Tag Archives: business cycle

The Important But Hidden News In The Jobs Report

SummarySlow Economic Growth

  • Jobs continued their trend: a long period of slow growth, second weakest since 1961 (2001-07 was worse).
  • Worker’s wages continued their slow growth, weekly wages up 2.1% YoY for private sector hourly workers.
  • Slow growth doesn’t create the imbalances & inflation that cause recession. This could run for another year, and perhaps longer.
  • Such slow non-inflationary growth makes raising rates a risky play for the Fed. I doubt they will be so bold.
  • In this slow growth environment paying big valuations for stocks is risky gamble.

The monthly employment report is the most important economic report. It is central to our consumer-led economy, relatively accurate, and frequent (unlike GDP). The November report frustrates both bulls and bears. Still more slow growth in jobs and wages. No signs of boom, no signs of bust, no signs of inflation. Boring, but rich with implications for investors.

As usual, the chart tells the tale. This is the YoY percent change in jobs from the Establishment Survey, not seasonally adjusted (NSA). The purple line is the 1.6% growth reported today. Growth peaked at 2.3% in February 2015 and has slowed steadily since — but gently. Click to enlarge.

Employment growth through November 2016


Why look at the NSA YoY percent changes? What about the horrific numbers from… Aren’t most of the new jobs low-paying? What about the recession that was coming? Why are investors paying such high valuations for stocks?

See my full report at Seeking Alpha.

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Ignore The Bulls And Bears. See The Key Trend In The Jobs Numbers.

Summary: Ignore the Bulls & Bears. Their need for clickbait stories turns noise into news. See the key trends in the jobs numbers, revealing the forces shaping the US economy.

Slow Economic Growth

  • The jobs report confirms that the US economy grows slowly, and is slowing.
  • It gives no evidence that the US is accelerating, or that the Fed will raise rates.
  • If it continues slowing at this rate, we will have a recession in 2019.
  • High equity valuations make no sense in this slow motion economy.
  • Beware of analysts who sell stories about exciting noise, hiding the boring but important trends.

See my article at Seeking Alpha for the full story.

The jobs report shows why so many don’t understand the US economy

Summary: Today’s job report show one reason we see our world so poorly — we read the news. Journalists and the experts who make headlines give us exciting stories of constant change. But the world usually changes slowly. Sometimes, as in this economic cycle, slow stable boring growth is the story. That generates no clickbait, so we get statistical noise magnified into thrilling news. People of bearish views (temperamentally, or because the “other” political party rules) read the stories of imminent collapse — and vice versa. And vice versa for the bulls. Both become entertained and ignorant.

What’s happening? Slow growth, with small fluctuations around the trend.

Change in Employment - MoM - August 2016

Excerpts, slightly paraphrased, from the Employment Situation Report for August tell the tale, as this slow expansion continues — frustrating both the bulls (boom soon!) and bears (recession now!).

  • Total nonfarm payroll employment rose by 151,000 in August, compared with an average monthly gain of 232,000 over the prior three months and 204,000 over the prior 12 months.
  • “Little movement over the year” in the unemployment rate, and the labor force participation rate, and in the number of unemployed and discouraged workers.
  • No change in the past year in the average weekly hours of production and non-supervisory employees in the private sector. Their average weekly earnings were almost unchanged during August, and rose 2.2% YoY.

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ECRI explains the global slowdown, and what lies ahead

Summary: The Economic Cycle Research Institute (ECRI), who correctly predicted the slow recovery, looks at the multi-year slowing in the economies of the developed nations — its causes (the world is becoming Japan) and likely consequences.

The Business Cycle

ECRI’s Simple Math Goes Global

ECRI, 20 June 2016.
Reposted with their generous permission.

The risk of a global recession is edging up, as the global slowdown we first noted last fall continues (ICO Essentials, September 2015). This danger is heightened because longer-term trend growth is slowing in every Group of Seven (G7) economy, as dictated by simple math: growth in output per hour, i.e., labor productivity – plus growth in the potential labor force – a proxy for hours worked – adding up to real GDP growth.

As we laid out over a year ago (USCO Essentials, June 2015), this simple combination of productivity and demographic trends reveals that U.S. trend GDP growth is converging toward 1%. This is reminiscent of Japan during its “lost decades,” where average annual real GDP growth  registered just ¾%,  which is why we have cautioned that the U.S. is “becoming Japan” (USCO Essentials, February 2016) and (ICO, July 2013).

Expanding this analysis to the rest of the G7, we find that every economy is effectively becoming Japan, and the sharpest slowdowns are happening outside North America. Thus, as trend growth falls in the world’s largest advanced economies amid the ongoing global slowdown, the threat of a global recession is growing.

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ECRI looks at our Great Monetary Experiment: It’s Too Big to Fail

Summary: The Economic Cycle Research Institute (ECRI), who correctly predicted the slow recovery, explains the slow growth in which the US and Japanese economies are mired, and the fantastic monetary experiment waged by central banks to prevent them slumping into recessions.

Appreciate the wonders of our time.

"Machinery of the Stars" by alexiuss

Machinery of the Stars” by alexiuss at DeviantArt.

