Weekly Indicators for April 8 - 12 at Seeking Alpha

 

 - by New Deal democrat

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

There has been a lot o churn in both the short leading and coincident indicators in the past few weeks, but the overall tone is towards a more positive economic environment.

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

March consumer price inflation was still mainly about the dynamics of shelter and gas prices

 

 - by New Deal democrat

The one advantage of not reporting on the March CPI results for two days is I’ve had the opportunity to look at more data in depth and mull things over.

And I’ve decided that there really wasn’t much change from the pattern we’ve seen for about the past 9 months. Basically the month to month variation in inflation is a function of the interplay between shelter and gas prices. During late 2022 and early 2023, the latter were still accelerating or steady at a high rate of inflation, while the latter were falling. Beginning in late 2023, the dynamic reversed, as shelter inflation was slowly decelerating, while gas prices had bottomed.

The big takeaway for the last several month has been a renewed increase in gas prices, while the deceleration in shelter inflation has slowed. There have been a couple of other players in the process that I’ll also discuss below.

First, let’s look at the month over month change in inflation for shelter as a whole (dark blue) vs. rent of primary residence (light blue) and owners’ equivalent rent (red) for the past 6 years:

In the years prior to the pandemic, the three averaged +0.3% growth +/-0.1% each month. After the pandemic, they peaked at roughly .75%, and in the past 12 months have slowly declined from an average of +0.5% per month to +0.4% per month. 

On a YoY basis, the various measures of shelter have decelerated from roughly +8% to just over 5.5%:

Because house prices lead shelter inflation with a 12-18 month lag, here’s the update of that metric:

Since house prices are presently increasing at 2.5% YoY, about average for the pre-pandemic period, I expect OER and the other measures of shelter inflation to continue to decelerate YoY, but probably at a slow pace compared with their initial rapid decline, because they will be compared with +0.5% monthly increases 12 months before vs. 0.7% at their peak.

Now let’s take a look at monthly gas prices (dark blue in the graph below) vs. energy prices generally (light blue). On a monthly basis, these had mainly declined beginning in mid-2022, but in the last two months have increased at more than their pre-pandemic average:

On a YoY basis, both are now higher, by 1.3% and 2.1% respectively:

This contrasts with their negative YoY readings for almost the entirety of the previous 16 months. 

So, to summarize: the deceleration in shelter inflation has slowed, while gas prices have reversed higher. This explains most of the increase in monthly inflation in the past several months, as is shown in the graph below comparing energy inflation (grey), headline (blue), core (gold), and inflation ex-shelter (red) YoY:

The reversal in gas prices has caused a similar, albeit smaller, reversal higher in both headline inflation and inflation ex-shelter. But it is noteworthy that, simply by excluding shelter, inflation is still only higher by 2.3%. 

In other words, it remains the case that, except for shelter, US consumer inflation is well-behaved.

As noted above, let me also take a look at several other sectors of note. Although I won’t bother with a graph, the former problem children of new and used vehicle prices have reached a new equilibrium. New car prices have actually *declined* -0.1% YoY, while used vehicles are down -2.2% YoY.

The remaining problem areas of inflation are:

 (1) food away from home, which peaked at 8.8% YoY one year ago, and is now down to 4.2%, close to its pre-pandemic average of 2.5%-3.0%;

 (2) electricity, which has followed gas prices higher, rising from 2.2% YoY last August to 5.0% in March; and 

 (3) transportation services - mainly car repairs and insurance - which has rocketed from its pre-pandemic range of 2.5%-5.0% to as high as 15.2% in October 2022, and is now still up 10.7%.

I’m not sure if there is more to the electricity story than the price of gas-powered turbines. But car repairs are up 8.2% YoY, and motor vehicle insurance is up a whopping 22.2%! Based on the past inflationary period of 1966-82, it is clear that transportation services lags increases in vehicle prices by 1-2 years and even more, sometimes increasing right through recessions:

So while I expect food away from home to continue to revert to its prior average, and perhaps electricity as well, price increases in transportation services may remain a problem for quite some time.

Real average wages and aggregate payrolls signal continued growth

 

 - by New Deal democrat

On Wednesday I was traveling so I didn’t get around to writing about the important CPI release. Let me start my delayed response by updating real wages and payrolls for non-supervisory employees.

