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Articles by New Deal Democrat

On the self-government of prehistorical human settlements, whether empire-sized Republics can long survive, and the failure of judicial supremacy as a bulwark

17 days ago

– by New Deal democrat Can an Empire-sized Republic long survive? This was the issue I pondered after Donald Trump was elected President in 2016. Once a country gets big enough, do elected officials ultimately fail, and people inevitably turn to an autocrat to lead them? That led me on a journey reading the histories of all of the larger Republics in human history, from Rome through Venice, Genoa, Florence, the Swiss Confederation, the Dutch Republic, and the Glorious Revolution that birthed the modern UK. It also caused me to realize that the most revolutionary part of the US Constitution, although the Founders did not realize it at the time, was the enshrinement of judicial supremacy over the other two branches of government, via the philosopher kings with life tenure who sat on the

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Weekly Indicators for May 2 – 6 at Seeking Alpha

18 days ago

– by New Deal democratMy Weekly Indicators post is up at Seeking Alpha.Over the past few months, indicators across all timeframes have deteriorated. With increasing interest rates, and another Fed rate hike, that trend continued, and spread to credit conditions in a significant way.As usual, clicking over and reading will bring you up to the virtual moment, and will bring me some lunch money.

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April jobs report: strong Establishment survey, very weak Household survey (UPDATED)

19 days ago

– by New Deal democratI got a late start on this report today. I’ll add a much more detail shortly, but for now, be advised in summary that while the establishment report was strong, with mainly positive internals, the household report was very weak, with some very weak, albeit mainly still positive, internals.To be continued . . . ——-UPDATE:Just as one month ago, I was most interested in three main issues:1. Is the pace of job growth beginning to decelerate?  (Not in the establishment survey, *definitely* in the household survey)2. Is wage growth holding up? Is it accelerating? (It is still strong, but decelerated slightly)3. Are the leading indicators in the report beginning to flag? (Not yet, at least not significantly)We still have 1.2 million jobs, or 0.8% of the total to go to

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New jobless claims: a possible reversal with a slight rising trend

20 days ago

– by New Deal democratInitial jobless claims rose 19,000 to 200,000, continuing above the recent 50+ year low of 166,000 set in March. The 4 week average also rose by 8,000 to 188,000, compared with the all-time low of 170,500 set four weeks ago. On the other hand, continuing claims declined -19,000 to 1,384,000, yet another new 50 year low (but still well above their 1968 all-time low of 988,000):The “job openings” component of the March JOLTS report released on Tuesday, indicated that there was no abatement in the number of employers participating in the new game of employment “musical chairs.” But the graph above shows a slight trend of increased new layoffs, which might just be noise. Or maybe not.

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The impact of supply constraints on the US economy in 3 easy graphs

21 days ago

– by New Deal democratThe two most important purchases ever made by most consumers are (1) their houses, followed by (2) their motor vehicles. Indeed, according to Prof. Edward Leamer‘s forecasting model, ever since the end of World War 2 almost all American recessions have been preceded by, first of all, a decline in new home purchases about 6-7 quarters before, followed by a decline in the purchase of new motor vehicles about 9-12 months before.By all reasonable accounts, the US economy Boomed last year, with real GDP up 5.5%, industrial production up 3.4%, manufacturing up 3.9%, and employment up 4.7%.So one would think that the production of houses and motor vehicles would approach prior expansion peaks. Well, let’s take a look.The below graph shows houses where permits have been

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March JOLTS report: the game of musical chairs in the jobs market intensifies to all-time highs

21 days ago

– by New Deal democratIn March, as this morning’s Census Bureau JOLTS report shows, the game of musical job chairs in the jobs market has actually intensified to all-time levels. Specifically, both job openings and quits made all-time highs, and total separations during their entire 20 year history were only higher in March and April 2020.As a refresher, some months ago I introduced the idea that the jobs market was like a game similar to musical chairs, where employers added or took away chairs, and employees tried to best allocate themselves among the chairs. Because of the pandemic, there are several million fewer players trying to sit in those chairs, leaving many empty. As a result, wages have continued to increase sharply, as employers attempt to attract potential employees to sit

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Manufacturing and construction start out the month with positive prints

