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

Good payroll reports will probably continue until next spring

Good payroll reports will probably coninue until next spring

One of my continuing mantras over the years has been that spending leads hiring. It is simply demonstrable fact that, going back over 50 years, upward or downward changes in trend in consumer spending as revealed by retail sales, happen before similar changes in trend by jobs.

It turns out that there’s an even close correlation when we substitute aggregate payrolls (jobs x hours x pay) for the number of jobs alone. Here’s what that looks like over the past 50+ years. Real retail sales are in red, real aggregate payrolls in blue, YoY, and averaged quarterly to cut down on noise:

The only exceptions to the rule are the two oil shocks in the 1970s, the Fed-induced recession immediately thereafter in 1981, and the laste 1990s tech boom. Even in two of cases, there is a very slight lead time when we look monthly:

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Solow on Friedman’s 1968 Presidential Address and the Medium Run

Mark Thoma had this up on Facebook. and pulled this from Tim Taylor’s Conversable Economist. It is an interesting read.

“Fifty years ago in 1968, Milton Friedman’s Presidential Address to the American Economic Association set the stage for battles in macroeconomics that have continued ever since. The legacy of the talk has been important enough that in the Winter 2018 issue of the Journal of Economic Perspectives, where I work as Managing Editor (Tim Taylor), we published a three-paper symposium on ‘Friedman’s Natural Rate Hypothesis After 50 Years.'”

What was the key insight or argument in Friedman’s 1968 address? Friedman offers a reminder that interest rates and unemployment rates are set by economic forces. Friedman uses this idea to build a distinction between the long-run and the short-run. In the short run, it is possible for a central bank like the Federal Reserve to influence interest rates and the unemployment rate. In the long run, there is a “natural” rate of interest and a “natural” rate of unemployment which is trying to emerge, gradually, over time from all the various forces in the economy.

The rest you can read for yourself at Tim’s site.

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Weekly Indicators for November 12 – 16 at Seeking Alpha

by New Deal democrat

Weekly Indicators for November 12 – 16 at Seeking Alpha

My Weekly Indicators piece is up at Seeking Alpha.

If my reference frames are well- constructed, economic trends ought to start out in the long leading forecast, then start to show up in the short leading forecast, and finally make it through to the coincident nowcast.

Almost 6 months ago, the long leading forecast changed from positive to neutral for the first time.  It’s been flirting with further deterioration ever since.  Well, this week ….

As usual, clicking through and reading is a way to help support my putting in the effort to describe and forecast the economy for you.

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MbS Guilty!

MbS Guilty!

According to the top stories in both the New York Times and Washington Post this morning, somebody in the CIA has leaked that Mohammed bin Salman (MbS) ordered the assassination of journalist Jamal Khashoggi.  Of course no sensible observer is remotely surprised, but the Trump administration had been working mightily to deny this obvious fact, with reports surfacing that they were plotting to send Turkish cleric Gulen to Turkey as authoritarian President Erdogan has long been demanding (Gulen is Erdogan’s all-purpose scapegoat for everything) in the hopes that Erdogan would stop making it clear that MbS was guilty of ordering the assassination.  But now there is no point in that as the cat is fully out of the bag, no matter how much this leak will anger Trump (Fake CIA leak!).  Indeed, it may well have been reported unhappiness by various government officials in the face of this effort to sacrifice Gulen that triggered the leak.

What is a bit surprising is that the leak involved publicizing that NSA bugs the Saudi embassy, although I would imagine that anybody there who did not know that was stupid.  But crucial to the leak is both that MbS phoned his full brother, Khalid bin Salman, the Saudi ambassador to the US, ordering him to phone Khashoggi and tell him he should go to the Saudi consulate in Istanbul to the documents he needed to marry his Turkish fiancee, and that he would be safe in doing so, and that KbS then followed through and made the phone call. The only thing we do not know is whether KbS was in on what was going to happen to Khashoggi or not when he made the phone call.

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Credit remains loose, but big borrowers aren’t interested; real consumer spending may be stalling

by New Deal democrat

Credit remains loose, but big borrowers aren’t interested; real consumer spending may be stalling

We interrupt this coverage of the ongoing Trump Boom (c) to advise you that two more long leading indicators, while still positive, are showing at least some weaknesses.  This story is up at Seeking Alpha.

As usual, reading the story over there is both informative for you and a little $$$ revwarding for me.

