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Short leading indicators show slowdown, not recession (for now anyway)

Short leading indicators show slowdown, not recession (for now anyway)

Amount 10 days ago, I wrote that backward revisions to adjusted NIPA corporate profits meant the long leading indicators were more negative than originally believed one year ago.  Which means that watching the short leading indicators for signs of rolling over became more important.

I took a comprehensive look at the short leading indicators late last week. This post is up at Seeking Alpha.

As always, clicking over and reading helps put a penny or two in my pocket for my efforts.

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Addendum: Based on the outcome of the above post, one of the two data points I said I would particularly pay attention to this week was this morning’s durable goods reports. This came in positive as to both total new orders and “core” orders less defense and Boeing:


The YoY trend is still deteriorating, with total orders up +1% YoY, and “core” new orders down -0.5% YoY.:


“Core” orders are flat, but not suggesting recession, while manufacturers’ new orders are consistent with a recession. This does not change the conclusion of the Seeking Alpha article.

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On Appeasement

On Appeasement

Sometimes on Sundays I leave the dreary world of economics behind and write of broader things.

Since most tomes covering American history have an underlying sunny optimism that is nowhere appropriate for our times, recently I’ve been reading more world history having to do with the rise of fascism or fall of democracy. Several of those books have been disappointing: they are thorough blow by blow descriptions, without organizing the material enough – or simply not including any material – to make a judgment about the underlying dynamics.

On such book is Tim Bouverie’s “Appeasement,” which as is obvious from the title, chronicle’s the UK’s, and in particular Neville Chamberlain’s, policies towards the rise of Hitler Germany in the 1930s.

There are three important issues with regard to the policy of Appeasement:

1. Was it at any point appropriate? (a question I never would have even included before reading this book)
2. Was it, at least temporarily, a necessary evil?
3. Did Chamberlain use it to “buy time” for the UK to re-arm in order to fight a war with Germany?

Only the second question gets an adequate answer from Bouverie’s book.

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Not doomed yet v.2.0: beware recession porn

Not doomed yet v.2.0: beware recession porn

Way back when I first started writing online almost 15 years ago, my very first post on Daily Kos was a little note called “Not Doomed Yet.”  It was pretty pathetic compared with the standards of my writing since the Great Recession, but the point of it was, back in 2005, that the conditions necessary for an economic downturn hadn’t quite happened yet.

Needless to say, it went nowhere. To the contrary, my big recollection is that my posts that got the most attention by far were the ones I wrote once I did see that a recession looked baked in the cake. The simple fact is, when it comes to online clicks and reads, DOOOM sells.

This is a timely reminder, because I have noticed across a variety of platforms in which the economy is discussed, including back at Daily Kos, but also including financial sites and Twitter feeds, a surge in recession porn, I.e., why we are DOOOMED. Usually although not always this is because people have suddenly discovered that whatever portion of the Treasury yield curve they have focused upon has an infallible record of predicting the end of the world.

Now, over a year ago I forecast a sharp slowdown during this year. Over six months ago I went on “recession watch” with a starting date of Q4. So I’ve seen this coming for a long time.  But I am disappointed to remind you, once again, that we are Not Doomed Yet.

There are at least three reasons for that.

 

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Positive July housing permits and starts

Positive July housing permits and starts

The housing starts and permits report this morning for July adds to the positive data looking forward to H2 2020 (or, possibly, less bad – but that’s another discussion).

First, here are overall permits (red) and starts (blue):

While the very volatile starts declined, the slightly more forward looking and less volatile permits rebounded off their low to a 6 month high.

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Industrial production, jobless claims, and retail sales

Industrial production, jobless claims, and retail sales

As I noted this morning, a slew of important data was released. Let me deal with the “normal” weekly and monthly data in this post.

First, industrial production continues to languish, down significantly from the end of last year, whether measured in total or just as to manufacturing:

The saving grace here is that it has not declined as much as it did during the 2015-16 “shallow industrial recession” which was not sufficient to cause the economy as a whole to contract.