Historically, as I have pointed out a number of times, real aggregate payrolls (red in the graph below) have a flawless record over the past 50+ years of peaking in the months ahead of a recession (Note: I show the last 30 years below. From the late 1960s through early 1990s, real wages declined almost relentlessly as the combination of the huge Baby Boom generation plus women entering the workforce applied potent downward pressure on wages, but increased aggregate payrolls and household income as there were many more two wage-earner households):

and turning negative YoY close to simultaneously with its onset. Real nonsupervisory wages (blue) have a less stellar record, but have almost always sharply decelerated or turned negative before or shortly after the onset of a recession, because inflation typically has accelerated faster than wage growth late in expansions, while the Fed has raised rates to tamp down demand:

Last Friday we found out that wages rose 0.2% for the month and 4.2% YoY, continuing their pattern of slow deceleration. Aggregate payrolls rose a strong 0.7% for the month and 6.1% for the year. With Wednesday’s 0.4% increase in consumer prices, real wages actually declined by -0.1% for the month, while real aggregate payrolls rounded up to 0.4%. On a YoY basis, real wages are up 4.2%, and real aggregate payrolls rose 6.1%:

Here are the real absolute numbers, norming inflation to “1” as of last month:

Real wages have declined in the past several months, but they have not broken trend yet. Meanwhile real aggregate payrolls set yet another all time record high. With this new high, and with real aggregate payrolls up close to 2% in the past year, continued expansion in the immediate future remains almost certain. 

Initial claims continue to be rangebound, and a positive for the near term forecast

 

 - by New Deal democrat

[NOTE: After traveling all day yesterday, I decided to put off any comments on the CPI upside surprise until later today. Short version is that shelter continues its slow decent, gasoline picked up, and services are accelerating as one might expect in a strong economy with the supply chain tailwind having dissipated.]

Initial claims continued to be rangebound this week, declining -11,000 to 211,000. The four week moving average declined -250 to 214,250. With the usual one week delay, continuing claims increased 28,000 to 1.817 million:

On the YoY% basis more important for forecasting purposes, weekly claims were down -4.1%, the four week average down -4.4%, and continuing claims up from last week’s 12 month low to 7.1%:

While continuing claims are a negative, they are much less so than they were during the last nine months of 2023. The more leading initial claims remain firmly positive.

One week of data doesn’t give me enough information to make it worth updating the Sahm rule forecast, but here is the YoY% comparison through the end of March:

For the month, initial claims were down -5.9% YoY, while the unemployment rate was up 5.6% (note this is a ‘percent of a percent’). Because the YoY comparisons in both initial and continuing claims have improved since late last year, I expect the YoY comparison in the unemployment rate to follow suit, meaning a slight decline in that rate is more likely than a return to its recent peak of 3.9%.

Travelin’ man: Weekly Indicators for April 1 - 5 at Seeking Alppha

 

 - by New Deal democrat

I neglected to post this over the weekend, so I will post it now….

My “Weekly Indicators” update is over at Seeking Alpha.

There was lots of churn under the surface last week, but it continues to point towards general improvement.

As usual, clicking over and reading will bring you up to date through last Friday, and reward me with a little lunch money as well.

Also, tomorrow morning the CPI for March will be reported. I’ll be on the road, so I won’t be able to do any in dept post, but I’ll try to give you a quick paragraph or two covering the high (or low) points as I can.

Scenes from the robust March jobs report

 

 - by New Deal democrat

As I wrote Friday, the news from the employment report was almost all good. Let’s follow up on the most important points today.

First, the thre month average of new jobs added rose to a 12 month high, meaning Q1 of this year was the best quarter since Q1 of last year (dark blue, below, vs. monthly jobs light blue):

And the unemployment rate ticked down 0.1%, meaning that the three month average is 3.8%, or 0.3% higher than the 12 month low of 3.5% set one year ago:

This means that the Sahm rule is not close to being triggered.

And while average hourly wages for nonsupervisory personnel decelerated further to 4.2%, this remains very high by the standards of the past 40 years:

Remember that typically inflation increases faster than wages in the year heading into a recession. So with inflation at 3.1% YoY, this is not in play.

As I wrote last month, real aggregate payroll growth has a flawless record going back over 50 years of distinguishing expansion from recession. At 6.1% growth YoY, this is 3.0% higher than the last CPI reading:

It also made a new all-time high in real terms (not shown). Further, the monthly trend has been increasing in the past few months, so unless there is a big spurt in inflation, we are going to set yet another new record high this month:

All of this is simply potent evidence of an employment economy that is humming along.

Last month I wrote that the Household survey contained some numbers that were simply recessionary. Let’s update that.

