Dear Professor Krugman, Say Its Name!!! "Taboo"

 - by New Deal democrat

Paul Krugman is coming closer to embracing my "taboo" argument.

A month ago I wrote that raising wages was becoming a taboo. I considered three alternative hypotheses:

1. monopsony (quoting Vox)

[I]n recent years, economists have discovered another source: the growth of the labor market power of employers — namely, their power to dictate, and hence suppress, wages.....{Monopsonistic f]irms [which pay less than "competitive" wages] bear the loss in workers (and resulting lowered sales)  in exchange for the higher profits made off the workers who do not quit. 

2. skittishness about the longer term economy

Since 2000 there have only been about 4 years at most (2005-07 and 2017) where the economy has seemed to be operating at close to full throttle.  If I [an employer] raise wages now, I will attract more workers, but then when the good times end, I will be stuck with a higher paid workforce than my competitors who haven't raised wages. If I think that "bad times" are likely to exist more often than "good times" in the foreseeable future, then I might hold back on increasing my labor costs during the good times ...

3. taboo

[A]n economic taboo [is a] decision to leave profits on the table because they conflict with an even higher priority held by the employer .... [If] I am an employer who *does* believe that the good times are likely to last, BUT I also believe that people who come to work for me ought to be grateful to earn, say $10 per hour, and because of my firm ideological belief, I am not going to budge. If ... my ideological belief is shared on a widespread basis by my competitors and other businesses, I am *not* at a competitive disadvantage. Thus depressed wages may persist because raising wages has become a taboo,  

Using the JOLTS data, I concluded based on the persistently excessive level of job openings vs. actual hires, together with the near record number of quits, that hypothesis number 3, "taboo," best fit the evidence.

Again, to briefly summarize: if skittishness about the durability of a strong economy were the primary driver of lower wages, I would not expect those employers to even go looking for new employees to hire at higher wages. In other words, there wouldn't be an elevated number of job openings vs. actual hires. Further if it were monopsony, we shouldn't see the near record number of employees quitting their jobs to take other, higher-paying jobs. Also, we wouldn't see the mismatch between hires and openings among small employers without monopsony power -- but we do. So "taboo" is the best hypothesis.

Subsequently, I also pointed out that the rising wage growth for job-switchers, vs. actual *declines* in wage growth for job-stayers, as described by the Atlanta Fed, also supported the idea that raising wages was becoming a "taboo."

A couple of weeks ago, Krugman looked at the issue preliminarily, and tentatively plumped for the "skittishness" argument:

OK, here's my theory about ... wages. What employers learned during the long slump is that you can't cut wages even when people are desperate for jobs; they also learned that extended periods in which you would cut wages if you could are a lot more likely than they used to believe. This makes them reluctant to grant wage increases even in good times, because they know they'll be stuck with those wages if the economy turns bad again.

Sunday he took another whack at it, and he appears to be moving off the "skittishness" argument towards the "taboo" argument, even citing the same high number of quits in the JOLTS report that I did: 

One [reason for stagnant wages] is simply that it has been a long time since labor markets were tight. Most  HR managers, I would guess, don’t remember what a full employment economy is like. They find the idea that there aren’t tons of highly qualified workers lined up for every job opening shocking – and,  inevitably, blame the workers. 

More speculatively, I’ve suggested that employers are especially unwilling to raise wages because they remember the Great Recession, and don’t want to lock in higher wage costs. 

Either way, I’d argue that the combination of downward nominal wage rigidity and monopsony power helps explain both why wages didn’t fall during the period of high unemployment and why employers aren’t doing much to raise wages despite tight labor markets now."

Krugman's first alternative is pretty close to what I've been saying:

learned behavior - check

no longer rewarded - check

resulting caterwauling and foot-stomping - check

What Krugman hasn't fully embraced yet is that the same behavior by employers has persisted for several years, as shown by the spike in job openings vs. stagnant actual hires in the JOLTS data over the last 24 months. By now the HR managers Krugman describes ought to be over their shock and busily raising wages, or training new hires to impart the necessary skills. By and large, they're not. That, Professor Krugman, means it's a taboo.

And by the way, Professor, when you get around to crediting the inspiration for your insight:

[cueing 007 music] 

The name is democrat. 

