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

December JOLTS report: mixed but with strong positive revisions

December JOLTS report: mixed but with strong positive revisions

The JOLTS report on labor is noteworthy and helpful because it breaks down the jobs market into a more granular look at hiring, firing, and voluntary quits. Its drawback is that the data only goes back less than 20 years, so from the point of view of looking at the economic cycle, it has to be taken with a large dose of salt.

With that disclaimer out of the way, Tuesday’s JOLTS report for December was mixed, and for the second month in a row was soft relative to the strength of the overall jobs gain for that month. With the exception of one new high, the other series are off their best levels, and two continued to decline, with the good news being that there were generally positive revisions in the previous month’s data:

  • Quits declined for the 4th month in a row, and are about 5% off peak.
  • Hires rose and are only 0.3% off their peak set two months ago.
  • Total separations declined and are off 4% from August.
  • Job openings made a new all time high.
  • Layoffs and Discharges declined (a good thing), but remain up about 10% from their recent low last March.

Let’s update where the report might tell us we are in the cycle.

First, below is a graph, averaged quarterly through the fourth quarter, of the *rates* of hiring, quits, layoffs, and openings as a percentage of the labor force since the inception of the series (layoffs and discharges are inverted at the 3% level, so that higher readings show fewer layoffs than normal, and lower readings show more):

During the 2000s expansion:

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A decelerating Staffing Index suggests that weakening temporary jobs in the monthly employment report is not just noise

A decelerating Staffing Index suggests that weakening temporary jobs in the monthly employment report is not just noise

Every week I report the YoY 4 week rolling average of American Staffing Association’s Index. It’s been decelerating recently, and last week was up only +0.5% YoY. On a single week basis, though, it went negative.

Because I have written several posts in the last couple of months emphasizing the leading aspect of temporary jobs in the monthly employment report, I thought I would compare the Staffing Index against it.

Here’s what I found: since the Staffing Index isn’t seasonally adjusted, 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.

The Staffing Index only began to be published in 2004. Since then, there have only been two periods when staffing turned negative YoY: the Great Recession and the 2015-16 energy patch downturn.

As the first two graphs below show, at the time of the Staffing Index lagged the monthly jobs report by half a year in 2007, and led it by one month at the end of 2009:

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February short leading data starts out decent

February short leading data starts out decent

We’ve had two pieces of forward looking data in the last week (in addition to the leading bits in the employment report).

The first was the ISM manufacturing index:

Contrary to my expectations, the most leading new orders component rebounded sharply, up to 58.2. This is closer to its “hot” readings of mid-2018 than to its tepid 51.3 in December.

 

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Leading scenes from the employment report not so positive

Leading scenes from the employment report not so positive

I seem to have been the only person to pick up on the weakness in the underlying leading aspects of last Friday’s jobs report.

While the number of job gains was great, and that average wages for non-managerial workers had their second best showing, at 3.4%, of the entire expansion, just behind last month’s 3.5%, the leading aspects of the report, with one exception, were not so positive.

Let’s start with temporary and manufacturing jobs. Here are two graphs showing their month over month percentage gains over the last 20 years (manufacturing is multiplied *2 for scale purposes):

Both of these advance less than 0.2% m/m and ultimately decline m/m before a recession begins.

Now here is a close-up on the last year:

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Reduction in Representation as the remedy for voter suppression

Reduction in Representation as the remedy for voter suppression

This is the second take prompted by my reading of David W. Blight‘s biography of Frederick Douglass.

In the “nothing is every really new” department, voter suppression was very much on the mind of Douglass and other radical Republicans during the Civil War and its immediate aftermath. Douglass was fond of saying that blacks would only gain equality once they exercised power through three “boxes: the cartridge box, the jury box, and the ballot box.” In other words, first equality would have to be fought for in the war. Then there would need to be legal equality. And finally, the only way to protect that legal equality would be via the right to vote.

Douglass and others were very clear-minded that the “copperhead” Democrats would continue to suppress freed blacks by denying them access to voting rights, all the while continuing to gain power via counting freed blacks towards representation in the Congress. Sound familiar at all?

While the ultimate step was the passage of the Fifteenth Amendment in 1969-70, the second Section of the Fourteenth Amendment addresses voter suppression directly, and mandates a specific remedy that is well worth renewed consideration today.

Here are the relevant texts of the first and second Sections of the Fourteenth Amendment.

Section One of the Amendment mandates that

“All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside.”

Section Two states:

“Representatives shall be apportioned among the several States according to their respective numbers, counting the whole number of persons in each State, excluding Indians not taxed. But when the right to vote at any election … is denied to any … citizens of the United States, or in any way abridged, except for participation in rebellion, or other crime, the basis of representation therein shall be reduced in the proportion which the number of such male citizens shall bear to the whole number of male citizens twenty-one years of age in such State.”

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Frederick Douglass, Andrew Johnson, and the Copperhead GOP

Frederick Douglass, Andrew Johnson, and the Copperhead GOP

I am currently reading David W. Blight’s biography of Frederick Douglass, the 19th century orator and champion of black equality. Today I wanted to briefly write on several timely topics inspired by that tome.

Douglass was biracial, or in the parlance of the day, a mulatto. His mother was a young slave named Harriet Bailey. His father was probably Aaron Anthony, the “overseer of overseers” of slaves at the nearby Wye Plantation on the eastern shore of Maryland. He was probably conceived in rape.

