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

Weekly Indicators for November 5 – 9 at Seeking Alpha

by New Deal democrat

Weekly Indicators for November 5 – 9 at Seeking Alpha

My Weekly Indicators post is up at Seeking Alpha.

Interest rattes rose even further this past week, portend further erosion in the housing market.

As usual, not only does reading this post give you of the up-to-the-moment view of the economy, but it also put a little extra $$$ in my pocket.

Comments (0) | |

Big producer price increase in October – if a trend – is a problem

Big producer price increase in October – if a trend – is a problem

In a light data week, this morning’s report on producer prices is certainly worth mentioning.  As you may have read elsewhere, headline producer prices rose +0.6% in October, the highest reading in 6 years. The below graph compares that (blue) with commodity prices (red):

As you can see, commodity price increases were within the normal range.

The difference happens when we break down final demand by goods (first graph below, in red) vs. services (second graph):

 

Comments (0) | |

US Policy On Iran After The Midterm Elections

A curious coincidence is that the US midterm elections happened one day after the US reimposed its second round of illegal economic sanctions on Iran, with the focus on oil, shipping, and banking, along with some other sectors. Despite all but a handful of governments around the world supporting Iran in this matter (despite apparently two attempted assassinations of opponents of Iran’s government in European nations recently) against the US out of a hope to keep Iran following the JCPOA nuclear agreement as it has by all reports been doing, the impact of the midterm elections is probably to reinforce support for Trump’s policy, even as mostly he lost support in the election. The reason is that the most important location for serious critics of a president’s foreign policy usually come out of the Senate, not the House of Representatives or governors. So, even though the Dems have taken the House and gained governorships, the GOP gained in the Senate, and some of the GOPs leaving included the few Trump critics, notably departing Foreign Relations committee Chair, Robert Corker of TN. This is the case, even as those GOP gains may only amount to a net two (Dem Sinema now ahead in AZ) or even only one (Nelson in FL may yet pull it out too).

Yet another reason the gains by Dems will probably not lead to much more pressure on Trump on this is that many Dems at least somewhat support his policy, especially those strongly influenced by the Israeli government. Thus in today’s Washington Post, a lead editorial (presumably by neoconnish Fred Hiatt) said there may be reasons for imposing some sanctions because of “malignant” policies by Iran, notably supposedly supplying missiles to the Houthis in Yemen, plus the Syrian government, and Hezbollah in Lebanon (there are doubts on the extent of all this), even as WaPo opposes the US withdrawing from the JCPOA and is highly critical of Saudi Arabia due to the murder of their journalist, Jamal Khashoggi, probably on orders of KSA Crown Prince MbS, a main enemy of Iran. Indeed, members of both parties in the Senate have become unhappy with the Saudi war in Yemen and may move to cut US military support of the Saudi war effort there. But this will probably have little to no effect on the reimposed economic sanctions on Iran.

As it is, the ultimate impact of the new sanctions is quite complicated with various cross-cutting effects that are already damaging the Iranian economy, but may end up having less impact than Trump would like. The most important part of the sanctions involves Iran’s oil exports, which US officials claim they would like to see go to zero. Early forecasts had those falling to about a third of the about 2.8 million bpd of a few months ago, which anticipation helped push oil prices up substantially, with Brent crude topping $80 per barrel while West Texas intermediate crude topped $70 per barrel. But the Trump administration has granted temporary waivers to 8 countries allowing them to continue importing Iranian oil for a while, supposedly to avoid excessive disruption of global markers (while not officially announced, the Japan Times claims the 8 waivered nations are China, India, Japan, South Korea, Taiwan, Turkey, Italy [only EU nation on list]. and UAE [yes, that big anti-Iran oil exporter imports oil from Iran]). As it is, with surging oil inventories in the US, prices have fallen sharply in the last two weeks, with Brent down to nearly $70 and WTI to nearly $60 , with some commenters today claiming that oil is turning into a “bear market.” While this clearly allows Iran to export more oil than previously thought for now, the price decline will hurt Iran.

