Thursday, March 15, 2007
Employment Release And Picture
The problem seems to be that salary increases for about six years have lagged in all but the top tier of the private sector, so real wages for at least the bottom half of the distribution are less than they were in 2000. We had very high inflation last year in base costs (food, energy, health), so a lot of people are just able to spend less on discretionary purchases, and it would appear that the balance has now shifted toward the need to curb spending on "need" things like groceries. At the same time, a lot of people have been doing great, and still are.
It seems that what pushed the retail figures over was the very significant drop in refinances to extract equity, which was apparently making up the gap between real incomes and household debt service plus consumer spending. That decrease will continue, because the housing appreciation for most people hasn't been there and isn't going to be there. See Housing Tracker, which reports on list prices for homes by urban areas.
I don't make a recession call lightly. I did it on the basis of inflation adjusted spending at grocery stores, etc and Walmart going negative compared to a year before. Our population has increased, and I cannot believe that a YoY price-adjusted negative in that spending area reflects anything but a very real consumer spending contraction. Consumer spending is over half the economy, and it is either slowing sharply or contracting overall right now.
Manufacturing is about 12% of the economy, and it is slowing or contracting. You see different measures of housing, but it is at least 18% of the economy, and it is definitely contracting. Added up, this takes us out of the "stall speed" zone and into negative growth. The definition of a recession is more than one quarter of negative growth, and it takes about three months after a quarter ends to get definitive GDP numbers for that quarter, so we won't have the official word until late this year.
The next downward step should be a contraction in retail employment growth in response to slowing consumer spending and lower profits at stores. Retail employment growth (service) has been somewhat slow over 2006 anyway, compared to historical norms.
The last monthly employment report looked somewhat positive, although when the ratio of private/public jobs falls to 58/39 (less than 1.50) it is not a sign of an expanding economy. The low overall unemployment estimate derived largely from a workforce drop of 190,000 between January and February. I am skeptical about that.
The other way to assess employment is by looking at unemployment. Unemployment falls into two groups - insured and non-insured. Each week the US Dept of Labor issues a report on initial unemployment claims and total continuing claims. This has been running less than half of all unemployment.
Non seasonally adjusted continuing claims are slowly rising compared to last year:
March 3 2007.......:3,024,591
Same week 2006..:2,860,513
Continuing claims are a good measure of the economy's ability to absorb laid off workers, and thus its general direction. Another thing I watch closely in this weekly report are the reasons given by states for their rise or fall in unemployment claims. This week I saw something interesting:
AL +1,190 Layoffs in the primary metals, fabricated metals, wood products, and service industries.The prior week, out of five states that reported rising initial unemployment claims, three (IN, CT, NJ) identified service layoffs as part of the source. At this page, you can get all of these releases for whatever year and week you would like. Comparing to the same week in 2006, the seasonally adjusted insured unemployment rate is higher than it was this time last year. Last year the unemployment rate dropped for much of the year. I doubt we will see that this year, as workforce hours and multiple job workers are rising.
OR +1,368 No comment.
TX +1,388 Layoffs in the trade, service, and manufacturing industries.
IL +1,756 Layoffs in the trade and manufacturing industries.
KS +1,827 Layoffs in the transportation equipment industry.
KY +3,404 Layoffs in the automobile and manufacturing industries.
MI +3,590 Layoffs in the automobile industry.
CA +6,396 Layoffs in the construction and service industries.
NY +10,768 Layoffs in the transportation and service industries.
You can also go to this page and see the weekly claims reports going back for years. In a good economy, those continuing claims should drop - it's especially clear if you look at the seasonally adjusted claims. Generally, if they don't it is an early indicator of recession. I'll try to put up a graph this weekend showing the correlation.
"A Recession is when you lose your job. A Depression is when I lose mine."
Top hits of...
1929: "Happy Days are Here Again!"
1931: "I've Got Five Dollars!"
1933: "Brother, Can You Spare a Dime?"
Shit sure is happening. One figure used last year is that Walmart sales were about 2/3rds of all retail. Nordstrom's shoppers, no matter how prosperous, just can't make up the diff.
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