Unwelcome news for homebuyers and the CPI, as repeat home sales prices continue re-acceleration in December

 

 - by New Deal democrat

There was unwelcome news in this morning’s repeat home sales reports from the FHFA and Case-Shiller. On a seasonally adjusted basis, in the three month average through December, according to the Case-Shiller national index (light blue in the graphs below) prices rose 0.5%, and the somewhat more leading FHFA purchase only index (dark blue) rose 0.4%. Both of these continue the trend of re-acceleration we have seen in house prices in the second half of 2024 [Note: FRED hasn’t updated the FHFA data yet]:

Both indexes also accelerated on a YoY basis, the Case Shiller index by 0.1% to a 3.9% gain, and the FHFA index by +0.5% to a 4.7% YoY increase:

Because house prices lead the measure of shelter inflation in the CPI, specifically Owners Equivalent Rent by 12-18 months, here is the updated calculation of its trend. Despite the increases in the house price indexes in the past several months, there is still every reason to believe that OER should continue to trend gradually towards roughly a 3.5% YoY increase in the months ahead:

The most leading rental index, the Fed’s experimental all new rental index, has not been updated since November, but the similar Apartment List National Rent Report as of the end of January continued to indicate that YoY rent increases should decline further. So the bulk of the evidence continues to point further deceleration in that huge component of consumer price inflation:

Because prices generally follow sales, as a refresher here is the graph of existing home sales. As I wrote earlier this week, for the past 2 years these have remained in a relatively tight range (following mortgage rates):

The takeaway from the increased price pressure in the existing home market as measured by the FHFA and Case Shiller Indexes is that the trend of slowly abating shelter inflation in the CPI may slow even further, although it seems likely to slow down.

Q3 2024 QCEW suggests employment was considerably weaker than we thought last year

 

 - by New Deal democrat

This will be income, spending, and housing week, but that won’t start until tomorrow. While there’s no news today, there was an important update to employment data last week; namely, the QCEW for Q3 of last year.

As a refresher, the Quarterly Census of Employment and Wages is just that, a *census* rather than a survey. It includes something like 95% of all businesses, and is taken from their tax reporting. This means it is not an estimate or guess, but very close to a full itemized count. The drawback being, of course, that it doesn’t get reported until almost 6 months later.

Since at least June of 2023, the QCEW has been telling us that the monthly jobs report has been over counting employment. The recent benchmark revisions downwardly revised 2023 and 2024 employment by about -600,000.

And the Q3 2024 QCEW tells us it will probably have to be revised down further.

Since the QCEW is not seasonally adjusted, the only way to measure is YoY. Also, unfortunately FRED does not pick up the data for easy putting in graphic form. But here is the crucial chart:

To cut to the chase, in the first five months of last year, employment grew either 1.3% or 1.4% YoY. That suddenly downshifted in June, and remained anemic through September, with YoY growth of 0.8% to 1.0%.

Now leet’s compare that with a graph of the YoY% growth in nonfarm payrolls:

With the recent benchmark revisions, the YoY growth rate in jobs for the first five months of last year is now estimated at 1.4%-1.6%, only slightly higher than the QCEW. But in the JUne through September period, it is 1.2% or 1.3%, significantly higher than the QCEW.

According to the crrrent nonfarm payrolls numbers, the economy added almost 2 million jobs during the 12 months from September 2023 through September 2024. If we bring that down to a 0.9% gain (the average of the June through September YoY gains as measured by the QCEW, that brings us down to a 1.4 million job gain, a difference of -600,000, primarily centered on the last four months of that period.

Now here is a graph of the monthly gains in jobs during that same 12 month period:

The current estimate of job gains in the June through September 2024 period is 486,000, including three very anemic months. If we apply the YoY downshifting of the QCEW during those months, all of those gains disappear.

At the same time, it’s important to note that all of the QCEW numbers for 2024 are preliminary at this point. In 2023 there was a similar cratering of the QCEW, strongly suggesting actual job losses - that subsequently disappeared when the QCEW for that year was finalized.

