Two “fundamental” indicators for the American middle/working class and the economy

 - by New Deal democrat

This week is a little light on data, except for housing permits and starts (Tuesday) and existing home sales (Thursday), so let me catch up on a few other indicators.

In particular, two of my favorite indicators are based on “fundamentals.” Basically, how much the average American is earning, and how much they are spending. Needless to say, we want both of them to be increasing. That’s because, as I have often said, consumption leads employment. If Americans are cutting back on spending, then cutbacks in employment will soon follow.

Because consumption leads, let’s start with spending, i.e., real retail sales YoY. This data series goes back 75 years. And it has been very reliable. Here’s the graph:

Leaving aside the pandemic, real retail sales has *always* turned negative YoY within about 6 months before the onset of a recession, except for two times in the 1950s where it turned negative YoY 4 and 5 months into the recession.

There have been some false positives (13 in total), where negative monthly YoY readings were not associated with a recession, but a majority of those were never worse than -1.0% YoY (the exceptions being 1951-52, 1956, 1966-67, 1987, and 2002). Further, a majority of the 13 times only lasted for 1 month, and only 3 have lasted for longer than 2 months in a row (1951-52, 1966-67, and 2002). 

In short, even a 1 month negative YoY reading is a yellow flag that a recession might be near, and if it goes on longer than 2 months with at least one negative reading of more than -1.0%, almost certainly a recession has either just started or will within the next few months.

Now let’s turn to employment, in the form of real aggregate payrolls for non-supervisory employees. In other words, in real terms the total pay that the American working/middle class is taking home. This has a 60 year track record, and has also been very reliable:

There have been *no* false positives, ie., where the indicator signaled but there was no recession. There have been 5 times when the indicator did not turn negative until several months into a recession: 1970 (4 months), 1974 (3 months), 1981 (3 months), 2001 (1 month), and 2008 (5 months). But with the exception of 1981, in the other 4 episodes this metric was in a clear and severe downtrend during those months.

Now let’s see what both look like together in the 50+ years both were in existence prior to the pandemic:

What this shows is that, if both of these two indicators are positive, you could be sure that you are not in a recession. With the sole exception of one month in late 2002, if both are negative you could be sure that you are either just before, during, or coming out of a recession. And frequently real retail sales had turned negative a few months before real aggregate payrolls.

Now let’s look at the past 18 months:

Real retail sales have been negative YoY for 7 of the past 13 months. I have discounted the negatives from last spring, because they were in contrast with.the spring stimulus spending spree of 2021. But 4 of the past 5 months have also been negative, and last month (March) by -1.9%.  Putting both indicators together, with the exception of 1966-67 and arguably the near double-dip of late 2002, there has never been a time in the past 60 years where a downturn this big for this duration has not meant a recession.

Most importantly, at the moment real aggregate payrolls are still positive, and they are not declining. Because, for reasons I discussed last week, I expect consumer inflation to only be about +3.2% YoY after June, for aggregate real payrolls to turn negative, there will have to be a pronounced slowdown in either hours, or jobs, or wage growth, or a combination of the three.

Weekly Indicators for April 10 -14 at Seeking Alpha

 

 - by New Deal democrat

My ‘Weekly Indicators’ post is up at Seeking Alpha.

The slow drip-drip-drip of deceleration generally continues. Perhaps most significantly, YoY consumer spending as measured by Redbook sank to a new post-pandemic lockdown low of only +1.5%. But other coincident indicators in particular, like tax withholding, appear resilient.

As usual, clicking over and reading will bring you up to the virtual moment as to the economy, and reward me a little bit for my efforts.

Real manufacturing and trade sales probably rose to a new record high in February; may have declined in March

 

 - by New Deal democrat

Real manufacturing and trade sales is one of the 4 monthly coincident indicators most monitored by the NBER to determine whether the economy is in expansion or recession. Because the reporting of this series lags badly (by 2 months), I have developed several placeholders to estimate it on a more timely basis.

The first back of the envelope method is a simple averaging of industrial production and real retail sales. The latter is about 1/3rd of the actual measure of real business sales, and the former is a proxy for manufacturers and wholesalers sales (what it leaves out is manufacturers’ inventories and the wholesalers’ portion). It isn’t that accurate on a month to month basis, but generally gets the trend right.