In contrast to the Establishment survey, which showed 1.9% growth YoY, which is healthier than almost all times during the past 25 years, the Household survey remained stuck at 0.4% growth YoY. Here’s the longer term graph, normed to the current YoY numbers:

This metric does remain recessionary, but I expect it to resolve in the direction of the Establishment survey.

As indicated, the unemployment rate was 0.3% higher than one year ago. The U6 underemployment rate was higher by 0.6%:

Over the 30 year history of the U6 rate, this has heretofore meant recession. In the case of the U3 rate, there have been a number of instances where it just meant slow growth, although it too more often than not meant a recession was on the way.

Unless we start seeing weekly unemployment claims heading higher, I expect the unemployment rate to remain stable or even decline slightly in the months ahead. This will make the YoY comparisons better, removing that metric from one of any concern.

So while some poor spots remain, as I wrote on Friday, this employment report made the “soft landing” scenario the default setting going forward.

March jobs report: almost uniformly positive, making a “soft landing” the default 2024 scenario

 

 - by New Deal democrat

In the past few months, my focus has been on whether jobs gains are most consistent with a “soft landing,” i.e., no further deterioration, or whether deceleration is ongoing; and more specifically: 

• Whether there is further deceleration in jobs gains compared with the last 6 month average, vs. a “soft landing” stabilization.

• Whether the unemployment rate is neutral or decreasing; or whether there is further weakness. The recent excellent reports in initial claims suggested this rate would decline. After a contra-trend jump last month, this month the unemployment rate did decline.
• Based on the leading relationship of the quits rate to average hourly earnings, whether YoY wage growth would continue to decline slightly. It did continue to decline to a new post-pandemic low - but still above 4%.

In other words, all three focus points were as expected or better. Here’s my in depth synopsis.

HEADLINES:

• 303,000 jobs added. Private sector jobs increased 232,000. Government jobs increased by 71,000. 
•  January was revised upward, while February was revised downward, by 27,000 and -5,000 respectively, for a net of 22,000. The pattern from nearly every month in the past year, has been a steady drumbeat of downward revisions, so this mixed result is a slight positive.
• The alternate, and more volatile measure in the household report, showed a 498,000 increase. Still, on a YoY basis, in this series only 642,000 jobs, or 0.4%, have been gained. This is tied with last month for the lowest since the pandemic lockdowns.
• The U3 unemployment rate declined -0.1% to 3.8%, down from last month’s 2 year high.
• The U6 underemployment rate was unchanged at 7.3%, 0.8% above its low of December 2022.
• Further out on the spectrum, those who are not in the labor force but want a job now declined -229,000 to 5.443 million, vs. its post-pandemic low of 4.925 million set 12 months ago.

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 either positive or neutral:

• the average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, increased 0.1 hours to 40.7 hours, but is still down -0.8 hours from its February 2022 peak of 41.5 hours.

• Manufacturing jobs were unchanged.
• Within that sector, motor vehicle manufacturing jobs rose by 900. 
• Construction jobs increased by a strong 39,000.
• Truck driving increased 5,100.
• Residential construction jobs, which are even more leading, rose by 5,500 to a new post-pandemic high.
• Goods jobs as a whole rose 42,000 to another new expansion high. These should decline before any recession occurs.

• Temporary jobs, which have generally been declining late 2022, fell by another 1,300, and are down about -420,000 since their peak in March 2022.
• the number of people unemployed for 5 weeks or fewer declined -137,000 to 2,189,000.

Wages of non-managerial workers

• Average Hourly Earnings for Production and Nonsupervisory Personnel increased $.07, or +0.2%, to $29.79, a YoY gain of +4.2%. This is the lowest YoY gain since June 2021, vs. its post-pandemic peak of 7.0% YoY in March 2022.

Aggregate hours and wages: 

• the index of aggregate hours worked for non-managerial workers increased 0.5%. This metric is now up 1.7% YoY.

•  the index of aggregate payrolls for non-managerial workers rose 0.7%, and is now up a very strong 6.1% YoY. This is 2.9% above the most recent YoY inflation rate. This is powerful evidence that average working families continue to see gains in “real” spending money.

Other significant data:

• Leisure and hospitality jobs, which were the most hard-hit during the pandemic, rose another 49,000. Both leisure and hospitality and its sub sector of food and drink establishment jobs, which gained 28,300 this month, have now completely recovered from their steep pandemic downturn. As a result, I will henceforward discontinue this comparison.
• Professional and business employment increased another meager 7,000. These tend to be well-paying jobs. This series had generally been declining since last May, but in the last 4 months has resumed its increase.
• The employment population ratio rose 0.2% to 60.3%, vs. 61.1% in February 2020.
• The Labor Force Participation Rate also rose 0.2% to 62.7%, vs. 63.4% in February 2020.

