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Continuing accelerated consumer inflation points to sharp slowdown, but no recession imminent

2 days ago

Continuing accelerated consumer inflation points to sharp slowdown, but no recession imminent

Inflation, along with the expiration of the emergency pandemic payments, is one of the two big threats to this expansion. This morning’s report on consumer inflation for September, at 0.4%, was certainly elevated compared with its typical pre-pandemic reading of 0.2%/month, but on the other hand was the third month in a row of sharp deceleration from springtime, during which inflation averaged 0.8%/month. 

Typically inflation has not been a concern unless inflation ex-gas (red) has been in excess of 3.0%. YoY it is now 4.1%, as it has been for 2 of the 3 prior months. Meanwhile YoY total inflation (blue) is 5.4%, slightly higher than the last 3

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August JOLTS report: progress towards a new jobs equilibrium?

2 days ago

August JOLTS report: progress towards a new jobs equilibrium?

This morning’s JOLTS report covers August, which you may recall featured a disappointing jobs report (since revised somewhat higher ), during which the Delta wave was growing to its worst levels, and two months after a number of GOP-controlled States terminated enhanced unemployment benefits, on the theory that they were excessive and were coddling idle workers. Despite this, last month we did not see a big drop in unfilled job openings. This month we did – but we saw a big decline in actual hires, too.

Job openings decreased 659,000 to 10.349 million (blue in the graph below), while actual hiring  (red) also decreased 439,000 to 6.322 million

:

Here are the month over month

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September jobs report: once again, two very different surveys net to a “relatively” disappointing gain

6 days ago

September jobs report: once again, two very different surveys net to a “relatively” disappointing gain

As I previously indicated, two items I was particularly watching for in this morning’s report (Oct. 7) were (1) manufacturing hours and payrolls – to see if that white-hot sector was holding up in the face of supply bottlenecks, and (2) whether there were continued gains in leisure and hospitality jobs, or whether Delta had caused those to stall. While this morning’s report came in well short of expectations, with the big positive revisions to previous months the 6 month average of monthly gains is still over 600,000.

Here’s my synopsis of the report:

HEADLINES:

194,000 jobs added. Private sector jobs increased 317,000, but government

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Updated US wealth distribution data shows how bad the Great Recession and its aftermath were, and how effective the pandemic assistance has been

7 days ago

Updated US wealth distribution data shows how bad the Great Recession and its aftermath were, and how effective the pandemic assistance has been

 

The desert of new economic data this week continues today. But last week the Fed released its quarterly data on wealth distribution in the US, and it shows an important point about the efficacy of the emergency pandemic assistance. Let’s take a look.

Let’s start with the raw absolute levels of total wealth held by the bottom 50%, 50%-90%, 90-99%, and top 1% of the US population:

The total net worth of the US as of Q2 of this year was about $134 trillion (yes, trillion). Of that, only $3 trillion was held by the entire bottom half of the population. At the other extreme, the top 1% alone held

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A slow grind in new and continued claims as Covid’s effects gradually transition from pandemic to endemic

7 days ago

A slow grind in new and continued claims as Covid’s effects gradually transition from pandemic to endemic

Jobless claims declined 38,000 this week to 326,000, still 14,000 above the September 4 pandemic low of 312,000. The 4 week average rose 3,500 to 344,000, 8,250 above their September 18 pandemic low of 335,750:

Continuing claims declined 97,000 to 2,714,000, a new pandemic low:

Here is the YoY% change of continuing claims:

Based on the YoY change, it appears that the ending of all of the emergency pandemic assistance programs has had very little effect on continuing claims, at least so far.

With the Delta wave declining 40% from peak in the past month, the failure to make more downward progress in new claims is

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Housing and car sales, oh my!

8 days ago

Housing and car sales, oh my!

[If last week was a slow week for economic data, this week is a virtual wasteland until Thursday, so I took yesterday off.]

Last month I wrote that typically it has taken at least a 20% decline in housing construction to be consistent with an oncoming recession and that we weren’t there yet.

