Relevant and even prescient commentary on news, politics and the economy.

Preponderance of evidence from poor housing permits points to slowdown in GDP

Preponderance of evidence from poor housing permits points to slowdown in GDP

The preponderance of evidence, based on this morning’s report on housing permits and starts, is that increased interest rates and continuing increased prices are beginning to take a bite out of the market.

First of all, let’s take a look at single family permits — the most reliable, least volatile of all the measures — (red, left scale) and total permits (blue, right scale):

Both declined this month, but more importantly, both made 7 month lows. Outside of the expiration of the housing stimulus way back in 2010, this is the first time that single family permits have made this significant a decline — off about 4% — during this expansion.

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Prime age employment participation and wages: not so clear a relationship

Prime age employment participation and wages: not so clear a relationship

In the last couple of months variations of the same graph which is supposed  to “solve” the wage conundrum have been going around. I saw another version this weekend:

Easy to see, there is what looks like a nice, nearly linear relationship between the prime age (25-54) employment to population ratio (left scale) with wages as measured by the employment cost index (ECI)(bottom scale).

While I see some merit to the approach, I don’t think the graph actually means what its purveyors think it does.

First, let me reproduce it with FRED data, which I am able to do through 2001:

Same pretty linear relationship, with maybe a slight bend at area of 79% participation and 2.5% wage growth.

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Children make the bestest hostages

Children make the bestest hostages

Criticisms of Trump in the business press are especially instructive, because they have no obvious partisan motivation. So Josh Barro’s article at Business Insider this morning, castigating his “bully-and-threaten approach to dealmaking,” is particularly noteworthy. He writes:

Donald Trump has a negotiating tactic he really likes: Threaten to do something someone else will really hate, and then offer to stop if they give you what you want.

Call it the “Why are you hitting yourself?” approach to diplomacy.

(More broadly, I would say that Trump threatens settled norms and agreements in all spheres precisely because others have come to take them for granted, and so have let their guards down.)

After noting that he has imposed tariffs on “national security” grounds even against US allies as a tactic to gain concessions renegotiating on existing trade agreements, they turn to the issue of immigration:

… [H]e has threatened to end the DACA immigration program, then ramped up the separation of asylum-seeking immigrant families, in an effort to press Congress to remake immigration law on his terms, including building a wall. ….

Trump’s theory of immigration politics [is that] if he shows a willingness to be more cruel, he thinks that will force Democrats to the table, and that they will essentially bribe him into not mistreating vulnerable people by enacting immigration policies he’s long wanted.

Look at this hostage I’ve taken, he thinks. How could they possibly let me shoot it?

Like Dreamers and SCHIP recipients, the children of migrants are the most vulnerable, innocent, and helpless of all. Deliberately inflicting suffering upon them will call forth tidal waves of sympathy (witness the White House press conference the other day). So to the amoral and those without consciences, they become the perfect hostages. For that very reason, we should expect that children will be targeted again and again and again throughout the Trump presidency, and that once he has pocketed the ransom, the moment that he the ability to renege on the deal, and take the same hostages all over again, he will do so. Thus, for example, already we hear that funding for SCHIP, which was agreed to for 6 years under the February budget deal, is nevertheless again being zeroed out by the House GOP’s proposed budget for next year.

 

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May industrial production: meh

May industrial production: meh

Industrial production is the ultimate coincident indicator. It is almost invariably the number that determines economic peaks and troughs.

In May it declined -0.1%. While that obviously isn’t a positive, it does nothing to suggest any sort of change of trend:

and is in line with any number of similar monthly numbers during the expansion.

In this second graph I’ve broken it down into manufacturing (blue, left scale) and mining (red, right scale):

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May retail sales come in strong

May retail sales come in strong

Real retail sales for May came in strong, up +0.6% just in the month:

As the graph shows, this is on trend for the entirety of this expansion, and is also a new high, surpassing that of last winter.

Per capita real retail sales also made a new high, an indicator that the expansion is likely to continue at least one more year:

 

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Chewing over the message of online job postings

Chewing over the message of online job postings

Here’s an interesting graph I came across yesterday. It’s from the Conference Board. What it does is track the number of job postings online, and breaks them down between first postings and repeat postings:

Let me say first of all that it is of limited use. The data only goes back to 2005, so there isn’t much history — heck, online job postings didn’t even *exist* until the end of the 1990s! Further, online job postings have undergone a secular increase, as more and more companies have come to use it — so I would expect the historical trend to be positive.  But has it reached maturity? Or is it still in its growing stage?  I dunno …. and probably neither does anybody else.

