A thought for Sunday: the march of demographics and the 2018 midterms

 - by New Deal democrat

Below is a graph showing that the older the demographic (up until age 80), the bigger the turnout during midterm elections.

The data behind this graph isn't just from 2014, but from a series of midterm elections over time -- in other words, it has been durable over time.

My purpose in this post is show that, even if these percentages hold in this year's midterms, the electorate is going to skew considerably less "red" than it did in either 2010 or 2014.

To start with, here is the widely reprinted graph from a recent Pew study, showing that, generally, the younger the demographic, the more liberal on social issues and the more Democratic the leaning:

Unfortunately, while dividing age cohorts into only four may make for a clean graph, it paints with far too broad a brush, and has led to some misguided generational bashing online. So let's take a more granular look.

There is lots of evidence that most people form their bedrock political outlook in their late teens. Basically, if at age 18 or so, there is peace and prosperity, you are likely to embrace the ideology of the party of the President. Conversely, if the economy is performing poorly or there is social upheaval, you are likely to embrace the ideology of the opposition.

Importantly, when we slice age cohorts more finely, we find two things:

1. political leanings are durable over lifetimes, i.e., people don't inevitably become more conservative as they age.

2. the outsized conservatism of the age 60-80 cohort most likely to vote in midterms is a happenstance of the last decade or so, and will have faded significantly by election day this year.

The below graph dating from 2012, which breaks down voting cohorts by the Presidency during which they turned 18 years of age for the election from 1994 through 2010:

Quick, which is the most liberal demographic?  Obviously, it's the Greatest Generation, isn't it?
They remained durably Democratic until they passed away (even now there are still about 2 million alive).

So much for turning more conservative with age!

Next, comparing the first four elections with the four most recent elections (3 vs. 3 in the case of the Clinton cohort), only 4 demographic groups become more conservative over time: Truman, Eisenhower, Kennedy/Johnson, and Reagan/Bush. Three -- Nixon, Ford/Carter, and Clinton -- have voted more Democratic over time.

The generational pattern continued in the Presidential election of 2012. The Greatest generation was gone, and the mid-Boomer Nixon cohort stands out as a Democratic leaning demographic:

Although not in the same format, here is an even more granular look at the 2014 vote:

The twhree graphs together show that, confounding received wisdom, over time it has been the Gen X and late Boomer cohorts who came of age from 1975-92 who are the most reliably conservative groups, whereas the mid-Boomer cohort that came of age during the Nixon years has been reliably liberal. [UPDATE: Early Gen Xers may be the exception to the rule, as in 2014 and 2016, they trended blue vs. their earlier solid red record. Possibly the GOP's embrace of rabid retrograde social reaction has been too much for them. The remaining cohorts all continued to vote in 2014 and 2016 in accord with their earlier records.]

With no other information at all, the fact that the deep blue Greatest generation passed from the scene after 2006, and were replaced with more conservative cohorts in the age 60-80 group that votes most heavily in midterms, suggested that those two elections would skew more deeply "red" than any other recent elections.

This year all the Truman cohort and the first 1/4 of the Eisenhower cohort are over age 80, when presumably frail health causing voting participation in midterms to decline precipitously, and have been replaced in the most heavily voting bloc by the "blue" Nixon cohort. Meanwhile the blue Clinton cohort is moving past age 40 and can be expected to vote in greater numbers, at a rate roughly equal to that of the Truman and Eisenhower cohorts.

That alone should shift the demographics of this year's midterm electorate more bluish.

But wait, there's more! Finally, let's take into account the Grim Reaper.  Here's the Census Bureau's year by year look at population cohorts dating from 2016 (h/t Calculated Risk):

There is a very consistent die-off in each birth-year's population of about 100,000 per year beginning in their late 50s.

That means that in the last four years, roughly 3.2 million of the "red" 8 million Truman cohort and another 3.2 million of the "red" 12 million Eisenhower cohort who were alive in 2014 have passed away.

Put this all together and the basic fact is that the 2018 voting population is going to be considerably more liberal and Democratic than the 2014 population, even if Millennials turn out only in percentages consistent with younger voters in other midterm elections.

-----

One postscript: in researching the above, I also came across the below graph of partisan affiliation by demographic groups as of 2014:

Take a look at what happened with Millennials, because it is unlike what happened with any other age group. After surging towards the Democratic party in 2008, they deserted the party in droves over the next 6 years, turning into independents instead.

