Saturday, September 3, 2016

Weekly Indicators for August 29 - September 2 at

 - by New Deal democrat

My Weekly Indicators post is up at

Some wobbles appeared in several previously positive data series.

Friday, September 2, 2016

August Jobs report: another month of later expansion deceleration

- by New Deal democrat

  • +151,000 jobs added
  • U3 unemployment rate unchanged at 4.9%
  • U6 underemployment rate unchanged at 9.7%
Here are the headlines on wages and the chronic heightened underemployment:

Wages and participation rates
  • Not in Labor Force, but Want a Job Now:  down -53,000 from 5.886 million to 5.833 million  
  • Part time for economic reasons: up +113,000 from 5.940 million to 6.053 million
  • Employment/population ratio ages 25-54: down -0.2% from 78.0% to 77.8% 
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: up +$.04 from $21.60 to $21.64,  up +2.5% YoY.  (Note: you may be reading different information about wages elsewhere. They are citing average wages for all private workers. I use wages for nonsupervisory personnel, to come closer to the situation for ordinary workers.)
June was revised down by -21,000, and July was revised up by +20,000, for a net change of -1,000. 

The more leading numbers in the report tell us about where the economy is likely to be a few months from now. These were all positive.
  • the average manufacturing workweek fell -0.2 from 42.0 to 41.8 hours.  This is one of the 10 components of the LEI, and is a negative.
  • construction jobs fell by -6,000 YoY construction jobs are up +199,000.  
  • manufacturing jobs fell by -14,000, and are down -37,000 YoY
  • temporary jobs - a leading indicator for jobs overall decreased by -3,100 (this made a peak in December, but had been stabilizing).

  • the number of people unemployed for 5 weeks or less - a better leading indicator than initial jobless claims - increased by +130,000 from 2,160,000 to 2.290,000.  The post-recession low was set 1 year ago at 2,095,000.
Other important coincident indicators help  us paint a more complete picture of the present:
  • Overtime was unchanged at 3.3 hours.
  • Professional and busines s employment (generally higher- paying jobs) increased by +22,000 and are up 542,000 YoY.

  • the index of aggregate hours worked in the economy declined by-0.3  from  113.1 to 112.8 
  •  the index of aggregate payrolls fell -0.1 from 163.2 to  163.1. 
Other news included:        
  • the alternate jobs number contained  in the more volatile household survey increased by  97,000 jobs.  This represents an increase  of 2,571,000  jobs YoY vs. 2,447,000 in the establishment survey.    
  • Government jobs rose by +25,000.     
  • the overall employment  to  population ratio for all ages 16 and above was unchanged at   59.7%  m/m and is up +0.3% YoY.   
  • The  labor force participation rate was unchanged at  62.8% and is up +0.2% YoY (remember, this includes droves of retiring Bsoomers).     

This was a decent report which is positive in most absolute terms, but relatively continues to show late expansion deceleration. Little outside of the headline jobs number was outright positive.  Most of the internals were unchanged or declined.  Of particular note is that the measures of peripheral underemployment -- part time for economic reasons and those outside of the labor force who want a job now -- have barely made any progress this year.  Wage gains are among the best of this cycle, but that is an extremely low bar.

So, no cause for immediate concern, but no reason to think there will be much further improvement either.

From Bonddad

     First, a few points. 

1    1.)   The economy is already near full employment of 5%.  This means we should accept some deceleration in establishment job growth.

2    2.)   Depending on which Fed governor you ask, the economy needs job growth of somewhere between 70,000-150,000 to absorb population growth.  My best estimate is that that figure is actually around 110,000,120,000.
3    3.)   This is a noisy data series, subject to numerous revisions.  For example, this report adjusts the previous 2 reports up ~20,000 and down ~20,000.  While we should keep track of the monthly report because the market does, we always need to remember there are issues with month data collection and estimates that are corrected throughout time.

     This month, total jobs decreased 99,000.  Goods producing jobs declined 35,000, due to drops in construction and manufacturing hiring.  Service producing jobs declined 64,000 thanks to a fall in professional, leisure/hospitality and health care hiring. 

