Tuesday, August 22, 2017

Free Trade, the Primrose Path, and the Blinkered Blindness of macroeconomists

 - by New Deal democrat

Here's what I learned today: the origin of the phrase "being led down the primrose path." 

It turns out that in medieval times, one meaning of the word "primrose" was the "prime," or first or loveliest, rose.  Thus taking the primrose path was a particularly lovely journey. At least by the time of Shakespeare's "Hamlet," where Ophelia speaks of the "primrose path" to Laertes, the connotation developed of the use of a lovely and seductive experience to lure a mark to their misfortune or doom.

The doctrine of free trade is macroeconomists' primrose path.  Today's example comes from Tim Haab's blog "Environmental Economics," in the below post entitled "Quote of the Day: Both sides win from free trade . . . sheesh," which I am reproducing in full:

That moment you realize the Chinese administration understands economics better than the U.S. administration...
"In reality, China and the United States' long term cooperation has brought about real benefits for both countries' peoples, any unbiased person will clearly see this fact," [Chinese Foreign Ministry spokeswoman Hua Chunying] told a daily news briefing in Beijing.
"We have also said before, a trade war has no future. A trade war does not serve the interests of any party, as fighting a trade war will not produce a winner. We hope that relevant parties can stop viewing issues of the 21st century with a 19th- or 20th-century mentality."
 Hua's quote is in reaction to Steve Bannon's claim that the U.S. is losing the trade war with China:
"It's in all their literature. They're not shy about saying what they're doing. One of us is going to be a hegemon in 25 or 30 years and it's gonna be them if we go down this path," he was quoted as saying.
"If we continue to lose it, we're five years away, I think, 10 years at the most, of hitting an inflection point from which we'll never be able to recover."

Now, I am no fan of Steve Bannon, but alas in this case it is economist Tim Haab who has the worse argument. Here's why.

Let's assume that Haab is completely right in what he says: that free trade in the aggregate absolutely benefits both countries which engage in it.  End of story?

No, and here is where macroeconomists' blinkered blindness to human behavior is on full display.

Wealth is, generally speaking, not accumulated for its own sake, but rather to be spent of stuff that you really want. So Country A and Country B can use the increased wealth from free trade to fund the stuff they really want.  

So let's suppose that while both Countries benefit from free trade, Country A's wealth increases by an additional 5% a year, while Country B's wealth increases by an additional 1% a year. By the magic of compounding, over 10 years Country A's wealth increases by 63%, and over 20 years by 265%. Meanwhile Country B's wealth has only increased by 10% in 10 years and 22% in 20 years.

Suppose further that what Country A really wants to do with this wealth is invade and take over Country C, which alas is an ally of Country B, meaning that Country B will have to go to war to defend it.

Is Country B's 22% increase in wealth worth the loss of life and destruction it will incur defending Country C?  This calculation nowhere appears in any of the arguments by free traders.

Meanwhile, if I am the leader of Country A, I am more than happy to lead Country B down the primrose path of free trade, knowing what I have in store at the end.

What's worse, we have already been through this exercise  once before, with calamitous results,  In 1909, Norman Angell's "The Great Illusion," argued that countries that trade with one another would never go to war, because it was so illogical.  At the time, free trade had burgeoned among the countries of Europe.

But it turns out that wasn't the priority of Kaiser Wilhelm or other European monarchs.  Only 5 years later, all of that wealth was poured into a catastrophic war.

Even though the historical facts devastatingly rebut the macroeconomic theory, macroeconomists ignore the facts. Since the uses to which ocountries might put the increased wealth obtained by trade lays outside their theory, they are blinkered and blind to it, and assuming that it does not exist. That World War I rebuts their argument is waved away as ancient history, even though human nature has not changed one wit.    In their blinkered blindness, macroeconomists fail to see that  free trade can be used as the primrose path.

Monday, August 21, 2017

Revisiting the Apartment Boom

 - by New Deal democrat

The entry of the large Millennial generation into the housing market should have generated more permits and starts in condos and apartment complexes than we have seen.

What's going on?  Factoring in the number of units under construction appears to give us at least a partial answer.

This post is up at XE.com.

Saturday, August 19, 2017

Weekly Indicators for August 14 - 18 at XE.com

 - by New Deal democrat

My Weekly Indicators post is up at XE.com.

If you are looking for DOOOOOM, you are looking in the wrong place.

Thursday, August 17, 2017

Industrial production: once again, the hard data fails to confirm the sof ... ofertheluvofgaud

 - by New Deal democrat

This morning's report on industrial production confirms that the economy remains on autopilot, and that's a good thing.

Overall production increased again, and the trend of rising production since spring of last year is clear:

When we break it down by manufacturing (blue, left scale), mining, and utilities (red and green, right scale), we get pretty much the same picture:

While it's true that the manufacturing subindex is below its April peak, I am not terribly concerned. There were very volatile readings in March, April, and May, and if we smooth the readings out via a three month moving average, July is only slightly below June, and both June and July are above every other 3 month average reading.

