Wednesday, September 30, 2009
A Recovery Only Its Mama Could Love
Chicago PMI - Really worth reading this month. The comments are worth reading. The overall drop from August's 50 to September's 46.1 is of course disturbing. Production dropped from 52.9 to 47.2. Whimper. Inventories are still contracting, but slower, new orders were down sharply (52.5-46.3), backlogs are contracting. It's a grumpy report - the brightest spot is that although employment is contracting, it isn't contracting any faster. Prices are still trying to shift up even if orders and backlogs are contracting, so I would say the Fed had better be thinking about rate hikes far sooner than they now project.
However this sort of thing is not inconsistent with recovery, and has happened before, so don't worry about those numbers. No, no, the thing that ought to worry everyone is the special question, which was:
Your budget or plan for 2010 contains assumptions/forecast of revenue generation. Your answers to these two associated questions provides a context for economic forecast for 2010. 1. What percent growth (decline) in DOLLAR sales/revenue is contained in your company’s baseline plan for 2010? 2. What percent growth (decline) in UNIT sales/revenue?The answer (see page 5):
I don't wish to render you all as soggy and dispirited as I am, but technically speaking, almost 60% of companies forecasting real flat to declining revenues and over 60% of companies forecasting nominal flat to declining revenue would be a recessionary indicator. It is quite hard to fit into a picture of the growth year after a very sharp recession. Combined with the remarkably poor trends in base-level goods buying, one would suspect that the carrying wave is just not there, unless we add in some putative factor on the theory that consumers will have paid off more of their short-term debt and can get out there and spend. Which is very hard to forecast unless employment picks up more....
However, if I look at the crude inventories report, I see that the gasoline consumption has picked up sharply over the last 6 weeks. There are more jobs out there. This is the indicator that pushed me over to call recovery - last week it was at +4.4%, and this week it is at +5.4%. You always see a sudden pop in gasoline consumption when the job market starts to pick up again. But I believe most jobs are in low-end retail.
ADP employment was not particularly joyous. They have the monthly decline in lost jobs continuing (-254,000 in September), but the pattern of job losses in small businesses (1-49 employees) is disturbing:
Small Business Jobs Gained or Lost: April-May: -172,000 May-June: -160,000 June-July: -131,000 July-Aug: -114,000 Aug-Sept: -100,000 Large Business Jobs Gained or Lost: April-May: -91,000 May-June: -87,000 June-July: -70,000 July-Aug: -57,000 Aug-Sept: -61,000There are many more total jobs in small businesses than in large businesses. Normally small business employment tends to be less volatile in downturns, but now I am wondering if that will hold. Go to Chart 4 on page 4 of the link and look at the graph and you'll see. Again, the movements themselves are not disturbing, because there generally is a consolidation stage a few months after emergence from a recession, and according to my indicators, we did emerge into a short span of growth around June.
But what is disturbing are the levels. This graph is percent month-to-month change, and the level is generally linked to the 3 month average of the CFNAI. I believe the mechanism of that linkage is through purchases by small business owners. Anyway, see this post of CR's. CFNAI is not reaching points at which one would normally declare that a recession has ended, and in fact CFNAI blipped down in August. Here is the data series. If you look at both CFNAI and CFNAI-MA3 (the 3 month average), you see we are still at levels that do not indicate broad economic growth, although the move upwards over the summer was quite nice.
Now go back and review the 1979-83 period, and you can see how that double-dip looked. Here's a graph, but you really have to split it up to see what's going on:
You will note that we haven't managed to get to zero yet, or even sustain above -0.50.
So then I guess we would come to Greenspan's remarks. It is possible he is looking at data like Chicago PMI and figuring that it will just be a slow, hard slog, but I am looking at data that almost forces another downturn
The wickedest thing about this is that all the push forward I see is coming from deflation of basic costs. Let inflation for food, fuel and clothing kick up significantly, and it's gone. At the beginning of the year, I expected the second half of 09 to be worse than it is going to be, and the difference is that I thought food prices and so forth would deflate much less.
I am using the 08 Census data to rebalance all my models, and I'll try to calculate from there.
PS: Let's say you were recovering from the flu, as I am. You would not want to read this and this from CERF. I did yesterday and just whimpered back under the blankets. I am pretty sure I am going to come out better than CERF. CERF has US GDP going weakly positive in Q3, reverting strongly negative in Q4, and remaining in negative territory all through 2010. Here's hoping old Greenspan is right. If you are from CA, this is really not the thing to read.
"However, if I look at the crude inventories report, I see that the gasoline consumption has picked up sharply over the last 6 weeks. There are more jobs out there."
Here's a scary thought and one I can't easily dislodge from my brain.
Now that housing prices have fallen, more people are currently trapped in their present homes. They simply can't afford to move. We know this is true.
