Regional Fed services indexes suggest future expansion, but weak employment in the face of strong inflationary pressures

 - by New Deal democrat 

Although the federal government shutdown has been over for a month and a half, most of the data that has been released has lagged badly, especially including data on sales, spending, and business orders. That means that the most current measures of these are the ISM manufacturing and non-manufacturing reports, due Friday of this week and Monday next week; and the regional Fed banks’ manufacturing and services indexes.

While certainly not perfect, in the aggregate they at least sketch on outline of where the economy has been going in the past month. On Monday I looked at the goods producing sector. Now that the Texas Fed has reported, here is the Services sector.

As with the manufacturing chart, month over month changes are in parentheses, showing momentum (the 2nd derivative), with the absolute diffusion values for November following. The final number is the average change and absolute number for all 5 together. The chart includes, in order, NY, Philadelphia, Richmond, Kansas City, and Texas:

Regional Fed:     NY.           PHL.           RVA.       KC.      TX.       Avg

Headline:  (+1.7) -20.0; (-0.5) -16.8; (+4) -11; (+10) 3; (-1) -2.3; (+2.8) -9.6     

Cap Ex   (+0.2) -6.9; (+10.6) 10.6; (-6) -9; (+14) 9; (+3.6) 23.6; (+3.5) 5.5

Prices Paid  (+10.2) 72.1; (+5.6) 40.3; (+1.3) 6.1; (+2) 34; (-1.4) 26.2; (+3.3) 35.7

Prices Rec’d (+10.4) 30.5; (-3.0) 19.0; (+0.1) 3.2; (-4) 10; (+1.4) 7.9; (+0.9) 14.1  

Wages (-1.7) 23.7; (-3.2) 46.1; (+5) 17; (-11) 13; (-3.9) 10.8; (-3.0) 22.1 

Employment (-1.2) -7.4; (+7.1) 9.6; (+4) 5; (+10) -6; (-3.9) -0.8; (+3.2) 0.0

The only clear positive trend is strong CapEx growth, implying building capacity for increased demand in the future. Wages also continued to show broad growth, although they may be growing too fast for the underlying business conditions. By contrast, headline business conditions continued to indicate contraction, although less than in November, and employment was dead in the water. Meanwhile both prices paid and prices received continued to show broad increases, the former more than the latter. This suggests sustained services inflation will continue, and even perhaps amplify in the months ahead. 

On Monday I summarized the manufacturing situation thusly: “The December regional Fed reports suggest that while new orders have continued to be positive, the increasing trend has abated, with overall actual contraction of production. Prices paid by manufacturers continue to increase, but at a slower pace, while the prices they receive have firmed. Meanwhile employment is barely positive, but wage growth continues.”

When we examine both the manufacturing and services sector in full as reported by the regional Feds in December, giving much more weight to services as per their share of the economy, we see promising signs of future expansion,  but stalling present production and employment, in the face of continued inflationary prices both at the commodity and final demand levels. Whether wage growth can continue to match this is very much at issue, as wage growth tends to follow employment growth (or lack thereof). If the trends continue, strong inflation and weakening wage growth are a recipe for a consumer led recession.

Positive trend in jobless claims continues through year end

 

 - by New Deal democrat

[Note: Yesterday was a travel day, and I didn’t get around to posting the regional Fed services survey averages for December. I’ll try to get to that later today.]

The last weekly jobless report continues the trend of an improved picture - as in, very few people are getting laid off - that has typified the second half of this year.

Initial jobless claims declined -16,000 to 199,000, the second best reading all year, and one of the very best in the entire last 50 years. The four week moving average increased 1,750 to 218,750, still close to the lowest readings this year. With the typical one week delay, continuing claims declined -47,000 to 1.866 million, among the best readings in the past six months. Here’s a link to the last four years of data:

 https://fred.stlouisfed.org/graph/?g=1PAGT 

The above view shows how post-pandemic seasonality has not been expunged from the seasonal adjustments. Claims have risen in the first half of the year, peaked in early summer, and then declined towards the end of the year. Such has been the case this year as well, although the trend has been more muted. Additionally, note that this was for Christmas week, which like Thanksgiving week is notoriously hard to seasonally adjust, so take this big weekly decline with extra caution. The four week average, while very good, is likely giving a truer picture.

As per usual, the YoY% changes are more important to my forecast. There, initial claims were lower by -4.8%, and the four week average down -1.6%. Continuing claims remained higher, by 2.1%:

 https://fred.stlouisfed.org/graph/?g=1PAHw 

Since mid-year, more weeks than not initial claims have been lower YoY, while continuing claims have been higher, but even that increase has faded since the beginning of November. Needless to say, this suggests the economy will continue to expand over the next several months.

Although I won’t bother with the graph this week, since jobless claims typically lead the unemployment rate, and one year ago the unemployment rate was 4.1%-4.2%, the improvement in claims over the last six weeks suggests that the unemployment rate is likely to decrease from its November high of 4.5%.