Finally, let me emphasize that the above does not mean there was a recession last year. Almost all of the other important indicators showed continued growth through the period. And the QCEW also reports wage growth, and there it showed continued aggregate wage growth of 4.4% and 4.5% in Q2 and Q3 of last year, very much in line with aggregate nonsupervisory payrolls from the monthly reports:

Still, it’s another cautionary signal that the economy last year (which also means the economy going into the November elections) probably was not as strong as was thought at the time.

Weekly Indicators for February 17 - 21 at Seeking Alpha

 

 - by New Deal democrat

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

For now the status quo continues, of problematic interest rates, but excellent short term and coincident data. Political events affecting the economy may start to show up in the next few weeks, however. The first tiny inkling may have been the 9.5% YoY increase in weekly initial claims.

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

Existing home sales: trends of increasing prices, invcreasing inventory, and flat sales all continue

 

 - by New Deal democrat

Existing home sales have been flat in the general range of 3.85 -4.10 million annualized for two years, and that continued in January, as on a monthly basis sales decreased -4.9% to 40.8 million from an upwardly revised December number of 4.29 million annualized:

The slightly better numbers in the past few months are of a piece with the slight uptrend in housing permits and starts we saw earlier this week, likely driven by recent lower mortgage rates (which have now ended).

Earlier in 2024 we saw a deceleration in the YoY% change in prices, but that reversed in autumn, as after a 4.0% YoY increase in October, the pace re-accelerated and in December prices were up 6.0%. In January that moderated to up 4.8% YoY, but considering that January is typically the low for annual prices, as shown in the below graph which shows the non-seasonally adjusted data, there is no sign of any real moderation in that trend:

Finally, there has been a decade-long trend of lower inventory than in the past. That trend accelerated during the COVID shutdowns. After briefly turning negative YoY in early 2023, making a low of -3.0% YoY that May, inventory has gradually turned higher. Typically December and January are the annual lows in inventory. In January inventory increased to 1.18 million from December’s low of 1.15 million.  This is the highest inventory for January since 2020 (note: graph below is not updated through January)::

This contrasts with the low of 860,000 in January 2022, vs. the best January level in the past 10 years of 1.86 million in 2015.

As was the case last month, in summary on a non-seasonally adjusted basis sales, prices, and inventory were all up from one year ago, meaning that the market is continuing to slowly recover from the pandemic collapse. The continuing issue is whether enough supply will come back onto the market to allow competition to attenuate YoY price growth that has made existing homes relative to new homes relatively speaking the least affordable ever.

Jobless claims: possibly the final “steady as she goes” report

 

 - by New Deal democrat

Let’s take our weekly look at jobless claims. These are a short leading labor market indicator. Also, it is likely that the firings in the federal labor force will shortly be reflected in this data.

This week initial claims rose 5,000 to 219,000, while the four week average declined -1,000 to 215,250. With the typical one week delay, continuing claims rose 24,000 to 1.869 million:

As usual, the YoY% changes are more important for forecasting purposes. So measured, initial claims were up 9.5%, the four week average up 1.4%, and continuing claims up 4.6%:

These are neutral readings, suggesting a slowly growing economy.

Finally, let’s look at what these suggest about the unemployment rate in the next several months. On a biweekly basis, both initial claims and the composite initial + continuing claims are higher by about 4%. Since the three month average of the unemployment rate one year ago was 3.8%, that suggests an unemployment rate trending to 4.0%:

Here is the absolute version of the same, using the initial + continuing composite:

This is another example of “steady as she goes.” But I suspect that the story might start to change significantly for the worse as early as next week, especially since the outlier low initial claims reading from January 25 will drop out of the four week average.

Housing construction declines further into recessionary territory

 

 - by New Deal democrat

As promised, economic data resumed this morning, and with it my extended posts.

First, the usual point that housing is a very important and leading sector of the economy, typically turning down more than a year before a recession begins. And with higher mortgage rates as well as surging prices, housing has indeed turned down.