So the Doomers will have to move on from their "soft data/hard data" argument to something else.

Housing is still going sideways

 - by New Deal democrat
Although June got revised higher, July housing permits and starts continue to fail to impress

This post is up at XE.com.

Wednesday, August 16, 2017

On the erection of Confederate memorials: in which I have to get this off my chest

 - by New Deal democrat

Below is a photograph of the World War Two Memorial on the National Mall in Washington, D.C.

Keep it in the back of your mind. I'll return to it. 

I am a data nerd, and leaping to conclusions about data is a pet peeve of mine. I really hate it when anyone, and particularly my own side, falls for groupthink, jumping to instant conclusions which then become the only acceptable opinion. In the last 48 hours, without consideration of other possibilities, or looking for contrary vs. corroborating data, it seems that just about everyone on the center and left has become an instant expert on the fact that Confederate statues were erected because of Jim Crow.

In support of that, a number of graphics, such as this one, have been used:

So, has it occurred to nobody that there might be a more straightforward reason why there would be a huge spike in Memorials (cough, cough, hint, hint) ***50*** and ***100*** years after the Civil War?

Yes there were a number of racial incidents that occurred in the 1910s.  But before the last 48 hours, the general consensus was that there was a resurgence in violence associated with white supremacy in the 1920s, not the 1910s.

But 1910-1915 marked 50 years sine the Civil War, and those 20 year old soldiers who fought it  had dwindled to a band of 70 year old men, who did not want themselves or their cause to be forgotten after their generation had passed.

For (huge) example, on July 2-4, 1913, on the 50th anniversary of the Battle of Gettysburg, there was a reunion of both northern and southern armies who camped out at the site. That reunion was commemorated by the Eternal Light Peace Memorial erected on the 75th anniversary during another encampment of the last few survivors:

In our own time, we have had a demonstration of the exact same psychology: the World War Two Memorial shown at the beginning of this piece was championed as the 50th anniversary of the war approached, as a monument to the "Greatest Generation," particularly by veterans such as Bob Dole who did not want their sacrifice  to be forgotten after they shuffled off to the Last Great Muster in the sky.   Bill Clinton signed the authorizing Act for the memorial in 1993.

I am sure speeches were made lionize Jim Crow when the statues were dedicated, and none of this affects the debate on what should become of them. But can our side please not succumb to leaping to conclusions?

Here's a good test: when were monuments to Union soldiers and leaders erected? I haven't found any information onlline on that subject. Was there a similar spike in the vicinity of the 50th anniversary of the Civil War? If there wasn't, then there was something "special" about what the South did. But if there was, then the more straightforward explanation is probably the correct one.

Thank you for letting me get that off my chest.

UPDATE: Oh, good, I'm not the only one.  Here's a data analyst and neurocognitive researcher replying to Kevin Drum

Tuesday, August 15, 2017

Real retail sales disappoints . . . the Doomers

 - by New Deal democrat

This morning's report on July retail sales once again belies the claim that "hard data" and "soft data" are divergent..

Not only did July come in at a strong +0.6% (+0.5% ex-autos), but June was revised up as well. Given basically non-existent inflation, this means that real retail sales made two more new records for this expansion:

In fact, real retail sales look like they are right in line with a multi-year trend.

Real retail sales per capita tend to turn down well in advance of the onset of a recession, so here is real retail sales per capita:

Again, the upward trend is continuing .

Finally, although the relationship is noisy, YoY growth in retail retail sales tends to correlate with YoY growth in employment during the ensuing months:

.So this suggests that recent stronger monthly jobs reports will continue.

Doomers will once agin have to find a new place to hang their hats.

Monday, August 14, 2017

One tiny little ray of hope

 - by New Deal democrat

After the Charlottesville, VA white supremacy violence, and his failure to explicitly condemn it, Donald Trump's Gallup approval rating has fallen to a new low of 34%, and his disapproval to a new high of 61%:

This puts him below the lowest ratings during their entire term of Lyndon Johnson, Ronald Reagan, and Bill Clinton. Only Truman, Ford, Carter, and George W. Bush ever scored lower.

So far, alas Rasmussen has not followed suit.

Measuring full employment by actual hires vs. job openings

 - by New Deal democrat

How close are we to full employment? One method that is sometimes touted is the Beveridge curve.  The Beveridge curve (invented by a British economist named, you guessed it, Beveridge, compares the level of job openings with the level of unemployment. Generally speaking, if there are as many job openings as there are unemployed, then the economy is running at full employment (since everyone who wants a job ought to be able to get one).

As we saw last week, job openings as measured by the JOLTS report are at an all-time high.  This gives us a Beveridge curve that suggests that the US is close to full employment:

The unemployment rate, at 4.3%, is only 0.3% above the job openings rate, at 4.0%. Of course, another way to look at the data is that it has taken many more job openings to get us down to 4.3%, compared with the last expansion at least.

