We're probably back to some point in 2007 now, in terms of labor markets, etc. And, some timely accommodation would be helpful, but as in 2007, instead of accommodation, the Fed is worried about inflation. Also, like in 2007, the inflation is all coming from a supply problem in housing, so that (1) there is little justification for inflation worries on monetary grounds and (2) accommodation does not have a large inflation risk because, to the extent that inflation would help to continue healing lower tier housing markets, it might lead to more housing starts, which would be disinflationary. Since we learned all the wrong lessons from the housing boom and bust, we have collectively started doing some strange things, like associating real investment with inflation. The first graph should worry people more than it does.
Next are weighted moving averages of the JOLTS measures. Openings and hires have topped. Quits and layoffs still look good. Again, we could probably push along these plateaus for years, but I think we will inadvertently choose not to, unless a quick and substantial overhaul of Dodd Frank by the Trump administration leads to a strong rebound in mortgage credit growth. That might cause natural interest rates to rise quickly enough that the Fed's inherent inertia will have more power than its current hawkish bias, keeping it below the neutral rate long enough to trigger some more expansion in housing. As a citizen, I hope that's what happens. As a trader, the bearish position that will pay off if that doesn't happen seems a little more straightforward and easier to step in front of.
The slopes of the weighted moving averages help to see the current trends a little better. Quits are OK. Openings and hires are in early recession territory.
Flows tell a similar tale. Net flows are marginally into early recession territory. Net flows from unemployment to employment certainly are. Flows from "not in the labor force" (N) to employment were strong, but they have pulled back to normal levels. Is this a permanent pullback or noise? And, Flows from unemployment to N continue to move along with no trend. A downward tick in any of these net flows would be bearish.
Gross flows have all taken a bearish turn. During recoveries, gross flows flow down in pairs and during contractions they flow up in pairs (except flows between employment and N are reversed). All three pairs of flows have taken bearish turns. Note that the employment to not in labor force flow (E to N) is a flow that, when it decreases, is associated with rising employment, even though that would be a bearish indicator. That measure has been high the past two months. These would tend to be voluntary exits from the labor force, which suggests economic confidence. Whether these two months are noise or a reversal of trend might be an important indicator to watch.
A strong flow from N to E might go along with that E to N flow. But, the turn in flows between U and N suggests that the last two months are noise and that the trend is toward more of the flows into and out of the labor force moving through unemployment, which is not a good sign.
A strange time. Cyclically things don't look great. And the range of potential policy outcomes, good and bad, from the incoming administration is probably greater than any previous transition in my lifetime. Regulatory shocks are not the sort of context that favor either passive asset management or attempts at high expected value speculation, even if some of those shocks might not be so bad from a structural standpoint.