Unresolved post-pandemic seasonality likely continues in jobless claims

 

 - by New Deal democrat

Unresolved post-pandemic seasonality likely continues to rear its head. This is a probable explanation for yesterday’s strong monthly gain in employment, and it appears to be behind the trend in this morning’s jobless claims report as well. 

Later this morning as promised yesterday I will discuss at some length the nature and implications of the revisions to the last 12+ months’ employment data in yesterday’s jobs report. But first, let’s take our usual look at weekly jobless claims. 

Last week initial claims declined -5,000 to 227,000, while the four week moving average increased 7,000 to 219,500. With their typical one week delay, continuing claims rose 21,000 to 1.862 million. The below graph shows the last three years to highlight the post-pandemic seasonality issue:

In case it isn’t apparent immediately, for the last three years claims have risen from lows at the beginning of each year towards midyear, and then declined during the second half of the year. That appears to be happening again this year so far.

Which is yet another reason that I pay more attention to the YoY changes in this data. So measured, initial claims were higher by 4.5%, the four week average higher by 1.0%, and continuing claims by 1.3%:

This is the second week in a row that the data has been higher YoY, after a steady stream of lower YoY readings that began last July. It’s too soon to know if this is the beginning of a change in the trend or not, but it at least merits further attention. At the same time, unless readings go higher YoY by over 10%, it does not suggest economic contraction ahead.

Finally, particularly in view of yesterday’s -0.1% decline in the unemployment rate, let’s update the graph of comparison of that with initial and continuing claims, as to which there is a 60 year history of the latter leading the former:

The decline in claims that occurred all last autumn did indeed show up in the decline in the unemployment rate, with the important caveat that the annual revisions in the Household Survey data which gives rise to that rate were delayed until next month, so the numbers might change a little.

January jobs report: superb monthly gains, but the birds came home to roost for 2025

 

 - by New Deal democrat

This is the month the birds came home to roost, at least for the year 2025. While the month over month numbers were almost all positive, some strongly so (a repeat of what we saw last January as well, so beware unresolved seasonality), the benchmark revisions were brutal. Which is likely what the Administration was telegraphing in bright neon flashing lights the past few days. In particular, the *entire* gains for 2025 were reduced from 584,000 to 181,000 - an average of only 15,000 jobs gained per month. Also, the normal yearly revisions to the Household Survey, which gives us things like the unemployment rate, did not take place as usual this month, but have been delayed until next month. 

As per usual, I am going to report on the monthly changes below. But I anticipate there will be *much* more to say once I have digested the revisions for all of the important leading numbers. 

Below is my in depth synopsis.

HEADLINES:

• 130,000 jobs added. Private sector jobs increased 172,000. Government jobs declined -42,000. The three month average rose to +73,000.
• The pattern of downward revisions to previous months continued. November was revised downward by -15,000 to +41,000, and December was revised downward by -2,000 to 48,000, for a net decline of -17,000. 
• The alternate, and more volatile measure in the household report, rose by 528,000 jobs. On a YoY basis, this series increased 689,000 jobs, or an average of 57,000 monthly.
• The U3 unemployment rate declined -0.1% to 4.3% compared to its recent high of 4.5%.
• The U6 underemployment rate declined -0.4% to 8.0%.
• Further out on the spectrum, those who are not in the labor force but want a job now declined by -399,000 to 5.809 million..

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 almost all very positive:

• The average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, rose 0.3 hours to 41.4hours, now down only -0.2 hours from its 2021 peak of 41.6 hours.

• Manufacturing jobs rose 5,000.
• Truck driving jobs declined -4,300.
• Construction jobs rose 33,000.
• Residential construction jobs, which are even more leading, rose 300.
• Goods producing jobs as a whole rose 36,000. 

• Temporary jobs rose 9,100.
• The number of people unemployed for 5 weeks or fewer declined -134,000 to 2,155,000.

Wages of non-managerial workers 

• Average Hourly Earnings for Production and Nonsupervisory Personnel increased $.12, or +0.4%, to $31.95, for a YoY gain of +3.8%, a rebound from its post-pandemic low of 3.6%. This continues to be significantly above the 2.7% YoY inflation rate as of the most recent report.

Aggregate hours and wages: 

• The index of aggregate hours worked for non-managerial workers rose 0.4%.

• The index of aggregate payrolls for non-managerial workers rose 0.8%, and is up 5.1% YoY.

Other significant data:

• Professional and business employment rose 34,000.
• The employment population was unchanged at 64.8%.
• The Labor Force Participation Rate increased +0.1% to 62.5%.

