January jobs report: why I am discounting the headline strong jobs number

 - by New Deal democrat

HEADLINES: 

• +225,000 jobs added
• U3 unemployment rate up +0.1% to 3.6%
• U6 underemployment rate up +0.2% from 6.7% to 6.9%

Leading employment indicators of a slowdown or recession

I am highlighting these because many leading indicators overall have strongly suggested that an employment slowdown is here. The following more leading numbers in the report tell us about where the economy is likely to be a few months from now. These were mixed to slightly negative: 

• the average manufacturing workweek was unchanged  at 40.4 hours. This is one of the 10 components of the LEI.

• Manufacturing jobs declined by -12,000. Manufacturing gained only 26,000 jobs in the past 12 months.
• construction jobs rose by 44,000. In the past 12 months construction jobs are up 142,000, a deceleration from 207,000 in 2018. Residential construction jobs, which are even more leading, rose by 2400.

• temporary jobs declined by -1500. Last months initial +6400 was revised downward to +5900.. 
• the number of people unemployed for 5 weeks or less declined by -6,000 from 2,065,000 to 2,059,000.

Wages and participation rates

Here are the headlines on wages and the broader measures of underemployment:

• Not in Labor Force, but Want a Job Now: increased by 72,000 to 4.904 million
• Part time for economic reasons: increased by 34,000 to 4.182 million 
• Employment/population ratio ages 25-54: rose +0.2% from 80.4% to 80.6%
• Average Hourly Earnings for Production and Nonsupervisory Personnel: rose $.03 to $23.87 (while December was revised upward), up +3.3% YoY - a deceleration from recent YoY growth. (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 an average of +2200/month in the past 12 months vs. the last seven years of Obama's presidency in which an average of +10,300 manufacturing jobs were added each month. This is a sharp deceleration.
• Coal mining jobs increased by +200, and an average of -67 jobs/month in the past year vs. the last seven years of Obama's presidency in which an average of -300 jobs were lost each month

November was revised upward by 5,000. December was also revised upward by 2,000, for a net change of +7,000.

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

• Overtime declined -0.1 hour to 3.1  hours
• Professional and business employment (generally higher-paying jobs) rose by 21,000 and is up 390,000 YoY, a deceleration from 561,000 in 2018. 
• the index of aggregate hours worked for non-managerial workers rose by 0.5%

•  the index of aggregate payrolls for non-managerial workers rose by 0.6%  

Other news included:            

• the alternate jobs number contained  in the more volatile household survey declined by -679,000  jobs.  This represents an increase of 2,087,000 jobs YoY vs. 2,052,000 in the establishment survey. [Note: I originally reported a much lower number in error]
• Government jobs rose by 19,000.

• the overall employment to population ratio for all ages 16 and up rose +0.2% to  61.2% and is up 0.5% YoY.    
• The labor force participation rate rose +0.2% to 63.4% and is up 0.2% YoY.

SPECIAL NOTE ABOUT ANNUAL REVISIONS: Both the establishment and household survey had major annual revisions this month. In the establishment survey, the first four months of 2019 were revised downward by -110,000. But the last 8 months were revised higher by +98,000. The population control for the household survey subtracted over -800,000 from population growth in 2019. Thus the January household employment number of -89,000 represents a monthly gain of 418,000 overcome by a -507,000 population adjustment. Note this does not change the YoY number in the household report.

SUMMARY

This report was very mixed. The headline jobs gain in the establishment survey masked continued declines in several leading components. Meanwhile the headline unemployment numbers in the household survey masked strong participation gains, once the annual population adjustments were made.

Because participation is a lagging part of the report, while the leading components were neutral to negative, I am taking the headline strength in the jobs number with a grain of salt. I have a strong feeling that the improved numbers for the last 8 months of last year are going to get revised downward once we have more information. 

Live-blogging the Fifteenth Amendment: January 29, 1869 (3)

- by New Deal democrat

Later in the evening debate, Representatives Boutwell (who supported the narrow 15th Amendment language) and Shellabarger (Republican from Ohio) (who supported broader “right to vote” language similar to that espoused by Bingham) had the following exchange on the issue of State voter registration laws:

Boutwell [discussing the narrow non-discrimination based on race proposal]: I am not sure that it will not go so far as to put it out of the power of States to establish a registration law. It certainly does abolish those qualifications in some States which require the voter to pay a small capitation tax .... I think that by arraying against this proposition all the peculiarities of the different States we put the proposition itself in danger. I think it better, therefore, as a matter of practical wisdom, to address ourselves exclusively to those great evils which have existed [already].
....
Shellabarger: [T]he [braoder, right-to-vote] proposition which I submit is not amenable to the objection ... that by it the States would be deprived of the power of passing registration or election laws. Plainly that cannot be so. The Constitution itself in express terms provides that ‘The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively or to the people.’ 

Hence, ... if the power to regulate elections or registrations resides with the States under the Constitution in its present form, then my proposition will not take it away.... 