But as I have frequently noted, this assumes that job openings are offered in good faith.  If employers are just trolling for resumes, or laying the groundwork for H1-B slave labor visas, then job openings aren't offered in good faith.  I think we have to measure employers not by their words (advertising openings), but by their deeds (actual hires).

So I put together a graph to compare labor market tightness by the ratio of openings to the unemployment rate (blue line) vs. the ratio of actual hires to the unemployment rate (red line):

Note that at the end of the late 1990s boom, we really were at full employment. The ratio of both openings and hires to the unemployment rate was close to  1:1. Pretty much everyone who wanted a job could be matched with one. The 2000s economy never got to that point. While the current economy looks like it is at full employment measured by openings, measured by actual hires there is still slack, as there are only 8.5 hires for every 10 people who are unemployed.

For completeness' sake, I did the same thing with the U6 underemployment rate. Here's what that shows:

Here the relative comparison is considerably worse.  While the ratio of job openings to the underemployed is close to its 1990s boom level, the ratio of actual hires to the underemployed isn't even close -- and hasn't reached the peak of the 2000s economy either.

Needless to say, I think the most reliable measure is based on deeds rather than words, and measured by deeds, we aren't at full employment, let alone a boom.

Sunday, August 13, 2017

"The Changing of the Guard:" the prescient 1980 book that foretold neoliberalism

 - by New Deal democrat

About a month ago I read the synopsis of an interview in which Thomas Frank described the near evisceration of the Democratic Party.  Here's his simple version:
"[T]he Democrats have, what happened is that some years ago they decided they didn't want to be the party of the people anymore. They didn't want to be the sort of traditional Democratic Party that I grew up with, the party of Roosevelt, Truman, Kennedy, Johnson. That's not what they wanted to be. 
"They wanted to be something different. This involved ... It was an enormous transition in the Democratic Party all through the seventies, all through the eighties, all through the nineties until they are what we see them as today. They are a party that represents a group of very affluent white collar professionals. That's who leads the party. That's who they speak for. That's whose issues they care about. That's really who they are.... 
"[T]he Democrats, as they moved away from their old working class base and they treated them very poorly and they did the same with other essential elements of their constituent groups, minorities for example ... [W]hen they did things like got NAFTA passed which was really hard on working class people, when they did those things they used to have a saying. They'd say, 'Well you know we don't have to worry about that. Those people have nowhere else to go.' Nowhere else to go. This was a Democratic saying in the 1990s.  
"Trump gave those people somewhere else to go."
This critique rang a bell, not because I have read similar requiems before, but because I read it as a foretelling nearly 40 years ago, in the late David Broder's "Changing of the Guard."  Broder described the worldviews of a bunch of technocratic Democrats -- and some Republicans -- then in their 30s and 40s, people like Gary Hart, Jerry Brown, and a guy named Bill Clinton, who ... well, let me turn the mike over to the right-wing  Commentary Magazine, which said in its review at the time:  
"For anyone still perplexed by the Democratic party’s recent [in the early 1980s] misfortunes, a careful look at these interviews ... suggests that the much-heralded collapse of liberal ideology is a more serious problem than even the election debacle would indicate. The conventional analysis is that liberalism’s dilemma stems from a failure to advance beyond the policies and attitudes embodied in the career of Hubert Humphrey: a reliance on economic growth as the principal means of curbing poverty, a generous and ever-expanding system of social-welfare benefits, and a foreign policy stressing containment of the Soviet Union and aid to the developing world. But it is important to keep in mind that many new-generation liberals have consciously rejected the Humphrey tradition. “We are not a bunch of little Hubert Humphreys,” Gary Hart declared upon winning election to the Senate in 1974 .... 
"They speak with pride of having promoted more open and efficient government, of being more accessible to the public, of maintaining their “independence” from the established party organizations, and of their opposition to the spoils system."
That was exactly my recollection of the then-young Democrats described in the book. They eschewed New Deal style economic programs, and the unions and big city machines that delivered the electoral victories that made  those programs possible, in favor of social equity, and an economically "efficient" streamlined government, that would produce a  meritocracy which would be accepted as fair by all.

As it happens, I still have my copy of "Changing of the Guard," so I went back and re-read parts of it, especially the interviews with people like then-Governor Bill Clinton who went on to more prominence.  (Obama was a teenager in high school in Hawaii at the time, so no interview with him!) Keep in mind that all of the quotations you read below are from almost 40 years ago. 