New Deal democrat.

Real retail sales update for April 2018

 - by New Deal democrat

It's a slow start of the week, so let's catch up on one of my favorite indicators, real retail sales, which were reported last week.

First of all, adjusted for population, real retail sales have peaked a year or more in advance of each of the last two recessions.  That hasn't happened yet, as the long term rising trend is intact, even if sales have backed off their wintertime highs

If they go longer than 6 months without making a new high, then it would be a signal for caution. But we're not there yet.

Also, in the short term consumption leads hiring, so let's update that comparison (these are YoY% changes):

This suggests that there should not be any significant weakness in the job market in the next few months.

Finally, since I've recently noted that the YoY change in the Fed funds rate has a good track record of forecasting the YoY% change in jobs 12-24 months out, let's add that (green) into the mix:

I don't think we'll see a significant downturn in jobs until real retail sales growth decelerates to about half its current YoY rate.

Weekly Indicators for May 14 - 18 at XE.com

 - by New Deal democrat

My Weekly Indicators post is up at XE.com.

The very last thing I do, only after I tabulate all the data, is to decide on the title.  This week it is "The long term forecast deteriorates further."

The percentage of employees who don't get wage raises; is the Taboo undergoing an "extinction burst"?

 - by New Deal democrat

I came across the below graph yesterday from the Kansas City Fed. It's pretty shocking:

It represents "wage rigidity." In english, that means the percentage of employees who don't get any annual wage increases.

It speaks for itself. Nine years into the economic expansion, with an unemployment rate under 4%, and un underemployment rate of 7.8% (only 1% above its all time low), more workers still aren't getting any raises than at any time during the 2001 recession or at any time during the expansion thereafter.

And it isn't simply slack in the labor force.  Here's the employment-population ratio for prime age workers:

This is only 2.7% below its all time peak in 2000, and equivalent to where it was in 2005. But in 2005, about 12.5% of workers weren't getting annual raises. Even now the rate is about 14.5% -- and rising over the past year.

This is the Taboo against raising wages in action. This is, in psychological terms, a learned behavior.

Even after the advent of "behavioral economics," the failure of economists to employ explanations of macro level behavior based on the concepts of learning and unlearning remains one of economics' glaring blind spots.

To refresh, a behavior that is rewarded will be learned over time, and repeated over and over thereafter, even if the rewards become sporadic. And it will even continue for awhile after the rewards are no longer there at all. Not infrequently, before the behavior is given up on, there will be an "extinction burst."

What is an "extinction burst"? It is the type of wailing, frustrated, foot-stomping, angry outburst that is characteristic of toddler temper tantrums.  If you ever watched the show "Supernanny," you've seen it: 

The caterwauling of employers that they simply can't find qualified candidates (unspoken: for the wages they want to pay them) has all of the earmarks of just such a temper tantrum.

For all but a few years in the last 15, many employers became accustomed to having multiple applicants for any job they offered, who had already learned the skills (and presumably been "downsized" or laid off by a previous employer). To put it simply: this was Marx's "reserve army of the unemployed." Employers were rewarded even if they did not offer any raises. They became accustomed to the success of this practice. In other words, they *learned* the behavior.

Now the behavior is no longer being rewarded. At the wages previously offered, candidates already skilled at the position are no longer available or applying. Instead, the "quits" rate of employees leaving their jobs for other, better-paying jobs, is near an all-time high.

So what does psychology tell us to expect? An extinction burst.

And that may be just what we are seeing in the soaring number of "job openings" compared with actual hires. Employers who don't want to raise wages are furiously repeating their learned behavior, trying one last time to make it work. 

Interest rate and gas price watch

 - by New Deal democrat

For nearly a decade, this "little expansion that could" has dodged a lot of bullets. But I suspect that the recent trend of rising interest rates and gas prices - if they continue - may finally be the cause of its ultimate demise (not now, but maybe in 18 or 24 months).  

Initial points to watch are 5% on mortgage rates and $3/gallon on gas prices.

So let's take a look. First, here are mortgage rates through yesterday (from Mortgage News Daily):

In 2016, these were as low as about 3.4%. Even after the US Presidential election, last year they hovered at about 4%. As of yesterday, they were 4.78%. Compared with mid-2016, about $375/month has been added on to the monthly payment for a new $300,000 mortgage.