     While hourly earnings increased 3 cents/hour, weekly hours worked decreased .1, so average weekly earnings were $1.54 lower.

     Finally, this isn’t anywhere weak enough to push the Fed away from a rate hike. 

Thursday, September 1, 2016

An economy in Indian Summer

 - by New Deal democrat

Let me get the bad news out of the way first.  This morning's ISM Manufacturing report was disappointing to say the least.  Not only did the overall number fall below 50, but so did the leading new orders index, for the first time all year:

This mirrors the poorer regional Fed reports we got during August.

Still, it is only one month, and ISM readings between 48 and 50 have generally been consistent with slowdowns, not recessions.

But in general the news in the last few months has been better than in the earlier part of this year,  most notably industrial production which likely bottomed in March:

And here's a graph from Matt Trivisonno that Barry Ritholtz put up this morning of the 90 day average of tax withholding payments YoY:

And here is real personal income and spending:

So the dominant coincident indicators of the economy have all shown improvement in the last few months. 

I think the best paradigm for this improvement is compare it with the nice warm autumn days of Indian Summer.  The real summer has passed, and winter is still a ways off, but this is a nice episode.

This was brought to mind by a post I read from Lee Adler of the Wall Street Examiner.  Adler's headlines are typically Doomish, but he tracks real indicators, doesn't cherry pick which onces get attention,  and lets the data speak, even when it contradicts his narrative.  So this was a graph he put up a few days ago comparing real retail sales YoY and real personal consumption expentitures:

Note that for the first few years of this expansion, YoY retail sales were higher than PCE's.  This reversed about 18 months ago.  This is a typical mid-cycle reversal that I have previously pointed out has been a consistent pattern for over 50 years.

The index of leading indicators turned flat in July 2015, and didn't really recover until April of this year:

But the US$ has a history of being a leading indicator as well, and it probably has more relevance as the US economy becomes more globally enmeshed.  So here is what the monthly change, inverted, of the US$ look like, inverted so that strength in the dollar means a drag on the economy:

The dollar drags down the LEI from summer 2014 through January of this year.  If we assign a -.1% contribution to the LEI for every 1% increase in the US$, it makes the downturn in late 2015 through January of this year more intense, and begins the abatement in February -- on time to start showing improvement by now.

So while this morning's ISM report wasn't so hot, I expect the generally positive and improving news to continue for the remainder of this year -- i.e., a period of late cycle Indian Summer.

Bonddad's Thursday Linkfest

I'm a financial adviser with Thompson Creek Wealth as well as a tax and business attorney with The Law Office of Hale Stewart.

Charts of the Pound/Dollar and Pound/Euro

UK PMI Recovers From Post-Brexit Drop

At 53.3 in August, the seasonally adjusted Markit/CIPS Purchasing Managers’ Index(PMI) recovered sharply from the 41-month low of 48.3 posted in July following the EU referendum. 

The month-on-month increase in the level of the headline PMI (5.0 points) was the joint-greatest in the near 25-year survey history. The gains in the indices tracking output and new orders were similarly among the steepest on record. 

Japanese Consumer Spending is Weak

5-Year Chart of Y/Y Change in Retail Sales

1-Year Chart of Y/Y Change in Retail Sales

Overall Household Spending

Brazil Impeaches Roussoff 

Brazil’s senate voted overwhelmingly on Wednesday to impeach President Dilma Rousseff in a historic decision that ends nearly 14 years of rule by her leftwing Workers’ Party in Latin America’s largest country. 

Fireworks were heard in São Paulo and senators who voted to remove Ms Rousseff broke out into the national anthem after a fiery final session in which the opposing sides denounced each other as “scoundrels”. 

Of the 81-seat senate, 61 voted in favour of impeachment and 20 against. 

The ouster of the former Marxist guerrilla for manipulating the budget thrusts her replacement, interim president Michel Temer, into the spotlight at a time when the country is suffering what is expected to be its worst recession in over a century. 