Boutwell: The difficulty, in one word, is that the gentleman’s amendment, if made a part of the Constitution, vests the right of suffrage absolutely in every person covered by the amendment; and if any State should provide that the voters shall be registered ten days before the election it will be in the teeth of the provisions of the gentleman’s amendment as I understand it....

_________
Source: Congressional Globe, 40th Congress, 3rd Session, p. 727

As we know, the broad “right to vote” language was rejected by the Congress. We also know that, contrary to Boutwell’s opinion, the Supreme Court upheld “poll taxes” until they were specifically outlawed as to Federal elections only  by the 24th Amendment, passed in 1964.

I have highlighted the above exchange because the members of Congress debating the proposed amendment were not unaware of the complications that could ensue. Bingham and Shellabarger were worried that a narrow amendment focused on race would leave the States free to discriminate on other grounds; while Boutwell and others were worried that a broad mandate would throw out the proverbial baby with the bath water, and that States would recoil from ratifying the amendment.

Jobless claims continue to show a healthy economy

 - by New Deal democrat

I’ll keep this brief. This morning’s weekly report on initial jobless claims continues to show no danger of any imminent downturn.

The weekly number was 202,000, close to its 50 year lows last year. The 4 week average was 211,750, also close to its recent 50 year lows. Below are the monthly (blue) and moving 4 week averages (red):

The less leading but also less noisy 4 week average of continuing claims was 1.3% higher YoY, which shows weakness, but as the below 35 year graph indicates, is not near the 5% higher threshold which has typically been exceeded before recessions:

That this metric has refused to turn negative, and the stock market continues to make new highs, are the two biggest reasons why I have never gone on “recession warning” (vs. “watch”) in the past year.

Live-blogging the Fifteenth Amendment: January 29, 1869 (2)

 - by New Deal democrat

Rep. John A. Bingham, Republican of Ohio, among the most ardent reconstructionists, wanted a more broadly inclusive amendment:

I concur with my colleague ... [regarding] the objectionable features of the amendment as presented .... [T]he only limitation that the amendment imposes upon the original powers now in the several States of this Union is the limitation that they shall not restrict the elective franchise in the persons of citizens by reason of race, color, or previous condition of slavery.... [H]ence it is manifestly clear that this power remaining in the States, in no other manner fettered by the proposed amendment, may be exercised to the end that an aristocracy of property may be established, an aristocracy of intellect may be established, an aristocracy of sect may be established .... [T]he amendment presented to the people for their approval will inform them that upon its adoption these abuses by States will hereafter be impossible. To that end I have proposed an amendment [as follows:] 

‘No State shall make or enforce any law which shall abridge or deny to any male citizen of the United States of sound mind and twenty-one years of age or upward the equal exercise of the elective franchise, subject to such registration laws as the State may establish, at all elections in the State wherein he shall have actually resided for a period of one year next preceding such election, except such of said citizens as shall hereafter have engaged in  rebellion or insurrection, or who may have been or shall be duly convicted of treason or other infamous crime.’

——

Congressional Globe, 40th Congress, 3rd Session, p. 723.

Note that even this broad formulation included a right to vote for women; and more to the point for our current situation, would not prohibit the identification laws that are presently being used for voter suppression. States most likely would also attempt to define as many crimes as possible that might be disproportionately committed by poor blacks, as “infamous.” 

Live-blogging the Fifteenth Amendment: January 29, 1869 (1)

 - by New Deal democrat

I am trying to catch up with this endeavor. Hopefully I’ll be fully caught up by early next week. This is the third entry which is particularly important in the context of our present-day crisis due to gerrymandering and voter suppression. 

On January 29, 1869, the House of Representatives dedicated time to discussing the Civil Rights bill under the 14th Amendment, and the proposed 15th Amendment.

Rep. William R. Kelley, Republican from Pennsylvania, first discussed the powers of Congress pursuant to the Federal constitutional guarantee of a “republican form of government” to the States:

I hold that all of the power that this amendment will give is already in the Constitution. I admit that it has lain dormant .... [but] I am persuaded that it will yet be quickened and called into action. The aroused people will demand that all of the powers of the Constitution be exercised so that each State shall be guaranteed a republican government, and that the citizens of each State shall enjoy peaceably the privileges and immunities of citizenship in the respective States .... 

How was this power to be exercised? How was the guarantee to be carried into effect? .... I turned to the recorded views of James Madison, the leader of that convention, and who is known to history as its father because of the influence he exercised in its counsels and in molding its conclusions. I found that on the 18th of June, 1788, in the Virginia convention, Mr. Madison, in his response to Mr. Monroe, [said:] ... 

‘Some States might regulate the elections on the principles of equality, and others might regulate them otherwise. This diversity would be obviously unjust. Elections are regulated now unequally in some States, particularly in South Carolina, with respect to Charleston, which has a representation of thirty members. Should the people of any State be deprived of the right of suffrage, it was judged proper that it should be remedied by the General Government.’