Still, we're not quite at the 5% level yet (to reiterate: my best guess is that it will take 5.25% rates for at least 6 months to overcome the demographic tailwind in the housing market).

Next, here are gas prices through yesterday (from GasBuddy):

These have risen to $2.92/gallon. I suspect we will see $3/gallon shortly.

I've seen commentary that it will probably take $5/gallon for consumers to cut back on spending generally. This comes generally from the work done by Prof. James Hamilton in which he posits that consumers aren't "shocked" by a mere return to formerly high price levels. But I suspect that, as time goes on, consumers get more and more used to lower prices, so it might not take that much.

As an example, I give you the 1980s. Gas prices had risen from $.40/gallon to $.80/gallon in the 1974 Arab embargo, and then to roughly $1.35/gallon in the second shock in 80. In the early 1980s, they hovered near that mark before falling abruptly at mid-decade. They started rising again by 1989, and spiked to about $1.35/gallon during Saddam Hussein's invasion of Kuwait (red line below):

YoY real GDP started to fade in 1989, and rolled over in 1991 coincident with that invasion.

While it's noisy, when we compare real retail sales with gas prices, generally we see a 1:1 substitution in consumer spending into 1989, and then that fades as well until the shock in 1990:

In 1990, gas prices were less than 10% above their 1980 peak by this measure. In other measures, they didn't even quite reach that peak. In today's terms that would mean about $4.50 (compared with 2008's $4.23).

At $3/gallon, we will reach a point comparable with 1989. So my suspicion is that consumers will simply re-allocate spending from luxuries like entertainment at first. That will still cause $$$ to flow out of the US to petrosheikhdoms. If we get above $4/gallon towards, $4.50, that will probably be enough for consumer retrenchment.

Mind you, I'm not saying that we *will* reach these interest rate and gas price levels. But it's time to start watching.

And now, time for a little shameless self-congratulation

 - by New Deal democrat

The Intelligent Economist has come out with its list of the Top 100 Economics Blogs for 2018:

The 2018 list highlights many newcomers and covers a wide range of economic topics. Blogs are included in categories ranging from general economics to specific topics such as finance, healthcare economics, and environmental economics. There are microeconomic blogs, macroeconomic blogs, and blogs which focus on specific geographic regions.. . . .   Candidates were chosen based on quality, not popularity or mainstream appeal.

And there on the list, along with all the traditional Big Boyz (and Angry Bear, where most of my stuff is cross-published), you will find this:

So, thank you to the Intelligent Economist, and you, Dear Reader, should consider yourself part of a small but elite group.  :-)

April housing tantalizingly ambiguous; industrial production whipsawed but positive

 - by New Deal democrat

This morning April housing permits and starts, as well as industrial production, were released.

The housing data was tantalizingly capable of several interpretations.  Below are the single family permits, which I favor because they are the least volatile measure, and multi-unit permits:

Not shown, for this expansion the number of total permits issued was lower than only  January and March.

The first takeaway is that the increasing trend in single family permits since 2011 is intact. Hurray!

The second takeaway is that in the last two months, single family permits have declined from their recent high, while multi-unit permits have increased. This *may* mean that increased interest rates have finally bitten enough that some prospective buyers are being forced to back off from buying a single family home, and either buying a condo or renting an apartment instead. This "substitution effect" has happened late on earlier housing cycles, so it is possible it is starting to happen now. If that is true, then we should regard the big surge in permits during the winter as a "buyer's panic," where, fearful of even higher rates in the near future, potential buyers locked in *relatively* lower rates earlier. Time will tell. Like I said, tantalizingly ambiguous.

Here's a look at the more volatile housing starts, both monthly (blue), and quarterly through March (red):

The three month moving average of starts, which I use to cut down on the noise, backed off only slightly from its expansion high one month ago.  Since (not shown) there remain an increased number of units that have been permitted but not started, I expect this metric to continue to increase for at least a few more months.
___________

Industrial production, meanwhile, whipsawed.  There was a big increase in April, but almost as big a downward revision for March. The net result is that production only rose +0.1% from the previous estimate for March. Regardless, the last two months together show a rise of over 1% from February:

So the positive trend in this king of coincident economic indicators is intact.

