Thursday, February 04, 2010
Laughing So Hard I Can Barely Type
I have been compiling and trying to run simulations on income changes due to the expiration of extended benefits at the end of February. Congress will probably extend, but who knows for how long? This sort of thing always induces spasms of doubt in my middle-aged breast, because simulations are prone to error and confusion. They are generally safer when focused on something measurable, like income.... So I figured that it would be nice to have a possible range, and then when Congress does whatever it does I can hopefully plug it in and get a quick read.
But it is not as simple as you would think - unemployment varies by state, and to some extent taking out unemployment produces other changes which partly mitigate the effects on income. For example, there are a considerable number of older Americans who are close to or at the period when they could claim early Social Security benefits. It generally pays them to run out their unemployment before they do, because the longer you wait the higher your eventual SS check, but if those unemployment benefits run out, one can safely guess that they will hit the Soc. Sec. offices in droves.
Anyway, I was darkly pondering imponderables yesterday and wandered over to read some !!!Climate Science!!! I wish I were a climate scientist - there you can just make it up and if people like your answers people send you chunks of money. True, that is not very different from a lot of pay-for-play economics, but the effects are less awful so one can feel better about lying with statistics for a living. And it is a good living - lying pays well when it generates a strong revenue stream for some group.
Unfortunately I ran into some very funny stuff about glaciers, which are a hot topic just now due to the fact that the last IPCC report kind of missed the step about doing the made-up computer simulation studies, and just relied on a press releases from a few advocacy organizations. Even the average joe can tell that this is not !Science. As far as I can tell the only remaining function of the IPCC is to make bad economists look good, because much of their stuff is so abysmally bad that it makes the most idiotic economic studies look like beautifully reasoned, sharply reality-constrained science.
The social utility of this is unclear, given the damage that bad economists inflict. This new-found faith in computer simulations looks an awful lot like the funkier religious cults of recent years. So on to data:
ADP yesterday showed a good pop in comparison to December. -22,000, and December's loss was revised to the 60,000 level. There were solid gains in services, a hefty loss (60,000) in goods-producing companies and both small and large firms are still dropping jobs. But mid-line companies are adding jobs.
Challenger showed a large pop in layoff events, which I absolutely expected. I find it hard to find a large company that is not moving into another restructuring phase due to low profits and low sales. Challenger also showed the worst results since August.
Monster Employment US showed an additional decline for January. Monster peaked Aug-Oct, and since has fallen significantly, although slowly. The peak in recent months was August at 121, and January is reported at 114. The biggest increase is in public administration jobs.... Needless to say this forecasts another poor year for deficits; we are not going to improve our fundamentals by more government hiring.
I will update this later today.
Initial Claims: 480,000. The four-week moving average of initial claims is now up to 468,750, which remains a whole heck of a lot better than the prior year's 581,000. But the trajectory since December is a little disturbing:
12/05/09: 475,000We were told early in January that there was an administrative claims backlog (which appeared to be partly in CA), but that excuse has expired. I suppose we should throw out the two low weeks, which makes this look less volatile, but still there appears to be a change on the wrong side month over month. All the information I have shows that most larger companies are planning significant layoffs this year as they continue to restructure. Some of this are from facility closures. We'll have to wait a few weeks to get a better reading. The other side of employment is hires; if one takes ADP number seriously, we may be seeing a pick up in outwardly contracted services which is shifting some jobs from larger companies to smaller companies.
Initial claims always do remain elevated for a while after a recession. That's one caveat. Here are some graphs to show the historical pattern:
This graph shows the four-week average of initial claims ( red line ), the four-week average of continued claims (blue line), and the average duration of unemployment. The four week average of initial claims was dropping but has reversed. It has not dropped nearly as quickly as it did after 1982. On the other hand, the changes in the US economy since then have generated a difference in the pattern of initial claims.
Just to reiterate that point, here is another graph showing the average duration of unemployment (green line), the number of unemployed 27 weeks or over (blue line) and the number of total unemployed (red line).
You can see the change I have been discussing; average duration of unemployment did not really fall off until 1995 and 2005.
So on the one hand you can very plausibly argue that the current numbers do not raise suspicions of another downturn, but on the other hand, even this argument must cause considerable angst over unemployment levels and expected trajectories over the next few years.
A further point is that with the awesomely high number of unemployed (over 15 million), and long-term unemployed (6 million), changes in unemployment insurance for the long-term unemployed could have a pretty hefty effect on US income levels over the next few months. I think Congress needs to settle this issue ASAP, because most of the improvement in staffing in the lower-end retail chains and grocery stores would be quite endangered if income levels abruptly fell, which could set up a pretty nasty chain of feedback.
For now, it would be wise public policy to settle the unemployment insurance question before proceeding to anything else. If this issue isn't settled by about mid-February, there will be no time for the states to implement, and some people will stop getting unemployment checks. This is not going to help matters.
Well, I certainly managed to generate a more sober mood!
Just as a further gentle hit that Congress should get with this particular program, here is the RBC Cash Index:
U.S. consumer confidence cooled this month as worries over every facet of their financial situation mounted, according to the most recent results of the RBC CASH (Consumer Attitudes and Spending by Household) Index. Economic attitudes soured across the board, with consumers viewing the current economy negatively and displaying increased pessimism about the future. As a result, the RBC Index for February 2010 stands at 39.4, down 18.9 points from January's 58.3 reading.Note that the big tumble is not quite as bad as it might seem because over the last few months this index has been rocketing upward. Nonetheless, it is not surprising that increasing layoffs and restructurings in larger companies combined with insecurity about the loss of unemployment benefits might generate consumer anxiety. They'd have to be nuts not to be worried.
