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Subdued September inflation means real hourly and aggregate wages grow

Subdued September inflation means real hourly and aggregate wages grow

Courtesy of subdued gas price increases this year vs. one year ago, overall consumer prices rose only 0.1% in September vs. 0.5% one year ago (and 0.3% over the last two months vs. 0.9% one year ago). As a result, YoY CPI growth is down to 2.3% vs. 2.9% several months ago, and that means that “real” wages increased, despite no movement in growth nominally YoY.

With that background, let’s update real average and aggregate wages.

Since nominal wages for non-managerial workers are up 2.7% through September, this means that real wages, which had been flat, have grown in the last few months by +0.4% YoY:

In the last 2 1/2 years, real wages had been essentially flat. The last couple of months moves the needle a little bit:

 

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On the rise of German militarism

On the rise of German militarism

The long-term rise of Japanese militarism that culminated in the Pacific War in World War 2 was painstakingly documented in Meirion and Susie Harries’ excellent “Soldiers of the Sun,” a template that ought to give pause to Americans today.  Briefly, the Meigi consitution required that there be a military cabinet secretary. If that secretary resigned, the government fell. Once the military realized the leverage they had, they used it repeatedly and for ever larger reasons, until they controlled the government. They used it as militaries tend to do, seeing “poor little Japan” beset by enemies on all sides.  But vanquishing one enemy simply moved the border. There was always a border, and there was always a nervous and potentially hostile state on the other side of it. The sequence kept playing out until finally there was a sleeping giant on the other side of the border, a giant who was awakened, and then angrily squashed them like bugs.

But no comparable historical account has apparently been done with regard to the similar ascent of the German military. In fact, the received wisdom is on the order of, “How could such a refined culture that gave rise to Goethe, Bach, and Beethoven have turned into a military totalitarian state?” As it turns out, the ascent was gradual but inexorable result of a system built on a military version of the Hastert rule.  A great book is out there, I suspect, but since it isn’t let me give my poor attempt at a sketch.

What brings me to this conclusion is a little-known (at least to probably 99% of Americans) event during World War 1.

But first, some background….

 

 

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Housing’s most difficult comparisons in years begin next Wednesday

Housing’s most difficult comparisons in years begin next Wednesday

After a real quiet week for news, next week we get retail sales, industrial production, the JOLTS report, existing home sales … and housing permits and starts. The week after, real residential fixed investment will be reported as part of Q3 GDP.  Permits and residential fixed investments will have some of the most challenging comparisons in a long time.

Here’s why. First, here’s a graph of 30 year mortgage rates:

These have broken out to highs not seen since early 2011.

 

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Tracking Trump’s trade wars: inventories and intermodal traffic

Tracking Trump’s trade wars: inventories and intermodal traffic

Here’s something I thought I would start to track: looking for evidence of the effects of Trump’s trade wars on manufacturing and distribution.

Producers and distributors aren’t simply going to sit back and wait to absorb new tariff expenses: we should expect them to engage in as much “front-running” as possible, importing the goods and commodities likely to be affected by the tariffs early, and building up inventories that can be sold at the lower, pre-tariff prices. Once the tariffs kick in, the front-running would end, leading to a reversal of the pattern.

Two places we would expect that front-running to show up are in manufacturers and wholesalers inventories, and in the intermodal units that are typically used for cross-ocean shipping.  Let’s take them in order.

First, as a general rule sales lead inventories. Sales peak first going into recessions, and bottom first coming out.  It is likely the very fact that sales turn that is the signal for producers to add or subtract from inventories. Here’s that relationship for wholesalers over the past 25+ years:

 

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Is the taboo against raising wages beginning to break?

Is the taboo against raising wages beginning to break?

It’s a *really* slow news week for economic data — just producer and consumer prices tomorrow and Thursday. Even JOLTS doesn’t come out until next week.

But there was one little nugget of good news this morning: the NFIB, which represents small businesses, came out with their September report, and there was some good news about wages: more small businesses — 37% — said they *actually* raised wages in the last 3 months, than during any other 3 month period over the last 30 years:

If the taboo against raising wages is finally breaking, that is good news. Now we have to see if it is confirmed by actual data on wages.

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Scenes from the September jobs report

Scenes from the September jobs report

Leaving aside wages, there was lots of sunshine in September’s jobs report, although there were a few gray if not dark clouds on the horizon.  Here’s a look at each:

1. Weekly jobless claims did lead the unemployment rate

Two weeks ago, I wrote that the new 40+ year lows in weekly initial jobless claims forecast new lows in the unemployment rate.  Here’s what I said:

[I]nitial jobless claims tend to lead the unemployment rate by a few months. Here’s the 50 year+ graph:

If jobless claims decline, then over the next 2-3 months it’s a good bet that the monthly unemployment rate will decline too.

