Morning Report: Employment Cost inflation lowest since 1982 7/31/15

Stocks are flattish after the Employment Cost Index comes in lower than expected. Bonds and MBS are flat

The Employment Cost Index rose 0.2% in the second quarter, the lowest increase since BLS started keeping track, which began in 1982. On a 12-month basis, employment costs are up 2%. This number includes salaries and benefits, so we still have wage inflation barely keeping up with inflation in general. Given the low ECI and falling commodity prices in general, the Fed has an excuse not to move in September. Bonds rallied hard on the announcement.

Note that in 1982, the US was in the worst recession since the Great Depression. This was the recession caused by Paul Volcker’s tightening to conquer 1970s inflation. It also corresponded to the first wave of globalization, where US industry had to deal with international competition for the first time since WWII. Given that we are 5 years into an expansion, that number sticks out like a sore thumb.

The ECI is just another demonstration of the strange state of affairs in the US labor market. People who have jobs are keeping them, as demonstrated by the multi-decade lows in initial jobless claims and the low unemployment rate. Job openings are at the highest since BLS started keeping track in 2001. The labor force participation rate is the lowest since the late 1970s and wage inflation is the lowest since 1982. Definitely a perplexing environment for the Fed to navigate.

Lost in the GDP data from yesterday, GDP growth was revised downward from 2.3% to 2% for the years 2011-2014. Apparently the government overestimated what government spending was during those years. Kind of funny, actually.

The Chicago Purchasing Manager’s index rose to 54.7 in July from 49.4.

Consumer Confidence slipped slightly in July, according to the University of Michigan Consumer Sentiment Survey. The current conditions index rose while the expectations index fell. The number of people who say their household financial situation is worse than a year ago ticked up to 29%. Interesting to say the least, given that these consumer confidence indices often are influence by gasoline prices and those have been falling as oil has been taken to the woodshed.

Speaking of oil prices, both Exxon-Mobil and Chevron reported weaker than expected numbers this morning, and both stocks are getting whacked. Surprisingly, D.R. Horton (who has a lot of TX exposure) has not seen any evidence of this hitting homebuyer demand.

Chart: West Texas Intermediate:

Ocwen missed earnings estimates and the stock is down about 16% on the open. The UPB of its servicing portfolio fell 26% to $322 billion. They unveiled a new plan to cut costs as their assets fall.

The House Financial Services Committee passed a “hold harmless” period for TRID, which basically says the CFPB won’t be able to enforce TRID and impose penalties until Feb 1 2016, provided the issuer is making a good-faith effort to comply with the regulation. There is a competing bill in the Senate which would have a shorter period, ending on Jan 1. The CFPB has already delayed the implementation once.

20 Responses

  1. Frist!

    “The labor force participation rate is the lowest since the late 1970s and wage inflation is the lowest since 1982.”

    Is there a why to this? Are they all just opting out? Early retirements? On welfare or disability? Independently wealthy? What’s up with that?

    Like

  2. Hey, Brent–had you seen this Wonkblog piece about Millenials still living at home?

    About 42 million 18-to-34-year-olds lived independently of their families on the eve of the recession. About 42 million of them live on their own today, even as the size of this age bracket has grown. That means a young adult is even more likely to live at home in 2015 than back in 2008.

    So now we have a modest, more perplexing new trend: Millennials are finding work, but they still seem stuck at home.

    That pattern raises some much tricker questions. For one: Why? And how long will this last? Is this a sign of financial savvy or gun-shy caution? And what are these people doing with their newfound income if they’re not spending it on rent?

    Some of this may be explained by student debt. But the Pew analysis, based on data from the Census Bureau’s Current Population Survey, suggests that young adults are less likely than at any point since the recession to live on their own, whether they have a college degree or just a high school diploma.

    Any thoughts?

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  3. IMO the low labor force participation rate is due to early retirements and people in their 40s / 50s who lost their jobs and are unable to get hired because no one wants old people. Basically Gen X got cut off at the knees for their peak earning years.

    Re Millennials living at home, I did not know that. FWIW, household formation is increasing again, but it was depressed for a lot of years.

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  4. ” And what are these people doing with their newfound income if they’re not spending it on rent?”

    Tattoos.

    Mostly, I’m pretty sure they are blowing it on partying and consumer goods. Games for the X-box. Etc.

    Like

  5. Tattoos

    Especially the women! 😀

    Like

  6. I remember getting in an argument over at PL with that idiot guy from Florida who tells everyone he used to be a news anchor.

    http://pjmedia.com/instapundit/211654/

    Rukidding I think.

