Thursday, November 28, 2019

Five Economic Reasons to be Thankful

by Calculated Risk on 11/28/2019 08:11:00 AM

With a Hat Tip to Neil Irwin (he started doing this several years ago) ... here are five economic reasons to be thankful this Thanksgiving ...

1) Low unemployment rate.

The unemployment rate was at 3.6% in October. The unemployment rate is down from 3.8% in October 2018 (a year ago), and is down from the cycle peak of 10.0% in October 2009.

unemployment rateClick on graph for larger image.

This is almost the lowest level for the unemployment rate since 1969 (the unemployment rate was at 3.5% in September)!

Also, this is the largest decline in the unemployment rate, from cycle peak-to-trough, since the BLS started tracking the unemployment rate in 1948.  (In the early '80s, the unemployment rate declined from 10.8% to 5.0%; a decline of 5.8 percentage points.  The current decline from 10.0% to 3.5% in September is 6.5 percentage points!)

2) Low unemployment claims.

The number of new claims for unemployment insurance benefits is close to the lowest level since the 1960s (with a much smaller population back then).  The four week average of new unemployment has fallen to 220,000, about the same as a year ago, and down from the peak of 660,000 during the great recession.

Here is a graph of initial weekly unemployment claims.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims is at 219,750.

The low level of claims suggests relatively few layoffs.

3) Job Openings Near Series High.

There were 7.0 million job openings in September. This is still solid, but down from 7.6 million in September 2018.

Job Openings and Labor Turnover SurveyThis graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

For the nineteenth consecutive month, there were more job openings than people unemployed. Also note that the number of job openings has exceeded the number of hires since January 2015 (almost 5 years).

Also Quits are up 3% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits").

A large number of job openings, and rising quits, are positive signs for the labor market.

4) New Home sales are at a Cycle High.

New Home SalesThis graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.

New home sales were at 733 thousand SAAR (Seasonally Adjusted Annual Rate) in October, and 738 thousand SAAR in September (highest since July 2007).

Sales were up from 557 thousand SAAR in October 2017, and up from the cycle low of 270 thousand SAAR in February 2011.

Since New Home sales are an excellent leading indicator for the economy, the new cycle high suggests no recession in the next year.

5) Household Debt burdens are near record lows.

Household debt burdens have declined sharply since the great recession.

The Household debt service ratio was at 13.2% in 2007, and has fallen to a series low of 9.69% in Q2 2019 (most recent data).

Financial ObligationsThe graph, based on data from the Federal Reserve, shows the Total Debt Service Ratio (DSR), and the DSR for mortgages (blue) and consumer debt (yellow).

The overall Debt Service Ratio decreased in Q2 2018, and has been mostly moving sideways and is at a series low.  Note: The financial obligation ratio (FOR) declined in Q2 and is also near a series low (not shown).

The DSR for mortgages (blue) is also at a series low (since at least 1980).  This ratio increased rapidly during the housing bubble, and continued to increase until 2007.

This data suggests aggregate household cash flow has improved.

Happy Thanksgiving to All!