Turning to the Congressional authority over the “time, place, and manner” of Congressional elections, he quoted the remarks of Theophilus Parsons during the ratification debates in Massachusetts:

‘But a State Legislature, ... when faction and party sprit ran high, would introduce such regulations as would render the right of the people insecure or of little value. They might make an unequal and partial division of the States into districts for the election of Representatives .... Without these powers in Congress, the people can have no remedy. But the fourth section [of Article I of the Constitution] provides a remedy.’

....
The power is not, I freely admit, one to be exercised by Congress in the first instance. The regulation of the suffrage is left primarily to the States. If they regulate it according to the principles of justice then their action stands; but if not, Congress is required to exercise its supervisory power.

(Emphasis mine)

——-

Source: Congressional Globe, 40th Congress, 3rd Session, pp. 721-22.

 

The situation I have bolded in the remarks of Theophilus Parsons from the Massachusetts ratifying convention, quoted by Kelley, almost exactly describe our situation today. Kelley is quite clear that he interprets the Constitution to mean that Congress has the explicit power under its authority to regulated the “time, place, and manner” of Congressional elections to remedy this situation.

Further, the quotation from Madison certainly indicates his belief that Congress has the authority, under the Constitutional guarantee of a “republican form of government” to the States, to remedy unjust abridgments of the right to vote including inequality, even in State legislative elections.

The long leading forecast up to 12 months

 - by New Deal democrat

Last week I posted my short term forecast through midyear. This morning my long term forecast through the 2nd half of 2020 was also posted at Seeking Alpha.

As usual, clicking through and reading will help you see the longer term trends, and also rewards me a little bit for my efforts.

Live-blogging Congressional power to ensure fair federal elections: January 28, 1869

 - by New Deal democrat

As I described in my earlier post today, the power of Congress to determine the manner in which Congressional elections are to be conducted, including power over the districting process, came up in a speech by Rep. Stewart on January 28, 1869. Since this is of critical importance as to Congress’s ability to prohibit gerrymandering of at least Federal elections, below are selections from another important speech.

James B. Beck, Democrat from Kentucky, discussing the proposed Civil Rights Act, addressed the issue of Congress having the power to set the “time, place, and manner” of voting for Representatives. After declaiming at length about the States having the right to determine who formed their electorate, and to determine the times, places, and manner for elections to the State legislatures, he turned to the issue of elections for the US Congress:

If the State legislatures refuse to fix a time for holding such elections [for US Congress], or fix an improper time; if they fail to designate places or to authorize them to be designated, or if they are unsuitable or inadequate, or if they fail to appoint or cause to be appointed suitable persons to conduct and determine the result of such election, or in any regard fail to conduct them in a proper manner, I take it to be not only the right but the duty of Congress by proper laws to provide the proper times, places, and manner of conducting such elections, which, when complied with by the electors in the States, will entitle the Representatives chosen by them in conformity thereto to take their seats in Congress .... That seems to me to be the whole scope, intent, and meaning of the constitutional provision [i.e., Article I, Section 4]. 

This is a much more cramped reading than that given by Congressman Stewart earlier that same day. To the point, it is unclear to say the least whether the reforms of 1842 which outlawed Statewide general ticket elections for Congress and replaced them with individual districts, would fit within the confines of Beck’s reasoning.

But even Beck agreed that if the states “fail to designate places ... or if they are unsuitable or inadequate” for Congressional elections, Congress could and indeed ought to intervene.

Since one form of modern voter suppression is to provide inadequate numbers of polling places, or put them in places difficult to reach, or to provide inadequate equipment at those places where “undesired” voters will cast votes, Congressional action to remove these impediments under Congress’s Article I, Section 4 power is squarely within even Beck’s interpretation.

Source: Congressional Globe, 4oth Congress, 3rd Session, p. 689. 

Live-blogging the Fifteenth Amendment: January 28, 1869

 - by New Deal democrat

Note: I have fallen a little behind, due to traveling. My apologies! I am making a concerted effort to catch up. Today’s installment is particularly important on the issue of gerrymandering.

On January 28, Rep. Charles Stewart, a Republican from New York, spoke with reference to the proposed Amendment that had been voted out of the Judiciary Committee, which had been amended from:

No State shall deny or abridge the right of its citizens to vote, and hold office, on account of race, color, or previous condition of servitude.

to read:

The right of citizens of the United States to vote, and hold office, shall not be denied or abridged by the United States or any State on account of race, color, or previous condition of servitude.

Here is a brief excerpt from his speech:

[T]his great question ... is the culmination of a contest which has lasted for thirty years. It is the logical result of the rebellion, and the abolition of slavery.... and now we are to place the grand result, I hope, in the Constitution of the United States.... This question can never rest until it is finally disposed of. This amendment is a declaration to make all men, without regard to race or color, equal before the law. The arguments in favor of it are so numerous, so convincing, that they carry conviction to every mind.... 

