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Thursday, March 04, 2010

The Ides Of March Beckon

Greece is going to have to roll over some more bonds, so this year the ides of March contain a stinger.

In the US: Monster Employment really popped - 124. That's a YoY gain. Now, of course the comparison period is extremely easy, but this is also the first YoY gain in a couple of years.

US Initial Claims - The four week average has gone 469,000 > 467,750 > 474,250 > 470,750 over the last four weeks. Flat as a pancake, and disturbingly high for this point in a recovery. If it were not for early retirements, at this point unemployment would be rising significantly. But those early retirements are saving us. Not all of them are onto Social Security - some involve private funds and some involve public retirees, who on average can retire earlier with more income and better health benefits than private sector employees. I think many public retirements will be accelerated because of fiscal problems and pending renegotiations of public contracts and benefits. Many dedicated public servants will decide to get while the getting is still good.

US Tax receipts - (You can look up Daily Treasury Statements here.) We are going to compare the summary of MTD for February and through March 2nd, due to calendar difficulties:
2010: 168,479
2009: 168,385
2010: 15,322
2009: 4,682
2010: 800
2009: 777
2010: 191,001
2009: 179,719
Now, these numbers should neither cause us to run in circles proclaiming "The sky's the limit" nor to squat on our toadstools discussing the best methods of mass suicide. The WIET (Withheld Income and Employment Tax) improvement is minimal, and reflects mostly the effect of government contractual wage increases. CIT (Corporate Income Tax) increases show the corporations are regaining lost ground. Corporations must regain profitability before they can dream about expanding employment and spending, so seeing this increase is a great relief.

FUT shows a real improvement, and FUT is neither collected on the wages of government workers nor the wages paid by non-profit entities like charities and churches, so it is a very real indicator of improving job outlooks in the private sector. Granted, many of those jobs are temporary and do not have benefits at the moment, but they are there. FUT is charged on a very low wage base (less than 2K a quarter) so FUT really pops when the economy shifts. Temporary and part-time jobs are the first to show up, and many persons might be counted two or three times. The YoY gain in FUT is so low that it is very consistent with significantly lower total employment YoY converted into full-time employment equivalents, but the fact that it has jumped up is a very reliable indicator that the private sector employment logjam is beginning to break up.

H.R. 4691 was passed and signed earlier this week. This bill extends the date for moving from one tier of unemployment to the next through March. Not all the workers coming off one tier of unemployment will be able to move to the next - eligibility depends on the state unemployment level. Quite a few workers have already exhausted all the unemployment tiers available to them, and this bill does not help those people. But in March, many workers will transition into an unemployment tier that offers far more than four additional weeks of benefits. Regular benefits available to all workers extend through 26 weeks or six months. The following tiers are:
Tier 1 - 20 more weeks
Tier 2 - 14 more weeks
Tier 3 - 13 more weeks (available in states with unemployment 6%)
Tier 4 - 6 more weeks. (available in states with unemployment 8.5%)
More detail here (pdf warning). So let's say a person would have exhausted his regular benefits (26 weeks) plus his Tier 1 benefits (20 weeks) as of mid-March. This bill will allow that worker to go to Tier 2 and collect an additional 14 weeks of benefits. If no more legislation is passed, at the end of that 14 weeks, regardless of the state unemployment levels, the worker's unemployment benefits would be exhausted. However, if no more legislation is passed, a worker who lost a job last November will exhaust all of his benefits in April and be eligible for absolutely nothing more, even if he is located in a state with over 10% unemployment.

There is obviously some equity and public policy problem with this - worker 1 may be located in a state with under 6% unemployment, whereas worker 2 may be located in a state with unemployment well in excess of 10%. Needless to say, as this wears on, the states with highest overall unemployment levels are often experiencing the highest attrition rates in businesses that sell to the public in that area. Congress needs to sit down and figure out a transitional mechanism which will involve a new legislative compromise. States like the Dakotas (which are in a boom due to development of the Bakken field) need no additional benefits; states like South Carolina need quite a bit of an extension on unemployment benefits. There are fifteen states that racked up 2009 unemployment levels in the double digits including DC; there are 14 states that had unemployment levels below 7%.

