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Industrial production rebounds; another message of slowdown, no recession

1 day ago

– by New Deal democratIndustrial Production is the King of Coincident Indicators.  When industrial production peaks and troughs coincides more often than any other indicator to NBER’s recession dating. Let’s take a look at the report for August, which was pretty darn good, which was released this morning.

Production as a whole increased 0.6%, and last month’s report was revised upward by +0.1%. The manufacturing component also increased, by 0.5%. Both, however, are still below their peaks set last December (left scale in the graphs below). The other important component, mining (which includes oil production) increased 1.4%, reversing July’s decline, missing a new high by less than 0.1% (right scale):

Stepping back for a longer term look, here is the same graph including the

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Weekly Indicators for September 9 – 13 at Seeking Alpha

2 days ago

– by New Deal democratI realized that I neglected to post a link to this Saturday’s Weekly Indicators post, which was up at Seeking Alpha.  So here it is.The theme over the past few months has been that, despite worsening conditions in manufacturing, and almost singular forecaster attention to the yield curve, many of the short and long term indicators have been improving, or are starting to improve.As always, clicking over and reading helps reward me a little bit for the efforts I put in.

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Last week’s initial jobless claims still show slowdown, no recession

2 days ago

– by New Deal democratA couple of weeks ago, I updated the entire list of short leading indicators. To cut to the chase, those that were negative or trending negative came out of the production sector, while those that were positive were mainly from the consumer sector. 

But, regardless of which sector’s weakness might give rise to a recession, at some point it would have to be reflected in increased layoffs. As last Thursday’s report of initial jobless claims showed, that isn’t happening. Since I didn’t get around to commenting on this last week, let’s take a look now.

At 204,000, last week’s number of initial claims is close to the bottom of the number of claims even in the past year. The four week moving average is only 5.5% above the low point set in April:

Before a

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August retail sales confirm healthy consumer sector

5 days ago

– by New Deal democrat
Retail sales are one of my favorite indicators, because in real terms they can tell us so much about the present, near term forecast, and longer term forecast for the economy.

This morning retail sales for August were reported up +0.4%, and July, which was already very good at +0.7%,  was revised upward by another +0.1% as well. Since consumer inflation increased by +0.4% over that two month period, real retail sales have risen +0.7% in the past two months. As a result, YoY real retail sales, which had been faltering earlier this year, are  now up +2.3%.

Here is what the last five years look like:

Others may use other deflators. I use overall CPI because:

1. I’ve been doing it this way for over 10 years. 

2. This is the deflator used by FRED.

3. It

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Real average and aggregate wage growth for August

6 days ago

– by New Deal democrat

Now that we have the August inflation reading, let’s take a look at real wage growth.

First of all, nominal average hourly wages in June increased a strong +0.5%, while consumer prices increased +0.1%, meaning real average hourly wages for non-managerial personnel increased +0.4%. This translates into real wages of 97.5% of their all time high in January 1973, a new high following revisions to prior months:

On a YoY basis, real average wages were up +1.7%, still below their recent peak growth of 1.9% YoY in February:

Aggregate hours and payrolls were up strongly in August’s household jobs report, so real aggregate wages – the total amount of real pay taken home by the middle and working classes – are up 29.7%  from their October 2009 trough at the

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An update on forecasts

7 days ago

– by New Deal democratI have a new post up at Seeking Alpha, describing the order in which data has tended to deteriorate before consumer-led recessions. A few conditions have been met; most others have not.I have previously written that if a recession is in the works over the next few quarters, it is more likely to be a producer-led recession, a la 2001. In that regard, a few weeks ago I said that Q2 corporate profits would be a crucial report.Well, they were reported a couple of weeks ago. I hadn’t linked to that article before, but that too was posted at Seeking Alpha.The bottom line is that both the nowcast and the long-term 12+ month forecast are reasonably clear. The short term, 3 – 9 month forecast, is a lot dicier, and depends greatly on whether Tariff Man can resist the impulse

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July JOLTS report: m/m improvement, but slowing trend

8 days ago

– by New Deal democratThis morning’s JOLTS report for July was in general surprisingly positive on a monthly basis, but continued to show a slowing trend.