This morning the Census Bureau reported that housing permits, the most leading of these metrics, rose 1,000 annualized, while starts, which are noisier and typically lag permits by a month or two, declined -149,000 back into their general 2024 range (although their three month average, which smooths out some of the noise, rose to a 12 month high):

The trend is slightly higher compared with this past summer, but within a limited range over the past two years.

But as I always point out as well, the *real* economic measure of housing is total construction. That had levitated for almost two years after permits peaked before turning down last year. And they declined more this month, down -20,000, or -17.8% percent from their peak (gold, right scale):

Housing construction is now down well into the range where in the past a recession was more likely than not to occur in the near future.

But as I wrote about last week, before a recession begins the even more lagging measure of housing construction employment almost always turns down as well. And as I wrote last week, that measure is *still* levitating, with job growth continuing right up through the latest employment report:

Finally, turning to the metric that leads even permits, here is a look at mortgage rates averaged monthly (blue, left scale) compared with single family permits (red, right scale), which are the least noisy most leading measure of all, and which were unchanged at their 10 month high):

With mortgage rates back hovering around 7%, I expect more of the same from housing permits and starts: very little room to improve in the next few months, and more likely to stagnate or turn back down slightly.

If housing construction is a drag on the economy, and manufacturing is no more than treading water, that makes services all the more important. And I read yesterday that one way to really put a damper on employment and spending is to lay off 100,000’s of federal workers, putting fear into the decisions of not only the workers not laid off, but all of the people likely to be caught up in the ripple effects thereof.

Data drought continues

 

 - by New Deal democrat

There is no new significant economic data today, and I am on the road. Meaningful reporting should resume tomorrow with housing permits, starts, and construction.

In the meantime, here is a look at a high frequency series I keep track of: Redbook retail sales, for the past year:

There are some peaks and valleys, generally around Holidays like Thanksgiving, Christmas, and the like, but the average over four weeks has stayed fairly steady at +5% YoY, which is about normal during expansions.

Since consumer inflation, especially ex-housing prices, has remained in the 2%-3% range, this means there has been a fairly steady increase in consumer spending that has continued over the past year.

In other words, “steady as she goes.” And since the consumer economy is about 70% of the whole economy, that has pretty much been the story for the entire economy.

Weekly Indicators for February 10 -14 at Seeking Alpha

 

 - by New Deal democrat

There’s no significant economic news today. Since I didn’t publish a link to my “Weekly Indicators” post up at Seeking Alpha over the weekend, here it is now.

Left to its own devices, as I’ve written a number of times recently, the economy is in “steady as she goes” mode, with few significant moves in any of the indicators, with the short term forecast and the nowcast both continuing to look good.

Of course, it’s the “left to its own devices” which is, shall we say, chancy at the moment. But in the meantime, clicking over and reading will bring you up to the virtual moment as to the state of the economy, and reward me with some lunch money as well.

January retail sales: once or so a year, it lays an egg. This was one

 

 - by New Deal democrat

It’s that time of month again for my favorite indicator for the consumption side of the economy: retail sales have been tracked for over 75 years. When they are lower YoY, that has historically been a good (not perfect) indicator that a recession is near. That’s because that same 75 year history empirically demonstrates that consumption leads jobs. In other words, it is the change in sales that causes employers to add or lay off employees (not the other way around, as I have sometimes seen claimed).

They are somewhat noisy, especially around the Holiday season, and they do get significantly revised, both of which were apparent in January’s report. In nominal terms, retail sales declined a sharp -0.9%, but December was revised higher by +0.3%. Since CPI tagged a strong 0.5% in January, that means real retail sales declined -1.3% for the month. Because I had the genius thought several months ago that because shelter prices (i.e., house prices and rent) were distorting CPI, maybe they were distorting the signal from real retail sales as well. So they are included below in light blue as well. Note the graph is normed to 100 as of just before the 2021 pandemic stimulus:

When we take out shelter, real retail sales show a solid uptrend since July 2022 (when gas prices were $5/gallon). Note that the December/January numbers have shown the sharpest m/m changes for each of the last three years. I am thus inclined to treat this month’s big decline as unresolved seasonal noise unless there is confirmation next month.

