Monday, July 24, 2017

Of the two meanings of "Neoliberalism"

 - by New Deal democrat

The use of the term "neoliberal" has recently been criticized as a meaningless epithet, a tabula rasa used to disparage anyone deemed unsatisfactorily conservative.

To the contrary, I think the term "neoliberal" is fairly precise, but much like the term "liberal" itself, it has two quite different meanings depending on whether the definition descends from its original European or American incarnation.  The first variety is very right-wing. The second is centrist.

A good description of right-wing neoliberalism can be found in this article in Al Jazeera this past weekend on a right-wing awakening in Latin America:
[N]eoliberalism is ... a means to an end. The state is purposefully reduced in its scope of action to a minimum - by way of policies associated with fiscal austerity, financial deregulation, free trade and the privatisation of public assets, among others - so nothing can prevent the market and its profit-oriented agents from reaching a fair point of equilibrium between demand and supply. According to those who advocate such perspective, the state is nothing but a "necessary evil". 
[R]ight-neoliberalism is the claim that social democracy was one huge mistake–that it created a North Atlantic of takers who mooched off the makers. It holds that if we got rid of social democracy, we would have a utopia because the makers wouldn’t have to carry the takers on their backs and the takers would shape up ....
This right-wing meaning, of "neoliberalism" is a reincarnation of European-style 19th Century laissez-faire liberalism, a belief that the ideal state should operate and be limited by the rule of law, and administered by neutral officials selected on merit, with the economic markets left to themselves without interference by government. Nineteenth century liberals had no problem with, for example, government  promotion of infrastructure, including things like sanitation and education. Right-wing neoliberals, by contrast, see all government bureaucracy as inherently evil -- even, as we saw in the case of Flint, Michigan, in the case of basic sanitation.

Note that right-wing neoliberalism is similar to, but not quite the same as, "libertarianism." Libertarians believe the state also has no business in the private sphere of people's lives. Thus it should stay out of the bedroom as well as the boardroom.  Not necessarily for right-wing neoliberalism. Right wing liberalism is agnostic as to whether foreign policy is passive or imperialistic, and whether or not government intervenes in the social sphere, so long as it stays out of the economic sphere.

The second type of "neoliberalsim," centrist neoliberalism, originates from the US meaning of liberalism, and is once again defined pretty  well by Brad DeLong:
1. Most of the time the best way to accomplish social-democratic ends will be to get the money to the people who maximally want those ends accomplished, and then let them spend it. 
2. Most of the time the best way to correctly manage the market system so that it doesn't rain destruction upon the land is to impose the appropriate anti-destruction-raining Pigovian taxes (and subsidies). 
3. Most of the time command-and-control is strictly dominated by other modes of government intervention that are less vulnerable to naked rent-seeking by the politically influential.
Elsewhere he quotes John Quiggin:
US neoliberalism is a development from within US liberalism .... In general, neoliberalism maintained and even extended “social liberalism”, in the US sense of support for equal marriage, reproductive choice and so on. In economic terms, its central claim was that the goals of the New Deal, central to Democratic Party politics, could best be pursued through market-friendly policies that would earn the support of the financial sector (the only major business sector that was prepared to back Democrats, or at least to bankroll suitable candidates from either party). Apart from subservience to Wall Street, the signature issues for US neoliberals were free trade, cuts in “entitlement” spending, and school reform[^1]. In terms of political strategy, the big idea was a ‘grand bargain’, in which Republicans would accept minimal increases in taxation in return for the abandonment of most of the Democratic program.
Of note, DeLong says "I think that John Quiggin is largely correct--if you correct 'abandonment' to 'reconfiguration'."  To my mind that is a breath-taking admission.

Both forms of neoliberalism default to free market solutions to problems. But for right-wing neoliberalism, the free market is an end in and of itself. Simply put the free market in place, and goodness results. Unlike  right wing neoliberalism, however, centrist liberalism sees the free market as a means to an end, which end can be a benificent government policy. It endorses government involvement in shaping the economy. It just insists on minimizing the involvement to shape the incentives by which the free market can arrive at socially fair results.  Further, unlike right-wing neoliberalism, centrist neoliberalism embraces the social justice ideals of old-fashioned midcentury US liberals.