Regional Fed manufacturing indexes suggest 2025 trends are slowly abating

 

 - by New Deal democrat

Although the federal government shutdown has been over for a month and a half, most of the data that has been released has lagged badly, especially including data on sales, spending, and business orders. That means that the most current measures of these are the ISM manufacturing and non-manufacturing reports, due later this week and next week; and the regional Fed banks’ manufacturing and services indexes.

While certainly not perfect, in the aggregate they at least sketch on outline of where the economy has been going in the past month. With the last regional manufacturing index reported this morning, here is the December update for that sector.

The below chart includes, in order, NY, Philadelphia, Richmond, Kansas City, and Texas. Month over month changes are in parentheses, with the absolute values for December following. The final number is the average change and absolute number for all 5 together.

Regional Fed:     NY.           PHL.           RVA.       KC.    TX.    Avg

Headline:     (-22.6) -3.9; (-8.5) -10.2; (+8) -7; (-7) 1; (-0.5) -10.9; (-7.5) -5.2          

New Orders (-15.9) 0.0; (+13.6) 5.0; (+14) -8; (+2) 0; ( -11.2) -6.4; (+0.5) 1.9 

Prices Paid  (-11.4) 37.6; (-13.5) 43.6 (-0.3) 6.5; (+4) 40; (+0.7 ) 36.0; (-4.1) 31.5 

Prices Rec’d (-4.2) 19.8; (+6.7) 24.3; (+1.9) 5.0; (+9) 22; (-2.6) 6.2; (+2.1) 15.5

Wages* (n/a) n/a; (n/a) n/a; (0) 24; (n/a) n/a; (+6.4) 21.8); (+3.2) 23.0

Employment  (+0.7) 7.3; (+6.9) 12.9; (+6) -1; (-15) -4; (-3.3) -1.1; (-0.9) 2.8

____

* only 2 of the banks report this information

Last week durable goods and core capital goods orders were updated through October, showing a -2.2% decline and a 0.5% gain, respectively. On a YoY basis, the trend of increasing strength has continued, at +4.8% and +6.2% respectively:

 https://fred.stlouisfed.org/graph/?g=1Pvmw 

The December regional Fed reports suggest that while new orders have continued to be positive, the increasing trend has abated, with overall actual contraction of production. Prices paid by manufacturers continue to increase, but at a slower pace, while the prices they receive have firmed. Meanwhile employment is barely positive, but wage growth continues. 

Tomorrow the Texas Fed will report on that region’s service sector, and that (larger) portion of the economy for December can be examined as well.

Weekly Indicators for December 22 - 26 at Seeking Alpha

 

 - by New Deal democrat

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

The year ended with a magnification of several trends that have been a theme all year: the US $ is down almost 10%, largely responsible for a nearly 15% rise in commodity prices, while consumer spending ended with a bang as well.

As usual, clicking over and reading will bring you up to the virtual moment as to all these trends, and reward me with a penny or two for my efforts.

How the “wealth effect” fueled Q3 GDP

 

 - by New Deal democrat

In Q3, personal spending rose 1.6%, or 6.4% annualized, while personal incomes only rose 0.8%, or 3.3% annualized. A little more precisely, personal spending rose 0.75% more than personal incomes.

Just how much more did spending rise than the income to fuel it compared on a historical basis?

In the past 80 years (or 280 quarters), spending only exceeded income by 0.75% or more only 29 times. In other words, in only 10% or all quarters has spending exceeded income so much:

 https://fred.stlouisfed.org/graph/?g=1Pavh 

Needless to say, this is not sustainable. This is particularly so when real disposable personal income did not grow at all last quarter, and real personal income excluding government transfer payments has not increased at all in the past two quarters:

 https://fred.stlouisfed.org/graph/?g=1Pays 

As I have written a number of times in the past few months, this is probably spending driven by the “wealth effect” which in turn is driven by stock market gains. 

Unless you think we are headed for AI-driven nirvana, this is not going to last.

The low pace of firings continues to Christmas

 

 - by New Deal democrat

Our last bit of news before Christmas continued the positive news, as initial jobless claims declined back to 214,000, while the four week average also declined to 216,750. The last three weeks collectively have had the lowest seasonally adjusted numbers since January. Meanwhile, continuing claims rose back above 1.9 million to 1.923 million.

As is usual, for forecasting purposes the YoY% changes are more important. Here, initial claims were -2.3% lower than one year ago, the four week average down -4.2%, and continuing claims higher by 2.2%:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1P7pl&height=490 

Although per the recent QCEW update through Q2 as well as the recent nonfarm payrolls reports show that on net almost no hiring is happening, jobless claims tell us there is very little firing as well. This is a positive report.

Strong Q3 GDP, but long leading components are mixed; first preliminary positive signs for production in October

 

 - by New Deal democrat

Because today is a travel day for me, I am going to keep my comments about the much-delayed Q3 GDP report brief.

As was obvious, a 4.3% annualized real GDP print is very good, as was the real final sales to domestic purchasers number. One of the comments I made repeatedly at the time, as the summer regional Fed reports came in, as well as the weekly consumer retail spending numbers, was that they were surprisingly good - probably reflecting a rebound from the weak spring numbers immediately after “Lbieration Day” tariffs. Basically I think the excellent GDP numbers reflect that.