The best recession vs. expansion signal is the YoY% change in sales, which - pretty much until the pandemic - almost always forecast an imminent recession when it turned negative. Again, when we take out the distortions caused by shelter, the false recession signal almost completely goes away:

Even with January’s downturn, the forecast is for continued expansion.

Finally, because consumption leads employment, per the above paradigm, here is the update on that:

With the downward benchmark revisions in employment numbers for the past year, the two series are coming much closer to being in sync. While the forecast remains for positive employment reports, the suggestion from real retail sales is that there is likely to be continued deceleration in the YoY comparisons. In early 2024, the average monthly gain in employment averaged 180,000, so per this model I am expecting the next few months of job gains to average less than that.

Jobless claims: more of “steady as she goes”

 

 - by New Deal democrat

Now that we are well past the Holidays, seasonality has settled down and so have the comparisons for jobless claims.

Initial claims declined -7,000 to 213,000 last week, and the four week average declined -1,000 to 216,000. With the usual one week delay, continued claims declined -36,000 to 1.850 million:

On the more important YoY basis for forecasting purposes, initial claims were higher by a mere 0.9%, and for the first time in five months the four week average was *lower,* by -0.7%. Continuing claims were higher by 2.6%, about their average for the past year:

It’s too early in the month to talk about what this might mean for next month’s jobs report, but initial claims, along with the YoY% change in the S&P 500, constitute my “quick and dirty” forecasting model. Basically, if claims are higher YoY, and the stock market is lower, the economy is almost always in trouble. Here’s the update:

With jobless claims essentially unchanged from one year ago, and the stock market higher by about 20%, the verdict is: more of “steady as she goes.”

January CPI: a new paradigm, with the reappearance of some old suspects

 

 - by New Deal democrat

Needless to say, January’s increase of 0.5% in consumer prices was not welcome. And there was a changing of the guard somewhat, as several of the old suspects (food and energy) made new appearances.

Some of the spike probably has to do with unresolved seasonality. A lot of producers increase their prices at the beginning of each year, which shows up in the graph below of CPI since mid year 2022:

The highest bar on the graph is January 2023. January 2024 is only lower than February of last year. And this month’s change was the highest since then. So a lot of what we need to look for are changes in the YoY%, which is how almost all of the graphs below are presented.

The increased contribution of the old suspects is apparent in the graph below of core (red) vs. total inflation:

Core inflation has been holding nearly steady for a full year, with changes between 2.9% and 3.2% (3.1% this month). It is inflation in food and energy that has driven the change in total inflation. And although I won’t show specific graphs, food inflation has a lot to do with the price of eggs (bird flu resulting in the detruction of lots of chickens) and the deflation in gas prices halting at roughly $3/gallon.

On the plus side, inflation in medical care services was looking like a concern, but that has at least leveled off:

And what about shelter? Well, for the 20th month in a row YoY inflation ex-shelter came in at less than 2.5%, although it did hit an eight month high at 2.2%:

Both rent of primary residence and owners equivalent rent continued their slow descent, hitting their lowest YoY levels in almost three years, at 4.2% and 4.6% respectively:

Although it did not decline this month, the downtrend in transportation services inflation (motor vehicle insurance and repairs, in blue) also appears to be intact:

And the deflation in used car prices has definitely ended, although new car prices are flat:

To sum up: while the very gradual deflation in shelter and to a lesser extent in transportation services is helpful, the definitive end in the deflation of gas and used car prices, plus the spike in food prices due mainly to bird flu has re-ignited consumer prices. 

Finally, here’s an update of one of my favorite measures of average American well-being: real aggregate payrolls for nonsupervisory workers:

This declined in January, and is no better than it was in September. On a YoY basis, consumers still have over 2% more than they had to spend a year ago:

And a mult-month stall like this is not uncommon. But needless to say, if it continues several more months it will begin to flash an important recession watch signal.