SUMMARY

On a monthly basis, this was a very good report. Almost everything moved in the positive direction. In fact, the only negatives were a decline in trucking jobs and the continuing drumbeat of downward revisions to previous months. Everything else — positive, coincident, and lagging indicators of the employment market — were positive. 

But before you break out the champagne, keep in mind that the revisions to the past 12 months were very bad. For all of 2025, less than 200,000 jobs were added. Even with this month’s good report, the 12 month increase was only 359,000 jobs, or an average of 30,000 per month.

I’ll have more to say either later today or over the next few days once I break out the revisions for each significant statistic.

Real retail sales turn down monthly and YoY in December, boding poorly for employment

 

 - by New Deal democrat

Real retail sales, one of my favorite broad-economy indicators, was updated through December this morning — still stale by one month, as under normal circumstances January’s numbers would have been released this week. 

Still, with consumer spending being about 70% of the entire economy, this is one of the most important economic reports of the month, and along with real personal spending, the two best measures of that sector. Further, because of their leading albeit noisy relationship with employment, they are particularly important right now, with job creation on the verge of turning down. 

Nominally, retail sales were unchanged in December, after a downwardly revised +0.5% in November. After taking the monthly 0.3% increase in prices into account, real sales were down -0.3%. Since there was no October CPI report, the best we can say about November is that in real terms sales (blue in the graph below) were higher by 0.2% compared with September:

But so calculated, real retail sales in December were down -0.4% from their September peak. Further, if you believe, as I do, that the shutdown shelter kludge removed about 0.2% from consumer inflation during the September-November period, then the comparison becomes similarly worse.

Note that the above graph also shows the similar but more comprehensive measure of real personal spending on goods (gold), which did make a new high as of its most recent report for November. 

Beyond that, real retail sales turned back negative YoY for the first time since September 2024. Going back 75 years (although I won’t bother with the long term historical graph), a decline in YoY real retail sales has almost always meant a recession (but both the obvious exception in 2023!):

This is particularly salient because as I wrote above consumption leads employment. With the YoY comparison deteriorating in late 2025 and now negative, needless to say this bodes poorly for employment in the early months of this year.  Here is the update of YoY real sales and real personal spending on goods (/2 for scale) together with employment (red):

Last month I concluded that “This sharp deceleration in YoY growth in consumption forecast the slide in employment, and suggests that the jobs reports in the next several months will get no better.” This month’s report adds to the evidence. We’ll find out if that was true in January tomorrow.

Expect shelter inflation to continue abating in the next few CPI reports

 

 - by New Deal democrat

There’s no significant economic news until Wednsday’s jobs report, as to which Scott Bessent gave an interview this morning on CNBC which amounted to, “Don’t Panic!!!” Which I am sure inspires confidence in everybody (I’ve been expecting downward revisions to much of last year as part of the annual benchmarking, so that could be primarily what we will see).

Anyway, another important report later this week will be an updated CPI, as to which the important dynamics are shelter (where I’ve been expecting disinflation) and all other components (as to which I’ve been expecting re-inflation).  In any event, the BLS finally updated its “New-“ and “All Tenants Rent Index” last week. 

To recapitulate, the “New Tenants” index is very leading, but very noisy; whereas the “All Tenants” index is less leading, but generally does follow the “new tenants” index, but leads with far closer correlation the shelter component of CPI.

In Q2, the new tenants measure fell off a cliff, with an actual negative YoY number, at -2.4%, while the All Tenants component remained  positive, at +3.3% YoY. As per above, both led the shelter component of CPI:

In the Q3 report released last week, the “New Tenants” component rebounded to +1.2%, while the “All Tenants” component disinflated further, to 2.9% YoY:

Unfortunately, I haven’t been able to find a graph showing the updated “All Tenants” component, which is why I showed you the first graph above.

As I’ve been updating over the past several months, the FHFA and Case Shiller repeat home sales indexes (not shown) have been at nearly 15 year lows in the vicinity of +1.5% YoY for the past few months. The latest New- and All-Tenants Rent index confirms that disinflation in the rental market.

Because both of these lead CPI for shelter with a substantial delay, this is potent information suggesting that this important component of the CPI is going to continue to show slowing inflation from its last reading of +3.2% YoY (itself a 4 year low) in the months ahead.

Weekly Indicators for February 2 - 6 at Seeking Alpha

 

 - by New Deal democrat

My “Weekly Indicators” post is up at Seeking Alpha. 

The main movement this week was in the speculative commodity or asset area, where Bitcoin crashed and gold and silver also broke trend, taking down the broad commodity baskets with them.

