Sunday, November 4, 2018

As predicted, a deeply unpopular Trump stomped on the GOP message; early races I'll be watching Tuesday night


 - by New Deal democrat

As I wrote a few weeks ago, whatever message Congressional GOPers might have wanted to put out (like, "our tax cuts helped spur the best economy in years!") got stomped on by Donald Trump.

As it turns out, (please be sitting down for this) he was being truthful when he talked about momentum having been going his way. Here's Gallup's weekly polling through last Sunday:


Until the bomb attempts and several mass shootings derailed things, his approval ratings in the weeks following the Kavanaugh confirmation were the best since spring 2017.

Then, during the week of actual and attempted mass murder he went down 4 points. 

Trump being Trump, he had to grab back the limelight, so he blamed the press (and even the victims for not having armed guards in their place of worship!), and amped up the anti-immigrant volume, thus guaranteeing the the ugliest face of the GOP is what has been last shown to the public before Tuesday's polling.

I'll update this post with Gallup's final pre-midterms weekly number when it comes out tomorrow.

By the way, Gallup also supplied a nifty chart of Presidential and Congressional approval for each of the last 10 midterms in addition to current polling:



Only George W. Bush had worse numbers in 2006, and only the Congressional democrats had worse numbers in 2014.

Just based on those numbers, I would expect the incumbent President's party to take a pasting.

We ought to get some clues from some east coast races early Tuesday night. So here's a handy list of the tightest ones, that I will be particularly watching:

Governor

Toss up
Georgia - Stacey Abrams (D) vs. Brian Kemp (R)

D-slight favorite
Florida governor - Andrew Gillum (D)  vs. Ron DiSantis (R) 

D-higher favorite
Maine governor- Janet Miils (D) Shawn Mills (R)

Senate
D-slight favorite
Florida senator -  Bill Nelson (D) vs. Rick Scott (R)

D-higher favorite
NJ senator - Bob Menendez (D) vs. Bob HUgin (R)

Most of the contested races for governor or senator are in the midwest and mountain west, so the issue in the East is whether there are any upsets. Florida, of course, is perennially tight. Meanwhile NJ voters have been asked to hold their noses and "vote for the crook, it's important." If there is a race where bashful voters lied to pollsters, the NJ senate race is it.

House of Representatives

D higher favorites
ME-2 Janet Golden (D) 5/8 vs. Bruce Poloquin (R)
NY-19 Antonia Delgado (D) 5/8 vs. John Faso (R) 

D-slight favorite
FL-26 Debbie Mucarsel-Powell 5/9 vs. Carlos Curbelo (R)

Ties
NY-22 Anthony Brindisi (D) 1/2 vs. Claudia Tenney (R)
NJ-3 Andy Kim (D) 1/2 vs. Tom MacArthur (R) 1/2

R-slight favorites
VA-5 Leslie Cockburn (D) vs. Denver Riggleman (R) 5/9
NC-9 Dan McCready (D) vs. Mark Harris (R) 5/9
VA-7 Abigail Spanberger vs. Dave Brat (R) 4/7
PA-1 Scott Wallace (D) vs. Brian Fitzpartrick (R) 3/5
FL-15 Kristen Carlson (D) vs. Ross Spano (R) 3/5

R-higher favorites
GA-8 Lucy McBarth (D) vs. Karen Handel (R) 5/8
NC-13 Kathy Manning (D) vs. Ted Budd (R) 7/10
VA-2 Elaine Luria (D) vs. Scott Taylor (R) 5/7

Outside of California and a few seats in the upper midwest, the east is really where most of the action is in the House of Representative races. If there are upsets in the "slight favorites," that will give us a lot of information as to whether or not there is a "blue wave." Meanwhile, if democrats lose both "higher favorited" races, their ability to take the House is in real trouble. Contrarily, if the GOP loses one or more the the races where they are "higher favorites," be on the lookout for a blue tsunami!

I plan on watching the returns and following these races Tuesday night, so I will update this post with  results as they come in.

Saturday, November 3, 2018

Weekly Indicators for October 29 - November 2 at Seeking Alpha


 - by New Deal democrat

My Weekly Indicators piece is up at Seeking Alpha.

Several areas, like rail traffic, saw significant rebounds. But interest rates also rose to new expansion highs as well.

As usual, not only does clicking and reading the article bring you up to the moment on what is happening with the economy, it also helps put a little $$$ in my account.

Friday, November 2, 2018

October jobs report: probably the best report of the entire expansion


 - by New Deal democrat


HEADLINES:
  • +250,000 jobs added
  • U3 unemployment rate unchanged at 3.7%
  • U6 underemployment rate declined -0.1% from 7.5% to 7.4% 
Here are the headlines on wages and the broader measures of underemployment:

Wages and participation rates
  • Not in Labor Force, but Want a Job Now:  rose +72,000 from 5.237 million to 5.309 million   
  • Part time for economic reasons: fell -21,000 from 4.642 million to 4.621 million 
  • Employment/population ratio ages 25-54: rose +0.4% from 79.3% to 79.7%
  • Average Hourly Earnings for Production and Nonsupervisory Personnel: rose $.07 from  $22.82 to $22.89, up +3.2% 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 rose +32,000 for an average of +21,000/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 fell -200 for an average of -8/month vs. the last seven years of Obama's presidency in which an average of -300 jobs were lost each month
August was revised upward by 16,000. September was revised downward by -16,000, for no net change.