It must be done. It is the only measure that will really abolish slavery. It is the only guarantee against peon laws and against oppression.... You may put this in the form of legislative enactment; you may empower Congress to legislate; you may empower the States to legislate, and they will agitate the question. Let it be made the immutable law of the land; let it be fixed; and then we shall have peace.

Probably much more significantly, he addressed an issue *directly* relevant to the present crisis caused by extreme gerrymandering, in connection with a proposed second section of the amendment which would extended Congressional power to mandate the manner that Electors in Presidential elections also be determined.

He proceeded form Article I, Section 4 of the US Constitution, which provides: 

 

The Times, Places and Manner of holding Elections for Senators and Representatives, shall be prescribed in each State by the Legislature thereof; but the Congress may at any time by Law make or alter such Regulations, except as to the Place of Chusing Senators.

Relying on that power, he noted:

Many years ago the Congress of the United States abolished the general ticket system in the States for choosing Representatives in the lower house of Congress, because it was seen to be attended with great evils, inconveniences, and mischiefs which required the hand of reform. Fortunately the power existed in Congress to apply reform, and Congress did. It required that each State electing more than one Member of the House of Representatives should divide itself into single districts, and that one Member should be elected from each. It was only because that power existed in Congress that that reform was possible at the time it was secured. Some of the States in fact resisted it.  I believe two or three States continued to elect by general ticket in spite of the act of Congress; but they were finally compelled to conform themselves to the new and improved system which was established by Federal law; and we now have, therefore, in the election of Representatives in the other branch of Congress, a single district system established and enforced by congressional power.

—————-

Source: Congressional Globe, 40th Congress, 3rd Session, p. 668.

As we know from 150 years of history, even a straightforward Constitutional amendment cannot survive a Supreme Court majority that is determined to eviscerate it.

More compelling is Stewart’s point that it is within Congress’s power to determine the manner in which States can elect Representatives to Congress.  The “general ticket” system allocated *all* Representatives to the party which won the most votes. Thus if, e.g., Jacksonian Democrats got 51% of the vote, they got 100% of the elected Representatives. The individual district system was designed to be much closer to the actual will of the electorate. 

In our day, there is much wailing and gnashing of teeth about the US Supreme Court’s unwillingness to deal with extreme gerrymandering. Stewart crucially points out that, at least as to federal Representatives, it is within Congress’s power itself to determine the manner of elections. Congress could, e.g., mandate that the percentage of winners from each party be proportionate to that party’s statewide vote. Or it could mandate the methods (such as compactness and avoidance of “wasted” votes) by which districts are shaped. This is a crucial and absolutely vital lesson.

Mixed results from January vehicle sales, consumer durable goods orders

 - by New Deal democrat

This morning we got two important data points on consumer durable goods. Typically, after housing turns, consumer purchases of vehicles and then other durable goods (like major appliances) turn down. Broader consumer purchases are the last to turn down before a recession.

Light vehicle sales in January were estimated by the BEA at 16.8 million annualized (blue in the graph below). This is a little soft, but not nearly so much as would presage a recession. For that I would expect to see a number below 16.25 million:


Meanwhile heavy truck sales came in at 0.467 million annualized (red). This is the third poor reading in a row, and demonstrates the producer downturn - although it is consistent with previous slowdowns and is not quite as severe as before the last two recessions. Note also that in the graph above I have normed the January numbers to zero, better to show the recent trend.

Secondly, new orders for consumer goods were also reported. While the broad measure is holding up, new orders for consumer durable goods declined:


The decline in consumer durable new orders is on par with that before the Great Recession, but not with that before the producer-led 2001 recession.

In sum, yet more evidence of weakness, but most consistent with a slowdown.

Live-blogging the Fifteenth Amendment: January 27, 1869 (2)

 - by New Deal democrat

On January 27, Shelby M. Cullom, a Republican from Illinois, spoke with reference to the proposed Fifteenth Amendment:

The rebellion destroyed the [rebel] State governments .... This condition of things in the rebel States created the necessity for the work of reconstruction. This work did not consist alone of getting the States back into the enjoyment of representation in Congress; .... Reconstruction [also] consisted in ... ‘the establishment of civil governments which should be republican in form, and a guarantee of protection to all of the people.’  

.... The country began to feel not only that the rebellious States needed reconstruction, but that the whole country needed it; that justice demanded that constitutions should be amended, that laws should be enacted securing to all the people in the land an equality of civil rights.... After the civil rights bill came the fourteenth amendment to the Constitution .....  

But, Mr. Speaker, it did not answer as a basis of reconstruction. ... a portion of the amendment should never have been adopted if, as alleged by some, it recognizes the right of each State to abridge or deny to any portion of its people without cause the exercise of the elective franchise. A State has the right to disenfranchise its felons, but it has no right to disenfranchise its citizens on account of race, color, or previous condition of slavery. 

