US labour market data confirm slowdown

Key US employment data were published yesterday—unemployment, employment, overtime hours, and wages.  The data suggest that the US economy is continuing to slow after the fading of the tax cut "sugar hit".

The markets don't pay much attention to the household employment survey which is very "spiky".  However, it's often quicker to pick cyclical downturns and upturns than the payrolls survey, precisely because it's based on individuals not companies, where the sample survey decays between censuses (censi?).  It's fallen sharply over the last couple of months.

A composite index of employment indicators (total employment payrolls and household surveys, change in unemployment rate inverted, overtime hours) suggests an imminent slowdown.

And a composite index of indicators released soon after the month end also points to an imminent slowdown.

Will the Fed cut rates soon?  I think they will wait for a bit more data. In the past they've waited until payrolls turn negative, which hasn't happened yet but prolly will in the next few months.   After all, this may just be another random dip which might be soon reversed.  I don't think it is, but I may be wrong.  And the thing is, the labour market is very tight, with wages at last starting to respond as they normally do.   This may inhibit the Fed's willingness to cut rates.

The Fed seldom cuts rates when wage inflation is accelerating.  They need convincing evidence of significant economic slowdown.  Which they haven't yet got. 

 But even if they do start cutting rates in the next couple of months, that will be too late to stop a recession.  Trade wars aren't helping nor is the fading of the fiscal sugar hit, which usually ends in a hangover.  My index of longer-leading indicators has turned, but the economy looks likely to contract through the middle of 2020.

Philly Fed & Empire State

These are two of the earliest available indicators of the state of the US economy for the previous month, i.e., August at this point.  They're full of random fluctuations, so it's best to look at a 3 month moving average of their average (each one's random fluctuations offsets the other's), which is what's shown in the chart below.

The US economy continues to strengthen.

US Early Indicator down a tad

My US early release indicator (generated from stats released in the first week of the month) fell a little in June.  But the trend is clearly still up.  The US recovery just keeps going.  So much so, that the first tentative signs of rising inflation are appearing (more of that in another post)

My US 'Early Release' indicators fall a tad

The big freeze in the US has shown up in the economic indicators.  Lower payrolls growth, a soggy ISM (for manufacturing, more seriously affected by freezing conditions than services) etc.  Still the overall 'early release' indicator only fell a little.  In my view, eco recovery in the US is still on track.

As usual, click to get full sized chart.

More on US early release indicator

Here I've plotted the data  (the "early release index" and real GDP) relative to their moving trend (the OECD method).  Once again, no signs of an imminent slowdown.  Mind you, the trend for the last few years has been much slower than in the past, so that needs to be borne in mind when you interpret the chart.  Note how the early indicator leads on both downturns and upturns, though at lower turning points it's only a couple of months' lead.

Still, most intriguing.  As usual, clicking on the chart will give you a full sized version, which is much easier to read.