As of the most recent housing permits report, single-family permits were down 17% from their recent peak:

One of the most persuasive fundamentals-based models of economic cycles, by Prof. Edward Leamer, with decades of proof ever since World War 2, posits that housing is the most leading harbinger, turning down about 7 quarters before a recession, followed by motor vehicles, followed by producer durable goods,

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Manufactuing remains white hot, while construction spending is mixed

12 days ago

Manufactuing remains white hot, while construction spending is mixed

As usual, we started out the month with the forward-looking ISM manufacturing report for September, as well as construction spending for August.

Let’s take the ISM report first since it is an important short-leading indicator for the production sector. And here, the news was good, as the overall index improved to 61.1, among its highest numbers in several decades (but not quite as high as several readings earlier this year). The more leading new orders subindex held steady at a white-hot 66.7:

There is not a hint of a manufacturing slowdown in this number, despite the well-documented problems in the supply chain.

Turning to construction, overall spending including

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New jobless claims increase: exit Delta, enter supply chain chokepoints?

13 days ago

New jobless claims increase: exit Delta, enter supply chain chokepoints?

This week jobless claims were higher for the third week in a row, and the 4-week average also rose slightly. Initial claims rose 11,000 to 362,000, and the 4-week average rose 4,250 to 340,000, from last week’s pandemic low:

Meanwhile, continuing claims declined 18,000 to 2,802,000, but remain above the pandemic low of 2,715,000 of two weeks ago:

It appears that the ending of all of the emergency pandemic assistance programs has had very little effect on continuing claims.With infections from the Delta wave now down almost 1/3rd from their peak one month ago, we can safely say that the increase in new claims in the past few weeks is not due to COVID. It may

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Real spending increases, real income declines in August

14 days ago

Real spending increases, real income declines in August

(Note: I’ll report separately on construction spending and the ISM manufacturing index later.)

Real personal income and spending held up well throughout the pandemic, due to a vigorous government response. This morning these were reported for the last full month of any assistance. In nominal terms, personal income rose 0.2%, and spending rose 0.8% (but with a downward revision of -0.4% to July).

But in real terms, personal income (blue) declined -0.2%, while real personal spending rose 0.4%. Real income (blue) is 4.1% above where it was in February 2020, and real personal spending (red) is still 2.8% above its immediate pre-pandemic level:

The trend for the last months for

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House prices continue to surge. But maybe . . .

14 days ago

House prices continue to surge. But maybe . . .

Both the FHFA and Case-Shiller house price indexes for July were released this morning. Both showed a continued surge in house prices, with one difference that may be of importance.

First, here are both indexes normed to 100 as of January 1991, when the FHFA index began:

Both are currently within 2% of an identical 250% increase since then.

Further, YoY gains in both continued to accelerate, with the FHFA index now up 19.2% YoY, and Case Shiller up 19.7%:

BUT, note that usually the FHFA index has decelerated, and made a peak or trough a month or two before the Case Shiller index (note for example, 1994, 2006, 2009, 2010, and 2013). 

With that in mind, here is the same data

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Coronavirus dashboard for September 29: the demographics of disease and death

15 days ago

Coronavirus dashboard for September 29: the demographics of disease and death

First, let’s start with the good news. The Delta wave continues to roll out just about as swiftly as in rolled in. Cases are down almost 33% nationwide, including in all 4 regions: 

And all 5 States that were the worst hit at the outset – AR, FL, LA, MO, and MS – are all continuing to decline. Below I show them, plus RI, which is #25 among the 25 lowest States + DC. In other words, all the early poster children for Delta are now in the bottom half of all States for new infections:

Only 5 States are in any kind of uptrend at all – AK, MI, MN, ND, and NE:

Note that all of them are near or at the northern border with Canada, and 3 of them are also among the

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The producer portion of the economy continues to do well

18 days ago

The producer portion of the economy continues to do well

First, a little blogging note. This week is light on data. House prices tomorrow, jobless claims Thursday, then a bunch of month end/beginning data on Friday. In other words, don’t be surprised if I take a day off.

This morning the report on durable goods orders for August was released. Manufacturing is a leading sector of the economy, and new orders both for manufacturing and consumer goods are short leading indicators. Both the total and the “core” capital goods less transportation (i.e., Boeing plane orders) were positive for the 15th time in the past 16 months:

In short, manufacturing continues to do quite well.

