Weekly Indicators for December 2 - 6 at Seeking Alpha

 

 - by New Deal democrat

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

This week whipsawed the data that was heavily influenced by Thanksgiving week. 

The tone of the short leading and coincident data remains positive. The negativity of much of the long leading data is becoming more problematic.

As usual, clicking over and reading will bring you up to the virtual moment as to the state of the economy, and reward me with a penny or two towards lunch for calculating and organizing it for you.

November jobs report: the expected monthly rebound masks deeper declining trends

 

 - by New Deal democrat



To understand this month’s jobs report, let’s start with last month’s, where I wrote that “there were some signs of real weakness in this report that do not appear to be hurricane-related. But Hurricane Milton, as well as the strike, had an impact, so take this report with a gigantic helping of salt.”

So everyone, including me, expected a big rebound this month, and we got one. As I’ll get into below, though, it is especially important to average the two months together to get a better idea of the trend.

Below is my in depth synopsis.

HEADLINES:

• 227,000 jobs added. Private sector jobs increased 194,000. Government jobs increased by 33,000. the two month average was an increase of +131,500.
• The pattern of downward revisions to the last months reversed this month.. September was revised upward by +32,000, and October by +24,000, for a net increase of +56,000.
• The alternate, and more volatile measure in the household report, showed a decrease of -355,000 jobs. On a YoY basis, this series has *declined* by -725,000 jobs, which remains consistent with recession, as it has for months. This is the second time in three months this measure has shown a YoY decline.
• The U3 unemployment rate rose 0.1% to 4.2%. Since the three month average is 4.167% vs. a low of 3.7% for the three month average in the past 12 months, or an increase of over 0.4%, this means the “Sahm rule” is back in effect.
• The U6 underemployment rate also rose 0.1% to 7.8%, 1.4% above its low of December 2022.
• Further out on the spectrum, those who are not in the labor force but want a job now declined -180,000 to 5.486 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. This month they were again mixed, but tilted towards negative:

• the average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, rose 0.1 hour to 40.7 hours. This remains down -0.8 hours from its February 2022 peak of 41.5 hours, but on the other hand is only -0.1 hour below its 18 month high.

• Manufacturing jobs rose 22,000. But this only reversed half of the -44,000 strike-related decline last month, so the two month average is negative.
• Within that sector, motor vehicle manufacturing jobs declined -400. The two month average is -3,200. 
• Truck driving increased 2,900. The two month average is +950.
• Construction jobs increased another 10,000. The two month average is +9,000.
• Residential construction jobs, which are even more leading, rose by 1,400 to another new post-pandemic high.
• Goods producing jobs as a whole rose 34,000, but because they declined -42,000 last month, the two month average is -4,000. This is especially important, because these typically decline before any recession occurs. As I wrote last month, “in the absence of special factors this would be a serious red flag for oncoming recession.” Thus the net two month decline is worth at least a yellow flag.

• Temporary jobs, which have generally been declining since late 2022, rose by 16,000, although the two month average is -850. These are down over -550,000 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 97,000 to 2,209,000. The two month average is an increase of +32,500.

Wages of non-managerial workers

• Average Hourly Earnings for Production and Nonsupervisory Personnel increased $.09, or +0.3%, to $30.57, for a YoY gain of +3.9%. Their post pandemic peak of 7.0% in March 2022. This is equal to their recent low in July. Nevertheless, and importantly, this continues to be significantly higher than the 2.6% YoY inflation rate as of last month.

Aggregate hours and wages: 

• The index of aggregate hours worked for non-managerial workers rose 0.1%, vs. last month’s revised unchanged level. This measure remains up 1.4% YoY, which is higher than its trend for the past 12+ months.

• The index of aggregate payrolls for non-managerial workers was rose 0.4%, and is up 5.3% YoY. This increase may be just noise, but at least for this month it reverses the slow deceleration since the end of the pandemic lockdowns. With the latest YoY consumer inflation reading of 2.6%, this remains powerful evidence that average working families have continued to see gains in “real” spending money.

Other significant data:

• Professional and business employment rose 26,000, but the two month average is a decline of -10,500. These tend to be well-paying jobs. Although the YoY comparison therefore improved this month, they are only higher YoY by 0.4% - a very low increase that has *only* happened in the past 80+ years immediately before, during, or after recessions. 
• The employment population ratio declined another -0.2% to 59.8%, after a -0.2% decline last month, vs. 61.1% in February 2020.
• The Labor Force Participation Rate declined another -0.1% to 62.5%, after a -0.1% decline last month, vs. 63.4% in February 2020. The prime 25-54 age  participation rate declined -0.3% to 83.5%, vs. 84.0% in July, which was the highest rate during the entire history of this series except for the late 1990s tech boom.

