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June residential construction report a decidedly mixed bag

21 hours ago

– by New Deal democratThe Census Bureau’s report on residential construction for June was a decidedly mixed bag. Here’s their graph of permits, starts, and completions:

On the positive side, even though starts declined slightly in June, the three month average, which is the best way of looking at this measure due to its noisy m/m readings, improved to the best number in 13 months. Starts are real economic activity, and bode well for 2020.  Single family permits (not shown above) – the least noisy of all the leading housing indicators – also improved to 813,000, suggesting that April’s reading of 786,000 may have been their low.

On the negative side, total permits declined to 1.22 million annualized, which is the lowest reading in over 2 years, and is -13.2% below their March 2018

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June consumption was strong, while production was weak

2 days ago

– by New Deal democrat
This morning’s retail sales and industrial production releases for June are consistent with my take that the consumer sector of the economy is doing OK, while the production sector remains in trouble.

Let’s start with retail sales. 

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 June were reported up +0.4%, while May was revised downward by -0.1%. Since consumer inflation increased by less than 0.1% last month, through the magic of rounding, real retail sales also rose +0.4%. The strength of the past two months means that YoY real retail sales are now up +1.7%.Here is what the last five years look

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The consumer vs. the producer economy

3 days ago

– by New Deal democratProf. Edward Leamer wrote over a decade ago that, in a consumer led recession, first housing turns, then vehicle sales, then other consumer goods.What do home and vehicle sales tell us now about the economy, vs. corporate profits? This post is up at Seeking Alpha.As usual, clicking over and reading puts a penny or two in my pocket.

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WARNING: another “debt ceiling debacle” is looming, and could cause nearly immediate recession

4 days ago

– by New Deal democrat
It’s time to start to get seriously worried about another “debt ceiling debacle.” In 2011, the GOP refused to authorize a “clean” debt ceiling hike. The hike in the debt ceiling, for those who may not know, is necessary for the US government to pay debts that *it has already incurred.*

In 2011, as a result of the impasse, US creditworthiness was downgraded from AAA to AA. Consumer confidence plummeted:

Note the next largest spike downward occurred during the government shutdown at the beginning of this year.  

  

In both cases – the debt ceiling debacle and the government shutdown – Long bond rates (mortgages, shown in blue below) plunged in a “flight to safety,” and stock prices (red) also plunged about 15%:

We know, of course, that the stock

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Real average and aggregate wages improved in June

6 days ago

– by New Deal democrat

Now that we have the June inflation reading, let’s finish out our week focusing on the labor market.

First of all, nominal average hourly wages in June increased +0.2%, while consumer prices increased +0.1%, meaning real average hourly wages for non-managerial personnel increased +0.1%. Together with upward revisions to prior months, this brings real wages up to 97.2% of their all time high in January 1973:

On a YoY basis, real average wages were up +1.6%:

On that score, this morning’s readings include this take by Prof. James Hamilton at Econbrowser indicating that the Phillips curve (the trade-off between inflation and employment) is still alive, together with this guest post by David Branchflower at Talking Points Memo on Jerome Powell’s

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Initial claims positive to start July, but trend in continuing claims the weakest in 9 years

7 days ago

– by New Deal democrat

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 209,000. This is in the lower part of its range for the past 18 months. As of this week, the four week average is 9.2% above its recent low, and at 219,250, is 1,500 lower than this week last year: 

This remains positive.

Last July, initial claims averaged 215,250. Obviously, 209.000 (blue in the graph below) is below that average, which is also positive – but is only the first of the four weeks that will go into that average (red):

So this

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Using long term unemployment claims as confirmation for initial claims

8 days ago

– by New Deal democratIn the last few months, I’ve been paying extra attention to the weekly reports of initial jobless claims. Today I want to compare them to long-term claims (15 weeks or over) for unemployment benefits.

Way back about a decade ago, one of the occasional co-bloggers here was Invictus, who personally knew and subsequently was scooped up by Barry Ritholtz. Well, he still writes, and his Twitter feed is worth checking out. 