Although they weren’t part of this morning’s release, I also

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New home sales continue rebound in August, as price increases continue slight deceleration

21 days ago

New home sales continue rebound in August, as price increases continue slight deceleration

Housing is a long leading sector of the economy, and new home sales, while very noisy and heavily revised, tend to lead all of the other housing indicators. [Note: FRED hasn’t updated its charts with this morning’s information, so graphs below do not show this month].

So this morning’s m/m increase in new home sales was good news. It was an 8 month high, and at 740,000 was an increase of 14,000 from July and 39,000 from the trough in June (blue in the graph below):

This confirms what single-family permits (red), which are much less noisy, suggested in last week’s report on starts and permits.

The number of houses for sale (which lags the

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Coronavirus dashboard for September 22: the Delta wave rolls out?

23 days ago

Coronavirus dashboard for September 22: the Delta wave rolls out?

 

At last, it appears that the Delta wave may be receding, as for now, the US is on a definite downslope in cases. As of yesterday, the US recorded 135,000 cases, a 31,000 decrease from the peak only 20 days before:

Deaths have continued to rise but may peak out below the 2400 level I identified previously as the low end of the range for a likely top by the end of this month.

A look at the regional breakdowns shows that the Northeast and Midwest have continued to rise, albeit slowly, and may or may not be peaking. The West has declined, mainly driven by California. But the big news is that in the South, where Delta hit early and severely, cases have declined by 30%:

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August housing construction shows stabilization, following interest rate moderation

24 days ago

August housing construction shows stabilization, following interest rate moderation

This morning’s report on August housing permits and starts shows that the stabilizing of mortgage rates in the past few months has now stabilized housing construction.

Housing starts increased 3.9% m/m, and total permits increased 6.0%. The less volatile single-family permits increased 0.6%. As a result, the overall trend for all three metrics for the past several months is sideways:

Last month I noted that the YoY comparisons were going to become much more challenging, given the boom in construction late last year. With the stabilization of construction, both measures of permits as well as starts remained above their levels of one year ago:

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Median household income and housing affordability

25 days ago

Median household income and housing affordability

Let’s take a look at the affordability (or not!) of housing since there is no economic news of note today (Monday).

Last week the Census Bureau released their annual report on median household income for the US, covering 2020. Since this is the best measure to gauge housing affordability, rather than average wages or income, this is a good time to update this information.

Median household income declined in the US last year due to the pandemic, and the tsunami of unemployment that accompanied it. Still, at $67,521 it was still 40% higher in nominal terms than it was at the peak of the housing bubble in 2006, when it was $48,201:

Below I compare house prices measured by the FHFA

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August retail sales rebound slightly, argue for continued strong jobs growth in autumn

27 days ago

August retail sales rebound slightly, argue for continued strong jobs growth in autumn

Let’s take a look at retail sales, which are perhaps my favorite monthly economic indicator, since they tell us so much about average consumer behavior, and are also a good short leading indicator for jobs.Nominally retail sales increased 0.7% for August, after a -0.6% downward revision to -1.7% for July.  Since consumer prices rose 0.3% in August, real retail sales increased 0.4%. Although real retail sales are down -3.8% from their April peak, they are 11.5% higher than they were just before the pandemic hit:

While the recent decline from April is consistent with a slowing economy ahead, if sales stabilize here I don’t see this as a harbinger of an

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Jobless claims continue in normal mid-cycle range

28 days ago

Jobless claims continue in normal mid-cycle range

Last week I encouraged readers to take the very low jobless claims number with a grain of salt due to Labor Day artifacts, and see if the big reduction was maintained or reversed this week. This week did indeed reverse the pattern somewhat, but not enough to interfere with the overall declining trend.Initial claims rose 20,000 to 332,000, while the 4-week average declined 4,250 to 335,750, the latter yet another pandemic low:

Continuing claims declined 187,000 to 2,665,000, also another pandemic low (which, to reiterate, may have much to do with the expiration of emergency pandemic benefits in many States):

Here are both the 4 week average of initial claims and continuing claims from

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Industrial production now exceeds pre-pandemic level

September 16, 2021

Industrial production now exceeds pre-pandemic level

Industrial production, the King of Coincident Indicators, was reported this morning for August and was positive in a particularly significant way.

