Overheating prices and cooling activity in America

313,000 Non-farm payroll (NFP) jobs added (seasonally adjusted). Without that, it is more than a million! Plus, upward revisions to jobs added for Dec. and January. Average Hourly Earnings rises more slowly than expected. Bond markets were confused but stock markets were elated. They have drunk the Kool Aid and are still drinking.

But, the report was not all that it was cracked up to be.

In the last six months, the U.S. economy added 1.369 million. Multiple job holders in these six months went up 655,000. That is 48%.

In the last one year, U.S. non-farm economy added 2.232 million jobs. Five categories contributed 62% of these jobs:

Administrative and Waste Services: 276K

Health Care and Social Services: 377K

Food and Drinking (part of retail) service: 251K

Construction: 254K

Manufacturing: 224K

The first three of them are low paying categories, for the most part.

Bulk of the employment creation, as per the Household Survey, happened for both Blacks and Whites and not for Asians. In terms of education, those with education above High School and no college and those with a Bachelor’s or more split the employment generation. Surprising that wages did not rise faster despite a big rise in the jobs for educated people. I thought that the unemployment rate for the educated had bottomed at 2.1% in January. It is true. It jumped to 2.3% in February but that is because more of them joined the labour force and quite a few found jobs too.

U-6 unemployment rate remained unchanged at 8.2%. It had bottomed out at 8.0% in October. Frankly, I think the labour market peaked in October. It is a lagging indicator. The economy might be on borrowed time. Just a hunch. Non-defence capital goods orders excluding aircraft peaked at 9.9% annual growth in October 2017. It had revived with the arrival of the new President. Now, the growth rate has slowed to 6.3% (y/y).

Atlanta Fed GDP NOWCAST forecast for Q1 was dropped to 2.5% from 2.7% after the release of the NFP report. But, the trimmed PCE inflation rate had risen to 2.67% in January, courtesy of Federal Reserve, Dallas, besting the previous (recent) peak of 2.62% in April 2016.

The 16% trimmed CPI inflation rate courtesy Federal Reserve Bank of Cleveland had hit 3.5% in January 2018, slightly besting the January 2017 number. Does not look like it is a January thing because Jan. 2016 number was 1.92%.

The ‘Underlying Inflation Gauge’ (UIG) of the Federal Reserve Bank of New York was nearly 3.0% in January, increasing at the second decimal place at a faster rate than in December 2017. See here.

There is overheating evidence in the real economy and it has been there in financial markets for a long time, however. Time for Jerome Powell to walk the talk and raise rates by 50 basis points in the March FOMC meeting.

On Friday night, saw this interesting piece by the folks from the Economic Cycle Research Institute (ECRI). They called for a recession in 2015 that did not materialise. May be, they are right now.

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