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

December jobs report: late cycle mediocre growth reasserts itself

December jobs report: late cycle mediocre growth reasserts itself

HEADLINES:
  • +143,000 jobs added
  • U3 unemployment rate unchanged at 4.1%
  • U6 underemployment rate rose  +0.1% from 8.0% to 8.1%
Here are the headlines on wages and the chronic heightened underemployment:
Wages and participation rates
  • Not in Labor Force, but Want a Job Now: rose +43,000 from 5.265 million to 5.308 million
  • Part time for economic reasons: rose +64,000 from 4.851 million to 4.915 million
  • Employment/population ratio ages 25-54: rose +0.1% from 79.0% to 79.1%
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: rose $.0.07 from  $22.23 to $22.30, up +2.3% 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 rose by +25,000 for an average of  +17,500 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 fell -400 for an average of -63 a month vs. the last seven years of Obama’s presidency in which an average of -300 jobs were lost each month

October was revised downward by -33,000. November was revised upward by +24,000, for a net change of -9,000.

The more leading numbers in the report tell us about where the economy is likely to be a few months from now. These were mixed.
  • the average manufacturing workweek fell -0.1 hour from 40.9 hours to 40.8 hours.  This is one of the 10 components of the LEI.
  • construction jobs increased by +30,000. YoY construction jobs are up +210,000.
  • temporary jobs increased by +7,000.
  • the number of people unemployed for 5 weeks or less decreased by -18,000 from 2,253,000 to 2,235,000.  The post-recession low was set over two years ago at 2,095,000.
Other important coincident indicators help  us paint a more complete picture of the present:
    • Overtime was unchanged at 3.5 hours.
    • Professional and business employment (generally higher- paying jobs) increased by  +19,000 and  is up +488,000 YoY.
  • the index of aggregate hours worked in the economy rose by 0.1%  from 115.9 to  116.0.
  •  the index of aggregate payrolls rose by  0.7%  from 172.2 to 172.9.

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Five graphs for 2017:final update

Five graphs for 2017:final update

At the beginning of the year, I identified 5 trends that bore particular watching, primarily as potentially setting the stage for a recession in 2018. Now that the year is ending, how did they turn out?

#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?

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 then, with the exception of a brief spike after the Texas hurricane, they retreated. They are only a little higher YoY now:

There’s no pressure on customer’s wallets at all from gas prices.

#4 The US$

Another potential pressure point on the economy in 2015 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 the data has calmed down again, and indeed gone the other way:

#3 Residential construction spending vs. mortgage rates

Another data point which rose sharply after the November election was interest rates.  Generally speaking, home building changes in the opposite direction of interest rates.  So would the increase in interest rates (e.g., mortgages) cause new residential construction to back off?

The slowdown duly appeared after the first couple of months of 2017, and continued through September. In the last two months, housing has increased strongly.  This hasn’t quite filtered through to residential construction spending:

Residential contruction spending is a very smooth, un-noisy series, but it does lag permits and starts by a few months,. Note that typically it has taken a big change in mortgage rates about 9 to 12 months to feed through into residential contructioni spending. so we are probably at about peak impact now.  This isn’t going to roll over either.

#2 The Fed Funds  rate vs. consumer inflation

If consumer inflation rose past the magic 2% Fed target, would the Fed chase it?  Apparently it didn’t matter. Inflation briefly did spike close to 3% YoY due to the increase in gas prices early this year, and the Fed duly hiked.  But it hiked again even after consumer inflation fell back down under 2%, which increasingly looks like a real ceiling in the Fed’s calculations:

The yield curve has begun to compress, but it is still positive. Still, it will be difficult to avoid an inversion in interest rates should the Fed stay on its current course with several more hikes.

#1 Real retail sales vs. real average hourly earnings

The final graph came  from my “alternate” recession forecasting model which turns on consumers running out of options to to continue increasing purchases (i.e., no interest rate financing, no wage real wage increases, and no increasing assets to cash in). The long term relationship has been that sales lead jobs, and jobs lead nominal wage increases, but real sales vs. wages are somewhat more nuanced. In the inflationary era, through the early 1990s, YoY wareal wage growth actually slightly led sales. In the deflationary era that dates from the alter 1990s, if anything the two are a mirror image, but in every case but 2001 (where real wage growth just decelerated rather than declined), both have been negative going into recessions. The below graph shows the last 20 years::

I would expect to see both sales and wages stall out before the onset of the next recession. Wage growth has weakened in recent months, and wage growth is now barely above zero. Meanwhile consumer spending has increased YoY, as the personal savings rate has decreased by about 1% in the past year.  While consumers are incresingly vulnerable to any inflationary shock, none has happened yet.