As usual, my focus is on the more forward looking components of the GDP release: real private residential fixed investment (housing) and corporate profits.

The story in housing continued to be negative, as real private residential fixed investment declined -1.3% in the Quarter:

  https://fred.stlouisfed.org/graph/fredgraph.png?g=1P5Bk&height=490 

 

This means housing is down -15.3% from its 2021 peak, and -3.5% from its secondary peak in early 2024. And keep in mind that the best forecasting model is to deflate this metric by real GDP - and since there was strong improvement in real GDP in Q3, the relative decline is even worse.

The story on the second long leading indicator, corporate profits, was completely different, as they grew by a strong 4.2% after accounting for inventories to another new all-time record:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1P5Bo&height=490 

The bottom line: if the rear view mirror, coincident reading of Q3 GDP was very positive, the measures which forecast where the economy is headed in 2026 were mixed.

Keep in mind, though, this is a report covering July through September, i.e., 3 to 5 months ago. In other words, more stale data. We still have very little data from the period of the government shutdown months of October and November. On that score, manufacturers new durable goods orders for October were reported this morning. The headline number increased 0.5%, but the core capital goods number declined -2.2%:

 https://fred.stlouisfed.org/graph/?g=1P5Ae 

The YoY trend for both remains in strong expansion, up 4.8% and 6.2% respectively:

  https://fred.stlouisfed.org/graph/?g=1P5Aw 

I have been very concerned that the government shutdown may have tipped the economy into recession. The jobs numbers have certainly been recessionary. But the weekly consumer spending data has, contrarily, been very healthy. This morning’s two reports make it all but certain that there was no recession in Q3, and are the first -preliminary - positive indications that at least in the first month of the shutdown, the economy continued to make progress.

Two important employment indicators from November: one says continued expansion, the second recession

 

  - by New Deal democrat

This is going to be a sparse week for data, with the exception of tomorrow’s long-delayed Q3 GDP report, and jobless claims on Wednesday. Sadly, so much of the data is still missing or stale that the best source for up-to-date information is in the regional Fed reports, most of which will be updated by this Friday (so stay tuned for that). And don’t be surprised if I play hooky for a day or two.

That being said, one important - and positive - data point can be updated based on last week’s November jobs and CPI reports: real aggregate nonsupervisory payrolls. To recapitulate, these always peak before a recession begins, usually within 3 to 6 months. And there is a very good fundamental reason for that: once the average American household has less cash to spend in real terms, consumption promptly gets tightened, and that downturn in consumption typically brings about all the other indicia of recession quickly.

But the news from November was good. For the two months covered by the updated jobs report, nominally aggregate payrolls increased 0.9%. Meanwhile, the official cpi index only increased 0.2% for the two months from September through November, meaning that real nonsupervisory payrolls increased 0.7%. In the graph linked to below, November’s level is set to 100, which is the only visibleway to show  the increase since September:

 https://fred.stlouisfed.org/graph/?g=1P3Jp 

Note that even if the much-criticized shelter increase of 0.1% were instead changed to 0.3% each month, the average over the previously reported months this year, real aggregate payrolls would still have increased 0.2% for the two month period, still a new high.

Nevertheless I recommend taking this will a heavy dose of salt.

On the negative side, it is difficult to imagine such a weak labor market not being on the cusp of, if not already in, a recession. As of November, service providing jobs were only up 0.7% YoY, while goods producing jobs were down -0.15% YoY. A shown in the graph linked to below, which normalizes both readings to zero, only once in the past 85 years - in 1944 - has employment in both sectors been this low YoY without either being already in, or at least on the doorstep of, a recession:

 https://fred.stlouisfed.org/graph/?g=1P3KS 

Keep in mind, by the way, that this data is not yet adjusted for any of the QCEW reports this year, which have suggested at by the end of June, employment was only up 0.3% compared with 12 months before, as opposed to the 1.0% higher indicated by the current nonfarm payrolls surveys.

We are still in many ways flying blind. In particular, we really need to see reliable real sales, production, and consumption data through the period of the government shutdown to determine whether or not that self-inflicted wound pushed the economy into contraction or not. Without it, any conclusion I might reach would just be speculation.

Weekly Indicators for December 15 - 19 at Seeking Alpha

 

 - by New Deal democrat

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

All of the trends that we have been seeing for the past several months appear to be becoming more entrenched. That includes the re-normalization of the yield curve on the positive side, and weak withholding tax payments and transportation metrics on the negative side. One trend that doesn’t seem to be affected: consumer spending, which is still chugging along as it has for the past several years.

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 my lunch money.

The “gold standard” QCEW through Q2 suggests little if any employment growth this year

 

 - by New Deal democrat

The Quarterly Census of Employment and Wages (QCEW) is “the gold standard of US employment measures. It is an actual census of 95%+ of all employers, who must report new employees for purposes like unemployment and disability benefits. Because of this, it is used for the final revisions, a/k/a benchmarks, for monthly jobs numbers, which are estimates based on surveys. Its drawbacks are that it is not seasonally adjusted, and is delayed months after the end of the quarter.

