Tag Archives: recession

What you haven’t been told about the July jobs report

Summary:  Another jobs report, more clickbait headlines about the monthly noise. Here’s a look beneath the glitz to the important news. The US economy continues slow steady growth, with continued signs of slowing. Also, 47% of new jobs went to foreign-born workers during the past year. Important matters. Too bad neither the candidates, journalists, or Americans care about such things. On to the next astounding soundbite!


  1. The noise: monthly changes in jobs.
  2. The important news about the trend in number of jobs.
  3. A clearer trend: total number of hours worked.
  4. Where were the new jobs?
  5. What about the info sector jobs machine? Let’s all become programmers!
  6. A red flag: growth in temp workers has slowed to almost zero.
  7. It’s not a “Starbucks Economy”. See the slow but steady wage growth.
  8. Explosive news: 47% of new jobs went to foreign-born workers.
  9. Conclusions and For More Information

Here are the monthly numbers that generate the exciting headlines!
It’s noise. The trends are almost impossible to clearly see.
Graph of the monthly change in jobs since Jan 2013 (SA).

New Jobs by month through July 2016.

Here is a more useful graph. Employment is still growing, but slowing.
Do you see why the monthly outpourings of joy or despair during the past 4 years?
The real story is the stability of the slow growth in the US economy.
Graph of the year-over-year percentage growth in jobs (not seasonally adjusted).

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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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The mystery of the US economy at stall speed

Summary: Since 2012 the idea of a “stall speed” to the economy played a prominent role the almost incessant predictions of an imminent recession. Since then the US has cruised at or below stall speed without a downturn. This is rich with lessons for us — about the danger of believing untested theories, about overconfident forecasts, and the big one: That we’re indeed living in the transition from the post-WWII era to a different economic regime. Much that we relied upon no longer works; we need to find the rules that govern this new world.

Forecasting recessions, the key to managing the economy.

Forecasting with models

In April 2011 Fed economist Jeremy J. Nalewaik published “Forecasting Recessions Using Stall Speeds”, showing that the economy tends to slow at the end of expansions before falling into a recession, that gross domestic income (GDI) provides a better measure of output growth than gross domestic product (GDP, the other side of the ledger), that these stalls are more visible in GDI than GDP, and that two quarters of GDI real growth below 2% (seasonally-adjusted annual rate, SAAR) “could serve as a moderately useful warning sign that the economy is in danger of falling into recession.”

The concept of stall speed is intuitively appealing. Like an airplane, if the economy slows too much it no longer generates enough life to overcome gravity (the drag of interest on its debt). I have often used the concept. This idea caught people’s imaginations, playing a big role in the almost monthly predictions by bears since 2012 of a recession really soon: from “Economy Close to Stall Speed May Signal Renewed U.S. Recession” (Peter Coy at Bloomberg, August 2011) to “The Global Economy’s At Stall Speed, Rapidly Loosing Lift” (David Stockman, May 2, 2016).

The data shows that this predictive tool worked until the 2008 crash, but no longer. As this graph from the Economic Cycle Research Institute (ECRI) shows, this measure has been below 2% in 10 of the past 14 quarters — but no recession yet (the Atlanta Fed’s GDPnow model predicts 2.8% growth in Q2 GDP, similar to the Blue Chip consensus).

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May’s job report shows the beginning of the end for the recovery

Summary: First, the good news: the May number was awful but probably noise. Then the bad news: job growth is slowing fast. It’s the among last economic metrics to roll over, suggesting that we’re sliding to a recession somewhere ahead of us. But the US is not a “Starbucks Economy”; real wage growth is normal. This is the second of two posts today; see Immigration to the US surges. It’s good news for Trump!

The good news about the bad news:
May’s job growth was ugly, but might just be noise
Note the other bum months amidst the otherwise steady growth
Graph of the monthly change in jobs since Jan 2013

Employment Change - May 2016

Employment is still growing, but slowing fast
Graph of the year-over-year percentage growth in jobs

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Trump & Clinton ignore America’s too-slow economic growth. We can change that!

Summary: Slow economic growth is among the most serious problems afflicting America. It’s incontrovertible, expected to continue — with broad and ill effects. Too bad neither of our major candidates are interested in talking seriously about it. We can change that, if we make the effort.

An exaggeration, but it’s a serious problem

Economic Growth is over

From the Fed’s survey of Professional Forecasters

The economy bounced as expected in 2010, with economists’ dreams of a “V” shaped recovery. Then the economy went off the rails, but they remained confident. Quarter after quarter, economists forecast great growth several years out — then slowly reduced them, only to find that actual GDP comes in even below their predictions. Forecasts of the Fed’s staff show the same pattern.

The only change is that now neither expects any improvement during the next few years. Of course, neither forecasts a recession in the next few years.

In 2013 Paul Krugman and Larry Summers predicted that the US had lapsed into secular stagnation. It was controversial then. After three years the problem has become apparent to anyone paying attention.