So anyway, last week he tweeted this:

It had been a long time since I checked this series, so I wanted to double-check the claim that it always turned up before a recession. The answer is, usually that has been true, but it made its expansion low in the exact month that a recession started three times (1948, 1953, and 1981), and made its

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May JOLTS report is weak, consistent with last month’s weak jobs report

9 days ago

– by New Deal democratThe jobs report one month ago was poor, so as expected the JOLTS report for May, released this morning, followed suit.

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 (normed to 100 as of May 2018):

As shown above, in today’s report, all of the above series, as well as job openings, declined month over month. Additionally, the only series that were higher compared with one year ago were job openings (+2.8% but significantly off its

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Scenes from the June employment report

10 days ago

– by New Deal democratAs I (and everyone else) wrote on Friday, the establishment portion of the June jobs report was very good.

On closer examination, though, the leading components of the report continued to show some weakness.

To begin with, for months I’ve been following manufacturing, residential construction, and temporary employment as the leading sectors. As the below graph of the past 18 months shows, all were positive in June:

But if you compare each bar (blue, red, green), you see that two of the three sectors nevertheless came in considerably lower for June with the average in that sector from 2018 (17k vs. 21K, 4.6k vs. 4.3k, 4.3k vs. 6k, respectively).

More broadly, jobs in goods producting industries turn down in advance of recessions much more sharply than

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Weekly Indicators for July 1 – 5 at Seeking Alpha

12 days ago

– by New Deal democratMy Weekly Indicators post is up at Seeking Alpha. Lower long term interest rates continue to improve the long range forecast, while the short term forecast has deteriorated.As usual, clicking over and reading puts a penny or two in my pocket to help reward me for my efforts.

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June jobs report: excellent establishment survey, mediocre household survey

13 days ago

– by New Deal democrat
HEADLINES: 
+224,000 jobs added
U3 unemployment rate rose 0.1% from 3.6% to 3.7%
U6 underemployment rate rose 0.1% from 7.1% 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 all positive this month.
the average manufacturing workweek rose 0.1 from 40.6 hours to 40.7 hours. This is one of the 10 components of the LEI. 
Manufacturing jobs rose by 17,000. YoY manufacturing is up 167,000, a deceleration from last summer’s pace.
construction jobs rose by 21,000. YoY construction jobs are up 204,000,

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Initial claims on the cusp of turning neutral; expect a middling June jobs report

15 days ago

– by New Deal democrat

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, plus implications for the impending June jobs report.

As of this week, the four week average is now 10.3% above its recent low:

Last June the monthly average was 222,000. This year it was 221,500:

That is merely -0.2% better than last year. In other words, had this week’s number been just 1,000 higher,that would have been enough to tip this indicator from positive to neutral.

 Now let’s turn to implications for Friday’s jobs report. Since initial jobless claims lead the

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In which I nitpick Prof. Jared Bernstein about a consumer “economic tailwind”

16 days ago

– by New Deal democrat

Last Friday, following the release of May’s personal income and spending report, Prof. Jared Bernstein, whom I follow religiously, wrote among other things about some economic headwinds and tailwinds, including the following: 

Finally, my personal favorite tailwind indicator [pointing to the below graph]: the close tracking between aggregate real earnings and consumer spending. The good news is they’re both clearly in expansion territory. The bad news is that they can both downshift within a few quarters:

Although he labels them differently, the first is one of my favorites as well: real aggregate payrolls of production and non-supervisory employees. The second is real personal consumption expenditures. 

That piqued my interest, because over seven

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As we start the second half of 2019 . . . (Updated: manufacturing almost exactly flat in June)

17 days ago

[unable to retrieve full-text content] – by New Deal democratFirst of all, I forgot to post a link to my post at Seeking Alpha on how a near-term recession is not likely to be centered on either the consumer and financial sectors of the economy, which are doing OK at the moment, but the producer sector – manufacturing – which is getting pretty shaky. We’ll find out more later this morning when ISM manufacturing for June gets reported.As usual, clicking over and reading puts a penny or two in my pocket to reward me for my efforts.Now that we are in the second half of the year, I expect the slowdown that we’ve seen over the past few months to become more entrenched. I remain on “recession watch” because risks are elevated (see, for example, this post by Menzie Chinn), but despite the

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On Gerrymandering: “The United States shall guarantee to every State in this Union a Republican Form of Government”

18 days ago

Previously I have written that the Fourteenth Amendment specifically provides for a reduction in representation for any state that engages in voter suppression.

