Saturday, June 8, 2024

Weekly Indicators for June 3 - 7 at Seeking Alpha


 - by New Deal democrat

My “Weekly Indicators” post is up at Seeking Alpha

The stock market was conflicted by yesterday’s jobs report, but the bond market’s verdict was unequivocal: ignore the unemployment rate; it was a strong report which will stay the Fed’s hand from raising rates. 

Meanwhile, coincident economic data in particular continues to look very expansionary. And the long leading indicator of corporate profits turned positive, as Q2 earnings are expected to be sharply higher.

As usual, clicking over and reading will bring you up to the virtual moment as to the state of the economy, and reward me a little bit for organizing it and presenting it to you.

Friday, June 7, 2024

Houston, we have a serious problem: the two job surveys show two completely opposed economies


 - by New Deal democrat

In the past few months, my focus has been on whether jobs gains are most consistent with a “soft landing,” i.e., no further deterioration, or whether deceleration is ongoing. In particular: 
  • Yesterday I wrote that “I will be most interested to see if declines in manufacturing and housing under construction translate into a stall or even downturn in goods-producing employment, which has held up surprisingly well in the past year.”  - This month they again increased, with no indication of any slowdown in trend.
  • Whether there is further deceleration in jobs gains compared with the last 6 month average, vs. a “soft landing” stabilization, and even whether the recent increase in monthly jobs numbers signifies a re-strengthening. - This was also answered plainly with no further deceleration at all. A look back shows average jobs gains holding basically steady, with the exception of last summer, for over 1 year.
  • Based on the leading relationship of initial and continuing jobless claims, whether the unemployment rate is neutral or decreasing; or whether there is further weakness. - This month’s increase completely contradicted both initial and continuing jobless claims, the unemployment rate increased again. 
  • Based on the leading relationship of the quits rate to average hourly earnings, whether YoY wage growth would stabilize, or decline further. - This month they increased from April’s 3 year low.

There is a common thread in the above answers: the three good results all came from the Establishment Survey, which as we’ll see below, was very strong. The one very poor result came from the Household Survey, which for the third time in four months was frankly recessionary.

Here’s my in depth synopsis.

  • 272,000 jobs added. Private sector jobs increased 229,000. Government jobs increased by 43,000. 
  • March was revised downward by -5,000, and April was revised downward by -10,000, for a net decline of -15,000. This continues the pattern from nearly every month in the past 18 months of a steady drumbeat of downward net revisions.
  • The alternate, and more volatile measure in the household report, showed an outright *decline* of -408,000 jobs. On a YoY basis, in this series only 376,000 jobs, or 0.2%, have been gained. This is not just the lowest YoY increase since the pandemic lockdowns, but with rare exception, it has always and only occurred during recessions.
  • The U3 unemployment rate rose 0.1% to 4.0%, a new 2+ year high. Not only did the number of people employed decline, per the above, but the number unemployed rose by 157,000.
  • The U6 underemployment rate was unchanged at 7.4%, 0.9% above its low of December 2022.
  • Further out on the spectrum, those who are not in the labor force but want a job now rose 80,000 to 5.717 million, vs. its post-pandemic low of 4.925 million in early 2023.

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 generally positive:
  • the average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, rose 0.2 hours to 40.8 hours, but is still down -0.7 hours from its February 2022 peak of 41.5 hours.
  • Manufacturing jobs rose 8,000.
  • Within that sector, motor vehicle manufacturing jobs rose 3,500. 
  • Truck driving declilned -5,400.
  • Construction jobs increased 21,000.
  • Residential construction jobs, which are even more leading, rose by 3,500 to another new post-pandemic high.
  • Goods producing jobs as a whole rose 25,000 to another new expansion high. These should decline before any recession occurs.
  • Temporary jobs, which have generally been declining late 2022, fell by another -14,100, and are down about -450,000 since their peak in March 2022. This appears to be not just cyclical, but a secular change in trend.
  • the number of people unemployed for 5 weeks or fewer rose 47,000 to 2,309,000.