An examination of the levitation in residential building employment

 

 - by New Deal democrat

While we are waiting for new economic data tomorrow, let me pick up on an issue I closed with yesterday: while manufacturing has turned down, goods production in the US economy is being held up by construction, and in particular residential construction. Given the severe hike in mortgage rates as well as house prices, I described it as “levitation.” So today let’s look at that levitation.

As per usual, I always start out with the fact that mortgage rates lead sales. The below graph includes mortgage rates (blue, left scale) compared with housing permits (red, right scale) and the even more leading, but very noisy new single family home sales (gray, right scale). The latter two are normed to their peak at 100:

And as mortgage rates increased from 3% to 7%, sales and permits declined about 20%, +/-5%. This is a serious decline, which has often but not always meant a recession has followed.

For completeness’ sake, here is real private residential fixed spending from the GDP reports compared with single family permits, which have been the least noisy leading housing metric of all. Again, both are normed to 100 as of their peaks, and permits are averaged quarterly for better comparison:

Note that real housing spending in the GDP has declined about 15%.

Next, the noisier housing starts (light orange) follow permits by a month or two. And housing units under construction (which vary by starts minus completions), a which are the “real” aggregate economic activity, follow with a significant delay, in this case by almost 1 year. Note again all three are normed to 100 as of the month of their peaks:

The first act of levitation after the pandemic was how units under construction stayed almost perfectly flat for about 18 months after they approached their peak. Historically this was a very long delay.

But at long last housing units under construction turned down, and did so with a vengeance, now down over 15%, which in the past has been consistent with a recession, although not always. Which leads us to the second act of levitation, which is the number of employees involved in housing construction (gold, right scale):

Employment in residential construction has continued to increase, despite the downturn in every other housing sector metric!

When might we expect this last shoe to drop? Here’s the longer term historical look:

In the case of the 2000s housing bubble, construction employment turned down with only a very slight delay. The 2001 recession was partly a tech bubble, partly the China manufacturing employment shock, and partly the September 11 terrorist attacks, so housing construction did not turn down meaningfully. Residential construction employment peaked 15 months after housing construction turned flat.

Perhaps the closest analogue is the 1980s construction boom. Here is a close-up on that era:

In the 1980s, residential construction employment increased for 22 months after actual construction turned down. 

Where does that leave us now? We are currently over two years after the actual peak in construction, and roughly 18 months since it turned down significantly. As the above historical graph shows, the last three organic recessions (i.e., not including the pandemic) started once residential construction employment was down 10% (and the trends in other sectors typically leading recessions also were in place).

I have been looking for residential construciton employment to turn down for at least half of year. My best guess is that it will finally turn down at some point in the next six months, if the remaining economic pieces (especially mortgage rates!) remain in place. Once they do turn down, they may follow a similarly sharp decline as construction already has, which would suggest a recession 12-18 months later on average. Please note this last sentence is *not* a forecast, only an average. There are many other moving parts to consider.

The Big Convergence: scenes from the January employment report

 

 - by New Deal democrat

There’s no new significant news until Wednesday, so let’s catch up graphically with a few important items from Friday’s employment report for January.

As I wrote then, probably the most important developments weren’t in the monthly numbers, but rather the annual revisions to both the Establishment and Household Surveys. 

For background, recall that the monthly report is a survey. But once every quarter, with unfortunately about a six month lag, an actual census of almost 100% of all employers is published, based on their tax reporting. This is called the QCEW. And through Q2 of last year, it indicated that the Establishment Survey had been too optimistic by over half a million jobs. That was resolved on Friday with a downward revision of 610,000 jobs over the past 12+ months.

On the other hand, all last year I was writing that the Household Survey was “frankly recessionary,” showing almost no growth YoY. But it appeared via ata from the Congressional Budget Office, that the survey had missed millions immigrants in the years since tha pandemic. That too was largely resolved on Friday, with the addition of over 2,200,000 to the number of people employed.