Broder begins with a telling overture to economic complacency and political restlessness (pp. 43-44):
"The oncoming generation of political leaders is the product of a period of rising independence in our politics .... 
"A [ ] basic reason has been the mass movement from the cities to the suburbs .... The old fashioned political machine was a product of the big city .... That kind of machine is disappearing .... 
"A[nother] basic change is that as the country emerged from the Depression and World War II into a period of sustained postwar prosperity, the sharp economic and class lines that marked the New Deal period began to erode .... 
"Organized labor found itself falling out of comfortable collaboration with other elements of the New Deal coalition [over social justice issues]."
Younger readers may not know this, but one of the chief sources of that falling out was that nepotism was rampant in trade unions. An older member getting a spot for his son or perhaps a nephew or two was not uncommon. Affirmative action or racial quotas meant that some of those family members were rejected in favor of African American applicants. Older union members bristled, to say the least.

To be sure, the young Republicans interviewed were repulsed by what they deemed "over-regulation" by the federal government (pp. 99-100): 
"[T]he young Republicans' aversion for federal policy making was more than just a rhetorical bow to [conservatism].... Both of the men who served as Jerry Ford's White House chief of staff, Donald Rumsfeld and Richard Cheney, said they had become more conservative in their outlook as a result of what they had seen in Washington. 
"... Cheney said ... 'I saw how difficult it is to have government programs well designed to achieve any significant results ....  There are all too often unanticipated consequences .... 
"Rumsfeld echoed the same skepticism...."
"[GOP Delaware Governor Pete] DuPont [had] an argument with then Secretary of Energy James R. Schlesinger, who had demanded to know what had happened to the 'moderate, thoughtful Congressman' he had known .... 
"I said, 'I'll tell you what's happened to me,' Du Pont said, 'I've had to go back to Delaware and live under this federal bureaucracy, and I think it has made me very much more hardheaded, considerably more conservative and very antagonistic to what the federal government is constantly forcing me to do. My schools are being run by a federal judge. My prisons are being run by a federal judge. Construction for a new hospital ... has been delayed a year and a half because of federal judges' fiddling around with various lawsuits.... I mean the red tape and the morass and the harassment from Washington is endless ...."
But if GOP aversion to intervention by the federal government was perhaps only to be expected, they weren't alone in what Broder described as "public dissatisfaction with the performance and the cost of government" (p. 46):
"But the people pressing for change were not only Republicans. Many of the younger Democrats were as impatient with the formulas of the New Deal-Great Society era as any GOP critics.... [lambasting the older generation of Democratic politicians] for not confronting ... the need for improved government efficiency  and relief from the 'overregulation' of society."   
Epitomizing that impatience was Gary Hart:
"Hart was cold-blooded in rejecting the New Deal policies of the past... in what turned out to be an accurate preview of the economic and social-policy revisionism of many of the young Democrats elected to Congress in [1974].  They have been far less sympathetic to organized labor, and far more concerned about middle-income taxpayers."
Surprisingly, neither Al Gore nor John Kerry get any significant mention at all in the book, but a discussion of the then-described "New South" dwells at length on a young Governor named Bill Clinton, including a mention that (p. 381):
"He is married to an ardent feminist who has kept her maiden name, Hillary Rodham, and her own law practice in Little Rock."
Of Bill Clinton,  Broder writes:
"[T]oday's Southern politicians have moved beyond the race issues that have been dominant in the past .... They are young.... They are well-educated. Most of them have graduate degrees in law or other studies. They bear out Terry Sanford's contention that the commitment to education which began in his generation of Southern leaders will be accelerated in this new generation .... 
"Clinton [was] elected as governor[ ] in 1978 on [a] platform[ ] stressing ... measures to improve the laggard education systems in their states. 
"Southern politicians see conservative fiscal policies and sound management as a precondition for gaining public support for the social-welfare programs they espouse."
Clinton said: 
"'In Arkansas [...] there's probably a hard-core thirty percent that is always going to vote for the more conservative of the two candidates.  But the election can still be won by a more progressive candidate if you can persuade people you've got a center core* they can understand and relate to and trust' .... [E]conomic conservatism is more important than social conservatism, he said.
[*In hindsight, it might be said that if you can fake that 'center core,' you can get elected President!]

Of the then-young Democratic and GOP leaders in the South, Broder says (p. 382):
"The new politicians of the South are [not] birds of a feather.... Rather, they are competitors for control of a region whose political future is, more than almost any other part of the nation, up for grabs in the Eighties and Nineties." 

"On the surface, the populist Democrats like Clinton seem at the opposite pole from the conservative Republicans like ... [Trent] Lott ..., who stress their criticism of the expanding role of the federal government.... But in reality, the voters ... seem equally receptive to either appeal....  What is important is simply that the candidate place himself on the voters' side against some of the big, unresponsive bureaucracies...."
At least some of the older generation of Democrats were aware of the change. Here's former Governor Pat Brown, Jerry's father (p. 17): 
"[T]he real change is that after the New Deal, the Fair Deal, the War on Poverty and the Great Society, the whole Democratic Party has retreated into conservatism."
Alas, Pat Brown also thought that the conservatisim of Proposition 13 in California would be a passing fad. And former democratic Governor of North Carolina Terry Sanford and young democrat-turned-republican Mississippi Senator Trent Lott both swore that the issue of race in the South was over.

