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.

Initial and continuing claims join the “steady as she goes” parade

 

 - by New Deal democrat

Let’s take our typically weekly look at jobless claims. I do this because there are a very good and timely short leading indicator for the labor market. 

Initial claims rose 11,000 to 219,000. The four week moving average rose 4,000 to 216,750. With the typical one week delay, continued claims rose 36,000 to 1.886 million:

On the YoY% basis which is more important for forecasting purposes, initial claims were up 2.8%, while the four week average was up 1.6%. Continuing claims were up 4.0%:

This continues the spate of neutral, “steady as she goes” numbers. The labor economy is expanding, but not at any robust rate.

Here is our final look at the forecast trend in the unemployment rate, which will be updated in tomorrow’s January jobs report:

On a monthly basis, initial claims are up 2.8% from one year ago, and initial + continuing claims are up 4.7%. Since the unemployment rate was 3.8%, this suggest the unemployment rate should be trending towards 4.1% or 4.0%. As it was 4.0% in December, this suggests it will be unchanged or decline -0.1% when we get the report tomorrow.

Economically weighted ISM services + manufacturing indexes forecast continued growth

 

 - by New Deal democrat

Because that services are about 75% of the economy, even if goods production is contracting, since the turn of the MIllennium that has not necessarily meant a recession is in the offing. The economically weighted average to the ISM services and manufacturing indexes has been much more accurate since then.

To wit: the ISM services report for January, released this morning, was weaker than December, but still well into expansion territory, with the total index at 52.8, and the more leading new orders component (not shown) was at 51.3:

The three month average of each is 53.2 and 53.0 respectively.

Since the three month total average in the manufacturing index was 49.5, and for the new orders subindex 52.7, that means the economically weighted average for the two is 51.0 for the total, and 51.6.

For contrast, here is the three year record of the manufacturing index:

Things were touch and go this past summer, when several times the services index did fall below 50, but the three month weighted average of the two indexes never did so.

In summary, the economically weighted average of the two ISM indexes forecasts somewhat slow growth in the months ahead.

JOLTS report for December shows mild improvement in most metrics, anticipates stabilization in wage increases

 

 - by New Deal democrat

The monthly JOLTS reports give us a more granular look at the employment sector, but are delayed by one month vs. the jobs report. Like the jobs reports, most JOLTS series have shown deceleration for several years. The question last year and this year is whether they level off or continue to decelerate towards outright declines in net job creation, or stabilize in a “soft landing.” 

I additionally look at this data because it is a slight leading indicator for both initial jobless claims and unemployment; and for wage growth as well.

The JOLTS report for December released this morning was generally mildly positive. The “soft” statistic of job openings fell sharply close to its post-pandemic low, but the hard data of hires and quits rose, while layoffs and discharges declined, all good things. The below graph norms the series above (expect for quits) to 100 as of just before the pandemic:

As I suspected, and wrote last month, he trend in openings has been lower, the improvement in openings during October and November was probably just noise. Meanwhile hires and quits appear to have stabilized during the second half of 2024.

On the other hand, when we look at hires and quits on a YoY% basis, there has been only modest improvement in the decelerating trend; in other words, there remains little solid evidence that there has been any leveling off:

The news on layoffs and discharges was also modestly positive, as the higher level of the last few months was maintained. Below I plot this data YoY compared with th e monthly average of initial claims, which has had some residual seasonality issues. And it suggests that the YoY increases in initial jobless claims that we saw during December have not been a fluke, and are more likely than not to continue:

They also look similar to the absolute trend in continuing claims:

Finally, the quits rate (blue in the graph below) has a record of being a leading indicator for YoY wage gains (red). In the post-pandemic view, the quits rate stabilized earlier in 2024 before resuming its decline, but has stabilized at 2.0% +/-0.1% since June, and continued at that rate in December:

This suggests that on a YoY basis wage gains may stabilize in the months ahead as well, which is good news as long as inflation does not pick up.

ISM manufacturing index in January the strongest since 2022

 

 - by New Deal democrat

Although manufacturing is of diminishing importance to the economy, (it was in deep contraction both in 2015-16 and again in 2022 without any recession), the ISM manufacturing index remains an important indicator with a 75+ year history of accurately describing that sector and forecasting it over the short term. 

Any number below 50 indicates contraction. The ISM indicates that the number must be 42.5 or less to signal recession. I 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 has been suggested by recent improvements in the regional Feds’ indexes, the ISM report for January was the strongest since the second half of 2022. The total index rose 1.7 to 50.9, and the more leading new orders subindex rose 3.0 to 55.1.

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

AUG 47.2. 44.6

SEP 47.2. 46.1

OCT 46.5. 47.1

NOV  48.4. 50.4

DEC 49.2. 52.1

JAN 50.9  55.1

The current three month average for the total index is 49.5, and for the new orders subindex 52.7.

Here is the last three years for the total index looks like:

And here is the same for the new orders index:

As I said above, these are the strongest levels since 2022.

The non-manufacturing headline has been very positive in the past few months. So needless to say, the combined indexes strongly suggest continued growth in the months ahead. I guess I need to add, if the economy is left to it own devices. I.e., tariffs and other political interventions could knock this forecast into the proverbial cocked hat.