SUMMARY

This month’s report hit on nearly all cylinders, with both the Household and Establishment Surveys participating. About the only negative was the continued poor YoY performance in the Household Survey, which number is close to recessionary (but it’s the only one), as well as the punk professional and service sector gains, and the continued slide in temporary help services.

By contrast, almost all of the leading metrics in the survey were positive, or in one case neutral. Aggregate payrolls also increased sharply again, and both the E/P ratio and the LFPR participated in the advances. Manufacturing at least held steady, and construction continues its surprising strong gains in both the residential and nonresidential sub-sectors. The unemployment rate declined as anticipated by the recent jobless claims reports. The three month average of job gains was the highest in the past 12 months, firmly halting the recent decelerating trend. Even average hourly wages for nonsupervisory personnel, which continued to decelerate YoY, remain high nominally, and probably were close to unchanged for the month.

In sum, this month’s report was very much consistent with a “soft landing” scenario, which must be regarded as the default outcome at this point.

Decline in continuing claims, stability in initial claims suggest downward pressure on the unemployment rate

 

 - by New Deal democrat

Initial claims in the last week rose 9,000 to 221,000, while the four week moving average increased 2,750 to 214,250. With the usual one week lag, continuing claims declined 19,000 to 1.791 million:

On the more important YoY% basis for forecasting purposes, initial claims are up 2.3%, while the four week average is down -4.5%. Continuing claims are still up, by 5.1%:

The important takeaways are that the four week average is still giving a positive signal, while the YoY% change in continuing claims is the lowest increase since the beginning of March 2023. The net is a slightly positive continuing signal for economic expansion.

With tomorrow’s jobs report, including the unemployment rate, we’ll get the “official” monthly update to the Sahm rule. Since initial (and continuing) claims both lead the unemployment rate, here’s that updated forecast.

On a monthly basis, initial claims were down -6.0% for March. Continuing claims were higher by 6.7%. This suggests downward pressure on YoY comparisons in the unemployment rate in the next few months:

On an absolute basis, initial claims are down significantly since last summer, while continuing claims have been stable. This likewise suggests either downward pressure on the unemployment rate to 3.7% or even 3.6%, or at worst stability at 3.9%:

The forecast is that the Sahm recession rule is not going to be triggered in the months ahead. Additionally, per my posts earlier this wee, tomorrow I expect to see a continued decelerating trend in YoY wage growth. 

Does consumer sentiment correlate with the real economy?

 - by New Deal democrat

No big economic news today, so let me update a correlation with information from last Friday’s personal income data. To wit, is consumer sentiment about the economy tied to any real metric? With a lot of noise, it does appear to be correlated.

The University of Michigan has been measuring consumer sentiment for over half a century. The last 45 years are available on FRED. The below graph compares this with real disposable personal income per capita. Basically, what we are looking for is, if people have more (or less) money to spend on things other than necessities, is their feeling about the economy better (or worse)?

Both data sets, but especially consumer sentiment, are very noisy on a monthly basis, so the below graph averages both over a quarter:

While there is certainly not a 1 to 1 relationship, and the YoY% change in real disposable income can vary widely with tax law changes, but over the longer term it is pretty clear that both move in the same direction, and more or less at the same turning points.

Now here is the same information zoomed in over the past 5 years through the end of the 4th quarter of last year:

Again, far from a 1 to 1 relationship, but (aside from the stimulus quarters) both have moved generally in the same direction at the same time.

Finally, let’s take the last 10 years and show the same data monthly:

I wanted to include this last graph for two reasons. First, it does show the increasing partisanship of consumer sentiment, with a notable tick up right after Trump’s election at the end of 2016, and with the exception of the 2021 stimulus months, a huge decline after Biden took office in 2021. Second, it picks up the substantial increase in the last two months. Under the circumstances, it should be no surprise that Biden’s poll numbers have recently improved.

February JOLTS report: soft landing-ish? - except for a noisy jump in layoffs

 

 - by New Deal democrat

The JOLTS report for February showed stabilization or slight improvement to all but one of its components, generally suggesting, well, stabilization in the overall jobs market.