The  confusion exists because the dominant faction in *both* US political parties adheres to  one of the two definitions  of "neoliberal." The GOP is ideologically a right wing neoliberal party (although its actual policies are more truly aligned with crony capitalism than a free market, in my opinion). The Democratic party's dominant ideology is centrist neoliberalism (although in terms of economic opinions the grass roots are probably dominated by left-wing populists). 

The US is being wracked by political paroxysms because neither form of neoliberalism, as practiced by either of the two parties, has been able to "deliver the goods" to a majority of the populace, even if it has been good to the donors who have dominance in each of the parties.  It's also probably why the most popular politician of any stripe in the US today doe not subscribe to either form of neoliberalism.  That would be Bernie Sanders.

Saturday, July 22, 2017

Weekly Indicators for July 17 - 21 at

 - by New Deal democrat

My Weekly Indicators post is up at  There was an improvement to positivity across all time frames this week.

Friday, July 21, 2017

Why are mortgage applications so much stronger than home building?

 - by New Deal democrat

It's been a quandary all year.  I take a look at the possible reason why over at

Thursday, July 20, 2017

Trump's presidency is 1/8 done. The economy is still on Obama's autopilot. Where's the DOOOM?!?

 - by New Deal democrat

Today marks half a year since Donald Trump took the Oath of Office as President.  I just wanted to note that, so far, absolutely nothing of significance has been enacted to affect the economy.  It's still basically Barack Obama's expansion.

Of note, where have all the Doomers gone?  Zero Hedge has turned into a Trump + Putin fanboi club. The left-wing purists who were sure that everything stunk and the next crash is right around the corner have moved on to other things.  The writers who had been bleating about imminent recessions - almost every year since 2009 - are now just talking about very slow GDP growth.  I'm almost tempted to become a contrarian!

Basically, everything of note is positive, although much has been or is decelerating.  Over the next 6-12 months, if Washington leaves the economy alone, I expect job growth to continue, the unemployment rate to decline a little, prime age labor force participation to increase, and nominal wage growth to remain steady if participation increases a lot, and maybe increase more if participation only increases a little, although the positivity of most of these things will probably decelerate.

One eighth of the way through Trump's presidency, Obama's autopilot is still engaged.

Wednesday, July 19, 2017

June housing permits and starts: an improvement, BUT...

 - by New Deal democrat

Both housing permits and starts popped nicely in June compared with May. But in comparison to the last 12 months overall ..... I take a look over at

Tuesday, July 18, 2017

A quick and dirty approach to short leading indicators

- by New Deal democrat

Although I have downgraded my longer term forecast to neutral, my shorter term forecast remains positive.

The easiest quick and dirty way to look at short leading indicators is to simply consider initial jobless claims and stock prices. They are updated weekly and daily, respectively, and except for one revision the following week to jobless claims, neither are revised. If both are positive, you're fine. If both are negative, you're in trouble. Here's what they look like for the last 10 years (with jobless claims inverted):

Jobless claims made a new low in May. Stocks made a new high last week. The short term economic forecast is positive.

How long can these series go without new highs/lows before we might be concerned?  While stock prices can be very noisy and volatile, that's not the case with initial jobless claims. Even less volatile is the unemployment rate, which initial jobless claims tend to lead by several months.  So I've compared the YoY changes in each in the below graph going back 50 years:

Generally speaking, the economy isn't in trouble unless YoY jobless claims are negative (meaning the 4 week average is higher now than one year ago). Trouble is confirmed when the unemployment rate follows.

The system isn't perfect (hey, it's quick and dirty, right!). It gives us some false positives, and in 2 cases (1974 and 1981) doesn't signal until the recession is already starting.

But, as a general rule, if YoY jobless claims are lower,  absent a big extraneous shock (like the oil embargo in 1974 or the Fed embarking on steep raising of rates in 1981), there is no recession on the near term horizon.

Here's a close-up of where we are now:

*IF* initial jobless claims stop declining, the earliest the "yellow flag" on our quick and dirty system will trigger is probably this autumn, if not the beginning of next year.  Unless, of course, there is an exogenous shock like Congress triggering a  partial default on our debts by failing to raise the debt ceiling in the next 60 days.

Monday, July 17, 2017

Measuring underemployment as a share of the working age population

 - by New Deal democrat

I wanted to follow up on several items from this month's employment report: namely, part time for economic reasons, and those people who are not in the labor force at all, but say they want a job.