I'm going to reiterate that current reports of operating indices (NACM, the ISM reports, durables, and Chicago PMI) all show that we have a carrying wave going through the end of February. But that wave may not persist, and it would be wise indeed for the DC crowd to wake up and get down to business.
Rail in 2009 was the lowest since 1988. Well, so let's look at 2010.
January 23rd carloads are up 3.9% from 09; intermodal is up 2.9% from 09. However there was an utter crash in rail traffic in the first quarter of 09, so this isn't saying much due to the extraordinary weakness of the comparison period.
For the first three weeks of January, total rail volume was down 2.5% from 09, with intermodal being up 0.9% and carloads down 3.2%.
Last week US refineries were operating at 77.7% capacity. Total products supplied over the last four weeks were DOWN 2% from the prior year. Distillate is down 9% from the previous year. That pretty much tells us about the state of trucking.
The sole bright spot YoY was jet fuel, which was up slightly at +0.2%.
So if you aren't seeing much in air, don't think it's going to pop up in trucking. I've never seen a truck run without fuel, and since the price of heating oil is much lower this year, the difference is going to be mostly in trucking.
We didn't get back to parity on January taxes either, except for FUT which turned in a YoY increase, thank G_d Almighty.
What's really going on is that the price of fuel is too high, and it is sucking the life out of things. It will get where it needs to be eventually. Retail is going to be pretty crappy for a couple of months.
The grocery stores are showing another round of deflation. Prices peaked late November to mid-December, and have been crumpling since.
Reduced State and local tax levels will fuel a large round of layoffs during the next several years. Here in Calif we are approaching a small bit of reality as years of voter approved bond measures building education and transportation facilities along with prisons are starting to hit the wall of operational funding. This idea that if we build it the money to run it will appear has been the natural state of affairs. Now we are reducing the prison population along with cutting college classes next of course will be closing down various college campus's,prisons and boondoggle public rail systems.
This will be painful but hopefully the public may stop voting for these good sounding public works projects until we can properly pay for there day to day operational expenses.
Well, that was cryptic.
A data point for you: Yesterday I bought airline tickets from the West Coast to NYC for mid-March. Prices have fallen 33% in the last two weeks, and the planes are near-empty. Southwest Air seems to have canceled many flights to LaGuardia between Feb 11 and March 13. I've never seen temporary suspension of a schedule like that, although I can't say I've ever watched for it. I guess they just weren't willing to take part in the fare war.
The state and local funding crisis is structural - you're right. This can't be fixed.
I'm still deflationary!
I had money parked in cash awaiting a fresh entry point into the overpriced inflation protected treasury fund (TIP). I've given up. Yesterday I began moving the money to ING Direct to earn 1.25% FDIC insured.
I am participating in the 30-Year TIPS auction in a few weeks though. I figure it will pay 2% over inflation, which might just end up being just like cash if this continues. Go figure!
I'm also planning to learn Japanese. Just kidding!
People really need to see this video in my opinion. It's an hour long talk by Chanos on China. The part from 27:50 to 29:30 is priceless.
He describes the commercial real estate that either exists now or is currently being constructed. 30 billion square feet. As he puts it, that's enough for every single man, woman, and child in China to have their very own 5' x 5' cubicle. How is that going to ultimately be inflationary?
We've got one messed up global economy.
Today they lost somewhere around 5% on oil, the last I looked. No one is looking at fundamentals.
Galbraith's book on 1929 is a great read about now.
What a great visual! Ponzflea Scheme!
It also really hits home for me.
About 20 years ago I bought one of those electronic dog flea collars. I didn't see much change after putting it on my dog so I tried a little test.
I put the collar in a large ziplock bag. I took a flea and put it in the bag. The next day the flea was actually sitting ON the flea collar!
I then used a flea comb many times per day on the dog. It worked wonders. It didn't take long at all for ALL the fleas to die off, not just from the dog but from the surrounding area too. My vet told me it couldn't work, but it did.
Had that not worked, I would have done what the vet wanted me to do. It involved poisonous flea baths.
The life of the flea is clearly fraught with peril.
T-Bills look good but you observed:
"The state and local funding crisis is structural - you're right. This can't be fixed."
So the payer of the T-bills will have to fix the structural issues with the states with money from somewhere but that works out? Its sounds crazy enough to work!
Mark sent me here.
Every option, including tax and fee increases, bankruptcy and a state takeover through Pennsylvania’s Act 47 municipal oversight program will be considered, said Susan Brown-Wilson, chairwoman of the Budget and Finance Committee, which began a week of hearings last night to consider a 2010 spending plan.
The $68 million in debt service payments that Harrisburg faces in connection with the construction of a waste incinerator this year is four times what the city of 47,000 expects to raise through property taxes, and $4 million more than the city’s entire proposed operating budget.
“We need to see, what does Act 47 do for us; what does bankruptcy do,” Wilson said in an interview during a break in the opening budget hearing at Harrisburg City Hall. “You have to have all of them on the table.”
Harrisburg skipped more than $3.5 million in debt-service and swap payments last year, prompting draws on reserves and back-up payments by Dauphin County, where Harrisburg is located. The county has sued the city to recover its payments.
In the short term, the ugly reality is that the USD is safer than a lot of other investments.
We've got a global problem, which somehow makes it even more painful to contemplate the problems in the US.
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