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 (quarterly, normed to 100 as of May 2018):

Here is the close-up on the past three years (monthly):

In today’s report, all of the above series improved month over month. But the only series that is meaningfully higher than it was one year ago, was voluntary

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Scenes from the August jobs report

9 days ago

– by New Deal democrat
The August jobs report was the mirror image of most earlier reports this year: a lackluster Establishment report but a strong Household report. Let’s take a look.By now the fact that there has been a jobs slowdown is pretty well established. In the last 7 months, only 964,000 jobs have been added, an average of 138,000 per month. If we subtract this month’s temporary census hiring of 25,000, those numbers drop to 939,000 and 134,000, respectively:
And keep in mind that the number of jobs added between March 2018 and March 2019 is going to be reduced from roughly 210,000 to 167,000 per month.Since last December, of the leading employment sectors, only residential construction has continued to increase significantly. Manufacturing has added only 19,000 jobs in the

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Weekly Indicators for September 2 – 6 at Seeking Alpha

11 days ago

– by New Deal democratMy Weekly Indicators post is up at Seeking Alpha.The nowcast and the long term forecast have been pretty stable, but the short term forecast has been volatile recently – and the monthly series (slightly negative) vs. the weekly data (more positive) are not in sync.This is likely because there is much more monthly data (usually from the government) than weekly data (more often from private sources) about manufacturing.

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August jobs report: for once, the underwhelming headline masked very good internals

12 days ago

– by New Deal democrat
+130,000 jobs added (+105,000 ex-Census)
U3 unemployment rate unchanged at 3.7%
U6 underemployment rate rose 0.2% to 7.2%

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 positive.
the average manufacturing workweek rose +0.2 from 40.4 hours to 40.6 hours. This is one of the 10 components of the LEI and is positive (note last month was -0.3 so on net this is still -0.1 hours from two months ago).
Manufacturing jobs rose by 3,000. YoY manufacturing is up 138,000, a deceleration from last summer’s

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One marker of initial jobless claims turns (slightly) negative

13 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 stress. This is because the long leading indicators were negative one year ago, and many – but not a majority – of the short leading indicators have recently turned negative as well. So I am on “recession watch.” But no recession is going to begin unless and until layoffs increase.

To reiterate, 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.This week the second measure turned negative. Let’s take a look.  

Initial jobless claims last week were 217,000. This is in the lower part of its range of 220,000 +/-12,000 for the past 19 months.

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Two sharply contrasting reports on the economy to start September

15 days ago

– by New Deal democrat
We got two contrasting views of the economy this morning.First, the good news: residential construction spending increased in July. Below I show it in comparison with single family permits:

Typically construction follows permits. In the past few years, it has been almost coincident with permits. This is more good news for the important and leading housing sector, indicating that the decline that started in early 2018 has ended. With the continued recent further decline in mortgage rates, I expect further advances, although possibly not strong.Now, the bad news: the ISM manufacturing index fell below 50 to 49.1. Worse, the leading new orders component fell to 47.2, the worst reading since the Great Recession:

Typically it takes at least two readings below 48

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Weekly indicators for August 26 – 30 at Seeking Alpha

18 days ago

– by New Deal democratMy Weekly Indicators post is up at Seeking Alpha.One of the benefits(?) of the discipline of a mechanical forecasting system is that it can be completely dissonant with what your emotions are telling you.  Right now the discipline of my long/short leading/coincident indicator system is completely at odds with the dominant DOOOM based on the yield curve inversion.Because, while the yield curve is an important and completely valid long leading indicator, right now it is the *only one* that is negative. All the others are either positive or neutral.As usual, clicking over and reading should not only be educational for you, but rewards me with a $ or two for my efforts.