Below I show each, both as raw numbers, and as a share of the working age population, ages 16-64 -- which makes sense, because the working age population has grown by about 25% over the last 25 years:

In 1994 there were about 165 million people between ages 16 and 64. As of April of this year (the last date available), there were about 205 million.

Here is the number of people who are part time for economic reasons (blue, right scale), and as a percentage of the aged 16-64 population (red, left scale):

While last month this ticked up, the trend as continued to the positive.

Here is "not in labor force, want a job now" (blue, right scale ), and as a percentage of the aged 16-64 population (red, left scale):

The raw number made a significant post-recession low in June.  It is not yet shown in the percentage number.

When we adjust for the working age population, both of these are roughly where they were in 1996, or at the worst point after the 2001 recession, in 2002-03. Both still need improvement of about 0.4%, or 800,000 apiece, to get within what I would consider a "normal" range.

Saturday, July 15, 2017

Weekly Indicators for July 10 - 14 at

 - by New Deal democrat

My Weekly Indicators post is up at

One week ago I downgraded my longer term forecast. That remains this week.

Friday, July 14, 2017

Real retail sales concerning while industrial production shines

 - by New Deal democrat

Real retail sales is one of my favorite data series, because it tells us so much about the consumer economy.  This morning's report was no exception.

To begin with, the unusual early decline in gas prices brought down CPI to unchanged. On a YoY basis, CPI is now only up 1.7%:

This is a backdoor positive for real wages. with nominal growth in the 2.3%-2.5% range, the decline in inflation means more spending power for consumers.

But since nominal retail sales declined -0.2%, this means that real retail sales declined as well:

Next, real retail sales per capita is a medium to long leading indicator, and here the story is, a plateau since last December:

This indicator has to be rated as no better than a neutral as of now. That is clearer when we look YoY:

While we've had pauses in real retail sales growth before in this expansion, this time the pause coincides with the weakening or turning outright negative of several other of the long leading indicators. It wouldn't take much more weakening of this metric to turn it, too, into a negative.

If retail sales were poor, at least the Doomer mantra that "hard" data hasn't confirmed "soft" data will be a little more quiet today, as industrial production rose +0.4%, and the manufacturing component rose +0.2%:

Bottom line: mixed news for the nowcast, with a little more cause for concern in the long term forecast.

Thursday, July 13, 2017

An important deterioration in the long leading indicators

 - by New Deal democrat

The failure of interest rates to make a new low in the llast 12 months has important ramifications.

This post is up at

Wednesday, July 12, 2017

Trump: the endgame

 - by New Deal democrat

There was some economic news last week which is important for the long term, and I'll try to post about it later today or tomorrow, but in the meantime ...

I'm as interested in the latest Trump-Russia tidbit as the next person, but really, don't we all already know the endgame? 

Remember during the campaign, no matter what devastating gaffes Trump made, he always rebounded into the low 40%'s? Well, about the same thing has been true for the last 5 months.  No matter what the news, Trump's approval rating is 38% +/-3%:

So here, as a public service, to save you all the sturm und drang of the next 3 years, I present you in narrative form with the endgame:

PUTIN: Do as I say or else!

TRUMP: So what? I'm the President!

PUTIN: If you don't carry out what I want, I will release my most devastating information on you.

TRUMP: Don't you know I always welch on the last payment?

PUTIN: [releases devastating information]

DEMOCRATIC ESTABLISHMENT: We're horrified! So horrified that now we can run on this, and we don't have to offer an actual program to help people.

PRESS [to GOP Congress]: Are you going to impeach Trump?

GOP CONGRESS: ...   ...  ...

GOP BASE: Attaboy!  What a guy!

FOX NEWS: It's Clinton and Obama's fault!

GOP CONGRESS: We think Trump is doing a wonderful job.

PUTIN: Wtf?!?

TRUMP: See, I told you so.

RYAN AND MCCONNELL: Hey, Donald, while everyone else is busy, here's some byootifull legislation for you to sign: 
repealing Obamacare
repealing Medicaid
repealing the Voting Rights Act
cutting Medicare
repealing the Civil Rights Act
cutting Social Security
repealing the 14th and 15th Amendments, and what the heck, everything after that.

RYAN: He can't repeal Constitutional Amendments!

MCCONNELL: Shaddup! He doesn't know that. Besides, now the Kennedy is retiring, we're going to have 5 Justices on the Supreme Court who will do whatever we want.