The sour implication is very clear: Obama broke their hearts. After promising "Hope and Change," aside from healthcare (not their core issue!) he mainly delivered a nip and tuck around the edges of the neoliberal consensus.

In order for Millennials to turn their ideological choices into reality, they are going to have to take a few centrist Democratic scalps.

Weekly Indicators for February 26 - March 2 at XE.com

 - by New Deal democrat

My Weekly Indicators post is up at XE.com.

Real M2 has already turned into a negative. Now M1 is also declerating sharply.

Is the secular economic season beginning to change (Part 2)

 - by New Deal democrat

The selloff of a month ago may well be the harbinger of a fundamental change in the relationship between bond yields and stock prices, one that is likely to persist for the next 10 years or so, as  part of a very long term interest rate cycle that has tended to last about 60 years.

This post is up at XE.com.

A note about residential spending

 - by New Deal democrat

Today is one of those days where a whole slew of data gets reported. I wanted to add a quick note about residential construction.

Residential construction spending has the virtue of being "where the rubber meets the road" in the housing market, and further, while it lags permits, it is the least volatile measure of all, even compared with single family permits. Here they are measured YoY:

If housing signals recession, we will see it first in permits (and new home sales), but residential construction should confirm the negative reading months before any downturn actually begins.

In case the far right is too microscopic for you, growth in residential construction has decelerated sharply in the last few months, and as of this morning's report residential construction is up about 4% YoY.  This is the worst reading since 2012, but is obviously still positive.

Great news on job security, but on income line workers can hold back on breaking out the champagne

 - by New Deal democrat

Some really good news this morning, but a note to hold your horses on the celebration of at least one aspect of that news.

Initial jobless claims, which I've called the single most positive data point in the entire economy, posted nearly a 50-year low at 210,000. On a population- or labor force-adjusted basis, it is an all time low.

This, by the way, bodes well for a another decrease in the unemployment rate in the next several months, possibly as early as in next week's jobs report, as initial jobless claims lead the unemployment rate typically with a short 1-3 month lag.

Bottom line: people may not have great jobs, but the jobs they have are more secure now than they have been at any point since the 1960s.  That's great news.

There was good news in personal income and outlays as well, with a strong +0.5% increase in income, and a pop in the savings rate from 2.5% to 3.2%.

BUT ... the big positive news looks like a one-time jump based on the payment of bonuses, and also the decline in tax withholding in January due to the tax law changes passed by Congress.

Here's the important note from the Commerce Department:

So we had a big $30 pop in savings due to the payment of annual bonuses, that is of a piece with the big +0.8% pop in supervisory wages we saw in January's employment report. There is good reason to believe that little if any of this found its way down to the plebes, also based on January's employment report.

Also noteworthy is that monthly tax withholding, based on the Commerce Department's $115 Billion annual estimate, boils down to just shy of $10 Billion per month, or about 5% of  current withholding. That will continue, so the YoY comparisons will continue to be good, but this is a one-time pop on a m/m basis. Keep in mind that other provisions of the tax changes, especially real estate and state tax provisions, may offset most of this improvement, but won't be shown in the personal income and outlays reports.

So while line workers' jobs may be very safe, there may actually not be significant net improvement in their take-home pay. Great overall news, but unless you get bonuses as a manager, you may withhold popping the cork on the champagne.

Are housing costs beginning to bite?

 - by New Deal democrat

Housing prices continue to increase, with both the Case Shiller and FHFA house price indexes yesterday showing YoY gains in excess of 5%. Meanwhile mortgage rates hit a new 4 year high again yesterday at 4.58%.  Are the increased purchase and monthly carrying costs of housing beginning to have an effect?

It certainly looks that way when you look at existing home sales, growth of which has nearly flatlined in the last 18 months (note this is the absolute number,not the YoY change):

But YoY% growth for new home sales, while very volatile on a m/m basis, since late 2014 has generally continued at about 5% YoY:

The Fed does keep track of real estate loans for housing, but this is a cumulative measure, so what we mainly see is growth of 50% in outstanding loans (!) during and in the immediate aftermath of the bubble, with very subdued total growth since:

Is the sideways movement in this figure since October meaningful, or just another pause?  Impossible to tell.