Total production increased 0.4% in August, and the manufacturing component increased 0.1%. Nothing particularly special about that; in fact the manufacturing component was a little weak compared with most recent months. Additionally, the July numbers were revised slightly (not significantly) higher and lower for each, respectively.But what is important, as shown in the graph below in which the respective values are normed to 100 as of February 2020, is that both total and manufacturing production have now exceeded their pre-pandemic levels:

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A more “normal” consumer inflation reading for August belies damage to the economy going forward

September 15, 2021

A more “normal” consumer inflation reading for August belies damage to the economy going forward

Inflation, along with the expiration of the emergency pandemic payment, is one of the two big threats to this expansion. This morning August consumer inflation was the lowest in 6 months, up only 0.3% – within the range of a normal reading in normal times. Since wages increased 0.5% in August, this means that real wages increased. Let’s take a closer look.

YoY inflation is now 5.2% (blue in the graph below), but typically inflation has not been a concern unless inflation ex-gas (red) has been in excess of 3.0%. After peaking two months ago at 4.1%, it is now 3.9%:

The spike in inflation has gone on long enough at this point that I expect

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On the downside of the Delta wave, vaccinations make all the difference

September 14, 2021

Coronavirus dashboard for September 13: on the downside of the Delta wave, vaccinations make all the difference

With each passing day, it becomes increasingly likely that the peak of the Delta wave was just before Labor Day. We’ll probably get a pop in the weekly average number tomorrow, as today’s numbers replace the Labor Day holiday numbers, but unless there is a big surprise, it appears we are into the downside of the wave.

But we are still on the upside when it comes to deaths, which probably won’t peak for another week or two.Below are cases (solid line) and deaths (dotted line) for the past year:

The winter wave peaked at an average of 250,000 cases and 3,500 deaths/day. If that ratio exists for this wave, deaths will peak at

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Coronavirus dashboard for September 10: was Labor Day indeed the peak of the Delta wave?

September 12, 2021

Coronavirus dashboard for September 10: was Labor Day indeed the peak of the Delta wave?

I have been saying for some time that the Delta wave would probably peak around Labor Day. It’s not certain yet, but it is looking increasingly likely to have been the case.

The Delta wave struck in both the US and Israel at almost the same time, with almost the same vaccination profiles. Here’s what cases per capita (bold lines) and deaths per capita (dotted lines) look like for each: 

Cases in both countries appear to have peaked in the last week (repeating the pattern in the Delta waves in India, the Netherlands, and the UK). Deaths have either stabilized or (more likely) are still slowly increasing.

Data in the US was affected by the Labor

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The market still out of equilibrium, no additional hiring from early termination of benefits

September 11, 2021

July JOLTS report shows market still out of equilibrium, no additional hiring from early termination of benefits

This morning’s JOLTS report for July is particularly important, because July was the first full month after a number of GOP-controlled States terminated enhanced unemployment benefits, on the theory that they were excessive and were coddling idle workers. Thus we should be seeing a big drop in unfilled job openings, as those people were incentivized to rush out and accept new employment.

It didn’t happen.

Job openings increased roughly 750,000 to yet another new all-time record of 10.934 million (blue in the graph below). Meanwhile actual hiring *decreased* by about 250,000 (red):

Here are the month over month percentage

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Jobless claims blow away the Delta wave (but beware Labor Day seasonality)

September 10, 2021

Jobless claims blow away the Delta wave (but beware Labor Day seasonality)

This morning’s initial jobless claims report makes it shockingly evident that the Delta wave has had no appreciable effect on at least the “firing” side of the jobs market (vs. the “hiring” side, where it might have).