But as has been true for the past number of months, it really has been the case that “the stock market is the economy,” as paper wealth gains drive real spending by the top 10% of so of consumers.

As usual, clicking over and reading will bring you up to the virtual moment as to the state of the economy, and bring me a penny or two to buy my lunch.

December JOLTS report shows stabilizing at near stall speed, despite one negative “soft data” outlier

 

 - by New Deal democrat

I’m glad I waited a day to write about yesterday’s JOLTS report for December, because I got to read a lot of other commentary on the report, which convinced me to add some additional commentary about the entire JOLTS series. 

Let’s start with the fact that it was not “stale” inasmuch as the report was only delayed by two days. Still, it was for December, so a look in the rear view mirror. Secondly, too much commentary continues to focus on the “soft” job openings number, which over the course of its history has increased far more than any of the other series, as shown in this graph:

There are simply thousands of phantom job postings that are either permanent or designed to convince people that companies are hiring when they really aren’t. It has been a secular trend at least since the Great Recession. 

A second issue is that the monthly variations with all of the series are very noisy. For example,  for most of 2025, in contrast to much other data in the jobs sector, the JOLTS reports had been very much consistent with a “soft landing” jobs scenario. Then in October, all of the numbers were strongly recessionary. At the time I wrote that I would want confirmation for at least one or two more months before hopping on that bandwagon. And indeed, between revisions and improvements in November, October now very much appears to have been an outlier.

Similarly, yesterday there was a fair amount of commentary about a big decline in the job openings data to a new post-pandemic low. So let’s take my usual look at job openings (blue), hires (red), and quits (gold) all normed to 100 as of just before the pandemic:

 

The “soft” data of openings did decline -386,000 to 6.542 million, as indicated above a new low since the pandemic. On the other hand, actual hires rose 172,000 to 5.293 million, in line with the monthly average over the previous six months. Quits also rose 11,000 to 3.2.04 million, also solidly in their 18 month recent range. In other words, with the exception of openings, what we see is a sideways trend in all of these for the past 18 months, with a slight downward step in the past 6+ months.

On the negative side, layoffs and discharges increased 61,000 to 1.762 million, again right in the middle of its average for the past 6+ months, which range has been slightly higher than earlier in 2025:

In short, the numbers paint a picture of an employment sector that weakened in the second half of 2025, compared with the first half, but with no ongoing declining trend.

Now let me get to some additional commentary about the series as a whole. 

1. Historically, job openings have been much more volatile than hires, but on a YoY basis tend to cross the “0” threshold from expansion to contraction and visa versa contemporaneously with hires:

2. On a YoY basis, the one series for which there is some evidence of a slightly leading characteristic is layoffs and discharges (purple, inverted in the YoY graph below; all series averaged quarterly to cut down on noise):

Here is a close-up of the last year of all four data series YoY, monthly. Again, layoffs and discharges are inverted so that an increase shows as a negative number:

With just a few exceptions (March, September, November), the trend in all of the series has been negative, although quits has been positive for the past several months. This suggests a labor market which has continued to decelerate, but on a very slow basis, fitting a “soft landing” scenario.

3. Although layoffs and discharges may be slightly leading (and as I wrote a month ago, they generally lead the unemployment rate and continuing jobless claims), they are quite noisy as compared with the monthly average of initial jobless claims, which also generate fewer false signals. First, here’s the historical look:

And here is the post-pandemic look:

In other words, initial jobless claims YoY, especially as averaged monthly or on a 4 week average basis, continue to be the better indicator, and they are much more timely.

4. Finally, as I have pointed out before, the quits rate (left scale), which typically leads the YoY% change in average hourly wages for nonsupervisory workers (red, right scale), held steady in December, also in the middle of its range for the past 12+ months:

This suggests that nominal wage growth, is likely to remain stable with little variation in the next few months. at least this month. 

To conclude, December’s monthly report continued to be consistent with a “soft landing” despite the noisy downside lurch of job openings. Again, I would want to see another month or two of confirming lower readings before treating this as much other than noise in a “soft data” indicator. To the extent there is leading data in the JOLTS series which helps us forecast, as indicated just above the improvement in Quits suggests nominal wage growth will continue on trend. And layoffs and discharges suggest further slow deceleration in the employment market, but the much less noisy and current initial jobless claims data disagrees, suggesting stability albeit at a near stall over the next several months

Jobless claims rise, but still mainly lower YoY; post-pandemic residual seasonality still at work?

 

 - by New Deal democrat

The December JOLTS report that was delayed from Tuesday is scheduled to be released later this morning. I may cover it today, or may delay until tomorrow, since there won’t be a jobs report. In the meantime, let’s take our weekly look at jobless claims which, to reiterate, are a good short leading indicator for the economy, and specifically for the unemployment rate.