The recovery since 2008 has been difficult for predictions, both by bulls and bears. The bulls have repeatedly predicted accelerated growth and rising inflation. But the bears too-often predicted a recession (boldness is often expensive for forecasters). In September 2011 the ECRI staff predicted a recession in 2012. They repeated that call in the following months, and in November 2012 said the recession had began in July.

A few of us correctly predicted continued slow growth — no boom, no recession (e.g., see this from August 2013) — and our similarity to Japan (see this of mine from September 2014).

On balance the bears have more accurately seen the big picture than the bulls. Paul Krugman, Larry Summers, and the ECRI (me, too) saw this secular stagnation (see this from November 2013). And growth has been slow. Over the past 10 years (Q1 2006 to Q1 2016) real growth in gross domestic income (GDI) has been 2.3%/year. More importantly, growth in GDP per capita has been only 1.2%/year. As for the future, the Fed expects even slower long-term growth in real GDP — only 2%.

So we should listen to the ERCI’s perspective on the US economy, the Fed’s efforts to stimulate it, and the global economic context. The West is running one of the greatest economic experiments in history, with high stakes.

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The oil bust will deepen before prices skyrocket. Even wilder swings lie ahead.

Summary: The great struggle to manage or even control oil prices again dominates the world economy and the news headlines. Yet even the basics are poorly understood, cloaked in myths and misunderstandings. Here is a quick sketch of how the oil boom brought us here, how the bust will end, who will win, and what comes next.


What’s happening with the oil markets? Oil has gone from $150 to $30, and some experts say it will drop to $15. Just as in the previous cycle it crashed to $10 (the low) and experts predicted it would go to $5.

Both cycles ended, as commodity cycles usually do, with massive excess production. Now oil “producers” (i.e., miners) and their creditors must decide how to reduce output and raise prices so that most of them are profitable.

Note: the term used here is “oil”, but the numbers shown are for liquid fuels: crude oil (which includes that from oil sands and lease condensate), petroleum broadly defined (natural gas plant liquids and shale oil), and other liquids (from coal, gas, and plants). Over time different liquid fuels gain competitive advantage; we need not fetishize crude oil.

The daily balance produced by prices

Oil is expensive to store commercially. This forces production into an almost daily balance with consumption. There is no long or large surplus of output over production.

The increased crude production during the past few years was small: 1.7% per year for the five years ending Oct 2015 (a total of 7.8 million barrels/day).  Slow growth plus increased efficiency meant slow demand growth — three-quarters of which came from America (5.9 million b/d) and the rest came from Iraq (1.9 million b/d) — both of which could continue boosting production.

Then came the end of sanctions on Iran, allowing a flood from its massive oil reserves. A collision was inevitable. When ex ante oil demand (i.e., before price feedbacks) exceeds production — as it did in 2008 — we get “demand destruction” — rationing by price. Rising oil prices motivate people to reduce discretionary consumption, invest in methods and tools to increase efficiency of use, and adopt substitutes. If those prove insufficient or too slow, the economy slows enough to balance demand and supply.

The process works just as inevitably in reverse when ex ante production exceeds demand — a “rationing” of the market among producers. Either they voluntarily reduce output as prices fall, or falling prices push them to do so through bankruptcy (i.e., the weak fail). The process is painful without collective action, which is why cartels are born.

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How close are we to the next recession?

Summary: How close is the US economy to a recession? Here we review the evidence and draw a firm conclusion. {1st of 2 posts today.}

The financial press overflows with confident forecasts about everything from individual stock prices to the fate of the overall economy. It’s usually difficult to reliably predict such things with useful accuracy; since the crash it’s become far more so. My prediction each year since 2010 has been for slow growth (in the low 2%’s); that’s proven correct. Let’s try for something more ambitious.



  1. How close are we to a recession?
  2. The Econbrowser Recession Indicator Index.
  3. Looking at Q1 GDP.
  4. How fast can GDP fall?
  5. The current numbers: how are we doing?
  6. Conclusions
  7. For More Information

(1)  How close are we to a recession?

Let’s start with the big picture and move to the details. GDP was moderately strong in Q3 and Q4 at aprox 2.6%. Economists expect a strong economy (as usual). Looks good.

But some (not all) indicators show slowing. That’s sparked excitement from the bears, like this from Zero Hedge: Two More Harbingers Of Financial Doom That Mirror The Crisis Of 2008.

But before examining the data, we need some context. Surveys of consensus opinion of economists have never predicted a recession (correctly or incorrectly). So their sunny forecasts tell us little.

Second, the economy has experienced unprecedented distortion from six years of fiscal and monetary stimulus — including maintaining the short-term risk-less interest rate at zero, long-term government bond yields below the inflation rate (aka negative real rates), plus three rounds of quantitative easing. These have made many of the usual forecasting tools less effective.

(2)  The Econbrowser Recession Indicator Index.

For useful perspective see a tool developed by James Hamilton, Professor of Economics at UC-San Diego. His Econbrowser Recession Indicator Index is an indicator of contemporaneous data — its quarterly indexes are not changed as data is revised. See his article describing it. It now reads 1.6% — low odds of a recession, slowly falling.

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