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Happy 8th Independence Day, economic expansion!

Happy 8th Independence Day, economic expansion!

In lieu of a more traditional Independence Day post, in view of the fact that the economic expansion turned 8 years old this week, I thought I would take a moment to highlight how far we have come.  Because as mediocre as some things are, we have come a long, long way since the dark days of June 30, 2009.
Unemployment has fallen from a high of 10.0 to 4.2%, and underemployment has fallen from 17.1% to 8.4%:


Over 16 million jobs have been added since the bottom in February 2010:

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Five graphs for 2017: mid year update

Five graphs for 2017: mid year update

– by New Deal democrat

At the beginning of the year, I identified 5 trends that bore particular watching, primarily as potentially setting the stage for a recession next year.  Now that we are halfway through the year, let’s take another look at each of them.

#5 Gas Prices

One potential pressure point on the economy was gas prices, which appear to have made a long- bottom in January of 2016. As they began to rise, consumer inflation has increased from non-existent to almost 3%. So the issue was, will they rise even further and drive inflation even higher?
And the answer so far this yeear has been a resounding “No!”  Typically it has taken a 40% YoY increase in gas prices to shock the consumer.  Gas price increases did briefly approach that point early in the year, but since then they have retreated all the way to being negative YoY:

This has actually helped boost real wages, as we will see further below.

#4 The US$

Another potential pressure point on the economy was a big increase in the relative value of the US$, which was part of the shallow industrial recession of 2015.  The $ started to rise again after the November election.  Here too after an initial spike, the data has calmed down again:

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May industrial production: no change in trend

May industrial production: no change in trend

This was a post I meant to put up Friday, but was pre-empted by the important housing news.

May industrial production came in unchanged. But that didn’t stop Doomers, who had been silent about April’s big increase in manufacturing, from trumpeting its 0.4% decline (go ahead, just try to find their acknowledgement of April’s good number. You won’t.).

So, let’s put industrial production in perspective. First, here is the overall stat:


The uptrend since a year ago is still intact.

Next, let’s break it down by manufacturing (blue) and mining (red):

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This is a Big Deal: housing permits and starts now a long leading negative

This is a Big Deal: housing permits and starts now a long leading negative

I’ll have more to say next week, but let me just drop this right now: this morning’s housing report was a Big Deal. FRED doesn’t have the graphs yet, but here are the numbers from the Census Bureau cite.

Graph of starts and permits:


Note both have turned down significantly this year.

Table of housing starts:

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Sunday thoughts on how awful

It’s Sunday, so I take a break from nerdy econ analysis and speak my mind.

Last November 9 we woke up to a living nightmare. The next four years were bound to be awful. The only question was, how awful?

The very tiny silver lining as of now is that, so far, it has been about as limited an awful as it could reasonably be.

The simple fact is, those things that the Executive could worsen all on his own, he is doing so. But those things that require Legislative action or Judicial approval have either not materialized or have been stopped in their tracks.

The Executive has almost unlimited freedom of action in foreign policy, so it was a foregone conclusion that China and Russia were going to seize the opportunity to expand their power and influence, and they are doing so. Taiwan is already suffering diplomatically, and it isn’t a good time to be one of the Baltic States either. The EU is looking aghast at Trump’s view of NATO, and will probably vivify their moribund “European Defense Force” at least until 2021.

It is also pretty clear that Trump means to erase Obama from the history books, if for no other reason than Obama humiliated him at the 2011 White House correspondents dinner. So every Executive Order or program undertaken by Obama is being systematically obliterated. This includes deferral of action against illegal immigrants/undocumented workers. There’s not much that can be done there, but even so, the Courts have occasionally stepped in, and Trump himself seems to want to allow the Dreamers to stay.

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Retail sales disappoint — but don’t hyperventilate about it

Retail sales disappoint — but don’t hyperventilate about it

There certainly is a  lot of information to unpack from this morning’s retail sales and inflation reports, and what they mean for wages and jobs.  I’ll address them in separate posts.

