MIXED SIGNALS ABOUT THE U.S. ECONOMY (PART ONE)

Trying to get a sense of the short-term future for the U.S. economy could be difficult due to recent potentially mixed signals.  This blog entry will probably be the first part of a two-part blog.  This first part will focus mainly on employment, the yield curve, personal disposable income, and money velocity.

Yesterday (Friday, February 7, 2020), the U.S. Bureau of Labor Statistics (BLS) reported that total U.S. nonfarm payroll employment increased by 225,000 jobs in January 2020 based upon its survey of workplace establishments.  However, using data from the BLS web page, I calculate that employment measured by the BLS household survey fell in January 2020 by roughly 89,000 jobs.  This is the second time in the last three months when the BLS establishment survey reported an increase in total nonfarm payroll employment but the household survey reported a decrease.  Despite two decreases in employment from the household survey in the last three months, readers should realize that the reported decrease for November 2019 was relatively small, so that estimated employment from the household survey for January 2020 is still greater than it was in November 2019.  (Note:  I think that both the establishment survey data and the household survey data for employment are seasonally adjusted.)  Readers can read more about these statistics and releases at the following web pages. 

    

https://www.bls.gov/news.release/empsit.nr0.htm

https://beta.bls.gov/dataViewer/view/timeseries/LNS12000000

https://www.bls.gov/news.release/empsit.a.htm

https://data.bls.gov/timeseries/CES0000000001?output_view=net_1mth

The analysis may be less clear due to downward revisions in previously reported estimates.  The Atlanta-Journal Constitution reported on page A3 of today’s (Feb. 8) newspaper that previous employment estimates from 2018 and part of 2019 overstated job growth by more than 500,000 jobs.

Could the reported decrease in employment from the household survey help to explain (1) the re-inversion of the yield curve based on the two-year and five-year rates for U.S. Treasury debt, and (2) the one-day decrease in stock indexes, both shown on CNBC yesterday (Feb. 7)?  Inverted yield curves could possibly signal a recession on the horizon. 

 

If I remember correctly, Steve Liesman mentioned that a possible explanation for the one-day lower stock indexes was that before receiving the latest employment release from the BLS, some investors may have expected another federal funds rate reduction announcement by the Federal Open Market Committee (FOMC) of the Federal Reserve Bank.  Now that appears less likely due to the establishment survey exceeding expectations for the number of people employed in January 2020.  (The thinking may have been that if another interest rate cut would come in the next two months, then investors who would be essentially indifferent between stocks and U.S. government debt would prefer stocks given that the return associated with newly issued U.S. government debt would likely decrease.)

Perhaps comparable to the recent employment estimates from the household survey, data from the U.S. Bureau of Economic Analysis (BEA) web page show that U.S. real disposable personal income (measured after-taxes in U.S. dollars with constant purchasing power) has fallen in two out of the last three months of data available.  However, the decreases in real disposable personal income are in October 2019 and December 2019 rather than November 2019 and January 2020, as real disposable personal income data are not available as of this writing for January 2020.  Even though U.S. nominal personal disposable income (measured in after-tax dollars that have varying buying power as prices in the economy change) did not decrease in October, November, or December of 2019; decreases in real disposable personal income in two of those three months reduce the amount of goods and services that households can afford to buy in those months of decrease, all other things equal.  If consumer spending is rising more than income, what if anything does that indicate about debt levels in the U.S.?  Readers can see more about the personal disposable income data at the web link below.

https://www.bea.gov/news/2020/personal-income-and-outlays-december-2019

As expected in my earlier blog post (https://harrisonhartman.blogspot.com/2019/12/is-velocity-of-us-m1-continuing-to.html), data on the FRED web page of the Saint Louis Federal Reserve Bank indicate that money velocity for both the M1 and M2 monetary aggregates fell in the fourth quarter of 2019, with velocity measured on a seasonally adjusted basis.  Nominal GDP spending failed to keep up with money supply growth, as has been the case most quarters in the Not-So-Great Recovery.  Falling money velocity, which happened most quarters in the U.S. after the fourth quarter of 2007, raises the issue of how effective expansionary monetary policy has been in completing the recovery from the Great Recession.  I will probably have more about U.S. money velocity and other macroeconomic variables soon.

(Readers should note that subsequent data revisions could change the analysis of this blog entry.)