And that it did. Here’s the updated graph of the last few years:

 

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September jobs report: a mixed report with different implications in different timeframes

September jobs report: a mixed report with different implications in different timeframes

HEADLINES:

  • +134,000 jobs added
  • U3 unemployment rate declined -0.2% from 3.9% to 3.7%
  • U6 underemployment rate rose from 7.4% to 7.5%

Here are the headlines on wages and the broader measures of underemployment:

Wages and participation rates

  • Not in Labor Force, but Want a Job Now:  declined -152,000 from 5.379 million to 5.237 million
  • Part time for economic reasons: rose +263,000 from 4.379 million to 4.642 million
  • Employment/population ratio ages 25-54: unchanged at 79.3%
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: rose $.07 from  $22.74 to $22.81, up +2.7% 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 +18,000 for an average of +23,000/month in the past year vs. the last seven years of Obama’s presidency in which an average of 10,300 manufacturing jobs were added each month.
  • Coal mining jobs fell -300 for an average of -16/month vs. the last seven years of Obama’s presidency in which an average of -300 jobs were lost each month

July was revised upward by 18,000. August was also revised upward by 69,000, for a net change of 87,000.

 

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The simple Fed funds + payrolls leading indicator: autumn update

The simple Fed funds + payrolls leading indicator: autumn update

While we are waiting for tomorrow’s jobs report, let me update my alternative Fed funds + payrolls leading indicator for the economy, which I debuted earlier this year. This was the result of looking for an interest rate indicator that did not rely upon the yield curve. This indicator is really simple, and what it predicts is, if the Fed fate rises YoY by as much as the YoY% change in jobs growth, the economy will fall into recession within roughly a year.
Here is the long term history of this indicator:

It’s been infallible since the 1960s.

Well, the Fed raised rates by 0.25% last week, so let’s zoom in on where we stand now:

The YoY change in the Fed funds rate is +1.0%, while the YoY% change in payrolls, through August, was +1.6%.  No recession is signaled by this model for the next 12 months.

But wait, there’s more! Because the change in the Fed funds rate seems to have a predictable relationship to the YoY% growth in jobs over the next 12-18 months, let’s take a look at that.

 

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September auto sales were the worst (economic reporting) in a long time

September auto sales were the worst (economic reporting) in a long time

I don’t think I have seen as badly, or worse, outright misleading reporting in a long time as I have seen concerning September auto sales.

Almost all of the stories — and especially the Doomish punditry that dominates the clickbait econoblogosphere — have seized on the BIG BIG DOWNTURN!!! in auto sales YoY, varying between a -5.6% decline (“So, all in all it was a lousy month”) to a 7% decline (“Auto sales sputtered … Several major auto makers reported steep declines in U.S. sales”). Or, “U.S. Auto Sales Look Shaky, Could Be Start to Rough Road Ahead.”

OMG, head for the hills!

Then, down maybe 10 paragraphs (if at all), it’s noted that the YoY comparison is with the spike in replacement sales that occurred after Hurricane Harvey dumped up to 50″ of rain on east Texas, including the 6 million population Houston metro.
Oh.
And somewhere before the end of the article, it might be grudgingly conceded that the seasonally adjusted annualized rate of sales for September 2018 might be over 17 million.  In fact, the two best estimates are 17.3 million from Ward’s Intelligence, and 17.4 million from AutoData. Here’s the graph from Ward’s:

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August residential construction spending declines

by New Deal democrat

August residential construction spending declines

Yesterday construction spending for August was reported. While overall spending rose very slightly, residential construction fell -0.7%.

The big issue with housing this year is whether higher mortgage rates and higher prices are leading merely to a deceleration of growth, or to an actual turning point.  Yesterday’s report adds to the evidence that it is the latter rather than the former.

My detailed post is up at Seeking Alpha.

As usual, besides being informative, reading the post also rewards me a little bit for my efforts.
UPDATE:  I was looking for something else this morning, and found this.

Two months ago, discussing the June residential construction report, I wrote:

As interest rates have ticked higher in the last several months, I expect permits to continue to be flat, and residential construction should follow in a few months.

And indeed, permits have since been a little worse than flat, and residential construction has indeed followed.  As I point out from time to time, you’re reading the right blog!

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