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Scenes from the September jobs report

Scenes from the September jobs report

On Friday I highlighted the difference between the results of the establishment survey and the household survey.  A 2006 paper from the BLS (pdf) explaining the differences in how jobs are counted in the two surveys shows us why:

Interviewers from the Census Bureau contact households and ask questions regarding the labor force status of members of the household during the calendar week that includes the 12th day of the month. The broad coverage of the CPS encompasses … workers temporarily absent from work without pay.

….

[In the Establishment survey, b]usinesses report the number of persons on their payrolls who received pay during the pay period that includes the 12th day of the month. Workers who did not receive pay during the pay period are not counted.

Thus an employee at, say, Barnacle Bill’s Seashore Restaurant, who wasn’t paid during the week of Hurricane Irma because the restaurant was closed, doesn’t get counted in the Establishment survey, but *does* get counted in the Household survey.

Thus, although the household survey is the smaller sample, and thus subject to much more noise, it probably gave us a much truer picture of the labor market for the whole of September.  While the employment gain itself (906 thousand!) was insane, and surely not accurate, the ratios of unemployment, underemployment, and participation in the survey probably picked up the true  trend of improvement.

So let’s look at those.  First of all, here is the U6 underemployment rate.  I’ve subtracted 8.3% from the result, to better show how the present situation compares to the last two expansions:

In the last expansion, the underemployment rate newer got below 7.9%. The late 1990s was a genuine boom.

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Scenes from the September jobs report

Scenes from the September jobs report

On Friday I highlighted the difference between the results of the establishment survey and the household survey.  A 2006 paper from the BLS (pdf) explaining the differences in how jobs are counted in the two surveys shows us why:

Interviewers from the Census Bureau contact households and ask questions regarding the labor force status of members of the household during the calendar week that includes the 12th day of the month. The broad coverage of the CPS encompasses … workers temporarily absent from work without pay.

….

[In the Establishment survey, b]usinesses report the number of persons on their payrolls who received pay during the pay period that includes the 12th day of the month. Workers who did not receive pay during the pay period are not counted.

Thus an employee at, say, Barnacle Bill’s Seashore Restaurant, who wasn’t paid during the week of Hurricane Irma because the restaurant was closed, doesn’t get counted in the Establishment survey, but *does* get counted in the Household survey.

Thus, although the household survey is the smaller sample, and thus subject to much more noise, it probably gave us a much truer picture of the labor market for the whole of September.  While the employment gain itself (906 thousand!) was insane, and surely not accurate, the ratios of unemployment, underemployment, and participation in the survey probably picked up the true  trend of improvement.

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September jobs report: establishment survey stinks, but household survey rocks!

September jobs report: establishment survey stinks, but household survey rocks!

HEADLINES:
  • -33,000 jobs lost
  • U3 unemployment rate down -0.2% from 4.4% to 4.2% (new low)
  • U6 underemployment rate down -0.3% from 8.6% to 8.3% (new low)
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 -216,000 from 5.844 million to 5.628 million
  • Part time for economic reasons: down -133,000 from 5.255 million to 5.122 million (new low)
  • Employment/population ratio ages 25-54: up +0.5% from 78.4% to 78.9% (new high) 
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: up $.0.09 from $22.14,  to $22.23, 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  +9,800 a month vs. the last seven years of Obama’s presidency in which an average of 10,300 manufacturing jobs were added each month.
  • Coal mining jobs rose by 500 for an average of +133 a month vs. the last seven years of Obama’s presidency in which an average of -300 jobs were lost each month

July was revised downward by -51,000. August was revised upward by +13,000, for a net change of -38,000.

The more leading numbers in the report tell us about where the economy is likely to be a few months from now. These were mainly flat.
  • the average manufacturing workweek was unchanged at 40.7 hours.  This is one of the 10 components of the LEI.
  • construction jobs increased by +8,000. YoY construction jobs are up 184,000.
    • temporary jobs increased by +5,900.

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A thought for Sunday: of basic decency and humanity, and how the economy is shoring up the GOP

A thought for Sunday: of basic decency and humanity, and how the economy is shoring up the GOP

A few threads of the Trump malAdministration came together this past week.

The latest attempt to overturn Obamacare confronted Trump with a choice between his two main goals: basking in a Trump triumph vs. erasing all of Obama’s programs from the history books (in retaliation for Obama humiliating him at the White House correspondents’ dinner in 2011).