22 days ago

– by New Deal democratAs per usual, the new month starts with updates on manufacturing and construction.The ISM manufacturing index, and especially its new orders subindex, is an important short leading indicator for the production sector. This remained positive, but there has been a definite slowing in the past two months.In April the index declined from 57.1 to 55.4, and the new orders subindex also declined from 53.8 to 53.5, the lowest reading since 2020. As noted above, these remain positive, since the breakeven point between expansion and contraction is 50:This forecasts a continued expansion on the production side of the economy through summer – but nowhere near the red-hot and even white-hot pace of last year.Meanwhile, construction spending for March rose 0.1% in nominal terms

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Weekly Indicators for April 25 – 29 at Seeking Alpha

25 days ago

– by New Deal democratMy Weekly Indicators post is up at Seeking Alpha.Conditions have been deteriorating for awhile. This week, for the first time, real M2 and at least one credit condition reading contributed to that deterioration in the long leading forecast, enough to make a significant difference.To get brought up to speed on the potential implications, click on over and read the post. As usual, doing so will also reward me just a little bit for the efforts I put in to obtaining and aggregating the information.

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Lackluster spending, a decline in real income and savings in March; when the house price spiral turns, consumers are in real trouble

26 days ago

– by New Deal democratIn March nominal personal income rose 0.5%, and spending rose 1.1%. But since the personal consumption deflator, i.e., the relevant measure of inflation, rose 0.9%, real income declined -0.4%, and real personal spending rose only +0.2%.While both real income and spending are well above their pre-pandemic levels, I have stopped comparing them with that, but instead with their level after last winter’s round of stimulus. Accordingly, the below graph is normed to 100 as of May 2021: Since then spending is up 2.4%, while income has declined -1.3%.Comparing real personal consumption expenditures with real retail sales for March (essentially, both sides of the consumption coin) shows a small increase in the former and a decrease in the latter for the month. Both numbers

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Q1 GDP negative; but more importantly, two of three long leading indicators have deteriorated

27 days ago

– by New Deal democratFirst things first: yes, it was a negative GDP print. No, it doesn’t necessarily mean recession. I’ve been expecting weakness to show up by now ever since last summer; so here it is.But the big culprits were non-core items. Personal consumption expenditures, even adjusted for inflation, were positive. The three big negatives were a big decline in exports vs. imports, followed in about equal measure by a decline in inventories and a downturn in defense production by the government. The inventory adjustment is temporary. So, most likely, was the downturn in defense production. We’ll see about exports and imports (supply chain issues!).But there are two components of GDP which are helpful in finding out what lies ahead: real residential fixed investment (housing) and

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Jobless claims: yet another 50+ year low in continuing claims

27 days ago

– by New Deal democrat[Programming note: I’ll comment on the Q1 GDP report later this morning].Initial jobless claims declined -5,000 to 180,000, but above the recent 50+ year low of 166,000 set in March. The 4 week average rose 2,250 to 179,250, compared with the all-time low of 170,500 set three weeks ago. Continuing claims declined -1,000 to 1,407,000, yet another new 50 year low (but still well above their 1968 all-time low of 988,000):This is yet another installment in the saga of “nobody is getting laid off.” The “job openings” component of the March JOLTS report, which will be released next Tuesday, is the next important metric, because that will tell us if there is any abatement in the number of employers participating in the new game of employment “musical chairs.”

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Coronavirus dashboard for April 27: Estimating the BA.2.12.1 wave

28 days ago

– by New Deal democratThe CDC updated its variant proportions data yesterday. BA.2.12.1 cases grew from 19% to 29% of all US cases: and from 45% to 60% in NY and NJ. At the other end of the spectrum, BA.2.12.1 was only 9% of cases in the Pacific Northwest and 8% in the South Central region. BA.1 is down to only 2% of cases:Focusing on NY and NJ, NJ has had a little spurt in the last couple of days, probably just due to an artifact of daily reporting one week ago, and is now up 15% for the week. Deleting that artifact, NJ is only up 4% for the week. NY appears to be peaking right now, 6.5 weeks after its recent lows, with cases essentially flat for the last 6 days, and up only 7% for the week. Cases tripled during that period:For the US as a whole, as of yesterday cases rose to 50,300,

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Prices soar, sales drop; oh by the way, sales lead prices