The more leading numbers in the report tell us about where the economy is likely to be a few months from now. These were mainly positive.
  • the average manufacturing workweek fell by -0.1 hours to 40.8 hours.  This is one of the 10 components of the LEI.
  • construction jobs rose by +30,000. YoY construction jobs are up +330,000.  
  • temporary jobs rose by +3300. 
  • the number of people unemployed for 5 weeks or less decreased by -8,000 from 2,065,000 to 2,057,000.  The post-recession low was set five months ago at 2,034,000.
Other important coincident indicators help  us paint a more complete picture of the present:
  • Overtime was unchanged at 3.5 hours.
  • Professional and business employment (generally higher-paying jobs) increased by +35,000 and  is up +516,000 YoY.
  • the index of aggregate hours worked for non-managerial workers rose by +0.2%.
  •  the index of aggregate payrolls for non-managerial workers rose by +0.5%.     
Other news included:            
  • the  alternate jobs number contained  in the more volatile household survey increased by  +600,000  jobs.  This represents an increase of 2,748,000 jobs YoY vs. 2,516,000 in the establishment survey.    
  • Government jobs increased by +4,000.
  • the overall employment to population ratio for all ages 16 and up increased +0.2% from 60.4% m/m to 60.6% and is +0.4% YoY.          
  • The labor force participation rate rose +0.2% from 62.7% to 62.9 and is up +0.2% YoY.

SUMMARY

This was probably the single best report of the entire expansion. The only flies in the ointment were a slight increase in people not in the labor force who want a job now, and a slight decline in the manufacturing workweek. The headline unemployment rate was unchanged at its expansion low.

Aside from that, virtually everything moved in the right direction, in many cases to expansion highs. For the first time, wages for ordinary workers grew over 3% a year. Participation increased across the spectrum. The headline job growth number was excellent, and the more volatile household survey trend was even better.

If this were a Presidential election year, this would be awesome news for the incumbent. Even in a midterm year, this certainly can't hurt as a closing economic argument for the majority party. Regardless of one's ideology, however, this was simply an excellent report.

Thursday, November 1, 2018

ISM new orders posts lowest reading in nearly 2 years


 - by New Deal democrat

The October PMI® registered 57.7 percent, a decrease of 2.1 percentage points from the September reading of 59.8 percent. The New Orders Index registered 57.4 percent, a decrease of 4.4 percentage points from the September reading of 61.8 percent.
On Tuesday I said that "the first thing I am looking for is decelerating growth which will show up in a reading below 15 in the average of  Regional Fed reports, and below 60 in ISM new orders."

The regional Fed average is still above 15, but this morning we got the reduction in the ISM.

Here's what the baseline chart for the regional Fed averages (left) and ISM new orders (right) for 2018 now looks like:

JAN   15   65.4
FEB   20   64.2
MAR   16   61.9
APR   17   61.2
MAY   28   63.7
JUN   24   63.5
JUL   24   60.2
AUG   17   65.1
SEP   20   61.8
OCT 18  57.4

While 57.4 is a very positive reading on an absolute scale, nevertheless this was the lowest ISM new orders reading since November 2016, almost two years ago.

I expect slowing to continue.

Wednesday, October 31, 2018

Some good news on workers' wages


 - by New Deal democrat

There was some good news this morning about workers wages. The quarterly employment cost index showed a q/q increase of +0.9% for wages (red in the graph below), and +0.8% for overall compensations (blue) (which includes things like medical benefits). Nominal YoY increases were +3.0% and 2.8%, respectively:



Unlike "average hourly earnings" (green in the graph above), which are reported monthly as part of the jobs report, the employment cost index is a median, rather than an average, measure. This avoids the distortion caused by a few high-wage earners. It also keeps the perecentage of workers in each occupation constant over time, in order to measure the change in compensation for the same job. In other words, as of the third quarter of this year, 50% of all occupations, as a weighted average, got an increase of +3.0% or more in wages over the past year.

Notice that recently the rate of annual growth in average hourly wages for nonsupervisory workers has also been increasing.  We're still not at the best levels of the 2000s expansion, which itself was no great shakes -- and in real, inflation-adjusted terms wages only outpaced inflation by +0.7% -- but still, this is some unalloyed good news.


Housing has peaked*


*(unless the Fed lowers interest rates)

- by New Deal democrat

My comprehensive look at September housing data is up at Seeking Alpha. The downtrend in housing statistics has been sustained and severe enough for me to make the call that housing has peaked, by most measures, between last November and this past March.

