Saturday, February 4, 2017

Weekly Indicators for January 30 - Februrary 3 at

 - by New Deal democrat

My Weekly Indicators post is up at

Deceleration in several positive indicators has continued, while consumer spending is giving sharply mixed signals.

Friday, February 3, 2017

January jobs report: good headline, but participation and wages lag

- by New Deal democrat

  • +227,000 jobs added
  • U3 unemployment rate up +0.1% from 4.7% to 4.8%
  • U6 underemployment rate up +0.2% from 9.2% to 9.4%
Here are the headlines on wages and the chronic heightened underemployment:

Wages and participation rates
  • Not in Labor Force, but Want a Job Now: rose +77,000 from 5.662 million to 5.739 million   
  • Part time for economic reasons: up +242,000 from 5.598 million to 5.840 million
  • Employment/population ratio ages 25-54: unchanged at 78.2% 
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: up $.04 from $21.80 to $21.84,  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.)
November was revised downward by -40,000, and December was revised upward by +1,000, for a net change of -39,000. 

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 rose +0.1 from 40.7 to 40.8 hours.  This is one of the 10 components of the LEI, and is a positive.
  • construction jobs increased by +36,000. YoY construction jobs are up +170,000.  
  • manufacturing jobs increased by +5,000, but are down -53,000 YoY
  • temporary jobs increased by 14,900.

  • the number of people unemployed for 5 weeks or less increased by +89,000 from 2,379,000 to 2,468,000.  The post-recession low was set over 1 year ago at 2,095,000.
Other important coincident indicators help  us paint a more complete picture of the present:
  • Overtime fell -0.1 from 3.3 to 3.2 hours.
  • Professional and business employment (generally higher- paying jobs) increased by +39,000 and are up 574,000 YoY.

  • the index of aggregate hours worked in the economy rose by +0.2  from  106.2 to 106.4 
  •  the index of aggregate payrolls rose by +0.3 from 132.0 to 132.3. 
Other news included:         
  • the alternate jobs number contained  in the more volatile household survey increased by  +547,000 jobs.  This represents an increase  of 1,548,000  jobs YoY vs. 2,,344,000 in the establishment survey.    
  • Government jobs fell by -10,000.     
  • the overall employment  to  population ratio  for all ages 16 and up rose from  59.7%  to 59.9 m/m  and i s up +0.-% YoY.   
  • The  labor force participation  rate rose  from 62.7% to 62.9%  and is up +0.2%  YoY (remember, this includes droves of retiring Bsoomers).     

This was  a good report with most of the internals supporting the positive headline jobs number. Both the unemployment and underemployment rates rose, but this was due to a big number of people coming off the sidelines and entering the labor force.

The big concerns remain the same ones we have seen for years: an elevated number of involuntary part-time workers and people outside of the work force who want a job now, leading to a lagging recovery in the prime age labor participation rate.  Wages also are showing no signs of further acceleration in this report. Since YoY wage growth typically declines by over 2% in recessions, I continue to worry about actual wage deflation when the next one hits.

Thursday, February 2, 2017

This is what economic Indian summer looks like

 - by New Deal democrat

One of the best calls I made a year ago was to forecast that the "shallow industrial recession" would bottom in about March 2016, and a rebound to what I have since come to call "Indian summer," i.e., a period of good economic data after mid-cycle, would occur.

This week we got a good look at what economic Indian summer looks like.

First, real personal income and spending:

Spending is a solid if not spectacular +3% YoY, while the trend growth in income is decelerating a bit, but still positive.

Next, real residential construction spending:

January was the second highest reading of the expansion, behind last March.  Since this tends to follow the quarterly average of housing starts with a one quarter or so lag, and housing starts made a new high in November, I expect this to continue to rise over the next several months. 

Third, ISM manufacturing:

Perhaps even better, ISM new orders were above 60 for the second month in a row.  ISM new orders above 60 (blue in the graph below) have been an infrequent occurrence over the last 30+ years:

They have correlated pretty well with an uptick in real GDP (red in the graph above).

Finally, motor vehicle sales declined month over month, but have remained above 17 million where they have plateaued (a not uncommon occurrence during an expansion) for the last 24 months:

This is all solid, positive data, and with the exception of real income by and large I expect it to continue over the next 2 to 3 quarters.  Indian summer late in an expansion.

