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Thursday, September 02, 2010

The Current Base

Today's initial claims report gave me some hope that the increase in initial claims will tend to drop after the middle of September. Claims do appear to be cycling around school schedules. Overtly, this is a very bad report. There was almost no decrease in initially reported claims last week and this week (-1,000) and the four week moving average dropped a piddling 1,250 to come in at 485,500.

Also, ADP employment yesterday was really bad. But still, ISM, factory orders, NACM and Chicago PMI all show an economy in which we have some underlying growth impetus left. NACM showed a minor improvement after three months of very solid declines. The ISM manufacturing report yesterday was solid, although there were some weaker factors there. Housing should have about bottomed, because rates are so low that it will gradually draw more buyers with home prices dropping and most importantly, home prices ARE dropping. There is no way to clear the market without substantial price declines. As long as we let it alone and the rest of the economy keeps struggling along, the housing problem will fix itself and be substantially improving by 2012. It takes five years.

Another and much more important indicator (so far, I am on tenterhooks as to August and September) are wage tax receipts. July showed the lowest YoY decline yet - the drop was only 1.1%. Judging by Daily Receipts, August looks excellent:
July WIET: 131,417 (end date July 31st)
July CIT: 8.054
Aug WIET: 126,389
Aug CIT: 3,743
July WIET: 131,219 (end date 30th)
July CIT: 9,767
Aug WIET: 135,483 (has revenue from July 31st)
Aug CIT: 4,645
So right now, the structural "floor" of recovery is still intact, as long as one acknowledges the obvious reality that this was unlike any other post WWII recession, i.e., it's some sort of a depression/recession hybrid. Unfortunately, even Dana Milbank just realized that DC did not take that into account. His article about Romer's talk is quite interesting.

Unfortunately, the floor probably will not remain intact through the second half of next year if we raise taxes sharply. At any given time, the economy consists of a set of forces, some of which are highly ephemeral and some of which are deeply embedded. One of the structural forces here are real incomes among the majority of the population. It will take considerable time to get those incomes to grow enough to overcome the drag, and the worst of it is that state and local taxes are still rising as a percentage of incomes due to state and local liabilities. So raising federal taxes more than marginally will have a terrible impact.

At this stage of recoveries from busts (which is the best definition of this - not a recession, not a depression, but a bust) the economy becomes acutely sensitive to changes in incomes.

PS: For a bit of irate humor, see this blog post by Ann Althouse on Romer's speech. I am sure Romer is permanently off the White House Christmas card list over this. "Who'd 'a thunk" is rather a political liability at this point.

The increased productivity bebefits are being shared
by fewer and fewer workers. No base to turn the
Economy around.and not good for demand or money
Rosenberg says "ISM Flunks Sniff Test "; Cashin calls ISM "an Outlier"; ADP, Other Data Does Not Confirm

I thought from the moment I heard of her appointment, "but Dr. Romer is too honest for that position". She was just enough of a climber to take the job, but not enough of one to succeed at it. Thus, that muddle of a speech.

I disagree with Sporkfed, by the way. The problem is that we talk about "manufacturing", when we should divide that up into "mass industrialized manufacturing" and "niche manufacturing". Sporkfed is absolutely correct about "mass manufacturing". Our national policies have been chewing away for at least 50 years at that industrial base, which produces our low-margin necessities and is what enables our quality of life. We need to start recapturing some of that, somehow--it's as useful a sector as being a food exporter. But there are countries that do quite well while importing food.

However, the high-value stuff going forward is all in niche manufacturing. Satisfying long-tail needs efficiently. More and more people are employed in that sector, which is one of the reasons all the job growth is in small companies. Productivity gains enable the filling of more niches, and employment rises in those niches. This will be the dominant dynamic in manufacturing for the next 50 years, and we need governmental policies that enable it, especially if we can export the stuff.
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Thank you for your analysis MoM,you cover areas where my expertise is lacking. I see two factors affecting home prices that may cause a geater delay in prices bottoming. One local,one national. I am in Sonoma county,and in 2005 and 2006 70% of the loans made were "exotics". Many of the hybrid loans begin to amortize 2010 through 2012 and many balloons come due then as well,this will stretch things out a bit. There is also a slew of the newer buyers who got 3.5% down FHA loans,and you can qualify at 55% of your gross income,which causes my blood pressure to spike every time I think of it.Stay safe!
Hey everyone...I just need help with one questions of my homework. I dont really understand how to calculate base current.
Pure Hoodia
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