First, retail sales.  They certainly were a disappointment, coming in at -0.3% nominally and -0.2% in real terms.  That being said, the monthly reports are somewhat noisy.   We commonly get several of these a year, as shown in this graph of the monthly change in real retail sales for the last 7 years:


There have been 9 worse monthly reports than this just over the last 3 years!

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No, record job openings in JOLTS do not mean that everything is Teh Awesome!

No, record job openings in JOLTS do not mean that everything is Teh Awesome!

Once again most of the commentary on yesterday’s JOLTS report for April was that job openings jumped, so everything is Teh Awesome!

<  Sigh  >

To recap one more time…

In the one and only complete business cycle that we have for this data:

  • First, hires peaked. They started a long plateau in 2005, making a 3 month peak in late 2005, with no meaningful progress thereafter.
  • Second, quits peaked. They started to plateau in early 2006, making a 3 month peak in spring 2006, with no meaningful progress thereafter.
  • Finally, openings peaked in Q1 2007

Hires and quits are the only *hard* economic data in the series. “Openings” can be aspirational trolling for a future bank of resumes or, worse, designed to fail and lay the groundwork for cheap  H1-B foreign slaves.

So, here is the entire history of hires and quits:

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A Day in the Life of the jobs market, May 2017

A Day in the Life of the jobs market, May 2017
Fifty years ago, when I was a little teenybopper,  his album came out and blew me away:

Why bore you with this ancient Boomer reminiscence?
Because the unemployment rate has only been lower than last month’s 4.3% in only six of the last 50 years, and only two of them in the last 46 years:


Since February 1970, the only time the unemployment rate has been less than it is now is from 1999 into 2001.
That’s not trivial.  If you are under retirement age, then if you are unemployed, your odds of finding a job now are better than almost 90% of the entire time since you reached working age — or better.

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May jobs report: nothing more nor less than a decent late cycle report

May jobs report: nothing more nor less than a decent late cycle report

HEADLINES:

  • +138,000 jobs added
  • U3 unemployment rate down -0.1% from 4.4% to 4.3%
  • U6 underemployment rate down -0.2% from 8.6% to 8.4%

Here are the headlines on wages and the chronic heightened underemployment:

Wages and participation rates

  • Not in Labor Force, but Want a Job Now: down -146,000 from 5.707 million to 5.561 million
  • Part time for economic reasons: down -53,000 from 5.272 million to 5.219 million
  • Employment/population ratio ages 25-54: down -0.2% from 78.6% to 78.4%
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: up $.03 from $21.97 to $22.00,  up +2.5% 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.)

Holding Trump accountable on manufacturing and mining jobs

Trump specifically campaigned on bringing back manufacturing and mining jobs.  Is he keeping this promise?

  • Manufacturing jobs fell by -1,000 for an average of +2500 vs. the last severn years of Obama’s presidency in which an average of 10,300 manufacturing jobs were added each month.
  • Coal mining jobs rose by +400 for an average of +300 vs. the last severn years of Obama’s presidency in which an average of -300 jobs were lost each month

March was revised downward by -29,000. April was also revised downward by -37,000, for a net change of -66,000.

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Gas prices on verge of turning negative YoY

Gas prices on verge of turning negative YoY

There are two important aspects to the inflation rate right now. One, as Dean Baker reminds us today, is that most of core inflation has been caused by housing, via “owners equivalent rent.”  Take that out, and inflation is only 1%:


The second important aspect is that almost all the variation in headline inflation is due to the price of gas.
At the beginning of this year, I thought one of the big issues would be whether gas prices would continue to increase off their January 2016 bottom at a similar rate as they did last year, or whether the increase would be more subdued. We have a pretty definitive answer at least for now, and it is the latter.

Here’s the graph of gas prices since the beginning of 2014:

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