Now let's say they lose their jobs. With unemployment at 9.7%, we should expect them to have to travel further (on average) to find decent work.
This would burn more gasoline.
I wonder how much of this we are seeing in the data? It would be good to know.
We rely on cheap energy in this country far more than many realize. Unlike much of the rest of the world, cheap energy allowed us to sprawl. It is going to be very difficult to unsprawl. Unsprawl isn't even a word in our language.
I'm not trying to be all doom and gloom. I think it just comes naturally in this economy.
I would imagine that more people are locked in their homes than normally, so it may be worse, but given lower salaries and the types of jobs that are being added, people will be walking from homes rather than driving 60 miles.
I wouldn't worry too much about all this. I think 2010 is going to knock the nonsense stuffing out of a lot of current icons.
It's getting colder, the economy's getting worse, so the extreme greenies will get rendered to carbon one of these days by an enraged populace.
People could have sold their homes to move to a new job during the dotcom recession though. Home prices were going up. I think we're pretty much in record setting territory on people being trapped in their homes now though. We've got record home ownership and we also have record numbers of home owners currently underwater.
Hey, it's just an opinion though. Time will tell.
"It's getting colder, the economy's getting worse, so the extreme greenies will get rendered to carbon one of these days by an enraged populace."
We can certainly agree on that! I hope you get a kick out of the following video.
"See Al Gore's Hypocrisy!"
It starts getting really amusing at about the 30 second mark, lol.
Soylent gas! It's people!
I'm cool with that.
It figures that the pro-choice party is going to choose to abort this recovery before it is born.
This is not a sparkling, jubilant, triumphal type of 2010 we are looking at.
I am curious as to why you think the end of the year? Currently, although I have massive amounts of data to crank through, I'm looking at more February?
Prices are still trying to shift up even if orders and backlogs are contracting, so I would say the Fed had better be thinking about rate hikes far sooner than they now project.
No rate hikes till the Unemployment rates starts falling. Just the reality of the world we're living in. Warsch can shoot off his mouth as much as he wants. Tough talk don't carry much weight 'round here.
I have noticed that these types don't really think it would be a problem if say a third of the human race were to starve to death. They are going to get a rude shock one of these days when they realize that people don't die quietly and politely. When push comes to shove, they would be the ones dying in the cities while those neanderthal farmers and coal miners in flyover country are sitting pretty.
My father used to constantly tell his kids "You don't have to like reality. You do have to deal with it."
But if they wait long enough for unemployment to really start falling hard, they'll probably have effed up. We have got to be realistic. If trend growth is really under 2%, it will take years and years for employment to correct itself. In those years inflation will erupt like a very destructive volcano.
A triple dip could also be in the cards.
WWWCD (What Would Winston Churchill Do?) He'd say plan to win the damned war, already. Admit that you are in it, admit that you are losing it, and figure out what you have to do to win it.
The reason I'm more sanguine than you about inflation is that we're at zero rates, and Cap U is low. Take the Funds rate up 500 basis points in 12 months and Voila! Inflation solved.
FWIW I read recently that taking current labor force and moving the weekly hours back to where they were before the recession is the equivalent of 3 million jobs. There's a lot of wood to chop.
P.S., I'm so glad you're back.
"But if they wait long enough for unemployment to really start falling hard, they'll probably have effed up. We have got to be realistic. If trend growth is really under 2%, it will take years and years for employment to correct itself. In those years inflation will erupt like a very destructive volcano.
A triple dip could also be in the cards."
I could not agree more. In fact, I'm very tempted to think the dotcom bubble was the first dip and the housing bubble was the second dip. My money is on a long-term bull market in dips.
My last big purchase was a 20 Year TIPS. I have very little interest in trying to time the dips.
I'm not at all in survivalist mode but you wouldn't know it from looking at my extended pantry. There's a LOT of toilet paper and other items I will someday need. It isn't out of fear that there will be massive shortages though.
1. Toilet paper has outperformed the stock market since 2000 but it's been mostly a stealth rally. I doubt anyone would suggest toilet paper is actually in a bubble.
2. Compared to gold, it is an extreme bargain. In my opinion, either gold is too expensive or toilet paper is too cheap. Or both!
3. I will never be taxed on the inflationary capital gains that the toilet paper experiences. I never plan to resell it. I will simply be consuming it in the future.
4. Buying toilet paper now reduces my interest income. This puts me in an ever so slightly lower tax bracket.
I hope I'm wrong to think this way. We'd all be much better off. Unfortunately, I've been thinking this way since 2004 and I continue to be rewarded for the behavior.
At some point, most people may see it too. Then we really will have an inflation problem.
I'm currently reading Boswell's "Life of Johnson"..at one point Boswell visited the Boulton & Watt steam engine plant, and Matthew Boulton said to him:
"I sell here, Sir, what all the world desires - POWER!"