The [fourteenth] amendment was the best that could be done, but I would be much better satisfied with it if it could be clearer on that point. To-day, sir, we are at work to patch up the work that we failed at that time to do correctly, as we should. 

...[I]n the work of reconstruction, and in our efforts to establish the government upon just principles, a constitutional amendment regulating the question of suffrage throughout the land should be passed and sent to the States for their consideration without delay. 

———

Source: Congressional Globe, 40th Congress, 3rd Session, pp. 650-53

This speech was a full-throated response to speeches like those of Rep. Eldridge  reported earlier, and another by Rep. Michael G. Kerr, Democrat from Indiana, which was similar to Eldridge‘s and followed that of Cullom.

Note, however, that an open-ended “right to vote” is not being defended here. By this time only “equality” of the right to vote based on race was being proposed.

January ISM manufacturing, December residential construction both positive

 - by New Deal democrat

As earlier mentioned, this morning we got our first read on January data, and the news was positive on both fronts.

First of all, residential construction spending increased:

This is the latest indication that the rebound in housing, which began with sales and permits at about midyear last year, has continued into actual construction. This is a positive for the economy in the second half of this year.

Secondly, as telegraphed by improvements in the regional Fed new orders indexes, the ISM manufacturing index for January rebounded into slight expansion, and the new orders component increased into expansion as well (h/t Briefing.com):

This is a short leading indicator, and suggests that manufacturing may be beginning to rebound after truces in the trade wars.

We are still waiting for vehicle sales to see if past producer weakness is spreading into consumer, and further into producer, durable goods purchases.

The Philly Fed state-by-state diffusion index of economic expansion

 - by New Deal democrat

This comes from the Philly Fed’s state-by-state coincident index, via Bill McBride. The graph below shows the number of states showing increasing economic activity:

In December the number of states in expansion was 39. Historically over the past 40 years, that number dropping to 35 or below has (with the exception of one month in 1986) been the marker of the onset of a recession.

Note the number is below the lowest level from 2015-16, in which weakness was generally confined to the Oil patch. It is yet another marker of a slowdown, but not of a recession.

Later this morning we’ll get the January ISM manufacturing report, and over the next 48 hours we’ll get reports on January auto and truck sales. Both of these will help tell us if the weakness in the production sector has been spreading or not.

Weekly Indicators for January 27 - 31 at Seeking Alpha

 - by New Deal democrat

My Weekly Indicator post is up at Seeking Alpha.

Due to panic (warranted or not) about a coronavirus, the yield curve almost completely inverted by close of business Friday.

As usual, clicking over and reading puts a penny or two in my pocket, and should bring you right up to the moment on the economy.

December 2019 real personal income and spending

  - by New Deal democrat

Real personal income and spending are both coincident indicators. They don’t tell us where the economy is going, but they do give us a snapshot of how ordinary Americans are doing.

In December, real income declined by less than -0.1%. Real spending rose by less than +0.1%:



Real personal spending excluding government transfer payments is one of the four indicators used by the NBER to determine if the economy is in recession or not. In December this was flat. Overall in 2019 there was a slow uptrend:


This is one indication that as of one month ago the economy was not in a recession.

Live-blogging the Fifteenth Amendment: January 27, 1869 (1)

 - by New Deal democrat

I have gotten a little behind in this project. Congressional activity picked up considerably in the last week of January 1869. 

Rep. Charles A.Eldridge (D-Wisconsin) addressed a civil rights bill by Massachusetts Representative Buckalew under the 14th Amendment as well as the proposed 15th Amendment:

I have not the vanity to suppose that anything I say will cause them to hesitate or consider. Party ends must be accomplished, party purposes must be carried out even though it should revolutionize the Government, overthrow the Constitution, and destroy the Republic.
....

Hamilton on the same subject in No. 59 of the Federalist ... [said], ’Suppose an Article had been introduced into the Constitution empowering the United States to regulate the elections for the particular States, would any men have hesitated to condemn it, both as an unwarranted imposition of power and as a premeditated engine for the destruction of State governments?’

In those days no man would have hesitated to condemn it. The Constitution could never have been adopted if it had contained the grant of power to Congress to determine the qualification of voters for officers of the States. Such a work is left for these days of revolution and usurpation — to the mad fanatics who for particular ends would destroy our Republic of States.
....

The power to determine the qualifications of electors was, in the States conferred ... by the people of the States.... All the powers of the Federal Government come up from the States and people, and it never had and never can have the rightful authority to exercise any power not granted in and by the Constitution. The exercise of any other is rank usurpation.

[I]t seems to me that this bill and resolution for the amendment of the Constitution ... for the evils which exist in his judgment with reference to the persons who ought to exercise the right to suffrage, is a filo de se [crime of suicide].  If the power exists in the Federal government to pass this bill, ... then I admit that Congress has the right to control the whole question of suffrage and the qualification of electors of all officers ....
....