A reminder: the econometric election models actually performed very well in 2016, forecasting a very tight race, with most models showing Clinton winning *the popular vote* by a slim margin.

Don't forget that Trump actually came right out and invited the Russian government to collude with him to defeat Clinton. Why should he care if the collusion turns out to have actually happened? The most likely case is that Trump has been neck deep funnelling Russian money to his "Investments,"whether or not it was lawful or merely unsavory. His base does not care.   For Putin, he is the Mother of All Useful Idiots, nothing more.

What will defeat Trump and the GOP is either an unsuccessful major war, like Korea or Vietnam, and/or an economic downturn that hurts their base.  That's the bottom line. The rest is opera.

Tuesday, July 11, 2017

JOLTS and Labor Market Conditions Index: for once, a good report

 - by New Deal democrat

Usually I am the lone Debbie Downer when it comes to the JOLTS report, mainly because I think there is way too much attention paid to the "soft" openings data vs. the "hard" hires and quits numbers.

Well, in this morning's report on May, it was the "hard" data that was better.

As I usually do, first here are openings (blue) vs. hires (red):

Openings declined to back within their 2 year range, while hires rose to the top of their 2 yeear range.

On a YoY basis, both were positive, although not by much:

The best news of all was quits, which made a new record high:

Yesterday's Labor Market Conditions Index for May wasn't too shabby either:

While it wasn't as high as the last few months, it remained positive, and since it shows promise as a long leading indicator, that's a good thing.

My overall take remains that we are late in the cycle, but the coincident data is still pretty positive, and there is no imminent problem in sight.

Sunday, July 9, 2017

A thought for Sunday: Trump voters and the "peasant mentality"

 - by New Deal democrat

I am currently reading a comprehensive tome on 19th century European history, "The Pursuit of Power," by Richard J. Evans.

One episode that made a big impression on me was the decision by Otto von Bismarck (no conservative he) upon the establishment of the German Confederation, to eschew property qualifications for the franchise for the Reichstag and embrace universal male suffrage (p. 257).  Why? In so doing, he "bypass[ed] the liberal middle classes to appeal to what he assumed were the loyal and conservative masses in the countryside."

I was reminded of Bismarck's shrewd insight upon reading a post by Dietrich Vollrath:  "The return of the peasant mentality."

Discussing the outcomes of recent research, Vollrath writes:
[W[hen people move from rural to urban, or urban to rural places in these countries, do their wages change?.... 
The combination of facts tells you that there is selection out of rural/agricultural work and into urban/non-agricultural work for people with lots of human capital. There is not some distortion that prevents rural people from moving to higher wage positions, apparently, its just that all the really skilled or smart people move off the farm.

What’s really interesting is that this pattern shows up in the Raven’s Z-scores .... a crude, but effective, proxy for IQ....  So it’s not just that people who are lucky enough to get an education in an urban area stay there, and people unlucky enough to miss out on schooling in rural areas stay there. People with better measures of inherent smarts tend to end up in the city, or are in cities to begin with. 
Perhaps we should take seriously the idea that peasants are really different, not just in their constraints (which the development literature ..., but in their underlying preferences as well ....
One sees the pattern repeating over and over, across all sorts of societies, from the Spanish Civil War of 1937 to most of Mexican history. A decade or so I read that many of the Chinese immigrants to the U.S. in the late 20th century were Fujianese.  What distinguished the leavers from the stayers?  More than anything else, it was the propensity for risk-taking.

If we think in terms of the Biblical Parable of the Talents,  the risk-taking servants who invested their two and three Talents tend to leave economic backwaters and gravitate to high-growth areas, while the fearful and conservative servant who buried his one Talent tends to stay behind in the economic backwaters.

Which brings me to the small urban and rural Trump voter in the U.S. What distinguishes those people who have left the Rust Belt for greener economic climes vs. the stayers?  Maybe, like the Fujianese, and like the populations that Vollrath's post describes, the biggest distinguishing factor is the willingness to take a risk vs. social conservatism.

That the stayers might have an "underlying preference" for things staying the same as always  can explain a lot about the phenomenon of the right-wing populist voter in the U.S.   They don't want globalism, they don't want change, and they don't want retraining either.  They want the kind of jobs, and the kind of society that they remember from their youths.

