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Initial jobless claims for week ending June 10 – no concern yet

Initial jobless claims for week ending June 10 – no concern yet

I have started to monitor initial jobless claims to see if there are any signs of stress.

My two thresholds are:
1. If the four week average on claims is more than 10% above its expansion low.
2. If the YoY% change in the monthly average turns higher.

Here’s this week’s update.

Initial claims last week were 222,000. The four week moving average was 217,750.
First, the four week average is only 8.1% above its recent low:

Second, the YoY% change for this week is only lower by -1.8%. For the first two weeks of June, it averages +0.5% higher:

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May real wages grow, but real aggregate payrolls on the verge of a red flag warning

May real wages grow, but real aggregate payrolls on the verge of a red flag warning

The consumer price index rose +0.1% in May and declined YoY to 1.8%. Again the main reason was gas prices, which declined in during the month. Below is overall CPI (blue) vs. CPI less energy (red) for the past 20 years:

Now let’s turn to wages. Nominally, wages for non-supervisory employees increased +0.3% in May, so after inflation they were up +0.2%, an improvement over the past few months. YoY non-supervisory wages nominally were up +3.2%, which means that real wages for non-supervisory workers are up +1.6%:

 

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Scenes from the May employment report: expect more lackluster reports, and layoffs in manufacturing

Scenes from the May employment report: expect more lackluster reports, and layoffs in manufacturing

Three months ago when the poor February jobs report came out, I was just about the only commentator who saw it as a harbinger rather than an outlier. On Friday the naysayers got silenced.Let’s see how the more leading aspects of the employment report played out, with an eye towards the near future. To cut to the chase, expect more lackluster total payroll gains in the coming months, and further, it is a near certainty that there will be layoffs in manufacturing, probably totaling at least 50,000.

But first, let’s take a quick look at wage growth, which has pulled back slightly from the beginning of this year. Nominal wage growth is significant because employers do not give out inflation-indexed wage increases, and the pattern is that, as underemployment decreases below about 9%, wage growth increases:

That isn’t cause for concern yet, given the noise in the series, including at least two prior temporary downturns in this expansion alone. But on the other hand, note that an extended period of a slowdown or flatness in growth has tended to occur in the final stage of expansions. This is best shown when we track the YoY change in percent of wage growth itself (i.e., the second derivative), averaged quarterly in the graph below:

 

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For party voting preference, which is more important, age or education? Looks like we have an answer

For party voting preference, which is more important, age or education? Looks like we have an answer

For all the slicing and dicing that has been done in voting metrics for 2016 and 2018, one quandary has stood out. We know that higher educational attainment has strongly correlated with voting for Democrats, and we also know that there was a stark age difference in votes between Clinton and Trump in 2016: a majority of voters younger than 45 voted for Clinton, while a majority over 45 voted for Trump.

But the level of educational attainment has not remained static over time. With each passing generation, more and more students are getting a college degree, and advanced degrees as well.

So are the voting patterns mainly showing us that more younger voters have college degrees? Or is it really about generational experience? For example, is a Silent Generation or Boomer college graduate more likely to vote Democrat than a GenXer or Millenial with no college? This week I finally saw a graphic that spells out the answer, and here it is:


Age is more decisive, hands down. The only anomaly that even comes close is that voters aged 30 to 44 with a high school degree were only slightly more likely to vote Democratic than voters aged 45 to 64 without a high school degree.

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May jobs report: this is the kind of report you see at negative inflection points

May jobs report: this is the kind of report you see at negative inflection points

HEADLINES:

  • +75,000 jobs added
  • U3 unemployment rate unchanged at 3.6%
  • U6 underemployment rate declined -0.2% from 7.3% to 7.1% (new expansion low)

Leading employment indicators of a slowdown or recession

 

I am highlighting these because many leading indicators overall strongly suggest that an employment slowdown is coming. The following more leading numbers in the report tell us about where the economy is likely to be a few months from now. These were mixed m/m, but several are now sending significant negative signals.