This  has been “the little expansion that could,” dodging bullet after bullet in the 8 1/2 years since it started.  If it continues another 15 months or so, it will become the longest expansion in history. None of the potential concerns from 12 months ago have come to fruition.

Next week we’ll start looking at five noteworthy graphs for 2018.

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The 2021 Omnibus Repealer and Clawback Act

The 2021 Omnibus Repealer and Clawback Act

A saving grace of 2017 — up until now — is that Trump and the GOP have been the Keystone Kops of Kleptocracy, consistently faceplanting in attempts at regressive domestic legislation.

With the passage of the GOP tax bill, that all changes. Not only is it a massive giveaway to the corporations and the wealthy who least need assistance, it actually raises taxes over time over many if not most lower and middle class households. It also sends Obamacare into a death spiral by kicking out the individual mandate, ensuring that the pool of insureds gets sicker and sicker. Meanwhile, the hostage-taking of innocent children via the termination of SCHIP and DACA continues.

To top it off, already I am already reading bits from erstwhile young liberals like Matt Yglesias (with whom I generally agree) and Ezra “the only thing separating him from David Broder is six feet of dirt” Klein to the effect that the Democrats will only be able nibble around the edges of the corporate tax cuts when they next return to power.

Nonsense.

I want to give you one little ray of sunshine: all of this can be undone, and it can be undone in one fell swoop. The very fist thing I expect, indeed demand, from the next Democratic Congress and President, is The 2021 Omnibus Repealer and Clawback Act, to en masse repeal all Acts and regulations which will have taken effect since January 20, 2017. It should be passed via discharge petition in the House (to prevent it from getting tied up in committees) and via nuking what is left of the filibuster in the Senate if necessary — although the parts that reverse what the GOP is passing via reconciliation should presumably be possible with 51 votes anyway.

Further, there is nothing preventing a complete clawback of all of the tax revenue lost via this bill. The prohibition against Ex Post Facto laws only applies to criminal acts. Taxes can be and have been made retroactive.

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Real wages stagnate YoY, decline significantly since July

Real wages stagnate YoY, decline significantly since July

So lackluster has wage growth been that even the modest uptick in consumer inflation to 2.2% YoY in November means that non-managerial workers have seen virtually no real growth in their paychecks over the last 12 months.
With yesterday’s +0.4% increase in consumer prices, here’s what YoY real wages look like for non-managers (blue) and all employees including managers (red):
All wages are up +0.3% YoY, but nonsupervisory workers have seen only a +0.1% increase.
Here is the same data for the last 2 years, set to a value of 100 as of January 1, 2017:

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October JOLTS report: a good post-hurricane rebound

October JOLTS report: a good post-hurricane rebound

The August and September hurricanes continue to make their impacts felt in the economic data.  Yesterday’s JOLTS report for October, like the October and November jobs reports, shows a rebound from those impacts.  The best way to look at the data is to average the last two months (and this will be true for the next JOLTS report as well, which will be best viewed by averaging all three months).Let’s start as usual by updating the disconnect between the “soft data” of openings in this survey and the “hard data” of actual hires and discharges. As I have pointed out many times, openings can be just chumming the water for resumes, or even laying the groundwork to hire foreign workers. The disconnect betrays an unwillingness to pay new hires more, or to engage in on the job training.

In October. openings continued to run about 10% higher than actual hires:

Hires have been basically flat for the last 2 years — specifically since December 2015 — while openings have continued to increase, although they too have been flattish for the last 5 months (especially if we average the last two months):

One of my mantras is that hiring leadis firing. To reeiterate, the major shortcoming of this report is that it has only covered one full business cycle. In that cycle, in acord with my mantra, hires peaked and troughed before separations:

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The wage – debt deflation dynamic and the next recession

One of the important dynamics why recessions end is that inflation decelerates more than wage growth. Thus, for the 90% or so of people who still have jobs, there are some compelling bargains, enough to jumpstart more spending.
That all gets short-circuited if wages actually decline. Then, the fact that debt payments, unlike prices, do not decline, overwhelms the possibility of spending growth. That was one of the most ruinous aspects of the 1929-33 great contraction.
This is why I keep harping every month on the poor wage growth shown in the jobs reports.  Here we are, over eight years into the economic expansion, and wage growth is actually declining a little, now at just 2.3% YoY:
This is the smallest wage growth of any expansion since the reports began over half a century ago. Simply put, we are more at risk of another wage deflationary “event” during the next recession, whenever it hits, than at any time since the 1930s.
Let me try to show this in detail.