Since this morning both real retail sales and industrial production were reported for March, we have our first estimate of March real business sales, suggesting they more likely than not declined, at an estimate of -0.6%. Note that February is also estimated to have declined -0.4% by this method:

The second method, which has been much more accurate on a monthly basis (generally coming in within +/-0.3%) as well as the trend, is to take total business sales (which were reported this morning) and to apply a simple average deflator of the PPI for commodities, intermediate, and finished goods as well as the CPI. Since total sales declined very slightly on a nominal basis (less than -0.1%) for February, but the average deflator was negative, this suggests that real manufacturing and trade sales actually increased in February by +0.2%:

If this holds, it will mean that this important coincident indicator made another new high in February:

But as per the first estimating method above, may have declined in March.

Positive revisions make for a good March industrial production report

 

 - by New Deal democrat

If retail sales for March were bad, industrial production (blue in the graph below) was at very least mixed to the upside. Total production increased +0.4%, and on top of that February was revised higher by +0.2%, and January was revised higher by +0.5%.

The not so good news is that while manufacturing (red) was also revised higher by +0.5% for February, it was all taken back by a -0.5% decline in March:

With these revisions and additions, industrial production is still -0.5% below its September peak (a big improvement from last month’s original -1.8%), while manufacturing production (red) is -1.2% below its peak from last October, also an improvement from the original -2.0% last month.

In both 2016 and 2019 there were bigger declines than even as measured one month ago without there being a recession, because manufacturing has shrunk so much as a percentage of the overall economy. Still, this remains one of the 4 main coincident indicators relied on by the NBER, and more often than not in the past its peak has meant the cycle peak as well.

Once the February nominal manufacturing sales data for February is reported later this morning, I will make estimates of that important coincident indicator in real terms as well.

March real retail sales lay an egg, suggest downturn in nonfarm payrolls by the end of summer

 

 - by New Deal democrat 

After a quiet early part of the week, today we get a deluge of data: retail sales and industrial production for March, and total business sales for February. Because real total business sales are one of the 4 big coincident indicators tracked by the NBER, and because retail sales are about 1/3rd of the total, and industrial production helps us estimate the rest, after the data comes out I can give estimates of the *real,* not just nominal, values for both February and March.

But first, retail sales . . . Which laid an egg, as they do once or twice a year.

In this case nominal retail sales declined -1.0% for the month. Because consumer prices increased less than 0.1% in March, real retail sales also were down -1.0%. Combined with a -0.6% decline in February, real retail sales have taken back close to 2/3’s of the big January gain, and are down -3.0% from their March 2021 peak:

YoY real retail sales are down -1.9%, the biggest decline since the pandemic lockdown. As I write nearly every month, they are a noisy but time-tested short leading indicator (/2) for jobs. Here is the updated look at that comparison:

YoY nonfarm payrolls have declined about 1/3rd, from +4% to +2.7% in the past 6 months. At this rate they will have declined by more than 1/2 of that +4% in 3 or 4 months, which by my rule of thumb means it is likely there will be a seasonally adjusted actual decline in monthly payrolls by the end of this summer.

UPDATE: Checking the historical record all the way back to 1948, a YoY decline in real retail sales of -1.9%, our current value, has *always* occurred at the outset of or during a recession with the only exceptions of 1951-52, and the months of September 1987 and October 2002.

Initial claims continue to warrant yellow caution flag

 

 - by New Deal democrat

Initial jobless claims last week rose 11,000 to 239,000. The more important 4 week average rose 2,250 to 240,000. Continuing claims, with a one week delay, decreased 13,000 to 1,823,000:

At this juncture the YoY change is more important, because increases of more than 10%, especially in the 4 week average, or monthly, are a yellow caution flag for recession, and an increase of more than 12.5% which persists for at least 2 months is a red flag recession warning. 