The downward revisions in the Employment Survey, and the upward revision in the Household Survey, completely resolved the discrepancy between the two:

There were a few other trends of note, all from the Establishment Survey.

I’ve noted in the past several months how goods-producing employment has stalled. The are two separate and contradictory trends playing out here. The first is that manufacturing employment has fallen by about -140,000 in the past two years. Up until the 1980s, this would absolutely be recessionary. But no more, as manufacturing employment is too small a share of the total. And in the past two years, it has been completely balanced by growth of over 370,000 in construction jobs:

What has been particularly surprising is the continued growth in residential construction jobs, despite the downturn in virtually every other metric in that sector:

If the goods producing sector as a whole has turned flat, that means that on net all the growth is coming from service providing jobs. But not all such jobs. In particular, as I have been highlighting for over a year, professional and business employment, which tends to be higher paying jobs, has seen a decline of roughly -250,000 jobs in the past 18 months. But the remainder of the services sector has added almost 4,000,000 jobs:

A fair amount of that growth has come from the provision of health care, which has seen employment grow at a steady 3% YoY clip:

The net effect of all these cross currents - at the moment - is slow but steady employment growth. I continue to focus particularly on the construction sector, where I just do not see residential construction employment continuing to levitate when the number of houses under construction is down over -15% from its recent peak.

Weekly Indicators for February 3 - 7 at Seeking Alpha

 - by New Deal democrat

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

Mainly more of the same ; the majority of short leading and coincident indicators are positive, while the long leading background is ever so slowly improving.

As usual, clicking over and reading will reward you with knowing the state of the economy up to the virtual moment, and reward me by paying for my next pizza. 

January jobs report: annual revisions clear up some big discrepancies, but monthly numbers are close to pre-recessionary

 

 - by New Deal democrat

My theme for the past several years as to employment has been “deceleration,” as in a gradual cooldown from white hot to red hot to hot to warm. But at some point past “warm,” we get to lukewarm, and then cool, and then chilly. In other words, if it continues at some point “deceleration” transitions into “deterioration.” A “soft landing” would require that the deceleration end, and the numbers stabilize. That’s what I was watching out for last year, as well as this month. And this month, the trend of deceleration continued.

The biggest news this month was anticipated. Based on the weak QCEW results, a big downward revision in the benchmark numbers was expected, and happened, as -610,000 total jobs were subtracted from last year’s employment numbers. Eight of the twelve months were revised lower. To the extent there was good news, it was that none of the monthly jobs numbers turned negative.

Meanwhile almost 3,000,000 persons were added to the population numbers in the household survey, which was also expected due to the huge influx of immigrants that were reported by the CBO, but had not been reflected in the survey.

Below is my in depth synopsis.

HEADLINES:

• 143,000 jobs added. Private sector jobs increased 111,000. Government jobs increased by 32,000. The three month average was an increase of +237,000.
• The pattern of downward revisions to previous months was broken this month. November was revised upward by 49,000, and December was revised upward  by 51,000, for a net increase of 100,000.
• The alternate, and more volatile measure in the household report, showed an increase of 234,000 jobs excluding the revised population controls. On a YoY basis, this series increased 2,705,000 jobs, or an average of 224,000 monthly.
• The U3 unemployment rate fell -0.1% to 4.0%. With the population revisions, it would be a -0.2% monthly decline. Since the three month average is 4.1% vs. a low of 3.733% for the three month average in the past 12 months, or an increase of less than 0.4%, this means the “Sahm rule” has been taken off the table for now. 
• The U6 underemployment rate was unchanged at 7.5%, 1.1% 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 -26,000 to 5.479 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 mixed:

• the average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, declined -0.3 hours to 40.6 hours, This remains down -0.9 hours from its February 2022 peak of 41.5 hours, but is an average reading over the past 12 months.

