Tuesday, March 12, 2024

Decent February job growth. But the boom times may be ending

Been out of town so can't write too much, but I wanted to give a quick rundown on the February US jobs report that came out last Friday.

If you look at the topline, the nunbers are an odd mix of job growth and higher unemployment.

But note the reference to 229,000 jobs in January and 290,000 in December. That's quite a bit less than the 353,000 in January and 333,000 in December that were reported in the previous jobs report. Which makes me wonder how this report would have been received if it was 108,000 jobs added and no revisions (which is the net change). Ironically, Wall Street probably woud have liked it more, since those numbers might have encouraged the Federal Reserve to cut rates sooner rather than later.

On the flip side, the average increase of 265,000 jobs a month since December is the fastest 3-month growth period since last Summer. And while average hourly wages only rose by 0.14% in February, the average weekly wage rose by 0.44%, due to a longer average work week. That's the reverse of January's report, which had hourly wages up by 0.52%, but weekly wages were down by a little less than 0.1%.

I also noticed that the strong growth in construction jobs continued in February, with 23,000 more jobs that month and 215,000 over the last year. It also contrasted with a loss of 4,000 jobs in the manufacturing sector, continuing a trend where hiring in manufacturing has mostly flatlined over the last 18 months even as construction keeps rolling along.

The leading sector in US job growth continues to be health care, with more than 66,000 jobs added in February, and more than 720,000 over the last year. After losing sizable amounts of employees during the COVID pandemic, health care employment finally got back into its pre-COVID levels in late-2022. And since then, it's been a strong and steady rise up, as nearly a million more people are working in the health care sector than they did before the pandemic.

To me, things are still in a decent place in the US job market in early 2024. Hiring continues, even if the pace is a bit slower than the boom times of 2021-early 2023. And while we should keep an eye as to whether unemployment keeps nudging higher, a 3.9% rate is still nowhere near a danger zone of recession. Wage growth is staying decent, and generally ahead of the rate of inflation (February was an exception for hourly wages...although not for weekly wages).

Can't complain too much, but it also feels like things won't be as easy as they were. Suppose that's to be expected when things have been so good for so long, but that doesn't mean people haven't started to get used to it, and it'll be interesting to hear the spin if/when job growth falls to the 178,000-a-month pace that we had in the first 3 years under Donald Trump.

Wednesday, March 6, 2024

Updated "gold standard" jobs report show a big North/South difference in Wisconsin

Got the new, thorough figures from the "gold standard" Quarterly Census of Employment and Wages (QCEW) today. This includes all sectors of the US jobs market, and goes down all the way into the county level for all states, including Wisconsin.

In the numbers for our state, we had decent-but-not great gains in jobs between September 2022 and September 2023 - 27,736 total jobs added, a rate of slightly under 1.0%. What strikes me is the geographic disparity in job stats among Wisconsin counties. Most counties in the southern third of the state had gains, and some by quite a bit. But most counties in central and northern Wisconsin weren't doing as well, and many lost jobs.

Those areas in orange and red are many of the areas of Wisconsin that have turned toward Republicans in the Trump era, which sounds like a great example of the conditions that seed the White Rural Rage phenomenon that has been well-summarized in a new book by Paul Waldman and Tom Schaller.

But if you try to pin this as a Biden-era trend, you're missing that the same thing was happening over the 12 months that ended in September 2019, when Donald Trump was allegedly presiding over "the greatest economy ever".

And given that Republicans are apparently going to try to play the "are you better off than you were four years ago" card (vs 2020? Bold move there, Cotton!), let's compare to where we were in the pre-COVID times of September 2019, and where we were on September 2023.

Overall, the QCEW says the state has gained a little over 41,500 jobs between September 2019 and September 2023 (+1.43%). But some places have gained quite a bit more than 1.43%.

On the numerical side, stop me if you've heard this before, but Dane County's growth is nearly twice as large as anyone else's. Most of the other largest gainers in the state are in either suburbs/exurbs, or counties on the border of another state.

But we also saw more than half of the state's counties lose jobs over those four years. The highest percentage losses were in rural counties in western, central and northern Wisconsin, with the biggest drop in Jackson County, which shed more than 1 out of the 10 jobs they had.

However, those large % losses are in small-population counties. When you look at the raw numbers, Milwaukee County had by far the largest deficit in jobs out of all of the counties in the state. Down 18,680 jobs in the QCEW reports.

Maybe that whole "defund Milwaukee" thing that WisGOP used as a strategy to stir up MAGA voters isn't something that works out well for an economy (note how Ozaukee County is also on that chart). Maybe the new sales tax and added investments into the state's largest City could reverse the bad numbers on jobs in the area as well.