And on a YoY basis, while the one week number is only up 7.7%, for the month of March (blue)they were up 11.0%. For the first 2 weeks of April (not shown) they are up 8.3% YoY so far. The 4 week average is up 11.1%. Continuing claims, which lag, are up 13.8%%:

Because of the 4 week average and the monthly YoY increase for March, a yellow caution flag remains warranted. It will take further increases into the 240’s that persist into May for the data to warrant a red flag recession warning.

Properly measured, consumer inflation is only about 3.0% YoY, and the economy has experience DEflation since last June

 

 - by New Deal democrat

One month ago, I “officially” took the position that inflation had been conquered, and that, properly measured, the economy had actually been experiencing deflation since last June. This morning’s report only confirmed that position.

The primary reason, as I have been pounding on for almost 18 months, is that the shelter component of official inflation, which is 1/3rd of the total, and 40% of the “core” measure, badly lags the real data - as in, by a year or more.

Before we get into all that, let’s look at the headlines, with the monthly and YoY rates of change:

Total CPI up 0.1% m/m and 5.0% YoY

Core CPI up 0.4% m/m and 5.6% YoY

Owners Equivalent Rent up 0.5% m/m and 8.0% YoY

CPI less shelter up +0.2% and 3.4% YoY

Energy down -3.5% m/m and -6.4% YoY

Food unchanged m/m and 8.5% YoY

New cars up 0.4% m/m and 6.1% YoY

Core inflation is being driven by Owners’ Equivalent rent (shelter) and new cars. Total inflation is also being driven by food. But because shelter is such a large component of the aggregate, even including new cars and food leaves consumer inflation at a YoY rate that ought to be in the Fed’s comfort zone.

 So let’s start with an updated long term YoY graph of the big culprit, Owner’s Equivalent Rent (red), which increased another 0.5% in February, with the FHFA house price index (blue, /2 for scale), which has been declining since last June and stood at 5.2% as of its last reading for January:

Here are the last 3 years for the close-up look:

The *relatively* good news s that OER appears to be leveling out, right on schedule about one year after house prices. If the FHFA index has continued to decline in the 2 months since then, it is only up about 2.3% YoY currently, vs. 8.0% for OER. If the FHFA index were substituted for OER, then total YoY CPI for March would only be 3.1%. Core inflation, which ex-shelter is up 3.5%, would only be up 3.0% if the FHFA house price index were substituted for OER.

There is no reason for the Fed to be raising rates if properly measured total CPI is increasing only 3.1% YoY, and core CPI is up only 3.0% YoY.

But it gets even worse, because last June, when house prices peaked and gas prices reached $5/gallon, was an inflection point. So the below graph norms total and core inflation as well as CPI less shelter, to 100 as of that month. Here’s what inflation since then looks like:

Total inflation is up 2.4% in the last 9 months, or at an annual rate of 3.2%.

Core inflation us up 3.8% in the last 9 months, for an annual rate of 5.1%.

 Consumer prices ex-shelter are in *deflation,* down -0.2% in the past 9 months, for an annual rate of -0.3%.

Because the FHFA house price index is down -0.6% in the 7 months since June through January, if it were projected forward through March, it would be down -0.8% in the past 9 months.

In other words, consumer prices ex-shelter, plus shelter properly measured, indicates that the economy has been in outright *deflation* over the past 9 months.

And yet the Fed is still contemplating further rate hikes. 

Scenes from the March employment report 2: unemployment recession indicators

 

 - by New Deal democrat

A reminder: I may be offline for the next couple of days. In the meantime, yesterday I looked at the 5 leading indicators contained in the employment report, and summarized how they either signal recession now or within the next 3 to 6 months.

Today I want to focus on unemployment and underemployment. Economist Gloria Sahm’s Rule, namely that when the 3-month average unemployment rate rises a half percentage point above the low of the prior 12 months, the economy is in recession, or is about to be, is sufficient to indicate the onset of a recession, but is not necessary. Recessions in the past have started with even a 0.1% increase.

So, let’s look at some indicators which give us quicker signals. 