A fundamental clash in this is between governments and the businesses based in their nations. Only a handful of national governments officially support Trump in this policy, basically the odd group of Saudi Arabia, Israel, UAE, Bahrain, and apparently Egypt, with a few others sort of semi-supportive, such as Jordan, if with little enthusiasm. Russia, China, Turkey, and the major EU nations all oppose Trump’s policy. While businesses in Russia in particular go along with their government’s view, nearly all of those that are reasonably large in the EU nations are obeying the demands of the US government to cut back business relations with Iran, with poster boys for this being Total and Peugeot from France out of fear of losing markets in the US or facing sanctions from the US government. All of this has led to efforts in both China and the EU to set up alternative payment systems to avoid using US dollars and going through US-controlled financial intermediaries, a big conflict over this involving the SWIFT payment system, which the US would like to prevent Iran from using while the major European nations oppose this move by the US. As it is, given the ongoing efforts by they EU nations to help Iran out, it seems especially unwise of Iranian intel agencies to be attempting to assassinate people in France and Denmark as they have reportedly done, albeit unsuccessfully so far.

A final point is that it is extremely unlikely that this policy by Trump will lead to Iranian leaders kowtowing to him and entering into any negotiations. If anything, they might get pushed into pulling out of the JCPOA or create trouble for their enemies in various ways. OTOH, it may be that the sanctions will not lead to as harsh impacts on the Iranian economy as forecast, whether this is due to the Europeans and Chinese setting up alternative payments systems, or due to Iran wriggling out of the sanctions whether due to waivers or through such maneuvers as barter transactions involving oil or the use of “ghost ships” that do not use any radio communications, something reportedly already going on. We shall see how this all turns out, but for now Trump probably has gotten a modest boost of support for his policies within the US as a result of the midterm elections, much as I am not pleased to see this.

Barkley Rosser
Econospeak “US Policy On Iran After The Midterm Elections”

Tags: , Comments (1) | |

Setting markers for a 2019 slowdown in the jobs market

Setting markers for a 2019 slowdown in the jobs market

How might a slowdown (not a recession, but a decline in growth to the 1%-2% YoY range in GDP) that I’ve been forecasting for around midyear 2019 manifest itself in the employment arena?

One of my mantras is that “hiring leads firing.” In other words, companies slow or stop their hiring plans, or cut back on hours, before they actually start laying people off.

So, one natural place to look is the “hires” component of the Job Openings and Labor Turnover (JOLTS) survey. Here’s what the *rate* of hiring looks like over the nearly 20 year life of that survey:

If there is a slowdown, I would expect this rate to plateau, in the 3.7%-3.9% range, similar to its plateauing in 2015-16, when we had the “shallow industrial recession.” Obviously there’s not enough there to make a call at this point, but this is a data point I’ll be watching.

 

Comments (0) | |

Before The Midterms And WaPo Is At It Again

(Dan here…better a bit late than ….)

by Barkley Rosser

Monday Before The Midterms And WaPo Is At It Again

It is Robert J. Samuelson doing his usual schtick, albeit with some recognition of other issues, such as global warming and immigration.  But these are not what has his prime attention on the day before midterm elections in the US.  Moaning that “Everyone” will lose this election, his main focus is on the budget deficit, without a single mention of the Trump tax cuts.

We get, “Start with budget deficits. In fiscal 2018, the gap between federal spending and revenue was $782 billion, nearly 4 percent of gross domestic product (GDP). That’s up $116 billion from 2017. Based on current spending and taxes, the Congressional Budget Office expects large deficits forever.
With a 3.7 percent unemployment rate, no one can attribute these deficits to a weak economy.  Put simply, Americans want more government benefits and services than they’re willing to pay for in taxes…..

Our leaders are making proposals that would worsen deficits. Trump backs more tax cuts [ah ha, that he passed some is implicitly recognized]; Democrats advance expensive new health benefits and guaranteed jobs for all [well, at least he did not call for cutting Social Security, as he usually does].”

OK, this could be worse.  He could have actually called for cuts in “entitlements” as he so often does.  But clearly after not mentioning that the deficit has swelled due overwhelmingly because of Trump’s tax cuts, he implicitly puts forward cutting “government benefits” as at least equal to raising taxes in terms of dealing with budget deficits.  There is no end to it.