1-Year Chart of the Brazil ETF

US antitrust regulators filed suit on Wednesday to block Deere & Co., the US farm equipment maker, from buying Monsanto’s precision planting unit.

If the tie-up were completed, “Deere would control nearly every method through which American farmers can acquire effective high-speed precision planting systems”, the US Department of Justice said in a filing in federal court in Chicago.

1-Year Chart on Monsanto

1-year Charte of Deere

Wednesday, August 31, 2016

Bonddad's Wednesday Linkfest

Important Charts

Semi-Conductor ETF Powering Higher

Software ETF Powering Higher

Spain is Still Trying to Form a Government

Weekly Chart of the Spain ETF

Weekly Chart of the UK ETF

The marked decrease in industry confidence (-1.8) was caused by the sharpest deterioration in managers' assessments of the current level of overall order books since February 2009. The appraisals of the other two components were either unchanged (stocks of finished products) or slightly worse (production expectations). In line with the pessimistic views on overall order books, the assessments of export order books and past production (not included in the confidence indicator) deteriorated as much as last time in October 2012 and July 2011, respectively.

Chart of EU Industrial Confidence

1-Year Chart of the EU ETF

Tuesday, August 30, 2016

Bonddad's Tuesday Linkfest

Financial Sector Is Improving Thanks to Rate Hike Talk

Financial Sector is Strengthening Relative to the SPYs

The XLF is Near New Highs

The KIEs are Making New Highs 

The XLF/SPY Ratio is Low

Personal Income and Spending Up

Personal income increased $71.6 billion (0.4 percent) in July according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased $60.1 billion (0.4 percent) and personal consumption expenditures (PCE) increased $42.0 billion (0.3 percent).

Real DPI increased 0.4 percent in July and Real PCE increased 0.3 percent. The PCE price index was unchanged from June. Excluding food and energy, the PCE price index increased 0.1 percent in July.

Chart of the Last 7 Months of Changes

1-Year Chart of the Retail Sector ETF

1-Year Chart of the XLPs

1-Year Chart of the XLYs

The Fed Sure Would Like Some Help from Fiscal Policy (Yellen)

Beyond monetary policy, fiscal policy has traditionally played an important role in dealing with severe economic downturns. A wide range of possible fiscal policy tools and approaches could enhance the cyclical stability of the economy.  For example, steps could be taken to increase the effectiveness of the automatic stabilizers, and some economists have proposed that greater fiscal support could be usefully provided to state and local governments during recessions. As always, it would be important to ensure that any fiscal policy changes did not compromise long-run fiscal sustainability.

Chart of Current Federal Expenditures

Chart of the YOY Percentage Change in Federal Expenditures

Monday, August 29, 2016

It looks like the profits recession bottomed in Q4 2015

 - by New Deal democrat

Corporate profits are one of the established long leading indicators.  They were updated through Q2 as part of Friday's revised report on GDP.

It looks like the end of the surge in the US$ has fed through into a bottom in the downdraft in corporate profits.  This post is up at

Bonddad's Monday Linkfest

Important Charts

Last Week's Sector Performance

The 5-Minute SPY chart has downward bias

The 30-minute QQQ chart is forming a rounding top

The 30-Minute IWM chart briefly broke support last Friday

The daily IEF chart broke support 

The price of wheat has crashed to the lowest level in a decade as huge harvests pile up in big growers from Russia to the US, cutting the cost of staple foods around the world.

Extensive planting and benign weather have forced analysts to repeatedly raise crop outlooks. The International Grains Council last week increased its global wheat production forecast to a record 743m tonnes, up 1 per cent from last year.

Mounting supplies have exacerbated a broad washout in commodity markets and heaped pressure on farm economies. At about 220m hectares, wheat fields cover more land than any other grain.

Benchmark soft winter wheat futures on Friday fell 4.4 per cent to $3.83½ a bushel in Chicago, the weakest price since September 2006. Wheat prices are down 71 per cent since 2008, when the most commonly consumed food grain leapt above $13 a bushel and riots swept the streets of some emerging countries.

