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Weekly Indicators for November 11 – 15 at Seeking Alpha

24 hours ago

– by New Deal democratMy Weekly Indicators post is up at Seeking Alpha.Although a few indicators backed off some this week, the overall tone, ex-manufacturing, across all timeframes is positive.You may be reading a few takes today about the poor nowcasts out of the NY and Atlanta Feds, after yesterday’s face-plant of an industrial production reading. Keep in mind that they are mechanically applying that result and not accounting for the GM strike (which is what I would do if I were in their shoes as well). So take those with a healthy dose of salt for now.As usual, clicking over and reading rewards me with a couple of pennies for my efforts.

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Industrial production tanks on GM strikes; Real retail sales decline slightly

2 days ago

– by New Deal democrat

First, let me briefly address industrial production, which fell -0.8% in October. On its face this is an awful number. But take it with a big grain of salt: mainly it reflected the GM  strike.

Here’s the applicable note from the Federal Reserve:

Manufacturing output fell 0.6 percent in October to a level 1.5 percent lower than its year-earlier reading. In October, the strike in the motor vehicle industry contributed to a drop of 1.2 percent for durables. Excluding motor vehicles and parts, the output of durables moved down 0.2 percent…. The production of nondurables was unchanged…. The output of other manufacturing (publishing and logging) fell 1.0 percent.

Even without the GM strike, the number would have been negative. But not nearly as negative as

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Initial claims continue to show slowdown, but no imminent recession

3 days ago

– by New Deal democrat
I’ve been monitoring initial jobless claims closely for the past several months, to see if there are any signs of a slowdown turning into something worse. Simply put, no recession is going to begin unless and until layoffs increase.

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.

As of this week, initial claims continue to be very close to their expansion lows. The 4 week moving average of claims Is 217,000, only 7.7% above the lowest reading of this expansion: 

On a YoY% change basis, the 4 week average is -1.0% below its level one year ago:

In the first two weeks of November(blue), the average is 218,500 vs. 224,500 for November last year

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Real average and aggregate wages declined in October

4 days ago

– by New Deal democratOctober’s consumer inflation reading came in at a surprisingly high +0.4%, which as shown in red in the graph below, was one of the 3 highest in the past two years. Meanwhile average hourly earnings increased less than +0.2% – the second lowest reading in the past two years, shown in blue: As a result, real average hourly earnings decreased -0.2% last month, the worst reading since late 2017:In a longer term perspective, this means that real wages declined to 97.6% of their all time high in January 1973:On a YoY basis, real average wages remained up +1.7%, as they have been since June, and still below their recent peak growth of 1.9% YoY in February:Aggregate hours and payrolls have improved significantly since July, so even though they declined -0.1% in October,

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How economists blew the analysis of the manufacturing jobs shock

5 days ago

– by New Deal democrat
I came across this article yesterday, posted by – to his credit – Brad DeLong, whose argument it eviscerates. Entitled “The Epic MIstake about Manufacturing That’s Cost Americans Millions of Jobs,” it deserves widespread attention. So I am summarizing it here. But by all means go and read the entire piece.

Just to give you the frame of reference, here is the historical graph of manufacturing jobs in the US for the past 50 years:   

After peaking in 1979, the number more or less gradually declined in the 1980s, and then stabilized in the 1990s, before plummeting right after 2000.

As written by Gwynn Guilford, the consensus of economists’ opinion was that while

the US had hemorrhaged manufacturing jobs, losing close to 5 million of them since  2000.

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November leading reports point to slowdown, no recession

6 days ago

– by New Deal democratThe leading indicators reported so far this month show that, while manufacturing continues flat or even in contraction, there’s no significant indication that it has spread to other important sectors like residential construction or motor vehicle sales. And without the weakness spreading to their sectors, this looks similar to 2016, where there was a slowdown but no recession.This article was posted last week at Seeking Alpha. As usual, clicking over and reading rewards me with a penny or two for my efforts.

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Weekly Indicators for November 4 – 8 at Seeking Alpha

8 days ago

– by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

The biggest story of the week was the move higher in long term interest rates. This means that the “yield curve inversion” you’ve read so much about in the past year is over. At the same time, long term interest rates (e.g., for mortgages) haven’t moved back high enough to pose a danger to the housing market. In other words, they’re at a “sweet spot.”