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Quick hits on a major Thursday economic news blitz

Quick hits on a major Thursday economic news blitz

There has been a ton of significant economic news this morning. I’m not going to be able to get to all or even most of it in depth. So I am going to leave a quick rundown here.

Starting with the positive:

-nominal retail sales up +0.6%, up +0.3% in real terms, up +0.2% Per Capita. This is another new high and suggests the US consumer continues to be in good shape (relatively speaking). Note that much of this apparently has to do with Amazon “Prime Day” purchases, and if the seasonal adjustments are off, this could easily be a false positive.

-Both the NY and Philly Fed indexes higher, including new orders for both. No indication here that manufacturing is rolling over.

-The manufacturing component of industrial production higher, again suggesting that manufacturing is not rolling over (although this is still below its December high point).

The negative:

– overall industrial production was negative – again! Industrial production as a whole has remained in a decline off its high in December of last year. This is the premier coincident economic indicator, even more than payrolls.

– initial jobless claims higher YoY on both a weekly and monthly measure. It is not more than 10% higher than its recent lows, so overall is a neutral not a negative.

– the 2 year to 10 year treasury spread briefly inverted again this morning, although once again it has rebounded to positive.

-a MAJOR negative: unit labor costs for the last five years revised higher, meaning that adjusted corporate profits (a long leading indicator) peaked back in 2014, and were almost 15% lower than that as of Q1 of this year. The placeholder proprietors income is also slightly lower through Q2 than its peak in Q4 of last year.

I’ll try to post one or two things in detail later.

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Real average and aggregate wage growth for July 2019: yellow flag for aggregate wages

Real average and aggregate wage growth for July 2019: yellow flag for aggregate wages

Now that we have the July inflation reading, let’s take a look at real wages.

First of all, nominal average hourly wages in June increased +0.2%, while consumer prices increased +0.3%, meaning real average hourly wages for non-managerial personnel decreased -0.1%. This results in a slight decline of real wages to 97.0% of their all time high in January 1973:

On a YoY basis, real average wages were up +1.5%, a decline from their recent peak growth of 1.9% YoY in February:

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Notes on the June JOLTS report: weakness but no imminent downturn

Notes on the June JOLTS report: weakness but no imminent downturn

I’m still on vacation, so continue to expect light posting. But I thought I’d take a look at the one piece of data that came out this week, the June JOLTS report.

First of all, the “hiring leads firing” mantra continues to be true:

[Note: data averaged quarterly to cut down on noise.] Interesting that hiring has been essentially flat for a full year, and total separations (“firing”) for the past three quarters.

 

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Scenes from the July employment report

Scenes from the July employment report

First things first: I’m on a vacation for part of this week, so don’t be surprised if there are no postings for a few days.

The July employment report continued a string of good headline numbers with weak leading internals. Let’s take a look.

In the good news department, the U6 underemployment rate declined to yet another new expansion low of 7.0%. This is mainly due to the continuing decline in the involuntarily part time employed. The only three months it has been better than that since the modern series started were three months in the year 2000:

When we go further and take a look at those who aren’t even in the labor force, because they aren’t looking for a job, but say they want a job now, we’re about 0.2% above the 2000 lows and about 0.5% above the all-time lows in 2007:

 

 

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The housing choke collar

The housing choke collar

I have a new post up at Seeking Alpha, discussing how, even though sales went down last year, and have already bottomed, house prices have as usual, followed into decline with a lag.

Beyond that, I discuss the concept of a “housing choke collar,’ similar to the “oil choke collar” I used to write about in 2010-14, whereby prices repeatedly approach the tipping point of unaffordability, causing sales to drop off, causing interest rates and prices to decline, making housing more affordable … and the cycle repeats.

One item that didn’t make it into that article, because I was trying to be concise and not digress, was this graph of the median income of renters that Kevin Drum posted a couple of weeks ago:


Kevin Drum has repeatedly been trying to make the case that, really, housing hasn’t gotten expensive at all compared to historical values — and gotten a lot of blowback (correctly, imo). His take on the above graph is that it shows that renters aren’t stressed at all.

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