One issue I have talked about almost every week in the past several years is residual post-pandemic seasonality, whereby even after adjustment claims have risen in the first half of the year, and declined in the second half. Which comes in handy today, because initial claims rose 22,000 to 231,000, except for one week the highest since early November. The four week moving average rose 6,000 to 212,250, the highest since the end of December. And with the typical one week delay, continuing claims rose 25,000 to 1.844 million, which is still one of the three lowest readings since last April:

The above graph shows the last three years to help show the residual seasonality I have often spoken of.

On the YoY basis more important for forecasting purposes, initial claims were up 4.1%, but the four week average remained lower by -2.5% and continuing claims were down -1.6%:

Thus, despite the noisier one week number, the trend remains positive. Additionally, this adds to the evidence that post-pandemic residual seasonality remains at work.

Finally, although we won’t get the January jobs report until next week (unless something changes again), here is a look at initial and continuing claims, averaged monthly (blue and gold, right scale), compared with the unemployment rate (red, left scale) for the past three years:

Initial and continuing jobless claims have generally trended downward since September. That strongly suggests that the 4.5% unemployment rate in the November jobs report was the high water mark, and that the unemployment rate will trend downward over the next several months (although it might remain at 4.4% next week).

ADDENDUM: I was asked over the weekend at Seeking Alpha why initial claims are so low, even with job growth almost completely stalling. One possible explanation was the effect of ICE immigration raids on immigrant communities — but if that were the case, I would expect especial declines in the States targeted by ICE so far; mainly California, Illinois, and Minnesota. But the state by state breakdown does not show any such outliers. The best explanation is that demand (mainly by the top 10% of consumers) has still been growing, so there has been little incentive to lay workers off; but on the other hand, uncertainty due to the chaos in Washington, plus in some sectors an impact from AI on hiring has led to caution.

January ADP private employment and ISM services reports show increasing stagflation in a weakly growing economy

 - by New Deal democrat

[Administrative note: the good news is, graphs are back! The bad news is, it is extremely glitchy and energy consuming, so my fingers are still crossed. Basically it boils down to Apple and Google don’t want to interact with one another, and have to be repeatedly dragged, kicking and screaming, into a converation. AARRGH!!]

With official economic data delayed once again by the brief government shutdown, once again we must rely on private sources to at least sketch the contours of the economy.

This morning we got two important portions of that sketch. First, the ADP private employment report indicated an increase of only 22,000 jobs in January (blue), with only 1,000 of those in the goods-producing sector. Within that sector, manufacturing shed another 8,000 jobs (red), while construction added 9,000 (gold):

In the past year, only 280,000 private sector jobs have been added in total in the entire economy, an average of only 23,000 per month. The construction sector added 43,000, while manufacturing declined every single month and lost a total of -159,000.

But if the first report of the morning confirmed a moribund, if not outright contracting employment sector, the other news, in the ISM services report, showed that the 75% or so of the economy that is that sector continued steady if not strong expansion. The headline number was unchanged at 53.8, while the three month average was 53.4 (recall that any number above 50 means expansion) [Note that in each graph below I also show the equivalent sector reading from the ISM manufacturing report earlier this week in gray]:

 

New orders decelerated -3.4 to 53.1, with a three month average of 54.2:

Employment also decelerated by -1.4 to almost a complete halt at 50.3, while the three month average also came in at 50.3:

Note that the ISM manufacturing and services reports are in almost complete accord with the ADP private payrolls report. Both showed weak, but positive, employment growth in the services sector, while the nearly stagnant goods sector and contraction in manufacturing in the ADP report was similar to the continuing contraction indicated earlier this week in the employment reading from the ISM manufacturing report.

Finally, prices paid increased 1.5 to 66.6:

The (relatively) good news is that this is still well below the readings from earlier last year. The unequivocal bad news is that prices paid in both the manufacturing and services sectors showed marked increases over the course of the last year. In other words, inflationary pressures have been building in the pipeline at the same time as employment growth has stalled.

Finally, here are the three month averages for both the headline and new orders indexes, economically weighted at 75% for services and 25% for manufacturing:

Headline: services 53.4, manufacturing 49.5 -> economically weighted average 52.4

New orders: services 54.2, manufacturing 50.6 -> economically weighted average 53.3

Recall that I use this economic weighting as a short leading forecast for the economy as a whole; and needless to say this indicates that a steady if not strong expansion is likely in the next few months, despite the weakness in the jobs environment.