This does not mean that I am calling for a recession at this time. But it does mean that this long leading indicator is now a firm negative. There are three constributing factors to this turn in the market:

1. Interest rates have risen (to roughly 5% for 30 year mortgages)
2. unlike 2014, when a similar but not quite so severe rise in interest rates only caused a temporary pasue in the market, house prices as a multiple of household income are at or near new peaks.
3. the capping of the Federal deduction for state and local taxes has really hit markets in California and the northeast megalopolis.

None of the three factors look likely to abate in the near future. Thus I expect the trend in housing to remain below the recent peaks.

What *is* a possibility (and for what it's worth I believe this plays a role in Bill McBride's belief that housing hasn't peaked yet) is that, if inflation remains subdued, the Fed could react to a softening economy next year by reversing course and lowering interest rates, thus breaking the downtrend.

In any event, as usual, heading on over to Seeking Alpha to read my long article should hopefully be informative for you, and it rewards me with a little $$$ for my efforts.


Tuesday, October 30, 2018

The Housing Affordability Crisis


 - by New Deal democrat

This morning both the Case-Shiller House Price Indexes for September, and Third Quarter Median Asking Rent were reported, as was the rental vacancy rate.  Together they reveal that all types of shelter costs, whether housing or apartments, are at or near record levels.

The Case Shiller 20 City index was reported up 5.5% YoY, and the National Index was up 5.8% YoY. Meanwhile median household income, as reported by Sentier Research one month ago, was only up 2.8% YoY.  So while the media is generally reported the "good news" that house prices are appreciating less than the 6%+ rate they had been recently, "real" homeownership costs continue to be near a record multiple of household income, as shown in this graph from Political Calculations:



Meanwhile median asking rent increased about 5% just in the last Quarter, and is up over 10% from one year ago:



Because, *relatively speaking,* renting is still less expensive than purchasing a house, the rental vacancy rate continues near record lows:



A few years ago, HUD put out a report speaking of a "rental affordability crisis." I think we are past that now. All forms of housing costs, whether ownership or renting, are at crisis levels.


Monday, October 29, 2018

Setting a baseline for a manufacturing slowdown


 - by New Deal democrat

If I am right that by roughly midyear 2019 the economy will experience a substantial slowdown, then we ought to start seeing a deceleration in the leading indicators for manufacturing soon. Additionally, if rail transportation is accurately signaling that a slowdown is already hitting due to the impact of Trump's tariffs and China's retaliation, producers ought to be noticing the effects almost immediately, and begin to react.

Which makes me think that manufacturing new orders, as measured monthly by five of the regional Feds and also the ISM, ought to start slowing down by the end of this year.

To establish a baseline, I've gone back and obtained the average of the five Fed regional reports (first column), and the ISM new orders index reading (second column) since the beginning of this year.  Without further fanfare, here they are:

JAN   15   65.4
FEB   20   64.2
MAR   16   61.9
APR   17   61.2
MAY   28   63.7
JUN   24   63.5
JUL   24   60.2
AUG   17   65.1
SEP   20   61.8
OCT 18  N/a

The ISM Manufacturing Index, including new orders for October, will be reported Thursday morning.  Here's what it looked like through August:



Readings above 60 are particularly strong. So the first thing I am looking for is decelerating growth which will show up in a reading below 15 in the average of  Regional Fed reports, and below 60 in ISM new orders.

Saturday, October 27, 2018

Weekly Indicators for October 22 - 26 at Seeking Alpha


 - by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

Weakness, which had been confined to the long leading indicators, is now showing up in some of the short leading indicators as well.

Meanwhile, Trump's tariffs look like they are taking an immediate bite out of economic activity. In other words, all of that front-running that boosted inventory accumulation that showed up in Q3 GDP may be ending, replaced by a hole that has opened up under the mainly agricultural goods which have been the targets of China's retaliation.

Friday, October 26, 2018

A note on Q3 GDP UPDATED with link to Seeking Alpha


 - by New Deal democrat

I submitted my piece on Q3 GDP to Seeking Alpha at about 9"30 this morning. As of now, they have not posted anything whatsoever from any author discussing this report. Dunno why.

Anyway, the takeaway is that this was a mediocre - not bad, just not particularly good - GDP report that was bolstered to the tune of 2% by inventory accumulation (probably front-running the increased costs of tariffs).  And housing has most definitely turned.

I'll update with a link as soon as SA posts my take.

UPDATE: And, here's the link.  One long leading indicator is still doing well. The other, not so much.

Thursday, October 25, 2018

When the stock market headlines the political blogs . . .


 - by New Deal democrat

Here is a graph I saw on Digby's blog this morning:




There was also a highly-recommended, heavily-commented piece at Daily Kos.

Here's a pro tip: when you see a daily stock market move leading the political blogs, it's a sign of a bottom, not a  top. 

That's because it's a sign of emotion, and it means that amateurs are paying close attention. By the time that happens, the big move is over, or at least almost over.