R.I.P. bond bull market, 1981-2016

 - by New Deal democrat

On September 30, 1981, the 10 year US Treasury bond yielded 15.84%. It has not been that high since.  On July 8, 2016, it fetched only 1.37%.  It is unlikely to see that low rate again for a very, very long time.  Those two dates likely mark the birth and death dates for perhaps the biggest bond bull market in history.

Here (from CNBC) is the relevant graph:

Today the 10 year closed at 3.067%, having hit an intraday high of 3.09%.  In the 1990s it twice made 3 year highs.  In 2006 it made a 4 year high. By contrast, the last time it was as high as it closed at today was 7 years ago in 2011.

The immediate cause of death for the bond bull market was likely the ill-conceived multi-$Trillion GOP tax giveaway to the wealthy enacted in December, in the midst of an economy operating near full capacity.

Perhaps of more immediate importance, CNBC also reported  (via Mortgage News Daily) that 30 year mortgage rates had risen to 4.875% today. That is also a 7 year high. Mortgage rates had been as low as 3.30% in 2013 and 2016.

A few months ago I estimated that it would take a minimum of a Treasury yield of 3.25% and a mortgage rate of 5%, for at least 6 months, to overcome the demographic tailwind underpinning the housing market.  We are now close to both of those rates. And refinancing debt at lower rates, which did so much to help keep the middle and working classes afloat during the last 30+ years, is now dead.

In the longer term, I believe we have now entered an interest rate period similar to the late 1950s-1980, where each economic expansion saw higher and higher interest rates. 

Meanwhile, the time to rebuild our worn-out infrastructure at ultra-low interest rates has been completely wasted. I can see the future, and it makes me sick to my stomach.

On the Cusp

 - by New Deal democrat

About half of all of the long leading indicators are, if their current trajectories continue, on the cusp of turning negative by next winter sometime.

This post is up at XE.com.

Real wage growth adjusted for gas prices

 - by New Deal democrat

One of the things I note from time to time in my discussions of wage growth is how much its fluctuation in real terms has been affected by gas prices. For example, in the middle of the worst recession in nearly 70 years, real wages actually went up! Why? Because gas prices fell from $4.25/gallon to $1.50/gallon in just a few months.

So, what would a long term view of real wages look like if I took out the whipsawing effect of gas prices? 

In the 25 years from 1970 to 1995, what you mainly find is that the huge increase in the new supply of potential workers (women) acted to depress wages, so the below graphs start in 1995. In the first, I've normed the level of both real wages in total (red) and real wages ex-gas prices (energy) (blue) to 100:

You can see how much the secular rise in gas prices from $0.80/gallon in 1998 to $4.25/gallon in 2008 depressed real wage growth; and similarly how the collapse from nearly $4/gallon to $1.70/gallon in 2014-16 helped it.

More importantly, notice that real wages adjusting for gas prices rose at a fairly steady clip from 1995 through 2010.  Since then, the increase has been quite slight.

Looking at the same data as YoY% changes is helpful in seeing the change in trend:

With some exceptions, real wages rose about 1.5% a year on average between 1995 and 2010. But since then, they have averaged no better than about half of that, +0.7% a year.

During the entire last 7 year period, real wages leaving aside gas prices have only gone up about +1.4%.

Further, so far it doesn't appear to be a matter of a labor market that isn't tight. In the below graph I have overlaid the U6 broad underemployment rate onto real wage growth adjusted for gas prices. 

In both the late 1990s and the beginning of 2005, when real wage growth started to accelerate, U6 was roughly at 9.3%. We arrived at that benchmark in November 2016, without any noticeable acceleration in wage growth in the 18 months since.

Weekly Indicators for May 7 - 11 at XE.com

 - by New Deal democrat

My Weekly Indicators post is up at XE.com. The general situation with regard to interest rates continues to deteriorate ever so slightly towards being negative.

Real wages and unemployment update: April 2018

 - by New Deal democrat

Now that we have the inflation numbers for April, let's update the wage situation for ordinary Americans.

Real wages YoY are only up +0.2%:

More significantly, they are still down -0.3% from their most recent high 9 months ago:

They are also only up +0.2% for the entire last 2 years and 2 months.