And speaking of job, when the official January report is released, I will be looking for a continued stall or even decline in goods-producing jobs, but also an increase if a lackluster one in service providing jobs. Note that the report will also include adjustments in last year’s numbers as well.

The State of Freight is Mainly Recessionary

 

 - by New Deal democrat

This morning we were supposed to get an actual, on-time JOLTS report for December. But with Pastor Mike Johnson having done what he does best, i.e., keeping the House of Representatives out of session while critical deadlines pass, the BLS announced yesterday that several reports, including both Friday’s jobs report for January, and the aforementioned JOLTS report, have been delayed. This is simply no way to run a first world government.

So in place of what had been scheduled, let’s take a look at the state of freight. To cut to the chase, it remains at least borderline recessionary.

To begin with, although heavy duty truck sales rebounded somewhat in December, up from their post-pandemic low of 336,000 annualized in November to 392,000, even on a three month average basis they are down -3.4% from their peak in 2023. As the graph linked to below shows, with the exceptions of 1996 and 2016, such a decline has otherwise in the past always meant a recession is near: 

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1RctU&height=490 

What hasn’t happened yet (not shown above) is for a significant decline in light vehicle sales to also decline significantly.

Another important way of looking at the components of transportation is the Truck Tonnages Index (blue in the graph linked to below), Freight Railcar Index (red), and Vehicle Miles report (gold), all of which are amalgamated into the Freight Tansportation Services Index (black), which was just reported yesterday showing a 1.2% increase in November:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1Rcsm&height=490 

Rail freight carloads have been in a secular declined for several decades, that that slow decline has generally continued since the pandemic, after a spurt in 2021. Meanwhile, truck tonnages have also declined. What has increased, and has steadied the overall Index, is vehicle miles traveled.

I have found that the best way to look at the Freight Transportation Services Index is to compare it with the privately compiled Cass Freight Shipments Index, both of which are shown in the graphs below. Because the latter is not seasonally adjusted, both are shown in YoY% terms. Additionally, in the past the Cass Index has been too volatile to the downside to be useful on its own as a recession predictor. So in both graphs linked to below, 5% is added to the calculation, because a Cass value of a bigger YoY decline than -5%, that continues for several months, and coincides with a negative YoY reading from the Freight Transportation Services Index, has been the best combined indicator.

First, here is the long term historical view before the pandemic:

And here is the recent, post-pandemic view:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1RcsU&height=490 

The Cass Index has indeed been lower by more than -5% YoY for the past six months. But the Freight Transportation Services Index has not confirmed the downturn, as it has been positive YoY for all but one of those months (note the Cass index has been updated through December while the government index has not).

Until the official index turns down for several months, the combined indicator while anemic is not showing recession.

ISM manufacturing for January breaks out to the expansionary upside, with a sidecar of stagflation

 

 - by New Deal democrat

As Although it ended almost three months ago, there are still many economic series that have not caught up, including construction spending, which would normally have been reported this morning for December. As of now, it is only updated through October, and November and December are not expected to be reported for several more weeks. Which continues to mean that the ISM manufacturing and services reports, as well as the regional Fed manufacturing and services reports, are our most complete contemporary picture of the economy.

Last month I wrote that the “ISM manufacturing report for December confirms what the regional Fed reports were telling us: the forward-looking situation is improving,” and boy-howdy did that ever continue in January! 

In more detail, the headline number rose 4.7 from 47.9 to 52.6 (recall that 50 is the dividing line between expansion and contraction). This is the highest reading since August 2022. The three month average, which I use for forecasting purposes, rose to 49.5, still slightly contractionary, but the highest average since one year ago:

 https://tradingeconomics.com/united-states/business-confidence 

The more forward looking new orders component exploded from 47.4 to 57.1, the highest reading sinc February 2022. The three month average is 50.6, expansionary for the first time since the end of 2024:

 https://tradingeconomics.com/united-states/ism-manufacturing-new-orders 

On the other employment continued to contract, although it too rose from 44.8 to the “less bad” 48.1. The three month average is 45.7, still contractionary, and equivalent to several readings last spring:

 https://tradingeconomics.com/united-states/ism-manufacturing-employment 

This suggests a further decline in goods-producing jobs when we get the January employment report at the end of this week.

The other big concern has been prices, particularly in view of the tariff situation. The diffusion index for these rose slightly from 58.5 to 59.0, lower than the readings approaching 70 last spring, but higher than all but one reading in 2023 and 2024. Their three month average is 58.7:

 https://tradingeconomics.com/united-states/ism-manufacturing-prices 

This suggests that inflationary pressures remain very present.