Even with the big drop yesterday, the S&P 500 isn't down -10% from its recent high last month. That's not even a "correction," which typically happen at least once a year. We've had as big or bigger moves downward a number of times during this bull market, including a -20% down move in 2011.

Could the market move still lower? Of course! In fact, a "re-test" of yesterday's low is likely. But in terms of this signaling a recession in the next 3-6 months? No way. The long leading indicators haven't turned decisively south yet, let alone other reliable short leading indicators like the ISM manufacturing surveys:



or even more reliable and less noisy, initial jobless claims:



These are well within their five year declining track, and show absolutely zero sign of stress. If they started showing up at 225,000 or higher for a few weeks, or went negative YoY, I'd start paying more attention. This morning's report was 215,000.

Yawn.

Wednesday, October 24, 2018

New home sales bombed in September


 - by New Deal democrat

Needless to say, this morning's report on new home sales was another big miss in the housing sector. Not only were sales a new 12 month low, they were the lowest in nearly 2 years, and are off over -150,000 from their peak 10 months ago:



Typically new home sales are down about -200,000 when a recession starts. 

That median prices have fallen in sync with sales, and not with their typical lag:



makes me think that the tax law change of last December, which capped the mortgage tax deduction in a way calculated to hit the highest priced housing markets the hardest, is a big driver of the decline.

Obviously this is not good for the economy next year, and bodes poorly for fixed private residential investment, which will be reported as part of Q3 GDP on Friday.

BUT, one important caveat: new home sales are among the most volatile, and most heavily revised, of all data series, which is why I pay more attention to housing permits. So it wouldn't be a surprise at all for most of this month's decline to be revised away in next month's report.

I'll have more tomorrow or Friday with my comprehensive housing update for the month.

Q3 2018 update: "Kasriel Recession Warning Indicator"


 - by New Deal democrat

One of the methods I incorporate into my long leading indicators is the "Kasriel Recession Warning Indicator."  This is something I first read about in 2007, when the eponymous Paul Kasriel, then of Northern Trust and now of Legacy Private Trust Co., wrote that it forecast a recession within the next year. Needless to say, his call was on the mark!

The indicator consists of a monetary and a yield curve component. Kasriel issued another forecast based on the model two months ago. I took a detailed look over at Seeking Alpha.

As always, clicking over and reading should be worthwhile for you, and also for me by way of rewarding me for my efforts.

Tuesday, October 23, 2018

An update on yield curve dynamics


 - by New Deal democrat

So I submitted this wonderful piece to Seeking Alpha yesterday morning, and figured I would just link to it today. But as in the best laid plans of mice and men, somehow it reverted to a draft without ever being reviewed by the site's editors, which means it isn't up there yet and there is no big economic news today. 

Sigh.  So in the meantime, consider this ....

The bond market is behaving in totally typical fashion in response to the Fed raising interest rates.  Typically the yield curve doesn't invert because long duration yields come down to short duration yields. Rather, *all* durations of yields rise. It's just that shorter duration yields rise faster, and ultimately overtake longer duration yields.  Here's the relevant graph for the past 40 years:  



If we think of interest rates as "the cost of renting money," then the economy slows because that cost increases across all time frames, and enough producers and consumers decide to put off "renting money" in order to purchase things that the economy slows down or goes into reverse.

Now here is a close-up on the same information since the beginning of this year. I've added +0.25% to the 2 year bond (red line) since my cutoff line for where I rate the yield curve as "neutral" is when the 2 year yield is within 0.25% of the 10 year yield:



In the above graph, we see that (a) both lines are rising, and (b) the red line overtook the blue line beginning in August. It took long rates rising to new 7 year highs above 3.10% to interrupt that dynamic.  But if you look to the far right, you can see that in the past couple of days the lines are converging again.  As of this morning the 2 year yield is only 0.27% less than the 10 year yield, even with the 10 year yield at 3.15%.

If the recent trend continues, we will probably see an inversion in the 2 to 10 year yield spread by St. Patrick's Day next March.  I already see enough signs out there to have forecast a slowdown in the economy by roughly midyear next year. If I'm correct, the outstanding question will be whether the Fed reacts by lowering interest rates again quickly, or else stubbornly sticks to its "normalization" rubric and thereby brings about a recession. This in turn may depend upon whether producer price inflation rises again and leaks over into consumer prices.

Monday, October 22, 2018

A follow-up on the reasons for prime age labor force non-participation


 - by New Deal democrat

Here is something interesting I found in an article by staffers at the Kansas City Fed a couple of weeks ago.  

They broke down the 25-54 prime age labor force participation group for men into 10 year slices, by education, and by reason for not participating in the labor force. They focused on men, because including women confounds the results by the secular societal change whereby women entered the labor force en masse between the 1960s and 1990s.

First of all, it turns out that the prime decade driving the increase in non-participation is the 25-34 age group:



That finding is amplified by breaking down each prime age decade by education level:



Across all age levels, the biggest jumps by far in non-participation were among those with high school degrees and some college, and especially so among the youngest decade.

