Saturday, February 24, 2024

Weekly Indicators for February 19 - 23 at Seeking Alpha


 - by New Deal democrat

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

For an economy that seems to be crushing along, there sure are a lot of mixed signals. Some indicators, like the stock market, are soaring. Others, like temporary hiring, are at recessionary levels.

As usual, clicking over and reading will bring you up to the virtual moment as to the state of the economy, and will reward me just a little bit for my efforts in organizing and collating the data for you.

Friday, February 23, 2024

The “gold standard” of employment reports suggests that last summer’s job growth was even weaker than we thought


 - by New Deal democrat

While the monthly jobs report gets all the headlines, the “gold standard” for actual employment gains and losses is the Quarterly Census of Employment and Wages (QCEW), which as its name indicates, unlike the payrolls report is not a survey but rather an actual census of about 97% of all employers, via their withholding tax reports. The downside of the QCEW is that it is reported with a serious lag (4 or more months after the end of a quarter), and it also can be revised up until a year later. Once that happens, the nonfarm payrolls data from the previous year is also revised to be in accord.

Additionally, unlike the monthly jobs report, the QCEW is not seasonally adjusted. The Philadelphia Fed does estimate those season adjustments several weeks later, which is helpful.

All of which is by way of introduction to the fact that the QCEW for Q3 of last year was reported on Wednesday, and it suggests that job growth was weaker than officially reported.

Let’s start with the comparison data. Below are both the Establishment surveyand Household survey’s employment data YoY beginning January 2022 through the end of Q3 last year:

As remarked from time to time, while the Establishment survey is larger and less noisy, the Household survey numbers have been lower compared with the Establishment survey’s ever since March 2022.  As of June 2023, the Establishment survey showed a 2.1% YoY gain vs. a 1.8% gain in the Household survey. By September, that had decelerated to 2.0% and 1.7%, respectively.

Unfortunately, the QCEW does not come with adequate graphing data, and FRED doesn’t supply it either, so the below table will have to do:

With the annual revisions, the payrolls report reflects the YoY% changes in the QCEW quite well through June of last year. But with Q3, a significant downward divergence has opened up. 

This is primarily due to a much bigger than usual decline in July. To show you this, here are the non-seasonally adjusted comparison monthly numbers for the first nine months of 2023 for nonfarm payrolls (left) vs. the QCEW (right)(all number in thousands):

JAN. -2,523   -2,302
FEB.   1,129.     789
MAR.   436.     516
APR.    948.     834
MAY.    931.    1,116
JUN.    710.     828
JUL.    -861.   -2,122
AUG.    374.     795
SEP.    490.     791

TOTAL  2,634.   1,247

During the first six months of the year, the differences in the two measures largely netted out. The huge difference is in July, which was only partially made up in the next two months.

Let me reiterate that this is non-seasonally adjusted data. The seasonally adjusted payroll numbers for July through September (in thousands) were 184, 210, and 246, respectively.

But since the QCEW shows a net loss of -535,000 jobs in Q3 vs. the unadjusted nonfarm payrolls number, it’s at least possible that after the revisions are finalized, at least one of those three months is going to show an actual loss of jobs on a seasonally adjusted basis. 

Two final caveats: First, similar declines in Q3 jobs in the QCEW numbers were reported in 2017 through 2019, which also showed up in the unadjusted payrolls report (red), but the seasonally adjusted figures (blue) showed gains:

Secondly, we had a similar episode of a big decline in the Q2 2022 QCEW report, which resulted in an estimate of seasonally adjusted job losses by the Philadelphia Fed, but which were subsequently revised away in the next Quarter’s QCEW update.

But as you may recall, I have been increasingly concerned by the relatively poor performance of YoY tax withholding, which throughout 2023 decelerated from sharply higher levels to nominally negative by the end of December. Since tax withholding dollar amounts are affected by inflation as well as wages and hours worked, they don’t measure exactly the same thing as the QCEW, so caution is certainly in order. Nevertheless, on a preliminary basis, there is reason to believe that employment was even weaker last summer than the tepid monthly payroll gains have suggested.

Thursday, February 22, 2024

The bottoming process in existing home sales continues, as YoY price comparisons increase


 - by New Deal democrat

The bifurcation of the housing market between new and existing home components continues, as existing home sales continue near their bottom, but with a little improvement.

Specifically, in January sales increased 120,000 on an annualized basis from an upwardly revised (by 80,000) 3.88 million to 4.00 million. This is the seventh month in a row that the annualized rate has varied between 3.85 million and 4.11 million:

Because of the low inventory, the non-seasonally adjusted median price for an existing home increased to up 5.1% YoY, the highest YoY comparison since 2022:

The YoY improvement is consistent with what we have recently seen in the FHFA and Case Shiller repeat sales house price indexes:

It is also consistent with the slight improvement (to “less negative”) in the YoY comparisons in new apartment leases, as reported in the National Rent Index earlier this week:

The monthly non-seasonally adjustment in rentals better shows the bottoming process there:

Because of the all-time high in new apartment and condo completions, there has been more downward pressure on rents than on single family houses. The present situation remains that very few people are interested in trading in 3% mortgages for 7% mortgages, so existing home sales are somewhat frozen, while developers can adjust the footprint, amenities, mortgage rebates, and prices in new houses to generate more demand. 