Increased consumption by ordinary Americans isn't up because they are making more in real terms. Rather, it is because they are working slightly (on average about +0.1) more hours; saving less of their paycheck (down from 3.9% to 3.1% in the last 12 months); and because more people are employed (discussed below).

Real *aggregate* wages tell us how much more in total average Americans are earning. This is up +24.9% since its post-recession bottom in October 2009:

Here's how that compares with other economic expansions over the last half century:

Aggregate wages in this expansion have risen for 102 months so far. At a total of +24.9%, this expansion is behind only the 1960s and 1990s. But on average aggregate wages have only grown .24% per month, still in second to last place just ahead of the 2000s expansion and slightly behind the 1980s.

I expect aggregate wage growth to decelerate sharply before the onset of the next recession. It hasn't happened yet:

Turning from wages to unemployment, weekly initial jobless claims tend to lead the unemployment rate by several months. Just to change things up a little bit, the below graph shows this comparison with the U6 underemployment rate:

Initial jobless claims have been making new 45+ year lows several times in the last 6 weeks, so the decline in the unemployment rate to a new multi-decade low last month was not a surprise, as shown in this close-up of the last 8 years: 

The decline in the unemployment rate in the April jobs report has been criticized as being due solely to a decline in the number of people in the labor force. It's worth noting that if that decline had only been about 30,000 less, the unemployment rate still would have declined, albeit only by -0.1% rather than -0.2%.

Generally speaking, at the moment the economic condition of the American working and middle class is better than it has been in nearly 20 years. But this is mainly due to the low unemployment rate and paltry rate of layoffs, and the steep decline in gas prices between 2014-16 which resulted in "real" wage growth, rather than any significant wage gains.

Gimme credit: two long leading indicators trend in opposing directions

 - by New Deal democrat

The Senior Loan Officer Survey for Q1 was reported on Tuesday.

Meanwhile, this morning's April CPI allows us to update real M1.

This post is up at XE.com.

Two real economic consequences of the Trump presidency

 - by New Deal democrat

Next week we will be 1/3 of the way through Trump's Presidential term. Last year I used to point out that it was really still Obama's economy, as the GOP had failed to pass, nor Trump commence, any economic policy of consequence.

That is no longer the case.

In late December the GOP Congress passed and Trump signed their huge giveaway for the wealthy. Yesterday, Trump pulled out of the Iran nuclear deal. Both of these are going to have significant consequences for average Americans.

First, Trump's election caused interest rates to spike. Wall Street guessed that there would be lots more business spending, meaning a stronger economy with higher inflation. As nothing much happened in 2017, interest rates settled back down somewhat.  But then in late December the tax bill was passed, and shortly thereafter interest rates spiked to five year highs:

As I write this, 10 year Treasury yields are back over 3%. More importantly, mortgage rates are also at 5 year highs:

This is about 1.2% higher than just before the Presidential election. On at $300,000 house, that translates to $3600 a year in additional interest.

Second, as I write this Oil prices are over $71/barrel. This is a 3 year high:

Oil prices have recovered about half of their steep 2014 decline.

Prices for gas at the pump are following:

Nationwide gas prices are averaging about $2.80 a gallon at the moment. Since it takes several weeks for oil prices to feed through into gas prices, prices at the pump are likely to exceed $3 a gallon shortly.  That is the sort of thing that consumers notice.

Certainly much of the increase in oil and gas prices is part of the typical commodity cycle, in which "the remedy for low (high) gas prices, is low (high) gas prices." But the recent increase is at  least partly a reaction to the likely consequences of further destabilization in the middle east.

So, Trump's Presidency is beginning to have real consequences for ordinary Americans. The markets believe that the effects are stagflationary, i.e., leading to both increased inflation and decreased demand.

March JOLTS report: powerful further evidence of a taboo against rasing wages

 - by New Deal democrat

The March JOLTS report this morning is powerful further evidence that raising wages (or training new workers) has become a taboo.

Just about everyone thinks that, faced with a worker shortage, "rational" employers will offer higher wages to fill the empty skilled positions. This in turn will draw more marginal potential workers into open unskilled positions.

That's the theory, anyway.