Which brings me to purchase mortgage applications, reported weekly by the Mortgage Bankers Association.  Here is Bill McBride's graph from earlier this morning:

Just a quick eyeballing of the graph seems to show a little slowing down recently, but unfortunately we don't have YoY comparisons.

But I do track this data as part of my "Weekly Indicator" watch. I've noticed some softness recently, so I went back to crunched a few numbers on a preliminary basis. I sampled the first week of each month in the last 6 months of 2017. The average YoY% increase in applications was 7%. Since the slowdown started in the latter part of December, however, the YoY% increase has slowed to an average of about 4.5%.

We had a similar pause in early 2017, and that resolved positively. It's too early to know if the recent slowdown in purchase mortgage applications is signal or just noise. But it certainly bears closer watching. At some point increased mortgage rates and/or increased prices must slow or stall the market.

Is the secular economic season beginning to change? (Part 1)

 - by New Deal democrat

This recent 10% correction contained an element that made me go back and look at a long-term forecast I made nearly 8 years ago. The economic "season" may be beginning to change.

This post is up at XE.com.

January housing: on new home sales, curb the Doom!

 - by New Deal democrat

With the release of New Home Sales, we have a more complete look at the status of housing in January.

Two months ago, I suggested that you restrain your enthusiasm for a blowout number to the upside. Today, the opposite is also the case: ignore the Doomers' inevitable gloom about a big disappointment to the downside.

First of all, let's put single family home sales in context. Below are new home sales (blue), single family permits (red), and single family starts (green) since their bottom in 2010:

In case it isn't clear from that longer term look at the trend, here is the last 18 months:

With a few pauses along the way (most of 2014 and 2017) due to temporary increases in interest rates, housing has plodded along at about 5% gains per year. This is most clear from single family permits, which are the least volatile measure of the three.

Because of their great volatility, new home sales are best viewed as a 3 month moving average. Here they are only down slightly (644k) from their expansion high one month ago (650k).

Meanwhile, median prices also declined this month, but the increasing trend is intact.

Let's also compare with January's housing permits (red) and starts (green) for all types of housing:

Here again the pause for most of 2017 with the recent new expansion highs are plainly visible.

Going forward, I certainly expect the recent spike in interest rates to again take a bite out of sales as, sooner or later, will increased prices. As in 2014 and 2017, it will be a few months before it shows up in this data.  But for now, despite the downside new home sales number today, the recent positive trend in housing is still intact.

A "woke" bumper sticker on a redneck pick-up truck

 - by New Deal democrat

Seen at a diner, offered without further comment:

Weekly Indicators for February 19 - 23 at XE.com

 - by New Deal democrat

My Weekly Indicators post is up at XE.com.

One of the advantages of tracking data that is updated every week is that you can spot a trend early.

Well, February is shaping up to be a rough patch.

China, not automation, is by far the biggest factor in the decline of prime age labor force participation

  - by New Deal democrat

Perhaps the biggest mystery in economic analysis in the last few years has been trying to find an explanation for the big decline in labor force participation since 1999.  A recent NBER working paper by Abraham and Kearney has posited the most comprehensive answer to date.  Since it was summarized in this Washington Post article, I'm just going to quote a few paragraphs and suggest that you read the entire article.

The share of Americans with jobs dropped 4.5 percentage points from 1999 to 2016 — amounting to about 11.4 million fewer workers in 2016. 

At least half of that decline probably was due to an aging population. Explaining the remainder has been the inspiration for much of the economic research published after the Great Recession.

- snip -

University of Maryland economists Katharine Abraham and Melissa Kearney built [a method to arrive at a detailed analysis of the data]. After reviewing the most robust research available and doing some rough-but-rigorous math to estimate how much job loss each phenomenon can explain, the duo discovered something surprising: pretty much all the missing jobs are accounted for. 

Just as important, they pinpointed the culprits. In a draft paper released by the National Bureau for Economic Research this week, Abraham and Kearney find that trade with China and the rise of robots are to blame for millions of the missing jobs.   