SUMMARY

On a month over month basis, this report was very positive, as with the exception of the labor force participation rate and the employment population ratio, everything rebounded - as expected.

That’s why looking at the average of the past two months is so important. And there, the news isn’t so good at all. In addition to upticks in the unemployment and underemployment rates, not only did manufacturing, motor vehicle production, professional and business jobs, and temporary help jobs decline further, but for the first time, so did goods-producing jobs as a whole. For the last four months, there has been less than a 0.1% gain, and only a 0.2% gain for the last eight months. Even since the accession of China to regular trading status, such meager gains have signaled at least weakness if not outright recession.

There certainly were bright spots, as construction, including residential construction jobs, continued to plow ahead. The downturn in trucking jobs reversed. Those who want a job now but have not applied for one also decreased. And aggregate hours worked and aggregate payrolls for nonsupervisory workers both increased. This suggests that consumer spending will continue a net positive in the next few months.

Last month I closed with “I would take 60% of this month’s decline as temporary, but 40% real.” This month’s report is confirmatory of that hypothesis, with the two month average gain being 131,500, and the three month average 173,000. In other words, the trend of deceleration in the jobs market is continuing without abatement. If this trend continues for another 12-15 months, it will be negative - in other words, signaling a recession.

Jobless claims: neutral - with an extra grain of salt

 

 - by New Deal democrat

As I cautioned last weekend in my “Weekly Indicators” update, we have entered that period of the year where Holiday seasonality means take everything with at least a little grain of salt. For example, this year Thanksgiving was almost one full week later than lat year.

With that caveat, initial jobless claims for Thanksgiving week this year increased 9,000 to 224,000. The four week moving average increased 750 to 218,250. Continuing claims, with the typical one week lag, declined -25,000 to 1.871 million:

As per usual, the YoY% changes are more important for forecasting purposes. So measured, initial claims were up 3.7%, the four week average up 0.3%, and continuing claims up 2.9%:

On the face of it, these comparisons are a little weak, since they are all higher YoY, but not nearly enough to warrant any special concern. Still, take even that statement with a little extra caution because of seasonality.

Looking at tomorrow’s unemployment rate for November, the suggestion is that absent the impact of immigration unemployment should be in the area of flat to 5% (as a percent of a percent, left scale) higher than one year ago. Since, per the gray line (right scale) which shows the actual unemployment rate, one year ago was 3.7% in November, that means trending towards an unemployment rate of 3.7%-4.0%:

This is all neutral - with a grain of extra salt.

ISM non-manufacturing shows that services continue to power the economy forward. Are they inflationary?

 

 - by New Deal democrat

Because services are roughly 3/4’s of the economy, I now pay a lot of attention to the economically weighted average of the ISM manufacturing and services indexes. Since the accession of China to normal trading status with the US, a downturn in manufacturing alone has simply not been enough to forecast recession - which has again been true in the past two years.

This morning the ISM non-manufacturing (i.e., services) index again came in positive, at 52.1, while the more leading new orders subindex came in at 53.7. Their three month weighted averages are 54.3 and 56.8, respectively.

Since the three month average for the manufacturing index is 47.4, and for the new orders component 47.9, that means the economically weighted three month averages are 52.6 for the total indexes, and 54.6 for the new orders components.

This means that the economy is nowhere near a recession for the next few months, as services continue to power it forward.

An interesting question is whether the strength in services, which as you can see above includes continued strong pricing pressure, translates into continued elevation in the non-shelter services portion of the CPI and PCE indexes. I haven’t done a comparison, but it very much looks like a significant correlation to calculate going forward.

JOLTS report for October: continuing trend of deceleration has begun to pose a problem

 

 - by New Deal democrat

The JOLTS survey parses the jobs market on a monthly basis more thoroughly than the headline employment numbers in the jobs report. It also is a slight leading indicators for both initial jobless claims and unemployment; and for forecasting wage growth as well. 

Like many other statistics concerning jobs, the JOLTS series have been deceleration for several years. The question now is whether they level off or continue to decelerate towards outright declines in net job creation. 