Starting with the monthly changes, job openings (blue in the graph below), a soft statistic that is polluted by imaginary, permanent, and trolling listings, increased 8,000 from a sharply downwardly revised January number to 8.756 million, over -100,000 lower than where we thought we were in January. Actual hires (red) rose 120,000 from a slightly upwardly revised January to 5.818 million. Voluntary quits (gold) rose 38,000 to 3.484 million from a slightly downwardly revised January. In the below graph, they are all normed to a level of 100 as of just before the pandemic:

All of these are slightly off their lows from the last quarter of 2023. Perhaps most significantly, while quits are 0.7% higher than they were at the beginning of 2020, actual hires are still -3.0% below the level they were at just before the pandemic hit.

Meanwhile, for the month layoffs and discharges (blue in the graph below) rose sharply, by 128,000 to an 11 month high of 1.724 million:

This is out of sync with the recent decline in more timely, and leading, weekly initial jobless claims (red, right scale). This is likely just noise, but it certainly helps explain last month’s jump in the unemployment rate.

For a more historical perspective, the below graph norms the rates of hires, quits, and layoffs and discharges to 100 as of this month’s readings, and shows their record in the 20 years before the pandemic:

This shows that actual hires and quits remain at levels better than at any time in the 20 years prior to the pandemic except for 2018-19. And layoffs and discharges are lower than almost any time during that pre-pandemic period. 

Finally, I have noted for a number of months now, since the quits rate (blue in the graph below, right scale) tends to lead average hourly earnings (red), it is worth noting that although the quits rate did not decline in February, it remans at its lowest level in 6 years, thus suggesting that the trend of deceleration is continuing:

This implies that average hourly earnings, which tied its post-pandemic low on a YoY basis in February, will likely decelerate further in coming months, if not necessarily this Friday.

Monthly data starts out with slightly positive news in manufacturing, slightly negative in construction

 

 - by New Deal democrat

As usual, the new month’s data starts out with information on manufacturing and construction. To repeat what I have said often recently, these are the two sectors I am paying particular attention to for forecasting purposes this year.

The ISM manufacturing index has been a good leading indicator in that sector for 75 years. The difference over time, especially the last 20 years, is that manufacturing makes up a smaller share of the total US economy. As a result, even though it had been in contraction for the last 16 months, to levels that before 2000 would always have meant recession, that didn’t happen in 2023.

Notice I said “had been.” Because in March, for the first time since late 2022 the total index rose above its equipoise point of 50, to 50.3. Additionally, for the second time in three months the more leading new orders index surpassed that level, to 51.4:

Even though this data is just barely expansionary, it is probably the best news from the manufacturing sector in over a year. 

Turning to construction, for the second month in a row total construction spending (dark blue) declined, by -0.3% in February, from their all-time nominal high in December. On the other hand, the more leading residential construction component (light blue), rose 0.7% nominally, to an all-time high:

Adjusted for inflation in construction materials (red bar in the graph below), which rose 0.9% in February, however, both total and residential construction spending declined in real terms for the second month in a row:

This isn’t enough yet to call a change to a downtrend, but it does at least suggest the uptrend may have ended.

 

Taken together, we have slightly positive news in manufacturing and slightly negative news in construction to start the month. 

Weekly Indicators for March 25 - 29 at Seeking Alpha

 

 - by New Deal democrat

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

After several weeks of flirting with full recovery, the remaining regional Fed’s weighed in with their monthly manufacturing indexes, and they all went in the tank again. On the bright side, payroll tax withholding has had its best month in the fiscal year so far.

As usual, clicking over and reading will bring you up to the virtual moment with the economic data, and reward me a little bit for my efforts in organizing it for you.

Real personal income and spending: if last month was “Goldilocks”, this month was close to “anti-Goldilocks”

 

 - by New Deal democrat

Personal income and spending has become one of the two most important monthly reports I follow, because it nets out the impacts of higher interest rates and abating inflation due to the unlinking of the supply chain. To repeat, the big question this year is whether the contractionary effects of Fed tightening have just been delayed until this year, or whether the fact that there have been no rate hikes since last summer mean that the expansion will strengthen.

Because real personal spending on services for the past 50 years has generally risen even during recessions, the more leading components of this report have to do with spending on goods. Additionally, there are several components that form part of the NBER’s “official” toolkit for determining when and whether a recession has begun, including real spending minus government transfers, and real total business sales.