The good news on jobless claims continues


 - by New Deal democrat

The good news on jobless claims continued this week, as initial claims declined -12,000 to 201,000. The four week moving average also declined, by -3,500 to 215,250. Continuing claims, with the usual one week delay, declined -27,000 to 1.862 million:

Needless to say, this also helped the YoY comparisons, which are more important for forecasting purposes. Initial claims are down -7.4%, the four week average is up a mere 1.1%, and continuing claims are up 8.6%. In the case of the last, that is the lowest YoY comparison since last March:

Recall that continuing claims, considered by itself, triggered some recession comparisons a few months ago. But that was not supported by initial claims, so was a false signal. For initial claims to even trigger a “watch,” let alone a recession warning, they need to be up over 10%, and remain so for over a month.

Finally, here’s the update on the monthly average of initial claims leading the unemployment rate, and thus also leading the Sahm rule for recessions:

The unemployment rate is like to decline in the next few months, or at worst remain steady. Any increase that would trigger the Sahm rule is off the table for now.

Wednesday, February 21, 2024

Perceptions of inflation vs. wage growth: why the divergence?


 - by New Deal democrat

My recent travels included visits to cousins and their children on both sides of my family. Without any prompting from me, inevitably the table talk turned to the state of the economy.

Rather than Bigfoot the opinions of my relatives, I decided to sit back and listen until they were all done before I weighed in.

The most important thing I learned by far is that inflation remains the #1 topic across the board. Nobody seemed to think that incomes were keeping up. There was skepticism even after I pointed to the relative better performance of average hourly wages in the past three years vs. inflation, and even after comparing their best guesses for things like eggs with the actual data.

Although we’ve seen improvement recently across measures of consumer confidence, I suspect there are two reasons for the persistence in the beliefs that inflation has made people in general worse off.

The first goes back to a principle of psychology: to be more effective, reinforcement has to be more frequent and more recent. When it comes to prices and incomes, prices of things like gas and groceries are encountered almost every day. Thus there is constant reinforcement of that data. But paychecks (and social security payments for retired people) are typically only received biweekly or even monthly, and they typically don’t increase except for once a year. Thus the reinforcement of the price data is far more powerful than the reinforcement of income data. There’s also the fact that “job switchers” have received much bigger pay increases than “job stayers.” For people in stable careers - who are much more likely to be job stayers - it’s entirely likely that a large minority at least have not received pay increases that have equaled inflation over the past three years.

The second issue is that real median household income might not have followed the positive trajectory of real hourly wages. The former have averaged being up 1.4% YoY for the past half a year, which historically is very good improvement (note: graph subtracts -1.4% from values to show current average at the zero line for easier comparison):

But here is the comparison of the annual changes in real average hourly wages (blue) with real median household income (red):

Through 2022, hourly wages (annually) and median income were both significantly below their pre-pandemic levels. Partly this is due to the fact that, even with better wages, the number of jobs still had not recovered to their pre-pandemic level until the middle of 2022. It is only when we measure more currently - only available in the wage series until this coming September- that we see an increase.

In my opinion, the very delayed, and only annual update, in real median household income  is one of the biggest shortfalls in the official government data. As shown above, real median household income for 2022 was only reported five months ago, and we’re already in 2024! 

Over the years there have been several private economic firms who have used data from the monthly Household survey to provide estimates of monthly changes in real household income. For example, Ironman at the Political Calculations blog has done this for more than 15 years. Here’s his most recent update:

But while annual real median household income, as measured officially, rose over 14% between 2007 and 2019, Ironman’s calculations only show an increase of less than 5% for the same period.

Recently, he has begun linking to another estimate by Motio Research, which appears to track the official government series far more closely, but is also updated monthly. Here’s their data through January 2024:

Note that until the middle of last year, real median household income had fallen back to 2019 levels. It is only in the past 6 months that it has risen sharply again, better than all levels except for those months during the pandemic where income included government stimulus payments.

If real median household income’s recent gains remain intact, or even improve further, I would expect the popular impressions of the relative impacts of wages and incomes vs. inflation to improve in the coming months as well.

Tuesday, February 20, 2024

Weekly Indicators for February 12 - 16 at Seeking Alpha


 - by New Deal democrat

I am back from my travels, so it’s time to catch up. There’s no significant economic news until tomorrow, but in the meantime I neglected to link to my weekly high frequency indicator wrap-up, which was posted at Seeking Alpha.

As usual, if you haven’t already done so, clicking over and reading will bring you up to the virtual minute on the economic data and forecast, and reward me a little bit for my efforts.