1-Year Chart of DBA ETF

1-Year Chart of JJG ETF

Central banks have been so good at creating low inflation since the early 1990s that it is now the expected norm by the body politic. Any deviation from low inflation is simply intolerable. In the US, everyone from the media to politicians to the average person start to freak out if inflation heads north of 2%. This mentality seems even worse in Europe. Inflation-targeting central banks, in other words, have worked themselves into an inflation-targeting straitjacket that has removed the few degrees of freedom they had. It is hard to imagine Yellen and Draghi being able to raise inflation temporarily above 2% in this environment. All they can do is operate in the 1-2% inflation window. Inflation targeting's success has become it own worst enemy. 

Another way of saying this is that the space for doing macro policy has shrunk to the small window of 1-2% inflation. Not only is monetary policy constrained by this, but so is fiscal policy... 

For these reasons inflation targeting has become the poisoned chalice of macroeconomic policy. It was a much needed nominal anchor in the 1990s that helped restore monetary stability. Its limitations, however, have become very clear over the past decade and now is preventing the world from having the recovery it needs...


If a trucker gets stuck in traffic jam, he will have to temporarily speed up afterwards to make up for lost time. On average, his speed for the trip will be the legal speed limit but only if he temporarily speeds up after the traffic jam. Likewise, an economy may need temporarily higher-than-normal inflation after a sharp recession to return to full employment. This also implies temporarily higher-than-normal nominal demand growth. On average, this temporary pickup will keep inflation and nominal demand growth on target. Running a little hot, therefore, is necessary sometimes. Currently, however, this policy flexibility is not possible.

Sunday, August 28, 2016

My Weekly Columns Are Up at XE

US Equity and Economic Week in Review

US Bond Market Week in Review

International Week in Review

A thought for Sunday: when the next recession hits, the powder keg isgoing to blow

 - by New Deal democrat

You know the drill: it's Sunday so I get to write about whatever I feel like.

One of the things I realized over the last several months is that, assuming Hillary Clinton wins the election, not only is Trump not going to graciously concede, but the fact is, he's not going away at all.

Typically after an election, the losing candidate goes back to what he was doing before, e.g., being s Senator.  Well, what was Trump before last year?  First and foremost, Trump is a salesperson who trades on his personal brand.  And even if he loses in November, he is going to have received somewhere near 50 million votes!  Which means that there will be 50 million marks -- er, customers -- many millions of which will have given Trump their email and credit car information.  And Donald Trump will be only too happy to sell them President Donald Trump branded memorabilia. If on average each voter spends $100 on Trump branded chatychkes, that a cool $5 billion for Trump.

Beyond that, the man needs media attention like the rest of us need to breathe oxygen.  Others have speculated that he may launch a Trump cable television network, which certainly could happen.  but whether he does or not, the media is going to keep asking him his opinion of every political event that happens in 2017 and maybe beyond, so long as he makes good copy and puts eyes on their sponsors' advertisements.

All of which means that it is certainly not out of the question that Trump will have a do-over in 2020. His base is probably still going to be there (those that haven't died, anyway).

And that brings me to the matter of the next recession.  It is going to happen sometime, and while expansions don't have expiration dates, it would very much surprise me if we went another four years without having one.

Aside from the fact that only once in the last 160 years has an incumbent candidate won election in the face of a recession (Truman in 1948), Hillary starts out as a deeply unpopular candidate.  She is as status-quo as could be humanly possible.  In the very likely event that there is a recession between now and 2020, and like the last few times, it hits the working class harder than the wealthy and lasts much much longer, the unpopular Hillary Clinton is going to lose her re-election bid.

The reasonably decent economy of 2016 kept s lid on things, and even so Bernie Sanders gave Hillary a run for her money.  If the status quo of Gilded Age inequality continues and even worsens, in the next recession the powder keg is going to blow.  And that means that in 2020 it will be very hard to stop Donald Trump or someone very much like him.

Sent from my iPad