The important news is that, after a considerable delay due to the government shutdown, it was released for Q2 this morning.  And there was good news and bad news.

The good news is that, on a non-seasonally adjusted basis, 2.3 million jobs were added in the 2nd quarter of this year, the same number as was the case in for the NSA private monthly payrolls number. After seasonal adjustment, that translated into just under 200,000 jobs net for the three months, as per the below graph of SA and NSA private nonfarm payrolls over the past four years through June:

 https://fred.stlouisfed.org/graph/?g=1OXVJ 

The bad news is that, in contrast to the 1.286 million jobs added in the 12 months after June 2024, only 237,000 were added per the QCEW for the entire 12 months period. In other words, beginning in late 2024, the jobs sector has been dead in the water.

Per previous releases of the QCEW, even at the end of 2024, on a year over year basis employment grew by about 1.4 million, or 0.9%. Then in the first quarter of this year, comparisons fell off a cliff again. Based on the most recent updated QCEW data, only about 427,000 jobs were added NSA YoY through the end of March. So there was further deceleration in Q2. 

These are not seasonally adjusted numbers, so it is entirely possible that the NSA gain turns into an actual decline. In my August review of the Q1 QCEW, I concluded that it wss “suggesting there might not have been any job growth at all this year.” Updated through Q2, it seems likely there was a very small gain, but not even keeping up with prime employment age population growth, i.e., firmly supporting the increase in the unemployment rate this year. And it is still possible that there have been no net employment gains whatsoever this year. 

Consumer inflation went to sleep in October-November, driven mainly by a steep deceleration in shelter price increases

 

 - by New Deal democrat

A truncated version of the CPI was reported for November this morning. Since no data was collected for October, the monthly change in those values was not calculated, the Census Bureau apparently having elected not to publish with the cumulative two month changes since September. Nevertheless, the two month numbers are easily calculated, and the important ones are all the same: headline, core, shelter, and headline minus shelter all rose 0.2% in the last two months.

All of which means any calculations except for YoY ones have to be taken with numerous grains of salt. The only exceptions are for data that was privately collected and then integrated into the calculations, which were not affected by by the government shutdown.

With those caveats out of the way, by far the most important component of the CPI this month was shelter, and in particular the sharp deceleration in its YoY increase. Actual rent YoY declined from a 3.6% increase in September to 3.0% in November. Imputed Owner’s Equivalent Rent decelerated from a 3.8% YoY increase in September to 3.4% in November. The total for shelter decreased from 3.6% to 3.0%. Note that in the graph below the November readings do not appear:

 https://fred.stlouisfed.org/graph/?g=1OVTF 

All of these are the lowest since summer 2021, and are in line with their pre-pandemic ranges. And they are very big declines for only two months, so I am treating them with extra caution. It would not surprise me at all to see a signficant revision of these numbers next month.

This big decline in the shelter component of CPI, which is over 1/3rd of the entire calculation, is what drove the headline and core numbers down. YoY headline inflation was only 2.6%, the lowest since July, and core inflation YoY was 2.6%. YoY inflation ex-shelter was 2.5%:

 https://fred.stlouisfed.org/graph/?g=1OVSF 

All of these are equivalent to their readings back in July, i.e., lower than either August or September. 

Collection of data for new and used vehicles was not affected by the shutdown. New vehicle prices rose 0.1% in October and 0.2% in November. Used vehicle prices rose 0.7% in October and 0.3% in November. As a result their YoY increases were 3.6% and 0.6% respectively:

 https://fred.stlouisfed.org/graph/?g=1OVUz 

Another recent problem child for inflation was transportation services, mainly vehicle parts and repairs as well as insurance. These also have gone somnolent, with an incrrease of only 1.7% YoY, the lowest since early 2021:

 https://fred.stlouisfed.org/graph/?g=1OVUT 

Finally, prices for gas home service, and electricity have also become a problem, the latter likely a side effect of the building of massive data centers for AI generation. Electricity prices were up 6.9% YoY in November, the highest increase since 2008 except for the post-pandemic inflation:

 https://fred.stlouisfed.org/graph/?g=1OVV5 

This has already created a backlash, and I expect that backlash to intensify.

In summary, November’s CPI report covering two months showed a big slowdown in all major components of consumer inflation, and in particular that for shelter. This in turn drove the YoY comparisons back down to where they were last summer. That being said, treat this month’s report with extra caution, and look out for significant revisions next month.

Jobless claims continue to paint a much more positive picture than the unemployment rate

 

 - by New Deal democrat

[Note: An update to my OS the other day has nuked my ability to post graphs. For now, I will post links to FRED graphs that you can access. For this post, I am only using one such link. If I am unable to resolve the problem, drastic action may be reqeured.]

The return to normalcy in jobless claims after a skewed reading for Thanksgiving week due to unresolved seasonality continued. Initial claims declined -13,000 to 224,000, very close to the midpoint of its range since the beginning of July. The four week moving average, which still includes the outlier Thanksgiving week, rose 500 to 217,500. Continuing claims, which are delayed one week and thus only one week out from the Thanksgiving skew, rose 67,000 but were still below 1.9 million at 1.897 million.