As I have noted in all of these monthly reports for the past year, for the economy as a whole the weighted index of manufacturing (25%) and non-manufacturing (75%) indexes is more important. In the non-manufacturing report, the averages of the last two months for the headline and new orders numbers have been 55.2 and 55.5, respectively. 

If the services index, which will be reported on Wednesday, is in line with those numbers, it will suggest, as did the regional Fed manufacturing indexes for January, that this important sector is improving, and that the economy remains in an expansion, which may be improving as well. The caveat remains the important stagflationary pressures which have been showing up in almost all the recent data.

Weekly Indicators for January 26 - 30 at Seeking Alpha

 

 - by New Deal democrat

My “Weekly Indicators” post is up at Seeking Alpha.

The trends in the high frequency data that became apparent after last summer have continued, and if anything are intensifying. In particular, a real surge in commodity prices and somewhat in a mirror image, the US$ decline which is beginning to verge on disorderly. Meanwhile, consumer spending (probably by the top 10% who have been watching their stock portfolios increase sharply in value) continues to hold up well. 

As usual, clicking over and reading will bring you up to the virtual moment as to the state of the economy, and put a penny or two in my pocket for my efforts organizing the data for you.

Economically weighted regional Fed indexes for January suggest continued stagflationary pressures [Update: PPI as well]

 

 - by New Deal democrat

To briefly reiterate, although the government shutdown ended over two months ago, much of the official monthly data - including on sales and spending - is stale, dating to November and even earlier. So the most current measures of these are the ISM manufacturing and non-manufacturing reports, due next week, and the regional Fed banks’ manufacturing and services indexes. While certainly not perfect, in the aggregate they at least sketch on outline of where the economy has been going in the past month. 

On Wednesday I looked at the goods producing sector. Today let’s look at the Services sector, which comprises about 75% of the whole economy; and then the economically weighted average of manufacturing and services together.

Below are the January values for important components of the five regional Fed services indexes. The month over month changes are in parentheses, showing momentum (the 2nd derivative), followed by the absolute diffusion values. The final number is the average change and absolute number for all 5 together. The chart includes, in order, NY, Philadelphia, Richmond, Kansas City, and Texas:

Regional Fed:     NY.           PHL.           RVA.       KC.      TX.       Avg

Headline:  (+3.9) -16.1; (+12.6) -4.2; (+5) -6; (-1) 2; (+5.0) 2.7; (+5.1) -4.3     

Cap Ex   (+0.8) -6.1; (-5.5) 5.1; (+4) -5; (+9) 18; (-16.8) 6.8; (-8.5) 3.8

Prices Paid  (-8.2) 63.9; (-5.8) 34.5; (-1.8) 4.3; (+5) 39; (-5.1) 26.2; (-3.2) 32.6

Prices Rec’d (-2.9) 27.6; (-5.8) 13.2; (+0.2) 3.4; (+11) 21; ( 0 ) 7.9; (+0.5) 14.6  

Wages (+6.3) 30.0; (-8.9) 37.2; (+3) 20; (+11) 24; (+2.5) 13.5; (+2.8) 24.9 

Employment (+1.9) -5.5; (+0.1) 9.7; ( 0 ) 5; (+3) -3; (+1.7) 0.9; (+) 1.3

With one exception, the trends in December continued in January. Headline business conditions continued to indicate contraction, but at a decelerating rate. If the trend of the last few months continues, this will turn positive in February or March. Meanwhile both prices paid and prices received continued to show broad increases, the former more than the latter. Wages also continued to show broad growth, although they may be growing too fast for the underlying business conditions. This suggests sustained services inflation will continue, and even perhaps amplify in the months ahead. 

By contrast, employment continued to be generally flat. The only big change was in CapEx spending, which had been growing strongly, weakening sharply, although still positive. 

On Wednesday I reported that the headline for the manufacturing index was +2.8. New Orders were +5.4. Prices paid were +35.6, and prices received were +16.9. Wage growth was +16, and Employment was a meager +1. Economically weighting the two indexes at 25% for manufacturing and 75% for services gives us the following overview of the entire economy:

Headline: 2.5

CapEx/New Orders: 4.2

Prices paid: 33.4

Prices received: 15.2

Wages: 22.7

Employment: 1.3

The economically weighted average of all the components is positive, indicating increases or expansion. The two price components and wages all indicate continuing strong inflationary pressure, likely due in part to tariffs, US$ weakness, and/or a move to safety in precious metals. Only some of which - but a significant amount - is being passed on to consumers. In contrast the business conditions and new orders/CapEx subindexes suggest very tepid expansion. 

Or, in short, more stagflation.

We’ll see if the ISM indexes confirm or diverge from the regional Fed averages next week.

