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Wednesday, December 09, 2009


Chief is still alive, and doing well enough so I have had a bit of a chance to catch up with the economic news. No firm Chief answers yet, other than he's slowly starving which is putting a lot of stress on his heart, but a bunch of nasties have been ruled out, which puts me in a very good mood. This morning at yet another radiology clinic I was humming along with the Christmas songs.

Personally, I think he is slowly starving himself as a defense against nagging, and that the ultimate answer will be that it is all my fault. In his view, that is. We fought all day yesterday about him not eating. Today he repented after we got back from the AM testing round, and fixed himself an egg, two pieces of bread and two pieces of swiss cheese. I think he's just pissed off at me, so I did not say anything about moderation. In fact, I did not say anything about anything. He lost about 5 pounds last week. Yes, 5 pounds in one week. He has a high metabolism.

On the economic side:
Massive downward revision to Japanese GDP for Q3. Real revised down from 4.8% to 1.3%, and nominal revised down from -0.1% to -0.9%. These are annualized numbers, but that nominal decline truly smarts. I haven't had time to go through it yet, but the reporting is that company spending collapsed. Price declines continue apace.

German industrial production for October dropped. This probably isn't that huge a deal, except as it reflects on company spending.

US crude stocks continue high, high, high, except for propane which is way down. Refinery capacity utilization is back up to 81.1%, which is a considerable boost from the below 80s we were at for a while. Imports YTD are down 11.1%, but total product supplied is only down 4.8%. The difference is in domestic production, which is up 7.1%.

On the knotty question of November employment. First, we are out of the collapsing phase, but we are still in the trickle-down phase. There was poor workforce participation (not in labor force rose 291,000), but SA workers (Table A) rose 227,000. Thus it is mixed. Going to Table A, we find that wage and salary workers dropped 164,000, but there was a huge increase in self-employed workers (8,929 > 9,070). Maybe this represented some strength in the economy, maybe not. If you work 1 hour in the week you are counted as "self-employed".

Looking at withheld income and employment taxes from Treasury, it appeared that November was somewhat disappointing on the jobs front. Because of calendar differences, it was somewhat hard to compare month to month for November. However Daily Treasury totals for the fiscal year (begins in October) through Dec 1st:
WIET: 291,980
CIT: 13,981
FUT: 742

WIET: 263,501 (-9.8%)
CIT: 11,286 (-19.3%)
FUT: 616 (-16.9%)
CIT is corporate income tax. I was truly disappointed by the continued decline. WIET (basically withheld Social Security, Medicare and Income Taxes) improved considerably on a YoY basis from the end of October, but not as much as I had hoped. We'll see over the next few months. In theory, if the economy is just not losing very many jobs WIET receipts should shift to a positive trend YoY very soon. The reason is that if total jobs aren't dropping, raises should kick in and raise total wages.

I think we must be realistic about corporate incomes, however. Until they stabilize and start to grow, we cannot expect job creation to resume. We can gain on the unemployment numbers from older workers giving up and going to Social Security early, but that is not going to boost tax receipts. Also, if they go on early retirement their monthly benefits are cut.

The problem with the US economy is that there is less money out there for the consumers. Yes, some people are doing well, but far too many people are doing worse.

Most notable in Table A was that wage and salary workers in the private sector dropped 298,000 on a seasonally adjusted basis in November. That did not look encouraging! Government wage and salary workers rose 71,000. Interesting - might be Census?

To give you a better picture, here are some graphs from BLS:

This is non-ag private wage and salary workers on an NSA basis. Ignoring last year (when we were in the collapse), you see that normally this number rises in November - November is normally the peak for employment in growing years. There is a tiny uptick here from October, but the annual trajectory shows how deep the slump has been.

This is non ag government workers on an NSA basis. You'll note that this year's rise is somewhat unusual, but look back to 1999. That's why I think the November report involves Census jobs.