In contrast, one young State Representative in Massachusetts,  Barney Frank, described his still very relevant signature issue (p. 457):
"the corrosive effect of interstate competition for industry. ... [T]he economy has become more national, but the political system hasn't, so business can play the states off one against the other."
But portentiously, Frank described himself as one of the few remaining leftist liberals.

In his conclusion, Broder accurately forecast the large-scale dismantling of populist  government intervention in the economy (p. 473): 
"The products of the 'baby boom'* [*actually, since most of the politicians interviewed were born before 1946, they were not Boomers] ... are all rebels against ... [bureaucratic] mass culture and huge institution.... The bipartisan drive for deregulation of the economy and decentralization of the government decision making is a secular force that seems almost certain to gain momentum as this generation gains power.
Even now, two generations later, as we have seen that when you take economic equity for granted it goes away, Chuck Schumer in 2016 and Mark Penn this year have continued to laud a strategy grasping for suburban Republicans and eschewing the traditional Democratic urban working class.  As it turned out, bill Clinton had the priorities of voters fundamentally wrong: social conservatism was categorically more important to a critical mass of (especially white Southern) voters  than economic conservatism.

But the ideology that Bill Black spoke of in June was already flowering 40 years ago -- the turning away from traditional Democratic power centers, and from broad government programs anchored in economic populism, in favor of social issues and a commitment to lower taxation and more efficient fiscal prudence -- espoused by a group that grew up in the post-war middle class suburbs and sought to appeal to those suburbanites first and foremost, taking for granted that the broad prosperity that those programs forstered would continue.

How much the country has suffered from how wrong they were.

Saturday, August 12, 2017

Weekly Indicators for August 7 - 11 at XE.com

 - by New Deal democrat

My Weekly Indicators post is up at XE.com.

It's the dog days of summer, and not much is changing.

Friday, August 11, 2017

On consumer inflation, it's a gas! Plus, the rent is too d@#^ high

 - by New Deal democrat

It's pretty clear that inflation isn't going to hit the Fed's ceil... er, target, of 2% for awhile at least.

All throughout this 8 year expansion, consumer inflation has been driven by two things:

1. the price of gas
2. owner's equivalent rent.

I show all three YoY in the graph below (gas is divided by 12 for scale):

First of all, you can see that most of the *variation* in headline CPI aligns very well with changes in the price of gas.

Secondly, you can see that, even when gas prices have been declining YoY, headline CPI has been running roughly in the 0% to 2% range.  That's because owner's equivalent rent, which is almost 40% of CPI, has been running from 2% to 3.5% YoY for most of the expansion.

I don't see either dynamic changing in the near future, at least until enough entry level housing is built to satisfy demand.

Thursday, August 10, 2017

In which I (partially) disagree with Dean Baker about the stock market

 - by New Deal democrat

Dean Baker complained yesterday about pundits who talk about the stock market in terms of economic well-being:

As someone who routinely considers both corporate profits and stock prices in terms of economic well-being, I disagree -- somewhat.

The simple fact is, corporate profits are a long leading indicator for the economy as a whole, and stock prices a short leading indicator. If both are making new 4-quarter highs, they are important signs that an economic expansion will continue -- and that means more employment and more wages for the average American. Conversely, if both are making new 4 quarter lows, there is a very good chance that jobs are about to be lost and nominal wage growth decelerate (or possibly worse).

The stock market is famously noisy -- the old saying is that it has predicted 9 of the last 4 recessions -- but the fact is, with the famous exception of 1929, stock prices have typically led both peaks and troughs in the economy, as shown in the below graphic from Doug Short:

Corporate profits are less noisy and a longer leading indicator.

In short, I disagree with Dean Baker to the extent that the *direction* of both corporate profits and stock prices are important measures of the economy. Where I agree with him is that the *intensity* of the growth or decline is not.

To show you why, here's a graph of corporate profits (blue) vs. average hourly wages for non-supervisory workers (red).  In this first graph, both are normed to 100 in 1964, when the latter series was first reported:

Notice that with one exception  (1974) corporate profits turned south in each case well before the onset of recession. Further, in the 1960s and 1970s, corporate profits and hourly wages move in proportion, and still somewhat in proportion in the 1980s. By 1992, however, corporate profits are about 2X the level of average hourly wages.

Here's the same graph, from 1992 to the present, normed to 100 in 1992 (i.e., when the relative level of corporate profits is almost twice what it was in 1964):

Once again, the *direction* of corporate profits is a good long leading indicators for when an economic expansion will end.

But the intensity is completely out of control.  By the end of 2016, corporate profits are about 3x higher compared with wages than they were in 1992 -- which means they are about 6x higher than they were in 1964.