Crude inventory report: I am not going to go into detail on this, but the bottom line is that we have plenty. The populous east coast is experiencing an amelioration of weather, and draws for heating oil will be less. On a YoY basis, four week demand for gasoline is up by 0.1%, and distillate (diesel and heating oil) demand is down by only 4.8%. That represents an encouraging sign for the current state of the economy although it strongly implies that growth is not heated.

ADP employment (pdf) had a major revision upward for job losses for the prior month (-22K > -60K). This month's losses were not statistically different than last month's as originally reported (22K > 20K). It is worth taking a look at Chart 4 on page 4 of the link to see the performance for small, medium and large business. What is different about the current recovery cycle is that we are not seeing the growth in small business jobs. Large businesses usually do lag; small businesses, since the 80s, have been leading us out. If the current trajectory continues, worries over continuing unemployment must be taken very seriously. Medium businesses always run in tandem with larger corporations over the longer haul; without the smaller businesses, the US will be looking at depressed employment for at least two years to come.

BED: (Business Employment Dynamics). This is the quarterly compilation of business hirings and firings by the BLS that is used to adjust statistical assumptions for the establishment survey. It is always quite out of date - the most current stats, released at the end of February, cover Q2 2009. See this historical table and go to the end. The February release strongly suggests that the adaptation cycle was well underway and further supports June as the beginning recovery month. Gross job gains rose from 5,746 in Q1 to 6,420 in Q2. Gross job losses fell from 1,441 in Q1 to 1,401 in Q2.

Now look back up that historical table. See the 2001 recession? There were two troughs of job gains in that recession. One occurred Q4 2001, which only lasted for two quarters. After Q1 2002 gross job gains fell again, reaching a second, lower trough in Q3 2003. This is important, because the experience of the average person is closely associated with that cycle, which is closely associated with velocity, business spending, and improvements in average incomes. It is not so much the job losses as a suppression in job gains that produces the phenomenon we term "recession". Adaptation is a function of a healthy economy. The net job losses in the 2001 recession followed a similar pattern of two peaks and two troughs, with the second peak occurring Q1 2003. The reason for the doubled pattern was the 9/11 attacks and the effect on the stock market. You can't zap a few trillion out of the economy without it showing up.

This should make us all think very seriously about current events; there is every reason to believe that the wealth effect, the debt effect and basic public policy mistakes and fiscal mistakes could produce a similar trajectory. The problem is that we are starting into that zone of danger from a much lower level.

I would like to segue from this to a discussion of the small business sector, the factors restraining it, and what we could reasonably do without too much cost to provide a stronger basis for job creation.

"I would like to segue from this to a discussion of the small business sector, the factors restraining it, and what we could reasonably do without too much cost to provide a stronger basis for job creation."

Waiting with anticipation. Hope your health improves so it isn't an onerous task. Looking for ideas to send to my Congress critters.
I think the FUT pop has to do with inventory
rebuilding which is almost over. Temporary jobs.
Sadly, the longer this goes on, the more savings
are depleted. A downward wage spiral has begun.
We need a change in the tax code, import policies,
and immigration policies. Big business is firmly
against all three. Look for more propaganda
since the Supreme Court ruling.
Anon - That is why I am watching the number with such trepidation and attention. If the rise slows and if other deposits in H8 continue to slow their growth, we may be in big trouble.

You are clearly right about the downward wage spiral.
Jimmy - It's more the Chief's health, because I get very stressed out when he is not well. SuperDoc came up with some magic pill that worked today - the first day the Chief took it.

So we'll see, but the signs are encouraging. Oddly enough, it may be that his decision to stop coffee caused some of his current problems.

I stand by my claim that coffee is a precious, life-giving fluid. And as you note, freedom-preserving as well. For God, country and the Constitution - DRINK MORE COFFEE.
MoM,I had my first cup of coffee in more than a week.Due to a sciatic nerve that has been inflamed for near 20 years I limit my central nervous system stimulants.But every week or 10 days I have a cup of really good,very strong black coffee and wonderful is too mild a word.
Sorry, I'm one of those folk who hate the taste of coffee with a deep passion. But I get my caffeine in other forms ...
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