At the beginning of his presidency, Trump opposed the “repeal and run away” Congressional GOP objectives for Obamacare, telling them he wanted a “replacement” plan with more coverage and lower premiums. He wanted, in short, a Trump triumph.

After 3 failures, however, Congress’s 4th try at dismantling Obamacare has no replacement features. Things like guaranteed coverage of pre-existing conditions were stripped away. The bill in essence simply repealed Obamacare, punted the issue to the States with instructions to not even think about enacting something like universal coverage, and gutted Medicaid to boot. In short, it was very much “repeal and run away” (with a fig leaf).

Trump’s support for the bill showed that he will even eschew a Trump triumph if the alternative obliterates an Obama accomplishment.

Another thread of the Trump presidency is its nearly constant failure on the test of basic decency and humanity.

One of the places where it had been safe to avoid the rancid circus of Washington was The Weather Channel. Not this past week, where it more than any other media outlet highlighted the humanitarian crisis in Puerto Rico, which appears to be approaching Katrina x 10. When an outlet as innocuous as The Weather Channel feels compelled to implore Washington to DO SOMETHING! you know that those in power have plumbed a new low in the banality of evil.

I have a feeling, however, that conditions in Puerto Rico are going to get much worse — and maybe finally noticed by the actual news media — before they get better.

Which brings me to the final thread. Polling for Trump has been waxing and waning within a limited range for half a year now. It waxes when there he rails against foreign or domestic enemies, like North Korea or uppity nonwhite malcontents, and wanes when his basic lack of decency and humanity is in the forefront. To wit, here is the latest update from Gallup:

Why hasn’t it sunk any lower?

Paradoxically, Trump and the GOP are benefitting from the pretty decent Obama economy — which is still in place, on autopilot, because the GOP has accomplished exactly zero legislatively on economic matters.

And the ongoing Obama economy at the moment has a 4.4% unemployment rate, is still adding about 150,000 new jobs a month, has real median household income at its highest in a decade, if not forever, and real hourly wages for nonsupervisory workers at their highest in 4 decades. In short, civil society may be going to hell, but the economy? Not too shabby.

Historically, in the absence of either war or civil unrest generating a real death toll that dominates the headlines (like Korea, Vietnam, or the race riots of the late 1960s), an economy with these numbers generates reasonably good numbers for the incumbent political party. The benefit of that — of Obama’s economy — is currently going to the GOP!

But if Trump’s approval is in the 35%-40% range with a decent economy — and the Congressional GOP polling at the worst ever — just imagine what the polling is going to be like when the economy as it must eventually turns down.

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Ex-hurricane trend in September industrial production is positive

Ex-hurricane trend in September industrial production is positive

As I outlined earlier this week, a reasonable temporary workaround for industrial production unaffected by the recent hurricanes is to average the 4 regional Fed surveys, minus Dallas, plus the Chicago PMI. Over the long run, each +5 in the average of the indexes is consistent with a +.1 in the manufacturing component of industrial production. Because these indexes have been running “hot” this year compared with industrial production, I further suggested subtracting .3 from the result to be confident in a positive trend.

All of these indexes have been reported for September. Here are the numbers:

Empire State: 24.4
Philadelphia Fed: 23.8
Richmond Fed: 19
Kansas City Fed: 17
Chicago PMI: 30.4 (adjusted)*

Interestingly, even the Dallas Fed’s index was positive, at 19.5!

*Since Chicago is on a 0 to 100 scale with 50 being neutral, we subtract 50 from the raw number of 65.2, which gives us 15.2, and then double the result.

The average of the 5 is 22.9.
Dividing that by 5 gives us +.5.
Subtracting .3 gives us +.2.

We can be reasonably confident that underlying trend in industrial production in September, despite the hurricanes, has been positive.

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Wow! Yellin confirms 2% inflation is the Fed’s ceiling

Wow! Yellin confirms 2% inflation is the Fed’s ceiling

You may have already seen this elsewhere, but in case you didn’t, Janet Yellin all but officially confirmed the other day that 2% isn’t in fact the Fed’s target, it’s their ceiling. Per the New York Times:

Given that monetary policy affects economic activity and inflation with a substantial lag, it would be imprudent to keep monetary policy on hold until inflation is back to 2 percent,” Ms. Yellen told the National Association for Business Economics .

Let me just remind you one more time that in the past 50 years, during recessions the inflation rate has typically fallen by more than 2%.   That means that if the Fed is “successful,” the next recession will tip over into outright deflation, including deflation in even nominal wages.