Barkley Rosser

Comments (0) | |

Greenspan promoting “Entitlement” cuts as the necessary solution to the economy. 25% worth!

From an interview on NPR’s Here and Now comes:

“The official actuaries of the Social Security system say in order to get our Social Security and retirement funds in balance, they’d have to cut benefits by 25 percent indefinitely into the future,” he says. “Do I think it’s going to happen? Well I don’t know, but this is one of the reasons why inflation is the major problem out there. So long as you don’t do it, you’re going to cause the debt overall — the total government debt — to rise indefinitely, and that is an unstable situation.”

He adds: “In the book … discussing what the long-term outlook is all about, we say that the issue of the aging of the population and its consequences on entitlements is having a significant negative deterioration over the long run. The reason for that is what the data unequivocally show is that entitlements — which are mandated by law — are gradually and inexorably driving our gross domestic savings, and the economy, dollar for dollar. And so long as that happens, we have to borrow from abroad, which is our current account deficit.”

He also said:

“When you deal with fear, it is very difficult to classify,” he tells Here & Now‘s Jeremy Hobson. “But you can look at the consequences of it, and the consequence is basically a suppressed level of innovation and therefore of capital investment and a disinclination to take risks.”

I agree with this, but not just as it relates to “ a suppressed level of innovation…” but instead as it relates to the 2005 World Bank report on what produces wealth in a developed economy like ours. It comes down to trust.  Trust in your judicial system and trust in your education system.   I discuss this in the following 3 posts: 2007, 2009, 2011

Human capital is where it’s at!

This election at it’s core is about trust.  Destroy that, and we have no democracy, we have no economy.  It’s that simple.   That McConnell et al has decided he will not abide by the rules agreed to in conducting the business of the Senate means we have no currently functioning democracy.  That is how fragile democracy in the US is.  Our democracy comes down to two people, the leaders of each party in the Senate agreeing to the rules.  When one decides not to, there is nothing that can be done other than vote.

You can hear the full interview here:

 

Tags: , , , , Comments (10) | |

Economists Agree: Democratic Presidents are Better at Making Us Rich. Eight Reasons Why.

by Steve Roth (originally published at Evonomics)

Economists Agree: Democratic Presidents are Better at Making Us Rich. Eight Reasons Why.

In 2013, economists Alan Blinder and Mark Watson — no wild-eyed liberals, they — asked a very important question: Why has the U.S. economy performed better under Democratic than Republican presidents, “almost regardless of how one measures performance”?

Start with their “performed better” assertion: it’s uncontestable. While you can easily cherry-pick brief periods and economic measures that show superior economic performance under Republicans, over any lengthy comparison period (say, 25 years more), by pretty much any economic measure, Democrats have outperformed Republicans for a century. Even Tyler Cowen, director of the Koch-brothers-funded libertarian/conservative Mercatus Center, stipulates to that fact without demur.

Here’s just one bald picture of that relative performance, showing a very basic measure, GDP growth:

The difference is big. At those rates, over thirty years your $50,000 income compounds up to $105,000 under Republicans, $182,000 under Democrats — 73% higher. (And this is all before even considering distribution — whether the growing prosperity is widely enjoyed, or narrowly concentrated.)

Hundreds of similar pictures are easily assembled — different time periods, different measures, aggregate and per-capita, inflation-adjusted or not — all telling the same general story. No amount of hand-waving, smoke-blowing, and definition-quibbling will alter that reality. (If you feel you must try to debunk Blinder, Watson, and Cowen: be aware that you almost certainly don’t have an original argument. Read the paper, and follow the footnotes. You’ll also find more hereherehereherehere, and here.)

