US retail sales, factories slip in May, and now oil jumps in June

There were a couple of bits of not-good economic news on Tuesday, starting with a sizable drop in retail sales for May.

Retail sales dropped by 0.9% in May according to the Census Bureau, worse than the 0.6% contraction that had been estimated by economists surveyed by Dow Jones. Excluding automobiles, sales last month eased by 0.3%, underperforming the Street’s expectation for a 0.1% increase. Gas station sales slid 2% in the month, which can reflect both lower prices but possibly slower economic activity.

Autos were a big reason behind the drop in May, as they fell a seasonally-adjusted 3.5% last month, which reversed all the pre-tariff gains that happened in March and April, and dropped sales amounts back to where they were in October.

We've also seen "core" retail sales (which doesn't include gasoline or the auto sector) flatten out in the last two months as the Trump trade policies bounced around.

Then later today, we got information that industrial production went down in May, with factory output barely growing last month. That's despite a big jump in autos being built with pre-tariff components.

U.S. factory production barely rose in May as a surge in motor vehicle and aircraft output was partially offset by weakness elsewhere, and the outlook for manufacturing remains clouded by tariffs.

Manufacturing output edged up 0.1% last month after a downwardly revised 0.5% decline in April, the Federal Reserve said on Tuesday. Economists polled by Reuters had forecast production rebounding 0.2% after a previously reported 0.4% drop. Production at factories increased 0.5% on a year-over-year basis in May….

Motor vehicle and parts output accelerated 4.9% last month after declining 2.3% in April. Production of aerospace and miscellaneous transportation equipment increased 1.1%. But output of fabricated metal products, machinery and nonmetallic mineral products all posted declines of at least 1.0%.

Durable manufacturing production rose 0.4%. Nondurable manufacturing production dropped 0.2%, pulled down by decreases in the output of printing and support, petroleum and coal as well as food, beverage and tobacco products.

Not only is it bad that overall industrial production continues to slowly deteriorate, with durable goods production down 0.2% outside of autos and auto parts, but what happens next month when the pre-tariff auto products and related items have rolled off the factory floor? It seems unlikely there would be continued demand to keep these products moving, especially with purchases already being pulled forward earlier this year and sloughing off now, so that indicates a strong chance of a Q3 slowdown in the auto sector to me.

The bad overall spending and output data puts a damper on last week’s good news of low inflation for May, both for consumers and producers (+0.1% for both). Those inflation figures seem likely to rise in the near future, as the tariffed products are assembled in factories and the higher costs are attempted to be passed onto consumers.

And now we have further inflationary pressures looming, give that oil price futures have jumped by 23% in June, with tensions rising again in the Middle East and Trump shooting his mouth off.

So watch for prices to rise at the pump sooner than later, and you’ve probably already seen some of that in your neighborhood. That's not going to help the economy in a time when most American consumers were already gloomy, and have been slowing their spending over the last 2 months.

WisGOP moves mean they're raising K-12 property taxes to pay for income tax cut

Thursday night, the GOP_led Joint Finance Committee held their most important budget meeting yet. It included a 10-figure income tax cut, and I wanted to discuss the two main parts of that reduction.

1. Expand 2nd Individual Income Tax Bracket (Paper #325). Beginning in tax year 2025, increase the amount of taxable income subject to tax at the second marginal rate (4.40%) by: (a) $28,150 for married-joint filers (to $67,300); (b) $21,110 for single/head-of-household filers (to $50,480); and (c) $14,070 for married-separate filers (to $33,650). Estimate reduced individual income tax collections of $323,000,000 in 2025-26 and $320,000,000 in 2026-27.

2. Retirement Income Exclusion. Beginning in tax year 2025, create an individual income tax exclusion for the first $24,000 of retirement income currently subject to state tax received by each individual who is at least 67 years of age before the close of the taxable year. For married-joint filers where both spouses have attained age 67, specify that the maximum exclusion equals $48,000. Prohibit a taxpayer who claims this exclusion from claiming any state income tax credits provided under current law in the same tax year. Prohibit nonresidents from claiming the exclusion, and specify that part-year residents may claim the exclusion only for the portion of their income which is sourced to Wisconsin. Define retirement income to include payments or distributions received each year by an individual from a qualified retirement plan under the Internal Revenue Code or from an individual retirement account established under 26 USC 408. Specify that the exclusion does not apply to any retirement income which is already exempt under current law. Estimate reduced individual income tax collections of $395,000,000 in 2025-26 and $300,000,000 in 2026-27.