Also, as an aside, once corporate profits for Q3 are reported in two weeks as part of the revised GDP report, that will be a good time to do a comprehensive update of the long leading forrecast through 2019.

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Initial markers for a manufacturing slowdown now hit

Initial markers for a manufacturing slowdown now hit

I have a new article that hopefully will get posted by Seeking Alpha later today.  In the meantime …

Two weeks ago I wrote an article establishing a manufacturing baseline for my forecast of an economic slowdown by about the middle of next year. I concluded that by saying:

the first thing I am looking for is decelerating growth which will show up in a reading below 15 in the average of  Regional Fed reports, and below 60 in ISM new orders.

The ISM new orders index did fall below 60 to a new nearly 2 year low (but still positive!) at the beginning of this month.

This could of course all be noise, but I’ve made a forecast, I’ve laid down some markers, and the data is – at least on an initial basis – hitting those markers.

*(okay, technically not “below” 15, but close enough).

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Changes in labor bargaining power take up to a decade to be fully effective

Changes in labor bargaining power take up to a decade to be fully effective

Sorry for the recent lack of posting on economic matters. Partly it is ennui, and partly it is a near total dearth of data in between the employment report a week ago Friday and tomorrow’s CPI report.  Even a couple of quarterly series I usually report on have been inexplicably delayed.

In the meantime, here is a graph from Jared Bernstein that is worth some extended comment. It is the YoY% change in real wages, adjusted by the full CPI (blue) and CPI less energy (gold):

It is worthwhile to remember that, since 1980, YoY inflation has been decelerating on a secular basis:

 

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Is It Not The Economy, Stupid?

Is It Not The Economy, Stupid?

On many Mondays I indulge in taking Robert J. Samuelson to task after his regular Washington Post column of the day.  Today he was almost right, or if you prefer, even mostly right.  This one was titled “It’s Not the Economy, Stupid” about the outcome of the midterm election, as well as a delayed comment on the 2016 presidential election (although, of course, HRC did win the popular vote by three million popular votes, if not the electoral college).  His main argument is that in both of these elections, but especially last week’s midterms, the state of the economy was relatively unimportant.  The argument is that here is Trump with GDP growth exceeding 3%, the unemployment rate under 4%, inflation largely under control, but this supposedly good performance did not help him out much with his party taking a pretty serious hit (the size of which still being counted).  He also sees something similar in 2016, although arguably the economy was not as strongly favorable, but still quite respectable while not obviously helping the incumbent party.  Indeed, in 2016 many saw the economy as hurting the Dems, especially in the Rust Belt.

There is a lot of truth to this, with a lot more attention on ethnic and cultural issues, although it should be kept in mind that the top issue for Dems, health care, is at least partly an economic issue.  Certainly one sign of the weakness of the economic issue is the matter of the big GOP tax cut.  They were quite convinced when they passed it last December that this was their ticket to a strong showing in the midterm election.  And indeed it is almost certain that at least some of the acceleration of GDp growth can be attributed to it even if it may be setting up the economy for slower growth down the road.  So according the usual views, it should have helped the GOP. But in the end it seems to have been an electoral flop.  It has consistently done poorly in the polls, and most GOPs running for reelection in the end barely mentioned it.

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The Death of Shame

The Death of Shame

In any society not in a state of civil war, shame is a powerful force, perhaps the most powerful.  Individuals or organizations caught cheating, lying or otherwise doing evil, when exposed and called out, are expected to be embarrassed.  They should repent their sins and promise to make amends.  Other than pure coercion, what else can disarm those who violate the norms of society?

Evolutionary biologists tell us shame is hardwired not only in humans but many other social animals.  (They may not experience shame the same way humans do, but the outward markers and consequences are the same.)  We seek group membership in good standing, and while there is an incentive to exploit others for personal gain, or just relax our commitment for a while, the punishment of group rejection is a more powerful force.  That’s what holds us together.

It is natural that shame is invoked as a political weapon.  Corrupt businessmen, politicians and public officials may be flying high, but if we can document the facts they are trying to hide, we can clean them out.  A video documenting otherwise hidden police abuse, an audio recording of the murder of civilians released by Wikileaks, the disclosure of evidence of law-breaking by justices or political leaders should accomplish this.  Also testimony from women abused by powerful men: if they come forward and tell the world what really happened, that should stop abuse in its tracks.

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