This Friday, watch out for an outright decline in temporary employment

Almost a month ago I flagged the decelerating staffing index, and showed how it corresponded with the leading sector of temporary jobs in the monthly jobs report:

the Staffing Index isn’t seasonally adjusted, [so] you really have to compare each on a YoY basis. And while the two don’t turn positive or negative at the same time or for the same duration, they do correlate well on YoY direction; i.e., acceleration or deceleration in the YoY comparison.

I concluded:

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Two more leading sectors to watch for in tomorrow’s jobs report

Yesterday I updated my look at temporary jobs, a known leading indicator for jobs overall.  Today I want to look at two more leading sectors: manufacturing and construction.

Unlike temporary jobs, I’m not looking for a possible decline. Rather, I am looking for a deceleration in growth from their recent peaks. Let’s take them in order.

First, manufacturing. Because the ISM is picky about allowing FRED to publish their data, I have to do this in two separate graphs. So, the below two graphs are of the ISM manufacturing index and its new orders sub index, followed by the YoY% change in manufacturing employment:

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Residential construction declines in December, but looks to be bottoming

Residential construction spending lags sales, permits, and starts. But it still leads the economy overall, and it is a much smoother data series, with little noise. It is almost all signal, and so it is an important confirmation of the more leading data.

In December, residential construction spending did decline vs. November and also vs. one year ago, but it was higher than September’s and October’s numbers.

Let’s go to the graphs. Here’s the absolute level of residential construction spending (blue) vs. single family permits (red), first a long term look, and then focusing on the last several years.  As usual, I choose single family permits because they are the least noisy of all the more leading data:

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December housing permits and starts mixed, support slowdown scenario

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Q4 GDP: mixed signals for the future (UPDATED with graphs)

I didn’t post anything yesterday, so I’ll make up for it with two posts today.This morning we finally got the very delayed first look at Q4 GDP. As per my usual practice, I am less interested in what happened in the rear view mirror, which was an annualized gain of +2.6%, than what the number tells us about what lies ahead.

The two forward-looking components of GDP are (1) private fixed residential investment, and (2) corporate profits. Both of these are long leading indicators, I.e., giving us an idea about where the overall economy will be a year or more out from here.

In that regard, the news was mixed.

Private residential fixed investment declined -0.9% q/q. This is in keeping with the downturn in housing construction that we have seen in the monthly data. Note that residential investment as a share of GDP declined in both nominal (blue) and real (red) terms:

Meanwhile, corporate profits as is usual won’t be reported until the final revision in GDP one month from now, but proprietors’ income rose, was. While it does not always move in the same direction as corporate profits, and sometimes lags, it a good placeholder.  Here the news was positive, as proprietors’ income rose +2.6% q/q:

I’ll supplement the above with graphs later. (UPDATE: DONE)

But the takeaway is, that in the rear view mirror, there was no recession in Q4. While one important leading sector of the economy, housing, continued to deteriorate, the producer side of the economy in the form of proprietors’ income, kept humming along. While enough long leading indicators of the economy did decline in 2018 to continue to justify being on “recession watch” for later in this year, and particularly Q4, there is no sign of deterioration on the producer side of the economy, so if a recession does develop, it will likely be centered on consumers and secondarily on manufacturing.

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Manufacturing holds on in February

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December housing permits and starts mixed, support slowdown scenario

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100 years of industrial production

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Wages continued to improve through January

As of January they were up +1.9%. This is the best showing except for a few months in 2015.
As Jared Bernstein has shown, the “real” gains in wages have a lot to do with the price of gas (blue in the graph below). But in the last two months they have risen the most in the last 8 years in real terms ex-energy:

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It’s Presidents Day, and we’re still basically flying blind on the eoncomy

Not only are the markets closed today for President’s Day, but this entire week is about the emptiest I can ever recall for economic data. Literally the only data of note is going to be released on Thursday, and except for weekly jobless claims, even that is not what I would generally consider first-order metrics.

Even worse, we are still basically flying blind due to the government shutdown. The only data of note that had been on hiatus, and has been updated since it ended was last week’s retail sales for December. And that report was jarring enough to justify worrying that not only did the shutdown make us economically blind, but it itself may have further weakened an already weakening economy. So we may be in for some more jarring surprises when December housing starts and permits, December income and spending, and Q4 GDP finally get released next week.

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