These new numbers illustrate that while the state is in better economic shape than it was 4 years ago, and continued to grow in 2023, there are places that have lagged behind. And just like how economic success often leads to more success and attractability for workers and businesses, lagging performance and job losses become something that requires a lot of effort to reverse. And Wisconsin lawmakers should be aware of the different outcomes and figure out ways to improve the laggards while keeping the good times going in the places that have been winning.

Monday, March 4, 2024

New revisions show 2022's unemployment info as better in Wisconsin, with 2023 not as good.

We received some updated unemployment data for Wisconsin dating back to 2019. These revisions tell an interesting story for Wisconsin’s recovery from the COVID cutbacks of 2020.

For 2019 and 2020, our losses and recovery from the pandemic's shutdowns and changes isn't much different - slightly higher labor force and employment (labor force up 11,300, employment up 6,200), and 2020's year-end unemployment rate went from 4.8% to 4.9%.

The last 3 years had more significant monthly changes. What was originally reported as a drop in both labor force and the number of Wisconsinites working for much of 2022 now has little change at all, and 2023's increases for both employment and labor force aren't as large. But we've mostly ended up in the same place today.

This also is reflected in revisions to the number of Wisconsinites that were out of work. The number of unemployed didn't fall as fast in late 2021 and early 2022, but it also continued to go down through early 2023, unlike earlier reports indicated. Likewise, the number of Wisconsin unemployed rose for most of 2023, before leveling off in November and December.

And the changes in the unemployment rate tell a similar story, with the low of 2.6% now being reported in February, with a slow but steady rise happening over the next 8 months as all 3 parts of the household survey went up, before flattening out and staying at a rounded 3.4% for the last part of the year (sitting at 3.35% for December).

This report also listed annual averages for unemployment and the employment-population ratio that measures how much of Wisconsin’s total population is actually working. And we are continuing the tradition of this state having a high amount of its people in the work force, finishing 10th out of the 50 states.

We had previously seen evidence of good population growth and migration into Wisconsin for 2022 and 2023, so perhaps that’s being reflected in the higher work force, with the majority of those people finding jobs. And maybe 2022 and 2023 marks some progress on the ability to balance child care and other home life stresses with the need for employees and workers in need of income, although we still have a ways to go.

Later this week, we will see how the payrolls side of the jobs data has been revised to account for new and more refined information. When I did a check of the Quarterly Census of Employment and Wages (QCEW) last week, I didn’t see much reason for a notable change either way.

We’ll see for sure on Thursday, along with what January’s jobs figures were for Wisconsin. But it indicates to me that we need to keep working to hold onto the gains we've had in the 2020s, and keep improving our competitiveness to continue to retain and attract people to what can still be a great state.

Sunday, March 3, 2024

Construction's "cutback" in January isn't a big deal. And should be rebound in Feb.

One item that finished up 2023 in a strong place was the construction industry, and we got a report on Friday to see how 2024 began.
U.S. construction spending unexpectedly fell in January as weakness in outlays on public projects more than offset a moderate increase in private homebuilding.

The Commerce Department said on Friday that construction spending dropped 0.2%. Data for December was revised higher to show construction spending increasing 1.1% instead of 0.9% as previously reported.

Economists polled by Reuters had forecast construction spending rising 0.2%. Construction spending increased 11.7% year-on-year in January.

Spending on private construction projects gained 0.1% in January after rising 0.8% in December. Investment in residential construction rose 0.2% after surging 1.4% in the prior month.
So is this a big warning sign for a slowdown in 2024? It doesn't seem like it to me. Almost all of the decline for January can be accounted for in a $3.2 billion drop in public highway and street spending, which followed a runup of nearly 14% in the last 3 months in that area of construction. So that seems like a breather and/or short-term slowdown due to the brutal weather in mid-January.

Given that we've had a record-warm February (especially in the cold-weather states where construction usually is dormant this time of year), I would expect some of that seasonally-adjusted decline in January to reverse in the next month.

We also saw construction in single-family home building continue to rise in January, which is a trend that we've had for 9 straight months at this time.

And manufacturing construction continued its boom in January, which directly goes back to legislation that President Biden and Dems backed in 2022.

So I'd expect hiring to continue in construction for the February jobs report that hits later this week, and given that we are still seeing elevated spending for bridges and roads from the federal government in this year, I think this is going to stay strong at least for the start of 2024.

Friday, March 1, 2024

Evers vetoes biggest GOP tax cuts, as he should. But could he sign it with Medicaid expansion?