His earliest memories included Anthony giving his mother’s sister a vicious whipping for the crime of having a romantic relationship with a young male slave; and Anthony also gently leading him by the hand, patting him on the head, tousling his hair, and calling him “my little Indian boy.”

 

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January jobs report: a tale of two almost diametrically opposed components

January jobs report: a tale of two almost diametrically opposed components

HEADLINES:

  • +304,000 jobs added
  • U3 unemployment rate rose 0.1% from 3.9% to 4.0%
  • U6 underemployment rate rose 0.5% from 7.6% to 8.1%

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

Wages and participation rates

  • Not in Labor Force, but Want a Job Now: declined -73,000 from 5.327 million to 5.254 million
  • Part time for economic reasons: rose +490,000 from 4.657 million to 5.147 million
  • Employment/population ratio ages 25-54: rose +0.2% from 79.7% to 79.9%
  • Average Hourly Earnings for Production and Nonsupervisory Personnel: rose $.03 from  $23.09 to $23.12, up +3.4% YoY.  (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.)

Is a recession close?

 

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, with at very least a decelerating bias.

  • the average manufacturing workweek fell -0.1 hours from 40.9 hours to 40.8 hours. This is one of the 10 components of the LEI.
  • Manufacturing jobs rose by +13,000. YoY manufacturing is up +261,000.
  • construction jobs rose by +52,000. YoY construction jobs are up +338,000.
  • temporary jobs rose by +1000. YoY these are up +146,000.
  • the number of people unemployed for 5 weeks or less rose by +199,000 from 2,126,000 to 2,325,000.  The post-recession low was set eight months ago at 2,034,000.
 

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Advance reading of January manufacturing supports further slowdown

Advance reading of January manufacturing supports further slowdown

I have been using an average of the five regional Fed new orders indexes to forecast the direction of the ISM manufacturing new orders index, and indirectly manufacturing production.  Now that all five regional Fed indexes have been reported, here’s a comparison of the regional Fed averages (left) and ISM new orders (right) for all of 2018 plus this month:

2018
JAN   15   65.4
FEB   20   64.2
MAR   16   61.9
APR   17   61.2
MAY   28   63.7
JUN   24   63.5
JUL   24   60.2
AUG   17   65.1
SEP   20   61.8
OCT 18  57.4
NOV 15  62.1
DEC  8   51.1

2019
JAN  5  n/a

That January’s average was even more tepid than December’s doesn’t mean that the ISM new orders index for January will be lower than last month’s poor reading, but it certainly does suggest that weakness will continue, and we should expect an ISM reading closer to December than November.

In broader context, this is pretty reliable evidence that the manufacturing slowdown is for real, and will manifest itself more fully over the next 2-4 months. At the same time, the average of the Fed indexes is not negative, and so does not support a forecast of recession at this point.

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A note on pending home sales and construction employment

A note on pending home sales and construction employment

The NAR reported that pending home sales declined -2.2% m/m in December. Since this is based on contract signings, it suggests that *existing* home sales will continue to decline for the next month or two.

A few commentators have expressed surprise at the negative number, since mortgage rates declined in December. The problem with this reasoning is that mortgage rates only declined to where they were in September, and were higher than at any previous point during last year. Just as in purchase mortgage applications, the continued decline in rates for most of January might be more positive.

In short, the shallow downturn in housing that we saw since the beginning of last year isn’t over yet.

In the meantime, Friday’s employment report will give us a look at construction employment, and since that usually turns down before a recession begins, it will bear heightened notice. I have an extended post on this pending at Seeking Alpha, and will link to it once it is posted.

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Flying blind: a note on the long leading forecast for the second half of 2019

Flying blind: a note on the long leading forecast for the second half of 2019

We are still “flying blind” on some important economic data, most notably housing permits, starts, and sales, and GDP.

As of this morning, neither the Commerce Department nor its Census Bureau have indicated when these reports will be released, although the notice from the former suggests that there will be at least a two week delay.

As a result, some important monthly and quarterly data that is essential for the long leading forecast that I would normally post this week after the release of the GDP report is missing: corporate profits and real private fixed residential investment from the GDP report,  housing permits from the monthly residential construction report, and real retail sales per capital from that monthly report.

This presents me with a quandary: should I wait for the reports to be posted, which may be weeks away, or should I provide a *very* preliminary forecast based upon data that has not been impacted?

Here is what I am going to do. I am going to wait for the rest of this week to see if we get an updated schedule. If we don’t, or if the reports are going to be delayed more than two weeks, I will go ahead an post the “preliminary” long leading forecast through the end of this year. If the reports will all be released within the following two weeks, I will wait for them and then do a formal forecast.

So that I can at least say something useful, at the moment, from other sources here is what we know:

  • The first two weeks of earnings reports from the S&P 500 show earnings up quarter over quarter. This is a pretty decent proxy for corporate profits and suggests they will be positive when reported in the GDP.
  • Mortgage applications, after tanking in December, have come roaring back in the first several weeks of January.
  • House prices, from the Case-Shiller report this morning, continued to rise at a level in excess of 5% nationally averaged as of November.
  • Taken together, the mortgage and price data suggests housing remained under pressure through December.
  • Weekly retail sales reports remained very positive through December, although the Retail Economist report stumbled badly one week ago.

*If* it winds up that housing is the only significant negative through December, the long leading forecast is not going to be negative for the second half of 2019.

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