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

Initial claims continue to show slowdown, but no imminent recession

Initial claims continue to show slowdown, but no imminent recession

I’ve been monitoring initial jobless claims closely for the past several months, to see if there are any signs of a slowdown turning into something worse. Simply put, no recession is going to begin unless and until layoffs increase.

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.

As of this week, initial claims continue to be very close to their expansion lows. The 4 week moving average of claims Is 217,000, only 7.7% above the lowest reading of this expansion:

On a YoY% change basis, the 4 week average is -1.0% below its level one year ago:

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Real average and aggregate wages declined in October

Real average and aggregate wages declined in October

October’s consumer inflation reading came in at a surprisingly high +0.4%, which as shown in red in the graph below, was one of the 3 highest in the past two years. Meanwhile average hourly earnings increased less than +0.2% – the second lowest reading in the past two years, shown in blue:


As a result, real average hourly earnings decreased -0.2% last month, the worst reading since late 2017:

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How economists blew the analysis of the manufacturing jobs shock

How economists blew the analysis of the manufacturing jobs shock

I came across this article yesterday, posted by – to his credit – Brad DeLong, whose argument it eviscerates. Entitled “The Epic MIstake about Manufacturing That’s Cost Americans Millions of Jobs,” it deserves widespread attention. So I am summarizing it here. But by all means go and read the entire piece.

Just to give you the frame of reference, here is the historical graph of manufacturing jobs in the US for the past 50 years:

After peaking in 1979, the number more or less gradually declined in the 1980s, and then stabilized in the 1990s, before plummeting right after 2000.

 

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Scenes from the October employment report: leading sectors remain poor

Scenes from the October employment report: leading sectors remain poor

Yesterday I discussed unemployment and labor force participation from last week’s jobs report, which with the significant exception that better wage growth would probably lead to more people deciding that they’d like a job, remains very positive. Today let’s look at the bad news, which is the same as last month’s: leading indicators for employment are weak to negative.

To begin with, in the last 9 months, per the more reliable establishment report, 1,358,000 jobs have been added, an average of 151,000 per month, including census hiring, a distinct slowdown from 2018’s pace of 205,000:


Next, let’s update the three leading sectors of employment that I have been tracking: temporary help (blue in the graph below), manufacturing (gold), and residential construction (red). Here’s what they look like compared with 2018, showing the slowdown this year (Note: the big decline in manufacturing last month was the GM strike, which will presumably be reversed in November):

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Scenes from the October employment report: full employment?

Scenes from the October employment report: full employment?

Last Friday the household jobs report – the one that tells us about unemployment, underemployment, and labor force participation – has been particularly strong in the past three months. This has driven some impressive gains in labor force participation and the unemployment rate.

To begin with, gains in employment as measured by the household survey (red in the graphs below), as opposed to the larger (and, yes, more reliable) payrolls survey (blue), have totaled 1,222,000 in the last three months:

One month ago this gave us the lowest unemployment rate in the past 50 years, and the U6 underemployment rate is also at its lowest level, save for one month, since the series began in 1994. Each ticked up by +0.1% in October. In the below graph, both metrics are normed to zero at their lowest levels:

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A note about turnout in yesterday’s elections

A note about turnout in yesterday’s elections

I haven’t seen any information yet on how turnout in last night’s elections, particularly in Virginia, which was an “off-off year” election, i.e., no statewide races at all, only state legislative and local races.

The state of Virginia keeps turnout statistics online back to 1976. The bottom line is, clearly something happened in the late 1990s that drove down turnout, which has been reversed in the last two years.
In the 5 “off years” with statewide races between 1977 and 1993, turnout averaged 61.6% of registered voters.
By contrast, turnout in the “off-off years” between 1979 and 1995, turnout averaged 54.6% of registered voters. That’s a 7% decline.
Now, here are the same figures for the 10 state elections thereafter.
In the 5 “off years” with statewide races between 1997 and 2013, turnout averaged 44.8%, a decline of almost 17%.
In the 5 “off-off years” between 1999 and 2015, turnout averaged 31.0%, a decline of over 23%!

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September JOLTS report: mixed with “hard” positives and a “soft” negative

September JOLTS report: mixed with “hard” positives and a “soft” negative

This morning’s JOLTS report for September was mixed, with a decline in job openings and an increase in layoffs, but advances in hiring and voluntary quits.

To review, because this series is only 20 years old, we only have one full business cycle to compare. During the 2000s expansion:

  • Hires peaked first, from December 2004 through September 2005
  • Quits peaked next, in September 2005
  • Layoffs and Discharges peaked next, from October 2005 through September 2006
  • Openings peaked last, in April 2007

as shown in the below graph(averaged quarterly through Q3):

Here is the monthly data for the past five years:

 

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October jobs report paints a portrait of a full (or nearly full) employment economy

October jobs report paints a portrait of a full (or nearly full) employment economy

HEADLINES:
  • +128,000 jobs added (+148,000 ex-Census)
  • U3 unemployment rate up +0.1% from 3.5% to 3.6%
  • U6 underemployment rate up +0.1% from 6.9% to 7.0%

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:

  • the average manufacturing workweek fell -0.2 from 40.5 hours to 40.3 hours. This is one of the 10 components of the LEI and is negative.
  • Manufacturing jobs declined by -36,000 (but would have risen by +6,000 were it not for the GM strike). YoY manufacturing is up 49,000, a sharp deceleration from 2018’s pace.
  • construction jobs rose by +10,000. YoY construction jobs are up +148,000, also a deceleration from summer 2018. Residential construction jobs, which are even more leading, rose by +2,900.
  • temporary jobs declined by -8,100. September’s strong number, however, was revised even higher to +20,100.
  • the number of people unemployed for 5 weeks or less rose by -100,000 from 1,868,000 to 1.968,000.

Wages and participation rates

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The consumer / employment sector of the economy continues powering along

The consumer / employment sector of the economy continues powering along

….. aaaaand, I’m back. Did you miss me?

Here is the essence of my view of the economy right now:

1. The producer sector of the economy is struggling, partly due to higher interest rates in the last two years filtering through the system, and partly due to stupid and irrational trade wars.

2. The consumer + employment sector of the economy, on the other hand, is moving right along, fueled mainly by very low inflation (low gas prices continue) and also by lower mortgage rates.

3. The longer term outlook (one year or more out) continues to improve.

This morning we got three reports focused on the consumer/employee. Let’s take a look at each.
First, real personal income improved by +0.3% in September, and real personal spending improved by +0.2%:

That’s all to the good.

Second, initial jobless claims continue to be close to their bottom. The four week moving average and the monthly average for October, both at 214,750, are lower than they were one year ago:

 

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