1. Initial jobless claims lead the unemployment rate

This is something I have written and updated numerous times in the past decade. Initial jobless claims are one of the 10 items in the Index of Leading Indicators, and as shown below, have a 50+ year track record of turning both higher and lower before the unemployment rate does:

Here is the update for the past two years:

The relationship shows up even better when we compare the YoY% change in both up until the pandemic (note this means a % of a % in the case of the unemployment rate, so an increase from 4% to 8% would be a 100% increase):

Usually, but not always, the unemployment rate has been higher YoY by the time a recession begins.

Here is the YoY update for the past two years:

In March, initial claims finally did turn higher YoY, and the unemployment rate is on track to do so as well within the next several months. As I’ve indicated a number of times in the past year, my “red flag” marker is initial claims, on a monthly basis, being 12.5% higher for two months in a row. We’re not quite there yet.

2. Permanent job losers

This series began in 1994, so we only have about a 30 year history. But it does seem to be a good marker for weakness in the job market, as shown below measured 2 ways: its absolute level (blue), and YoY% change (red):

While there have been several brief false positives, notably 1996, where the 3 month trend is higher YoY, it has usually meant a recession is near. 

There is a similar series of total job losers that goes all the way back to 1967. Here’s what that looks like YoY (blue) compared with the newer, permanent job losers series (red):

With the noted exceptions of 1974 and 1981, the older series has also turned higher YoY prior to all other recessions.

Here is a close-up of the past 2 years:

These metrics - as well as initial claims, discussed above - have just hoisted a yellow flag. If next month’s report is also higher YoY, that would merit a red flag, indicating a recession is very close, perhaps imminent.

Scenes from the March employment report 1: leading sector indicators

 

 - by New Deal democrat

There’s no significant economic news this week until Wednesday’s CPI report, and as a side note, I might be offline for a day or two later this week. In the meantime, today and tomorrow let’s take a look at some of the important information from last Friday’s employment report.

Today, I’m taking a look at the leading employment sectors and several other leading components of the report.

To recapitulate from my monthly updates, there are 5 leading indicators in the report:

1. The manufacturing work week (which is 1 of the 10 components of the Index of Leading Indicators).

2. Manufacturing employment.

3. Construction (especially residential construction) employment.

4. Temporary help

5. The number of unemployed less than 5 weeks (this series is similar to, but noisier than, initial claims - but the data starts years earlier, so there is a longer record).

Here are the first 4 series all normed to 100 as of their highest month:

Both the manufacturing work week and temporary help employment have been down for over a year. Manufacturing employment has declined very slightly (-1,000) in each of the past two months. Finally, residential construction employment, which had been increasing as the number of housing units under construction also did, also appears to have peaked in January.

Because each individual sector has waxed and waned with great variation in past cycles, below I show them YoY for the past 40 years leading up to the pandemic:

A marker of all of the recessions in the past 40 years prior to the pandemic is that all 4 turned negative prior to each recession, with the sole exception that the manufacturing work week was flat YoY prior to the 2008 recession. When even 2 of the 4 were positive YoY, there was no recession.

Here is the same graph for the past 12 months:

Temporary help and the manufacturing work week are negative. Manufacturing and residential construction employment are decelerating, but still positive. If their current paces of deceleration were to continue, residential construction employment is on track to turn negative in 3 months; manufacturing employment in 8.

Finally, the number of persons who have been unemployed for less than 5 weeks decreased slightly in March, but at 2.722 million, is at a level higher than all but 4 months in the past 2 years:

Here is the historical track record of this indicator, averaged quarterly YoY for 70 years prior to the pandemic:

While it is indeed noisy, it has turned higher YoY in the quarter of, and almost always prior to, the onset of recessions.

Here is the quarterly YoY view since Q4 of 2020:

The only reason it was not higher YoY in Q1 of this year is the comparison with the extremely weak month of January 2022 which was included in the average.

To summarize: all 5 of the leading components contained in the jobs report have turned down (or in the case of short term unemployment, up) from their best levels. Several are already at levels consistent with recession. The remaining ones are on track to signal recession within 3 to 6 months.

Tomorrow: unemployment indicators

Weekly Indicators for April 3 - 7 at Seeking Alpha

 

 - by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha. 

Probably unsurprisingly, the big news this week was the effect of the revisions to the initial jobless claims data, and also the turning down of several sectors in the monthly jobs report.

