2019: the year that the late economic expansion finally bore fruit for nearly all of society

Yesterday  (Sept. 16) the Census Bureau released its 2019 information concerning median household income and poverty rates. Unfortunately, this data is always released in September of the following year, so is already somewhat stale. Just for example, since the information is collected between February and April of the following year, we may not get complete information about the impact of the coronavirus until two years from now!

Also, since the information is across *all* households, not just wage- or salary-earning households, but includes, for example, retirees as well as the unemployed, it should not be used to infer information about wages.

That being

Real retail sales gains join industrial production in sharp deceleration

Two days ago we saw that gains in industrial production had decelerated sharply in August. This morning we saw the same thing with real retail sales, one of my favorite indicators.

Nominal retail sales were up +0.6% in August. Meanwhile, July’s reading was revised downward by -0.3%. Since in July and August consumer inflation was up +0.6% and +0.4%, respectively, that means revised *real* retail sales rose +0.3% in July and +0.2% in August. This means that the net result over two months was lower than previously thought for the month of July alone.

Nevertheless real retails sales did establish a new record high, above any reading from before the pandemic:

Historically

Industrial production improves in August, but with sharp deceleration

If the jobs report is the Queen of Coincident Indicators, industrial production is the King. It, more than any other metric, is found at the turning points where recessions both begin and end.

This morning’s report of industrial production for August shows that the recovery from the bottom of the coronavirus recession has come close to stalling out.

Overall industrial production grew by 0.4%, while July was revised higher by 0.5%. Manufacturing production grew just under 1.0%.  July was likewise revised higher by 0.6%. Here are the overall totals:

The good news is that manufacturing production has gained back almost 70% of its decline from March. Overall production has gained a

Coronavirus dashboard for September 14: cases in the Midwest surge; the Northeast still lags Canada

Total US cases: 6,519,573
Average cases last 7 days: 34,744
Total US deaths: 194,071
Average deaths last 7 days: 733
 Source: COVID Tracking Project

I continue to expect the pandemic to wax and wane in relative terms at least until next January 20, as the public reaction in various States varies between panic and complacency.

Let’s start by comparing the rates of cases and deaths in the US with the North American standard – Canada:

In contrast with the US, Canada averaged 18 cases per day per million people in the last 7 days (vs. 105 for the US), and 0.1 deaths (vs. 2.2 for the US). That is what we could have as well if there were competent Federal

The 2020 Presidential and Senate nowcast: the races congeal

Here is my weekly update on the 2020 elections, based on State rather than national polling in the past 30 days, since that directly reflects what is likely to happen in the Electoral College. Remember that polls are really only nowcasts, not forecasts. They are snapshots of the present; there is no guarantee they will be identical or nearly identical in early November.
Let’s begin with Trump’s approval. After several weeks of improvement, this week Trump’s approval eroded very slightly – but remains right in its normal range for the past 3 1/2 years:

It is safe to say that Trump’s post-convention, “law and order” bounce has plateaued (note there have not been any big BLM demonstrations in the

Consumer inflation continues to accelerate YoY, but so far no big problem

The consumer price index for August was reported up +0.4% this morning. This is the third straight big increase. Below I show this plus the more stable consumer prices minus gas (red):

Here’s what the monthly changes look like over the past 10 years:

As you can see, these are at the upper end of monthly inflation increases for the past 10 years.

On a YoY basis, however, inflation is still pretty subdued at 1.3%. Inflation ex-gas is up 2.1%, well in the ordinary range for the past 20+ years:

As a result, real wages for non-supervisory employees, in historical terms, have finally surpassed their previous 1973 high:

Of course, this has everything to do with the fact

Improvement in initial and continuing claims stalls out

This morning’s jobless claims report shows that the trend of “less worse” news has at least temporarily ended, at a level of about 150,000 higher than the worst weekly levels of the Great Recession.
On a non-seasonally adjusted basis, new jobless claims rose for the second week in a row, by 20,140 to 857,148. After seasonal adjustment (which is far less important than usual at this time), claims were unchanged at 884,000, tied for their “best” reading since the pandemic began. The 4-week moving average declined by 21,750 to a new pandemic low of 970,750:

Continuing claims, on both an unadjusted and seasonally adjusted basis rose from their pandemic lows of last week, by 54,472 to 13,197,059, and by

Sorry, partisans in denial: swing State polls have tightened

It’s a slow economic news week, so let me follow up with some further information about movement in the polls. My usual caution: polls are *NOT* forecasts, just nowcasts estimating what would happen if the election were today.