UPDATE: This morning’s PPI report for December, showing a monthly increase of 0.5% for final demand prices (black), similarly suggests stagflation - although in fairness commodity prices (red) declined -0.3%. On a YoY basis, as indicated in the graph linked to below, both of these as well as CPI are converging on the 3% YoY marker:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1R2py&height=490 

Jobless claims: the positive regime change continues, suggesting a lower unemployment rate ahead

 

 - by New Deal democrat

Let’s take our normal weekly look at jobless claims. As a general reminder, these are a good high frequency short leading indicator for the economy as a whole, and also somewhat noisily for the monthly unemployment rate.

In the past several months, I have highlighted what appears to be a “regime change” in claims that dates back to the middle of last year, as most weeks since then have seen claims lower than they had been a year previously.

That continued this week, as new claims declined -1,000 from an upwardly revised (by 10,000!) 210,000 last week to 209,000. The four week moving average increased 2,750 to 206,000. Continuing claims, with the typical one week lag, declined sharply, down -38,000 to 1.827 million, the lowest reading since September of 2024:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1R0cN&height=490 

The lower YoY% comparisons continued, with initial claims down -0.5%, the four week average down -3.4%, and continuing claims down -1.2%:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1R0de&height=490 

These are all positive readings for the economy. It is hard to see a downturn with so few people being laid off. Again, I caution that (1) there may be some unresolved post-pandemic seasonality in these numbers, in which case they will begin increasing in the next several weeks; and (2) they may also be impacted by immigrant labor abandoning their jobs (or worse).

Finally, the significant downturn in initial and continuing claims since early November strongly suggests that the unemployment rate, which peaked at 4.5% in November, is likely to continue to decline towards the range of 4.2% or even 4.1% in the next several months:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1R0dY&height=490 

We’ll find out the first draft of that answer next week.

Finally, an administrative note. As you all are aware, my ability to post graphs to this blog was nuked by Apple’s IOS update in December (and by all accounts, the further update this month is far more buggy). After attempting to fix this on my own, I have contacted the local Apple expert to see if they can fix it — which stinks, because I write this blog pro bono, and the fix will cost me $$. Apparently, my problem is a combination of Apple’s recent crapification combined with retaliatory crapification by Google, such that Google images refuses to recognize the “handshake” from the Apple update.

The bottom line is that one of two things is likely to happen in the next week. Either the problem will be fixed, and I will be able to post images again, or I am going to need to launch a “lifeboat” site separate from this blog for new posts. In the meantime, my readership appears to have been unaffected, so thanks to all of you for sticking with me through this time.

Regional Fed manufacturing indexes suggest rebound continued in January, with continued inflationary (tariff-related?) pressures

 

 - by New Deal democrat

Although the last federal government shutdown has been over for 2.5 months — and a new one might begin this weekend — with the exception of a few headline indicators like inflation, industrial production, and employment, most of the data is still lagging by at least one month, i.e., it has only been released through November. And some is still two or more months behind.  

That means that the many of the most current measures for sales and orders are lagging by at least one month, i.e., the most recent update was for November. And many of the others, especially having to do with sales, rents, and orders, are still lagging by two months or more. 

Which means that the most current measures of economic activity in many areas continue to be the ISM manufacturing and non-manufacturing reports, due next week; and the regional Fed banks’ manufacturing and services indexes. While certainly not perfect, in the aggregate they at least sketch on outline of where the economy has been going in the past month. 

Today let me update the regional manufacturing indexes for January. While this is only about 1/4 of all economic activity, it is the  most volatile, and generally the most leading sector.

The below chart includes, in order, NY, Philadelphia, Richmond, Kansas City, and Texas. Month over month changes are in parentheses, with the absolute values for January following. The final number is the average change and absolute number for all 5 together.

Regional Fed:     NY.           PHL.           RVA.       KC.    TX.    Avg

Headline:     (+11.4) 7.7; (+22.8) 12.6; (+1) -6; (-1) 0; (+10.1) -1.2; (+8.0) 2.8          

New Orders (+7.6) 6.6; (+9.4) 1.; (+2) -6; (0) 0; (+15.4) 11.8; (+3.5) 5.4 

Prices Paid  (-1.4) 42.8; (+3.3) 46.9 (-0.5) 7.1; (+4) 44; (+1.9 ) 37.1; (+4.1) 35.6 

Prices Rec’d (-11.0) 14.4; (+3.5) 27.8; (-0.4) 4.6; (-3) 19; (+9.7) 18.5; (+1.4) 16.9

Wages* (n/a) n/a; (n/a) n/a; (-10) 14; (n/a) n/a; (-4.3) 17.4); (-7.2) 16.0

Employment  (-16.5) -8.0; (-3.2) 9.7; (-5) -6; (+4) 0; (-0.2) 8.2; (-1.8) 0.6

____

* only 2 of the banks report this information

To summarize, the January regional Fed reports suggest that headline activity and new orders continue to improve, and at an improving pace (after a pause in December). Inflation in commoditiy prices remains widespread and even increasing (which may also reflect the weakening US), and while the prices they have received also continue to increase significantly, they are not recouping anything like their production costs. Meanwhile employment continues to be just barely positive, but wage growth continues, although at a more subdued pace.