A note on the political implications: my specialty is telling you what the economy is likely to look like a year from now. And one year from now is the 2020 Presidential election. That all of the recent news in the long leading indicators has been improvement means that the economy is very likely to be doing better on Election Day than it is now. Which

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Scenes from the October employment report: leading sectors remain poor

9 days ago

– by New Deal democratYesterday I discussed unemployment and labor force participation from last week’s jobs report, which with the significant exception that better wage growth would probably lead to more people deciding that they’d like a job, remains very positive. Today let’s look at the bad news, which is the same as last month’s: leading indicators for employment are weak to negative.To begin with, in the last 9 months, per the more reliable establishment report, 1,358,000 jobs have been added, an average of 151,000 per month, including census hiring, a distinct slowdown from 2018’s pace of 205,000: Next, let’s update the three leading sectors of employment that I have been tracking: temporary help (blue in the graph below), manufacturing (gold), and residential construction

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Scenes from the October employment report: full employment?

10 days ago

– by New Deal democrat

Last Friday the household jobs report – the one that tells us about unemployment, underemployment, and labor force participation – has been particularly strong in the past three months. This has driven some impressive gains in labor force participation and the unemployment rate.

To begin with, gains in employment as measured by the household survey (red in the graphs below), as opposed to the larger (and, yes, more reliable) payrolls survey (blue), have totaled 1,222,000 in the last three months:

One month ago this gave us the lowest unemployment rate in the past 50 years, and the U6 underemployment rate is also at its lowest level, save for one month, since the series began in 1994. Each ticked up by +0.1% in October. In the below graph, both metrics

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A note about turnout in yesterday’s elections

11 days ago

– by New Deal democratI haven’t seen any information yet on how turnout in last night’s elections, particularly in Virginia, which was an “off-off year” election, i.e., no statewide races at all, only state legislative and local races.

The state of Virginia keeps turnout statistics online back to 1976. The bottom line is, clearly something happened in the late 1990s that drove down turnout, which has been reversed in the last two years.

In the 5 “off years” with statewide races between 1977 and 1993, turnout averaged 61.6% of registered voters.

By contrast, turnout in the “off-off years” between 1979 and 1995, turnout averaged 54.6% of registered voters. That’s a 7% decline. 

Now, here are the same figures for the 10 state elections thereafter.

In the 5 “off years” with

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September JOLTS report: mixed with “hard” positives and a “soft” negative

12 days ago

– by New Deal democratThis morning’s JOLTS report for September was mixed, with a decline in job openings and an increase in layoffs, but advances in hiring and voluntary quits.

To review, because this series is only 20 years old, we only have one full business cycle to compare. During the 2000s expansion:

Hires peaked first, from December 2004 through September 2005
Quits peaked next, in September 2005
Layoffs and Discharges peaked next, from October 2005 through September 2006
Openings peaked last, in April 2007   

as shown in the below graph(averaged quarterly through Q3): 

Here is the monthly data for the past five years:

As you can see, hires and total separations are at or near their peaks. Quits have declined in the past two months from their all time high, but are

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Q3 GDP points away from a producer-led recession

13 days ago

– by New Deal democratIn the past 60 years, most recessions have been consumer-led, and have been preceded by both increases in mortgage rates in excess of 2% and/or increases in the price of gas by 40% or more per year. Usually the Fed has been hiking rates by 2% or more, and the change in YoY inflation has also increased by 2% or more. Housing starts typically went down by 25% or more, and that fed through the rest of the economy over the next 12-24 months. The bottom line is that consumer budgets became stressed, so they cut back on spending. When real consumer spending per capita declined, a recession began.

The most notable exception was the recession of 2001. Housing went down by a maximum of 12.5%, and picked back up before the recession began. Real personal consumption

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Weekly Indicators for October 28 – November 1 at Seeking Alpha

15 days ago

– by New Deal democratMy Weekly Indicators post is up at Seeking Alpha.The last long leading indicator that I was concerned about, corporate profits for Q3, resolved to the upside this week, according to FactSet. This means that all of the long leading indicators which had been negative a year ago are gone. Short leading indicators also slightly improved this week.As usual, clicking over and reading should bring you up the moment on the economy, and also rewards me with a penny or two for my efforts.

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October jobs report paints a portrait of a full (or nearly full) employment economy

16 days ago

– by New Deal democrat
+128,000 jobs added (+148,000 ex-Census)
U3 unemployment rate up +0.1% from 3.5% to 3.6%
U6 underemployment rate up +0.1% from 6.9% to 7.0% 

Leading employment indicators of a slowdown or recession

I am highlighting these because many leading indicators overall strongly suggest that an employment slowdown is coming. The following 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 -0.2 from 40.5 hours to 40.3 hours. This is one of the 10 components of the LEI and is negative.
Manufacturing jobs declined by -36,000 (but would have risen by +6,000 were it not for the GM strike). YoY manufacturing is up 49,000, a sharp deceleration from 2018’s

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The consumer / employment sector of the economy continues powering along

17 days ago

– by New Deal democrat
….. aaaaand, I’m back. Did you miss me?