In October, the data was mixed. The soft statistic of job openings as well as the hard data of quits and also layoffs and discharges were positive, while actual hires declined. The below graph norms the series above (expect for quits) to 100 as of just before the pandemic:

Both actual hires, as well as quits, turned weaker than their pre-pandemic levels a little more or less than one year ago respectively. Openings remain higher but continue their decelerating trend as well.

Showing the same data as YoY% changes tells us that there has been no significant change in the decelerating trend:

In other words, there is no evidence that these metrics have begun to level off.

To show the longer historical trend, I have normed each of these series by the prime age population level, and also normed to zero as of their current readings, below:

None of these are actually negative, but hires in particular are mediocre compared to their performance since the turn of the Millennium, while quits remain at pretty robust rates. Job openings have softened but are confounded by their long term inflating trend that mainly shows changes in how businesses handle purported vacancies.

The best news in October was that after rising sharply due to hurricanes in September, layoffs and discharges retreated back into their range for the previous year. This is of a piece with the decline in initial jobless claims during November back to their previous range as well:

This may translate into a decline in the unemployment rate in Friday’s report for November as well.

Finally, the quits rate (blue in the graph below) has a record of being a leading indicator for YoY wage gains (red):

The quits rate stabilized earlier this year, before resuming its decline from June through September. This month, as you can see, the rate jumped again, but is likely just noise:

Despite the positive news on the quits rate this month, the likelihood is that on a YoY basis wage gains will continue to decelerate as well. If inflation stabilizes or picks up again, this could create a problem next year. The same could be said for the overall picture of the JOLTS data: no problem now, but if the trend continues, possibly a big problem by later next year.

ISM manufacturing remains weak, while construction spending continues to power along

 

 - by New Deal democrat

As usual, the month’s data begins with the ISM manufacturing index, and with a one month delay, construction spending.

Because manufacturing is of diminishing importance to the economy, and was in deep contraction both in 2015-16 and again in 2022 without any recession occurring, I now use an economically weighted three month average of the manufacturing and non-manufacturing indexes, with a 25% and 75% weighting, respectively, for forecasting purposes. As a refresher, any number below 50 means contraction.

In November both the total index and the more leading new orders subindex improved. The former rose 1.9 to 48.4, while the latter rose 3.3 into expansion at 50.4.

Including November, here are the last six months of both the headline (left column) and new orders (right) numbers:

JUN 48.5. 49.3

JUL. 46.8. 47.4

AUG 47.2. 44.6

SEP 47.2. 46.1

OCT 46.5. 47.1

NOV  48.4. 50.4

Here is what they look like graphically:

The three month average for the manufacturing index is 47.4, and for the new orders component 47.9. For the past two months, the average for the non-manufacturing headline has been 55.5 and the new orders component has been 58.4. These are very strong positive numbers. For the weighted ISM infexes to signal recession, the services component would have to swan dive to about 40 in both readings. Since that isn’t going to happen, we can safely conclude that the ISM indexes forecast continued expansion for the next few months.

Construction spending for October also came in generally positive. On a nominal basis, total construction spending rose 0.4% to a new record, and residential spending rose 1.5%, down -0.8% since May 2024. Only manufacturing construction bucked the trend, declining -0.1%, and is now down -0.9% from its June 2024 peak.  Since the onset of the pandemic, total nominal construction spending is up 45.1%, residential up 53.7%, and manufacturing up 200.6% - this last due to incentivized re-shoring spending under the Inflation Reduction Act:

Since housing is such an important leading component of the economy, here is residential construction spending as above compared with the PPI for construction materials:

The prices of construction materials have been generally slowly declining for the past two years, meaning that real inflation-adjusted residential construction spending has risen to its highest level since January 2021, including a 0.4% increase in today’s reading:

The bottom line is that, while manufacturing remains weak, the economy continues to be powered along by (somewhat surprising) continued strength in construction, as well as the services sector.

Weekly Indicators for November 26 - 30 at Seeking Alpha

 

 - by New Deal democrat

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

Thanksgiving came in the 4th week of November this year vs. the third week last year, which means seasonality played havoc with a lot of the YoY weekly comparisons this past week (and will do in this coming week as well.

But the overall story remains the same: generally positive short term and coincident conditions, with very mixed long term background measurements.

As usual, clicking over and reading will bring you up to the virtual moment as to the economic data, and reward me a little bit for sorting it all out for you.