Recent Posts

Sunday, February 5, 2017

Cyclical Situation Still Mediocre

Chart: U.S. hourly wages and core inflation

The latest labour market data from the United States remain consistent with my view that the rate of growth is not enough to greatly reduce the mass underemployment that is the reality of the labour market. That said, the market implications are limited, as this is already priced into the curve. The Fed may wish to step up its anaemic pace of rate hikes, but they will remain dependent upon the data.

 Average hourly earnings (above) were revised lower, and the growth rate remains extremely well-contained when compared to previous cycles. If there are any inflationary risks, they are associated with either the few areas of the economy that are hitting capacity constraints, or the parts of the service sector where costs are out of control (medicine, higher education).

The employment-to-population ratio ticked up, but it remains mired at extremely disappointing levels.
Chart: U.S. Labor Market Conditions Index

The wider Labor Market Conditions Index also is not showing much vigour. (It does not reflect the latest releases.)
Chart: ISM Index

The labour market data I previously showed was coincident data (although they should lead inflation data). Survey data are more forward-looking, but the ISM Manufacturing Survey is not signalling that a boom is underway. (This series used to be an excellent leading indicator; the secular fall in manufacturing employment has meant that it has become less important for signalling domestic capacity trends.)

In summary, despite political fireworks, 2017 is looking a lot like 2016.

(c) Brian Romanchuk 2017


  1. I'm not too familiar with the data but I've noticed, as have others, that there is a slowdown in US credit growth. Do you have any thoughts?

    1. I have not looked at that data in too much depth recently; i have just seen various charts that others have published. (I have been tied up with other projects the last little while, so I have been doing less economy-watching.) It's a sign that the economy is not accelerating, at a minimum.

      However, we've had a lot of wiggles in the data this cycle; I have been writing about a "recession watch" since I launched the blog in 2013. Unless there is a reason for a major drop in fixed investment, the economy would probably once again shrug off a temporary slowdown in the growth rate. Such a major fixed investment slowdown could occur, but the catalysts I see are not things that I believe that I could forecast. (As an example, the euro self-destructing would blow a major hole in global growth.)


Note: Posts are manually moderated, with a varying delay. Some disappear.

The comment section here is largely dead. My Substack or Twitter are better places to have a conversation.

Given that this is largely a backup way to reach me, I am going to reject posts that annoy me. Please post lengthy essays elsewhere.