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Consumer spending, particularly on durable goods, continues to be strong

19 days ago

– by New Deal democratEarlier this week I wrote about the state of the short leading indicators. On Monday, manufacturers new orders came in positive.This morning, consumer spending on durable goods, as well as overall, also improved sharply:

If a consumer led recession were close at hand, I would expect consumer spending on durables to decline significantly. Obviously, that hasn’t happened.While I am at it, here is the updated comparison of real personal consumption expenditures with real retail sales, measured YoY:

Going back over 50 years, typically the latter has both improved more earlier in the cycle, and decelerated into decline first later in the cycle. The present picture continues to be late cycle with no imminent sign of any actual downturn.Left to its own devices, the

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Initial jobless claims remain steadfastly, if weakly, positive

20 days ago

– by New Deal democrat
As per my usual practice for the past several months, let’s look at 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 for the month of August as a whole (red) is -250 below where it was last year (weekly YoY change is shown in blue):

The less leading but also less volatile 4 week average of continuing claims rose slightly, and remains slightly

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The quick and dirty leading indicator watch has been stagnant for 18+ months

21 days ago

– by New Deal democrat[Note: I’ve been working on my “what leads consumer spending” opus, and as often happens, I don’t want to publish anything until I’m sure I’ve got something good – which means lots more research and saved graphs — and nothing whatsoever published! I owe you something for today, so here’s a little nugget ….]If you want a “quick and dirty” forecast for the economy over the next 4 to 6 months, the easiest approach is to look at stocks (vis the S&P 500 index) and initial jobless claims.I’ve been noting for awhile that initial claims have gone basically nowhere since February 2018, and this afternoon I was reminded that it was the case for stocks as well. Here’s both (claims are inverted, red). Both are normed to 100 as of the week they started to go sideways:

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Consumer spending leads employment — but what leads consumer spending?

22 days ago

– by New Deal democrat
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):



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!) 

In fact, as shown on the graphs above, a decline below zero in the YoY% change of real retail sales on a quarterly basis has been a

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

23 days ago

– by New Deal democratAmount 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.——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

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On Appeasement

24 days ago

– by New Deal democrat
Sometimes on Sundays I leave the dreary world of economics behind and write of broader things.Since most tomes covering American history have an underlying sunny optimism that is nowhere appropriate for our times, recently I’ve been reading more world history having to do with the rise of fascism or fall of democracy. Several of those books have been disappointing: they are thorough blow by blow descriptions, without organizing the material enough – or simply not including any material – to make a judgment about the underlying dynamics.On such book is Tim Bouverie’s “Appeasement,” which as is obvious from the title, chronicle’s the UK’s, and in particular Neville Chamberlain’s, policies towards the rise of Hitler Germany in the 1930s.There are three important

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Weekly Indicators for August 19 – 23 at Seeking Alpha

25 days ago

– by New Deal democratMy Weekly Indicators post is up at Seeking Alpha.There was marginal deterioration in a number of short leading and coincident indicators this week.As always, clicking over and reading should bring you up to date on the economy as well as rewarding me a little bit for the effort I put in.

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July new home sales disappoint, but improving trend intact

26 days ago

– by New Deal democratNew home sales came in this morning at a light 655,000 annualized for July, the second lowest monthly amount this year. But at the same time, sales remain clearly higher than their bottom at the end of last year. This metric is very volatile and heavily revised, so I pay less attention to it than permits and starts. In the two graphs below, it is shown in blue, and compared with inventory of new homes for sale (red, right scale):

Note that sales clearly lead inventory. The below close-up of the past 5 years bears this out:

Sales are already recovering, while inventory remains slightly off its peak.

Prices (gold in the graph below, measured as YoY% change) usually lag sales (blue), but last year they followed sales down almost immediately, and remain

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

27 days ago

– by New Deal democrat
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:

With one week to go, so far this month is averaging about -1,000 less than August of last year.