In the past few days, there is further evidence that Trump’s “law and order” message has resonated with at least a small subset of presumably white, probably older, voters. Below are some graphs from Nate Silver’s site of a few swing and swing-ish States. Note his graphs take into account national, as well as State-specific polls, but the net result is typically within 1% of what my average of State-only polling shows.

There has been a considerable narrowing of the race

The 2020 Presidential and Senate nowcast: Trump finds his issue
Here is my weekly update on the 2020 elections, based on State rather than national polling in the past 30 days, since that directly reflects what is likely to happen in the Electoral College. Remember that polls are really only nowcasts, not forecasts. They are snapshots of the present; there is no guarantee they will be identical or nearly identical in early November.
I am afraid I have some bad news for those who think Trump did not have a convention bounce. In the past week, disapproval has eroded by 1.9% and approval has increased by 1.5%. Both of these have moved over 3% from their recent nadirs. I am sorry to tell you that Trump’s attacks on violent protests have been effective,

Coronavirus dashboard for September 2: Trumpism still kills
Total US cases: 6,073,840
Cases, 7 day average: 42,304
Total US deaths: 184,604
Deaths, 7 day average: 888

Source: COVID Tracking Project

US cases by region:

US deaths by region:

Superficially, this looks somewhat promising, as both cases and deaths have declined. But note that cases have flattened in the past week or so without further declines. This is particularly of concern, because the number of *tests* administered *has* declined somewhat over the past few weeks, as shown in the graph below of tests vs. cases, for the total US

In the Northeast, testing has actually *increased,* without finding any more new cases (not shown). That’s good! But here are the other three regions

August jobs report: continued slow incremental progress

HEADLINES:
1,371,000 million jobs gained. The gains since May total about 48% of the 22.1 million job losses in March and April. The alternate and more volatile measure in the household report was 3,756,000 jobs gained, which factors into the unemployment and underemployment rates below.
U3 unemployment rate fell -1.8% from 10.2% to 8.4%, compared with the January low of 3.5%.
U6 underemployment rate fell -2.3% from 16.5% to 14.2%, compared with the January low of 6.9%.
Those on temporary layoff decreased 3.1 million to 6.2 million.
Permanent job losers increased by 534,000 to 3.1 million.
June was revised downward by -10,000. July was also revised downward by -29,000 respectively, for a net loss of

Initial and continuing claims: very slow “less worse” progress continues

The continued good news in this Thursday morning’s jobless claims report is that the trend of “less worse” news is intact. But the improvement has slowed dramatically and is still at a level of about 150,000 higher than the worst weekly levels of the Great Recession.
On a non-seasonally adjusted basis, new jobless claims rose (slightly) by 7,591 from their pandemic low last week to 833,352. After seasonal adjustment (which is far less important than usual at this time), claims declined by 130,000 to 881,000, their “best” reading since the pandemic began. The 4-week moving average also declined to a new pandemic low of 991,750, its first reading under 1 million:

Continuing claims,

[unable to retrieve full-text content]The 2020 Presidential and Senate polling nowcast: Biden’s popular majority is congealing Here is my weekly update on the 2020 elections, based on State rather than national polling in the past 30 days, since that directly reflects what is likely to happen in the Electoral College. Remember that polls are really only nowcasts, not forecasts. […]

Real personal income, spending, and consumer sentiment for July
July personal income and spending were reported this morning. Since real personal income drives one important election model, I have been waiting to see if July would reflect the end of the emergency Congressional assistance. It didn’t.

Real personal income rose less than 0.1% in July. While it is down by -6% from April, it is up a huge 7.1% from July 2019. Real disposable and Per Capita income show similar trajectories:

More evidence that housing has roared back
This morning we got the final important July housing reports: new home sales and house prices.

New single home sales are very volatile and heavily revised, so it is always wise to take the initial report with a grain of salt. On the other hand, it is the most leading of all the reports.

With that caveat, this morning’s report of 901,000 sales annualized is the highest reading since December 2006! It is also in line with peak home sales in all periods prior to the 2000s housing bubble:

The below graph focuses on the last 8 years, and compares with the much less volatile single-family permits (red, right scale):

The bottom line is that the huge rebound is legitimate and not based on an outlier report.

More on the bifurcation between the booming stock market and the bust of an economy

 I wrote that new stock market highs in the face of the worst US economic downturn since the Great Depression were primarily a function of a few stocks that are particularly tied to the global economy rather than tethered to the US; that those stocks also benefited from delivering online content or physical stuff to homebound consumers; and that the background long leading indicators favor an expanding economy once the pandemic is behind us.
In addition to Paul Krugman, here are two more commentators who have weighed in on the issue, making much the same points as I did.

