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Saturday, January 09, 2010

Oops, They Noticed

Bloomberg article:
Had the labor force not decreased by 661,000 last month, the jobless rate would have been 10.4 percent, according to economists including David Rosenberg at Gluskin Sheff & Associates in Toronto and Harm Bandholz at UniCredit Research in New York.
...
“The exodus from the labor force can’t contain the unemployment rate indefinitely,” said Ryan Sweet, a senior economist at Moody’s Economy.com in West Chester, Pennsylvania. “We expect unemployment to resume rising over the next few months, peaking near 10.5 percent in the third quarter.”
It would already be above 11% if not for the early retirees. While the early exits from the labor force do make the headline number look better, the hit on tax receipts will be felt long term. It is true that early retirees receive less in monthly benefits, such that the theory is that over the long term the draw on Social Security receipts will be no greater than if they hadn't retired early. But the deficit in payroll taxes is not offset, and will add up quite rapidly. It's all the payroll taxes they don't pay that will hurt us over the next few years - the extra deficit in the form of debt will be with us for decades.

Concentrating on the establishment survey obscures the reality. According to the Census household survey in Table A-1, since August we have lost 1.64 million jobs. Since October we have lost 450,000 jobs. The rate of bleeding is dropping, but we are still slowly bleeding to death fiscally.

If you go to Table A-5, since August we have lost 1.63 million non-ag wage and salary positions. Since October we have lost 773,000 non-ag wage and salary positions.

If we look at non-governmental wage and salary positions in Table A-5, since August we have lost 1.666 million positions (I left in all the sixes to get the Mark of the Beast people really hot and bothered), and since October we have lost 745,000 positions.

WIET for December was down 7.6% YoY, which, although slightly better than the preceding months, is still devastating because we are getting to the point at which YoY comparisons being made to the acute phase of the recession. We are not really gaining on the employment front. The establishment survey for recent months will eventually be revised down, but a passing look at tax receipts tells a grim, but fiscally realistic tale.

I am also not seeing the impact of high producer prices combined with lower end-sale pricing discussed at all on Wall Street, but it has a lot to do with expectations for company spending and hiring. As of November, the 12 month PPI was 5.7% for crude goods, 1.4% for intermediate goods, and 2.4% for finished goods (reflecting expectations upon pricing for reorders). Companies will focus on rebuilding profits and securing acceptable profit margins before spending more, and a compression of profit margins does not allow projections of rapid growth for company profits.

Finally, a look at the detailed breakdown of prices shows that consumers have worn out their brief respite from inflation and will now be seeing higher prices at stores for most common goods that can sustain demand. This is apt to choke off any consumerist irrational exuberance quite quickly.

We also have a majority of state governments facing the bitter truth about now. They will have to make much deeper and more permanent cuts, which is hardly going to be a stimulus to the economy.

In the face of all this, our government is instituting measures that will increase costs for businesses, which is not the wisest course of action with economic fundamentals like this.

Comments:
MOM,

Finally, a look at the detailed breakdown of prices shows that consumers have worn out their brief respite from inflation and will now be seeing higher prices at stores for most common goods that can sustain demand. This is apt to choke off any consumerist irrational exuberance quite quickly.

Please forgive me for repeating myself.

I fear that the relative bargain of the decade is toilet paper. I can't think of a better inflation/deflation hedge for what may be coming long-term. It's one of the few "commodities" that hasn't risen in price much yet.

Put another way, the gold/oil to toilet paper price ratio is way out of whack. Either gold/oil is in a bubble or toilet paper is currently too cheap.

I suspect there might even be a bit of both. I have little interest in gold or oil at these prices but I continue to hoard toilet paper.

The same can also be said of canned goods and other basic necessities. There's very little harm in tucking some extra away, no matter what happens.

It's all the payroll taxes they don't pay...

As an added bonus, we'll never pay any capital gains taxes on toilet paper's inflationary gains. Of course, I'm not exactly suggesting something that helps our government's ongoing revenue problems though. Am I?

It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong. - George Soros

That's what makes toilet paper hoarding so great right now. I can hoard toilet paper and actually hope I am wrong! Sigh.
 
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