The income tax cut is pretty straightforward – everyone with a taxable income above that level would get a similar-sized tax cut, since the lower tax rate cuts off for every dollar of income above the levels shown.

But I want to give a reminder about the retirement income tax cut, because a lot of income that retirees get is already tax-exempt in Wisconsin, as we saw in the LFB’s analysis of the GOP’s 2024 attempts to have this type of exclusion put in place.

Under current law, the following retirement income categories are excluded from Wisconsin AGI: (a) Social Security benefits; (b) payments from the U.S. military employee retirement system and U.S. government retirement payments received by members of the U.S. Coast Guard, the Commissioned Corps of the National Oceanic and Atmospheric Administration, and the Commissioned Corps of the Public Health Service; (c) income from certain public retirement systems if the individual was a member of, or retired from, that system prior to 1964; and (d) up to $5,000 of retirement income for taxpayers aged 65 or over with federal AGI of less than $15,000 per filer, or less than $30,000 for married-joint filers. Together, these provisions [were] estimated to reduce individual income tax revenues by nearly $950 million in tax year 2024 under current law (the exclusion for Social Security benefits accounts for an estimated $900 million [95%] of this total).

So this “retirement income” tax cut is really a lot of investment and pension income from non-military jobs, something that a lot of seniors don’t have a lot to draw from. Back in 2024, the GOP’s tax cut for seniors would have written off up to $75,000 per person in addition to Social Security , and that would have cost $1.13 billion in the first 2 years alone.

It was too rich for Governor Evers’ blood as a separate bill, and in addition to being nearly $450 million cheaper for the first 2 years, the new retirement tax cut is now included in the 2025-27 State Budget. So maybe that combination makes it more likely to go through this time?

Because of the lowered price tag of these tax cuts, there won’t be as big of a hole blown in future budgets vs what we saw the GOPs ask for in 2021-23 and 2023-25. But it still would erode all fiscal cushion we would have if we fully funded what Governor Evers wanted in this budget.

With that in mind, JFC also used Thursday night's meeting to take up the biggest expense of state tax dollars in the budget - K-12 education. I'll likely speak a bit more on where K-12 expenses are going in a later time, but there is also a key part that affects property taxes for Wisconsinites. That relates to general school aids and the total revenue limits, which combine the total amount of general aids and property taxes that can go into a public school district.

The GOPs on Finance added $229 million for regular special education aids and another $54.6 million for high-cost special education aids. That'll help public districts a bit, but the state funding still would only cover an estimated 37.5% of special ed costs for school districts, instead of the 60% that Governor Evers wanted.

And my State Rep Lisa Subeck got to what should be the bigger headline of the Republicans' K-12 motion. This is quoted from Rep. Subeck's email newsletter.

...They provided no general school aids, including no per pupil aid. This is the first time general school aids have not been included since the first Walker budget....

That's right, ZERO in added General School Aids. And in fact, this motion ends up losing General Aids for communtiy schools because $24 million more in this is being taken from public school districts in the next 2 years to fund vouchers for kids in private schools, to match up with the higher special ed reimbursments.

Put it all together with the earlier moves on sum-sufficients to uphold current laws (which gave automatic per-student increases to vouchers), and my crude estimation is that WisGOP has cut $2.88 billion out of the proposed $3.4 billion increase to K-12 schools for 2025-27. Which will pay for the $1.3 billion tax cut and then some.

However, there are a lot of other big-expense things to deal with in this budget, including prisons, the UW System, and Medicaid. Especially given the erraticness and idiocy coming out of DC, we may need all of that $1.4 billion that is in the bank to pay for everything else in the state, and maybe more than that.

Back to K-12. When you add in the $325-per-student increases in resources to K-12 schools that Evers locked in with his creative veto in the last budget, and Wispolitics notes that the GOP has essentially voted for higher property taxes for Wisconsin homeowners.