Next, they broke down non-participants by the reason given for non-participation, using the monthly household survey that is issued as part of the jobs report. The Census Bureau asks non-participants if the reason they are not in the labor force is disability, family care, education, retirement, or other:



In accord with the above, among the 25-34 age group, the biggest jump in the reason for non-participation was education. Interestingly, among the 35-44 and 45-54 age groups, the big increases were family care and retirement(!). The rate of those claiming disability actually decreased (a big surprise). These increases were similar across all levels of educational attainment.

I have two takeaways from this: first, there is likely an "education arms race" going on, where ever-increasing levels of education are deemed necessary in the competition to obtain good-paying jobs. Seventy-five years ago, a high school degree is what was necessary. Forty years ago it was a college degree. Now it may take a graduate degree. Ultimately this is a self-defeating waste of resources, and worth its own lengthy article.

Second, this is evidence for the "child care cost crunch" I wrote about several years ago. As the cost of daycare has increased, and wage growth has decreased, an increasing share of households are finding that it makes more sense for one spouse -- in this case, "Mr. Mom's" -- to stay home and raise the kids.

Saturday, October 20, 2018

Weekly Indicators for October 15 - 19 at Seeking Alpha


 - by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

Between them, high interest rates and tariffs are affecting the readings in all three timeframes.

As usual, clicking on the link and reading the post puts a little coin in my pocket, as well as giving you an up-to-today read on the economy.

Friday, October 19, 2018

September existing home sales: yet another poor housing report


 - by New Deal democrat

While existing home sales are roughly 90% of the entire housing market, they are much less important as an economic indicator because they do not have the knock-on effects of construction improvements, and less of the landscaping and indoor improvements, that new homes do.

But they certainly do help us track the trend. And like housing permits and starts, and new home sales, the trend has not been good this year.

In September, existing home sales were at a 5.15 million annualized trend, down for the sixth month in a row, down YoY, and close to a 3 year low. Further, existing home sales have not made a new monthly high since last November, 10 months ago. The 3 month average has not made a meaningful new high since April of last year.

Here's what the last year (excluding this month not shown) looks like:





If there was a silver lining in this report, it was that the YoY increase in the median price of an existing home, at 4.2%, while still outpacing wage and household income growth, decelerated from last month's 4.6% level, and was well below the 5%+ YoY readings from earlier this year Because prices have pronounced seasonality, the YoY metric is the only way to track them. My typical workaround, that if the increase declines by more than 1/2, then the top has probably been set, is valid for this number, but of course we would need to fall below a 3% YoY increase for that to kick in.

Inventory is now increasing, and I expect that to last until sales decline enough to drag prices down with them.

Bottom line: this is another negative report from the housing sector. We still have September new home sales and Q3 fixed residential spending to be reported next week for the picture to be complete.

Tracking Trump's tariffs: US vs. Canadian rail loads


 - by New Deal democrat

Let me start out by saying that there is an excellent case for the US imposing a VAT ("value added tax") similar to those enacted by Canada and European countries in order to recapture the losses due to far lower wages in China and other developing countries. Additionally there is an excellent national security rationale for not entering into"free trade" agreements with authoritarian governments who will use the benefits to build up their militaries. Not that this is what Trump is doing, of course.

In any event, I've already noted that the weekly rail report by the AAR seems like an excellent way to track the impact of Trump's tariffs, especially via intermodal units which are used for ocean shipping. This week I happened on another excellent usage: comparing US vs. Canadian real loads, both of which are monitored weekly by the Association of American Railroads.

To the point, here's what year to date growth in US (first graph) and Canadian (second graph) rail loads looked like 2 months ago:




Note that carloads, especially of various agricultural products, were reasonably comparable in the two countries.

Now here are the same two graphs updated through this past week:




With the exception of forest products and grain, YTD comparisons are still positive in Canada.  

But look at what has happened in the US. All of the YTD and YoY weekly comparisons have collapsed, and the latter have turned completely flat or negative.

This is incontrovertible evidence that Trump's tariffs are hitting US agriculture - and transportation - hard.

Thursday, October 18, 2018

September JOLTS report: a jobs market moving from thriving to hot


- by New Deal democrat

Tuesday's JOLTS report once again confirmed the very good employment report from one month ago, with two series making all-time highs and one an expansion high:
  • Quits ust below their all-time high set one month ago
  • Hires made a new all-time high
  • Total separations made another new expansion high
  • Layoffs and discharges spiked back to average levels for this expansion
  • Job openings made yet another all-time high

Let's update where the report might tell us we are in the cycle, remaining mindful of the fact that we only have 18 years of data. Below is a graph, averaged quarterly, of the *rates* of hiring, quits, layoffs, and openings as a percentage of the labor force since the inception of the series (layoffs and discharges are inverted at the 2% level, so that higher readings show fewer layoffs than normal, and lower readings show more:



