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

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

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:

[This deceleration] makes me think that the deceleration of temp jobs in the monthly report for the last three months, as shown in the final graph below:

hasn’t just been noise, but – while still positive – is demonstrative of real weakness.

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

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 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

December housing permits and starts mixed, support slowdown scenario

This morning we finally got December housing permits and starts. Remember that starts are more volatile than permits, and single family permits are the least volatile of all.

Here’s what the overall data looks like:

While starts and completions laid an egg, permits actually went up a little bit.

In particular, for housing to be outright recessionary, I would want to see single family housing permits down -10% from peak at minimum. This morning’s data has them down only about -6.5% off peak, just slightly above their worst showing of 2018.

In other words, this morning’s report says slowdown rather than recession to me.

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

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

Manufacturing holds on in February

The theme for most reports remains that the government shutdown in December and January, plus a 30 year record cold snap for a week in January, put a real dent in the economy. That certainly was the message of December personal spending and December and January personal spending this morning.

But it looks like there was no significant damage to manufacturing. This week three regional Fed banks reported February manufacturing in their region, followed by the Chicago PMI, and finally ISM manufacturing this morning.

At the end of January, the average new orders reading of the five regional Feds was +5. After much storm and drang, notably a big downdraft in the Kansas City region, but an even bigger updraft in Richmond, the average for February increased +1 to 6.

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December housing permits and starts mixed, support slowdown scenario

December housing permits and starts mixed, support slowdown scenario

This morning we finally got December housing permits and starts. Remember that starts are more volatile than permits, and single family permits are the least volatile of all.

Here’s what the overall data looks like:

While starts and completions laid an egg, permits actually went up a little bit.

In particular, for housing to be outright recessionary, I would want to see single family housing permits down -10% from peak at minimum. This morning’s data has them down only about -6.5% off peak, just slightly above their worst showing of 2018.

In other words, this morning’s report says slowdown rather than recession to me.

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100 years of industrial production

100 years of industrial production

This is a post that can literally be written only once in 100 years!

Because as of last Friday, it has been exactly 100 years since the first publication of industrial production by the Fed in January 1919. So this is a good time to take a sweeping historical look at production in the United States.

The first graph below is the entire 100 year history, on log scale so that equal percentage changes in each time period are calibrated equally:

A few features stand out: the Great Depression, the World War 2 boom, and two downshifts in the long term trend: first in the 1970s-1999, and second from 1999 to the present.

In fact, the past 20 years have been the slowest secular period since publication of industrial production started 100 years ago. As shown in the below graph, normed to 100 in June 1999, production has only grown 15% in the 20 years since. It grew just under 10% during the 2000s expansion, and only about 5% in the last 11 years:

 

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Wages continued to improve through January

Wages continued to improve through January

One item I didn’t get around to in the last couple of weeks is how wages performed as of January’s jobs report. And the basic answer is: pretty good!

The first graph below shows real, inflation adjusted average wage gains for non-managerial workers measured YoY:

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 economy

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.

There are a couple of series I’ve been meaning to update, so maybe I’ll get around to them. But, don’t be surprised if I don’t post any material for a day or two, or post a brief note on a political topic.

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