To summarize, here are the number of job losses they found due to each reason:

China 2,650,000

Automation 1,400,000

Minimum wage increases 490,000

SS disability 360,000

Veteran's disability 150,000

Incarceration 320,000

TOTAL: 5,320,000

Here's the accompanying graph:

Notably, the authors found that both immigration and the "Mr. Mom" contribution to this number was trivial. One thing I wish they had explored, but I did not see any comment, is the issue of child care costs causing some mothers to decide it would be better to stay at home and raise their children vs. be in the labor force, which I concluded several years ago was probably a much more significant factor.

The total above is virtually equal to the entire decline in the number of prime age persons in the labor force since 1999.  But the most significant point for me is that *almost half* of all of the decline prime labor force participation can be ascribed to:

China’s accession to the World Trade Organization in 2001 and its subsequent rise to the top of the global export market.

Something tells me that that a lot of those workers who were displaced by China live in places like Pennsylvania, Michigan, and Wisconsin.  A big "thank you" to Bill Clinton, Brad DeLong and all of the free-trader Democratic neoliberals for doing their part in the rise of Donald Trump.

Initial jobless claims: the single most positive aspect of the entire economy

 - by New Deal democrat

I haven't been bothering to comment on initial jobless claims reports lately, for the simple fact that every week it's the same story:  they're good! In fact, the initial jobless claims reports are probably the single most positive aspect of the entire economic expansion.  For all intents and purposes, nobody is being laid off!

For initial jobless claims even to be giving a "caution signal" about the economy, I would need the YoY comparison to increase:

Note that this frequently but not always happens several years in advance of any downturn.  By contrast, current numbers are running on the order of 5% less than last year.

One dismissal that it occasionally heard is that the number is bogus because there are fewer "covered employees," i.e., employees entitled to make a claim for unemployment benefits, in this expansion than previously.

While the absolute numbers of employees who are not covered has grown, as a percentage of all employees the share in this expansion is similar to that of the last few expansions:

So, what happens to initial jobless claims if we norm by the percentage of covered employees?  This:

The number is still at multi-decade lows. but would be more on the order of 250,000 per week than 225,000 per week. Still very good for workers.

Conflicting reports on the "rental affordability crisis"

 - by New Deal democrat

Almost four years ago HUD warned of "the worst rental affordability crisis ever," citing statistics that

About half of renters spend more than 30 percent of their income on rent, up from 18 percent a decade ago, according to newly released research by Harvard’s Joint Center for Housing Studies. Twenty-seven  percent of renters are paying more than half of their income on rent. 

This is a serious real-world issue. I have been tracking rental vacancies, construction, and rents ever since.  The Q4 2017 report on vacancies and rents was released a few weeks ago, so let's take an updated look.

In the second quarter of last year, median asking rents zoomed up over 5% from $864 to $910. In the two quarters since, they have remained at that level:

Here is an updated look at real. inflation adjusted median asking rents, showing that rent pressures on household budgets continued to rise in 2017:

Year	Median Asking Rent	Usual weekly earnings	Rent as % of earnings
1988	330	382	86
1992	401	437	92
1993	422	450	88
2000	478	568	84
2002	545	607	90
2004	599	629	95
2009	680	739	92
2012	717	768	93
2013	734	778	94
2014	762	791	96
2015	813	809	100
2016	859	832	103
2017 H1	887	860	103
2017 Q3	912	866	105
2017 Q4	910	854	107

The big increase in unaffordability is unfortunately of a piece with the rental vacancy rate which, after appearing to have bottomed in 2016, tightened again in this report: 

Meanwhile the CPI for owner's equivalent rent, the major component of inflation, remains near the highest levels in a decade, at over 3% YoY: 

Recently, HUD premiered a Rental Affordability Index, using the ACS data. Similar to my chart above, it compares median renter income with median asking rent. Please note, however, that this has only been updated through Q1 of this year: 

Like the median household income data, this shows renters' income bottoming out in 2011-12, and rising since relative to rents as calculated by the ACS.

Unlike my calculation above, HUD's shows that rental affordability actually *improved* (!) in 2016, and remained stable in 2017 as the recent spike in rents was more than matched by a big increase in renters' median incomes.

As a result, the trend in "rental affordability index," according to HUD, has been one of easing since 2011, as shown below:

.

Note in contrast that their measure of housing affordability declined a little in 2017, making home-buying the least affordable since 2008, although better than during the bubble years. 

