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

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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Wage growth: is the dam finally breaking?

Wage growth: is the dam finally breaking?

[Apologies for the light posting: I’ve been traveling, and there isn’t a lot of news this week.]

couple of months ago I wrote that raising wages may have become a “taboo,” i.e., that in some cases employers may be refusing to raising wages, even though it may be costing his money. One of the items I relied upon was from the NFIB, as small business owners presumably are not “monopsonies.” As of February, the last time I had data, small business owners were complaining of inability to fill positions, but were not raising wages.

Over the last three months, that may have changed, as revealed in the NIFB survey from May. Let’s compare hiring in small business through February:

and now through May:

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May jobs report: excellent news on unemployment, underemployment, and wages

May jobs report: excellent news on unemployment, underemployment, and wages


  • +223,000 jobs added
  • U3 unemployment rate fell -0.1% from 3.9% to 3.8%
  • U6 underemployment rate fell -0.2% from 7.8% to 7.6%

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

Wages and participation rates

  • Not in Labor Force, but Want a Job Now:  up 68,000 from 5.115 million to 5.183 million
  • Part time for economic reasons: down -37,000 from 4.985 million to 4.948 million
  • Employment/population ratio ages 25-54:  unchanged at 79.2%
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: rose $.07 from  $22.52 to $22.59, up +2.8% YoY. This is the highest nominal YoY gain for the entire expansion.  (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 22,000/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 rose 300 for an average of 110/month vs. the last seven years of Obama’s presidency in which an average of -300 jobs were lost each month

March was revised upward by 20,000. April was revised downward by -5,000, for a net change of 15,000.

The more leading numbers in the report tell us about where the economy is likely to be a few months from now. These were mixed.
  • the average manufacturing workweek declined -0.2 hours from 41.0 hours to 40.8 hours.  This is one of the 10 components of the LEI.
  • construction jobs increased by 25,000. YoY construction jobs are up 286,000.
  • temporary jobs decreased by -7800.
  • the number of people unemployed for 5 weeks or less decreased by -81,000 from 2,115,000 to 2,034,000.  This is a new post-recession low.

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More evidence of increasing deflationary pressure on wages

More evidence of increasing deflationary pressure on wages

One of my pet peeves is that economics as a discipline needs to import the entirety of learning theory from psychology, not just parlor tricks like the endowment effect.  For example, learning from models.

To wit, once Jack Welch was successful in using a pay scheme at GE that ensured that a given percentage of employees would not get a raise in any given year, it was inevitable that other employers who adopt the idea until it spread throughout corporate America. And it not giving raises to a certain percentage of employees was successful, why not implement it across the board with *all* employees?

Monkey see, monkey do.

As I noted several weeks ago, even though we are at least closing in on full employment, the percentage of employers not raising wages at all has gone up in the last year:

And now, cue Atrios about how big companies, fat with their new tax cut $$$, aren’t planning on raising wages at all:

[E]xecutives of big U.S. companies suggest that the days of most people getting a pay raise are over …. [In] rare, candid and bracing talk from executives atop corporate America, made at a conference Thursday at the Dallas Fed[, t]he message [wa]s that Americans should stop waiting for across-the-board pay hikes coinciding with higher corporate profit …. to cash in, workers will need to shift to higher-skilled jobs that command more income.

….The moderator asked the panel whether there would be broad-based wage gains again. “It’s just not going to happen,” [Troy] Taylor, [CEO of the Coke franchise for Florida,] said. The gains would go mostly to technically-skilled employees, he said. As for a general raise? “Absolutely not in my business,” he said.

This is putting even more deflationary pressure on wages. Since the refinancing spigot has been turned off due to the end of the secular decline in interest rates, if wages don’t increase, exactly where do employers think increased demand is going to come from? Further, if companies freeze wages even during good times, what is going to happen when, inevitably, times turn bad?

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Memorial Day 2018

Memorial Day 2018

For all those, of whatever race, creed, color, or nationality, who gave their lives so that government of the People, by the People, and for the People shall not perish from the Earth:


Gettysburg National Cemetery

Antietam National Cemetery

Arlington National Cemetery

May they rest in peace.

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$3 a gallon gas has returned!

$3 a gallon gas has returned!

According to GasBuddy, as of this morning the average price of gas in the US is $3 a gallon:

This is the highest in 3 1/2 years.  YoY gas prices are up a little over 25%.

I suspect that this is a significant psychological threshold. While it’s not a “shock,” which historically has caused Americans to cut back their spending by double the increased amount that they spend on gas, causing a recession, it might very well cause a 1:1 retrenchment, which will be felt by discretionary spending like restaurants.  And, of course, it recirculates more of the currency outside of the USA into the treasuries of petroscheikhdoms.

An interesting byproduct is that the regional Fed districts which suffered the most from the downturn several years ago are turning in the best manufacturing and new orders growth in any of the districts now.

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Dear Professor Krugman, Say Its Name!!! “Taboo”

Dear Professor Krugman, Say Its Name!!! “Taboo”

Paul Krugman is coming closer to embracing my “taboo” argument.

A month ago I wrote that raising wages was becoming a taboo. I considered three alternative hypotheses:

1. monopsony (quoting Vox)

[I]n recent years, economists have discovered another source: the growth of the labor market power of employers — namely, their power to dictate, and hence suppress, wages…..{Monopsonistic f]irms [which pay less than “competitive” wages] bear the loss in workers (and resulting lowered sales)  in exchange for the higher profits made off the workers who do not quit.

2. skittishness about the longer term economy

Since 2000 there have only been about 4 years at most (2005-07 and 2017) where the economy has seemed to be operating at close to full throttle.  If I [an employer] raise wages now, I will attract more workers, but then when the good times end, I will be stuck with a higher paid workforce than my competitors who haven’t raised wages. If I think that “bad times” are likely to exist more often than “good times” in the foreseeable future, then I might hold back on increasing my labor costs during the good times …

3. taboo

[A]n economic taboo [is a] decision to leave profits on the table because they conflict with an even higher priority held by the employer …. [If] I am an employer who *does* believe that the good times are likely to last, BUT I also believe that people who come to work for me ought to be grateful to earn, say $10 per hour, and because of my firm ideological belief, I am not going to budge. If … my ideological belief is shared on a widespread basis by my competitors and other businesses, I am *not* at a competitive disadvantage. Thus depressed wages may persist because raising wages has become a taboo.

Using the JOLTS data, I concluded based on the persistently excessive level of job openings vs. actual hires, together with the near record number of quits, that hypothesis number 3, “taboo,” best fit the evidence.

Again, to briefly summarize: if skittishness about the durability of a strong economy were the primary driver of lower wages, I would not expect those employers to even go looking for new employees to hire at higher wages. In other words, there wouldn’t be an elevated number of job openings vs. actual hires. Further if it were monopsony, we shouldn’t see the near record number of employees quitting their jobs to take other, higher-paying jobs. Also, we wouldn’t see the mismatch between hires and openings among small employers without monopsony power — but we do. So “taboo” is the best hypothesis.

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Real retail sales update for April 2018

Real retail sales update for April 2018

It’s a slow start of the week, so let’s catch up on one of my favorite indicators, real retail sales, which were reported last week.

First of all, adjusted for population, real retail sales have peaked a year or more in advance of each of the last two recessions.  That hasn’t happened yet, as the long term rising trend is intact, even if sales have backed off their wintertime highs.

If they go longer than 6 months without making a new high, then it would be a signal for caution. But we’re not there yet.

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