What is really happening -- as so breathtakingly shown this morning -- is that by and large employers will refuse to raise wages, and then complain about their unfilled job openings.

As Exhibit "A," I give you job openings (blue) vs. actual hires (red) in this morning's report:

As a refresher, unlike the jobs report, which tabulates the net gain or loss of hiring over firing, the JOLTS report breaks the labor market down into openings, hirings, firings, quits, and total separations.

Not only has hiring been flat for the last 10 months, but it was higher than today's level in November 2015, January 2016, and January 2017. Meanwhile job openings have skyrocketed by 20% since January 2017, and 25% since the end of 2015!

This can only be considered a "skills mismatch" for the wages you want to pay, and if you refuse to train workers without existing matching skills.

Incidentally, Paul Krugman may be ready to embrace the idea of a taboo against raising wages, although for now he is plumping for the "employers are afraid of getting stuck with a highly paid workforce when the next recession comes" hypothesis. The problem with that particular hypothesis, though, is that such skittish employers -- a lot of them anyway -- won't bother to post new job openings, since they know they would need to raise wages to fill them. The big spike in openings in this morning's report suggests instead that employers are refusing to get the message.

Turning to other noteworthy items in the report, as a general rule, historically hiring leads firing.  While the one big shortcoming of this report is that it has only covered one full business cycle, during that time hires have peaked and troughed before separations. This is manifest when we compare hiring (red) and total separations (blue) on a quarterly basis as it existed through the end of the third quarter of 2017:

Here is the monthly data through this morning's report for the last several years:

The updated graph shows hiring last making a peak in October 2017.  Meanwhile separations actually peaked before then, in July of last year, with a clear downtrend since, another significant revision since last month. *if* both have made their expansion highs, needless to say that would be important.

Further, in the previous cycle, after hires stagnated, shortly thereafter involuntary separations began to rise, even as quits continued to rise for a short period of time as well:

[Note: above graph show quarterly data to smooth out noise]

Here are voluntary quits vs. layoffs and discharges on a monthly basis for the last 2 years:

If hiring and total separations have indeed peaked for this cycle, based on the last cycle I would expect quits to continue to improve for a short while -- and they have -- before also beginning to decline. As a counterpoint to that, separations have approached their bottom, a very good sign.

And indeed, I don't even see a yellow flag until hires and separations go negative YoY, as they did before well before the last recession, which they haven't yet:

Two months from now when the YoY comparisons get much harder, if we haven't established any new highs in hires and total separations, and they are at or below zero -- which is a real possibility -- then we may have confirmation of a late-cycle trend.

The simple jobs and interest rates model generates a yellow flag

 - by New Deal democrat

Several months ago, I started toying with a simple model of interest rates and job growth.* Based on the historical evidence, I suggested that:

1. a YoY increase in the Fed funds rate equal to the YoY% change in job growth has in the past almost infallibly been correlated with a recession within roughly 12 months.

2. the YoY change in the Fed funds rate (inverted in the graph below) also does a very good job forecasting the *rate* of YoY change in payrolls 12 to 24 months out.

One shortfall of that model is that there are two "false negatives" in the low interest rate environment of the 1950s, during which the YoY increases in interest rates by the Fed were relatively modest, and did not exceed the YoY change in payrolls until after the recessions had already begun.

A variation on the model is that, since the 1950s, the simple rise in the Fed funds rate from its low near the beginning of an expansion, has always exceed the YoY% change in job growth *before* the onset of all of the subsequent recessions. This variation has limited value as a "yellow flag," strongly cautioning that there is a heightened probability of a recession is within 18 months, with the "red flag" suggesting the near certainty of a recession within 12 months only if/when the YoY increase in interest rates exceeds the (decelerating) YoY% growth in jobs.

With YoY employment growth at 1.6%, and the YoY change in the Fed funds rate of 0.75%, there is no "red flag" warning:

But because the total increase in the Fed funds rate during this expansion has been 1.7%, the "yellow flag" has been activated:

Further, because the Fed funds rate has been hiked by 0.75% in the last year, that suggests that a further YoY% decline in payrolls growth is already "baked in the cake" over the next 12-24 months, to a level of roughly +0.8% YoY:

That suggests that if the Fed makes 3 more 0.25% interest rate hikes in the next year, the "red flag" will be triggered at some point in that 12-24 month window.