Sir, I do not think the gentleman from Massachusetts gave a proper consideration to the fourteenth amendment, as it is called. I will not consider the question of whether this amendment is part of the Constitution; for myself I do not believe that it is....

____________________
Source: Congressional Globe,  40th Congress, Third Seeking, pp. 642-45 

 What is remarkable about this speech is that Eldridge is not just addressing the Civil Rights bill proposed by Buckalew, but also claims that the even Constitutional amendments are invalid to alter Federal vs. State powers. He considers the power of suffrage in the States to be beyond the control of any proposed revisions to the Constitution itself. Even Chief Justice Roberts, who in the Shelby County case found a right of States to be treated equally in all legislation out in the Constitutional ether, did not go this far.

Mixed signals in Q4 2019 GDP

 - by New Deal democrat

This morning’s Q4 2019 GDP gave us mixed signals. As per my usual practice, I am less interested in what happened in the rear view mirror, which was an annualized gain of +2.1%, than what the number tells us about what lies ahead.

The two forward-looking components of GDP are (1) private fixed residential investment, and (2) corporate profits. Both of these are long leading indicators, i.e., giving us an idea about where the overall economy will be a year or more out from here.

In that regard, the news was mixed.

Private residential fixed investment increased +1.4% q/q. This is in keeping with the rebound in housing construction that we have seen in the monthly data since last spring. Note that residential investment as a share of GDP increased in both nominal (blue) and real (red) terms:

Meanwhile, while corporate profits won’t be reported until the final revision in GDP two months from now, proprietors’ income was. While it does not always move in the same direction as corporate profits, and sometimes lags, it a good placeholder.  Here the news was negative, as nominally proprietors’ income rose a mere +0.2% q/q:

Since the GDP price deflator rose +0.4% during the quarter, the “real” measure declined slightly.

In sum, one long leading indicators increased, and one decreased. So, while in the rear view mirror, there was no recession in Q4 2019, there is more evidence of at best a stall in the producer side of the economy.

My “official” first half forecast for 2020

 - by New Deal democrat

My short term 6 month forecast has been posted at Seeking Alpha.

As usual, clicking over and reading should be educational for you, and puts un poco dinero in my pocket.

More on house prices

 - by New Deal democrat

The Case Shiller housing indexes for the three month period ending in November were reported this morning. The YoY% change in the national index increased to 3.5% from 3.2% last month (red in graph below). This is in line with the FHFA purchase price index (blue), and continues the slight acceleration in each from a trough in August: 

As I mentioned yesterday, the YoY% change in new home prices has also started to rebound (red in the graph below), as does the change in total home prices (blue):

That price appreciation has begun to rebound is not a surprise, as they follow permits (blue in the graph below) with a lag:

So long as permits, sales, and starts continue to increase, we can expect further acceleration in price growth - which is already running ahead of wage growth.  

Permits, in turn, follow interest rates. Since interest rates are lower than they were a year ago (inverted, blue, in the graph below), it looks like permits will continue to increase for awhile:

Is the “housing choke collar” kicking in?

 - by New Deal democrat

This morning’s December new home sales report raises the question: is the “housing choke collar” kicking in?

The idea of a “housing choke collar” is that house prices are at such a high multiple of the average household’s ability to pay that even with lower interest rates, there is not much room for the housing market to withstand housing price increases.

First, to the data: new home sales declined slightly from a downwardly revised November. This data series is very volatile, and heavily revised, but it remains the case that there has been no new high established since last 6 months (blue) (inventory is in red):

In the long term view, note that new home sales have peaked well before the beginning of recessions. Inventory has reliably followed, and with the exception of the shallow 1970 and 2001 recessions, continued to decline throughout the next downturn:

That inventory turned up slightly in December therefore suggests (slightly) that housing is not on a recession trajectory. Also remember that last week housing permits made a new expansion high (sales do typically peak or trough even before permits, but as pointed out above, are much more volatile).

That brings us to median new home prices, which increased sharply, and have been on a pronounced uptrend in the past few months (blue):

The red line represents average hourly wages for non-supervisory personnel. It’s pretty easy to see that, after declining relative to wages in 2018, prices are now outpacing wage growth again.

Remember that last week we saw that existing home prices had increased by more than 9% in 2019.

If I am right, then there is very limited upside for sales growth. Since sales lead prices, new home sales may be telling us that we are reaching the limit of affordability without even lower mortgage interest rates.

Weekly Indicators for January 20 - 24 at Seeking Alpha

 - by New Deal democrat

I neglected to post this yesterday....

My Weekly Indicators post is up at Seeking Alpha.  The forecasts remain as they have been recently, but there are several developments in the long leading range.

As usual, clicking over and reading brings you fully up to date, and rewards me a little bit for my efforts.

The producer vs. consumer sectors of the economy: a comparison

 - by New Deal democrat

I have a post up at Seeking Alpha, comparing current conditions on the producer side of the economy vs. the consumer side.