According to the Legislative Fiscal Bureau, the GOP motion would mean a higher property tax bill on a mythical median-valued home compared to the plan that Dem committee members had proposed. That plan largely followed what Evers put into his budget. According to LFB, the bill would be $160 higher on the bills that go out in December and $276 on the ones that will be sent to homeowners in December 2026 compared to the Dem motion [which would have restored Evers' K-12 plans to the budget]

The Wispolitics article quotes JFC Co-Chair Mark Born as saying the GOPs will still do something to lower the looming property tax increase they're currently allowing in this budget, and perhaps that'll be through a higher School Levy Credit or related thing. But make no mistake about it, WisGOP said on Thursday that they are trading relatively small income tax cuts for higher property taxes, and I don't think a lot of Wisconsinites would be happy with that decision.

Tax Scam 2.0 blows up the deficit, robs from the poor + gives to the rich.

The US Senate is still working on its changes to Big Beautiful Tax Scam 2.0, which passed the US House 3 weeks ago. And the Congressional Budget Office has recently been releasing their updated estimates of what the bill would do, both in total numbers, and in who would be helped or hurt by the bill's many changes to taxing and spending.

We'd already seen that the bill would increase deficits by large amounts, and they'd especially blow up in the next few years.

And that's not all for the increased deficits, as CBO notes higher deficits require higher amounts of borrowing, and higher interest rates to pay off that debt.

The Congressional Budget Office and the staff of the Joint Committee on Taxation (JCT) estimate that enacting the bill would increase deficits over the2025–2034 period by $2.4 trillion, excluding any macroeconomic or debt‑service effects. That change stems from a reduction in revenues of $3.7 trillion and a reduction in outlays of $1.3 trillion over the 2025–2034 period.

CBO estimates that the additional debt-service costs under the bill would total $551 billion over the 10-year period. That change would increase the cumulative effect on the deficit to $3.0 trillion. CBO estimates that the debt-service increase from the change in revenues would amount to $716 billion. Other provisions would, on net, result in a decrease in debt-service costs of $166 billion.

As a result, and net of any changes in borrowing for federal credit programs, the agency estimates that debt held by the public at the end of 2034 would increase from CBO’s January 2025 baseline projection of 117.1 percent to 123.8 percent of gross domestic product.

So we're really talking about a total of $3 trillion in added deficits, not $2.4 trillion, because of the added debt costs.

Then the CBO released their analysis of the "distributional effects" of Big Beuatiful Tax Scam 2.0 today. Bobby Kogan of the Center for American Progress gives the rundown of what CBO had to say on who gets hurt or helped by Tax Scam 2.0.

UGH! Let's look at the analysis ourselves and see how the CBO got there.

Resources for households in the lowest decile of the income distribution would decrease by about $1,600 per year (in 2025 dollars) compared with their projected income in CBO’s baseline projections (see Figure 1).5 That amounts to 3.9 percent of their income (see Figure 2). Those projected decreases are mainly attributable to reductions in in-kind transfers, such as Medicaid and SNAP.

Households in the fifth and sixth deciles (that is, in the middle of the income distribution) would see their resources increase by $500 (or 0.5 percent of projected income) and $1,000 (or 0.8 percent of projected income), respectively.

Resources would increase, on average, over the projection period by about $12,000 for households in the highest decile, amounting to 2.3 percent of their projected income. Those projected increases are mainly attributable to reductions in the taxes households in that decile owe.

Clear Robin Hood in reverse, and I wouldn’t count on the super-rich doing much positive for the rest of the country with that windfall (they sure haven’t over the last 45 years).

I also want to add one more layer onto the budgetary and economic changes that Trump/GOP are trying to put through. Upon request from Dem members of Congress, the CBO also gave their estimates of the effects that new Trump tariffs would have over the next year. That includes the amount of money that would go into the US government's coffers, and what would happen to the economy as a whole.