Saturday, July 8, 2017

Weekly Indicators for July 3 - 7 at

 - by New Deal democrat

My Weekly Indicators post is up at

This week, for this first time in years, there was a change in the longer term outlook.

Friday, July 7, 2017

June jobs report: great headline, but once again where are the wages?!?

- by New Deal democrat

  • +222,000 jobs added
  • U3 unemployment rate rose +0.1% from 4.3% to 4.4%
  • U6 underemployment rate rose +0.2% from 8.4% to 8.6%
Here are the headlines on wages and the chronic heightened underemployment:

Wages and participation rates
  • Not in Labor Force, but Want a Job Now: down -130,000 from 5.561 million to 5.431 million   
  • Part time for economic reasons: up +107,000 from 5.219 million to 5.326 million
  • Employment/population ratio ages 25-54: up +0.1% from 78.4% to 78.5%
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: up $.04 from $21.99,  to $22.03, up +2.3% YoY.  (Note: you may be reading different information about wages elsewhere. They are citing average wages for all private workers. I use wages for nonsupervisory personnel, to come closer to the situation for ordinary workers.)
Holding Trump accountable on manufacturing and mining jobs
 Trump specifically campaigned on bringing back manufacturing and mining jobs.  Is he keeping this promise? 

  • Manufacturing jobs rose by +1,000 for an average of +2000 vs. the last severn years of Obama's presidency in which an average of 10,300 manufacturing jobs were added each month.   
  • Coal mining jobs were unchanged for an average of +200 vs. the last severn years of Obama's presidency in which an average of -300 jobs were lost each month
April was revised upward by +33,000. May was also revised upward by +14,000, for a net change of +47,000.  

The more leading numbers in the report tell us about where the economy is likely to be a few months from now. These were mainly positive.
  • the average manufacturing workweek rose +9.1 hour from 40.7 hours to 40.8 hours.  This is one of the 10 components of the LEI.
  • construction jobs increased by +16,000. YoY construction jobs are up +206,000.  
  • temporary jobs increased by +13,400.

  • the number of people unemployed for 5 weeks or less increased by +151,000 from 2,154,000 to 2,305,000.  The post-recession low was set 18 months ago at 2,095,000.
Other important coincident indicators help  us paint a more complete picture of the present:
  • Overtime was unchanged at 3.3 hours.
  • Professional and business employment (generally higher- paying jobs) increased by +35,000 and is up +624,000 YoY.

  • the index of aggregate hours worked in the economy rose by 0.5 from 106.9 to 107.4  
  •  the index of aggregate payrolls rose by +0.8 from 134.0 to 134.8.   
Other news included:          
  • the alternate jobs number contained  in the more volatile household survey increased by   +190,000   jobs.  This represents an increase of 1,560,000  jobs YoY vs. 2,238,000 in the establishment survey.    
  • Government jobs rose by +35,000 .     
  • the overall employment to population ratio for all ages 16 and up rose +0.1% from  60.0% to  60.1 m/m  and is  up +0.5%  YoY.     
  • The  labor force participation rate rose +0.1%  m/m and is up +0.1% YoY from 62.7% to 62.8%.      

The best thing about this report was the headline number of jobs added, plus the big positive revisions to April and May, which brought the average of the last three months to +191,000.  Most of the leading internals were also positive, suggesting the positive headline news should continue over the next six months. Those not in the labor force but who want a job now also declined to a post-recession low (but still elevated by nearly 1 million above the late 1990s boom.)

While the unemployment and underemployment rates went up, this was balanced by the increase in labor force participation rate. 

One weak spot was that involuntary part-time employment increased slightly.  Also, politically, Trump  has so far actually *underperformed* Obama in the net for manufacturing and coal mining jobs.

But the one big negative -- broken record here -- was wages, which have now grown only +2.3% YoY for nonsupervisory workers.  So while this a a very good late cycle report, my fears are increasing about how bad it will be for workers when the next recession does hit.

Thursday, July 6, 2017

La araña

 - by New Deal democrat

Just a little aside....

Here is a photo of the dessert I got yesterday at my favorite local authentic Mexican restaurant:

It is flan with whipped cream, a couple of blackberries, and shaped cinnamon sticks.  I had to laugh when the waiter delivered it.

And yes, "la araña" in Spanish means "the spider."

