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

They are monsters

They are monsters

The President and his GOP majorities in Congress are monsters. As one commentator on NPR put it yesterday afternoon, the President’s default mode is to toss an armed hand grenade into a room in order to create chaos.  He can then pick out the most vulnerable, and use that leverage to enter into a win-lose deal.
Meanwhile, having been emboldened by the 2011 Debt Ceiling Debacle, the Congressional GOP majorities, who haven’t been able to legislate affirmatively, have become specialists in taking hostages and threatening to shoot them unless their agenda is enacted.
Trump and the GOP Congress combined have, as of this morning taken at least four hostages:
DREAMers – the DACA program is being terminated. After an initial claim that a deal had been made to protect young people who had been brought to the US as children and know of no other home, the malAdministration is now taking a hard line, refusing to protect the nearly 1 million enrollees from deportation unless it gets its entire immigration policy enacted.

SChip recipients – this program, which provides medical insurance coverage for over 8 million  lower income children, was allowed to expire on September 30.  Despite assurances from the Congressional GOP that it would be re instituted promptly, nothing has been done.

Puerto Ricans – Unlike Texas, Louisiana, and Florida, which are GOP majority states, the malAdministration never provided prompt aid to the over 3 million Puerto Ricans, and is threatening to withdraw the aid before basic services are restored.

Recipients of Obamacare subsidies – the malAdministration is refusing to make subsidy payments under the ACA to insurers who enroll those who have less than 2.5 times the income of the Federal poverty level, which includes about 7.5 million people who have enrolled under Obamacare.

That’s a total of close to 19,000,000 hostages.

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One more scene from the September jobs report: late cycle deceleration continues

One more scene from the September jobs report: late cycle deceleration continues

The rate of year over year job growth is probably the single best mid-expansion indicator, in part because there is very little noise in the Establishment survey jobs data YoY. But, as the below graph shows, going back all the way to 1948, while it is noisier the Household survey YoY jobs data also traces out the same pattern with very few exceptions (notable the early 1950s and the mid 1960s):

Even a cursory glance at the graph shows that we are on the decelerating side of that indicator. Here’s a close-up of the last 10 years:

Although the Establishment and Household numbers moved in very different directions this month, viewed in context both show a significant downshift in 2017 from the last few years.

Yesterday I noted that if leisure and hospitality jobs had grown by their 12 month average of +27,000 in September vs. their actual -111,000, the September Establishment survey would have grown by a relatively weak 105,000 (yes I know it is more complicated than that, but it is a good K.I.S.S. estimate). Since in September 2016 jobs grew by +249,000, even with that hurricane adjusted estimate, YoY job growth would have decelerated to 1.3%.

In the past-WW2 era, typically late-cycle deceleration was accompanied by (and generally caused by) an increase in inflation and an increase in Fed interest rates to chase after it. The few times there were multiple YoY peaks in job growth (the 1960s, 1980s, and 1990s), the Fed engineered “soft landings” where it lowered rates after initial raises.

Per Tim Duy, who has a good record of Fed-watching, even in the absence of rising inflation, they seem bound and determined to raise rates again in December. A December rate hike shouldn’t be enough to push the economy into a later recession, but it should put further downward pressure on job growth in 2018.

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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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