Wages of non-managerial workers
  • Average Hourly Earnings for Production and Nonsupervisory Personnel increased $.14, or +0.5%, to $29.99, for a YoY gain of +4.2%. This breaks, at least for this month, the pattern that YoY growth in wages have been sliding since their post pandemic peak of 7.0% in March 2022.

Aggregate hours and wages: 
  • the index of aggregate hours worked for non-managerial workers rose 0.4%, and is up 1.6% YoY.
  •  the index of aggregate payrolls for non-managerial workers rose 0.9%, and is up 5.8% YoY. These had been decelerating since the end of the pandemic lockdowns, but have stabilized so far this year, and are close to their highest YoY pace since last September. With the latest YoY consumer inflation reading of 3.4%, this remains powerful evidence that average working families have continue to see gains in “real” spending money.

Other significant data:
  • Professional and business employment rose 33,000. These tend to be well-paying jobs. This series had generally been declining since last May, but in 4 of the last 5 months have resumed their increase.
  • The employment population ratio declined -0.1% to 60.1%, vs. 61.1% in February 2020.
  • The Labor Force Participation Rate declilned -0.2% to 62.5%, vs. 63.4% in February 2020.


This month’s report marked perhaps the strongest bifurcation yet between the Establishment and Household Surveys. Frequently they diverge, but this as if they were describing two diametrically opposed economies. 

The Establishment Survey was excellent. Not only were there top-line gains, but almost all of the leading sectors of employment - construction, manufacturing, goods production generally, and even the recent laggard of professional and business jobs - all rose significantly. Aggregate hours and payrolls also rose sharply. Wage growth improved. If anything, even beyond stabilization, there appears to have been some re-acceleration in job gains in recent months compared with late last year. Only temporary jobs - which appear to be undergoing a secular change - continued to decline.

But then we turn to the Household Survey. The number employed was down, the number of unemployed up, resulting in the highest unemployment rate in over 2 years (although it has not triggered the “Sahm rule”). The number of recent job-losers also increased to a 2+ year high, but for one month (February). Both the employment population ratio and the labor force participation rate declined further. In fact, in this report employment has only grown 1.8% since March 2022 (vs. 4.8% in the Establishment Survey), and has been in a slowly *declining* trend since last summer. 

At this point it is nearly certain that one of these two surveys is seriously in error. Normally that would be the Household Survey, which is much smaller and noisier. That at this point it is flatly contradicting the weekly jobless claims numbers - which are not surveys, but actual totals collected from all 50 States - also suggests that it is the Household Survey which is in error. But then we have the QCEW, which is also not a survey, but rather a census of almost all employers in the country, telling us that through Q3 of last year (its most recent report) the Establishment Survey was seriously overestimating job gains. And then we have withholding tax receipts - also not a survey, but an actual nationwide total - which over 8 months into this fiscal year are only 4.2% higher (and that’s nominal, before taking wage gains into account) than last year at the same time. 

Ultimately the data in the Establishment and Household Surveys are going to resolve. That is likely to occur when some fairly massive revisions in one or the other take place. It could be a big population revision in the Household Survey, or it could be that the QCEW is going to show more substantial weakness in Q4 of last year and/or Q1 of this year, which will then be incorporated into revisions in the Establishment Survey.

I wish I could tell you that I knew. But I am afraid that we are simply going to have to wait.

Thursday, June 6, 2024

Initial jobless claims now in a confirmed seasonal uptrend, but still positive for the economy


 - by New Deal democrat

My “quick and dirty” economic status indicator is the stock market (still making new all-time highs) and initial jobless claims, which are also still positive for the economy despite being in an apparent uptrend.

Last week initial claims rose 8,000 to 229,000, their second highest level in the past 9 months. The four week moving average declined -750 to 222,250, just below its own 9 month high of the week prior. With the usual one week delay, continuing claims rose 2,000 to 1.792 million, right about in the middle of their 10 month range:

Some of this, as I have speculated in the past month, may be some residual post pandemic seasonality that has not been worked out, given last year’s similar increase.