Reality begins to sink in for GOPer economic confidence

 - by New Deal democrat

While we are waiting for tomorrow's employment report, here's a little something to chew on.

In the immediate aftermath of the Presidential election -- as in, by the end of that week -- Gallup's measure of economic confidence soared, from its 2016 average of roughly -10 to a positive number and to nearly +10 by the end of November:

In fact, while the confidence of Democrats sank, the confidence of GOPers skyrocketed even more.

Since I have very little faith in the GOP agenda to deliver any uptick in growth, I have been watching and waiting for this confidence to ebb.  It did somewhat beginning in March, but never to the point of coming close to that in the final year of Obama's term. (For the doubters, consider George W. Bush's economic policies.  Despite being the most right-wing since the 1950s, we had the weakest post-War jobs and wage growth on record, and a weak GDP to boot. Where was the trickle-down?)

Until last week.  Last week Gallup's economic confidence index fell to -7:

As shown in the graph, it has since rebounded.  But it appears that after half a year of accomplishing absolutely nothing legislatively, the reality that the economy really hasn't changed at all -- in fact it may be waning just a bit -- is beginning to sink in.

Wednesday, July 5, 2017

While houses and cars slow down, manufacturing picks up

 - by New Deal democrat

There were conflicting reports on the economy Monday, in the form of June vehicle sales vs. June manufacturing.

This post is up at

Tuesday, July 4, 2017

Happy 8th Independence Day, economic expansion!

 - by New Deal democrat

In lieu of a more traditional Independance Day post, in view of the fact that the economic expansion turned 8 years old this week, I thought I would take a moment to highlight how far we have come.  Because as mediocre as some things are, we have come a long, long way since the dark days of June 30, 2009.

Unemployment has fallen from a high of 10.0 to 4.2%, and underemployment has fallen from 17.1% to 8.4%:

Over 16 million jobs have been added since the bottom in February 2010:

As of May, real median household income just made a  new high (h/t Doug Short):

Since this statistic is skewed by the increasing share of households headed by retirees, the odds are pretty good that working age real median household income is actually doing a little better.

In real terms, the amount of wages paid out to regular nonsupervisory workers has increased by about 22%:

Finallly, real GDP per capita has increased by 11%:

None of this is stellar. In particular, I wish that wage growth were more stout.

But when you compare where we were then with where we are now, there's no contest. So Happy 4th of July, economy!

Monday, July 3, 2017

A prescient forecast by the Senior Loan Officer Survey

 - by New Deal democrat

There has been a spate of Doomish commentary recently (for example, here) claiming that the stalling of commericial and industrial loan growth means that we are heading into, if not already in, a recession.

Aside from the fact that typically in the past, YoY commerical and industrial loan growth has been a lagging rather than leading indicator, bottoming out well after recessions have ended,  over the weekend I was cleaning out some old saved material when I came across the following graph dating from the first quarter of 2015.  The graph compared the percentage of senior loan officers reporting tightening of standards (right scale) for commercial and industrial loans (lagged 6 quarters) to the YoY% change in commercial and industrial loans (left scale):

The relationship forecast that YoY commercial and industrial loans were going to decelerate to about +5% YoY.  I wish I knew whose graph it was, because I would sure like to give them proper kudos! Because that is exactly what has happened since (note that FRED does not permit me to lag one series of data):

Commercial and industrial loans have flatlined, just as forecast by the writer in Q1 2015.

Note, of course that in the last three quarters, the Senior Loan Officers have reported a slight loosening of standards, which suggests that commercial and industrial loans will continue to flatline through about the end of the year, and improve in 2018.

Finally, I have recently noted that the weekly Chicago National Financial Conditions Index does a decent job of forecasting the direction of the Senior Loan Officer Survey itself.  So here is the Chicago NFCI  vs. YoY commercial and industrial loans:

The Chicago weekly survey is forecasting a continued improvement in the Senior Loan Officer Survey when it is reported for Q2 in about a month.

Saturday, July 1, 2017

Weekly Indicators for June 26 - 30 at

 - by New Deal democrat

My Weekly Indicators column is up at

The yield curve abruptly steepened, but on the other hand, real money supply decelerated further.

Thursday, June 29, 2017

Brexit, one year later: "a fire across the river"

 - by New Deal democrat

I take a one year retrospectivie look at Brexit, and its (lack of) effect on the US economy, over at

Tuesday, June 27, 2017

Five graphs for 2017: mid year update

 - by New Deal democrat

At the beginning of the year, I identified 5 trends that bore particular watching, primarily as potentially setting the stage for a recession next year.  Now that we are halfway through the year, let's take another look at each of them.