Before accounting for effects on the size of the economy, CBO projects that the increases in tariffs implemented between January 6 and May 13, 2025, would decrease primary deficits over the 2025–2035 period by $2.5 trillion relative to the agency’s baseline projections from January 2025. (Unless otherwise indicated, all years referred to in this letter are fiscal years.) Roughly half of that decrease stems from the increases in tariff rates on imports from countries other than China, Canada, or Mexico. Lower net outlays for interest resulting from the decrease in primary deficits would reduce total deficits by an additional $50 billion. As a result, total deficits over the 2025–2035 period would be $3.0 trillion lower than projected in CBO’s January 2025 baseline.

However, CBO says the total reduction in deficits would be a bit less than $2.8 trillion, because the economy will be slower in the coming decade.

CBO’s assessment is that the changes in tariffs will reduce the size of the U.S. economy. That effect would differ year by year; on average, from 2025 to 2035, the tariff changes would reduce the rate of real growth in gross domestic product (GDP) by 0.06 percentage points per year. By 2035, CBO estimates, the level of real GDP will be 0.6 percent lower than it was in CBO’s economic forecast from January 2025. That reduction in output reflects both negative and positive effects: the negative effects of higher tariffs through channels such as reduced investment and productivity, and the positive effects of additional revenues from tariffs, which would reduce federal borrowing and increase the funds available for private investment.

In addition to the slower economy, the CBO says prices will jump due to the tariffs, and stay at those higher levels as long as the tariffs are in place.

The increases in tariffs will make consumer goods and capital goods (the physical assets that businesses use to produce goods and services) more expensive, which will reduce the purchasing power of U.S. consumers and businesses. Those increases in costs will put temporary upward pressure on inflation. In CBO’s estimation, the policies analyzed here will increase the average annual rate of inflation, as measured by the price index for personal consumption expenditures, by roughly 0.4 percentage points over 2025 and 2026 relative to index will be 0.9 percent higher. After 2026, the tariffs will not have additional significant effects on prices.

The CBO doesn’t go into detail as to whether poorer or richer Americans will bear the brunt of those price increases and slower economies, because they couldn’t break down exactly which industries might grow or decline, and which products will have the largest price effects.

But would tariffs really be able to pay for the price tag of Big Beautiful Tax Scam 2.0? Let's look at how much the US government is bringing in for "customs duties" over the last 6 months, after May's Treasury statement was released this week.

So tariff revenue has basically tripled since Tariff Man got going. That would come out to around $15 billion a month in added taxes on products revenue, so maybe $180 billion a year? Then add in some inflation for the later years and could that $180 billion get to $250 billion a year on average? Seems unlikely, but not impossible.

So if we kept all these tariffs on, the already-large deficits wouldn't rise as much (although they'd still go up, especially for the rest of the 2020s). But I have a hard time believing that amount of tariff revenue would lead to an economic outcome most people would want – higher prices and a slower economy. In fact, if you put it together with Big Beautiful Tax Scam 2.0, and most us end up making less!

The worst effects on the economy from tariffs would hit in the next 2 years, while there would be tax hikes and more severe budget cuts coming in the later years of Big Beautiful Tax Scam 2.0....unless Congress and the 2030s president want to make even larger deficits by continuing with Tax Scam 3.0.

This is the other item that is hiding in plain sight - Big Beautiful Tax Scam 2.0 relies on accounting gimmicks to stay within the 10-year budget limits that would allow for 50 Senators to pass it through. But it cynically lays bombs of future tax increases and higher budget cuts that future Congresses would have to deal with. And if they don't want to deal with it and not cause more economic hardship for Americans with real jobs and real-life budget constraints, our deficits go up by even more.

Oh, but I'm sure the Koched-up GOPs in the Senate won't allow these exploding deficits and will put together a taxing and spending plan that doesn't handcuff our future and helps normal Americans over the donor class and.....HAHAHAHA!!! Do you think those MAGAts care about that, or you?

Now, Tax Scam 2.0 having 2/3 of Americans with opinions disapprove of it, which could make a whole lot of red states become purple for 2026, and their stocks and other investments tanking? That might cause them to deal a little bit with the reality of this budget-busting Scam.

Not just health insurance, but REinsurance

Looks like we're finally seeing the state budget process pick up this week. Among a list of items that the Joint Finance Committee will take up will be a modification to the state's reinsurance program, which is a subsidy to insurance companies to try to give Wisconsinites more choices on the Obamacare exchanges. The Legislative Fiscal Bureau broke down the program and the changes Governor Evers wants to put in.