I was wondering when we'd find out what Governor Evers would do with the billions in tax cuts the GOP Legislature sent up to his desk. And we found out today.

The three bills vetoed would have cut the tax rates from 5.3% to 4.4% for married Wisconsin couples making taxable incomes between $38,000 and $150,000 (and everyone above that would have also gotten that tax cut, by the way), exempted income for senior Wisconsinites up to $75,000 single/$150,000 married couples (which sounds good until you realize Social Security and military pensions are already exempted from state income taxes), and increase the tax credit for married couples (to offset the "marriage penalty" in the state's tax code) from a maximum of $480 to $870.

Here's how Evers explained his vetoes.
Gov. Tony Evers today vetoed three Republican-backed bills, which, if enacted, would set Wisconsin on a path toward insolvency, leaving the state unable to meet its basic duties to provide adequate funding for programs and services provided by the state, including education, healthcare, child care, public safety, and aid to local governments in the 2025-27 biennium and beyond. If enacted, together, the three bills would reduce revenues by such a margin that it would likely force the state, even with ordinary revenue growth, to partially or fully drain the Budget Stabilization Fund—also known as the state’s ‘rainy day’ fund—just to provide bare minimum inflationary adjustments to key programs in the 2025-27 biennium.

“I have been proud to sign several income tax cuts during my time in office, including keeping—and, in fact, well exceeding—my promise to provide a ten percent, middle-class tax cut targeted to Wisconsin’s working families,” noted Gov. Evers in his veto messages. “During my first term in office, I proudly signed one of the largest tax cuts in Wisconsin state history, which provided $2 billion in individual income tax relief over the biennium and approximately $1 billion annually going forward. Through this historic tax cut, combined with the tax cuts I signed during my first year in office alone, 86 percent of Wisconsin taxpayers have seen an income tax cut of 15 percent or more, with 2.4 million taxpayers receiving relief. Through the income tax cuts I have already signed into law during my time in office, Wisconsin taxpayers will see $1.5 billion in tax relief annually, primarily targeted to the middle class.
Evers is correct on the assertion that signing all 4 of these tax cuts would not only get rid of most of the $3.15 billion cushion that we have in this current budget, but also screw up the next budget that starts in July 2025.

And especially given how we are just at the start of tax-filing season, it seems prudent to make sure we don’t have revenues disappointing even more than they already have been.

Not too surprising, although I thought the expansion of the married couple credit might make it (it gets larger in order to catch up to inflation on the "marriage penalty"). And keeping the child care tax credit seems like something that makes everyone happy, and doesn't cost all that much (around $161 million a year). Well, at least I THINK Tony will keep it since he didn't veto it. Maybe he's waiting for some press event next week or something.

But Evers made another statement in the press release announcing the veto that grabbed my attention.
In addition to threatening the state’s fiscal health moving forward, if enacted, the bills could result in the state having to repay billions of dollars in federal relief funds it received under the American Rescue Plan Act of 2021. This would completely reverse the progress made in the last five years to improve the state’s fiscal condition even under the best of economic circumstances, jeopardizing critical investments to expand high-speed internet, bolster the state’s workforce, build healthcare infrastructure, support law enforcement and public safety, and address the child care crisis, among other high-priority needs across the state.
I'm familiar with the idea of the state having to be cautious on tax cuts in the possibility of having to give back ARPA stimulus funds, but is that still a relevant concern in 2024?

Here’s how the Legislative Fiscal Bureau described the "ARPA and tax cuts" situation for Wisconsin last Summer.
....[I]f certain law changes reduce revenue compared to inflation-adjusted 2018-19 baseline revenues by more than a de minimis amount (1% of the baseline revenues), then the net reduction in tax revenues are considered to be in violation of the offset provision unless the state identifies countervailing increases in revenue or spending reductions. Under the rule, the amount of SFRF monies [sent to states in the ARPA bill] to be recouped is limited to at the lesser of: (a) the reduction in net tax revenue (measured as the difference between the baseline and actual revenue as of the end of the reporting year); or (b) the aggregate amount of reductions in tax revenues caused by covered changes minus the sum of: (i) reductions in spending compared to the inflation adjusted 2018-19 baseline (net of SFRF funds); and (ii) increases in revenue from other covered changes in law.

DOA is responsible for reporting SFRF-related expenditures under ARPA to Treasury. In a memorandum dated June 2, 2023, DOA informed the Governor and the DOA Secretary that "the state may reduce taxes and fees by $256 million in fiscal year 2023-24 and $458 million in fiscal year 2024-25 before any federal SFRF monies may be subject to possible recoupment" under current estimates.

