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

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:

 

 

Comments (0) | |

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.

Comments (0) | |

June 2019 personal income and spending

June 2019 personal income and spending

The wage-earner/consumer remains in decent shape, and a lack of inflation (continued low gas prices!) continues to be able to hide a multitude of sins. That’s the message from this morning’s June report for personal income and spending.

Nominally, income rose +0.4%, while spending rose +0.3%. Since inflation as measured by the PCE price index only increased 0.1%, that means both real income and real spending rose +0.3 and +0.2%, respectively:

Here’s the same data YoY:

 

Comments (4) | |

Trump’s trade wars can still lead to a producer led recession

Trump’s trade wars can still lead to a producer led recession

I wrote a piece last week for Seeking Alpha explaining that, while the consumer side of the economy is doing reasonably well, a recession could still come in via the producer side.

A Producer-Led Recession Remains Viable

As usual, clicking over and reading should be educational for you, and puts a penny or two in my pocket.

Thus, the idea that no recession can happen absent a 20% YoY slide in new home sales is not correct. In fact, the 2001 recession happened with only a 10% decline from the very top to bottom in sales (and less than that YoY) that ended about 6 months before the recession even began. The decline in new home sales from top to bottom in 2018 was similar.

One item that didn’t make it into that post was to note that the ISM manufacturing index, especially the new orders subindex, should give early warning of any producer downturn.

ISM won’t let FRED publish their data anymore, so here’s a graph I created back in 2012 or so showing the relationship going all the way back to 1948. Note that the new orders subindex can decline to about 45 and still be a false positive. In 2000-01, it declined to 40 before the recession actually began:

Comments (0) | |

Both long leading components of Q2 GDP declined UPDATED with revisions and further comments

Both long leading components of Q2 GDP declined UPDATED with revisions and further comments

The headline number for the first estimate of real GDP in Q2 2019 was 2.1%, as I’m sure you’ve read elsewhere.

As is usual, I’m not so interested in what is, after all, what the view in the rear view mirror is, as what the leading components can tell us about what lays ahead.

In that regard, both leading components of GDP declined.

– Real private fixed residential investment declined at a -1.5% rate annualized. This is the 6th quarter in a row of a decline in that number. In the past half century, declines this long have typically been seen either right before or right after a recession has started – although the magnitude of the decline has been smaller.

UPDATE: Here is private fixed residential investment measured both nominally and in real terms as a share of GDP:

Nominally this is down about 5% from peak; in real terms about 10%. This is far short of what is typically the case going into recessions, but it *is* on par with the producer-led  2000-01 period.

 

Comments (1) | |

Housing has bottomed

Housing has bottomed

With the release of new home sales this morning, and existing home sales yesterday, it is increasingly apparent that housing has bottomed – just as I said a number of months ago that it would sometime this spring.

To the graphs! New home sales (blue in the graph below) bottomed last October, at 557,000 units annualized. As of June, they were at 646,000:

This isn’t as good as earlier this spring, but is better than every other reading in the past 12 months. Meanwhile prices, which typically lag sales, bounced back from May’s 12 month low, but it is not clear at all if the trend is reversing yet.

Comments (1) | |

How today’s Democratic ‘Squad’ is a direct ideological descendant of the original 1850s Republicans

How today’s Democratic ‘Squad’ is a direct ideological descendant of the original 1850s Republicans

Nothing is ever really “new.” Today’s ‘Squad’ of young Democrats is the direct ideological descendant of the original 1850s Congressional Republicans. That is one of the important lessons of Joanne Freeman’s “The Fields of Blood,” about the increasing threats of, and actual incidents of, violence in the US Congress between the 1830s and the Civil War.

Just as today, there were differing economic and social divides in America. Economically there was a struggle for power between the merchant class and farmers. Socially the increasingly contentious issue was that of slavery. At least beginning with Andrew Jackson’s 1828 Presidential election victory, the Democratic Party was the voice of farmers. The ex-Federalists and the nascent Whig party became that of commerce.

But there were northern and southern branches of each party, defined in how they stood on slavery. The story of the 1830s through 1850s is how that moral issue moved to the forefront, splitting both parties, and ultimately giving rise to the Republicans. This is very much the same paradigm as the “great sort” that took place between the Democratic Party and the GOP between 1980 and 2016 (if not 2008).

Not only is that, but reminiscent of polls over the past 10 years, in the 1830s and 1840s  northerners, especially northern Whigs, wanted to settle disputes civilly, while especially southern Democrats were willing to threaten, and even use, physical force to get their way.

Comments (17) | |

June consumption was strong, while production was weak

June consumption was strong, while production was weak

Tuesday morning’s retail sales and industrial production releases for June are consistent with my take that the consumer sector of the economy is doing OK, while the production sector remains in trouble.

Let’s start with retail sales.

Retail sales are one of my favorite indicators, because in real terms they can tell us so much about the present, near term forecast, and longer term forecast for the economy.

This morning retail sales for June were reported up +0.4%, while May was revised downward by -0.1%. Since consumer inflation increased by less than 0.1% last month, through the magic of rounding, real retail sales also rose +0.4%. The strength of the past two months means that YoY real retail sales are now up +1.7%.

Here is what the last five years look like:

Next, although the relationship is noisy, because real retail sales measured YoY tend to lead employment (red in the graph below) by a number of months, here is that relationship for the past 25 years, measured quarterly to cut down on noise:

 

Comments (2) | |

WARNING: another “debt ceiling debacle” is looming, and could cause nearly immediate recession

WARNING: another “debt ceiling debacle” is looming, and could cause nearly immediate recession

It’s time to start to get seriously worried about another “debt ceiling debacle.” In 2011, the GOP refused to authorize a “clean” debt ceiling hike. The hike in the debt ceiling, for those who may not know, is necessary for the US government to pay debts that *it has already incurred.*

In 2011, as a result of the impasse, US creditworthiness was downgraded from AAA to AA. Consumer confidence plummeted:

Note the next largest spike downward occurred during the government shutdown at the beginning of this year.

Comments (5) | |

Initial claims positive to start July, but trend in continuing claims the weakest in 9 years

Initial claims positive to start July, but trend in continuing claims the weakest in 9 years

I have started to monitor initial jobless claims to see if there are any signs of stress.My two thresholds are:

1. If the four week average on claims is more than 10% above its expansion low.
2. If the YoY% change in the monthly average turns higher.

Here’s this week’s update.

Initial jobless claims last week were 209,000. This is in the lower part of its range for the past 18 months. As of this week, the four week average is 9.2% above its recent low, and at 219,250, is 1,500 lower than this week last year:

This remains positive.

Comments (1) | |