So I partially disagree with Dean Baker. The direction, but not the intensity, of corporate profits and stock prices are worthwhile signposts for the economic well being of average Americans. At the end of the day, that is why I am interested in them.    

Wednesday, August 9, 2017

On JOLTS, I continue to dissent

 - by New Deal democrat

The only two significant items of data in the second week of the month typically had been the JOLTS report and the Labor Market Conditions Index.

I say, "had been" because the Fed has discontinued reporting the LMCI.  Here's their explanation:

Although the LMCI was reconstructed back 50 years, it was only published in real time for the last few.  I am disappointed.  Even if the Fed believes the LMCI was not giving them the accurate information they were looking for, I wish they had at least continued to publish it in real time for one full economic cycle, because it may have given other valuable information -- e.g., being a valid long leading indicator for the economy as a whole -- that wasn't on their radar.

Turning to JOLTS, I have been a dissenter about this data series for the last year.  The typical commentator has focused on job openings, which have been trending higher strongly (as they did in today's report for June):

Thus even Bill McBride calls today "another strong report."

But openings are the one aspect of the report that are not "nard" data. They can just as easily be skewed by employers trolling for resumes, perhaps laying the groundwork for visas for cheap immigrant labor, or simply refusing to offer the wage or salary that would call forth enough actual applicants to hire. Hence the disconnect between "openings" and "hires."

Rather, I prefer to focus on the "hard" data series such as hires, quits, and layoffs.  And here, the story hasn't been nearly so strong.

Let me start by comparing hires to total separations (averaged quarterly to cut down on noise):

We only have one full business cycle to compare, but since the outset of the series at the start of the Millennium, the trend has been for hires to slightly lead separations.  And hires have been stagnant for going on 2 years.

Let's compare hires with voluntary quits and also layoffs and discharges. Here we see that in the last cycle, hires stagnated, and shortly thereafter involuntary separations began to rise, even as quits continued to rise for a short period of time as well:

And here is the current cycle:

Once again, hires have stagnated. Perhaps even more significantly, even while quits have continued to rise, involuntary separations bottomed a year ago, and have risen on a quarterly basis ever since.  In fact, on a monthly basis June's level of layoffs was the highest in over a year:

Although FRED can't show it, the three month rolling average of layoffs is also at a 12 month high.

In short, despite the strong payrolls numbers of the last few months, JOLTS shows an employment situation that has been slowly decaying.  And by the way, the same thing is shown in the YoY change in payrolls:

So I continue to dissent.  I do not believe the JOLTS reports show strength, but rather have gradually trended weaker, even if they do not portend any imminent economic downturn.

Tuesday, August 8, 2017

The Doomers get one right

 - by New Deal democrat

Every now and then, as the saying goes, even a blind squirrel finds a nut.

Thus it is with the personal saving rate.  I explain why over at XE.com.

Saturday, August 5, 2017

Weekly Indicators for July 31 - August 4 at XE.com

 - by New Deal democrat

My Weekly Indicators post is up at XE.com.

Once again, all stages of indicators are positive.

Friday, August 4, 2017

July jobs report: across the board solid

- by New Deal democrat

  • +209,000 jobs added
  • U3 unemployment rate down -0.1% from 4.4% to 4.3%
  • U6 underemployment rate unchanged 8.6%
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 -11,000 from 5.431 million to 5.420 million   
  • Part time for economic reasons: down -44,000 from 5.326 million to 5.282 million
  • Employment/population ratio ages 25-54: rose 0.2% from 78.5% to 78.7% (a new post-recession high)
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: up $.06 from $22.04,  to $22.10, up +2.4% 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.) 
Holding Trump accountable on manufacturing and mining jobs
 Trump specifically campaigned on bringing back manufacturing and mining jobs.  Is he keeping this promise? 

  • Manufacturing jobs rose by 16,000 for an average of +5,500 vs. the last severn years of Obama's presidency in which an average of 10,300 manufacturing jobs were added each month.   
  • Coal mining jobs fell by -200 for an average of +100 vs. the last severn years of Obama's presidency in which an average of -300 jobs were lost each month
May was revised downward by -7,000. June was revised upward by 9,000, for a net change of +2,000.  

The more leading numbers in the report tell us about where the economy is likely to be a few months from now. These were mainly positive.
  • the average manufacturing workweek was unchanged at 40.9 hours.  This is one of the 10 components of the LEI.
  • construction jobs increased by 6,000. YoY construction jobs are up 191,000.  
  • temporary jobs increased by 14,700.

  • the number of people unemployed for 5 weeks or less decreased by -172,000 from 2,305,000 to 2,133,000.  The post-recession low was set 18 months 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 business employment (generally higher- paying jobs) increased by 49,000 and is up +580,000 YoY.