13. Based on the DOA estimates, any covered law change that reduces state tax revenues by more than $256 million in fiscal year 2023-24 or $458 million in fiscal year 2024-25 could potentially be subject to recoupment under ARPA unless the state can identify a similar-sized change in law that increases state revenue or decreases spending relative to the inflation-adjusted 2018-19 baseline. The DOA memorandum did not indicate baseline expenditures for 2018-19, which are needed to determine amounts that could be subject to recoupment.

DOA's estimate does not adjust baseline revenues after 2018-19 to account for the phase in of fiscal effects of exempt law changes that are not covered under the ARPA recoupment provision for various reasons, such as being enacted prior to the covered period or federalizing state law. In January, 2023, this Office sought clarification from Treasury whether baseline revenues should reflect exempt changes in law, but Treasury has not yet responded.
Basically, any tax cuts need to be offset by

1. Extra revenue resulting from growth beyond inflation.
2. State spending cuts that go beyond the amount of federal ARPA money that may be used to “fill in” the difference.
3. Tax increases in other areas.

Wisconsin’s 2018-19 tax revenues were a total amount of $17.341 billion. Then add in a relatively high amount of inflation in the 4 ½ years since June 2019, and (based on CPI changes) that ”baseline” ends up being just over $21.04 billion today, with 5 more months of inflation left until the end of the 2024 Fiscal Year.

At the time of the LFB’s publication, it was estimating revenues of around $21.4 billion for June 2024, so I can see where those numbers come from. Then state revenue estimates for the 2024 Fiscal Year were lowered to $21.055 billion in January, so in theory there is little to no cushion to be had without risking some clawback of ARPA funds.

But would the Treasury actually do that? I doubt it, based on events of the last year. For example, in January 2023, an Appeals Court in the South ruled that states didn’t need to worry about any tax cuts being clawed back.
A provision of the American Rescue Plan Act which would have prevented states from using pandemic relief funds to offset new tax cuts cannot be enforced, a unanimous panel of the 11th Circuit ruled on Friday.

The Atlanta-based appeals court found that the rule barring states from using relief funds to offset a decease in their net tax revenue through the end of 2024 violates the spending clause of the U.S. Constitution. The language of the provision is too ambiguous and leaves state governments unable to ascertain the conditions imposed on their acceptance of the money, the 42-page ruling explains.

“The Rescue Plan’s offset provision has affected the states’ sovereign authority to tax by binding them to a deal with ambiguous terms and placing them on the hook for billions of dollars in potential recoupment actions,” U.S. Circuit Judge Andrew Brasher wrote on behalf of the panel.
That ruling also offers a great example of Confederate thinking, with “state sovereignty” references, and a belief in allowing red states to take huge amounts of federal dollars (which disproportionately come from blue states), and then use the cushion of DC dollars to cut their state's taxes.

That Appeals Court ruling came after the US Supreme Court chose earlier in that same month not to deal with an attempt from Missouri and other states to get the ARPA tax cut provision thrown out. I'll note that Missouri's argument that the Feds couldn't do this wasn't outright rejected, but lost because the case was a hypothetical, and not a real situation at the time.
A federal district court dismissed Missouri's case, finding the state lacked legal standing to challenge the tax mandate, and its suit was premature. The U.S. Court of Appeals for the 8th Circuit affirmed, finding that the state hadn't alleged "any intent to engage in conduct" forbidden by the tax mandate on its face, or Treasury Secretary Janet Yellen's interpretation of the provision.

Missouri, according to the 8th Circuit, needed to allege that tax cuts under consideration by its legislature would reduce net revenue, and that the state would fail to offset that reduction through allowable means. Missouri's failure to do so meant it "has only alleged a conjectural or hypothetical injury, not one that is actual or imminent. It has also not alleged a future injury that is certainly impending or even likely to occur," the appeals court found.
As a reminder, APRA funds need to be fully set aside by the end of calendar year 2024, and spent out by the end of 2026. But these numbers are tracked on a yearly basis, so in theory the amount of ARPA money that would need to be clawed back from a tax cut would be funds used in 2024, and I can't think that much state-level ARPA money will be used in the 2024 or 2025 Fiscal Year. So I’d say the risk that we’d have to pay anything back is very small.

But I do know of one way to make sure the budget stays in a good place AND allow room to cut taxes.

That’s right, we could pay for these tax cuts if we stopped being the only non-Confederate state east of the Mississippi to take the ACA’s Medicaid expansion. In the most recent budget, Governor Evers’ administration estimated that taking Medicaid expansion would save $1.62 billion over 2 years, which just happens to be similar to the ongoing cost of $752 million a year for the GOP’s plan to cut the 5.3% tax rate to 4.4% for middle-class and upper-middle class income levels.