I'm not sold on HUD's method, mainly because it relies upon annual data released with a lag. In other words, the entire last year plus is calculated via extrapolation.  

Finally, there is a monthly rental index calculated by Rent Cafe.  This has the benefit of being much more timely.  Since it is not seasonally adjusted, the index must be compared YoY. While Zumper only includes 12 months of data in their releases, Mike Shedlock was able to obtain the entire history of their data, and published the result graphically last week:

Rent Cafe's measure of rent shows that the surge occurred in 2015 and early 2016, and has abated to less than YoY since, in complete contrast to HUD's and the Census Bureau's data.

Parenthetically, now that I have the full history of Rent Cafe's Index, I can follow it monthly, which will make for a much more timely measure than the quarterly Census Bureau report.

So unfortunately the conclusion here is messy. This quarter's Census report indicates no relief from the "rental affordability crisis." HUD (from the 3rd quarter), shows stability at a level of improved affordability due to income growth, and unlike either of the two government sources, Rent Cafe shows rent increases abating throughout 2017.

No, Matt Yglesias, Trump is *not* "probably gonna be re-elected"

 - by New Deal democrat

While I generally agree with the political and social observations of Matt Yglesias and Ezra Klein, their takes that involve the economy frequently drive me crazy.

So it was this morning when I encountered these two tweets from Yglesias:

This is just incredibly shallow analysis and, well, wrong!

Presidential and midterm elections are completely different beasts. Midterms are decided by partisan turnout -- people who strongly agree or disagree with the policies that have been enacted as the President's agenda. Presidential elections are primarily (although certainly not exclusively) driven by the strength of the economy.

So let's take a look at Yglesias' three examples. The below three graphs show real GDP and job growth during the first terms of Reagan, Clinton, and Obama:

All three were either in or just coming out of recessions during the first two years of their terms. When the midterm elections took place, both real GDP and employment were actually lower than just before Reagan and Obama, respectively, took office. In Clinton's case both were modestly higher. But by the end of their fourth year, when they gained re-election, economic expansions were well in place for all three.

And this showed up in their first term approval numbers, shown below:

Reagan:

Clinton:

Obama:

All three Presidents were quite unpopular (though not so unpopular as Trump) when the midterms took place. But all three were above 50% by the time they ran for re-election.

Contrast this with George H.W. Bush, who lost his re-election bid, as the economy was coming out of the 1991 recession:

Trump has *awful* approval ratings in the face of an economy that is doing quite well. In fact he has *never* had approval ratings over 50%. While expansions do not die of old age, I would be quite surprised if this one had not faltered by November 2020. His only chance for re-election, in my opinion, is if the Democrats manage to nominate somebody with at least as much baggage as he.

Nobody should be taking any elections for granted, but I see absolutely no basis in fact for Yglesias' assertion that Trump will probably be re-elected.

How big a rise in interest rates would it take to create a recession?

 - by New Deal democrat

Based on past experience, how much of a spike in interest rates would it take for the economy to reverse?

I lay down markers both in bond yields and the duration of the rise over at XE.com.

Four biographies for President's Day

 - by New Deal democrat

In the past several years, I have read four biographies of overlooked or more controversial Presidents. On this President's Day, I thought I would briefly discuss each in order of how well I thought they covered their topic.

I. "The Man Who Saved the Union: Ulysses Grant in War and Peace," by H.W. Brands.

This is one of two recent biographies that have comprehensively rehabilitated Grant, who previously was denigrated as a corrupt drunkard who somehow managed to blunder into winning the Civil War. But when he died in 1885, he was lionized in both the North and South. HIs pallbearers included his Union partner William Tecumseh Sherman and Confederate General Joseph Johnston. Tens of thousands marched in the procession. Grant's tomb is a huge monument along the Hudson River in New York City.

Brands shows that while Grant was an incompetent businessman, who probably was cashiered from the army for drunkenness in the 1850s, he was the right man in the right place at the right time in 1861. For Grant had been a quartermaster during the Mexican War, and became a master of logistics. If Lee was the master tactician, then along with Sherman, Grant was the better strategist, starving the Confederate army of industrial supplies and food, all the while relentlessly pushing forward (As an aside, James Lee McDonough's "William Tecumseh Sherman" is also a very good recent biography).  When Lee hoped for a Lincoln defeat in 1864, Grant ensured it didn't happen by organizing the first massive absentee balloting, wherein state officials registered and collected ballots from his union armies. His military history of the Civil War, completed four days before his death, is still regarded as a classic and taught at military academies.