Anyway, as usual clicking over and reading will bring you up to the virtual moment as to the data, and reward me a little bit for my efforts in putting it all together.

March jobs report: leading sectors turn down in a pre-recessionary, but still quite positive, report

 

 - by New Deal democrat

Unsurprisingly, my focus on this report, like the last few reports, was on whether residential construction jobs turned negative or not, whether manufacturing and temporary jobs continued on their downward trajectory, and whether the deceleration in job growth would be apparent.

Some of the deceleration or decline occurred, particularly in the sectors which lead the market overall, while other metrics held steady or even improved, consistent with a still very tight market.

Here’s my in depth synopsis.

HEADLINES:

• 236,000 jobs added, the lowest number since December 2020. Private sector jobs increased 189,000, also the lowest since December 2020. Government jobs increased by 47,000. The three month moving average of growth declined 1,000 to 345,000. 
• The alternate, and more volatile measure in the household report rose by 577,000 jobs. The above household number factors into the unemployment and underemployment rates below.
• U3 unemployment rate declined -0.1% to 3.5%.
• U6 underemployment rate also declined -0.1% to 6.7%.
• January was revised downward by -32,000, and February was revised upward by 15,000, for a net decrease of -17,000 jobs compared with previous reports. 

Leading employment indicators of a slowdown or recession

These are leading sectors for the economy overall, and help us gauge how much the post-pandemic employment boom is shading towards a downturn.  These were mixed, but the overall tenor was neutral to negative:

• the average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, declined was unchanged at 40.7, down -0.9 hours from February peak last year of 41.6 hours.

• Manufacturing jobs declined by -1,000.
• Construction jobs declined for the first time since January 2022, by -9,000.
• Residential construction jobs, which are even more leading, increased by only 800, but last month’s gain of 1,200 was revised to a loss of -2,400, suggesting January may have been the peak for this sector.

• Temporary jobs, which have generally been declining late last year, resumed that decline, by -10,700.
• the number of people unemployed for 5 weeks or less declined -17,000 to 2,272,000.

Wages of non-managerial workers

• Average Hourly Earnings for Production and Nonsupervisory Personnel increased $.09, or +0.3%, to $28.50, a YoY gain of 5.1%, the lowest YoY gain since July of 2021.

Aggregate hours and wages: 

• the index of aggregate hours worked for non-managerial workers rose 0.2%.

•  the index of aggregate payrolls for non-managerial workers rose 0.4%, but continued its deceleration to 7.2% YoY, the lowest since March 2021, although still more than 1% higher YoY than inflation as of the last reading.

Other significant data:

• Leisure and hospitality jobs, which were the most hard-hit during the pandemic, rose 72,000, only -368,000, or -2.2% below their pre-pandemic peak.
• Within the leisure and hospitality sector, food and drink establishments added 50,300 jobs, and are now only -75,000, or -0.6% below their pre-pandemic peak. 
• Professional and business employment rose 39,000. This series has also been decelerating consistently, and is now up 2.3% YoY, the lowest increase since March 2021.
• The Labor Force Participation Rate increased 0.1% to 62.6%, vs. 63.4% in February 2020.
• The number of job holders who were part time for economic reasons rose 35,000.
• Those not in the labor force at all, but who want a job now, declined -178,000 to 4.925 million, its lowest level since December 2019.

SUMMARY

As it is so often, this report had a somewhat bifurcated nature. It remained solid in terms of absolute job growth. Further, in general the numbers derived from the Household Survey were very good. But most of the leading internals in the Establishment report were negative.

Let me highlight the leading negatives. All 3 leading sectors of the jobs market have turned down: manufacturing, construction, and temporary jobs. Also, while the manufacturing workweek was unchanged this month, it is at a level which in the past has been consistent with a recession. The drumbeat of negative revisions to prior reports has also resumed. This is solidly pre-recessionary.

But let’s not overlook the positives in the Household Survey. Both the unemployment and underemployment rates declined, and participation increased. Jobs are obviously still easy to get, as those out of the labor force who nevertheless want a job declined to a 3+ year low, and indeed except for 2019, the lowest number since 2008. And while aggregate payroll growth is decelerating, it is still growing at a rate higher than inflation.