In February, nominally income rose 0.3%, while nominal spending rose a sharp 0.8%. Prices as measured by the PCE deflator increased 0.3% for the month, meaning that in real terms income were unchanged and spending (after rounding) rose 0.4%. Since just before the pandemic real incomes are up 7.0%, and spending is up 10.7% (NOTE: Data in all graphs below except for YoY comparisons, and the personal saving rate, is normed to 100 as of just before the pandemic):

On a YoY basis, the PCE price index is up 2.5%, just above January’s three year low of 2.4%. In the previous 16 months, the YoY measure had been declining at the rate of 0.25%/month, suggesting that it would hit the Fed’s 2.0% target this spring:

This month’s slight increase is probably just noise due to rounding, as the monthly change in the YoY rate was only 0.02%.

As I indicated above, for the past 50+ years, real spending on services has generally increased even during recessions. It is real spending on goods which declines. Last month real services spending rose 0.6%, while real goods spending rose 0.1%:

As per form, real services spending has risen consistently since the pandemic, while goods spending has been somewhat of a mirror image of gas prices, which peaked in June 2022.

Real durable goods spending tends to turn before non-durable goods spending. The former rose 1.2% for the month, reversing about half of January’s very sharp decline, while the latter declined -0.6% for the second such drop in a row:

Durable goods spending had been very much affected over the past several years by the shortage of new vehicle inventory, which has largely abated as 2023 progressed.

Another important metric for the near future of the economy is the personal savings rate. In February it declined -0.5% from an upwardly revised January’s rate of 4.1% to 3.6%. This longer term look shows how the present compares with the all time low rate of 1.4% in 2005:

On the positive side, the declining trend in this rate since last May indicates a lot of consumer confidence. But on the negative side it remains close to the all time low readings of 2005-07, indicating vulnerability to an adverse shock. One of my forecasting models uses such a shock as a recession warning indicator. In any event, there is no such shock indicated at the moment.

Also as indicated above, the NBER pays particular attention to several other aspects of this release. Real income excluding government transfers (like the 2020 and 2021 stimulus payments) declined -0.1% for the month, the first such decline since November 2022:

This has been something of a mirror image of gas prices, which not coincidentally have been rising sharply in recent weeks.

Finally, the deflator in this morning’s report is used to calculate real manufacturing and trade sales (with a one month delay), another metric relied upon by the NBER. This declined sharply for January, by -1.4%, more than reversing December’s downwardly revised 0.7% increase:

I described last month’s report as being pretty close to “Goldilocks.” Well, this morning’s report for February was something of “anti-Goldilocks.” Real spending on durable goods is off peak for the second month in a row. Inflation YoY did not decelerate further. Real business sales also declined sharply. Spending rose - the most significant continued positive in the report - because consumers went into their savings. 

While, as I noted above, it could just be noise, there is some evidence of a real slowing in YoY spending on goods in general and durable goods in particular:

As this has historically been the first sign of consumer distress, it will need to be watched extra carefully.

Initial claims remain somnolent, while continuing claims pop slightly

 

 - by New Deal democrat

The divergence in the trends between initial and continuing claims continued this week, as the former continued their somnolent good news, while the latter had a slightly disconcerting pop.

Initial claims declined -2,000 to 210,000, and the four week average declined -750 to 211,000. On the other hand, with the usual one week delay, continuing claims rose 24,000 to 1.819 million:

The first two are in the same range they have been in for the past 4 to 6 months, while continuing claims are at their highest number but for 2 weeks in the past two years.

On the more important YoY basis for forecasting purposes, initial claims are down -9.5%, and the four week average is down -7.0%, the best YoY comparison in the past 12 months. Continuing claims are up 7.2%, but this is the second lowest YoY comparison in the past 12 months:

.

Now let’s update the forecast of the Sahm rule. With last month’s 2 year high in the unemployment rate, I’ve been wondering whether, because unemployment includes both new and existing job losses, it followed continuing claims more than initial claims (although initial claims leads both). The historical graphs, which I posted two weeks ago so I won’t repeat now, indicated that continuing claims also lead the unemployment rate, although with much less of a lead time.

With that in mind, here is this week’s update of the post-pandemic record for the past two years on a monthly YoY% basis (unemployment rate YoY shown in red):

Since on a monthly basis so far initial claims are significantly lower YoY, and continuing claims a little over 7% higher, I expect the unemployment rate to be either unchanged or slightly higher YoY in the next several months. This would take it back down to the 3.7% area.

Here’s the same comparison on an absolute rather than YoY basis:

This similarly suggests a slight decline in the unemployment rate to 3.7% or 3.8%. Since the lowest three month average of the unemployment rate in the past 12 months was 3.5%, it would take an increase to 4.0% averaged over three months to trigger the Sahm rule. Both initial and continuing claims indicate that is not going to happen in the immediate future.