The Office of the Commissioner of Insurance (OCI) administers the Wisconsin healthcare stability plan (WHSP), a state-operated reinsurance program that is intended to reduce premiums for health insurance policies sold in the individual market (for non-group insurance coverage, not sponsored by an employer). Reinsurance payments reimburse insurers for a portion of the total annual claims for individuals with high costs. Payments are made in accordance with parameters that are set each year based on the total reinsurance program spending target. Currently, the target is $230,000,000, an amount specified by statute.

Like most state reinsurance programs, WHSP pays a certain percentage (the "coinsurance rate") of the total cost of all covered services for an individual claimed in a year that exceed a minimum threshold (the "attachment point"), subject to a maximum threshold (the "reinsurance cap"). For instance, in 2019, the program had a coinsurance rate of 50%, an attachment point of $50,000, and a reinsurance cap of $250,000. If an insurer paid a total of $150,000 in medical claims in that year for a particular enrollee, the program would make a reinsurance payment to the insurer for that individual of $50,000, which is 50% of the difference between the total claim and the attachment point. The maximum reinsurance payment made on behalf of any individual in that year was $100,000, which is 50% of the difference between the maximum cap and the attachment point.

As you can see, the $230 million target/limit on payments to insurers means that the state wasn't able to pay the full 50% of costs in each of the last 2 years.

The Feds are currently taking up a sizable portion of this $230 million payment, as they give the state “pass-through” savings from the money that the Feds don’t have to pay in tax credits, which a large amount of Americans can receive for buying policies on the Obamacare exchanges.

The GPR share of the reinsurance payments has been lower since plan year 2021. For 2019 and 2020, about one-quarter of the total cost of reinsurance payments was supported from the GPR appropriation, while the state's share has ranged from 0% to 13% in the four years since then. This reduction can be largely attributed to a more generous premium tax credit formula enacted under the American Rescue Plan Act of 2021 and the Inflation Reduction Act of 2022 for plan years 2021 to 2025. If Congress does not extend the enhanced credits, the standard formula will be used again in 2026, which will also likely increase the state's cost of the reinsurance program. If, for instance, the state had to again contribute one-quarter of the $230.0 million payment total, the GPR cost would increase to $57.5 million, beginning in 2027-28, up from $30.9 million in 2025-26 and $6.7 million in 2026-27.

As shown in Table 3, reinsurance payments as a percentage of total insurance revenue reached a maximum in 2022, the year the target was increased to $230 million, but this percentage has declined since that time. With a fixed reinsurance target, and with growth in individual market enrollment or in premium collections, this percentage will naturally decline. In 2024, both enrollment and premium revenues increased by 25% from the prior year, which is a major reason for why the proportion of revenue that insurers collected from reinsurance payments declined. Although comparable data for the 2025 plan year will not be available until 2026, the reinsurance payments as a percentage of all insurer revenue will decrease further, given that enrollment in exchange plans increased by 18% over 2024 (based on the open enrollment periods).

Federal pass-through funding has gone up for reinsurance, since the Feds would have paid a lot more in tax credits in recent years due to 2 developments.

1. The higher income levels that were allowed to get credits for Obamacare in the last few years, and

2. More people getting insured from the Obamacare policies in general.

But as mentioned, the state couldn’t reinsure the full 50% associated with high-cost individuals in the last 2 years, as the total costs went over the $230 million limits in the last 2 years. So Governor Evers put in a budget provision to allow more payments (and a higher percentage of costs) to go to insurers.

In recognition of the growth in the individual market, Senate Bill 45/Assembly Bill 50 [the State Budget bill] would increase the reinsurance target from $230,000,000 to $250,000,000, beginning with plan year 2026, an increase of 8.7%. This would increase the share of total insurance revenue received from reinsurance payments, but would not restore the program to the same proportionate size as it was in 2022, the last time the target was increased (assuming that enrollment does not decrease substantially from current levels). To put this proposed increase into context, if the $250 million target had been in effect in 2024, reinsurance payments would have been 10.1% of total insurer revenues in that year, instead of 9.3%.

