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

Consumer spending leads employment — but what leads consumer spending?

Consumer spending leads employment — but what leads consumer spending?

One relationship I have consistently flogged for the past decade is that consumer spending leads employment.  That’s still true. Here is one of the graphs on that score going back over 50 years, the YoY% change, averaged quarterly, in real aggregate payrolls (blue) vs. real retail sales (red):

1965-90:
1991-2019:

It is absolutely crystal clear that sales have consistently led total payrolls by one to two quarters. (And yet I still see people making this mistake. The other day I read an article on Seeking Alpha that claimed that consumer spending was going to do well because employment was still doing well. NOT TRUE!)

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Martin Weitzman RIP

Martin Weitzman RIP

Born on April Fool’s Day in 1942, Martin Weitzman died yesterday on August 27, 2019 at age 77.  Several of us here had long advocated that he share the first Nobel Prize to be given for environmental economics.  That award seems to have been given last fall, but only William Nordhaus got it for environmental while Paul Romer shared the prize for endogenous growth theory.  Mary missed out unfortunately, even though many of us think his work was more important than Nordhaus’s.  But he was always further out on the edge of respectability, even though his career always looked respectable on the surface: a PhD from MIT under Robert Solow and holding positions at Yale, MIT, and Harvard since 1989, as well as regularly publishing in top journals from 1965 on.

While he has been most famous for his work on environmental economics, early in his career in which he dealt with a wide range of issues, he was very heavily involved with comparative economics, with numerous papers on Soviet planning (he got a masters in operations research from Stanford in 1964), Marxian views on managing common resources, and most famously an advocate of “the share economy,” about which he wrote a highly influential book in 1984.

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Short leading indicators show slowdown, not recession (for now anyway)

Short leading indicators show slowdown, not recession (for now anyway)

Amount 10 days ago, I wrote that backward revisions to adjusted NIPA corporate profits meant the long leading indicators were more negative than originally believed one year ago.  Which means that watching the short leading indicators for signs of rolling over became more important.

I took a comprehensive look at the short leading indicators late last week. This post is up at Seeking Alpha.

As always, clicking over and reading helps put a penny or two in my pocket for my efforts.

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Addendum: Based on the outcome of the above post, one of the two data points I said I would particularly pay attention to this week was this morning’s durable goods reports. This came in positive as to both total new orders and “core” orders less defense and Boeing:


The YoY trend is still deteriorating, with total orders up +1% YoY, and “core” new orders down -0.5% YoY.:


“Core” orders are flat, but not suggesting recession, while manufacturers’ new orders are consistent with a recession. This does not change the conclusion of the Seeking Alpha article.

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An extended look at jobless claims, and a note about payrolls

(Dan here…better late than not)

by New Deal democrat

An extended look at jobless claims, and a note about payrolls

Let’s take an extended look at jobless claims, with a side note about payrolls.

First, I have started to monitor initial jobless claims to see if there are any signs of stress.

My two thresholds are:1. If the four week average on claims is more than 10% above its expansion low.
2. If the YoY% change in the monthly average turns higher.Here’s this week’s update.

Initial jobless claims last week were 215,000. This is in the lower part of its range for the past 18 months. As of this week, the four week average is 6.5% above its recent low:

Additionally, the YoY change remains -1,500 below where it was last year:

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Digital Sales Tax v. Tariffs on French Wine

Digital Sales Tax v. Tariffs on French Wine

Even before Donald Trump departed for the G7 in Biarritz France, he threatened another trade war this time with the host country over the digital sales tax:

U.S. President Donald Trump on Friday reiterated criticism of a French proposal to levy a tax aimed at big U.S. technology companies and threatened again to retaliate by taxing French wine. Speaking to reporters at the White House before leaving for a Group of Seven summit in France, Trump said he is not a “big fan” of tech companies but “those are great American companies and frankly I don’t want France going out and taxing our companies.” “And if they do that … we’ll be taxing their wine like they’ve never seen before,” he said.

A tariff on French wine might help New York’s Finger Lake area as well as California wine makers so maybe Trump is hoping to win over California and New York in the 2020 election. Or maybe Trump does not know that some states impose digital sales taxes:

The sales tax laws have been updated to include digital goods and services in different ways across the different US states, and the application of these laws has been troublesome for most state and local governments. Quick Stats: There are 27 states that tax digital products. There are 23 states that do not tax digital products. 5 states do not have a retail sales tax at all; these include, Alaska, Delaware, Montana, New Hampshire and Oregon. For the states that tax digital products, the tax rate varies from 1% to 7%, depending upon the state and the type of digital good.

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Not doomed yet v.2.0: beware recession porn

Not doomed yet v.2.0: beware recession porn

Way back when I first started writing online almost 15 years ago, my very first post on Daily Kos was a little note called “Not Doomed Yet.”  It was pretty pathetic compared with the standards of my writing since the Great Recession, but the point of it was, back in 2005, that the conditions necessary for an economic downturn hadn’t quite happened yet.

Needless to say, it went nowhere. To the contrary, my big recollection is that my posts that got the most attention by far were the ones I wrote once I did see that a recession looked baked in the cake. The simple fact is, when it comes to online clicks and reads, DOOOM sells.

This is a timely reminder, because I have noticed across a variety of platforms in which the economy is discussed, including back at Daily Kos, but also including financial sites and Twitter feeds, a surge in recession porn, I.e., why we are DOOOMED. Usually although not always this is because people have suddenly discovered that whatever portion of the Treasury yield curve they have focused upon has an infallible record of predicting the end of the world.