Section Two of the Fourteenth Amendment provides in part:

“[W]hen the right to vote at any election … is denied to any … citizens of the United States, or in any way abridged, except for participation in rebellion, or other crime, the basis of representation therein shall be reduced in the proportion [thereto]….”In view of the GOP Supreme Court majority deciding that partisan gerrymandering is a “political question” beyond the purview of the courts, I want to take this matter further. Because if the Congress is willing to play hardball, it has a remedy.

Article 4, Section 4 of the US Constitution provides:

“The

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The consumer is alright

20 days ago

– by New Deal democrat
One of my big themes this year is that low gas prices can hide a multitude of economic sins. This morning’s data on personal income and spending confirms that the consumer side of the economic ledger is doing OK.

Nominal personal income rose +0.4%, and nominal personal spending rose +0.5%. After adjusting for inflation, the numbers are +0.3% and +0.2%, respectively. As a result, the positive trends for both continue:

On a YoY basis, we can see that spending slightly leads income (similarly point to the way consumption leads employment, not the other way around), and is also more volatile:

Next, going back 50 years, real retail sales improve further early in expansions, and fade more quickly later in expansions. Here’s the graph for that for the past

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Initial jobless claims: positive this week, but close to crossing two thresholds for concern

21 days ago

By New Deal democratI 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.

The four week average is 9.8% above its recent low:

On a weekly basis, YoY the average is +0.3% higher than this week last June.

Last June the monthly average was 222,000. With one week still to go this June, it is 221,250:

Depending on revisions to this week’s number, if next week comes in at 222,000 or higher, that will cross the first threshold. If it comes in at 224,000 or higher, it will cross the second threshold as well.

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Manufacturing job losses now look virtually certain

22 days ago

– by New Deal democrat
I’ll have a post going up at Seeking Alpha later, but between a steep decline in the manufacturing work week, lackluster regional Fed manufacturing indexes (still barely positive), a turndown in durable goods orders (in part due to Boeing’s woes), and increasing inventories, it now looks nearly certain that there will be an actual decline in manufacturing jobs over the next twelve months.

To put this in perspective, here are the annual gains (losses in 2010) in manufacturing jobs through the end of 2018: 

Here is the same data monthly through May from the beginning of Obama’s second term:

Hillary Clinton ran for President in 2016 in the teeth of a manufacturing recession. That is why the fundamentals-based economic models all forecast a very close

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New home sales: is housing developing a price “choke collar”?

23 days ago

– by New Deal democratSo, new single family home sales for May were reported light this morning:

Because this series is very volatile and heavily revised, as always take this with a grain of salt.

To smooth out some of the volatility, I pay more attention to the three month moving average, which at 670k is slightly below that of that average for the past two reports, and also slightly below the late 2017 peak. Still it is above all of 2018, so it nevertheless adds to the evidence that the bottom for housing is in.

Also, the YoY% change in median price, while reverting to negative this month, is also a significant improvement over the situation over the winter (red in the graph below):

What is interesting here is how quickly price declines, and now price rebounds, have

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A tale of two timeframes

24 days ago

– by New Deal democratNo data today, so while we are waiting for new home sales tomorrow, let me step back a little and give you an updated overview of my thinking.

It boils down to: the short term forecast — over the next 4 to 8 months — looks flat at best, and could develop into an actual downturn. The longer term — over one year out — looks more positive.

Let me start with the positive long term forecast first. 

Long term interest rates have gone down significantly. Most importantly, mortgage rates have declined from about 5% to 4%. As a result, overall housing permits and starts, new single family home sales (which will be updated tomorrow) and through last Friday’s release of existing home sales have all turned higher: 

The last big holdout, single family permits,

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Initial jobless claims still weakly positive

27 days ago

– by New Deal democratI 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.