Interestingly, the LFB says that many Wisconsinites may not get any personal benefit from the reinsurance plan, because the lessening of premiums doesn’t end up reducing what the individuals end up paying in total, as they already get the difference back in higher tax credits from the Feds.

Although the reinsurance program reduces premiums, consumers who receive premium tax credits (PTCs) either do not realize any direct benefit from the reduced price, or realize a comparatively small reduction. This is because credits are calculated to equal to the difference between a percentage of the consumer's income (the "applicable percentage," which varying by income level) and the premium of the benchmark plan (second-lowest silver level plan). Thus, if the premium of the benchmark plan is reduced as the result of the reinsurance program, the amount of the premium tax credit is reduced, but the net cost to the consumer who purchases the benchmark plan will remain unchanged. To illustrate this, Table 5 shows the net premium owed by a consumer with a household income at 200% of the 2025 federal poverty level ($31,300 annually, or $2,608 per month, for a single-person household) under two scenarios. Under one scenario, the monthly premium is assumed to be $500, while in the other scenario, a reinsurance program reduces the premium for the same plan by 10%, to $450. This illustration uses the ACA's standard premium tax credit formula (with an applicable percentage of 6.5% of income), rather than the enhanced subsidies in effect for 2021 to 2025.

On the flip side of that, if Congress doesn’t continue the expanded tax credits for people going on Obamacare (and Big Beautiful Tax Scam 2.0 isn't continuing it), then any lower premiums resulting from reinsurance would help more Wisconsinites afford these insurance policies, since they wouldn't get as much from the tax credits to help them out.

So this reinsurance system is yet another example of where the Trump/GOPs can end up raising health care costs for the State of Wisconsin, as refusing to keep the expanded tax credits would mean the Feds will take up less of the cost reductions from reinsurance, and the state will pay more. And given that we don't know the outcome of the bill, it makes this reinsurance discussion all the more relevant for tomorrow's JFC session.

May jobs gains noted by Wall Street. March, April revisions and higher unemployment is ignored

It was Jobs Friday yesterday, and this was one that many were interested in, as it would be the first full month that the US was under widespread tariffs. I wasn't counting on much of an immediate effect (since the tariffs were just hitting product costs and generally haven't been sent to the shelves yet), but it's always worth looking at and seeing were the jobs market is.

So what did we find out?

Total nonfarm payroll employment increased by 139,000 in May, and the unemployment rate was unchanged at 4.2 percent, the U.S. Bureau of Labor Statistics reported today. Employment continued to trend up in health care, leisure and hospitality, and social assistance. Federal government continued to lose jobs.....

Health care added 62,000 jobs in May, higher than the average monthly gain of 44,000 over the prior 12 months. In May, job gains occurred in hospitals (+30,000), ambulatory health care services (+29,000), and skilled nursing care facilities (+6,000).

Employment in leisure and hospitality continued to trend up in May (+48,000), largely in food services and drinking places (+30,000). Over the prior 12 months, leisure and hospitality had added an average of 20,000 jobs per month.

Not bad overall, but take out the health care and leisure/hospitality sectors, and there's only a gain of 29,000 among the other 78% of American jobs. Not really strong fundamentals overall.

The unemployment rate may have stayed at a (rounded) 4.2%, but the household survey wasn't good at all, especially this part.

In May, the employment-population ratio declined by 0.3 percentage point to 59.7 percent. The labor force participation rate decreased by 0.2 percentage point to 62.4 percent.

That's because of a drop of 625,000 in the US labor force, and a decline of 696,000 people ID'ing as "employed". And while media reported the unemployment rate as staying "the same", it actually rose from 4.187% to 4.244%, and I bet that same media would have a different spin if another 10,000 people were unemployed and the rate "rose" to 4.3% due to rounding.

In fact, it's the most unemployed people we've had in this country in 3 1/2 years, when we were still somewhat in the overhang of the COVID economy.

Then I looked at the revisions of the prior two months of jobs reports, and saw this.

The change in total nonfarm payroll employment for March was revised down by 65,000, from +185,000 to +120,000, and the change for April was revised down by 30,000, from +177,000 to +147,000. With these revisions, employment in March and April combined is 95,000 lower than previously reported.