But with all those cautions, it struck me that the big gap between first time and repeat postings in of a piece with the gap between actual hires and job openings in the JOLTS series:

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Gas- and housing-powered inflation mean real wages are going nowhere

Gas- and housing-powered inflation mean real wages are going nowhere

This morning consumer price inflation for May was reported at +0.2%. YoY inflation was 2.8%. This is tied for the highest in six years (blue):

The cause of the increase was primarily twofold — and neither one reflective of wage inflation. First, gas prices have increased by over 20% in the past year (red, right scale above).

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Update: wholesalers’ sales and inventories — it’s all good

Update: wholesalers’ sales and inventories — it’s all good

Another slow start to the data this week, so let’s take a look at relationship I haven’t updated in awhile.

Total sales in the economy are broken up into three categories: manufacturers’, wholesalers’, and retailers’. We’ll get retail sales, the biggest component of the three, later this week.

But wholesalers’ sales and inventories were released last week, and are a useful coincident barometer. They are a better measure than manufacturers’ sales, since those have been very much secularly affected by the adoption of just-in-time inventory controls.

The important thing to remember is that sales (blue, left scale) lead inventories (red, right scale).  Here’s both for the last 20 years:

Note than in addition to the two last recessions, sales also plateaued first in 2012 slightly before inventory growth did, and again during the “shallow industrial recession” of 2016. As of April, both sales and inventory were both rising, a very typical result during an expansion.

 

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The disastrous German Emperor who was a doppelganger to Donald Trump: Kaiser Wilhelm

The disastrous German Emperor who was a doppelganger to Donald Trump: Kaiser Wilhelm

You know the drill. It’s Sunday, so I write about whatever else is on my mind.

I am presently reading Miranda Carter’s “George, Nicholas, and Wilhelm,” her 2009 biography of the three grandchildren of Queen Victoria who were respectively, the King of England, Tsar of Russia, and Kaiser of Germany at the time of the outbreak of World War 1.

I was gobsmacked by her portrait of of Kaiser Wilhelm’s character, for it is a virtually identical doppelganger to that of Donald Trump.

The best way to show that is via a few excerpts, presented with no embellishment.

First, a look at his “stable genius”:

“[Wilhelm] liked to think of himself as another Frederick the Great: politician, soldier, strategist, philosopher, cultural arbiter …. [But s]ome of those who had known him as a prince, however, worried a little about what kind of king he would make…. “He thinks he understands _everything_, even shipbuilding.” Bismarck [ ] muttered about Wilhelm’s inflated opinion of his own abilities … and his minuscule attention span: he would “take a little peek … learn nothing thoroughly and end up believing he knew everything.” “

(pp. 75-76)

“Wilhelm considered himself an expert on many things and was not shy about saying so. In later years, he would personally inform the Norwegian composer Edward Grieg that he was conducting Peer Gynt all wrong; tell Richard Strauss that modern composition was “detestable” and he was “one of the worst”; and, against the wishes of its judges, withdraw the Schiller Prize from the Nobel Prize-winning German dramatist Gerhart Hauptmann, whose downbeat Ibsen-esque social realism he didn’t like.

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Brief JOLTS update

Brief JOLTS update

I’m still traveling, so this will be a quick update.

In re yesterday’s JOLTS report (June 7), the main take seems to be that job openings were higher than the total number of unemployed, so presumably they could all be hired and we’d have actual full employment next month, right?

I don’t think so. Month after month, hires have totaled considerably fewer than openings for several years. If full employment were so close, why wouldn’t hires be catching up?  And every month, there are new layoffs, quits, and other separations, all of whom (except for those who retire) are available to fill those job openings.

In any event, let me focus on the simple metric of “hiring leads firing.” Here’s the long term relationship since 2000, quarterly through the end of March:

No sign yet of either turning down, although both may be plateauing.

In the 2000s business cycle, hires YoY turned down well in advance of the recession. That isn’t the case now:

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