Bank of England Predicts Inflation Will Overshoot Their 2% Target

This is over at

Wednesday, February 1, 2017

A Not So Gentle Reminder to Republicans About Their Obstruction of President Obama From Day 1

I was against the Iraq war for two reasons. First, the Bush administration’s argument that oil revenue would pay for the war effort seemed far-fetched. While I didn’t perform even the most rudimentary of calculations to support my instincts, the persistent $500 billion dollar deficits that existed for the remainder of Bush’s presidency more than validated my economic intuition. Second, was Congressional testimony from an army officer who argued that emotional problems would be far lower due to the different combat methods employed by the U.S. armed forces. Subsequent spikes in soldier suicides indicate this prediction was also wrong and that my initial analysis was correct. So, while I would love to publicly state that my opposition to the war was grounded on a deeply held philosophical set of principles, it in fact was based on the far less romantic grounds of economic analysis.

It was also during this time that the political right began to attack the political left as unpatriotic and treasonous for their opposition to Bush’s Iraq operation. This didn’t occur in more mainstream settings. But conservative radio hosts such as Rush Limbaugh and Fox news personalities such as Bill O’Reilly and Sean Hannity were quick to make these allegations. I mention this because I’m beginning to hear similar suggestions from conservative friends related to my opposition to President Trump. I’ve recently been told at various times that Hillary should tell her supporters to get in line and that I look like a fool for my opposition.

To this I would note that Republicans aggressively opposed Obama’s presidency from day 1. On January 16, 2009, Rush Limbaugh proclaimed on his show that he hoped Obama would fail. The Republicans decided to oppose Obama’s agenda before his inauguration (From the Hill on 8/12/12 New book details GOP’s early opposition to Obama stimulus):

“The New New Deal,” authored by Time Magazine's Michael Grunwald, quotes Vice President Joe Biden as saying seven different Republican senators had told him before the Obama inauguration that the GOP would oppose Obama's agenda en masse, and it reports that then-House Minority Whip Eric Cantor (R-Va.) surprised members of the GOP leadership team by vowing in a private meeting that no Republicans would support the Democratic recovery plan.

On February 19, 2009, Rick Santelli of CNBC gave an on-air anti-Obama rant that many credit with starting the tea party movement, whose protests started in earnest in the spring of 2009 -- not long after Obama was sworn in as president. And let’s not forget the birther movement, which was not only designed to de-legitimize president Obama but was also championed by none other than President Trump. He didn't disavow his propagating this obviously racist theory until several months ago -- and then only in a very half-hearted way. And this is before I mention over 100s if not 1000s of racist postings, photo-shops and words directed at president Obama during his entire presidency (Just one example: how many other presidents have been told "you lie" during a state of the union speech?).

So, to my conservative friends, please note that your side of the political aisle was more than obstructionist during Obama’s term. And a not insignificant amount of this was racist in tone and delivery. Please forgive me if I think your critique of my opposition to Trump rings hollow.

Increasing Mortgage Rates May Increase Downward Pressure on Housing Demand

Today, the Financial Times reported that mortgage rates hit a 2017 high.   The following chart from the St. Louis FRED's system is a bit behind the article's data, but it also shows that mortgage rates are higher:

At what point does this impact the housing market?  We don't know -- there is no basic rule of thumb linking basis point increases in mortgage rates with home sales.  However, data shows that both new and existing home sales may be peaking:

The above chart shows new and existing home sales.  Both sets of data are recalibrated to a base 100 beginning on the last day of the last recession.  Existing sales (in red) have been reported at the same level (~110 on the chart) since July 2105.  This is by far the larger market.  New homes sales (in blue) increased in 2H 2016, but have since printed at approximately the same level.  

At some point, interest rates will increase to a level where they will construct demand.  

Tuesday, January 31, 2017

My second half forecast for 2017

 - by New Deal democrat

I already have said that the economy will remain quite positive in the first six months of this year.

My forecast for the second half of this year is now up at

Jazz Shaw: Economic Moron of the Highest Order

     Here's the title of a recent Jazz Shaw piece: "And Starbucks wonders why their sales are flat."

