Thursday, July 03, 2008
Grumpy MoM Looks At News
The initial claims release continues its steady, negative trend. NBER will be declaring this recession soon. Initial claims were up 10,503 on an NSA basis, and up 16,000 on an SA basis. SA weekly claims exceed 400,000. The extension of unemployment benefits was a good step, but initial claims numbers will be amplified because people will now reapply to get those benefits. So you have to take all of this with a little grain of salt.
The monthly employment release showed that the unemployment rate remained the same while payroll employment declined by 62,000, but here's some interesting data from the household survey. Total employment dropped by 155,000, while the civilian workforce dropped by 144,000. The not-in-workforce total rose by 365,000. It seems likely that a lot of laid-off Americans are eligible for retirement funded by some means or another - either SS early or pension/401K funded retirements. This is holding down the overall unemployment rate.
The recent turmoil in the labor markets is shown by the loss of 51,000 jobs in the professional and business services category. That shows a major impact from companies tightening their belts. Retail shows a loss of 8,000 jobs, but the real number is likely to be at least twice that. The dreaded B/D adjustments strike again!!
NACM showed a coordinated services/manufacturing downturn for June, reversing the positive showing in May. Overall the index remains weakly positive.
Unfortunately the US cannot hope for strong demand in other countries to help our economy much, even though we are probably still gaining some export business. The UK appears headed into an outright recession to me. Bloomberg has UK services dropping from 49.8 to 47.1 in one month, and the UK economy is very service-dependent. Needless to say the rise in credit card debt has got to stop, and UK banks are planning to cut lending. Consumer confidence is quite low.
Overall, looking at treasury receipts is showing me a milder picture for the US than other economic reports. I think the belt-tightening is controlling the drop in business profits. Recessions do produce efficiencies!
Of course oil prices are up because investors are piling in as a last refuge, thus proving that investors are STUPID. With this many big economies showing sharp downturns, investors would be better off buying refineries, coal and uranium. But then, investors also loved junk corporate bonds and ditzy mortgages, so we already knew that investors are stupid. Now they are just proving that they do not learn from experience.
There is a macabre type of amusement to be gained by watching this crowd of lemmings run off the cliff; that is as long as none of them is carrying your money....
ECB raises by 25 bps, but manages to tank the Euro by announcing no bias. This makes investors think that they are relatively unlikely to raise again in the short term. It is possible that the ECB will realize that raising rates going into a recession caused by high imported energy costs is like pounding your own face with a hammer to frighten your opponent in the ring. On the hand, perhaps not; perhaps declining bank lending means nothing at all to these people. If ECB wants to contain European inflation, they should drop a word to the EU government to allow the countries to cut energy taxes. This would help manufacturing gains and let the Asians stew in their energy subsidies. Those energy subsidies are now a millstone on multiple Asian hypercapitalist states, and since the EU cannot remove that millstone it does not need to grab on to it and go down with their ships. JPM has global manufacturing contracting for the first time in five years, and guess where a lot of the hurt is? Japan and Europe.
Germany has a strong manufacturing sector, and France has the advantage of a lot of nuclear power. These two strengths could provide some support for the Euro region if the ECB were not masochists. The EU could gain share from Asian manufacturers if it were to cut energy costs, because the EU is very efficient in energy usage compared to a lot of these Asian countries, and it should be able to insource.
US ISM services NMI is down, which makes sense because of the tight situation in manufacturing.
Regardless of what the numbers now show, the EU and NA are heading into a world of hurt with these energy prices over the winter. However, barring fearsomely inane public policy, both regions have a fundamental bias above China. I know that sounds odd, but India, while in trouble now, is more energy-efficient than China and probably can gain market share on some items. China is effectively looking at a major tariff on its goods produced by these energy prices.
Watch Bovespa!!! The price of copper is coming down.... This cycle of suspension of disbelief is about to come to a crashing end. I'm thinking that oil will start to blow out with Bovespa, and that will probably be somewhat synchronized with last year's downturn.
I was always suspicious of the market is always right crowd, and the fact that more and more research indicates that emotion rules economic decisions and reason less and less has always amused me. IN any case, I am not interested in markets until folks are jumping out of buildings.