As already noted, during recessions wage growth declines. What I’ve done below is to show that for each recession for the last half century, with one alteration: I’ve recalculated the starting number for peak wage growth during the previous expansion to 2.3%, to match its current rate:

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November Jobs Report: good month, same caveats

November Jobs Report: good month, same caveats

HEADLINES:
  • +228,000 jobs added
  • U3 unemployment rate unchanged at 4.1%
  • U6 underemployment rate rose +0.1% from 7.9% to 8.0%
Here are the headlines on wages and the chronic heightened underemployment:
Wages and participation rates
  • Not in Labor Force, but Want a Job Now:  rose +53,000 from 5.175 million to 5.238 million
  • Part time for economic reasons: rose +48,000 from 4.753 million to 4.801 million
  • Employment/population ratio ages 25-54: rose +0.2% from 78.8% to 79.0%
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: rose +$.0.5 from a downwardly revised $22.19 to $22.24, up +2.4% 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.)
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 rose by +31,000 for an average of  +15,000 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 fell -400 for an average of -15 a month vs. the last seven years of Obama’s presidency in which an average of -300 jobs were lost each month

September was revised upward by +20,000. October was revised downward by -17,000, for a net change of +3,000.

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An astute progressive critique of the Trump Administration from … CNBC?!?

An astute progressive critique of the Trump Administration from … CNBC?!?

John Harwood of that well known lefty outlet, …. ummm, CNBC …. writes this morning that “Trump has Forgotten his ‘Forgotten People’:”

He forgot them on health care. Jettisoning his campaign pledge to “take care of everybody” regardless of income, he proposed cutting federal health subsidies for the hard-pressed blue-collar voters who put him into office.

He forgot them on financial regulation. Abandoning talk of cracking down on Wall Street executives who “rigged” the economy to hobble the working class, he seeks to undercut the Consumer Financial Protection Bureau ….

And he forgot them on taxes. Discarding his vow to reshape taxation for average families at the expense of rich people like himself, he’s working with Republican leaders to hand the biggest benefits to corporations and the wealthy.

To the contrary, his budget includes big cuts to Social Security disability program. Meanwhile his much-vaunted infrastructure plan has ‘failed to materialize.”

But, Harwood points out:

The president hasn’t forgotten everything. In lieu of big financial benefits, Trump has steadily given “the forgotten people” at least one visceral commodity [: ]  affirmation of shared racial grievances.

I think this is a good summary of Trump’s domestic policies as revealed by the past year.  On social issues, he has governed exactly as he promised during his campaign, issuing a de facto ban on Muslim immigration, unleashing ICE against Latinos, and fulminating against protesting black NFL players.

But on economic issues he has behaved exactly like a standard issue country club republican.The requirement that the GOP enact a “replacement” for Obamacare? Gone. Preventing the offshoring of manufacturing jobs? Gone. Enacting at least something like a tariff at the borders? Gone. Actually *doing* something about the opioid crisis, which is strongly correlated with areas of economic distress (as opposed to lip service)? Nothing.

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I am so thankful that I am an economic blogger

I am so thankful that I am an economic blogger

A few days late for Thanksgiving, but … like a lot of people, I woke up to a real nightmare one year ago.  One decision I made for mental health purposes was to focus like a laser beam on the economy rather than have my blood boil over each day by each new atrocity.
In the last few months it has occurred to me over and over to be extremely thankful that I am writing about the one aspect of America that isn’t going straight to hell.

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No, We Won’t See a Torrent of Investment From the Tax Bill

No, We Won’t See a Torrent of Investment From the Tax Bill

One of the arguments that Republicans are using to support their tax bill is that it will unleash investment.  The data says otherwise.  Currently, most US economic sectors are operating far below maximum capacity utilization.

Let’s start with manufacturing:

Figure 1

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