To put this in context, during the last expansion:
  • Hires peaked first, from December 2004 through September 2005
  • Quits peaked next, in September 2005
  • Layoffs and Discharges peaked next, from October 2005 through September 2006
  • Openings peaked last, in Spril 2007
By contrast during and after the last recession:
  • Layoffs and Discharges troughed first, from January through April 2009
  • Hiring troughed next, in March and June 2009
  • Openings troughed next, in August 2009
  • Quits troughed last, in August 2009 and again in February 2010
Here's what the four metrics look like on a monthly basis for the last five years: 



Job openings, quits, and hires have all surged higher this year, with openings virtually "on fire." .
Next, here's an update to the simple metric of "hiring leads firing," (actually, "total separations"). Here's the long term relationship since 2000 through Q3 of this year: 



Here is the monthly update for the past two years measured YoY:




In the 2000s business cycle, hiring and then firing both turned down well in advance of the recession. Both are still advancing. The YoY% rate of growth had been decelerating, but has accelerated again.  

Finally, let's compare job openings with actual hires and quits. As you probably recall, I am not a fan of job openings as "hard data." They can reflect trolling for resumes, and presumably reflect a desire to hire at the wage the employer prefers. In the below graph, the *rate* of each activity is normed to zero at its August 2018 value:




As I noted when I first presented this graph, while the rate of job openings is at an all time high, the rate of actual hires has only just reached its normal rate during the several best years of the last, relatively anemic, expansion, and is below its rate at the end of the 1990s expansion. Meanwhile quits are just below their best level of 2001 (at the end of the tech boom).

that the *rate* of actual hiring is below that of the anemic Bush expansion is very telling. My take is that employees have reacted to the employer taboo against raising wages by quitting at high rates to seek better jobs elsewhere.

In summary, the August JOLTS report shows an employment market that is moving past thriving to downright hot, but a market that continues to reflect a failure of wage equilibrium, My expectation is that this will last a few more months, and then start to cool down early next year as a slowdown begins to take hold.

Wednesday, October 17, 2018

Extended comments on industrial production, housing permits and starts at Seeking Alpha


 - by New Deal democrat

My take on the Industrial Production report yesterday, and my extended take on the housing permits and starts report this morning, are both up at Seeking Alpha. You can click on the respective links to access them.

In each case, the YoY comparisons are getting more challenging. In the case of industrial production, it means a downshift in outsized gains. In the case of housing, it means numbers that are barely ahead of, or even worse than, one year ago. 

Another poor month for housing permits and starts


 - by New Deal democrat

This was another poor month for housing permits and starts. Here is the Census Bureau's graph:



Single family permits did improve month over month are are up +2.4% above last September's easy comparison, but are still about 3.5% below their February peak, and tied with March for the 3rd worst reading in the past 12 months.

Total permits came in at yet another 12 month low, are down -1% YoY, and down -10% from their March high. This is recession watch territory. 

Housing starts were higher YoY by +3.7% against an easy comparison, but were lower than every other month since except June and July, and are -9% off their March peak.

Last month I wrote that the poor data was "enough to turn this important long leading indicator negative, as we have gone 6 months without a new high and are down over -5%."  We are now one month further removed from the last new high, and the trend remains negative, with the sole silver lining that this month's reading of single family permits isn't quite down -5% from peak

I am maintaining my negative reading for these numbers. If this is confirmed by new home sales and real private residential fixed investment next week, housing as a whole will be in firm negative territory.

Tuesday, October 16, 2018

A midterm elections aside: the GOP strategy was always going to be energizing their base


 - by New Deal democrat

So I am reading some caterwauling in the progressive blogosphere about how the midterm polling has tightened and "the wave may have crested too early."

Nonsense. That the way forward for the GOP was to concede that there would be a big increase in turnout by Democrats, and to focus on increasing the GOP turnout by "nationalizing" the Congressional and Senate elections was obvious to me seven months ago when I wrote about pouring some cold water on Democratic overenthusiasm:

Here's what I said then:
.... The results of last June's special election in Georgia, in which GOPer Karen Handel defeated Democrat Jon Ossoff show that there is a roadmap to the GOP minimizing their losses in this November's midterms.
Because while all of the legislative elections in 2017 and so far in 2018 have featured huge gains in Democratic turnout, the difference in Georgia was that there was a *similar* spike in GOP turnout.  And this playbook is going to be easier for the GOP to run in nationwide contests than in local special elections. 
....
 [In the Georgia special election, w]hile there was sky-high Democratic turnout, turnout by GOPers was almost as high -- enough so that their candidate prevailed.  In other words, when both D's and R's turn out at near-Presidential levels, the outcome resembles that of the district's vote in the last Presidential election.
 .... 
In November, it is going to be much easier for the GOP and their propaganda organs like Fox to "nationalize" local elections, arguing that a Democratic House is likely to impeach Trump (true) and veto new regulations on, e.g., Muslim and Latino immigratiion proposed by Trump's bureaucracy (true), while a Democratic Senate will refuse to confirm Trump's anti-gay and anti-abortion Judicial nominations, including any vacancies that may open up on the Supreme Court (also true). 
....
If so, the vote in Congressional districts and Senate races is likely to come closer to mirroring that from 2016.