As usual, clicking over and reading should bring you up to date on the “nowcast,” and helps put a $ or two in my pocket.

On the road

 - by New Deal democrat

Today is a traveling day, so no detailed posting.

This morning’s initial jobless claims were in line with the range over the past two years. There has been virtually no change YoY. This negatives any imminent recession fears.

Yesterday’s existing home sales, though touted as “the best in nearly two years,” just continue the baseline that this metric has been in since late 2015, with the exception of the 2018 decline. Of more interest is that (1) inventory is at a cycle low, and - not coincidentally - YoY price increases, up 7.8%, show a continuing acceleration:


A few months ago I offered up the idea that housing now had its own “choke collar,” where prices were bumping up against the limit of what buyers in the aggregate could afford, even with lower interest rates. We’ll get much more information on whether that is the case when new home sales and prices are reported next week.

Why negative transportation indexes don’t support a recession call

 - by New Deal democrat

Every month for at least the past half year there is a spate of bearish economic commentary that relies upon one or both of two metrics: AAR rail carloads and/or the Cass Freight Index.

I have a post up at Seeking Alpha showing why the first measure is not a representative slice of transport as a whole, and the second has a history of being very volatile and with a slew of negative readings in the teeth of continuing expansions.

As usual, clicking on the link and reading helps reward me with a $ or two for my efforts.

Addendum: after I put together and posted the article, I came up with the idea of averaging the Cass Freight Index and the Dept. of Transportation’s Freight Index after adjusting for the former’s volatility (shown below). It gives us an even less noisy overview of the transportation sector, although it still does go negative during slowdowns without there being a recession. In any event, none of the current negative readings are sufficiently below zero to accord with recessionary readings over the indexes’ short history:

Catching up: November JOLTS report

 - by New Deal democrat

Let me catch up on some data I didn’t examine last week: the November JOLTS report.

It decomposes the jobs numbers into a number of metrics, but is less than 20 years old, so only covers one full business cycle, so is of limited forecasting use.

To reiterate, here is the order in which the JOLTS series peaked during the 2000s 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 April 2007 

So to start, here are YoY hires and quits for the entirety of the series, measured YoY:

Hires has turned negative for some months in the past year, while quits remain positive YoY.

Next, as I have often said, hiring leads firing (actually, total separations). Here’s what that looks like for the entire series, first measured absolutely:

And here is the YoY change, plus the 4 week average of initial jobless claims (inverted) in red:

These aren’t as negative as prior to the 2007 recession, as compared in the two graphs below:

Present:

2007:

In 2007, both hires and initial jobless claims (inverted) were negative by as much as -5% YoY. In 2019, they’ve only been negative by about -2% at the worst.

The biggest difference between this cycle and the last has been in job openings, which I consider “soft data.” But because the difference is noteworthy, here it is, again shown YoY:

This series is consistent with its 2008 recessionary readings.

Again, analyzing with lots of caution, my take remains: slowdown, not recession at this point.

For MLK Day: unemployment by race

 - by New Deal democrat

In observance of Martin Luther King’s birthday, almost all US markets are closed and there is no economic data.

So on this day let’s see the extent to which economic opportunity in several neutral metrics has improved since the passage of the Civil Rights Acts in the 1960s.

Here in unemployment for African Americans (blue) vs. whites (red) since the former began to be measured in 1972 (white unemployment had been measured since the 1950s - interesting that black unemployment wasn’t even deemed worthy of being separately measured before the 1970s!): 

Unemployment for whites made a 50 year low at 3.1% earlier in 2019. It was only lower, at 3.0%, in 1969 (not shown). African American unemployment made its all time low, at 5.4%, in August of last year.

To get a clearer picture how the two measures compare, here are two other ways to look at the same data.

First, here is the % by which the black unemployment rate has exceeded the white unemployment rate:

At the worst of the 1970s and 1980s, while white unemployment was bad, black unemployment exceeded it by over 10%! There has been general improvement in each expansion since, with black unemployment exceeding white unemployment by only 2% by last year.

Another good way to look at this is the black unemployment rate as a multiple of that for whites:

At its worst, black unemployment was more than 2.6x that of whites. The multiple has gradually improved so that last year it was only 1.6x that of whites.

The bottom line here is: progress over the past 50 years, but still a long way to go. At their rates of improvement over the past 40 years, the former measure will reach parity in about another 30 years; but at its historical rate of improvement the latter multiple would require about another 80 years.

Finally, when it comes to wages, these have only been measured since 2000, and there is still roughly a 25% gap in average weekly wages:

Weekly Indicators for January 13 - 17 at Seeking Alpha

 - by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

The short term forecast has been volatile recently - and was again this week.

As usual, clicking over and reading rewards me a little bit for the effort I put in.

Housing BOOM! 2

 - by New Deal democrat

Housing is a very important long leading indicator, and it reflects both the consumer and producer sides of the economy. And this morning, at least in terms of starts, it hit a grand slam.

