I’ll be back tomorrow, discussing some important revisions in the latest payrolls report. This week I’ll also comment on the updated long leading indicators, including from the recent GDP release as well as the Senior Loan Officer Survey.