  • the average manufacturing workweek declined -0.1 from 40.7 hours to 40.6 hours. This is one of the 10 components of the LEI. It is down -0.7 hours from its peak during this expansion. This has now crossed the threshold to being consistent with an oncoming recession.
  • Manufacturing jobs rose by 3,000. YoY manufacturing is up 184,000, a big deceleration from last summer’s pace.
  • construction jobs rose by 4,000. YoY construction jobs are up 215,000, also a deceleration from last summer. Residential construction jobs, which are even more leading, fell by -100, the second monthly decline in a row, a signal that the housing slowdown from last year has finally bled through into jobs.
  • temporary jobs rose by 5100, but April was revised down by about 4500. YoY these are up +44,000.
  • the number of people unemployed for 5 weeks or less rose by 243,000 from 1,904,000 to 2,147,000. The post-recession low was last month.

Wages and participation rates

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

 

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ISM manufacturing and residential construction spending trends continue

ISM manufacturing and residential construction spending trends continue

May data has started out where April left off, with continuations of trends in both manufacturing and construction.

First, manufacturing: it is still expanding, but at a much lower rate than last summer’s red hot numbers. The overall ISM manufacturing index declined a bit to 52.1, but the leading new orders sub-index rose slightly from 51.7 to 52.7:

Looking forward to Friday’s employment report, the ISM employment sub-index also rose slightly from 52.4 to 53.7. This suggests that Friday will show an increase in the leading manufacturing jobs sector.

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The sources of the next recession

The sources of the next recession

While we are waiting for the ISM May manufacturing survey and construction spending data to be released later this morning, both of which will give us important clues to Friday’s jobs report, let me write down some thoughts on the nerdy question I ruminated about this weekend: what is the most likely source of the next recession?

I should start by noting that I remain on “recession watch” for later this year, as in, a substantially heightened risk, due to enough of the long leading indicators turning negative by the end of last year. But my base case remains that there will be a slowdown without an actual recession, because those indicators haven’t gone down *enough* and some, like real M1 and some housing metrics, have already rebounded.

But I read a tweet over the weekend from a political source I respect, who essentially said, “housing’s fine, there will be no recession, end of story,” and, well, I was annoyed.

That’s because housing isn’t always the source of a recession, and occasionally, as in 2000-01, it doesn’t turn down very much at all. In fact, housing has turned down since the beginning of last year about as much as it turned down in 2000 – which didn’t prevent the 2001 recession, did it?

So what are other sources of recessions? Here’s my take:

 

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Q1 corporate profits and real gross domestic income

Q1 corporate profits and real gross domestic income

Yesterday the second estimate of Q1 GDP came out, which means that corporate profits for Q1 were finally reported.

In my post earlier this week at Seeking Alpha, I wrote that corporate profits are of higher forecasting importance because of the contradiction in the signals being sent by the bond market vs. the housing market. So what light do they shed on the forecast for the next 12 months?

I wrote a follow-up post, and it is up on Seeking Alpha.  As usual, clicking over and reading should be informative for you, and helps to the tune of a couple of pennies for me.

P.S.: As a bonus, another important Q1 metric, gross domestic income, was also reported in yesterday’s revision. There is some evidence that, when they diverge, GDI leads GDP. Here’s what that relationship looks like for the past 30 years:

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Trucking tops ailing rail (nerdy)

Trucking tops ailing rail (nerdy)

Since the beginning of this year, weekly rail volumes have usually been negative.  The full year to date volumes have also been negative YoY:

Since all manufactured goods have to be transported to market, if this is something confirmed in other transportation readings, it would clearly be recessionary – as in, a recession has already started.

One alternative measure of the transportation sector is the Cass Freight Index.

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The Western Hemisphere’s portion of the Arctic looks set for a record low

The Western Hemisphere’s portion of the Arctic looks set for a record low

Given Donald Trump’s view that global warming is a hoax, I am surprised that almost 2 1/2 years into his Presidency NOAA’s “Arctic Sea Ice” page is still with us. And since I am a nerd, during the spring and summer it is something I check.

In past years, sea ice melted much more in the Eurasian arctic at the extremities of the Gulf Stream than on the North American side. In contrast, the decline in ice cover in the North American sector of the Arctic is particularly advanced this year. Here’s what it looks like as of yesterday:
With the exception of Hudson’s Bay, it looks much more like the end of June for the past decade in that sector of the Arctic. In order, here are June 2018, 2017, and 2012

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