  • the index of aggregate hours worked in the economy rose by  0.2 from 107.4 to 107.6   
  •  the index of aggregate payrolls rose  by 0.7 from 134.9 to 135.6.   
Other news included:          
  • the  alternate jobs number contained  in the more volatile household survey increased by   345,000   jobs.  This represents an increase of 1,967,000  jobs YoY vs. 2,159,000 in the establishment survey.     
  • Government jobs rose by 4,000 .     
  • the overall  employment to  population ratio for all ages 16 and up rose  0.1% from   60.1% to  60.2  m/m  and is  up +0.4%  YoY.      
  • The  labor force participation  rate rose  0.1%   m/m and is up +0.-% YoY from 62.8% to 62.9%.       

This was a solid report in both the headline numbers and the internals. Literally the only negative was the decline in coal mining jobs (a Trump promise that is so far going nowhere). Aside from that, the "worst" was that a few things like the unemployment rate were unchanged, and -- of course -- that wages are still pathetic for this stage of an expansion.

But this month we can celebrate not just a good jobs number, but also a new expansion high in participation, nearly a new low in short term unemployment, a new low in those who are not in the labor force at all but want a job now, and the involuntarily employed part-time. Just a solid report.

Thursday, August 3, 2017

Consumer durable purchasing (houses and cars) stalls

 - by New Deal democrat

Along with corporate profits in the producer sector, the other two nonfinancial leading sectors are those consumer durable purchases of houses and motor vehicles.  Consumers typically cut back on these before producers notice.  Once they do, production turns down and a recession begins.  This is the same idea behind noting that in the inventory to sales ratios, typically first sales turn before inventories turn -- it takes a little while for producers to take note of the consumer change in demand.

With Tuesday's July motor vehicle purchase data, let's take a more detailed look at each.

In the first place, vehicle purchases continue down from their expansion peak of just over 18 million purchases annualized (h/t Calculated Risk):

All this year, vehicle sales have been running between 16 and 17 million annualized. It would take a number below 16 million to be concerned that a consumer-led recession might be near.  So the news here is mixed.

The news on housing is similarly mixed, but again by most measures has backed off from its expansion peak.

The two least noisy series I have found are single family permits (blue i the graph below), and the even less noisy but also less leading residential construction (red):

Single family permits made a peak in winter. Residential construction has now followed. It is important to note, however, that single family permits stalled at least twice before in this expansion, in late 2013 through early 2014, and late 2015, without signaling an economic downturn. 

Turning to the four typical monthly measures of the housing market -- permits, starts, plus new and existing home sales -- we see that total permits and starts, with the exception of Q4 of last year and Q1 of this year, have made no progress at all in two years. Existing home sales are up about 5% in the  
last two years.  Only new home sales has grown about 10% YoY over the last 8 quarters.

Median home prices for new houses have continued to trend higher, but at a decelerating rate over the last several years, while new home prices continue to rise at roughly a 5% YoY pace:

With the stalling of sales by most measures, I would expect prices to follow, as they typically have in the past. Here's a graph I haven't posted in years -- the NAR affordabililty index:

[Updated with 2017 vs. 2016 graph]

It appears that existing home sales are being affected by affordability. With foreign buying declining, I do not expect prices of new homes to continue to rise much further either.

In summary, with the exception of single family new home sales, there is nothing in either of the two leading consumer sectors suggesting any positive input into the economy as we move into 2018.

Wednesday, August 2, 2017

Rasmussen poll shows GOP losing midterms in a wave

 - by New Deal democrat

I like K.I.S.S. methods, and I have decided that the easiest K.I.S.S. guide to the midterm elections is likely to be Rasmussen's "net strong disapproval" spread.  The theory is that while voters who even weakly approve or disapprove of a President are likely to come out and vote in the Presidential election years, only those with strong opinion -- a substantially smaller number -- come out to vote in midterm elections.

Here's what Rasmussen's net disapproval and net strong disapproval looked like during the Obama years:

Obama had a 1:1 approval vs. disapproval spread on Election Day 2012 (vertical red line), and managed to win re-election.

But on Election Days 2010 and 2014, for every 100 adults who strongly disapproved of Obama, there were only 60-65 and 55 adults who strongly approved of his performance -- enough for a GOP wave in each case.

Over the last few months, Trump's net strong disapproval ratings have gotten progressively worse:

And today, for the first time, the ratio of strong disapprovers to strong approvers hit 2:1:

Worse for the GOP, the 50%  strong disapproval means that if those people come out to vote, literally the GOP cannot win.

Rasmussen's index is only a nowcast, not a forecast, but if the polling 15 months from now is as bad as it is today, the GOP's only hope of not losing its House majority is its ruthless gerrymandering and voter suppression.

Update for long leading indicators - most still positive

 - by New Deal democrat

While several of the long leading indicators have turned negative, a majority are still positive.

This post is up at XE.com.

Tuesday, August 1, 2017

On health care, is it time for "skinny improvement?"

 - by New Deal democrat

While I don't think the GOP assault on Obamacare is over for the long term -- for example, if they pick up at least a couple more Senate seats in 2018 -- the crisis appears to have passed for the moment.