In peacetime, Grant did his best as both commander and President to carry out Lincoln's vision of reconstruction. To his credit, he was not a racist, supporting the rights of the freed slaves, encouraging the passage of the Fifteenth Amendment securing their right to vote, and fighting the incipient guerrilla warfare of the KKK. He also supported the application for Statehood by the Dominican Republic (then known as Santo Domingo), which the Congress rejected for racial reasons.

An excellent book, well worth your effort.

II. "John Quincy Adams: American Visionary," by Fed Kaplan

The son of the second President. John Adams, John Quincy Adams' boyhood alone was pretty amazing. He witnesses several of the earliest battles in the Revolutionary War, and accompanied his father in the latter's mission to France to secure funding from the monarchy. While in Paris, he was tutored by, among others, several fellows named Benjamin Franklin and Thomas Jefferson. He became fluent in French -- then the language of diplomacy -- and could read and write Latin and Greek. On the voyage home, at age 13 he in turn tutored the first French consul in English. Subsequently he also witnessed the peace negotiations that ended the war, and at age 16 accompanied the first US delegate to Russia as his private secretary. At 17 he was entrusted as a diplomatic courier by Sweden and traveled alone 1000 miles across Europe from Russia to The Hague.

He obtained a law degree from Harvard, but even in the 1790s, it was hard for young attorneys to find work. Fortunately George Washington recognized his diplomatic talent, and selected him to be the first ambassador to Portugal and Holland, and his father made him ambassador to England. For the rest of his life he was a career civil servant and political office holder.

He served as a US Senator from Massachusetts during Jefferson's Presidency, and managed to become a friend of Jefferson's despite the hostility between Jefferson and his father. When Madison became President -- perhaps sensing a rival -- he was posted as far away as possible, to the court of the Czar, from which he observed Napoleon's march across Europe and catastrophic invasion of Russia. He became the lead negotiator for the Treaty of Ghent that ended the War of 1812.  Upon his return to the US, Monroe made him his Secretary of State. In that time he negotiated the Florida Accession, the US-Canadian border, and drafted the document that was promulgated as the Monroe Doctrine.

Refusing to campaign, he nevertheless managed to eke out a victory via the House of Representatives in the 1824 Presidential election. Faced with a divided and later hostile Congress partial to Andrew Jackson, none of his initiatives (like comprehensive Federal funding of infrastructure improvements) came to pass, and of course he was defeated in a landslide in 1828.

But in 1830 the local citizenry persuaded him to accept election as a member of the House of Representatives, where he became the relentless opponent of the expansion of slavery, successfully argued the "Armistad" case before the Supreme Court (popularized by the Steven Spielberg movie), and laid the intellectual foundation for the Emancipation Proclamation, arguing that if the South ever seceded, the President would have the right as Commander in Chief to abolish slavery in the rebellious States.

He suffered a fatal stroke at his desk in the House of Representatives in 1848 as he opposed the aggressive Mexican War.

He may have been the most intellectually brilliant President ever. Personally he was a goodie-two-shoes and, well, dour and prissy. But I came away from this book believing that for his lifetime of service, he deserves a prominent monument in Washington.

III. "Herbert Hoover: a Life," by Glen Jeansonne.

We all know about FDR. But aside from the caricature, what of the ill-fated Hoover? 

This is a book of two halves. Had Hoover died in 1928, he undoubtedly would have been lionized in history as a brilliant engineer and philanthropist. An orphan, he was one of the first graduates of Stanford University, with a degree in metallurgical engineering.

He was a genius at locating deposits of precious and industrial metals, and also at the logistics of running a large industrial operation. The firms for which he worked earned fabulous returns, and Hoover became very wealthy even as a young man, as competitors bid for his services. 

By World War I, he had already retired. But when a Belgian colleague begged for his help to prevent mass starvation in the German-occupied parts of Europe, Hoover, a devout Quaker, stepped up. He applied his logistical prowess, and, mindful that neither England nor Germany wanted to be blamed for a humanitarian catastrophe, successfully played them off against one another. His operations were allowed to cross enemy lines, and he succeeded in saving literally millions of European civilians in the Benelux countries and northern France from starvation.