So, here we are in October, and GOP voters are "coming home" in part based on a "vacancy that [ ] open[ed] up on the Supreme Court."  Surprise, surprise.

But Trump is probably going to create a bunch of new controversies dominating the news cycles over the next three weeks, so Kavanaugh is going to be something of a distant memory.  Get over your caterwauling and get out and vote.

Monday, October 15, 2018

Real retail sales lay an egg in September


 - by New Deal democrat

Real retail sales is among my favorite economic indicators. Measured per capita, it is a long leading indicator for the economy as a whole, while its simple measure is a short leading indicator for employment.

Let's take a look at each.

Last week I noted that retail sales had grown nominally by +1.9% last September, likely a rebound from last year's troika of major hurricanes, including the one that dumped up to 50" of rain on parts of metro Houston. While this year Florence was bad, it did not shut down major metro areas, so I anticipated the YoY number would suffer in comparison.

And that is what happened, as last month nominal retail sales grew only +0.1%. Ex-autos, they actually declined -0.1%. Adjusting for inflation there was no growth at all, as shown in the graph below:



Real retail sales have grown by +2.4% over the last 12 months.

This is a big deceleration from their previous YoY reading of +3.8% (blue in the graph below). If this marks the start of a substantial YoY downshift (and I suspect it does), then the stellar jobs reports we've seen for most of this year (red) are likely to end in a few months:



Real retail sales per capita have also decelerated to +1.7% YoY, and have declined in absolute terms for the last two months:


Since the monthly data is somewhat noisy, we can usefully tune out that noise to get a decent real time signal by measuring in quarterly increments:

The quarterly change has not been problematic unless it is negative for two consecutive periods. Since with the exception in Q1 this year it has been positive, there is no negative signal yet.
On  the other hand, if the weakness of the last two months persists further, and if housing continues to turn south, that would be a potent sign that the consumption side of the economy is under pressure, and be yet another harbinger of a slowdown that I have suggested is likely by about midyear 2019.

Sunday, October 14, 2018

On the rise of German militarism


 - by New Deal democrat

The long-term rise of Japanese militarism that culminated in the Pacific War in World War 2 was painstakingly documented in Meirion and Susie Harries' excellent "Soldiers of the Sun," a template that ought to give pause to Americans today.  Briefly, the Meigi consitution required that there be a military cabinet secretary. If that secretary resigned, the government fell. Once the military realized the leverage they had, they used it repeatedly and for ever larger reasons, until they controlled the government. They used it as militaries tend to do, seeing "poor little Japan" beset by enemies on all sides.  But vanquishing one enemy simply moved the border. There was always a border, and there was always a nervous and potentially hostile state on the other side of it. The sequence kept playing out until finally there was a sleeping giant on the other side of the border, a giant who was awakened, and then angrily squashed them like bugs.

But no comparable historical account has apparently been done with regard to the similar ascent of the German military. In fact, the received wisdom is on the order of, "How could such a refined culture that gave rise to Goethe, Bach, and Beethoven have turned into a military totalitarian state?" As it turns out, the ascent was gradual but inexorable result of a system built on a military version of the Hastert rule.  A great book is out there, I suspect, but since it isn't let me give my poor attempt at a sketch.

What brings me to this conclusion is a little-known (at least to probably 99% of Americans) event during World War 1.

But first, some background....

When I was a schoolboy, Europe disappeared from the textbooks between 1783 and 1914, with the exception of a brief cameo appearance explaining that England's impressment of American sailors was a cause of the War of 1812. In the past few years, I've read a number of histories to fill in that gap.

In the 19th Century and up until 1914, when European civilization was at the absolute apogee of its power, something like 25% (my rough guess) of its total population emigrated, almost all of it to the US. That's a breathtaking statistic. But consider that in 1914, the technologically modern European society of railroads, subways, telephones, telegraphs, photography, electricity and lighting, and even the beginnings of cars, planes, radio, and movies, was controlled politically by heredity monarchs and their supporting hereditary aristocracies. Only France and Britain were the exceptions (and even in Britain, despite Parliamentary ascendancy, the aristocratic power structure still existed in large part).  By contrast the United States really was a breath of fresh air.

And for the next 30 years, that aristocratic European civilization all but destroyed itself as statecraft utterly failed in the most thoroughgoing and comprehensive way.

For all of the talk of entangling alliances, the outbreak of World War 1 can be traced to the personal failures of two monarchs: Kaiser Wilhelm and Tsar Nicholas. Wilhelm, as I've previously written, was a virtual doppelgänger for Donald Trump. He could have had the alliance he craved with the United Kingdom had he not indulged in his colossal vanity project of building up the German Navy to no useful end. Tsar Nicholas, meanwhile, was a virtual twin of his cousin King George VI of England - a private, hidebound, middlebrow family man with no talent for actual governing. Unfortunately, unlike George, in his case it actually mattered.