The less leading but also less volatile 4

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Not doomed yet v.2.0: beware recession porn

28 days ago

– by New Deal democrat

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

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What would need to happen next for a producer-led recession

29 days ago

-by New Deal democratIf you clicked over and read my last post at Seeking Alpha, I mentioned that I wanted to follow up with examinations of the state of the producer side of the economy, as well as the short leading indicators.The first half of that is done, and is up at Seeking Alpha. I don’t think all the shoes have dropped, that need to drop if the producer side is going to turn into contraction.As usual, clicking over and reading drops a coin or two into the till for me.

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

August 19, 2019

– by New Deal democratLast 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.As usual, clicking over and reading helps reward me a little bit for my work.

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Weekly Indicators for August 12 – 16 at Seeking Alpha

August 17, 2019

– by New Deal democratMy Weekly Indicators post is up at Seeking Alpha.The data continues to be dominated by a steep decline in long term interest rates. These have both inverted further portions of the yield curve and reinvigorated the housing market.As usual, clicking through and reading should not only be educational for you, but put a penny or two in my pocket to reward me for my efforts.

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Positive July housing permits and starts

August 16, 2019

– by New Deal democratThe housing starts and permits report this morning for July adds to the positive data looking forward to H2 2020 (or, possibly, less bad – but that’s another discussion).

First, here are overall permits (red) and starts (blue):

While the very volatile starts declined, the slightly more forward looking and less volatile permits rebounded off their low to a 6 month high.

The less volatile single family permits (red) and starts (blue) were even more positive:

Single family starts were at an 8 month high. The more forward looking and least volatile single family permits made a 9 month high.

Lower interest rates are now clearly feeding into the housing construction market. This is a positive 12+ months out.

There are two issues. The first is whether

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Industrial production, jobless claims, and retail sales

August 15, 2019

– by New Deal democratAs I noted this morning, a slew of important data was released. Let me deal with the “normal” weekly and monthly data in this post. 

First, industrial production continues to languish, down significantly from the end of last year, whether measured in total or just as to manufacturing: 

The saving grace here is that it has not declined as much as it did during the 2015-16 “shallow industrial recession” which was not sufficient to cause the economy as a whole to contract.

Second, initial jobless claims rose, and are (slightly) higher YoY for the first two weeks of August:

The 4 week average is only about 6% higher than their trough this past April:

The four week average of continuing claims, which is much less volatile, is about -2.5% lower than

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Quick hits on a major Thursday economic news blitz

August 15, 2019

– by New Deal democratThere has been a ton of significant economic news this morning. I’m not going to be able to get to all or even most of it in depth. So I am going to leave a quick rundown here.

Starting with the positive:

-nominal retail sales up +0.6%, up +0.3% in real terms, up +0.2% Per Capita. This is another new high and suggests the US consumer continues to be in good shape (relatively speaking). Note that much of this apparently has to do with Amazon “Prime Day” purchases, and if the seasonal adjustments are off, this could easily be a false positive.

-Both the NY and Philly Fed indexes higher, including new orders for both. No indication here that manufacturing is rolling over.

-The manufacturing component of industrial production higher, again suggesting that

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A note on the stock and bond markets

August 14, 2019

– by New Deal democrat
No economic data releases today, but a little kerfluffle in the markets.

First of all, in case you missed it, the 10 year to 2 year bond spread briefly inverted early this morning. Here’s the screenshot from CNBC:

As I say, it was brief. As I type this, the spread has reverted to normal.

But another significant spread inverted yesterday, and has remained inverted today: the 30 year bond vs. the Fed funds rate. The Fed funds rate is currently at 2.12%, and beginning yesterday afternoon, the 30 year bond yield went lower than that. As I type this, the long bond is yielding 2.05%, an all-time low. Here’s the lifetime chart:

As a caution, note that this spread also inverted for a few days several times in the mid-1980s and mid-1990s, as well as for a

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