He attended the peace negotiations in Versatile, and decried the resulting draconian Treaty, which he accurately foresaw as stoking resentment and a thirst for revenge. At the same time, facing his own dire catastrophe, Lenin allowed the capitalist Hoover to save tens of millions of Russians from starvation following the Revolution.

Serving as Secretary of Commerce in the 1920s, Hoover arranged for the standardization of radio frequencies and regulations, the blueprint for allowing new tech innovations to flourish. He proposed a nationwide system of dams for water storage and the generation of electricity, many of which were ultimately constructed during the 1930s New Deal, and one of which -- Hoover Dam -- bears his name; the inter-coastal waterway project; and what became the St. Lawrence Seaway in the 1950s.

During the great Mississippi floods of 1927, he again used his prodigious logistical skills to save and feed millions again,and insisted on equal treatment of both black and white victims, even in the deep South.

But then we get to the second part of the book. in which the author's partisan leanings get in the way. Further, and most importantly, the section on Hoover's response to the onset of the 1929 recession is a  complete mess. I had to go back and re-read the chapter twice just to organize it. The bottom line is that Hoover did react vigorously to the perfect economic storm that combined a stock market and tech meltdown similar to the 2001 recession, a big decline in housing prices and a banking crisis like that of the "Great Recession," and the incipient Dust Bowl to boot.  But Hoover was always two steps behind, and his programs -- many of which Roosevelt expanded, and several of which exist to this day -- generally eased costs and were thus deflationary, exacerbating the debt deflation dynamic, rather than boosting demand in a way which would have and ultimately did under Roosevelt end deflation.  And of course, the lack of a program to guarantee bank deposits was a singular failure.

Hoover lived until 1964. He implacably opposed the New Deal, and as a result, although he met Hitler in the late 1930s  and fully appreciated his danger, FDR sidelined him even when he offered his services after the outbreak of War. Truman did partially rehabilitate him, using his WWI template for the Marshall Plan. But we find out that Hoover was the backer of a plan to dismantle the New Deal had Truman not eked out a victory in 1948.

The first half of this book is highly recommendable. The second half is highly forgettable.

IV. "Wilson," by A. Scott Berg

This is a 750 page tome that, although very readable, and thoroughly covering Wilson's presidency, ultimately misses the mark.

Wilson's childhood was spent in the South before, during, and after the Civil War. Although he spent his entire adulthood in the North, he never lost that point of view.

By page 75, Wilson has graduated from Princeton. By page 200, he running for governor of New Jersey in 1910. By page 300 he is President. The next 400 pages are devoted to those 8 years. Although Wilson spent a full 30 years -- more than half of his adult life -- as a Professor of History and Political Science, and later Dean -- at Princeton, this merits only 125 pages.

This is a shame, because Wilson wrote a number of very prominent books on American History, and most notably on the Civil War period. He unequivocally stated his opinion that the South had the legal right to secede, but that it was good for the country that the North had won the war. It is a glaring omission from this biography that we never learn the ideology that led Wilson to this opinion, even though presumably the evidence is in plain view had Berg bothered to explore  Wilson's historical writings in depth.

We do learn that Wilson, as well as being a spellbinding and persuasive orator for his time (having honed his skill in the vacant pulpit of his father's church as a child), surprisingly, was quite the ladies' man, and an excellent dancer as well, with a taste for off-color limericks in his apparently ribald sense of humor that he rarely showed to the public. We also learn that intellectually, he was a complete prig, failing to see the difference between a good faith difference of opinion and a dishonest stab in the back. This brought him to a bitter end at Princeton before doing so, for largely the same reason, with the Treaty of Versailles, which, had he been willing to accept some largely inconsequential compromises and amendments, would have passed the Senate.

The author does not shrink from detailing Wilson's segregation of the Washington, D.C. civil service, a huge setback for African Americans at the time, and his apparent approval of the film, "Birth of a Nation," which celebrated the origin of the KKK, both of which may have played a role in the resurgence of the KKK in the 1920s. And even the "right of self-determination" that Wilson espoused for nations proved to be for whites only, as for example Japan, not to mention Vietnam, were snubbed, and intellectually boiled down to segregation writ large on the international stage.