Barry Ritholtz:

“[I]t’s not rare for a small group of stocks to account for a large percentage of

The 2020 Presidential and Senate polling nowcast: partisan positions continue to harden

Here is my weekly update on the 2020 elections, based on State rather than national polling in the past 30 days, since that directly reflects what is likely to happen in the Electoral College. Remember that polls are really only nowcasts, not forecasts. They are snapshots of the present; there is no guarantee they will be identical or nearly identical in early November.
As I have frequently noted, Trump’s approval has always reverted to the mean, absent a new outrage that is both unusually cruel and simultaneously unusually inept. Since there has been none in the past few weeks, Trump’s margin has reverted by 2% for both approval and disapproval:

While Trump’s

Housing roars back
As I wrote yesterday, the background longer term fundamental factors for the economy, most importantly all-time low interest rates, are very positive. In particular I wrote, this “has already made an impact on the housing market…Lower mortgage rates cause more people to buy houses. Housing permits have already made back about half of their pandemic losses as a result.”

Well, with this morning’s report on July housing permits and starts, I can amend that to read that housing permits [and starts] have now made back almost *all* of their pandemic losses.

To cut to the chase, here is a graph of the past 3 years of housing permits (blue), starts (green), and the least volatile of all the metrics, single family permits (red, right scale):

Coronavirus dashboard for August 19: a regional look at infections; the Deep South remains almost totally out of control
Total US cases: 5,457,824
Average last 7 days: 48,764
Total US deaths: 163,595
Average last 7 days: 1,048

Source: COVID Tracking Project

My overall thesis is that under the present leadership the US as a whole is politically and socially incapable of bringing the coronavirus under control, as almost every other industrialized country has been able to do. That is very likely to change beginning next January 20.  Before then, I expect there to be a yin and yang in the course of the pandemic, as areas in the US veer between “the pain threshold” at one extreme and complacency on the other. Together with a vaccine hopefully being available

Initial claims mixed, while continuing claims continue “less awful” pandemic recovery trend

While this morning’s initial jobless claims increased from last week, they were better than any other readings since the pandemic started. Continuing claims had their “least worst” week yet.
On a non-seasonally adjusted basis, new jobless claims rose by 52,776 to 891,510, still only the second week under 1,000,000 since the beginning of the pandemic. After seasonal adjustment (which is far less important than usual at this time), claims rose by 135,000 to 1,106,000:

Continuing claims, on both an un-adjusted and seasonally adjusted basis, however, continued to decline, by 931,998 to 14,265,344, and by 636,000 to 14,840,000 respectively:

Continuing claims have

Why, in the face of the worst US economy since the Great Depression, is the stock market near record highs?

As I type this, the S&P 500 is close to setting an all-time record. Last week it came within 0.2% of doing so:

All of this in the face of the worst quarterly decline in GDP ever in Q2, and continuing unemployment over 10%. What’s going on?

Before I continue further, let me emphasize that I am not giving investment advice, and I do not believe there is any “actionable information” for investors in this post. But I do think there is a decent explanation for the huge bifurcation between the economy as a whole and the stock market.

There are 3 points to be made:

1. Background longer term fundamental factors for the economy are very positive.
2. All

Industrial production and retail sales both improve strongly in July, suggest further gains in employment

This Friday morning two important indicators for July, with implications for future employment, were released: retail sales and industrial production.

Retail sales for July increased 0.8% on an unadjusted basis. After adjusting for inflation, they rose 0.7%. In the past two months they have completely recovered to higher than their pre-pandemic levels:

Since consumption is about 70% of the entire US economy, this constitutes good news.

Meanwhile, industrial production, the King of Coincident Indicators, also rose sharply, by 3.0%. Manufacturing production rose by 3.4%. As a result, total production has recovered 50% of its lost ground to the

Initial and continuing claims: the most “less awful” so far

This Thursday morning’s initial and continued jobless claims continue the trend of “less awful” numbers that resumed last week.