Here is the essence of my view of the economy right now:

1. The producer sector of the economy is struggling, partly due to higher interest rates in the last two years filtering through the system, and partly due to stupid and irrational trade wars.

2. The consumer + employment sector of the economy, on the other hand, is moving right along, fueled mainly by very low inflation (low gas prices continue) and also by lower mortgage rates.

3. The longer term outlook (one year or more out) continues to improve.

This morning we got three reports focused on the consumer/employee. Let’s take a look at each.

First, real personal income improved by +0.3% in September, and real personal spending improved by +0.2%: 

That’s all

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Cross one item off the bucket list

18 days ago

– by New Deal democrat
Here’s a picture of what I’ve been doing:

Generic picture of water and land … except, if you look carefully, the grassy area at the bottom is slightly curved. That’s because, on the left is the Ohio River, and on the right is the upper Mississippi. I’m standing at the tip of land in Cairo. Illinois. Across the Ohio is Kentucky. To the far right is Missouri. Right where the two fishing boats are you can see the turbulence where the two currents meet. Although the Ohio is wider and, according to what I read, has a bigger volume of water, on this particular day the upper Mississippi had the stronger current.

By the way, did I ever mention that I am a nerd?

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Still traveling

19 days ago

– by New Deal democratI’ve been busy checking off a few items on the bucket list.I’ll be back at work in a couple of days.I’ll post a quick update tonight or tomorrow if I get a chance.

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Weekly Indicators for October 21 – 25 at Seeking Alpha

22 days ago

– by New Deal democratMy Weekly Indicators post is up at Seeking Alpha.The producer side of the economy generally, and manufacturing specifically, remains weak or even contracting. But the larger consumer side, benefitting from lower mortgage rates, continues to power ahead.As usual, clicking over and reading helps reward me a little bit for my efforts.

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New home sales continue to show improving housing trend

23 days ago

– by New Deal democratYesterday I wrote that durable goods orders showed that manufacturing is still weak. The contrary side of the economy showed up later yesterday morning with new home sales.

New home sales are notoriously volatile, and heavily revised, but they do have the redeeming virtue of frequently being the very first housing series to turn. And in September, even though they were down slightly from August, showed that lower mortgage rates have ignited a rally in the housing market: 

The three month moving average, which does away with a lot of that volatility, made a new expansion high.

Meanwhile new house prices continued to show a big YoY decline:

Since prices generally follow sales, this was to be expected. As sales continue to improve, new home prices

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Manufacturing still weak

24 days ago

– by New Deal democratI’m still traveling this morning, but for now let me just note that this morning’s durable goods orders showed a decline again:
Manufacturing is flat to slightly contracting. The consumer, primarily thanks to lower mortgage rates, is keeping the economy going.

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September existing home sales: a pause in the housing rebound

26 days ago

– by New Deal democratI normally don’t bother with existing home sales, since it is the least economically important of housing data, but it’s a really slow news week, so …

September existing home sales were reported at 5.38 million annualized by the NAR. While that is a decline from August’s revised 5.50 million rate, it is better than all of this past spring’s numbers, which formed the recent trough in this series (Note: this morning’s data not shown):

So the overall trend remains higher, as is to be expected with lower mortgage rates. 

The NAR is squirrelly about graphs of its longer term data, but I can tell you that the peak for this expansion was approximately 5.75 million annualized sales in November 2017. Increasing interest rates in 2018, assisted by the continuation

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The divergent nowcast and one model’s forecast at Seeking Alpha

27 days ago

– by New Deal democratOver 10 years ago I found a good, quick-and-dirty way of looking at the Index of Leading Indicators. It only matters at turning points, which means, for the first time since the 2015-16 “shallow industrial recession,” it’s worth looking at now.That, plus a concise look at the bifurcation in the producer vs. consumer economy as it stands now, is a post I’ve put up over at Seeking Alpha.As usual, clicking over and reading should hit you with a little dose of knowledge, and me with a little dose of coin to reward me for my efforts. After all, those books I’m reading on the historical antecedants to the American Republic aren’t boing to pay for themselves!

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The Rise and Fall of the Roman Republic: Index to posts

28 days ago

– by New Deal democratFor future reference, links to my four posts on the Rise and Fall of the Roman Republic

Part 1: Structure and Background

Part 2: the First Hammer-blows

Part 3: the Final Hammer-blows

Part 4: the Empire as hegemonistic “Banana Republic” ruled by caudillos

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The Rise and Fall of the Roman Republic: part 4 of 4: the Empire as hegemonic “Banana Republic” ruled by caudillos

28 days ago

– by New Deal democrat
As we have seen, the Roman Republic was brought down by an escalating series of acts of political violence, from murders to organized political mobs, to private legions, to four military marches over a period of 40 years on a Rome which had no permanent  defense force whose loyalty was to the Republic. The violence and military takeovers occurred in part because senior magistrates were also expected to be generals in command of legions.  