Total housing starts were 1.608 million units annualized, the highest number since the end of 2006. The less volatile and slightly more leading permits declined slightly to 1.416 million units annualized, but the three month average of each made new expansion highs:

The story is the same with the less volatile single family starts and permits:

Finally, one point of difference I have had with That Other Blogger who writes about housing is that, because multi-unit housing, especially for younger buyers, can be something of a “substitution good” where single family house prices are beyond reach, I have suspected that multi-unit housing had not yet made its high for the cycle. And in terms of starts, that’s what this morning showed (permits made a huge spike high about 5 years ago the month a special housing program in NYC expired). Not only that, but multi-unit starts made a nearly 25 year high last month:

Lower mortgage rates have done what I expected them to do. It is an important reason why I expect the overall economy to improve later this year. And it is a *very* big argument against the producer slowdown turning into a full-blown recession.

UPDATE: We also got December industrial production this morning, down -0.3%. Industrial production is the King of Coincident Indicators. Here’s what it looks like since July 2014:


Note that, while it is down (in fact it is down -1.0% YoY), it hasn’t gotten any worse since last spring.  And it isn’t down nearly as much as it was during the 2015-16 shallow industrial recession. This is one more brick in the wall of slowdown vs. recession. 

The consumer is (probably) still alright: initial jobless claims and retail sales

 - by New Deal democrat

While the producer side of the US economy is almost certainly in a shallow recession, the consumer side has been holding up pretty well.  That was confirmed in two important releases this morning.

First, initial jobless claims declined to 204,000, one of the lowest numbers during this entire expansion. As a result, the 4 week average, at 216,250 is only about 7% higher than its lowest point during that time, and the first two weeks of January, at 209,000, are more than -10% lower than the January average last year. In short, both of my metrics for rating jobless claims have flipped back to positive. Here are both metrics, with the YoY measure in red, left scale, with the measure normed from the April bottom at 100 on the right scale:

Only continuing claims, less leading but less noisy, continue to flash yellow: the 4 week average, at 1,755.5 million, is 2.5% higher than one year ago (I would need a reading of 5% higher or more YoY for this to flash red):

Second, nominal retail sales increased by +0.3% in December, and November was revised slightly higher to +0.3% as well. Since consumer inflation averaged a little less during those two months, real retail sales increased +0.1%.  On a per capita basis, they were flat.

Here are both measures, normed to 100 as of their most recent peak in August:

We’ve had similar periods of flatness previously during this expansion, for example late 2018 as shown in the above graph. It would take two more months of readings below the August peak for me to flip this to neutral. For now it remains a weak positive.

The bottom line is that, while there is some flatness, there are no signs of the consumer actually rolling over. Without that, a shallow downturn on the producer side is not enough to tip the whole economy into recession.

Producer sales not keeping up with producer price inputs

 - by New Deal democrat

Not much economic news today, and I normally don’t spend time on the producer price index, but considering the shallow producer recession and whether it will get deeper or not, as it happens the PPI does play into one metric.

Below is a YoY graph of *nominal* manufacturing + wholesale sales (blue) since the inception of the series 25+ years ago vs. the PPI for all commodities (red):

There have only been three times that commodity prices have outpaced producer sales for longer than 2 months during that whole period: late 2002 when economists were worried about a “double dip” recession after 2001, and leading into and during the 1991 and 2008 recessions.

In other words, when commodity price increases outpace sales increases, the producer side of the economy is in trouble.

Now here are the last 20 months including December producer prices:

We’ll get manufacturing and wholesale sales for *November* tomorrow. But the obvious point is, unless we get significantly better sales numbers than we got one year ago (and November and December 2018 stunk, so it’s certainly possible!), producer sales won’t have kept pace with producer prices, yet another sign after poor ISM manufacturing and YoY heavy truck sales readings, that the producer side recession has taken hold.

Tomorrow will also give us retail sales, the gold standard for the consumer sector, so stay tuned.

Real wages declined slightly in Q4 2019; nearly flat since last January

 - by New Deal democrat

In December consumer inflation was +0.2%. Since in last Friday’s jobs report average hourly earnings also increased +0.1%, real average hourly earnings declined slightly:  


In a longer term perspective, this means that real wages also declined from 97.8% to 97.5% of their all time high in January 1973:


The YoY measure of real average wages also declined sharply from +1.6% to +0.7%: 


[Note however that this is subject to the same quirks as I discussed yesterday in terms of YoY nominal wage growth for December, so a rebound in January would hardly be a surprise]  

Aggregate hours and payrolls improved significantly between July and September, but have declined slightly in the three months since, so real aggregate wages - the total amount of real pay taken home by the middle and working classes - have declined from 30.4% to 30.0%  above their October 2009 trough at the beginning of this expansion:


Real aggregate wage gains have only been +0.8% in the past 11 months. As with so much other data, this is on the cusp of warranting at least a yellow flag.  I’ll have more to say once retail sales are reported later this week.