Both Nicholas and Wilhelm had the same fundamental failing of being unable to oversee their militaries.  Thus in both cases in 1914 the militaries had one and only one scheme for mobilization. In the case of Russia, Nicholas only wanted to mobilize against Austria-Hungary, but was faced with the fact that Russia's only mobilization plan - which he had never paid attention to before - had an inextricable part of mobilizing against Germany. Germany's sole plan, in turn - which Wilhelm had never paid attention to before - necessarily included a first strike against France through neutral Belgium. A previous plan that called for defense in the West while attention was focused on Russia, had been shelved and was no longer available to him. And the rest, as they say, is history.

Even so, a competent monarch with able diplomats might have seen that once Germany's "Schlieffen" plan to take out France failed in 1914, it was unlikely to win a two-front war of attrition. But with the temporary advantage of having conquered a large amount of territory, it could have traded Belgium and most of its conquest in northern France (or held small parts hostage) in return for a separate peace with Britain and France.

Even an incompetent monarch who at least had some judgment for talent might have seen that his oldest son, Crown Prince Wilhelm, was an able commander and shrewd observer of the military, and deferred to him or even abdicated so that disaster could have been averted. 

But what did happen, and the event that I did not know of previously, and that brings me back to the title of this post, is that the Kaiser became a virtual puppet of his own military, and was all but displaced in a military coup in 1917.

That's right. The absolute ruler of Germany, during the last 18 months of World War 1, was no longer in control, displaced by a du-umvirate of Generals Hindenberg and Ludendorff. How could that come to pass?

The answer, it seems, as a alluded to in my opening paragraph, was a military version of the Hastert rule. It starts with the historical truth that East Prussia begat Prussia, which begat West Prussia, which begat northern Germany, which begat Imperial Germany at the conclusion of the Franco-Prussian War. Each stage of expansion was a result of military conquest and assimilation. And at each stage the original landowner and military caste of East Prussia, the Junkers, maintained effective control -- much as the military caste did in Japan after the Meiji Restoration. Thus, even after 1870, Prussia was first among equals in the new German state, and the Junker Generals were the Kaiser's power base in Prussia. The civil government in the new Reichstag had no power whatsoever over the military. That was vested entirely in the Kaiser.

For his entire reign spanning over 30 years, Kaiser Wilhelm lionized the military. They were held up as the epitome of the German state. All the military did was take Wilhelm at his word. When the incompetent, narcissistic Wilhelm ceded control of strategy to the military Chiefs of Staff in 1914, with no ability for civil oversight, the military simply treated him like the proverbial mushroom, keeping him in the dark and feeding him, um, only trivial good news. Thus, for example, Wilhelm was never told about Germany's huge offensive around Verdun, France in 1916 in advance. He only learned of it in the newspapers.

As the war of attrition - greatly aided by Britain's successful naval blockade - worsened, Germany's military needed more and more of society's resources to be fed into it. The civil government had no real authority to act, and the feckless Wilhelm was, well, feckless. So the military commanders - the early war heroes Hindenberg and even moreso his lieutenant Ludendoff - took matters into their own hands, simply brushing Wilhelm aside. They threatened to resign unless Wilhelm gave them their way. Wilhelm blinked. Ultimately, according to one account, Hindenberg took for himself the Kaiser's title of "Supreme Warlord." Ludendoff apparently confessed to Crown Prince Wilhelm that he didn't actually want the power, but nobody else was acting, so he had to himself.

Once Germany's military had de facto full control, all avenues of diplomacy that may have existed evaporated. First the military was sure that the War in the West would be over before America could enter it in response to unrestricted submarine warfare. Then they were sure that no American troops would ever land in Europe. Then Ludendorff was sure that a spring 1918 offensive would win the war before there were enough American troops in Europe to make a difference. Then Germany's reserves were exhausted and the remaining French, British, Canadian, and Anzac forces - together with a million new American troops - simply rolled them back for 100 days before the military had the civil government agree to an armistice on any terms (thus seeding the "stabbed in the back" fallacy - that Ludendorff himself became a vigorous proponent of - which came back to haunt Europe).  So overwheleming were the number of American troops that one of the reasons Clemenccau and Lloyd George agreed to the armistice quickly before reaching German soil was to prevent the detested Woodrow Wilson from dictating the terms of peace. 

So, German militarism did not suddenly appear in 1934. It had been there all along, growing in stages as Prussia did over the course of at least two centuries, taking over more and more territory as the German imperial state was assembled.

And now we are in 2018 America, where the deification of the military - in reaction against the Vietnam war dissidence - has grown apace at for the last 30 years. It has reached the point where none dared oppose Trump's completely unsolicited and unsupported $300 Billion increase to the military budget this year. Once the military realizes that it has a de facto veto power over the US's budget, what happens next? It seems there is a template.