On the YoY% basis which is more important for forecasting purposes, initial claims were up 0.9%; the four week average still down, by -3.5%, and continuing claims higher by 1.9%.

It will be two more weeks before the skewed week is out of the four week average, so I would discount that reading.

Still, very slight YoY increases in new and continuing jobless claims are neutral and do not portend an imminent recession.

Last week I noted that the unresolved post-pandemic seasonality that was so apparent in 2023 and 2024 has been much more muted, especially in the second half of this year. Claims did rise into June, but then sharply declined in July, and have generally remained in that range since. I further noted that in the first half of this year, jobless claims typically were in the +10,000 range YoY. That all changed since the end of June. In the 23 weeks through one week ago, jobless claims averaged just under -4,000 lower YoY.

This week’s initial claims number was only 2,000 higher than last year’s for the equivalent week, which adds another week of evidence for the idea that there has been somewhat of a change in regime for jobless claims since the middle of this year. Significantly, it also suggests a serious disconnect between what has been happening with both initial and continuing claims vs. the unemployment rate, which as you recall increased to a multiyear high in the jobs report released for November the other day. Here is the update on that comparison:

 https://fred.stlouisfed.org/graph/?g=1OVPM 

An unemployment rate 0.4% higher than one year previous has in the past almost always meant that a recession has begun. The exceptions were one month in the 1950s, two months in 1963 - and five months last year. The jump in the unemployment rate is consistent with the significant increase in continuing claims that started in June. 

It is also possible that this is a reaction to the anomaly last year in the unemployment rate, which was put down (rightly I think) to a miscalculation of the impact of immigration on the population numbers. But this year all the evidence is that has reversed. The answer apparently lies in the 0.6 million surge in the unemployment level as well as a 1.2 million surge in the civilian labor force calculation in the Household Survey since July, especially in comparison with very low increases calculated last November. I suspect we are going to have to wait for January for YoY comparisons to be more valid, since they will not be against the big immigration undercount of 2024. Since that undercount does not affect jobless claims numbers, at very least we have to take the alleged triggering of the “Sahm Rule” in November’s jobs report with extra grains of salt.

Real retail sales contract; depending on inflation report may signal further job losses

 

 - by New Deal democrat

[Note: An update to my OS the other day has nuked my ability to post graphs. For now, I will post links to FRED graphs that you can access. If I am unable to resolve the problem, drastic action may be reqeured.]

Real retail sales, one of my favorite broad-economy indicators, was finally updated yesterday, although as per most government data releases, it was still somewhat stale, being for September and October. Nevertheless, it does give us some new information, so let’s take a look.

In nominal terms retail sales rose 0.1% in September, and were unchanged in October, but since consumer prices rose 0.3% in September, real retail sales declined -0.2%. CPI for October hasn’t been reported yet, but another 0.3% increase would mean a further -0.3% decline in real sales for October. The below graph, through September, shows real retail sales (blue) and the similar measure of real spending on goods (gray), both normed to 100 as of their peaks in December of last year:

 https://fred.stlouisfed.org/graph/?g=1OTNM 

Both have only exceeded that peak by at most 0.1% this year, and in September both were below it by -0.1%, although the 3 month moving average continued to increase slightly.

When real retail sales turn negative YoY, going back 75 years it has almost always meant a recession (with the very notable exception of 2022-23, which was countered by a steep positive supply shock). Here is what the YoY comparison looks like for both of the above metrics:

 https://fred.stlouisfed.org/graph/?g=1OTNG 

Neither are negative YoY, but both have decelerated sharply since their YoY peaks in early spring. Should the trend continue, they could be negative YoY by December or January.

Finally, because consumption leads employment, here is the update of YoY real sales (/2 for scale) together with employment (red), updated through yesterday’s report:

 https://fred.stlouisfed.org/graph/?g=1OTNB 

The sharp deceleration in YoY growth in consumption has forecast the slide in employment. Should the October CPI release mean a further deterioration in sales for that month, that would forecast even more deceleration - in fact a downturn,- in employment in the immediate months ahead.

Combined October and November jobs report: a hairs-breadth from recessionary, at best

 

 - by New Deal democrat

At Last this morning we got some up to date labor data from the federal government, but only partially. The Establishment Survey was updated for both October and November, while the Household Survey was not conducted at all for October, and so jumps from September to November.

In November virtually all of the other reports, including from the regional Feds and ISM, as well as others, indicated an actual decline in employment. While that didn’t occur, as we will see below, the general tenor was negative, albeit nuanced.

Below is my in depth synopsis. Note that for the Establishment numbers, I give both October and November reads, as well as the two month net change.

HEADLINES:

• -105,000 jobs lost in October; 64,000 added in November for a net change of -41,000.
•  Private sector jobs increased 52,000 in October and 69,000 in November, for a net gain of 121,000. Government jobs declined -157,000 in October (these are mainly the delayed DOGE layoffs), and another -5,000 in November for a total loss of -162,000.
• September was revised downward by -11,000 to +108,000. 
• The alternate, and more volatile measure in the household report, rose by 96,000 jobs since September.
• The U3 unemployment rate rose 0.2% to 4.6%, since September, the highest since September 2021.
• The U6 underemployment rate rose 0.7% to 8.7% since September.
• Further out on the spectrum, those who are not in the labor force but want a job now rose 203,000 since September to 6.136 million, aside from August the highest level since September 2021.

