2/1/16: Remember that America's Scariest Chart?

As promised in the previous post, here is a look at yet another wrinkle in the U.S. jobs creation saga. The following used to be referred to as the America's Scariest Chart some years back, until all analysts stopped tracking it. Well, all, save for myself - and for a good reason.

Since the election of Donald Trump, the U.S. media has been full of praise for President Obama's record on economic recovery, setting the stage for an argument that Trump Administration is about to inherit a very strong economy, the one that, in mainstream media's minds, Trump is likely to mess up.

So lets do a simple exercise. Take current level of employment (non-farm payrolls) and compare it to the pre-crisis average levels of employment. Represented as an index, this comparative can be performed for every recession since the end of WW2. Chart below illustrates the results:

As the chart above clearly shows:

1. Today's employment figures represent the worst recovery from a recession on record (for any terminal point of previous recoveries, current recovery is associated with lower employment levels).
2. Even stretching time of this recovery to present day - yielding the second longest period of a recovery since 1945, after the 1990 episode - current recovery is still the worst performing one.
3. Looking at the slope of the 2008 line, increases in employment relative to pre-crisis situation are weaker in the current post-crisis recovery than in every other recovery, except the 2001.

Now, this is not to put the blame for the weak recovery on the shoulders of President Obama. Presidential policies have little short term impact on unemployment and it takes cooperative Congress to structure and enact longer-term policies. But this does dispute the media-promoted view of the U.S. labour markets are being in rude health. President-elect is not about to inherit a spotless jobs market from his predecessor. America's Scariest Chart still confirms as much.

9/2/16: Sales and Capex Weaknesses are Bad News for U.S. Jobs Growth

In a note from February 4, Moody Analytics have this two key messages about the U.S. economy, none pleasant:

• Business sales are ‘mediocre’ outside energy sector, so that jobs growth singled by business sales outside energy sector should be slowing; and
• Capex slowdown is about to smack jobs growth even further to the downside.

Take their numbers with a gulp of some oxygen.

Point 1: Business sales

The old-fashioned statistics don’t quite fudge stuff as well as the more modern hoopla about users, unique visits and signups deployed in the ICT sector. So here we go:

“Don’t fall into the trap of believing all is well outside of oil & gas. According to Bloomberg News, the 52% of the S&P 500 that has reported for 2015’s final quarter incurred over-year setbacks of -4.9% for sales and -5.7% for operating income. To a considerable degree, the declines were skewed lower by annual plunges of -34.2% for the sales and -64.2% for the operating profits of the latest sample’s 18 energy companies. For the 53% of the S&P 500’s non-energy companies that have reported for Q4-2015, sales barely rose by 0.6% annually, while the 2.6% increase by operating income fell considerably short of long-term profits growth of 6.5%.”

You’ve heard it right: in a recovery the U.S. is having, sales are up 0.6% y/y. Know of any real business that lives off something other than sales? I don’t.

Based on the Commerce Department broad estimate of business sales “that sums the sales of manufacturers, retailers and wholesalers. …even after excluding sales of identifiable energy products, what I refer to as core business sales posted annual increases of merely +2.1% for 2015 and +1.0% for Q4-2015”.

“…payrolls have been surprisingly resilient to the slowest growth by business sales excluding energy products since Q4-2009.” But, based on 3-mo average payrolls correlation with 12-mo average business sales data (estimated by Moody’s at 0.87), 2015 figures for sales suggest “…the average increase of private sector payrolls may descend from 2015’s 213,000 new jobs per month to 42,000 new jobs per month. Unless core business sales accelerate, 2016’s macro risks are most definitely to the downside.”

A handy chart:

Point 2: Capex headwind for jobs growth

“Business outlays on staff and capital spending are highly correlated. Over the past 33 years, the yearly percent change of payrolls revealed a strong correlation of 0.84 with the yearly percent change of real business investment spending.”

So, based on 2015 yearly increase in capital spending private sector payrolls “should have approximated 0.8% instead of the actual 1.9%. In other words, Q4-2015’s 1.6% yearly increase by real business investment spending favored a 91,000 average monthly increase by 2015’s payrolls, which was considerably less than the actual average monthly increase of 221,000 jobs.”

All of which puts into perspective what I wrote recently about the U.S. non farm payroll numbers here: http://trueeconomics.blogspot.com/2016/02/5216-three-facts-from-us-labor-markets.html

You really have to wonder, just how long can the U.S. economy continue raising the bar on additional bar staff hiring before choking on shortages of sales and capital investment?

31/5/2014: One Chart of the Week, 5 charts of the last 5 years

If you see one chart this weekend, make it count. Here's a contender:

Source: https://twitter.com/okonomia/status/471713359424139264/photo/1

The above shows US GDP growth starting with the end of each recession from 1954 through the last one (where all growth indices are set at 100). And guess what: this time is different. Despite massive, un-parallel, unprecedented monetary expansion and QE, the current recession and recovery signal both - the sharpest decline from the pre-crisis peak and the shallowest recovery from the crisis trough. 

To confirm this - see the historical deviations from the potential GDP:

And this is not just about GDP. Here are changes in employment:

And unemployment:

These charts come from (except for the first one) http://www.cbpp.org/cms/index.cfm?fa=view&id=3252.

And the famous chart from the CalculatedRisk blog tracking percentage of jobs losses:

That's right... all of this 'wealth creation' in the financial markets is hardly about the real economy... Which means that one day, either fundamentals will have to catch up with financial markets valuations (by growth vastly outstripping capital gains), or financial markets will have to scale down the cliff back to fundamentals (by financial markets correcting massively to the downside). Or both... Which one is the 'soft landing'? You guess...