 

Comments (2) | |

October jobs report: probably the best report of the entire expansion

October jobs report: probably the best report of the entire expansion

HEADLINES:

  • +250,000 jobs added
  • U3 unemployment rate unchanged at 3.7%
  • U6 underemployment rate declined -0.1% from 7.5% to 7.4%

Here are the headlines on wages and the broader measures of underemployment:

Wages and participation rates

  • Not in Labor Force, but Want a Job Now:  rose +72,000 from 5.237 million to 5.309 million
  • Part time for economic reasons: fell -21,000 from 4.642 million to 4.621 million
  • Employment/population ratio ages 25-54: rose +0.4% from 79.3% to 79.7%
  • Average Hourly Earnings for Production and Nonsupervisory Personnel: rose $.07 from  $22.82 to $22.89, up +3.2% 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 +32,000 for an average of +21,000/month in the past year 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 -200 for an average of -8/month vs. the last seven years of Obama’s presidency in which an average of -300 jobs were lost each month

August was revised upward by 16,000. September was revised downward by -16,000, for no net change.

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 positive.

  • the average manufacturing workweek fell by -0.1 hours to 40.8 hours.  This is one of the 10 components of the LEI.
  • construction jobs rose by +30,000. YoY construction jobs are up +330,000.
  • temporary jobs rose by +3300.
  • the number of people unemployed for 5 weeks or less decreased by -8,000 from 2,065,000 to 2,057,000.  The post-recession low was set five months ago at 2,034,000.

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 +35,000 and  is up +516,000 YoY.
  • the index of aggregate hours worked for non-managerial workers rose by +0.2%.
  •  the index of aggregate payrolls for non-managerial workers rose by +0.5%.

Other news included:

  • the  alternate jobs number contained  in the more volatile household survey increased by  +600,000  jobs.  This represents an increase of 2,748,000 jobs YoY vs. 2,516,000 in the establishment survey.
  • Government jobs increased by +4,000.
  • the overall employment to population ratio for all ages 16 and up increased +0.2% from 60.4% m/m to 60.6% and is +0.4% YoY.
  • The labor force participation rate rose +0.2% from 62.7% to 62.9 and is up +0.2% YoY.

SUMMARY

This was probably the single best report of the entire expansion. The only flies in the ointment were a slight increase in people not in the labor force who want a job now, and a slight decline in the manufacturing workweek. The headline unemployment rate was unchanged at its expansion low.

Aside from that, virtually everything moved in the right direction, in many cases to expansion highs. For the first time, wages for ordinary workers grew over 3% a year. Participation increased across the spectrum. The headline job growth number was excellent, and the more volatile household survey trend was even better.

If this were a Presidential election year, this would be awesome news for the incumbent. Even in a midterm year, this certainly can’t hurt as a closing economic argument for the majority party. Regardless of one’s ideology, however, this was simply an excellent report.

Comments (9) | |

Weekly Indicators for October 29 – November 2 at Seeking Alpha

by New Deal democrat

Weekly Indicators for October 29 – November 2 at Seeking Alpha

My Weekly Indicators piece is up at Seeking Alpha.

Several areas, like rail traffic, saw significant rebounds. But interest rates also rose to new expansion highs as well.

As usual, not only does clicking and reading the article bring you up to the moment on what is happening with the economy, it also helps put a little $$$ in my account.

Comments (0) | |

ISM new orders posts lowest reading in nearly 2 years

ISM new orders posts lowest reading in nearly 2 years

The ISM reported the other day that

The October PMI® registered 57.7 percent, a decrease of 2.1 percentage points from the September reading of 59.8 percent. The New Orders Index registered 57.4 percent, a decrease of 4.4 percentage points from the September reading of 61.8 percent.

On Tuesday I said that “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 regional Fed average is still above 15, but this morning we got the reduction in the ISM.

Here’s what the baseline chart for the regional Fed averages (left) and ISM new orders (right) for 2018 now looks like:

JAN   15   65.4
FEB   20   64.2
MAR   16   61.9
APR   17   61.2
MAY   28   63.7
JUN   24   63.5
JUL   24   60.2
AUG   17   65.1
SEP   20   61.8
OCT 18  57.4

While 57.4 is a very positive reading on an absolute scale, nevertheless this was the lowest ISM new orders reading since November 2016, almost two years ago.

I expect slowing to continue.

Comments (0) | |