Any competent economic writer would have gone to any website that publishes financial information to verify that point.  For example, I recently went to Morningstar and found the following:

You'll notice that there are annual figures for the chain.  Notice that each column shows a higher number than the previous year.  Those are called "increases" and they directly contradict Mr. Shaw's claim.  

A moral writer would print a retraction -- or at least a clarification.  But remember who we're dealing with here.  

Monday, January 30, 2017

About the Trump stock market surge. Corporate insiders ...

 -by New Deal democrat

Donald Trump might want to stop touting how well the stock market has been doing since his election.

Here is Barron's graph of insider trading as of Saturday:


But wait a minute .... This is January, and in January corporate insiders get dump trucks full of stock options that they might decide to cash in, so no big deal.

Or so I thought.

Since I'm not the only one who from time to time publishes this graph, I thought I would find the record of corporate transactions that included last January.  Surely it would show the same pattern.  Well, here's one from last May:


Not only did corporate insiders *not* sell in January 2016, and not only do the last two peaks, at about 40:1, come nowhere near the 60:1 ratio from this past week, but at least one of those last two spikes in insider selling, in October 2015, was followed shortly thereafter by a stock market downturn of over 10%:

On second  thought -- go ahead and crow, Donald!

Sunday, January 29, 2017

A thought for Sunday: of heartlessness, confidence and conviction

 - by New Deal democrat

First of all, let me join in full in the following from Calculated Risk:
These are not normal times, and I can't just post economic data and remain silent on other issues.
Mr. Trump's executive order is un-American, not Christian, and hopefully unconstitutional. This is a shameful act and no good person can remain silent.
I believe that the sheer heartlessness of Trump's Order is a feature, not a bug.  It is designed for maximum media coverage in order to show his supporters that he is delivering on his promises.
It is likely that in a longer timeframe this will backfire, as the cruelty of separating families, turning away children, and refusing entry to people who already had legal permission to live here via visas and even green cards, turns people against Trump and his enablers.

Once upon a time, for academic reasons I read the same book that Trump was rumored to have by his bedside in NYC: the english translation of the full text of Adolf Hitler's speeches. Hitler's argument for getting ordinary Germans to go along with his extreme anti-Semitic agenda was masterful. It went in essence like this: "I know that there are a very few good Jews, and you may know a few of them.  But the vast majority of Jews, who you don't know, are evil.  In order to get rid of the vast majority of evil Jews, we have to sweep up a few of the good ones. So don't worry, we will take care of it."  By getting people to overlook their own experience with Jews they knew, he prevailed.

In contrast - for example - gay rights triumphed when enough people knew gays in their ordinary lives, and realized that they were no different from anybody else. So they were unable to see any valid reason to discriminate against them.

This ban is much more like the second situation than the first. Hitler argued that he might have to inflict hardship on a few good people in order (allegedly) to get to the mass of bad apples.  Trump is inflicting a lot of harm on a mass of good people in order (allegedly) to get to a few bad apples.

And we haven't even gotten to the point yet when the same heartlessness is going to be inflicted on DREAMers.

Second, a few days ago I pointed out that economic confidence has actually spiked again in the week after Trump's inauguration. But that does not appear to be translating into actual spending so far.  In fact it is possible that the opposite is happening.

Here is a look at  Gallup's economic confidence measure since its inception:

See that big downward spike in 2011?  That's the debt ceiling debacle, where Congress threatened to default on debts the US had already incurred.  Lots of economic data headed south at the same time, leading to ECRI saying (incorrectly) that a recession was imminent.

But consumer spending by Gallup held up throughout. Notice the *absence* of any observable movement in 2011 in that measure:

That consumers told Gallup they were still spending as before was my first sign that ECRI was wrong.

Now here is that same consumer spending graph over the last two years:

If you don't see any substantial upward movement particularly at the end, you would be correct.  Consumer spending is very seasonal, with a big peak in the Christmas season, and a smaller bounce for back-to-school sales.

While December spending by consumers was up YoY, so far January is flat.

So while there has been a big spike in confidence (very partisan, as GOP confidence has risen more sharply than the decline shown by Democrats), so far it appears not to have translated into conviction via actual spending.