• Manufacturing jobs increased 3,000. Nevertheless this series is firmly in decline, as the three month average is close to the lowest since mid year 2022.
• Within that sector, motor vehicle manufacturing jobs declined -9,700.
• Truck driving increased 3,800.
• Construction jobs increased another 4,000.
• Residential construction jobs, which are even more leading, rose by 1,900 to another new post-pandemic high.
• Goods producing jobs as a whole were unchanged, and are now -24,000 below their September peak. This is especially important, because these typically decline before any recession occurs. On a YoY% basis, these jobs are only up 0.26%. Only during the 1985-86 slowdown and for 3 months during the 1990s and 2000s have manufacturing jobs had this anemic a YoY increase without a recession occurring. To reiterate what I wrote three months ago, “in the absence of special factors this would be a serious red flag for oncoming recession.”

• Temporary jobs, which have generally been declining since late 2022, declined by -12,400, after two consecutive increases.  These have been declining, by over -550,000 since their peak in March 2022. But this month is still above their October 2024 low, so this may still suggest that the bottom in this metric is in. 
• the number of people unemployed for 5 weeks or fewer rose 134,000 to 2,400,000. This is neverthess in the middle of its range for the past 12 months.

Wages of non-managerial workers

• Average Hourly Earnings for Production and Nonsupervisory Personnel increased $.16, or +0.5%, to $30.84, for a YoY gain of +4.2%, the highest in three months, but in contrast to their post pandemic peak of 7.0% in March 2022. Importantly, this continues to be well above the 2.9% YoY inflation rate as of last month.

Aggregate hours and wages: 

• The index of aggregate hours worked for non-managerial workers declined -0.6%, which just takes back its big December increase. This measure is up 1.2% YoY, its highest such comparison since last March. 

• The index of aggregate payrolls for non-managerial workers was unchanged, but is up 5.4% YoY, also its best YoY comparison since last March. This had slowness a pattern or slow deceleration since the end of the pandemic lockdowns, and last month was the lowest since early 2021. But with the benchmark revisions that has disappeared. Now this series shows stability YoY for the past 15 months. So long as inflation does not spike, this is good news, since it means that average households will continue to have more money to spend in real terms.

Other significant data:

• Professional and business employment declined -11,000, taking back December’s gain. These tend to be well-paying jobs. After the benchmark revisions, this series now shows to have been negative for the entire past year of a YoY basis, and is now -0.3% YoY, which in the past 80+ years has almost *always* meant recession. 
• The employment population ratio was unchanged at 60.1%, vs. 61.1% in February 2020.
• The Labor Force Participation Rate increased 0.1% to 62.6%, vs. 63.4% in February 2020.

SUMMARY

As I said in my opening comments, the big news this month was actually in the annual revisions rather than the monthly changes. Close to 3 million people were added to the Household Survey, while -610,000 jobs were subtracted from the Establishment Survey. Both of these were expected. The two surveys had wildly diverged since the beginning of 2022, with strong growth shown in the Establishment Survey, but almost no growth in the Household Survey. With this month’s revisions, about half of that divergence has gone away.

On a monthly basis, there were a few pockets of strength, mainly in wages and total payrolls. Labor is still able to command relatively good wage increases. Additionally, the unemployment rate declined -0.1% not counting the annual revisions, and is in concordance with what has been forecast by initial an continuing jobless claims. 

What was not good at all on a monthly basis was actual employment. The manufacturing workweek declined sharply, and goods employment as a whole has plateaued. As noted above, this has almost always presaged a recession. Gains in manufacturing and construction were anemic. Temporary help positions resumed their decline. Basically job strength is now concentrated in a few areas of construction, and in non-professional services.

This report was not quite pre-recessionary, but it was close.

ONE FINAL IMPORTANT NOTE: This may be the last “clean” employment report we get. The DOGE goons have been interfering at the BLS for the last several days, and a number of data series have already disappeared. We know from COIVD that this Administration believes that if bad news isn’t reported, it didn’t happen. Many economists and forecasters are on the lookout for telltale signs that the data gathering is being compromised.