28 days ago

– by New Deal democratNew home sales declined -8.6% in March, which isn’t a sharp as it seems, since declines of this magnitude happen 2-3x/year. The series is also heavily revised, so no new month’s number should be given too much weight. On the other hand, new home sales are frequently the first series to decline after a peak, so the fact that they have not made a new high since January of last year, and are now almost 25% below that mark is certainly a sign that higher interest rates and prices have taken their toll:Very much on the other hand, the month over month % change in both the Case Shiller and FHFA Indexes rose at record paces of ~2% last month alone:All of this has caused the National Affordability Index kept by Realtor.com to decline to 135:This is the lowest level of

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Lessons for the present from the Postwar Boom

29 days ago

– by New Deal democratOne of the things I harp on from time to time is that from 1932 to 1956 there was never a yield curve inversion, and yet recessions certainly did happen! Too many modern models get hung up on Fed intervention.But what happens when the Fed doesn’t intervene, as was the case for that 25 year period? Or is perhaps the case now, with the Fed funds rate at record levels below the inflation rate?The case of the immediate postwar Boom of 1946-48 and the recession of 1949 bears a lot of similarities to our current situation – but some significant differences too.I wrote a lengthy post about it, and it is up at Seeking Alpha.A factor I didn’t even get in to in that discussion was how the GI Bill, and the swift integration of returning servicemen into the labor force mirrors

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Weekly Indicators for April 18 – 22 at Seeking Alpha

April 23, 2022

– by New Deal democratMy Weekly Indicators post is up at Seeking Alpha.While I was writing about mortgage rates during the week, the yield curve did some re-tightening, enough to make a difference in the long term forecast.As usual, clicking over and reading should help bring you up to the virtual minute as to the nowcast and forecast for the economy, and help me pay for some nice tapas the next time I dine out at a Spanish restaurant.

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Mortgage rates continue to rise; once the backlog in construction is cleared, this will likely kill housing

April 22, 2022

– by New Deal democratNo important economic news today, but an important negative trend in interest rates is continuing. Mortgage rates are now at 12 year highs.The weekly data from Freddy Mac’s weekly survey shows rates increased to 5.11% as of April 21:This is 2.46% above the low of 2.65% that was set at the end of 2020, and the highest rates since April 2010. It is also only 1.69% below the 6.80% rate that killed the housing bubble in 2006.And according to Mortgage News Daily, as of today rates have increased further to 5.38%.Here’s an update of a graph I ran earlier this week, showing the YoY change in mortgage rates, inverted and *10 for scale, vs. the YoY% change in single family permits (red) and starts (gold):Unless this situation reversed quickly, once the backlog in housing

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Jobless claims: more 50+ year lows

April 21, 2022

– by New Deal democratInitial jobless claims declined -2,000 to 184,000, another 50+ year low. The 4 week average rose 4,500 to 177,250, compared with the all-time low of 170,500 set two weeks ago. Continuing claims declined -58,000 this week to 1,417,000, a new 50 year low (but still well above their 1968 all-time low of 988,000):Nobody  – still – is getting laid off. We’re still about 1.6 million shy of “full employment,” by my calculation. Further, the game of “musical chairs” whereby workers can always find higher wages somewhere is still very much happening. The next important marker is going to be “job openings” in the March JOLTS report which will be released next week. That’s because this situation is going to go on until enough employers decide that they simply can’t afford the

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Coronavirus dashboard for April 20: there’s a new subvariant in town

April 20, 2022

– by New Deal democratLet me start with the current overview. As of today, Nationally cases are now rising sharply, up to 41,500, an increase of 25% in the past week: Hospitalization are generally flat at slightly over 10,000, but new admissions have risen steadily, by 8% over the last 11 days:Deaths have continued to decline, to 452, a level lower than all times during the pandemic except for 7 weeks last June and July:But, conditions have changed.Up until this week, my paradigm has been that cases in the US would follow the pattern in Europe, where once the BA.2 subvariant of Omicron reached roughly 90% of all cases, typically 2.5-3.5 weeks after the onset of the BA.2 wave, they peaked and then declined more or less rapidly.Except . . . the Northeastern part of the US did not follow

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Housing starts show continued strength in March, while single family permits indicate softness ahead