New jobless claims, which fell to under 1,000,000 for the first time on an unadjusted basis last week, declined about 150,000 further to 831,856 (red in the graph below), and on an adjusted basis (blue) declined to 963,000, the first time since the pandemic that number was also under 1 million:

Continuing claims, on both an un-adjusted (red), and seasonally adjusted (blue) basis, also made new pandemic lows under 16 million, at roughly 15.2 million and 15.5 million respectively:

All of these remain at far worse levels than even at their worst during the

July inflation consistent with early recovery; no compelling evidence of wage deflation

Yesterday morning July consumer prices were reported to have increased 0.6% for the second month in a row (as did core inflation, ex-food and energy):

As a result, YoY inflation has increased to 1.0%:

The widespread price increases are signs of increased demand, which in these circumstances is a good thing. In the past, deflationary recessions, most notably the “great contraction” of 1929-32, ended when the YoY change in producer and consumer prices bottomed out. In this recession they did so in April, so this adds to the evidence that *technically* a recovery has been in progress thereafter (even though in absolute terms things remain awful. They are simply

Did July’s headline jobs number miss business closures, and so overcount job gains?

A few issues arose with regard to last Friday’s jobs number; in particular, the effect of government jobs in the form of Census and teaching jobs, whether seasonal adjustments are unhelpful at this time; and whether the birth/death model used by the BLS has undercounted job losses (due to increased non-reporting by closed businesses). I’m going to examine this in two posts. Tomorrow (hopefully!) I’ll go into detail as to what withholding taxes can tell us about the employment numbers. Today I want to compare the BLS payrolls data with the Census’s household survey.

Let’s start with the issue of government employment. Since there were lots of layoffs in schools earlier,

Initial and continuing jobless claims: back to being “less awful”

This morning’s initial and continued jobless claims resume the trend of “less awful” numbers.

New jobless claims fell to under 1,000,000 for the first time on an un-adjusted basis – 984,192, to be specific (gold in the graph below). After seasonal adjustment, they declined 249,000 to a new pandemic low of 1,186,000 (blue), also a new pandemic low:

Continuing claims (red, right scale), reported for the prior week, also made a new pandemic low of 16,107,000.

All of these remain at far worse levels than even at their worst during the Great Recession. Further, that there are still 1 million *new* layoffs a week almost 5 months into the pandemic indicates that longer-term damage is being

July jobs report: a very good *relative* gain – perhaps the last
HEADLINES:
1,763,000 million jobs gained. Together with the gains of May and June, this makes up about 42% of the 22.1 million job losses in March and April.
U3 unemployment rate declined -0.9% from 11.1% to 10.2%, compared with the January low of 3.5%.
U6 underemployment rate declined -1.5% from 18.0% to 16.5%, compared with the January low of 6.9%.
Those on temporary layoff decreased -1,300,000 to 9.225 million.
Permanent job losers decreased by -6,000 to 2.877 million.
May was revised upward by 26,000. June was revised downward by -9,000 respectively, for a net of 17,000 more jobs gained compared with previous reports.

Leading employment indicators of a slowdown or recession

 
I am

The 2020 Presidential and Senate elections nowcast: reverting towards the mean
Here is my weekly update on the 2020 elections, based on State rather than national polling in the past 30 days, since that directly reflects what is likely to happen in the Electoral College.

The theme this week is that Trump’s approval is reverting to the mean, and so are the Presidential polls.

Here is Nate Silver’s Trump approval vs. disapproval graph:

For most of the past month, Trump’s approval has been languishing at 40%, equivalent to the worst levels of his Presidency. But as always been the case before, his partisans come back to approving him after the immediate moment has passed.

This is reflected in the Presidential polling. To refresh, here is how the below

Q2 GDP does not bode well for early 2021

There are two components of quarterly GDP that are long leading indicators, giving us information about the economy 12 months from now. If you think, as I do, that it is likely there will be a new Administration in Washington next year, which will competently follow the science, then there is every reason to believe that by 12 months from now the pandemic will have been contained, and so the long leading indicators are more likely to be valid.

In that regard, this morning’s Q2 2020 GDP was not grounds for optimism.

As an initial matter, the GDP decline of -9.5% annualized was the biggest decline since the Great Depression:

The two forward-looking components of GDP are (1) private fixed residential

Catching up with wages, income, and layoffs

Yesterday and today have seen several significant data releases. Let’s catch up.

Wages

The Employment Cost Index was released for Q2 this morning. This is a particularly important release because unlike the monthly “average hourly wages” number, this report normalizes by job category, e.g., it compares clerks’ wages in Q1 with clerks’ wages in Q2. So if clerks have experienced widespread wage cuts, it should show up here. Given the many anecdotes of wage cuts I have read and heard about since the pandemic began, I have been waiting to see what this number would be.

And the answer is . . . Wages did rise, albeit at one of the slowest rates in over 10 years, less than 0.4%, in Q2:

Because consumer prices