This is of a piece with the most recent data on manufacturers new orders through November, on which I reported on Monday, and the December industrial production report from several weeks ago, both of which indicated improvement in orders and production in the manufacturing sector. It is of interest that the regional growth appears to be concentrated in Texas. Aside from that region, growth (including prices) is must more muted. As per my speculation on Monday, I suspect this has much to do with the building of AI-related data centers.  

Repeat home sales indices for November indicate continued rebalancing vs. new home prices — at a glacial pace

 

 - by New Deal democrat

For the past year, my view has been that the housing market is in recessionary territory, although that has not translated to the economy as a whole. As per usual, home sales lead house prices; and that trend continued with the Case Shiller and FHFA repeat sales house price indexes through November, released this morning. 

On a seasonally adjusted monthly basis, both indices rose 0.4%. This is the fourth straight seasonally adjusted increase, after 4-5 months of seasonally adjusted declines earlier in 2025 [Note: as per usual, FRED has not  updated this month’s FHFA readings yet]:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1QWdZ&height=490 

So it is safe to say that the downtrend in both prices indices has reversed.

But as indicated by the YoY% changes, the reversal has not in any way accelerated price increases. Rather, the November numbers for the Case Shiller Index were equivalent to those 12 months ago, while for the FHFA index, the increase was lower than last year. In other words, the YoY% increase in the Case Shiller index has leveled out at 1.4%, while that for the FHFA Index has declined to 1.7%, as shown in the last 5 years of YoY% changes linked to below:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1QWeg&height=490

 

More significantly, the long term historical view shows that the YoY gain in the FHFA Index is the lowest in the past 35 years outside of the 2007-11 housing bust and 2 months in 1993:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1QWen&height=490

But viewed in terms of affordability, existing home prices still have a long way to go. The graph linked to below shows both repeat home prices indexes vs. average nonsupervisory hourly earnings, as well as the median price for new houses, all normed to 100 as of the peak of the house prices surge in June 2022:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1QWgf&height=490 

While hourly earnings have increased slightly more than existing home prices since then, as measured by the two repeat home price indexes, and the median price of new homes has trended *downward* ever since, repeat home sales prices have still increased over 20% more than average wages since before the recession, and median new home prices have increased about 10% since then even as of the latest report.

So if we continue to see a very gradual rebalancing of the housing market between new and existing home prices, both remain much less affordable than before the pandemic, even leaving the increase in mortgage rates aside. 

I anticipate that the recessionary trend in new home construction will continue so long as affordability is only being addressed at a glacial pace. We simply need much more new and existing home inventory - i.e., a big increase in supply - to balance out the demographics-driven demand.

Stale data watch: manufacturers’ new orders soared in November — more evidence of AI data center building?

 

 - by New Deal democrat

With another likely government shutdown looming at the end of this week due to DHS funding, we are still playing catch-up from the last one that ended in November. This morning’s edition of stale data was durable goods manufacturing for November.

One of the stories of the latter part of last year is that manufacturers appear to have adjusted to the increased tariff regimen imposed by Washington. That was apparent in this morning’s data, as new orders for durable goods (blue in the graph linked to below) increased a strong 5.3% in the months, while core capital goods orders (red), which convey more signal and less noise, increased 0.7%:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1QUzm&height=490 

This is in stark contrast to new orders for consumer goods (gold), which, while they have not been decreasing, completely stalled over the past 2 years. 

Note that this is in contrasst to the ISM manufacturing index, which has been in contraction since February of last year:

 https://tradingeconomics.com/united-states/business-confidence 

Since the ISM metric is a diffusion index, meaning that the number of respondents reporting contraction have outnumbered those reporting expansion, this suggests that the increase in new orders for manufacturing is concentrated in relatively few industries. The biggest driver, per the report, appears to have been transportation equipment, although we know that the trucking industry is suffering greatly. Beyond that there is little information, but my suspicion is that we are seeing a byproduct of the big build-up in AI-related data processing centers.