To sum up: pre-recessionary, but we aren’t at the recession yet.

Revisions cause initial claims, the last positive leading indicator, to capitulate

 - by New Deal democrat

Initial and continuing claims underwent some serious revisions with this week’s release. Rather than attempt an explanation myself, here is the nub of the BLS’s own explanation:

Beginning … [this week], the methodology used to seasonally adjust the national initial claims and continued claims reflects a change in the estimation of the models.

Seasonal adjustment factors can be either multiplicative or additive. A multiplicative seasonal effect is assumed to be proportional to the level of the series. A large increase in the level of the series will be accompanied by a proportionally large seasonal effect. In contrast, an additive seasonal effect is assumed to be unaffected by the level of the series….

Prior to the pandemic, the unemployment insurance claims series used multiplicative models to seasonally adjust the claims. Starting with March 2020, Bureau of Labor Statistics (BLS) staff, who provide the seasonal adjustment factors, specified both of the UI claims series as additive. After the large effects of the pandemic on the UI series lessened, the seasonal adjustment models were once again specified as multiplicative models. Statistical tests show that the UI series should, in normal times, be estimated using multiplicative adjustments.

The revisions go all the way back to June 2021. As a result, the all-time lows in both the weekly and 4 week average of initial claims that were reported last spring got vaporized: the all-time lows revert back to the 1960s. Continuing claims were also revised substantially higher for last spring. All three series were also revised substantially higher beginning with the weeks of late January. All of the sub-200,000 readings since then have been erased. Instead, claims have steadily risen to close to 250,000, and continuing claims have gradually risen to over 1.8 million. 

Including those revisions, this week initial claims rose 18,000 to 246,000. The 4 week average declined 4,250 to 242,000. Continuing claims with a one week delay rose 6,000 to 1,823,000.

Here is what those revisions to weekly initial claims look like:

Here are the revisions to the 4 week average:

And here are the revisions to continuing claims:

Finally, here are the YoY% changes to all three:

Because the revisions go back more than a year, the YoY% change in the numbers did not change very much compared with last week. Including the revisions, initial claims are now up 6.5% YoY (vs. 15.8% as reported last week), and continuing claims are up 11.6% (vs. 12.2%). The more important 4 week average is up 10.8% (vs. 11.0%).

Last week I wrote that the 4 week average of initial claims had crossed the 10% threshold for a yellow flag caution. I require two months in a row, and would need to see an increase to 12.5% YoY or above to warrant the actual red flag recession warning.

But even if initial claims improve somewhat from here, with these revisions the last positive leading indicator has capitulated.

One of the last of the positive short leading indicators rolls over

 - by New Deal democrat

The only economic release today of any significance was the ISM non-manufacturing index, which tracks services. It is only about 25 years old, and is not a leading indicator the way its sibling manufacturing index is, but for the record in March it showed slight expansion at 51.2. Here is its entire history:

Its new orders subindex came in at 52.2. Lest you think that it sounds an “all-clear,” in December 2007, the first month of the Great Recession, the index came in at 54.4, and new orders at 53.9. The history is, services decline only after goods. Goods lead into the recession, then services join.

In that vein, yesterday we got confirmation that one of the last short leading indicators which had not turned down, has finally unequivocally done so. Durable goods orders (blue) and consumer durable goods orders (red) both declined for the second month in a row. Meanwhile capital goods orders less defense and aircraft (gold) also declined slightly, and remain below their high from last August, having trended essentially sideways since then:

At this point there is not a single short leading indicator - including even initial jobless claims - that has not retreated from their best level. Aside from jobless claims, the only other short leading indicator showing signs of life is stock prices as measured by the S&P 500. These made a new 3 month high in early February, and haven’t made a new 3 month low since last October, so for the short term count as a positive:

But if they fail to make a new 3 month high by early May, they too will retreat to a neutral. And of course, they remain below their all-time high from January 2022.