As per usual, the YoY change is what is most important for forecasting purposes. And there the news is considerably better, as initial claims were down -10.2%, and the four week moving average down -5.2%. Continuing claims were up 4.2%, which is a negative, but on the other hand, as noted above, these have been in a tight range for the past 10 months, so I do not believe they are much of an issue:

The bottom line is that the initial claims indicator remains positive for the economy as to the next few months.

Finally, as we await tomorrow’s jobs report, here is our last update as to the May Sahm rule indicator:

Because initial claims lead the Sahm rule by several months at least, the May upturn in initial claims does not put any upward pressure on the unemployment rate, and indeed the late winter and early spring downturn in claims should still be feeding through. Nor are continuing claims, which have a more slight lead, putting any upward pressure on the unemployment rate. In short, there is no support for the “Sahm rule” being triggered.

So tomorrow I am looking for no increase, and a possible decrease, in the unemployment rate. Per my discussion of the JOLTS report, I am looking for stabilitzation or no more than a slight deceleration in average hourly earnings gains. And I will be most interested to see if declines in manufacturing and housing under construction translate into a stall or even downturn in goods-producing employment, which has held up surprisingly well in the past year.

Wednesday, June 5, 2024

ISM weighted manufacturing + services indexes signal continued expansion


 - by New Deal democrat

I never used to pay much attention to the ISM non-manufacturing report. That is partly because it only has a 20 year history, and partly because it seems to be more coincident than leading:

But because manufacturing has faded so much as a share of the US economy, with at least two false recession signal in the past 10 years (2015-16 and 2022-23):

there is no choice but to pay more attention.

In particular, it does seem that when we include this as part of a weighted average (75%) along with the ISM manufacturing index (25%), it has generated a much more reliable, and still timely, reading over this Millennium (note: graph ends last summer):

On Monday, the ISM manufacturing index, and its more leading new orders component, came in poor. But the non-manufacturing index this morning completely outweighed that in its strength. Here are the last five months of both the manufacturing (left column) and non-manufacturing index (center) numbers, and their weighted average (right):

JAN 49.1. 53.4. 52.3
FEB 47.8  52.6. 51.4
MAR 50.3. 51.4. 51.1
APR 49.2  49.4.  49.3 
MAY 48.9. 53.8. 52.5

And here is the same data for the new orders components:

JAN 52.5. 55.0. 54.4
FEB 49.2  56.1. 54.4
MAR 51.4. 54.4. 53.6
APR 49.1. 52.2. 51.4
MAY 45.4. 54.1. 51.9

Only the weighted average for the total indexes for one month, April, comes in below 50. To generate a reliable signal, we would need the 3 month average to be below 50, which it clearly is not. The new orders weighted average for all months is unambiguously positive.

The signal for the combined weighted ISM indexes remains expansionary in its forecast for the next few months.

One more thing about the April JOLTS report: hiring and quitting remain very, very good


 - by New Deal democrat

I’ll write about today’s ISM non-manufacturing report later, but first I wanted to follow up with several more graphs based on yesterday’s JOLTS labor report for April. Basically, I didn’t want to leave the impression that the labor market was in any way sub-par based on those numbers.

With that in mind, below are two graphs. Both show the entire history of hires (red) and quits (gold) normed to 100 as of the yesterday’s report. Both show that, in raw numbers, only 2018-19 were stronger than even yesterday, let alone earlier in the post-pandemic recovery.

In this first graph I also show the civilian labor force (number of people employed + unemployed) (blue), also normed to 100 as of yesterday. Where the blue line is lower than the red and yellow lines, the *rate* of persons being hired or voluntarily quitting is higher now. Where the blue line is higher, the current rate of hiring and quitting is lower:

As you can see, the current pace of voluntary quits remains higher than at any time except 2018-19 and the tail end of the 1990’s tech boom (when the data series began). Hires are kind of “meh” - not bad, but not good either.

I’m not totally satisfied with that, because the strength of the jobs market also has an effect on people choosing to enter or leave it. So this second graph substitutes the prime age population, ages 25-54 (blue), again normed to 100 as of yesterday’s data:

As a share of the prime working age population, quits are as high as they ever were before the pandemic, and hiring was only better in 2000 and 2018-19.