Had the author explored the intellectual origins of Wilson's legal attachment to the Lost Cause, we would have had a much richer understanding of his policies as President.

Weekly Indicators for February 12 - 16 at XE.com

 - by New Deal democrat

My Weekly Indicators post is up at XE.com.

Weakness is several coincident indicators has persisted, and this week spread to tax withholding, which has fallen off a cliff.

Housing permits and industrial production: a brief note

 - by New Deal democrat

I'll take a more detailed look next week once new home sales are reported, but for now a quick update on housing starts and permits.

This month it is pretty simple:  all three metrics I look at -- permits, single family permits, and the three month average of housing starts -- all made new record highs for the expansion.

This is an excellent report.

But haven't interest rates gone up to 4 year highs, you say?  If interest rates are the single biggest determinant in housing, why didn't permits go down?

A similar phenomenon happened after the "taper tantrum" of 2013, and also in the late 1960s as Boomers entered the market. In the first few months after interest rates started to rise, permits and starts rose strongly!  This is probably because potential buyers panicked and decided to "lock in" their purchases before they were priced out of the market.

So I expect several more months of strength, even if higher interest rates persist.  On the other hand, if they do persist, I expect a slowdown in the housing market by about late spring.

Turning to industrial production, I'm not particularly worried about January's decline.  In the first place, it was mainly oil, not manufacturing -- although manufacturing was flat:

Also, in the last few years January has seemed to be a particularly volatile month, due to the vagaries of winter weather.

On the other hand, in my "weekly indictors" column, I have noted the anomalous mixed or negative data from steel and rail (carloads, not intermodal) in the last month or so. While I don't think the coincident tail wags the leading dog, probably that weak weekly data should have provoked more notice as to its implications for production.

Bonddad blog's 10,000th post!

 - by New Deal democrat

According to Blogger, that last post about real retail sales was the 10,000th post on the Bonddad blog.

Thanks to all of our readers over the years! This isn't the biggest or most successful economics blog, but it does have an influential readership, which has been growing in the last year or two.

And now, let the nerdiness go onward!

A detailed update on real retail sales

 - by New Deal democrat

I consider real retail sales to be one of the most useful barometers of the health of the consumer economy, including the near term jobs outlook.

I haven't posted a detailed look at this metric for awhile.  I have a current update over at XE.com

Why I'm worried about the decline in real wages

 - by New Deal democrat

This is a follow-up to my post yesterday concerning the decline in real average and aggregate wages. Why should the data from just one month cause me to warn that "This is Bad?"

To show you, let's decompose the data into CPI and nominal aggregate wages, shown in the below two graphs, the first of which covers the inflationary era of the 1960s and 1970s, and the second covers the disinflationary era since:

In the year prior to at least 5 (arguably 6) of the last 7 recessions, BOTH nominal aggregate wage growth was decelerating (1980 and arguably 1969 being the exceptions) and consumer inflation was increasing (1980 and arguably 2007 being the exceptions). The 1981 recession was caused by the Fed very aggressively raising rates, and in the other two instances the pattern held, but with much less of a lead.

Note that a very good coincident marker for the onset of a recession, within about 3 months, has been the point at which the trends intersect. i.e., where YoY consumer inflation increases to the level of decelerating aggregate payrolls.

Note further that in the last 18 months YoY consumer inflation has generally been increasing. Meanwhile there are some slight signs of deceleration in aggregate payrolls, highlighted by this past month.

So now let's subtract YoY inflation from YoY aggregate payroll growth:

When the relative growth in payrolls decreases by 50% from its high (e.g., from 4% to 2%), that is a good marker for the onset of at very least a slowdown (e.g., 1966, 1984, 2016). EVERY SINGLE TIME the line has crossed zero it has indicated the onset of recession.

In the last 6 months, this line has been declining again, from 3% to 2%.

Since the inflation rate is more than anything determined by the price of gas, and I see no reason to expect a decline in that, and further we know that deceleration in YoY payrolls growth is a very regular feature of later expansions, so I see no reason for that to reverse (unless if for some reason the new leadership at the Fed decides to reduce interest rates).

So, there's nothing imminent, but I am seeing what looks like the beginning of the trend that will ultimately end in a recession, maybe in 18 to 24 months.  That's what has me concerned.