Now imagine a wage-price deflationary spiral beginning with Donald Trump as president and the GOP in control of both houses of Congress.

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A hurricane workaround for industrial production

A hurricane workaround for industrial production

Last week I mentioned that the regional Fed surveys plus the Chicago PMI can be used as a workaround to account for the effects of hurricanes on Industrial Production. It isn’t pretty and by no means is it perfect, but for the (hopefully only) two or three months that we need it, we can use the workaround to give us the underlying trend in production, particularly for manufacturing.This is a two-step correlation.

The first correlation is between the regional Fed indexes and the ISM manufacturing index.  This is something Bill McBride, a/k/a Calculated Risk, has been keeping track of for years.  Here’s his graph going back all the way to 2000:

While the correlation isn’t perfect, most notably in the years 2010 and 2011, when the regional Fed average was high, and in 2015 and 2016, when it was too low, in general it holds, with the two rising or falling between positive and negative in tandem, even if we just use the Empire State and Philly indexes.

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A thought for Sunday: the most important issue in the 2016 election was…

A thought for Sunday: the most important issue in the 2016 election was . . .

This is a post I’ve been meaning to write for several months. For a while after the election last year, there was a debate about whether the “economic anxiety” in the (white) working class was the most important factor vs. was it simply a matter of racism. The consensus has nearly settled on the narrative that racism was decisive, to the point where “economic anxiety” has become a taunt, and some who embrace identity politics actively disparage progressive economic issues.

I’m here to show you data that – in part – disputes that consensus. What was the most important issue in the 2016 presidential election?  The below data on that issue all comes from the Voter Study Group, from its survey published several months ago: “Insights from the 2016 Voter survey.”

In the below graphs, the potency of various issues are examined in terms of how well they lined up on a liberal/conservative or favorable/unfavorable axis, but for simplicity’s sake it is pretty clear that they correlate with a vote for Clinton (left) or Trump (right).  The more vertical the line, the more decisive the factor, whereas a horizontal line means that the factor made essentially no difference in whether a vote was for one candidate or the other.  the 2016 results are in red, vs. the 2012 results in gray. What I’ve done is to delete the names of the nine factors they tested, so you won’t be swayed by any pre-existing opinion you might have had about the factor.  Here they are:
I’ll give away one finding right away.  The most decisive factor, shown at the right of the lowermost column, is party affiliation. D’s voted for Clinton. R’s voted for Trump.
But after that, it’s pretty clear that the close runner-up for most decisive factor in how people voted is the issue at the left of the middle column, which was …
the economy!
That’s right. The single most decisive factor in the 2016 vote was how people felt about the economy.

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The asterisk in real median household income

The asterisk in real median household income

This is a follow-up to the post I wrote last week about the latest data on real median household income.
One of the things I notes is that “households” includes the millions that are composed of retirees, a burgeoning demographic due both to healthier longevities and the demographics of the Boomer generation.
This morning Jared Bernstein helpfully includes a graph of real median household income excluding those over age 65:

Households headed by working age adults did finally surpass their 2007 income, but were still 3.4% below the all-time highs of incomes of 2000.

But mainly I wanted to follow up on that break in the graph in 2013.  It was caused by a change in methodology by the Census Bureau.

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Hurricane workarounds for industrial production and housing

Hurricane workarounds for industrial production and housing

Hurricane Harvey has already affected some of the August data releases.  Irma has already started to affect some weekly releases, and will undoubtedly affect the September monthly releases.
I have already begun to adjust for the hurricanes in the case of initial jobless claims.  But what of the monthly data?
While there is nothing so timely and precise as backing out affected states from the initial jobless claims report, there are workarounds that can at least tell us if there has been any significant change in trend for both the industrial production and housing reports.
I will put up separate posts, but to cut to the chase, we can use the Regional Fed reports (minus Dallas, and adding the Chicago PMI) to give us a reasonable estimate of industrial production in the non-hurricane affected areas. Similarly, we can make use the regional breakdowns in the housing report by subtracting the South and determining the trend in the remaining 60% of the country outside of that census region.  I have already looked at this morning’s housing report, and it turns out the effect is not what you would think!  I’ll have that post up by tomorrow.
Unfortunately there is no regional or state-by-state breakdown of retail sales or regional consumption expenditures on any sort of timely basis, so we’re kind of stuck there.

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