Which means if you take the 139,000 jobs added in May and subtract the 95,000 jobs that were revised down, you get a tiny gain of 44,000 vs previous reports. That's in line with what the ADP jobs report said on Wednesday, with only 37,000 jobs added in the private sector last month, a number that was protrayed as weak in the financial media.

I noticed that jobs in health care ended up declining in April after a significant runup over the last 3 years, a downward revision of 68,000 jobs. The sector would return to its previous job-gaining trend in May, with 62,400 jobs added.

That seemed newsworthy, but I hadn't seen any talk about it. So I looked to see if there was any explanation from the BLS.

April estimates from the establishment survey reflect the movement of workers between two different industries: home health care services and individual and family services. Changes in the administration of a New York state program caused workers who had previously been paid by establishments in the home health care services component of the health care industry to be included on payrolls in the individual and family services component of social assistance. This movement is reflected in the April 2025 estimates and contributed to an employment decline in health care and an employment gain in social assistance.

Sure enough, social assistance jobs were revised up by 94,900 for April, more than offsetting the 68,000 downward revision in health care. OK, all good there, except for the fact that this administration wants to defund research and medical access from these industries that have been keeping the jobs market above water in 2025.

But April jobs still were revised down overall, so what caused that? It was mostly in the industries where goods and services go from one place to another.

Revisions, Apr 2025 jobs report
Couriers and messengers -32,900
Warehousing and storage -10,100

Couriers/messengers had a small recovery of 6,500 jobs for May, but warehousing/storage lost another 5,100 jobs last month. Let's keep an eye on where those sectors go in the coming months, especially in light of Kohl's announcing yesterday that it would close a distribution center near JD Vance's hometown in Ohio, causing 768 people to lose their jobs.

Combine the losses in the labor force and the gain in unemployed, and the large downward revisions showing that the net gain was relatively small vs prior reports. I thought that meant Wall Street would be fearing recession and it would be a down day. So the reaction in the financial markets was....?

US stocks rallied on Friday, with the S&P 500 (^GSPC) breaching the 6,000 level following a moderate beat on the monthly jobs report and rising investor hopes of a cooldown in the acrimonious feud between President Trump and Elon Musk.

The S&P 500 (^GSPC) added about 1.0% to close at the 6,000 mark, its highest level since February. The Dow Jones Industrial Average (^DJI) rose over 400 points, or 1.1%, while the tech-heavy Nasdaq Composite (^IXIC) gained 1.2%....

...on Friday morning, the labor market showed more signs of resilience as Trump's tariffs continued to seep in to the economy. The US added 139,000 jobs in May, more than the 126,000 expected by economists as the hiring rate slowed and unemployment held flat at 4.2%.

ARE THESE PEOPLE OUT OF THEIR MINDS? Not only because they're trading based on the gosspiy sniping of two druggy, bloated oligarchs, but also because they're totally ignoring the significant revisions that make the net gain only 44,000.

I think there's a lot of denial and hopium going on with the markets these days. They front-ran DOOM and shorted the market when tariffs were first announced, but 8 weeks later, they don't want to admit that things might end up that badly. Yet there seems to be evidence that there is deterioration in manufacturing and construction as well as the wider job market, and most of the big price jumps on tariffs haven't hit widely as of this time. Then add in Big Beautiful Tax Scam 2.0, which will either be a bill that fails (and cause bailing out of the market because of it), or service cuts and higher debt costs and interest rates will be recessionary as a result of it.

I don't get why the markets and the financial media thinks things are OK, because the real economy sure seems like it's heading toward "worse" instead of "better" outside of the Acela Bubble.

Manufacturing and construction step back in April. But ATL Fed says that makes economy better?

Wanted to talk about a few recently released reports that looked at the dollar values of construction and manufacturing in America. Given that April was the first full month after wide-ranging tariffs were announced and a lot of upheaval in the financial markets followed, seems to be worthwhile to look at how businesses and consumers may have responded. Start with construction, where the new report from the Census Bureau indicates new construction in the US continued to decline in April, especially on the residential side. The dollar value of residential construction dropped by 3.9% between January and April, and much of that drop is in “private residential improvements”, which is work done on previously-completed homes. But there also was a notable decline that happened in home-building construction in the last half of 2024

Also interesting is that the public sector kept the construction sector from falling even further, especially in road-building.

