We wrote about three slightly different U.S. recession indicators that have been predictive of the past few recessions and have been tracking how near or far are those from being invoked, here’s where we are in September 2018,
The private service sector in the United States now accounts for over 71% of all jobs given the growth in entertainment, tourism, healthcare and educational services. The exponential growth of the internet and people buying more experiences (like travelling or eating out) rather than buying goods means the goods-producing industries (like construction, manufacturing and mining) have seen a decline in jobs and now contribute less than 14% of all jobs. Government jobs have contributed around 15% consistently to the overall labour market over the past 50 years.
Both the United Kingdom and the United States currently have record multi-year high levels of employment, yet wages haven’t kept up with inflation for the vast majority of people causing a real income squeeze. Although the U.S. recently reported the highest wage growth since the last recession most people don’t feel their wages are keeping up with rising prices. What is going on?
Some states in the United States have done exceptionally well over the past decade creating massive number of new jobs and reporting record low unemployment. There are reports of major labour shortages in at least some states currently.
Here are maps of the unemployment rate in each state in May 2008 and May 2018,
We wrote recently about three slightly different U.S. recession indicators that have been predictive of the past few recessions. How near or far are those from being invoked?
30-year and 10-year Treasury yield
The 10-year Treasury yield has been greater than the 30-year Treasury yield three to six months before each of the past four. Currently the difference is just 19 bps.
And the 30-year, 20-year and 10-year Treasury yields have almost converged three to six months before each of the past five recessions as well. The 20-year yield already 3 bps higher than the 30-year yield, they have been converging for the past two weeks.
The biggest growth in jobs since 2007 in the United States has been in the Educational sector while most jobs have been lost in Manufacturing.
Here are three slightly different US recession indicators that have been predictive of the past few recessions,
30-year and 10-year Treasury yield
The 10-year Treasury yield has been greater than the 30-year Treasury yield three to six months before each of the past four recessions. Graph below for the past decade, the shaded areas indicate recessions,
And the 30-year, 20-year and 10-year Treasury yields have almost converged three to six months before each of the past five recessions as well. Graph below, the shaded areas indicate recessions,
Do economic fundamentals matter today? We look at the strange market conditions today. We are living in truly interesting times …
Super low Government bond yields
Government bond yields have never been lower with 2-year yields for most of Europe currently negative. The European Central Bank (ECB) is by far the biggest holder of European bonds and the biggest (almost 90%) buyer of the weaker Eurozone (Italy, Spain, Portugal and Greece) countries debt since 2015. The ECB balance sheet is now over 4.5 trillion Euros, some 45% of Eurozone GDP.
Even 10-year yields for Japan and Switzerland are barely positive.
Yields on government bonds for all maturities over 3 months have never been lower in the history of the world .
Some 80% of 10-year Japanese government bonds are held by the Bank of Japan. And apparently there are days when no one trades those 10-year bonds because there is no point of trading it. Why? Well, because the Bank of Japan has a policy to control yield curves and since they hold majority of it there are hardly any price movements.
The Euro Area unemployment rate was 8.5% in April 2018, down from 8.6% in March 2018 and from 9.2% in April 2017. This is the lowest since December 2008 but still more than double of the US unemployment rate of 3.9% reported in April (the US unemployment rate further fell to 3.8% in May). The EU28 unemployment rate was 7.1% in April 2018, stable compared with March 2018 and down from 7.8% in April 2017. This remains the lowest rate recorded in the EU28 since September 2008.
Manufacturing has been in focus recently in the United States with trade tariffs being discussed and the talk of bringing back some manufacturing to the United States.
U.S. manufacturing has been growing but it isn’t generating too many new jobs.
The reasons are simple:
- Increase in productivity
- Increase in automation
- Shift towards higher value goods (like aircrafts or high-end electronics)
Here are some graphs,
Indexed Number of manufacturing jobs vs Indexed manufacturing output (Both indexed to January 2012 = 100)