----------

*N.B. This is only one of a number of forecasting metrics I use. The most important is the long/short leading indicator method based on the work of Prof. Geoffrey Moore and Prof. Edward Leamer. This is supplemented by the much more timely but volatile "Weekly Indicators" method. I also have a fundamentals-based forecast based on consumer behavior, and a less-organized corporate model as well.

Weekly Indicators for April 30 - May 4 at XE.com

- by New Deal democrat

My Weekly Indicators post is up at XE.com.

Oil prices have risen to the point where, when they filter through to gas prices at the pump, are likely to be noticed by consumers.

April jobs report: excellent in almost all respects

- by New Deal democrat

HEADLINES:

• +164,000 jobs added
• U3 unemployment rate fell -0.2% from 4.1% to 3.9%
• U6 underemployment rate fell -0.2.% from 8.0% to 7.8%

Here are the headlines on wages and the chronic heightened underemployment:

Wages and participation rates

• Not in Labor Force, but Want a Job Now:  up +19,000 from 5.096 million to 5.115 million   
• Part time for economic reasons: down -34,000 from 5.019 million to 4.985 million
• Employment/population ratio ages 25-54:  unchanged at 79.2%
• Average Weekly Earnings for Production and Nonsupervisory Personnel: rose $.05 from  $22.46 to $22.51, up +2.6% YoY.  (Note: you may be reading different information about wages elsewhere. They are citing average wages for all private workers. I use wages for nonsupervisory personnel, to come closer to the situation for ordinary workers.)      

Holding Trump accountable on manufacturing and mining jobs

 Trump specifically campaigned on bringing back manufacturing and mining jobs.  Is he keeping this promise?  

• Manufacturing jobs up +24,000 for an average of 12,000/month in the past year vs. the last seven years of Obama's presidency in which an average of 10,300 manufacturing jobs were added each month.   
• Coal mining jobs up +700 for an average of 100/month vs. the last seven years of Obama's presidency in which an average of -300 jobs were lost each month

February was revised downward by -2,000. March was revised upward by +32,000, for a net change of +30,000.   

The more leading numbers in the report tell us about where the economy is likely to be a few months from now. These were positive.

• the average manufacturing workweek rose +0.2 hours from 40.9 hours to 41.1 hours.  This is one of the 10 components of the LEI.
 
• construction jobs increased by +17,000. YoY construction jobs are up +257,000.  

• temporary jobs increased by +10,300. 
 
• the number of people unemployed for 5 weeks or less decreased by -172,000 from 2,287,000 to 2,115,000.  The post-recession low was set over two years ago at 2,095,000.

Other important coincident indicators help  us paint a more complete picture of the present:

• Overtime rose +0.1 hours from 3.6 hours to 3.7 hours.
• Professional and business employment (generally higher-paying jobs) rose by +54,000 and  is up +518,000 YoY.


• the index of aggregate hours worked in the economy rose by 0.5%.

•  the index of aggregate payrolls rose by 1.1%.     

Other news included:            

• the  alternate jobs number contained  in the more volatile household survey increased by  +3,000 (!)  jobs.  This represents an increase of 2,020,000 jobs YoY vs. 2,280,000 in the establishment survey.      
     
• Government jobs fell by -4,000.       

• the overall employment to population ratio for all ages 16 and up declined -0.1% to 60.3  m/m  and is up +0.1% YoY.          
• The labor force participation rate declined -0.1% to 62.8  m/m and is down -0.1% YoY  

 SUMMARY   

All of the good news I expected in last month's employment report (but was probably negated by  the weather) showed up in this month's report. In particular, both the unemployment and underemployment rates declined to new expansion lows. Aggregate hours and payrolls also improved strongly, and hourly wages for nonsupervisory workers tied their expansion high at +2.6% YoY. Involuntary part time employment also fell further, while employment in all significant services and industries rose.

About the only flies in the ointment were the pathetically weak +3,000 improvement in the very volatile household number, the declines in both the employment-population ratio and the labor force participation rate, and the slight decline in YoY payroll growth (consistent with my expectation that this will restart its late cycle slow fade).

But, all in all, an excellent report.