Industrial production, jobless claims, and retail sales
As 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,

Quick hits on a major Thursday economic news blitz
There 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

Real average and aggregate wage growth for July 2019: yellow flag for aggregate wages

Now that we have the July inflation reading, let’s take a look at real wages.

First of all, nominal average hourly wages in June increased +0.2%, while consumer prices increased +0.3%, meaning real average hourly wages for non-managerial personnel decreased -0.1%. This results in a slight decline of real wages to 97.0% of their all time high in January 1973:

On a YoY basis, real average wages were up +1.5%, a decline from their recent peak growth of 1.9% YoY in February:

Updated through July, real aggregate wages – the total amount of real pay taken home by the middle and working classes – are up 28.7%  from their October 2009 low:

For total wage

Notes on the June JOLTS report: weakness but no imminent downturn
I’m still on vacation, so continue to expect light posting. But I thought I’d take a look at the one piece of data that came out this week, the June JOLTS report.

First of all, the “hiring leads firing” mantra continues to be true:

[Note: data averaged quarterly to cut down on noise.] Interesting that hiring has been essentially flat for a full year, and total separations (“firing”) for the past three quarters.

But the layoffs and discharges part of separations continues down YoY, a good thing, and what initial jobless claims and the unemployment rate also show, if weakly:

But the relative weakness of the employment situation show up in the YoY% changes in hiring, voluntary quits,

Scenes from the July employment report
First things first: I’m on a vacation for part of this week, so don’t be surprised if there are no postings for a few days.

The July employment report continued a string of good headline numbers with weak leading internals. Let’s take a look.

In the good news department, the U6 underemployment rate declined to yet another new expansion low of 7.0%. This is mainly due to the continuing decline in the involuntarily part time employed. The only three months it has been better than that since the modern series started were three months in the year 2000:

When we go further and take a look at those who aren’t even in the labor force, because they aren’t looking for a job, but say they want a job now, we’re about 0.2%

The housing choke collar
I have a new post up at Seeking Alpha, discussing how, even though sales went down last year, and have already bottomed, house prices have as usual, followed into decline with a lag.
Beyond that, I discuss the concept of a “housing choke collar,’ similar to the “oil choke collar” I used to write about in 2010-14, whereby prices repeatedly approach the tipping point of unaffordability, causing sales to drop off, causing interest rates and prices to decline, making housing more affordable … and the cycle repeats.
One item that didn’t make it into that article, because I was trying to be concise and not digress, was this graph of the median income of renters that Kevin Drum posted a couple of weeks ago:

Kevin Drum has repeatedly been

June 2019 personal income and spending

The wage-earner/consumer remains in decent shape, and a lack of inflation (continued low gas prices!) continues to be able to hide a multitude of sins. That’s the message from this morning’s June report for personal income and spending.

Nominally, income rose +0.4%, while spending rose +0.3%. Since inflation as measured by the PCE price index only increased 0.1%, that means both real income and real spending rose +0.3 and +0.2%, respectively:

Here’s the same data YoY:

As I’ve written about many times over the past ten years, earlier in the cycle retail sales tend to grow more than the broader measure of personal spending; later in the cycle retail sales decelerate first. Here’s what that looks like

Trump’s trade wars can still lead to a producer led recession
I wrote a piece last week for Seeking Alpha explaining that, while the consumer side of the economy is doing reasonably well, a recession could still come in via the producer side.
A Producer-Led Recession Remains Viable
As usual, clicking over and reading should be educational for you, and puts a penny or two in my pocket.
Thus, the idea that no recession can happen absent a 20% YoY slide in new home sales is not correct. In fact, the 2001 recession happened with only a 10% decline from the very top to bottom in sales (and less than that YoY) that ended about 6 months before the recession even began. The decline in new home sales from top to bottom in 2018 was similar.
One item that didn’t make

Both long leading components of Q2 GDP declined UPDATED with revisions and further comments
The headline number for the first estimate of real GDP in Q2 2019 was 2.1%, as I’m sure you’ve read elsewhere.

As is usual, I’m not so interested in what is, after all, what the view in the rear view mirror is, as what the leading components can tell us about what lays ahead.

In that regard, both leading components of GDP declined.

– Real private fixed residential investment declined at a -1.5% rate annualized. This is the 6th quarter in a row of a decline in that number. In the past half century, declines this long have typically been seen either right before or right after a recession has started – although the magnitude of the decline has been smaller.

Housing has bottomed
With the release of new home sales this morning, and existing home sales yesterday, it is increasingly apparent that housing has bottomed – just as I said a number of months ago that it would sometime this spring.

To the graphs! New home sales (blue in the graph below) bottomed last October, at 557,000 units annualized. As of June, they were at 646,000:

This isn’t as good as earlier this spring, but is better than every other reading in the past 12 months. Meanwhile prices, which typically lag sales, bounced back from May’s 12 month low, but it is not clear at all if the trend is reversing yet.

Here’s the same data presented YoY, so that it is easier to see the trend:

Both sales and prices have bounced back to positive

How today’s Democratic ‘Squad’ is a direct ideological descendant of the original 1850s Republicans
Nothing is ever really “new.” Today’s ‘Squad’ of young Democrats is the direct ideological descendant of the original 1850s Congressional Republicans. That is one of the important lessons of Joanne Freeman’s “The Fields of Blood,” about the increasing threats of, and actual incidents of, violence in the US Congress between the 1830s and the Civil War.

Just as today, there were differing economic and social divides in America. Economically there was a struggle for power between the merchant class and farmers. Socially the increasingly contentious issue was that of slavery. At least beginning with Andrew Jackson’s 1828 Presidential election victory, the

June consumption was strong, while production was weak

Tuesday 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

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

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

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

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

Real average and aggregate wages improved in June

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

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

Scenes from the June employment report

As 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

June jobs report: excellent establishment survey, mediocre household survey
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

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

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

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

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

The consumer is alright
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

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

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

Manufacturing job losses now look virtually certain
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

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

A tale of two timeframes

No data today Monday, 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

Trucking suggests transport slowing, but has not rolled over

I 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,

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

Empire State Manufacturing: OUCH!
I’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.

Initial jobless claims for week ending June 10 – no concern yet

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 claims last week were 222,000. The four week moving average was 217,750.
First, the four week average is only 8.1% above its recent low:

Second, the YoY% change for this week is only lower by -1.8%. For the first two weeks of June, it averages +0.5% higher:

Finally, last week I noted that, since initial claims tend to slightly lead the unemployment rate, I expected a slight increase in the