Finally, here is what the other 3 big coincident monthly indicators aside from payrolls look like, normed to 100 as of last October:

Real personal income less government transfers looks like it may have made a peak as well. Real manufacturing and trade sales jumped in January, but with a -0.8% decline in its real retail sales component in February, manufacturing and wholesale sales will have to jump in February in order to avoid a decline in that as well.

Not only do I continue to believe that a recession is near at hand, but there is a non-trivial possibility that, after revisions are all in, the NBER will determine that a cycle peak occurred in January, nonfarm payrolls notwithstanding.

February JOLTS report shows further *relative* weakening in the jobs market

 

 - by New Deal democrat

The February JOLTS report showed a weakening in almost all important trends.

The strongest component of the entire series has been job openings. I tend to place lower significance on this, because there is ample evidence that companies have “gamed” this metric either to build up a bank of resumes, or else to suggest that their growth is strong (whether or not that is truly the case). Well, even so job openings (blue in the graph below, normed to 100 as of February 2020) declined -632,000 to 9.931 million, the lowest number since spring of 2021. Actual hires (red) declined -164,000 to 6.163 million (also the lowest since spring 2021), while quits (gold) increased 146,000 to 4.024 million:

Note that an increase in voluntary quits is a good thing, because it indicates confidence by the person quitting that they can find a new job relatively easily. But even with February’s increase, quits remain below their 2021-early 2022 monthly levels.

For comparison’s sake, here is the rest of the history of all three series up until the pandemic:

Finally, layoffs and discharges declined -215,000 to 1.504 million, also good. But this number only reverses January and takes us back to recent levels. The overall increasing trend (a negative) is clear:

Again, for comparison purposes, here is the rest of this series:

For about the last year, I have been paying particular attention to job openings, because it is only when they revert close enough to pre-pandemic levels that we are likely past the period of “reverse musical chairs” whereby employees find it easier to find higher paying jobs (for the record, I look favorably upon this period of labor strength, after decades of employers having the upper hand). That final capitulation of the job market, while not an absolutely necessary predicate to a recession, would likely be the icing on the cake.

On Friday March nonfarm payrolls will be reported. Because initial jobless claims have remains so positive, I do not expect an appreciable weakening of that number, but a continuation of the decelerating trend remains likely. I will be especially looking at the leading sectors, like manufacturing and residential construction, to see if those have turned negative.

Both manufacturing and construction continue to contract

 

 - by New Deal democrat

As usual, we start the month with data on last month’s manufacturing activity, and the previous month’s construction activity. This month, both were negative.

The ISM manufacturing index, which has had an excellent record as a leading indicator for the past 75 years, declined to 46.3, its lowest level since the pandemic recovery began. The new orders index, which is the best leading component, also declined to 44.3, above only December’s 42.5 low:

According to the ISM, levels below 48 have historically been consistent with recessions. Needless to say, that’s what the index says about manufacturing now (and consistent with what the new orders indexes of the regional Feds have been saying for months).

February total and residential construction spending also both declined, the former by -0.1%, the latter by -0.6%. Total construction spending, the laggard of the two, appears to be peaking, as it has only increased 0.2% since last November. Residential construction spending, the most leading component, may be bottoming out, as it has only declined -0.8% since November:

Since these are nominal readings, I have been deflating them by the special PPI for construction materials, which declined sharply between last May and December, but has risen in the two months since. Here’s what the deflated numbers look like:

In real terms, both have turned down, and the leading residential number has been declining almost consistently for a year.

In short, both leading sectors of manufacturing and construction are likely in contraction.

Weekly Indicators for March 27 - 31 at Seeking Alpha

 

 - by New Deal democrat

I keep forgetting to put up this link on Saturdays, but you know where to find it: my Weekly Indicators post is up at Seeking Alpha.

The good thing about high frequency indicators is you can see what is happening with trends much more quickly than with monthly releases. The bad thing is that the drip-drip-drip can take forever!

Anyway, the fallout from SVB continues in the credit sector; and corporate profits look like they might take a major hit in the Q1 reporting season, which starts in a couple of weeks.

If you haven’t already done so, clicking over and reading will bring you up to date, and reward me a little bit for organizing the data for you.