Consensus prediction of professional forecasters in Q1 of each year & Q2 2016
Read from left to right, top to bottom. Actual GDPs are in bold red & italics

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Mining and manufacturing are in recession. Will America follow?

Summary: The mining and manufacturing sectors of the US economy have rolled over. Perma-bear websites publish lurid descriptions of the horrific effect this will have on the US economy. What’s the truth? {2nd of 2 posts today.}


A warning. AP Photo/Mark Lennihan.

(1) The manufacturing collapse

Perma-bears often describe the manufacturing sector as in a downturn, sometimes as in a collapse, sometimes as in a recession. Here are the numbers describing the sector, indexed to the December 2007 peak before the recession. An explanation follows.

FRED: Manufacturing Sector Data

What does this tell us? Looking at these lines describing the manufacturing sector as of December, from top to bottom.

  • Inventories are high and stable.
  • Sales are down 8% from July 2014, and falling.
  • Its industrial production index is down 2% from July 2014, and stable.
  • Employment has grown slowly since March 2010 (+900 thousand); been flat as sales fell.
  • Not shown: average hours worked & overtime hours are flat since 2013.

It’s the new industrial revolution at work: tech and capex boost output without more workers. The level of activity in manufacturing (sales and IP) is back to the 2007 peak, but inventories are 15% above the 2007 peak — but employment is unchanged (increased productivity allowed output to increase without more workers).

What will happen if sales continue to fall? Production will drop even faster as companies reduce inventories. Employers will eventually cut hours worked and fire workers. We do not known when and how, but it manufacturing employment is too small to have a significant effect on the overall US economy. Even its output is only 12% of US GDP.

Bottom line: hold the hysteria.

(2)  Collapse of the mining sector (including oil & gas)

Output in red. Employment in green.

FRED: January 2016 Employment and Production of the Mining Sector

The US mining sector — which includes extraction of coal, oil, and natural gas — has hit hard times. Prices and volume are down. It’s a smaller sector than manufacturing (only 2% of GDP).

The mining story is the same as manufacturing’s — the new industrial revolution allows tech and capex to boost output without more workers since 2012. The decline has run in the opposite way as manufacturing, however: so far employment has fallen more than output (-16% vs. -11%). This is uncharted terrain; we can only guess what this will look like in a year or two.

The geographic concentration of mining means that a few states will suffer disproportionately: mining is one-third of Wyoming’s GDP, one-quarter of Alaska’s, one-sixth of West Virginia’s, one-eighth of Oklahoma’s, and one-tenth of Texas’ GDP (source: EIA).

So far the decline in mining output and employment has been in the non-petroleum industries. The below graph of oil & gas mining shows that since 2012 fracking boosted output with few new workers.

FRED: January 2016 Employment and Production of the Petroleum Sector

Now everything unravels. The price of natural gas (Henry Hub spot) peaked in February 2014; crude oil (WTI) peaked in June 2014, employment peaked in October 2014, it Industrial Production Index peaked in April 2015. A collapse will result eventually if prices do not rise — but we can only guess at its shape.

But the oil & gas extraction only employees 183 thousand people. The bankruptcies will affect investors. Some communities will suffer. But the national macroeconomic effects will be small.

Bottom line: no hysteria warranted.


The declines in manufacturing and mining have produced a clickbait extravaganza at some  popular perma-bear websites. However exciting, most of that exaggerates the national impacts.

Business investment and consumer spending are the powerful and volatile drivers of the US economy. When they turn down — and they have not yet done so — the overall economy will drop with them. There are indications that might happen in 2016. Keep your eyes on the center rings of the circus. Should the picture darken, do not delay taking steps to protect yourself.

For More Information

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And these about the US economy…

Banks Are The Key To This Stock Market Decline, & The Recession That Might Follow

Summary: After years of slow economic growth and rising asset prices in America, with investment gurus and economists predicting booms & crashes, events have again taken center stage. It’s time to again pay attention to the data.  {2nd of 2 posts today}

  • Risk markets are rolling over, high-grade bonds rise on a flight to safety.
  • Broad price movements like this are seldom false alarms; something is happening to fundamentals.
  • As usual during the early stages of a crash, we can only guess at the causes. Every crisis is unique. Do not assume this will follow the 2008 script.
  • Watch the banks! Banks lead us into financial crises; their stabilization leads us out.
  • Watch the data and take incremental steps to a more defensible portfolio stance. Avoid predictions!


Clear vision

This is another in a series of posts about the end to the expansion cycle which began in 2009 (links at the end). We can only speculate about the details and timing, but the broad outlines slowly become visible.

Look to the center of the decline in risk prices: banks. Their stocks are falling. Prices of their credit default swaps are rising. Concerns about their solvency have spouted suddenly, like daffodils after the first Spring shower. That’s how it should be. …

Read the rest at Seeking Alpha.