Jobs Day 🧵

Payrolls: Great! But more a sign of lower layoffs in Jan than a hiring uptick (seasonal adj issues here)

Wages: Still solid real wage gains but not spike reflects how weather effects on workweek distort data

Prime age employment: Nice bounce but wanna see more soon False start...now we're up and running

A nice bounce in the prime-age employment rate, which already adjusts for changes in (1) participation and (2) aging

But even so, it doesn't reverse December's decline. Still 0.3% below peak vs July

Still looks like a slowing labor market

Happy New Year!

Ten Thoughts On The Tribal “Transitory” Debate As We Enter 2024
employamerica.org/blog/ten-thoug…

https://twitter.com/IrvingSwisher/status/1741570313584873771

As a preface, let's all calm down...

We have 6-7 months of solid core disinflation to point to. It's fantastic, but there are still potential bumps in the road. Let's get a clean 12 months in first, especially given residual seasonality.

Not yet time for decisive retrospectives

Belated Jobs Day 🧵

Today's numbers aren't a basis for outright pessimism but they do signal the need for caution

Even looking beyond distortions due to the UAW strike, trends in job/wages/hours are cooler across both surveys

Fed needs to take notice & avoid overtightening Nonfarm payroll employment is most frequently cited for job growth:
October readings were held down by the UAW strike, but the hidden story was the downward revision to the previous two months' jobs numbers.

Underlying job growth is still solid in the survey but it's slowing

While everyone is fixating on what the ISM Manufacturing number might mean, manufacturers sure do seem to be investing heavily in structures right now

*Real Inflation Adjusted* plant investment is on an absolute tear.

10% in April!

Cc @BrianCDeese @jennifermharris 8.7% nominal spending increase.

1.1% through lower costs as per its specific PPI deflator

A 🧵 on how everyone who cites unit labor costs as a predictor / explanation for inflation misses the fatal near-tautological error they’re committing (tbc not aimed @KathyJones, who you all should follow).

ULC is supposed reflect “wages divided by productivity” but…

https://twitter.com/kathyjones/status/1664249478013140992

Unit labor costs do not involve any direct measure of an individual business’ unit labor cost. Nor does it involve direct measures of a firm’s wages or productivity. It comes from aggregates

= (Total Labor Comp / Total Hrs Worked) / (Total Real Output / Total Hrs Worked)

Just a remarkable jobs report on virtually all the metrics that should matter, especially if you look through the details. Gonna try to thread all my thoughts in one place this time around. The Prime-Age 25-54 Employment Rate adjusts for 1) aging and 2) changes in participation.

It reached a new cyclical high, highest in 22yrs.

Biden has already seen 10 months at 80%+
For comparison:
Trump: 7 months
Obama: 0 months
GWB: 18 months
Clinton: 56 months

Now on the @employamerica blog:

Secretary Granholm’s Excuses Don’t Add Up - The DOE Should Be Ready To Buy Now To Refill Later

employamerica.org/blog/secretary… The spot price of WTI crude oil is now $68.69, squarely in President Biden's committed "buyback range" of $67-72.

But the DOE is not yet prepared to give credible service to the commitment if oil prices stay here more durably, or worse, fall further

whitehouse.gov/briefing-room/…

Inspired by Jon Stewart's recent exchange w/ Larry Summers, latest post on the @employamerica blog:

Descriptive: Let's Not Confuse The Fed's Power With "Control"

employamerica.org/blog/descripti… Larry Summers and other commentators (and even Fed officials) like to claim at an abstract level that Fed policy 'controls the overall level of [aggregate] demand.'

This description is somewhere between deceptive and just plain wrong.

https://twitter.com/IrvingSwisher/status/1636787656829935617

Our Post-PCE Recap is out and public on the @employamerica blog:

February Core-Cast Post-PCE: The Dark Spaces Show Some Dovish Potential

employamerica.org/blog/february-… We got downside revisions to the January year-over readings and more downside info relative to what our nowcasts were already indicating (a downside 'miss' vs consensus)

Core Services Ex Housing held surprisingly steady due to "Dark Spaces" of PCE not measured via CPI or PPI

Core Services Ex Housing comes in soft vs our nowcast:
0.27% Actual vs. 0.40% Nowcast

Our core PCE nowcast was stil on the right side of consensus for the second consecutive month in a row:
0.30% actual vs 0.349% corecast vs 0.40% consensus. We'll have a longer recap shortly but if you want to support our high-frequency work (including live nowcasts of inflation), consider becoming a Premium Donor. You'll get access to our High-Frequency Descriptive Analysis distribution

employamerica.org/corecast/febru…

Out with a new piece on @employamerica blog w/ @ArnabDatta321

Don’t Forget The Future: The DOE Risks Diluting The Credibility of President Biden’s SPR Commitments

employamerica.org/blog/dont-forg… Oil prices were in the President's range for repurchasing crude oil (< $67-$72 on West Texas Intermediate) for nearly two weeks. The President made this commitment in October.