The underlying causes were the festering inequality between Romans and their Italian allies, and between the landed oligarchs and the urban and rural plebeians. Over the long term, rather than compromise their power, the oligarchs in the Senate in particular were willing to play “constitutional hardball” and do away with the

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The Rise and Fall of the Roman Republic: part 3 of 4: the final hammer-blows

28 days ago

– by New Deal democrat
“The Republic is nothing, a mere name without body or form.” – Julius Caesar

This is part 3 of my four part look at why the Roman Republic, which was successful and stable for nearly 4 centuries, ultimately fell into tyranny. In part 1 I described the structure of the Republic and the underlying reasons for its fall. In part 2 I described the first 4 episodes of civil war that left the Republic dead on its feet in 78 BC. This part describes the final hammerblows.

5. Pompey and CaesarThe final blows were administered by the “first triumvirate” of Pompey, Crassus, and Julius Caesar, after one last “Indian summer” for the Republic between the death of Sulla in 78 BC and 50 BC. Among other things, much of the power of the Tribunes and the plebeians was restored by

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The Rise and Fall of the Roman Republic: part 2 of 4: the first hammer-blows

28 days ago

– by New Deal democratThis is part 2 of my four part look at the Roman Republic and subsequent Empire. In part 1, I described the structure of the Republic, and its several centuries of stability and success, as well as the underlying causes of its ultimate downfall.

The hammer-blows that rained down on the Republic from the existential dispute between Senatorial oligarchs on the one hand, and Roman plebeians and Italian allies on the other, came in five episodes:1. The Gracchus brothers – in the 130s and 120s
2. Saturninus – approximately 100 BC
3. Marius and the Italian civil wars 90 BC

4. Marius, Cinna, and Sulla 90-80 BC
5. Pompey the Great and Julius Caesar 50-40 BCIn this part I make a *brief* summary sketch of the first four of the above five episodes. The fifth will be

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The rise and fall of the Roman Republic: part 1 of 4: Structure and Background

28 days ago

– by New Deal democrat“Mortal Republic: How Rome Fell into Tyranny,” by Edward J. Watts“The Storm Before the Storm,: The Beginning of the End of the Roman Republic” by Mike Duncan“Ten Emperors: Roman Emperors from Augustus to Constantine,” by Barry StraussI’ve recently mentioned that lately I’ve been unable to read most American history books, with their currently unwarranted chipper optimism. Instead my recent reading has focused on other periods of crisis.One question I’ve been considering is, just how rare, and how stable have Republics historically been? There are few antecedents for the experience of the US, because it has aspires to both be a Republic under the rule of law and simultaneously a superpower.  In fact I believe there are only four, in reverse historical order:The

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Weekly Indicators for October 14 – 18 at Seeking Alpha

29 days ago

– by New Deal democratMy Weekly Indicators post is up at Seeking Alpha. Although the economy, especially in the producer sector, is quite weak right now, the indicators in all time frames are, in the aggregate, positive.As usual, clicking over and reading should bring you right up to the moment on the data, and rewards me a little bit for my efforts.

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An important update on the yield curve

October 18, 2019

– by New Deal democratFor the last 10 months, readers of the financial press have been bombarded with stories about the inverted yield curve, where (some) longer term interest rates are lower than shorter term interest rates. I track them too! But they are by no means my only forecasting tool.In any event, in the past several months and weeks, the yield curve has resumed a much more normal configuration. So does that mean we are in the clear?It depends which measure you are paying most attention to. Which has always been an important caveat, because the inversion of the yield curve has, with the exception of about one week several months ago, always been partial – i.e., at least one “infallible” indicator must have been wrong.My “just the facts, ma’am” look at what the un-inversion of

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Positive housing, initial claims, and Philly Fed outweigh negative industrial production

October 17, 2019

– by New Deal democratSo, after a nearly empty week until now, there were four economic reports this morning. Three of them were good.

First, although overall housing starts and permits declined, single family permits, the most forward looking and least volatile of the metrics, were only 3000 off a new  expansion high (red in the graph below, vs. multi-family permits): 

Housing’s rebound is the biggest single argument against a recession later next year.

Second, initial jobless claims continued at only 6.6% off their lowest level of the expansion:

The one significant fly in the ointment is that the 4 week average of continuing claims, which is less volatile if less leading, was unchanged YoY:

This has happened 15 times in the past 50+ years. Seven times it was a

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