#5 Gas Prices

One potential pressure point on the economy was gas prices, which appear to have made a long- bottom in January of 2016. As they began to rise, consumer inflation has increased from non-existent to almost 3%. So the issue was, will they rise even further and drive inflation even higher?

And the answer so far this yeear has been a resounding "No!"  Typically it has taken a 40% YoY increase in gas prices to shock the consumer.  Gas price increases did briefly approach that point early in the year, but since then they have retreated all the way to being negative YoY:

This has actually helped boost real wages, as we will see further below.

#4 The US$

Another potential pressure point on the economy was a big increase in the relative value of the US$, which was part of the shallow industrial recession of 2015.  The $ started to rise again after the November election.  Here too after an initial spike, the data has calmed down again:

#3 Residential construction spending vs. mortgage rates 

Another data point which rose sharply after the November election was interest rates.  Generally speaking, home building changes in the opposite direction of interest rates.  So would the increase in interest rates (e.g., mortgages) cause new residential construction to back off?

Although as I have written in the past several weeks, the slowdown has appeared in permits and housing starts -- and new home sales have turned flat in the last few months, the slowdown hasn't yet filtered through into actual residential construction spending:

Residential contruction spending is a very smooth, un-noisy series, but it does lag permits and starts by a few months,. Note that typically it has taken a big change in mortgage rates about 9 to 12 months to feed through into residential contructioni spending. It hasn't yet this year.

#2 The Fed Funds rate vs. consumer inflation

If consumer inflation rose past the magic 2% Fed target, would the Fed chase it?  The Fed's preferrred measure is personal consumption expenditures, but consumer inflation YoY as of March was up +2.8%, but due to gas prices as discussed above, inflation is now back down under 2%.  Nevertheless the Fed has hiked interest  rates twice:

The yield curve has begun to compress, but it is still positive. Still, it will be difficult to avoid an inversion in interest rates should the Fed stay on its current course with several more hikes.

#1 Real retail sales vs. real average hourly earnings

The final graph comes from my "alternate" recession forecasting model which turns on consumers running out of options to to continue increasing purchases (i.e., no interest rate financing, no wage real wage increases, and no increasing assets to cash in). The long term relationship has been that sales lead jobs, and jobs lead nominal wage increases, but real sales vs. wages are somewhat more nuanced. In the inflationary era, through the early 1990s, YoY wareal wage growth actually slightly led sales. In the deflationary era that dates from the alter 1990s, if anything the two are a mirror image, but in every case but 2001 (where real wage growth just decelerated rather than declined), both have been negative going into recessions:

 Focusing on the last 20 years marking the deflationaary era, at present real retail sales continue to be positive, and with gas prices and overall inflation down, real YoY wages have turned positive again:

I would expect to see both sales and wages stall out before the onset of the next recession.  Neither is presently the case.

This  has been "the little expansion that could."  In its 8 year history, it has dodged all kinds of problems without being derailed.  Like so much before them, the problems from the end of last year have been fading away. Only the problem of the Fed raising rates looks like a serious near-term issue.  

Saturday, June 24, 2017

Weekly Indicators for June 20 - 24 at

 - by New Deal democrat

My Weekly Indicators piece is Up at  No major changes from last week.

Friday, June 23, 2017

New Home Sales stall, but no downturn

 - by New Deal democrat

Well, the May new home sales report is out.  The good news is, it did not confirm last week's negative reports in housing permits and starts.

This post is up at

Thursday, June 22, 2017

The post-hike flattening yield curve

 - by New Deal democrat

An inversion of the yield curve has always signaled at very least a steep slowdown, and usually an oncoming recession. With the Fed hiking short term rates, where do we cut and now?

Below are two graphs, using the Dynamic yield curve tool from In both cases the dark red line is the yield curve as of several days ago (post-hike). The light red line is the previous yield curve from the beginning of this year (first graph) and from last month (second graph):

Note that the curve is pivoting around a point between the 2 and 5 year yields, at about 1.5%. 

At this point, the yield curve is still positive, but if the trend continues, another two rate hikes should be enough to invert at least part of the curve.