The DOE did not sound prepared to back the commitment if oil prices stayed in the range for longer

For this month, we're making our post-CPI update of our core PCE nowcast immediately public. It's on our High Frequency Descriptive Analysis distribution. Consider subscribing

Continue to caution against CPI overreaction, outstanding PPI inputs remain:
employamerica.org/blog/february-… The big gain this month came from headline inflation: energy services and food now working in a more favorable direction for disinflation

Core PCE is on track to stagnate year over year
Core Services Ex Housing PCE is on track to tick up year over year

The one Fed Governor who did not go along with aggressive implementation of dereg efforts post-2018 is now the head of the NEC: Lael Brainard. (The two remaining Governors from that decision voted for it - Jay Powell & Michelle Bowman)

Brainard was prescient in her dissent:

https://twitter.com/IrvingSwisher/status/1634998580154101761

Link to the full dissent here: federalreserve.gov/newsevents/pre…

There's probably too much "this is proof the Fed is hiking too much/fast"
Better critique: how the Fed falls short of granularly monitoring how their policies affect the economy in real-time

eg "hikes lower demand"...but "how?" is important

Not meant to be a Fed-bashing thread The desired economic effects of interest rate policy runs entirely through financial channels. You'd think there would be proportionally comprehensive real-time analysis of those channels (e.g. "this is our latest assessment on how higher rate risk could affect banking behavior")

Going to be offline for much of the day, but we finally got a chance to get this backlogged rant up:

Please Put 2022 Productivity Data In Its Proper Context

employamerica.org/blog/not-bad-a… The most commonly cited estimates of productivity are flawed in some fundamental ways that make them ill-suited for real-time policymaking decisions. It's just a ratio of aggregates; there is no productivity microdata.

The commentary about the data is even worse.

Yesterday's welcome inflation print takes some of the fire out of today's FOMC developments, but there will still be plenty to parse. More thoughts here:

December FOMC: How Much More Tightening Is Needed? The Fed's Projections Play With Fire
employamerica.org/blog/december-… Everyone knows there will be a 50bp hike today to 4.33%.
Attn is on the Fed's projection for 2023. I would be surprised if FOMC members revise projections based on one data pt yesterday (as encouraging as it might be). Probably >5%.
But our biggest concern lies elsewhere...

Very interesting paper and posited mechanism.

Does seem like there’s a tension between those expressing concern for the welfare costs of inflation for lower and middle income people and their simultaneous concern for the inflationary implications of those HHs’ “excess savings”

https://twitter.com/fercirelli/status/1593642306284011521

Worth going back to this from @vebaccount on the aggregation problems with real wage measurement and why available data on household surpluses and cash balances are a better real-time guide to how ‘income vs cost of living pressure’ tension is shaking out:
employamerica.org/researchreport…

Up now on the @employamerica blog:

Framework Update: Strong Enough Income Growth To Justify Hikes, But Slowing Enough For The Fed To Plan Off-Ramps

Q3 ECI and CPS suggest strong (above "floor") but decelerating gross labor income growth (jobs & wages)

employamerica.org/blog/framework…

https://twitter.com/IrvingSwisher/status/1553027961993019396

Full 🧵 forthcoming tomorrow morning.

The necessary and sufficient conditions for Fed tightening within our 2019 #FloorGLI framework remain satisfied, but the goals shouldn’t be to increase unemployment and the case for rapid 75bp rate hikes is diminishing…

Historic announcement from the White House:

Their announced rulemaking unlocks potentially game-changing policy tools for Dept of Energy. The Strategic Petroleum Reserve can now use fixed-price forward contracts to more flexibly promote energy security.
whitehouse.gov/briefing-room/… We noted in early March that the futures curve was (still is!) deeply backwardated: the price for spot crude (bad for consumers) was much higher than future price (more relevant for producers).
SPR could release today, buy back in the future (make $ too)

employamerica.org/researchreport…

Up now on the @employamerica blog:

Addressing Energy Services Inflation Through Reconciliation

Tl;dr: The economy isn't just facing a gasoline price shock, but a price shock from natural gas.

The solution is more investment & more diversification
employamerica.org/blog/addressin… Gasoline commands the headlines, but Americans' energy cost burdens extend to utility and electricity bills. Climate goals warrant more energy investment and diversification, but also...

*What exactly is the plan for taming the inflationary effect of higher LNG export capacity?*

Global inflation comparisons have been in the spotlight for the last 12 months, with many claiming that the differential between US and Eurozone inflation reveals causal impacts of policy or war.

But there are many sources of cross-sectional variation, not just fiscal policy...

https://twitter.com/IrvingSwisher/status/1544470862878982145

US didn't just pursue more aggressive fiscal policy, it also followed a faster reopening trajectory. Meanwhile, inflation has subsequently surged in other countries, including many within the Eurozone. There's more to the story...