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. For the second month in a row they were mainly negative:

• The average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, rose 0.1 hour in both October and November to 41.2 hours, but remains down -0.4 hours from its 2021 peak of 41.6 hours.

• Manufacturing jobs decreased by -9,000 in October and -5,000 in November, the sixth and seventh declines in a row. This series declined sharply in the second half of 2024 before stabilizing earlier this year. It is now at a 3.5 year low.
• Truck driving, which had briefly rebounded earlier this year, declined -1,300 in October and another -4,400 in November, for a total decline of -5,700.
• Construction jobs declined -1,000 in October, but rose 28,000 in November.
• Residential construction jobs, which are even more leading, rose 900 in October and another 3,400 in November for a total of 4,300, making three increases in a row.
• Goods producing jobs as a whole declined -9,000 in October, but rose 19,000 in November, for a net gain of 10,000, after declining earlier this year for 4 months in a row. 

• Temporary jobs, which have declined by over -650,000 since late 2022, declined again in both October, by -12,700, and November, by -5,000, for a total decline of -17,000, a new post-pandemic low.
• The number of people unemployed for 5 weeks or fewer rose 316,000 from September to November,  to 2,543,000, the highest number since the end of 2020.

Wages of non-managerial workers 

• Average Hourly Earnings for Production and Nonsupervisory Personnel increased 0.4% in October and another 0.5% in November, for a net gain of 0.9%, with a YoY gain of +3.9%. This continues to be significantly above the 3.0% YoY inflation rate through September.

Aggregate hours and wages: 

• The index of aggregate hours worked for non-managerial workers was unchanged in October, but increased 0.1% in November, and is up 1.3% YoY, its highest rate since January.

• The index of aggregate payrolls for non-managerial workers rose 0.4% in October and another 0.5% in November, and is up 5.2% YoY, its highest rate since April.

Other significant data:

• Professional and business employment declined -7,000 in October, but rose 12,000 in November, for a net change of 5,000. These tend to be well-paying jobs. This is the fifth decline in a row, and is the lowest number in over 3 years. It is also lower YoY by -0.2%, which in the past 80+ years - until now - has almost *always* meant recession. This is vs. last spring when it was down -0.9% YoY.
• The employment population ratio declined -0.1% to 59.6% from September through November, vs. 61.1% in February 2020.
• The Labor Force Participation Rate rose +0.1% to 62.5% from September through November, vs. 63.4% in February 2020.

SUMMARY

Looking at this from the perspective of the meet two month changes, it was a poor report with only a few bright spots.

Let me note the bright spots first: construction employment, and wage growth. Despite the pounding that the housing market has taken, residential construction employment made a new post-pandemic high in November. And the residential sector was relatively the weakest one within construction. Non-residential construction employment rose sharply - I suspect due to AI-data center building.

Additionally, wages grew sharply in both October and November, which also powered a sharp rise in aggregate payrolls, a very good sign. Additionally, manufacturing showed signs of life as the average workweek in that sector rose.

But these were outweighed by all the negatives. On net, jobs contracted by -41,000 since the last report. Unemployment rose 0.2%, and underemployment rose by 0.7%, both to multi-year highs. Both short term new unemployment and those who want a job are not even looking rose to close to post-pandemic highs. Employment declined in manufacturing, trucking, and temporary help - all leading sectors. And while labor force participation rose, the employment to population ratio declined.

Right now the only sectors holding employment afloat are health care, which on net accounted for all of the gains in the past few months, as well as construction (likely mainly related to AI data center spending). In the seven months since April, only 119,000 jobs have been added, an average gain of only 17,000 jobs per month. And that’s before the likely downward revisions which will be made once the QCEW is integrated into the results.

In summary, the jobs market is either a hairs-breadth above contraction, or actually in contraction.

What do vehicle miles traveled and gas usage tell us about the economy?

 

 - by New Deal democrat

Today is the last day of our data drought before the onslaught of delayed reports that begins tomorrow with the November jobs report and CPI. 

In the meantime, there is a commenter on another economics site who generally believes that everything is OK as along as vehicle miles traveled YoY stay positive - and as of October, the rolling 12 month average was higher by 1.0%. Others robustly disagreed. So I thought I would take a look.

In the first place, here is the 12 month rolling average of total vehicle miles traveled for the past 50+ years in absolute terms:

[I am having a problem with Google giving me access to my photos, so instead here is a link to a FRED graph of the YoY% change in the 12 mile moving average of vehicle miles driven:

 https://fred.stlouisfed.org/graph/?g=1ONkm ]

It’s pretty obvious that total mileage traveled turned down, or at least decelerated markedly, at the onset of or shortly before all of the recessions in the past 50 years except for the pandemic.