The four week average is 8.6% above its recent low: 

YoY the average is -0.5% lower than this week last June.

Last June the monthly average was 222,000. With two weeks to go this June, it is 219,000:

Like so many other economic indicators at this point, initial jobless claims remain weakly positive.

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Regional Fed indexes confirm that manufacturing is flat

28 days ago

– by New Deal democrat[A reminder: this week I’m on vacation, so light posting is the rule.]
Earlier this week the Empire State Manufacturing Index went negative. This morning the Philly Index just barely avoided the same, reported at up +0.3 for June: 

The more leading new orders index declined to +8.3.

This means the average of NY and Philly is a little below -1, while the average of all five regional Fed indexes as of their last reports is +0.8.

Last week I pointed out that the average manufacturing work week had fallen to a point consistent with an oncoming recession, and based on past patterns, I expect layoffs to follow. This week’s two regional indexes show that the leading manufacturing sector, as of the most recent readings, is not in decline, but on the other hand, it

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Trucking suggests transport slowing, but has not rolled over

29 days ago

– by New Deal democratI have been paying particular attention to the monthly report of the American Trucking Association, to compare its performance with rail, which has been sagging since the beginning of this year. A few other people are relying on the Cass Freight Index, but since that includes international shipping and air transport, it does not exclusively measure the US economy.

In April this index rose 7.7%, and was up 7.4% YoY as well. In May it gave almost all of that back:

According to the ATA, truck traffic declined 6.1% in May, and is now up only 0.9% YoY.

The trend remains neutral to slightly positive, in contrast to rail, suggesting that overall the economy, at least as measured by transport, has slowed down substantially but not yet rolled over.

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May housing permits and starts consistent with rising trend off bottom, but suggest layoffs to come

June 18, 2019

– by New Deal democratAlthough the headlines in the May report for building permits and starts were “meh,” the internals suggest that the bottom has probably already been reached. The downside remains that residential construction employment will decline.

First, let’s look at the headlines for permits (red) and starts (blue). It appears that permits made their bottom 9 months ago, and starts five months ago:

Since starts are much more volatile than permits, I also look at their three month moving average. This is at 1.225 million annualized, a 10 month high.

Single family permits are the least volatile most forward looking measure. These rose off their April low:

No change of trend obvious yet, but my strong suspicion is that April was the low.

On the negative side,

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Empire State Manufacturing: OUCH!

June 17, 2019

– by New Deal democratI’m on vacation this week, so fair warning that there is probably going to be light posting!The only economic news of note today was the Empire State Manufacturing Index.  Only one district, only one survey, in a noisy series, but just the same, the overall index fell to -8.6 and the new orders component fell to -12:
This brings the average of all five regional Fed Indexes down to +1. If the Philly Index simply declines to +5 or less later this week, then the average will turn negative.Even that would not be a disaster. Note that in 2015-16 when the Empire State Index was this low or lower, the overall economy remained positive. But unless housing turns around quickly, we have a problem.

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Weekly Indicators for June 10 – 14 at Seeking Alpha

June 15, 2019

– by New Deal democratMy Weekly Indicators post is up at Seeking Alpha.The divergence between the near term vs. longer term forecast is increasing, and the risk that the forecast is too optimistic is asymmetrical, because for the economy, Trump’s chaotic tariff behavior cannot improve the situation, but can definitely cause harm.

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May real retail sales positive, but industrial production remains in a shallow recession

June 14, 2019

– 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 May were reported up +0.5%, and April was revised upward by a net +0.5% as well. Since consumer inflation increased by +0.4% over that two month period, real retail sales have risen +0.6% in the past two months.  For the past two months I have noted that sales were still slightly below their peak last November, and YoY real sales remained in a downshift. This morning’s report helps those comparisons substantially, as YoY real retail sales are now up +1.4%. 

Here is what the last five years look like:

Real retail sales turned flat for about a year

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