Seems like it would be a good idea for Evers to call the Legislature off of their paid vacation with a special session with a simple ask "Give me Medicaid expansion, I'll give you the rate cuts." It allows for Wisconsinites to see higher take-home pay as early as July 1, due to the adjustment of withholding tables (a one-time expense we can afford), and Wisconsinites would still get a sizable tax refund in early 2025, due to the first 6 months of higher withholdings.

Who says no? It gives more medical coverage to working-class Wisconsinites, gives a tax cut for the middle and upper classes, and keeps our budget in good shape. This seems like the right way to do it, if GOPs and Governor Evers actually want to get it done.

Thursday, February 29, 2024

Lots of new income in January, but a lot of new taxes and mediocre spending

I said yesterday that we'd get a better idea of how the US economy kicked off 2024. So let's look at the income and spending report for January and see what it tells us.
Personal income increased $233.7 billion (1.0 percent at a monthly rate) in January, according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI), personal income less personal current taxes, increased $67.6 billion (0.3 percent) and personal consumption expenditures (PCE) increased $43.9 billion (0.2 percent).

The PCE price index increased 0.3 percent. Excluding food and energy, the PCE price index increased 0.4 percent. Real DPI decreased less than 0.1 percent in January and real PCE decreased 0.1 percent; goods decreased 1.1 percent and services increased 0.4 percent.
Lots to unpack in this one. Income up by 1%? But real disposable income and spending down? What’s going on with this?

First, what caused the jump in income? It looks to be a combination of year-end dividends from stocks (that for some reason is recorded in January’s figures), and the annual cost-of-living increase in Social Security payments. In contrast, wages and salaries had its lowest increase in 4 months and 2nd lowest since since the end of 2022.

At the same time, there was a $166 billion (annual basis) increase in taxes paid in January. So I looked at that, and it seems to be a historically normal occurrence that happens in years where the stock market goes up, and people pay their capital gains and related year-end taxes. And these January changes have been much larger in the last few years.

And the disparity between a big drop in spending on goods and a sizable increase in spending on services was also an oddity.
The $43.9 billion increase in current-dollar PCE in January reflected a $121.0 billion increase in spending for services that was partly offset by a $77.0 billion decrease in spending for goods. Within services, the largest contributors to the increase were housing and utilities, financial services and insurance (led by financial service charges, fees, and commissions), and health care (led by hospitals). Within goods, the leading contributors to the decrease were motor vehicles and parts (led by new light trucks), gasoline and other energy goods (led by gasoline), and other nondurable goods (led by prescription drugs).
I note the increase in health care and insurance especially. Is that from jacking up rates to start the new year, which also would bump up inflation for the month? Conversely, is the decline in prescription drug spending due to the fact that some people need to spend up their allowance at the end of December, and then things revert with the new year?

So I can’t draw a lot from these figures, as much as I would like to. If anything, I think the numbers are a bit soft because of the decline in wage/salary growth, but still a growing economy and little to be alarmed about at this point.

When the year-start oddities go away in February, next month’s data is going to give a much clearer indication as to whether 2023’s year-end boom in continuing, or if we are taking a breather after such a blowout 2nd half (or worse). We also will get new jobs reports for February and similar information on 2024's second month in the next 8 days. But for now, based on today’s data, I’d assume the while the economy might not be the rocketship we had a couple of months ago, but is still looking good.

Wednesday, February 28, 2024

More proof of a strong economy as 2023 ended. Tomorrow tells us more about 2024.

After a strong initial report, we got an updated look at how much the economy grew in the last 3 months of 2023. And an already-good picture may have gotten slightly brighter after this GDP report came out.

I don't see how a 0.1% change here or there changes what the overall story was for a strong 4th Quarter in the US economy. Consumption was revised up a little more than that, which to me is possibly the one significant revision to note with this, as it matches the positive vibes that were emerging in much of the US. But we've also seen some soft numbers in retal sales and other areas for January, and that's what I care about a lot more than what might have been happening 8 weeks ago.

If you're still on INFLATION WATCH, I suppose you could be concerned about increased spending and lower inventories. But that's also the "good reason" for inflation, as it shows strong demand, and a need to keep adding products and workers to meet it.

We'll get an updated picture of January's data with the income and spending report, which will come out tomorrow. And the PCE and spending figures for that one will be what Wall Streeters are going to react to as they try to front-run when the Fed will (or won't) lower rates this year. Along with unemployment claims, it feels like Leap Day will also be a big data day if you're trying to get a gauge on where the economy is, and may be going.