April 19, 2022

– by New Deal democratThe continued strength in total housing permits and starts shown in this morning’s report for March was surprising; but the series with the most signal and least noise, single family permits, betrayed weakness. While typically permits, especially single family permits, lead the series, in the past year, however, there has been a unique divergence between permits and starts, as supply shortages resulted in a delay in actually building houses that had been approved.Housing authorized but not started increased to yet another 50+ year record last month, at 290,000: In 2021 permits soared then sank, while starts held much more steady, due to the above delay in the actual start of construction, as shown in the below graph of total housing starts (blue), total permits

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The worst interest rate upturn since 1994 is likely to produce the worst housing downturn in over a decade

April 18, 2022

– by New Deal democratNo economic news of note today; but tomorrow we will see housing permits and starts for March, and on Wednesday existing home sales. So let’s take an important look at housing.The recent increase in mortgage rates to over 5% is the most serious interest rate threat to housing in at least the past 30 years. As the below graph shows, the increase in over 2% is the biggest jump in mortgages since 1994:But additionally, in 1994, when interest rates jumped from 6.75% to 9.25%, that was a 37% increase in monthly mortgage costs. The jump in the past year from 2.65% to 5.00% makes for an 89% increase in monthly costs. In other words, in 1994 a $1000/month interest payment jumped to $1370; in the past year a $1000 payment would jump to $1890!And housing is very responsive to

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Paul Krugman on the Great Illusion of economic rationality and war — in 2008

April 17, 2022

– by New Deal democratPaul Krugman wrote an article this past week about how free trade can enable authoritarians, and how Russia’s invasion of Ukraine may be putting an end to globalization. I went looking for an excerpt that wasn’t behind a paywall, and look what I found instead: the below article from Krugman in 2008, helpfully copied in the old Economist’s View blog.In retrospect, it is an amazing read. I’ve highlighted In bold portions of particular interest.——“Is the ‘second great age of globalization’ about to end?”The Great Illusion, by Paul Krugman, Commentary, NY Times: So far, the international economic consequences of the war in the Caucasus have been fairly minor, despite Georgia’s role as a major corridor for oil shipments. But as I was reading the latest bad news, I found

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Weekly Indicators for April 11 – 15 at Seeking Alpha

April 16, 2022

– by New Deal democratMy Weekly Indicators post is up at Seeking Alpha.There was good news and bad news this week.The good news is that the yield curve decisively un-inverted this week. The bad news is that it happened because Treasury yields at the long end rose to close to 5 and 10 year highs, reflected in mortgage rates tied for 10 year highs. This is going to wreak havoc in the housing market.As usual, clicking over and reading will bring you up to the virtual moment on all of the important economic trends. Also as usual, it will reward me just a little bit for the effort I put in to producing the report.

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Real aggregate payrolls and sales

April 15, 2022

– by New Deal democratThere seems to be some pushback against the narrative that real wages have declined, based on compositional effects (lower pay occupations vs. higher pay occupations). While some of that is true (for example, 5/6’s of all leisure and hospitality losses have been recovered, vs. 3.4% actual job *gains* since February 2020 in professional and business services; and a 91% rebound among total payrolls) – it is far less a factor than it was 18 or even 12 months ago.Another way around that is to look at *aggregate* payrolls, particularly for nonsupervisory employees. This takes out the distortions introduced by outsized pay increases for the bosses, and also takes into account the total hours of pay earned in the economy. Since aggregate real payrolls are also a good,

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The production side of the economy remained solid in March

April 15, 2022

– by New Deal democratIndustrial production, the King of Coincident Indicators, increased in March by 0.9%. February was also revised higher by 0.4%, but January was revised lower by the same percentage, for a wash. Manufacturing production also  increased 0.9%. Total production thus made another new record high, while manufacturing is still below its record levels of 2007 and early 2008:On a YoY basis, total production is up 5.5%, while manufacturing is up 5.2%. Compared with the last 50 years, and particularly the last 20, this continues to be solid growth: Of course, industrial production still lags when it is compared with either population growth or GDP growth over the past 25 years (i.e., the China shock is still very impactful).But still, in summary, while there may be some

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Real retail sales in March continue to show a weaker consumer sector, forecast weaker jobs reports and GDP