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  7. Ruk is eccentric. Yeah, Herbert Hoover saw the writing on the wall is what happened, and, as I understand it, he lacked clarity in communicating what he was doing and why to the public, so it didn’t go well. Plus, like now, they believed the president controlled the entire economy from a panel of gears and levers in the Oval Office, so just assumed he had caused the stock market crash and everything bad that had happened, so . . . out he went!

    Plus, he promised a chicken in every pot. Politicians should not promise us chickens unless he can deliver us chickens.

    Like

  8. Politicians should not promise us chickens unless he can deliver us chickens.

    And, for FSM’s sake, don’t try to convince us that we can pay doctors with them!

    Like

  9. I shouldn’t be surprised that people still believe this.

    http://deadline.com/2015/07/rathergate-drama-truth-set-for-october-16-limited-release-wide-release-to-follow-1201488718/

    It’s laughable. Course, Cef at PL believed the the original October Surprise, the one where GHWB flew to Paris in the (snicker) “cargo bay” of a SR-71 Blackbird to arrange for a delay of the Iranian hostages until after the election. Another stellar intellect from the PL.

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  10. Surprise, the one where GHWB flew to Paris in the (snicker) “cargo bay” of a SR-71 Blackbird

    so i guess he curled up with the camera?

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  11. “The labor force participation rate is the lowest since the late 1970s and wage inflation is the lowest since 1982.”

    Is there a why to this? Are they all just opting out? Early retirements? On welfare or disability? Independently wealthy? What’s up with that

    My father lost a job as a business manager in his early 60s. It’s effectively forced retirement unless you’re interested in a second career as a greeter at a well known purveyor of consumer goods.

    BB

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  12. @Goose

    Finally using the BBQ sauce you brought last year. I’m marinating a pork loin in it and will update with a Bites & Pieces post. I used the end parts to make an amazing vindaloo.

    I don’t think the trend is terribly perplexing. Pay down debt, build up a nest egg, and move out. My younger brother stayed with my parents for a couple of years before he bought his home (and got married). I think it’s a promising trend.

    BB

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  13. Good! I’ll be glad to hear what you think of it. okie loves it–it’s the only sauce she uses now (which I take as a great compliment). A couple other folks on PL have adopted it as well.

    Like

  14. Like

  15. The distribution of the use of the word “pussy” is interesting.

    Edit: There was a link that was supposed to attach (and I cannot find now) that demonstrated the distribution of various swear words within the US.

    Like

  16. Scroll down about halfway through the comments to get to a really interesting Progressive vs Liberal debate about the economic of immigration.

    http://www.dailykos.com/story/2015/07/31/1407696/-Bern-s-Immigration-Stance-Makes-Him-Unfit-to-Lead-the-Democratic-Party

    Like

  17. The answer on Sanders & Immigration is #4:

    “4. Or, is he saying he only cares about the financial well-being of Americans?”

    He’s pretty explicit about that:

    “Ezra Klein:

    Then what are the responsibilities that we have? Someone who is poor by US standards is quite well off by, say, Malaysian standards, so if the calculation goes so easily to the benefit of the person in the US, how do we think about that responsibility?

    We have a nation-state structure. I agree on that. But philosophically, the question is how do you weight it? How do you think about what the foreign aid budget should be? How do you think about poverty abroad?

    Bernie Sanders:

    I do weigh it. As a United States senator in Vermont, my first obligation is to make certain kids in my state and kids all over this country have the ability to go to college, which is why I am supporting tuition-free public colleges and universities.”

    http://www.vox.com/2015/7/28/9014491/bernie-sanders-vox-conversation

    Like

  18. @McWing: “Scroll down about halfway through the comments to get to a really interesting Progressive vs Liberal debate about the economic of immigration.”

    I couldn’t find it. Or maybe I did and just didn’t recognize it. But the commenting system at dailykos is really ugly looking, and shouldn’t allow users to have signature lines. That’s what I concluded.

    Like

  19. Heh.

    The Upshot is that progressives believe that any restrictions on immigration are either motivated at a minimum by Xenophobia or more likely flat out racism. The economic debate on whether immigration can have an effect of wage rates has been settled long ago and to even question it is too commit a grievous sin.

    Even with those on their side, leftists, they go right to delegitimizing their opponents. There can be no reasonable disagreement apparently.

    Like

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