Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place), and CEO of WargentAdvisory (providing subscription analysis, reports & services to institutional clients).

5 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the finest property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.

"I've been investing for over 40 years & read nearly every investment book ever written yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.

"The level of detail in Pete's work is superlative across all of Australia's housing markets" - Grant Williams, co-founder RealVision - where world class experts share their thoughts on economics & finance - & author of Things That Make You Go of the world's most popular & widely-read financial publications.

"Wargent is a bald-faced realty foghorn" - David Llewellyn-Smith, MacroBusiness.

Monday, 8 December 2014

Is the US Economy in Recovery or Not?

NFPs by Month

One of the problems with economic data is that releases are inevitably based upon statistical samples and survey results tend to jump around quite a bit from month to month and from quarter to quarter (and are usually seasonally adjusted according to historical trends, which may or may not result in a clearer outcome).

Plotted below are the change in nonfarm payrolls over the past 20 years, the two major recessions during that time clearly visible, but the pace of the respective rates of growth outside of those periods a somewhat harder to visualise, which is even more so the case when the results are released in real time.

For various reasons over the last few years it has regularly been argued that the US economy is not in recovery mode.

After this month's massive 321,000 of job gains - the biggest print of the last three years - the nature of payroll reports is such that next month we will all but certainly see a "weaker" result and the circular "it's a recovery/it's not a recovery" debate will resume all over again.

Average Monthly Change in NFPs

Here's another way to look at the data: average monthly change in nonfarm payrolls by calendar year.

When looked at this way, the "recovery" side of the argument may take on a more coherent shape.

Since the horror of the financial crisis when in 2009 alone some 5,087,000 employees were ejected from the workforce (recorded in the chart above as an average job loss of more than 423,900 per month) there has been a steady but discernible recovery. 

In the calendar year 2009 there were some genuine horror months, with March 2009 alone recording stratospheric job losses of 826,000.

2010 was a mixed year with some months in the black and some in the red, leading to average monthly gains of only 88,000 jobs. 

As late as September 2010, payroll reports were still oscillating in and out of gains and losses.

Since September 2010, however, we have seen a record 50 unbroken consecutive months of jobs gains.

The pace of the gains was not great at first, at only 173,530 jobs per month in the calendar year 2011.

And then in 2012, the world was thrown into great uncertainty by a series of inter-related crises, slowing the rate of increase in average monthly jobs gains to 186,330 per month, with some mixed results through that calendar year.

In 2013, the average monthly gains increased moderately once again to 194,250.

Has the Experiment with Quantitative Easing (QE) worked?

It's difficult to say definitively but from the outside the evidence seems to suggest that after several bouts of stimulus the US economy is in better nick than it might otherwise have been, with the average rate of monthly jobs gains in 2014 now increasing to above 240,000, while the number of registered unemployed has declined significantly over the past year.

The cumulative total of jobs gains since September 2010 at 9,749,000 is set to pass 10 million in the next month or two.

Trend Acceleration

Over the past 50 months the average monthly gain of approximately 195,000 per month is slower than one might have hoped for, or indeed might be considered normal for an economic recovery.

However, the important point of note is the acceleration in the trend - the rate of change has increased every year since 2010 and continues to do so.

Of course there are always points of weakness in any payroll report (including earnings weakness and variations by region/race/industry age/education qualifications etc), but the trend over the past five years have been one of improvement, with the major 321,000 gain this month continuing that accelerating trend.

It looks as though the US economy may be hitting escape velocity, so perhaps, simply, it might just be that.

No doubt when next month's data is "weaker" than 321,000 or this month's figures are revised down this will again be refuted, but the trend is more important than any individual month, and after 50 months of gains the bear case seems to be losing traction.