For comparison, this is total non-ag wage and salary jobs, including both government and private, again on an NSA basis. It looks very different from the first graph, doesn't it?

I do not think we are through the adaptation and recovery phase of this recession. This time tax revenues are not going to come back. We will have to cut government expenditures on the local, state and federal level to compensate for lower wages and higher retirement benefits. There is a major adjustment coming there.

We will also have to raise taxes.

Add to that picture the undeniable fact that it looks like gross private domestic investment is doomed to drop next year, and I cannot be very optimistic. I think we are getting to catch our breath, but that we will be forced to confront a structural readjustment before reaching another economic growth phase. If we don't do it, we are going to be looking at a declining nominal GDP like Japan's, and that would be a situation from which it would be extremely difficult to recover. I am wondering just how Japan is going to escape their situation.

Of course it's all your fault! How long have y'all been married? You ought to know this by now :-). Anyway, I am very glad that the Chief feels well enough to be bickering.

Rather more seriously, when my own Beloved Spousal Unit is sick, I lose weight, too, by worrying it off. It works great, but I'd rather be fat and have a healthy wife. (However, it works not quite as well as Atkins, 14 pounds in the past seven weeks. Hoo Ahh!!)
MOM - if he's well enough to argue, then I'm relieved and happy for you.

A couple of economic/policy points:

It would be nice to increase taxes, but it's got to be done in such a way that it a) actually increases revenue and b) does not penalize private investment. That's a tall order from where we already are.

Have you paid any attention to the break in the market lately? Roughly speaking, the S&P is still tracking gold and inverse the dollar, but gold and commodities have broken down (and the dollar is up). The obvious hypothesis is that the same market forces are dominant as have been since last year, but there's been a re-evaluation of the dollar's future prospects. It would be a wonderful thing if commodities and metals stabilized here....
Neil - yes, I have noticed.

I think to be honest that fuel still has to come down; I think fuel costs are busting recovery prospects. I also think the Japanese news shook a lot of people after the credit problems in Dubai, Greece, etc.

It's not over until the fat lady sings, and Thatcher has been out of politics for quite some time. I think there has been an abrupt reevaluation of risks.
First Anon - ya know, I did notice my jeans were loosening up....

I'm on the Worry Diet. No artificial chemicals! Just tons of natural adrenalin!
I am glad to hear the Chief is doing better! I deeply appreciate your moderate and fact based approach to this crisis.
Tom - he's not that much better. There is something gastric going on for sure - maybe he has an ulcer or just a pre-ulcer. After eating he often goes whacky.

I just tried SuperDoc's medicine for the abrupt boost in BP and heart rate, and now I have to stay up until about 5 AM. Hang out. I'll be here.
Neil - regarding the issue about the taxes.

This is one of the aspects that worries me. You can raise taxes only on a certain segment of the population, and not that huge a segment. And you can't raise them on businesses, because if you do you are really hitting job creation.

So the bottom line is that if you raise taxes you can only do it once. If we raise taxes for health care, we don't have the ability to raise taxes for retirement, etc.

We're down to tough either/or choices.

We would be best off raising taxes to do something like hike Medicare reimbursements, because that would cut costs in the private sector and you'd see a payback. But in return we probably have to cut some benefits.

I don't think Congress grasps how limited our options are.
Glad the chief has stabilized.
Thanks too for the excellent precis on the economic situation.
Glad to hear that things are somewhat stable on the home front. As for Congress not grasping things, they're not going to make any more tough choices when the president doesn't seem to care. BHO thinks econ is boring, and he's content to let Summers and Geithner whack away at things.
Glad the Chief is better enough to grumble. When he doesn't grumble about being fussed over, THEN you worry.

Thanks for your observations on recent economic data. Enjoy your holidays folks. Next year ain't going to be pretty.
The chief is alive. Everything else is ephemera. Glad to hear the news.

FedGov has a problem. It has grown to the point that it creates its own weather. We clearly need less taxation but the sheer size of FedGov precludes that solution.
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