In April, the estimated seasonally adjusted annual rate of public construction spending was $513.5 billion, 0.4 percent (±1.3 percent)* above the revised March estimate of $511.3 billion. Educational construction was at a seasonally adjusted annual rate of $110.9 billion, 0.1 percent (±1.5 percent)* below the revised March estimate of $111.0 billion. Highway construction was at a seasonally adjusted annual rate of $146.3 billion, 0.5 percent (±4.1 percent)* above the revised March estimate of $145.5 billion.

Public health care (+$0.5 billion/+3.3%) and the combined total of govt office and commercial construction also helped the sector last month (+$0.5 billion/+1.9%). But it still isn’t a good picture for construction, which has been a good growth sector for much of the 2020s.

A decline also happened in April for new orders for manufacturers, falling below not only the elevated levels of March, but also what we had in February.

If you take out the volatile transportation category (especially aircraft), manufacturing orders declined by a seasonally-adjusted $2.6 billion in March and $2.4 billion in April, and shipments also declined in those two months.

That report from the Commerce Department on April orders came one day after the Institute for Supply Management said manufacturing kept declining in May.

"The Manufacturing PMI® registered 48.5 percent in May, 0.2 percentage point lower compared to the 48.7 percent recorded in April. The overall economy continued in expansion for the 61st month after one month of contraction in April 2020. (A Manufacturing PMI® above 42.3 percent, over a period of time, generally indicates an expansion of the overall economy.) The New Orders Index contracted for the fourth month in a row following a three-month period of expansion; the figure of 47.6 percent is 0.4 percentage point higher than the 47.2 percent recorded in April. The May reading of the Production Index (45.4 percent) is 1.4 percentage points higher than April's figure of 44 percent. The index continued in contraction in March for the third straight month after two months of expansion preceded by eight months of contraction. The Prices Index remained in expansion (or 'increasing') territory, registering 69.4 percent, down 0.4 percentage point compared to the reading of 69.8 percent in April. The Backlog of Orders Index registered 47.1 percent, up 3.4 percentage points compared to the 43.7 percent recorded in April. The Employment Index registered 46.8 percent, up 0.3 percentage point from April's figure of 46.5 percent.

"The Supplier Deliveries Index indicated a continued slowing of deliveries, registering 56.1 percent, 0.9 percentage point higher than the 55.2 percent recorded in April. (Supplier Deliveries is the only ISM® Report On Business® index that is inversed; a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases.) The Inventories Index registered 46.7 percent, down 4.1 percentage points compared to April's reading of 50.8 percent.

"The New Export Orders Index reading of 40.1 percent is 3 percentage points lower than the reading of 43.1 percent registered in April. The Imports Index plunged into extreme contraction in May, registering 39.9 percent, 7.2 percentage points lower than April's reading of 47.1 percent."

Spence continues, "In May, U.S. manufacturing activity slipped further into contraction after expanding only marginally in February. Contraction in most of the indexes that measure demand and output have slowed, while inputs have started to weaken:

And yet I look at the Atlanta Fed’s GDP Now estimates, and take a look at what they think will happen to economic output as a result of this information.

Somehow a decline in residential construction and new orders in manufacturing means more growth? I looked into their "contributions" number trying to figure out why, and I don’t see how you get residential home building becoming a positive or why they say consumer spending projections got better in the last 2 days.

Likewise, the stock market keeps climbing for no real reason. The DOW was up another 214 points today because….of optimism that tariffs won’t damage the economy more than they thought? People still pumping the AI Bubble?

Out in the manufacturing and construction sectors in America, I’m not seeing much in the data that would indicate anything beyond a drop in activity in April. And other than the end of the import surge that we saw in the first 3 months of the year, what has changed in the last month to make us think the economy is going to go back to strong GDP growth?

I just don’t get it. Are people just that tricked by the short-covering and dumb runup that we’ve had in the stock market?