The kind of power Boulton was selling is not, of course, absolutely identical to national power, but it is strongly correlated. The Democratic Party attack on energy production is, in effect, an attack on America's power and influence as a nation.
The Senate dems just marked up a Cap and Trade bill that is worse than the House bill. (Hard to imagine, eh?) Those people are detached from reality. Speaking of AGW and energy legislation, Steve McIntyre at Climate Audit finally got the data from Mann and Briffa's "Hockey Stick' graph that gave the major impetus to the idea that climate change was a crisis issue. The story can be found at:
Ding Dong the Stick is Dead! Mann and Briffa cherry picked the tree ring proxies for global temps in the late 20th century. McIntyre's graph is almost the mirror image of the Hockey Stick. This information needs to be gotten out as far and wide as possible. If nothing else, it shows there is no crisis and that the science is not settled.
Now we need to elect some Congress critters who believe in Nuclear energy and domestic drilling in 2010!
Keep sipping chicken soup and get well. We need your analyses.
[Good news: you won't owe much in taxes! Bad news: might be awful hard to scratch up the funds to pay the taxes!]
Companies are going to do the same math too, and the result will be another leg down in consumption, income, and employment.
Already seeing a second leg down in my industry. There was a May-July blip but it's over now.
I have to say, I've been taking that trade, too. Bought a vacuum packer, learned how to put up the sorts of foods that make up our (frugal, but tasty and satisfying) diet. Thinking about a third freezer, too. As money comes in, I'm putting a portion toward the proverbial year's worth of food.
Mind you, this is not about survivalism. It's about inflation, and smoothing out disruptions in availability. I'm not stocking up on freeze-dried mac & cheese here. The objective is to have some basic needs taken care of, and give my income a chance to (hopefully) catch up in the event of catastrophic inflation.
"Bought a vacuum packer, learned how to put up the sorts of foods that make up our (frugal, but tasty and satisfying) diet."
Same here. Bought one about 2 years ago. Steaks keep very well for a LONG time. Every now and then London Broil goes on sale for $1.99 or so and I back up the truck. It keeps a good 2 years if sealed and frozen properly. The bags are expensive though, so I tend to just use ziplock bags for hamburger (which I then eat within 3 months).
Another thing I've done is buy a lot of small rectangular pyrex dishes (with lids) so that I can make my own TV dinners and freeze them. The price of those containers has really gone up since I bought them. I must not be alone.
"I'm not stocking up on freeze-dried mac & cheese here."
I hear that. Unless we really love freeze-dried mac & cheese, we'd basically be locking in a lower standard of living in the future. That would defeat the purpose!
I hoard the things I eat and use anyway while keeping in mind what their shelf life is. That's as far as I'm willing to go.
Right or wrong, for that reason I've got a LOT of aluminum foil. The stuff keeps forever. I may have to make hats out of it if I'm wrong about where we are headed. Hahaha! ;)
In all seriousness, nothing would please me more of course. I truly hope I'm wrong about where we are headed.
I have noticed that these types don't really think it would be a problem if say a third of the human race were to starve to death.
I got my wake-up call during the run-up to the Iraq campaign in 2003. I was initially ambivalent about the invasion. Someone I regarded as a friend (who happened to be very left-leaning), someone who had met my family members that live in NYC, told me he'd rather see millions of Americans die in terrorist attacks than see us invade Iraq. When I asked if he understood what he was saying to me, he replied in the affirmative. I don't think he's ever really thought anything of that conversation, but it changed me forever.
I'm sad to say that there is a frighteningly large percentage of Americans (I'll venture 10-15%, though it's just a guess) who get off on the idea of watching other Americans die. You can't call it hate, either. They don't hate Americans. They just don't think of us as human, really.
If your vacuum packer has a hose attachment for canisters, look into the widget that will seal Mason jar lids. They're $10-$15 on Amazon. I bought one each for regular and wide-mouth jars, and don't really use the bags much anymore (except for meat).
Mine has the hose. I've got the canisters of the same brand but the lids are nearly impossible to clean (not supposed to immerse in water but when storing fruits and vegies in fridge you really want to at some point). Do the mason jars solve that problem?
The little dongle for sealing Mason jars seals the actual Mason jar lid. You only need one, and you use the normal Mason (Ball, Kerr, whatever) lids. So that's what you wash, same as always. WAY cheaper and easier to clean than the canisters. You just have to remember to pull the hose out after it stops pumping and before the machine un-seals.
You can get the same effect, actually, by putting a Mason or a re-used commercial jar (for Mayonaisse, pickles, olives, whatever) inside a canister and pumping it out. Then pull the hose before the machine seals. But I don't have a canister big enough for quart Mason jars.
I have to ask: Why is this "recovery" rather than "stimulus"?