Now, over a year ago I forecast a sharp slowdown during this year. Over six months ago I went on “recession watch” with a starting date of Q4. So I’ve seen this coming for a long time.  But I am disappointed to remind you, once again, that we are Not Doomed Yet.

There are at least three reasons for that.

 

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Record Income Taxes?

Record Income Taxes?

I should read more posts from Kevin Drum:

The Yahoo News reporter comes close to explaining what happened by noting that there were more returns in 2018 than 2017. As you might guess, this happens every year as the US population increases. So let’s take a look at personal income tax receipts adjusted for inflation and population growth … In reality, income tax receipts were down 2.6 percent in 2018 compared to 2017. What this means, unsurprisingly, is that when you cut tax rates you get less revenue. When you fail to account for things like inflation and population growth, nearly every year is an “all-time high.” But that’s meaningless.

Let’s turn to BEA Table 3.2. Federal Government Current Receipts and Expenditures. Personal current taxes (nominal) rose from $1613 billion in 2017 to $1620 billion in 2018 but current tax receipts fell from $2019 billion in 2017 to $1956 billion. You see our Yahoo News reporter was omitting the drop in corporate profits taxes which fell from $251 billion in 2017 to $147 billion in 2018. So even in nominal terms, we saw a decline in tax revenues. Kevin continues:

Someday our nation’s press is going to stop producing innumerate pieces on the economy and learn how to do simple adjustments that tell the real story of what’s going on.

Maybe our Yahoo News reporter can take this additional information on taxes and recast the absolute nominal figures into real per capita terms for us!

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Why the revised Q2 GDP report next week may be the most important release in 10 years

by New Deal democrat

Why the revised Q2 GDP report next week may be the most important release in 10 years

Last Thursday there were major backward revisions to unit labor costs. Since corporate profits deflated by unit labor costs are a long leading indicator, this had a big negative effect on the forecast for the next six months or so. Corporate profits for Q2 of this year will be released next week as part of the first revision of the GDP report, and because of the effect on the forecast, might be the most portentous report in 10 years.

This post is up at Seeking Alpha.

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Cheerleading for Austerity

Cheerleading for Austerity

Not content to follow a news strategy that maximizes Trump’s prospects for re-election, the New York Times leads today with a story that combines economic illiteracy and reactionary scaremongering in a preview of what we’re likely to see in the 2020 presidential race.

“Budget Deficit Is Set to Surge Past $1 Trillion” screams the headline, and the article throws around a mix of dollar estimates and vague statements about growth trends, leavened with quotes from budget scolds from both Republican and Democratic sides of the aisle.  (That shows balance, right?)  After terrorizing us with visions of a tide of red ink, the article concludes with a ray of sunshine in the form of prospects for a Grand Bargain under a lame duck Trump that would cut benefit programs like Social Security and Medicare to put us once again on a stable path.

Where to begin?  Should we start by mentioning that nowhere in this lead article does it give the single most relevant statistic, the ratio of the federal budget deficit to the size of the overall economy—the money part, GDP.  The raw size of the deficit itself is meaningless, and the trillion dollar line is meaningless squared.  As Dean Baker likes to say, the article shows its respect for our powers of thought by informing us the deficit is a Very Big Number.  Scared yet?

Measurement aside, the article simply assumes that “large” deficits are unsustainable and bad, and that only irresponsible political motives prevent action on them.  In the name of a nebulous, unspecified Evil of Debt, the population of the US must be subjected to a regime of austerity, beginning with cuts in the programs many depend on to keep themselves and family members out of poverty.  Worse, it opines, Democrats will run for office next year on a platform of spending increases, demonstrating they are the party of ruin.  We can only hope, goes the argument, that they are just saying these things to get votes from the gullible public, and once in power they will join the deficit-cutting crusade.

No reason is given for the assumed Evil of Debt, and it’s no surprise, since it’s based on ignorance, willful or otherwise.  To begin with, federal debt is denominated entirely in US dollars, so servicing is not a problem.  Countries that borrow in foreign currencies, like Greece (which had no control over the euro) and Argentina, can default; that’s not a problem for the US.  Second, government debt is private wealth, and the relevant question is whether there are too many or too few government bonds in private portfolios.  If private wealth holders are satiated with public debt and prefer other securities, it would be a problem.  But that would be a world in which interest rates on the debt would be high in order to sell them, and rates are about as low as they can go without flipping negative (as they have elsewhere).

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The Truckers are not happy

I’ll just post this link and let it speak for itself.

Truckers voted for Trump in droves. Now they say his trade war is ‘killing’ their ability to make a living.

Its starts wtih:

Morris Coffman has been a truck driver for 35 years. And he’s been a conservative for even longer than that — his whole life.

“That said,” Coffman told Business Insider, “[Trump] is absolutely a moron. His idiotic ideas will tank the economy even further.”

Truckers, like Coffman, lean conservative. A Verdant Labs analysis of Federal Elections Commission data found that nearly three-quarters of truck drivers are Republican — one of the most conservative jobs in America, along with surgeons and farmers.

 

Maybe they should have been listening to music instead of talk radio while driving.

There is this headline also:

At least 2,500 truck drivers have lost their jobs in 2019 as the transportation ‘bloodbath’ unfolds. Here’s the full list of bankrupt trucking companies.

A tough lesson this group of salt of the earth, heartland breed American citizens are learning.  I hope they are learning.

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