Initial claims declined 35,000 to 310,000, and the 4-week average also declined 16,750 to 339,500, both yet more pandemic lows:

By way of reference, it took almost 5 years into the last expansion – until spring 2014 – for initial claims to be this low.Continuing claims declined 22,000 to 2,783,000, also another pandemic low:

In the last expansion, this number was first seen in early 2014 as well.These are, to put it bluntly, normal

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The unemployment rate is not *uniquely* overestimating the “true” employment situation

September 9, 2021

The unemployment rate is not *uniquely* overestimating the “true” employment situation

Bill McBride a/k/a Calculated Risk put up an entry over the weekend positing that the employment situation is worse than the unemployment rate indicates.

He bases this on the expectation that the overall labor force was expected to grow by 100,000 a month in 2020 and this year, whereas as of last month there were a little more than 2.9 million less people employed compared with just before the pandemic. This shortfall, he calculates, amounts to an “adjusted” unemployment rate of 7.9% vs. the official 5.2%.

This type of calculation is similar to many that were floating around for almost the entire duration of the last expansion – that the employment

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August jobs report: some weak points, but the underlying very good trend continues

September 5, 2021

August jobs report: some weak points, but the underlying very good trend continues

While the NBER has declared that the recession ended in April 2020, neither the King nor Queen of Coincident Indicators, industrial production, and jobs, have recovered to their pre-pandemic levels. The former is only off by -0.2%, but the latter – which is most important to ordinary Americans – as of this morning’s report is still -3.5% below its level in February 2020.

While this morning’s report came in well short of expectations, with the big positive revision to last month’s blockbuster report, which I’ll get into more detail about below, the 6 month average of monthly gains is still over 600,000.

Here’s my synopsis of the report:

HEADLINES:

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Producer sector remains on fire, while two most important indicators of consumer sector falter

September 3, 2021

Producer sector remains on fire, while two most important indicators of consumer sector falter

As has been the pattern for the last several months, August data started out with a strong reading on manufacturing, while July ended with weak data on housing construction. As a side note, the latest read on motor vehicle sales also slid south. 

Both the overall and new orders components of the ISM manufacturing index remained very strong, with the former increasing slightly m/m from 59.5 to 59.9 and the latter by 1.8 from 64.9 to 66.7, both far above the breakeven point of 50.0:

As I have said virtually all this year, the simplest way to read this is that the manufacturing sector remains on fire.The story remains different with this

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Jobless claims show continuing improvement, now well within normal expansion range

September 3, 2021

Jobless claims show continuing improvement, now well within normal expansion range

Way back at the beginning of spring, I set a goal of initial claims being 400,000 or less by Labor Day as a marker for a good COVID recovery – which I was reminded of because the aforesaid holiday is this weekend. Well, we blew through that a while ago, and at this point, all of the jobless claims markers are well within the range of a normal expansion.

This week initial jobless claims declined 14,000 to 340,000. The 4 week average of claims declined by 11,750 to 355,000. Both set new pandemic lows:

The same is true for continuing claims, which declined 160,000 to another new pandemic low of 2,748,000:

From the long term perspective, below is

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Coronavirus dashboard: the Delta wave starts to recede in the South, and migrates North

September 2, 2021

Coronavirus dashboard: the Delta wave starts to recede in the South, and migrates North

Ultimately, that I have to continue to post this material is depressing. At least 80% of all US adults and most teenagers should have been fully vaccinated by now, with the threat of mass outbreaks, even from Delta, retreating into the past.So let me begin with the best graphic representation I have seen so far of where the resistance to vaccination is coming from (via Morning Consult):

Note that for all the attention the opposition of the Trumpist GOP has received, an even *greater* share (39%) of the Young Invincibles, age 18-34, are either uncertain or unwilling, and 62% have been or have plans to get vaccinated. Additionally, right behind the GOPers,

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The expansion is in good shape for now

September 1, 2021

A fundamentals-based look at the consumer indicates the expansion is in good shape for now

I was going to update the Coronavirus dashboard today, but since half of the States no longer bother to report over the weekend, Monday is basically useless. There may be a few interesting things happening … but let’s wait until tomorrow.

In the meantime, I see where Bill McBride posted a graph of spending on gas as a percent of total consumer spending, which brought to mind one of my “alternative” methods for forecasting (at least in the very near term) a recession.Start with oil shocks. As the graph below shows, all three of the non-pandemic recessions in the past 30 years were immediately preceded by a large jump in oil prices compared with income:

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