That being said, there are some significant problems with the Act as it stands.  In particular, the individual market in a few states needs shoring up. And just about everybody hates the individual mandate for one reason or another..

Since the 3 Senate GOP dissenters, the few others who expressed severe doubts, and perhaps members of the GOP House's "Tuesday group," might be open to working with democrats, maybe there is at least some narrow ground for agreement to fix a few problems and make health care insuance better.

Call it "skinny improvement."

What would "skinny improvement" of the ACA look like? Here are 4 things I think are within the realm of reasonable possibility:
  1. codifying the Cost Sharing Reduction payments to insurers to stabilize the markets and preclude Executive caprice.
  2. replacing the individual mandate with an automatic payroll deduction, or self-employment tax, for those not covered by employer healthcare or a chosen individual plan. The payments in the automatic deduction could qualify the individual for Medicaid, or perhaps go to a bronze plan insurer, e.g., the lowest priced plan in the employee's state. 
  3. establishing a catastrophic insurance fund for exceptional cases, such as the Iowa boy whose $12 Million annual bill has singlehandedly caused all of the insurers to flee the market in that state.
  4. allowing a Medicare buy-in for those age 62-64.
Of course, to enact "skinny improvement" both Ryan and McConnell would have to permit it to come to a vote, even though a majority of their respective caucuses would presumably be in opposition. And to assure the President doesn't use his veto, we would probably have to name it something like the "Donald J. Trump Healthcare Enhancement and Obamacare Repeal Act."

But if doing nothing is not an acceptable option, then "skinny improvement" looks like the narrow way forward.

Monday, July 31, 2017

Apartment vacancy rate improves, but "rental affordability crisis" at worst level ever

 - by New Deal democrat

Over three years ago HUD warned of "the worst rental affordability crisis ever," citing statistics that
About half of renters spend more than 30 percent of their income on rent, up from 18 percent a decade ago, according to newly released research by Harvard’s Joint Center for Housing Studies. Twenty-seven  percent of renters are paying more than half of their income on rent. 
This is a serious real-world issue. I have been tracking rental vacancies, construction, and rents ever since.  The Q2 2017 report on vacancies and rents was released last week, so let's take an updated look.

After stopping for a year, in the second quarter median asking rents zoomed up over 5% from $864 to $910.  Meanwhile, surprisingly weekly wages declined from $865 to $859.. The combined effect is that rent has become more unaffordable than ever.

The big jump in median asking rents in the second quarter can be easily seen in the below graph: 

Here is an updated look at real. inflation adjusted median asking rents, showing that after abating a bit for a year after Q1 2016, rent pressures on household budgets spiked in the second quarter:

Year Median
Asking Rent
Usual weekly
Rent as %
of earnings

2004 59962995
2013 73477894
2014  76279196
2016  H1859826104
2016 H2853839102
2017 Q1864865100
2017 Q2 910859106

The big increase in unaffordability is a nasty surprise, eespecially since the vacancy rate appears to have bottomed over a year ago, so while apartment availability is still relatively tight,  the level of stress has decreased a little: 

It is worthwhile to note that the CPI for owner's equivalent rent, the major component of inflation, remains near the highest levels in a decade, although it has backed off a little this year: 

 There are two other median measures in addition to median asking rent from the HVS:   the American Community Survey and the Consumer Expenditure Survey.  Unfortunately both are only current through 2015.  The below table shows their YoY increases, compared with median asking rent:

SURVEY: ACS        CES      HVS
2009 --------  (817)    -------     ------  (708)
2010  +2.9%  (841)   +1.4%   +2.6% (698)
2011  +3.6% (871)    +4.4%   -0.6%  (694)
2012  +2.1% (889)    +5.2%  +3.3% (717)
2013. +1.7% (904)    +4.7%  +2.4% (734)
2014  +1.8% (920)    +9.2%  +3.8% (762) 
2015  +0.9% (928)    +4.3%* +6.7% (813)

Finally , HUD recently premiered a Rental Affordability Index,, using the ACS data. Similar to my chart above, it compares median renter income with median asking rent. Please note, however, that this has only been updated through Q1 of this year: 

Like the median household income data, this shows renters' income bottoming out in 2011-12, and rising since relative to rents as calculated by the ACS.

That gives us the "renatl affordability index" shown below:

I'm not sold on HUD's method, mainly because it relies upon annual data released with a lag. In other words, the entire last year plus is calculated via extrapolation.  I suspect we could get much more timely estimates using Sentier's monthly median household income series, compared with the monthly rental index calculated by Zumper. It will be interesting to see if HUD confirms the Homeowner Vacancy Survey's jump in UNaffordability when it releases its Q2 data soemtime later this quarter. 

The takeaway from this quarter's report is that, while the crunch in vacancies has probably passed peak, the "rental affordability crisis," which had appeared to be abating at least a little, has come back with a vengeance.