I also noticed that population participation in the workforce is down.
The employment to population ratio (EPOP) ratio fell to 62.4 percent in June, its lowest level in more than three years, as the economy lost another 62,000 jobs in June. This was the sixth consecutive month in which the economy lost jobs. The private sector lost 91,000 jobs in June. With the April and May numbers revised down by 76,000, the job loss in the private sector over the last three months has been 273,000, an average of 91,000 a month. The private sector has now shed 578,000 jobs since employment peaked in November. ..
The employment-population ratio was 0.6 percentage point lower than a year earlier.
If you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, etc., you get a closer picture of what the unemployment rate is. The official government number remained 5.5% after May's huge jump, but U-6 (the most inclusive number) rose .2 to 9.9%. To the average Joe on the street unemployment feels more like 10% than 5.5. Both numbers are poised to rise.
My view is biased since my personal position has been a depression for the last 6 years, relieved by occasional recession. Never the less, it not yet the 'big one' but it is getting there. It is not only worst than I imagined, but worst than I could imagine.
I read the mish article to but if you look at unemployment sense the 1960s I dont believe I would compare todays economy to the great depression.
What do you think MOM.
The international situation is scary. I can't prove it, but I know for certain that the US economy is about to take a tumble.
The big question is not so much UE but the situation.
The Great Depression started with a financial melt down, the UE followed.
The concern of perma bears like myself is not the UE rate but what is the driver of the economy going to be. In rather simplistic terms, for the last 20 years or more, increasing debt backed by property values(primarily real estate but sometimes wishful thinking) has substituted for income for the average jill and joe allowing them to enjoy a life style higher than normal aided and abated by the economic elites.
Financial flights of fancy allowed huge amounts of debt to be piled on one another until it was unsustainable Voodoo Banking With the end of US factories The murder of US manufacturing We are in a situation where we have never been. The US has to dramatically drop our standard living to below sustainable levels in order to have surplus capital at the same time as the boomers retire and medical costs for all citizens skyrocket.
The bottom like is going to be very negative.
On the short term, the US economy is actually getting healthier in structural terms. But overall, what the world needs is a global rebalancing, and it is not clear that we can achieve what we need without severe financial contractions.
I absolutely agree with you on the private and public debt loads being too high, yet I can point to many other countries in worse circumstances. There is severe pain ahead, and very general complacency over the issue.
One of the major problems that led to the Great Depression was a build up of debt in some countries, and a shift of production to new areas. However the new areas did not manage to bring up worker wages enough to stave off a worldwide decline in demand, which then took those countries' new industries out like a sledgehammer. The result was widespread poverty and a global depression.
People who think of this in a purely competitive fashion are dead wrong. What the US needs is for other countries to continue to grow. That's also what Germany and Japan need. It is not clear that we are going to get that.
The problem with the energy subsidies is that they have led to high energy consumption without calibration of costs. While energy was cheap this was okay for developing nations with good exports. Now when energy has gotten expensive, they are hit with a double whammy. The countries which consume quite a bit are consumption-constrained at the same time that the subsidizing countries need far more of a trade surplus to sustain their subsidies.
In essence, a bunch of highly varied countries are all faced with paying deferred costs. The US needs to control its trade imbalance and deal with its deferred retirement costs, but those deferred retirement costs are even higher in some other countries that have a worse worker/retiree ratio. And Japan, for example, has a massive public debt - close to double the US load.
We are all just going to have to work this out as we go along.
Or Accept Barack Obama As Our Collective Personal LORD And Saviour, like the Media and Celebrities have done -- SAVE US, OBAMESSIAH! EVERYTHING WILL BE PERFECT FOREVERMORE! O COME LET US ADORE HIM! O COME LET US ADORE HIM! O COME LET US ADORE HIM, BA-RAAAACK O-BAMA! WHAT COULD POSSIBLY GO WRONG?
(Anybody out there remember the REAL First Horseman of the Apocalypse? Hint: It's not War, Famine, Pestilence, or Death.)
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