But of course that just tells us that it is a *coincident* indicator, best for confirming in the rear view mirror what other data has already been suggesting. Notably, only in 1979 and 2000 did it turn down or decelerate in advance; in 1981, it did not turn down until months after the recession had already started.  Further, there was a significant deceleration beginning in the summer of 2005 that did not correlate to any recession in the next year; and for 4 entire years after the Great Recession miles traveled were completely flat, punctuated with several periods of small declines that did not coincide with recession, and so would have been very wrong signals had they been followed at the time.

Instead, I think that over the long term total vehicle miles traveled have told us that almost all US recessions in the past 50 years have at least in part been due to oil price shocks. And indeed the deceleration in miles traveled in 2005 coincided with gas prices hitting $3/gallon for the first time in the wake of Hurricane Katrina, and the four year period after the Great Recession was characterized by what I called at the time the “oil choke collar”; i.e., every time the economy would pick up, gas prices would shoot to $4, cooling the economy down, which would result in gas prices sinking back to $3, and the cycle would repeat.

In support of this, here is the YoY% change in vehicle miles traveled compared with the YoY change in the price of gas (red, /10 for scale) and for the period predating that statistic, the price of oil (orange, /20 for scale):

[To be supplied]

The oil price shocks stand out, as the YoY change in prices coincides with a sharp downturn in miles traveled. When the shock ends, vehicle miles recover. By contrast, in the 2001 recession and the pandemic there were no spike in gas prices, and the downturn or deceleration in usage was caused by other things.

Similarly, when we look at vehicle miles traveled compared with real GDP (red), we see a strong although not perfect (nothing ever is!) correlation:

[To be supplied]

 

In general, this suggests that we should expect at least a deceleration if not a downturn in vehicle miles traveled roughly coincident with the onset of recession. So here is the close-up of the past four years:

[To be supplied]

Through October, YoY vehicle miles traveled were generally steady, suggesting no recession had begun as of that time - but giving us no information with which to forecast.

But there is a very similar metric, which is gasoline product used, which is updated every week, and thus is current through the first week of December, and here is the story it tells:

[Liink to E.I.A. Data and grap of 4 week average of gasoline usage]

The four week average was significantly negative YoY through most of the summer before recovering in September into October. But for the past five weeks since the beginning of November, it has been very negative.

So, if the signs were positive into October, the decline in usage since then does not bode well for the November data were are about to be deluged with starting tomorrow.

Weekly Indicators for December 8 - 12 at Seeking Alpha

 

 - by New Deal democrat

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

While there were no significant changes in the ratings, two big stories stand out: (1) the nearly total re-normalization of the yield curve in response to Fed interest rate cuts; and (2) evidence of further deterioration in the labor market.

The problem with Fed rate cuts, of course, is if they are in response to an economy that is about to roll over into recession. Yes, they lay the groundwork for a recovery, but you have to go through the recession first!

As usual, clicking through 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 for my efforts in collecting and organizing the data for you.

Three important fundamentals-based indicators of the consumer economy: are they turning?

 

 - by New Deal democrat

Today is one day of quiet before a slew of updated statistics, including the November jobs and inflation reports, are to be reported next week (it is unclear whether others originally scheduled for next week, like building permits and starts, will also be updated). There was some housing and rental inventory and pricing data for Q3 released yesterday, but I will integrate reporting on that when the next housing data comes out.

Which means that today is a good day to highlight three fundamental datapoints that have in the past been very (although not perfectly!) reliable, all of which either may have just turned or may be on the verge of turning, down.

One fundamentals-based indicator which has a very long history (as in over 70 years) that has been a very good long leading indicator is per capita real retail sales, i.e., retail sales adjusted for both population and inflation (red in the graphs below). This on average turns down about a year before a recession begins. When people begin to cut back on spending for their households, unless things change it isn’t too long before it cascades into things like employment and hours of work, triggering a recession. Like many other indicators, it misfired in 2022-23 when a tsunami of supply-sided deflation created a positive “real” shock - but there is no such deus ex machina lurking now.

A second similar indicator is real personal consumption spending on goods, which is a broader measure of spending, and uses a different deflator (gold). In the graphs below below I have also normed it by population.

Finally, as I have pointed out many times, real aggregate payrolls of nonsupervisory workers has an almost perfect record of turning in the months before a recession has begun, going back over 60 years (blue). This is fundamentals-based as well; when workers in real terms are earning less money in the aggregate, they have less to spend, and this is usually an immediate trigger for a recession.

With all of that as background, here are all three indicators normed to 100 as of last December:

Neither real retail sales nor real spending on goods per capita have ever matched that level since, although their three month moving average has continued to improve in a decelerating fashion. Meanwhile, real aggregate payrolls have increased by 1.2% since, although only 0.3% of that has been during the last six months.

Typically, the immediate recession signal is when these indicators turn negative YoY. Here’s what that metric looks like now:

All of these have decelerated, several sharply, since the March-April timeframe when consumers and producers alike were front-running tariffs. None have turned negative yet, although if their present rate of deceleration continues, that is likely to occur within 4-6 months of their last datapoint for September. Next week all of them are scheduled to be updated through November, so we will have a much more current view of whether fundamental economic conditions are stormy for the average American household.

Is Thanksgiving seasonality masking a possible longer term positive regime change in jobless claims?