April 14, 2022

– by New Deal democratFor the past few months, I have suspected that a sharp deceleration beginning with the consumer sector of the economy was more likely than not. The retail sales report for March was consistent with that suspicion.Nominally retail sales rose +0.5% in March, but since consumer prices rose 1.2%, real retail sales declined -0.7%. Further, they are up only 0.2% from last May (using that month because March and April were the stimulus months): Typically a YoY decline in real retail sales is a recession indicator. Since compared with last March, sales were down -1.5%:ordinarily I would be worried. But since last March and April were temporary post-stimulus spending sprees, I think the comparison with last May is a better one.Thus the big takeaway is that real retail sales

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Jobless claims: the employment sector of the economy continues to do just fine

April 14, 2022

– by New Deal democrat[Note: I’ll comment on this morning’s retail sales report for March separately]Initial jobless claims rose 18,000 to 185,000 from their 50+ year last week. The 4 week average rose 2,000 from last week’s all-time low to 172,250. Continuing claims declined -48,000 this week to 1,475,000, a new 50 year low (but still higher than the 1960s):Essentially nobody is getting laid off. We’re still about 1.6 million shy of “full employment,” by my calculation, but with that exception, the jobs part of the economy is doing just fine.

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Coronavirus dashboard for April 13: watching the BA.2 “bump”

April 13, 2022

– by New Deal democratThe BA.2 “bump” (h/t Dr. Eric Topol) is upon us (and hopefully a “bump” is all it is). Let’s take a look at where we stand.Cases bottomed 8 days ago at 28,378. As of yesterday they had increased to 32,835:Hospitalizations have continued to decline, and at 9859 are the lowest since March 2020 when the pandemic was just beginning:Deaths are at 527, just above their 10 month low of 498 the previous day. Only in June and July 2021 have deaths been lower than this. The below graph shows the long term view of both deaths (bold line) and cases (thin line), scaled separately:Each successive wave has been *relatively* less lethal (i.e., deaths vs. cases) than the previous one, with the exception (slightly) of Delta last summer. Note there was a slight increase – a “bump” in

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March consumer inflation part 2: I told you so; the Fed *must* start paying attention to house price indexes

April 12, 2022

– by New Deal democratThis is the second part of my take on the March consumer inflation report.As you may have already read, total inflation clocked in at +1.2% for March alone! YoY consumer prices are up 8.6%, the highest 12 month rate since 1981. As anticipated, gas prices were a huge contributor; less energy, prices were up 0.4%; less both food and energy they were only up 0.3%:The spike in gas prices may be – to use a recently dreaded word – transitory. In the past 4 weeks, gas prices are down 5%; as of this morning oil prices, which had been as high as $123/barrel on March 8, are back under $100.There was some small good news in one sector: the price of used cars and trucks fell -3.8% in March: but prices are still up 35% YoY:And of course, used vehicle prices are down because they

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March consumer inflation part 1: real wages decline sharply

April 12, 2022

– by New Deal democratThe March consumer inflation report was particularly important, and particularly bad. So much so that I am going to divide my comments into two separate posts.First, the news on real wages was terrible. While nominally nonsupervisory wages rose 0.4% in March, since inflation rose 1.2%, “real” wages declined -0.8% in March alone. On a YoY basis, real wages were down -1.8%:Aside from the outset of the pandemic during April and May 2020, this is the worst number since 2011, and one of the 4 worst months since 1991.Further, on an absolute scale, real wages were the lowest since March 2020; they were also down -1.6% since July 2020: Finally, real aggregate payrolls are only up 1.5% YoY, and only up 0.3% in the past 7 months. Since real aggregate payrolls turning negative

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Housing affordability update: prices vs. mortgage payments; and ramifications for the economy

April 11, 2022

– by New Deal democratNo economic news today, and most States didn’t report new COVID cases over the weekend, so let’s take a look at something else; namely, housing affordability, which I’ve been meaning to update for several weeks.The first graph below compares 4 measures of house prices: the FHFA purchase index, the Case Shiller national index, and the Census Bureau’s measures of median prices for new and all houses sold. The best way to get to the “real” inflation adjusted cost of housing would be to divide by median household income, but since that is only officially calculated once a year, a good monthly proxy is average hourly wages, which is what I use below. All 4 measures are normed to 100 as of January 2006, at or close to the peak of the housing bubble for all of them:You can

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