In other words, this paints a picture of a labor market that has cooled from White Hot Boom levels to merely very, very good.

Tuesday, June 4, 2024

April JOLTS report: firming in hires, quits, and a (good) decline in layoffs, while fictitious job openings continue their slide


 - by New Deal democrat

The JOLTS report for April showed most metrics rebounding slightly from March lows, with the exception of the “soft data” job openings. The overall picture is that hiring is weak relative to the past five years, but so are layoffs, and voluntary quits are equally relatively strong, balancing them out.

To wit: job openings (blue in the graph below), a soft statistic that is polluted by imaginary, permanent, and trolling listings, declined -another 296,000, form a downwardly revised March, to yet another three year low of 8.059 million (vs. a pre-pandemic peak of 7.594 million). Actual hires (red) rose 23,000 from an upwardly revised March to 5.640 million (vs. a pre-pandemic peak of 6.0 million). Voluntary quits (gold) rose 98,000 from an upwardly revised March to 3.507 million. In the below graph, they are all normed to a level of 100 as of just before the pandemic:

As has been the case for the past nine months, hires are below the level they were at just in early 2020 just before the pandemic hit. Meanwhile, quits are essentially equal to their pre-pandemic level.

The above situation has been considerably helped by layoffs and discharges (blue in the graph below), which made a sixteen month low, and continue to run roughly 20% below the level they had been at *any* point before the pandemic:

As with last month, the more leading weekly initial jobless claims (red) suggest that layoffs and discharges will remain close to this range at least for several more months.

Finally, the quits rate was unchanged at 2.2% for the sixth month in a row, after an upward revision from March. Since, as I have noted for a number of months now, the quits rate (blue in the graph below, right scale) tends to lead average hourly earnings (red) [and here’s the long-term view]:

This suggests that the deceleration in wage growth will probably not decelerate much further in upcoming months, as shown in the below post-pandemic close-up:

My big concern over the past year has been if a further deceleration in wage growth were to coincide with an upturn in inflation, because that would likely cause a decline in real consumer income and spending. While there is no reason in today’s numbers to discount the longer term post-pandemic trend of deceleration, there was no further deceleration in April.

Monday, June 3, 2024

May new manufacturing orders slide, truck sales rise, construction spending close to unchanged


 - by New Deal democrat

As usual, the month starts out with important data on manufacturing and construction. The news was mixed this month, and weighted more to the downside in my opinion.

First, the ISM report on manufacturing declined again slightly to 48.7. This is the second month in a row that this index has been under the equipoise point of 50. More importantly, the more leading new orders subindex declined sharply to 45.4, the lowest reading since last May:

The silver lining here is that manufacturing is not nearly so important to the overall economy as it was in the 50 years after World War 2, so a negative reading like this - similar to what we had in 2022-23 - does not necessarily mean recession. But it does mean that the ISM services index, which will be released on Wednesday, and declilned below 50 for the first time last month, assumes extra importance. That’s because in the 20 years since the latter index has been in existence, when the weighted average of the two indexes has been below 50, that did mean recession.

Another leading sub sector in manufacturing is heavy truck production and sales. These were released for April at the end of last week, and there the news was good, as truck sales rebounded 13.5% in the month, and are only down -3.6% YoY:

Heavy truck sales lead light vehicle sales to the downside, but generally must be below peak by 20% to be consistent with a recession. Their three month moving average is about 13% off peak, which still indicates weakness, but no recession signal.

Turning to construction, total nominal spending declined -0.1% in April, but is higher 10.0% YoY. The more leading residential sector showed a 0.1% increase, and only a -0.1% YoY decline:

Since producer prices for construction materials declined -0.4% in April and are down -0.3% YoY, the “real” residential construction numbers are more positive:

Finally, the Inflation Reduction Act, which conferred favorable tax benefits for “restoring,” led to a sharp increase in manufacturing construction spending, which increased 0.9% for the month to another new record, up 17.3% YoY:

Again, altogether these paint a very mixed picture, but with new manufacturing orders declining significantly, and total and residential construction spending more or less flat for the past half year, I believe there is more weight to the downside.