 

 - by New Deal democrat

This week’s update of initial and continuing jobless claims is a demonstration of two frames of seasonality: one in the immediate term, and one longer term stretching back several years. When we parse them out together, they suggest there may have been somewhat of a regime change that began in July and is still ongoing. 

Let’s start as usual with the raw numbers. Initial claims rebounded from last week’s near 50 year low by 44,000 to 236,000. The four week moving average, which irons out most of this seasonality, rose 2,000 to 216,250. Continuing claims, which it is especially important this week to note lag one week, declined dramatically, by -99,000 to 1.838 million, the lowest since early April:

Of course, the prior week was Thanksgiving, and as I wrote last week, the seasonal adjustment “expects” a big decline, but this year’s was even bigger. I expected a rebound this week, and we got it. Next week I expect a similar rebound in continuing claims.

That’s the immediate term seasonality issue.

But this week the graph above covers not just my usual frame of two years, but three years, to show that a regime change may be afoot. That’s because in the immediate post-pandemic years of 2023 and 2024, there were apparent pandemic related unresolved seasonality issues: claims rose from January until mid-year, and then declined during the second half of the year until the next January. This year the unresolved seasonality has been much more muted, especially in the second half of this year. Claims did rise into June, but then sharply declined in July, and have generally remained in that range since.

Of course, seasonality issues should be negated in the YoY% comparisons, which as I always point out, is more important for forecasting purposes. There, initial claims were lower by -1.3% this week, the four week average by -3.2%, and continuing claims by -1.9%:

As per usual, I score this as a positive, as this is what happens during expansions. In other words, it forecasts no recession in the very near term, which is good news compared with some other data we have recently received, including the JOLTS report for September I wrote about on Tuesday.

Additionally, because jobless claims lead the unemployment rate, our usual look suggests that there is no upward pressure on that rate, and if anything there is an increased likelihood of a small decline in the unemployment rate in the next several months:

That’s good news. And that plays into the possibility of a regime change in the trend in claims since the middle of this year.

Below is a graph of the YoY change in the actual number of initial claims filed plotted both weekly (thinner, gray) and monthly (thicker, blue) in 2025:

In the first half of this year, jobless claims typically were in the +10,000 range YoY. That all changed since the end of June. In the 23 weeks since, jobless claims have averaged just under -4,000 lower YoY. While I speculated during the summer that the change was school year related, and indeed there was payback in the form of sharply higher numbers early in September, the trend of lower YoY numbers has continued, even against the comparisons of very low numbers at this time last year (remember the residual seasonality of 2023-24 meant low numbers in December into January).

This suggests to me that the post-pandemic residual seasonality has been evaporating in large part, and further it is evidence, contrary to most of the monthly data we have gotten this year - including most recently from both the regional Feds and the ISM as I have documented in the last few weeks - that have suggested that the labor market may have tipped over. Instead, initial claims may point to at least a slight recovery.

Weekly data is noisy, but it always captures trend changes first. While the official monthly government data is still stale, I will pay especially attention to the regional Feds reports on employment trends in their districts, the first of which is scheduled to be released on Monday.

Q3 employment costs: probably the “least positive” since the pandemic

 

 - by New Deal democrat

The employment cost index, which was updated this morning through Q3, typically gets much less attention than the monthly payrolls report. But in this circumstance it is entitled to more notice, since the monthly data has only been posted through September as well.

Additionally, one important advantange of the Employment Cost Index is that it is adjusted for the type of job performed, while the monthly average statistics are not. Thus, for example, since many low-paid service workers were laid off during the COVID lockdowns, the latter metric was distorted by the job mix, whereas the former measure was not.

The news from this morning’s report was mixed. On the one hand, quarterly compensation increased just under 0.8%, whether measured by wages and salaries alone (blue) or by total compensation including benefits (red). On the other hand, the quarterly increase in wages was among the lowest in four years, and for total compensation it was the lowest (note: graph subtracts this quarter’s changes from both datapoints so that they norm to 0 for easier comparison):

On a YoY% basis, median wage compensation increased 3.6%, on par with the previous two quarters, while total compensation was the lowest since the pandemic, although higher than at any point between the Great Recession and the pandemic:

Although it is somewhat noisy, the employment cost index tends to in tandem with, but inversely to, the unemployment rate:

There really is not any leading/lagging relationship here, and my reading of this graph is that both median compensation and the unemployment rate were relatively stable this year though September, as the uptick in each is within the range of noise.

Finally, since the employment cost index measures wages and other compensation normed by occupation, an interesting comparison is with the Atlanta Fed’s wage tracker, which measures wage increases between those who switch jobs (presumably for better pay and/or benefits) and job stayers (updated through August):

During most of the post-pandemic era, when the unemployment rate was especially low, employees could get substantially better wage increases by switching to a new job. This year that has ended. Job switchers are doing no better than job stayers.

In sum, this morning’s data tells us that when it comes to wage growth, workers are still doing better than they were at any point during the last long expansion before the pandemic, but although the news was still positive, it was the least positive, relatively speaking, since then. This is especially true given the increase in inflation since early this year.