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Friday, May 02, 2008

Employment & Treasury Receipts April

The answer to the puzzle about how total jobs can be dropping yet the unemployment rate falling lies in two demographic trends. Illegal aliens are increasingly being shifted out of jobs (and some are leaving), and we are reaching the point at which the baby boomers begin to move out of the job market at an escalated rate.

So the employment report is probably pretty accurate overall. The loss of retail jobs is to be expected. See CR for more comments. I suspect that the manufacturing job loss is overstated. However the decline in average earnings is not a good sign at all for consumer spending.

Treasury receipts in April showed the same mixed patterns I have been discussing. WIET YoY growth continues to moderate - it increased by about 3.1% YoY. This is less than the inflation rate and indicates that Americans are losing buying power at an increasing rate.

FUT continues the same growth pattern demonstrated in recent months. It grew for the month and on the final day's required deposits, which increased over 4% from last year's. I want to reiterate that the growth in FUT shows that jobs are being added somewhere; this is a reversal of the declining trend of 2006 and 2007. Where are those jobs? The probability is that higher FUT at this time arises from two factors. The first is that as an economy declines, individuals take more part time jobs - often several - because they can't find full time work, or because they need to catch up with bills. The second is that either jobs are being added or shadow jobs are now showing up on the books - and I think both are occurring.

April corporate income taxes (CIT) fell very slightly over the year - but in comparison, April's CIT was much better than the fiscal year to date trend. It would seem that smaller companies are not doing that badly.

We know that retail outfits are generally quite stressed, so there is some strength in smaller businesses.

Regarding WIET, it is quite dangerous to rely on that data over scales of less than a quarter as a YoY comparisons. For one thing, mass layoffs often come with severance checks that temporarily push up the numbers.

At this time the picture is very clearly that of an economy in a recession, and not right in the beginning of a recession either. What is so interesting is that some business lines have already hit trough and are accelerating out of it.

The April NACM report showed the same pattern. For the first time since last August, the combined index eked out a gain. All of the gain was in services, and it was the strongest gain of the last year. Indeed, in the last 13 months, there have been only three gains in services, and the prior two were in May and September. Expanding or adding manufacturing jobs has an incredibly strong effect on business and technical service jobs, and this is the signal we are seeing.

Over the next year, the consumer side of the economy will continue to show increasing weakness. Indeed, over the next 10 years the effect of demographics alone, combined with the CPI understatement that is whittling away retirement benefits, would continue to suppress growth in the consumer side of the economy.

US public policy is going to have to shift to be more friendly to energy production and production businesses. On the other hand, changing some of our really stupid policy mistakes of the last thirty years would have a very wide and long diffusion through the economy.

But I think that until Congress wakes up nothing will change, and Congress will only wake up when it feels the kiss of angry voters.

The next concern for US manufacturers is what will happen as the ROW economies drop again. Europe is an especial concern, because port traffic on the eastern seaboard remains high and appears to still be growing. I am guessing that much of the business being gained at this point is really coming out of Europe, and I fear that US manufacturing will get another curb to growth when the EU weakness takes hold.


I think you nailed a key question - and this lines up nicely with the observed increases in small business hiring increases - to wit, is the predominant driver the recognition of what were previously shadow jobs done under the table - if so, then we can indeed observe increased stats and payroll taxes while undergoing a macro contraction...
Not being known for being Mr. Sunshine I can safely say the following.

The US mfg base can use these events an opportunity. We can use the lower dollar and existing dynamic economy to sell broad high value products. Cross-nationaql companies like BMW have this figured out, exporting Kentucky X series to Europe and beyond. Wait until steel and such become too expensive to transport all over hellandgone (aka Chindia) for value added processes. A little Rock Mountain coal, a little Dakota iron, a little Alberta petrochem, a little SoCal flair and the iPod phenomena can be duplicated from farming to aviation and distributed [semi-passive] energy generation.

More on topic, a lot of the east coast transatlantic traffic is both currency driven and demographics and most important IMO geographics. The strata of Europe with money is getting old really fast. I mean really fast. Passing out of the back end of peak productivity years into retirement consumption that has to come from somewhere. Geographically, Jezz, they are so screwed in a coming decade of poor agricultural weather compounded by higher transport costs. The US may stumble but we are liable to trip the EU and send them to the floor.
M-o-M, you're in Georgia. Have you noticed any above-average number of End Time Prophecy (TM) types surfacing recently? Pastors' sermons, televangelists, radio preachers, high-pressure door-to-door Jesus salesmen, whatever?

I'm starting to see blatantly Apocalyptic hit-and-run comments showing up on various blogs; the latest trend started on some of the housing bubble blogs that had been sounding apocalyptic for a while, but seems to be spreading.

With the latest jumps in food and fuel prices, the Apocalyptic language is becoming LITERALLY Apocalyptic. If I hear Revelation 6:5-6 quoted one more time, I will not be responsible for my subsequent actions.

It's like a scene from The Simpsons' parody of Thelma and Louise; the one where the guy on the TV news loses it on-camera, throws all his papers in the air, then holds up a Bible and screams "IT'S ALL IN REVELATION!"

No reports of anyone putting on white nightgowns and going up on hills and roofs to jump up and down for "Rapture Practice". Yet.

The Headless Unicorn Guy
(Professional Weirdness Magnet)

"When the going gets weird,
the weird turn pro."
Rob - we don't have an alternative. Either we rebuild the production base of the economy, or we see a very bad decline in living standards.

Headless - People are generally calm in GA. Seriously. No Y2K hysteria, etc. I realize that if you read the media one would think that all the Baptists and other Evangelicals are charging around predicting the end of the world, but it seems to be the urbanized elites who think that the End of the World is Nigh.

In GA, people are just worried about terrorism and gas prices.
I don't generally watch Jim Cramer, and don't think much of his investing-entertainment format, but thought it was interesting that he is now talking about U.S. manufacturing companies, like Eaton, as being where the "technology" action is today.

I've long thought it odd that a company that sells some prosaic product (like underwear) over the Internet is thought of as a "technology" company, whereas a company like Honeywell that makes advanced, computer-based avionics sytems has tended to be thought of as something other than technology.
David - talking heads are often very odd.

There is a lot of mfrg-related tech though. Robotics, etc.

There's also a growing market for retail efficiencies, etc. In a tight environment like this, cost-saving investment tends to rise.
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