Wednesday, June 21, 2017

Existing home sales: positive, but contain your enthusiasm

 - by New Deal democrat

It's a slow economic news week, but while we are waiting for new home sales Friday, we did get existing home sales today.

It was a good report. Not only was there an increase month over month, but it was the 3rd highest number for this entire expansion:

Even better, the three month moving average made a new high for this expansion.

But contain you enthusiasm, because even though existing home sales are about 90% of the market, they are the least economically important (because of all the activity that goes into building a new house).

The bad news is that prices made a new all time high, and inventory remains very constrained.

Absent housing, consumer inflation is running at only a little over 1%. The Fed raising rates is not going to bring on new inventory, and only make the inventory that does exist more expensive for mortgage borrowers.

So now we wait for Friday.

Tuesday, June 20, 2017

A further look at the housing slowdown

 - by New Deal democrat

As promised, I have a further look at last week's poor housing permits and starts numbers, and especially in the context of interest rates.

This is up at

Monday, June 19, 2017

May industrial production: no change in trend

 - by New Deal democrat

This was a post I meant to put up Friday, but was pre-empted by the important housing news.

May industrial production came in unchanged. But that didn't stop Doomers, who had been silent about April's big increase in manufacturing, from trumpeting its 0.4% decline (go ahead, just try to find their acknowledgement of April's good number. You won't.).

So, let's put industrial production in perspective. First, here is the overall stat:

The uptrend since a year ago is still intact.

Next, let's break it down by manufacturing (blue) and mining (red):

The uptrend in each of these since a year ago also still looks intact.

Here is a bar graph of the m/m change in manufacturing:

The 0.4% decline is well within the range of normal monthly volatility.

So there's nothing in the May report which causes me to think that any economic downturn is imminent.

Sunday, June 18, 2017

My weekly Posts Are Up At

US Equity and Economic Review

International Week in Review

A thought for Sunday: "Time goes by, so slowly . . . "

 - by New Deal democrat

It's Sunday, so I take a break from nerdy econ analysis and speak my mind.

Last November 9 we woke up to a living nightmare. The next four years were bound to be awful. The only question was, how awful?

The very tiny silver lining as of now is that, so far, it has been about as limited an awful as it could reasonably be.

The simple fact is, those things that the Executive could worsen all on his own, he is doing so.  But those things that require Legislative action or Judicial approval have either not materialized or have been stopped in their tracks.

The Executive has almost unlimited freedom of action in foreign policy, so it was a foregone conclusion that China and Russia were going to seize the opportunity to expand their power and influence, and they are doing so. Taiwan is already suffering diplomatically, and it isn't a good time to be one of the Baltic States either. The EU is looking aghast at Trump's view of NATO, and will probably vivify their moribund "European Defense Force" at least until 2021.

It is also pretty clear that Trump means to erase Obama from the history books, if for no other reason than Obama humiliated him at the 2011 White House correspondents dinner. So every Executive Order or program undertaken by Obama is being systematically obliterated. This includes deferral of action against illegal immigrants/undocumented workers. There's not much that can be done there, but even so, the Courts have occasionally stepped in, and Trump himself seems to want to allow the Dreamers to stay.

It was also always going to be a bad time to be a Muslim in the US, but even there, the Judiciary has stepped in, stopping Trump's travel ban.

And where Trump needs Legislative action, with the exception of the appointment of Gorsuch to the Supreme Court, so far there has been a big fat goose egg. I figured that Congress would repeal Obamacare in toto by January 31, and get around to the "replace" part approximately never.  Instead, due to Trump's own insistence on a replacement, as of now there is no repeal at all (the House bill is, right now, only a bill).

There's no tax cut for billionaires. There's no raiding of the SS and Medicare trust funds. The privatization infrastructure scam hasn't even gotten a hearing in Congress. And on and on.

Bottom line: there has been no legislation of significance out of the Trump/GOP Congress whatsoever. None. Zilch. Nada.

And we are over 30% of the way from the last Congressional elections in November 2016 to the next ones in November 2018. If they can manage this same record just twice more, we are almost home (maybe).

We are also 10% through Trump's four year term. In four weeks we'll be 1/8 of the way through.

As the lyrics of "Unchained Melody" say, "Time goes by, so slowly..." but time is passing and there will be an end.  In the meantime, so far things are as "least awful" as we could reasonably have hoped.