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Thursday, April 07, 2011

Moving Part I

There are so many variables here. The next three months are going to be an analytic challenge of herculean proportions. The Japanese disaster is going to introduce some real changes which will make it hard to sort out the underlying trends.

So it's important to do a good job with March. That data is just beginning to roll through the door.

The first and most significant:

Click on this to open it up.

This data I compiled from EIA product and spot prices and Foreign Trade oil import data.

In the last couple of months we just crossed into the point where we moved into a slow recession in 2007.

I have different inflection points than BEA. I've got point one at August 2007. You see a blip in diesel and WTI there. By March 2008 we were at the point at which oil consumption was falling pretty hard YoY. That was because we were in a recession. The great crash began in summer 2008.

We're not at either point yet, but we're beginning to see demand constriction and there was a definite shift in growth trends in March. Maybe February; it's terribly hard to compare anything about February YoY because of last year's discontinuity. There was also bad weather this year.

So as March data comes in I can start using it. There will also be an April/May discontinuity of some degree due to Japan's problems and supply disruptions worldwide.

In the grocery stores, it certainly looks as if oil pricing is showing up. We have great job data, but groceries have gone up and then cycled down already in many stores, with lead pricing on segments dominating. That means there is a brawl for customers.

Jobs are going to help us for a good while this year. Both salary increases and the payroll tax cut seem to be handing more spendable income to the majority of the top 30%. Judging from just a few weeks of data, we have crossed over the 60% line (60% of households are losing real income).

One of the aspects that concerns me is that there is a huge divergence between the 25% and the median. That seems to indicate that we won't get the adaptation we need quickly.

One of the aspects of economics that puzzles me is the emphasis placed on jobs. They are hugely material in setting the pace of a recovery. In the lead up to a recession they are not - you always see jobs peaking well after the downturn has started.

I know a lot of people didn't understand why I think the nuclear situation in Japan is so important, but it has everything to do with how quickly auto production can spring back, and that, as it turns out, is going to be determinative:

We know there will be a bit of a lag in here. If the Japanese can get enough power back online in a few months, the thing will unkink itself and give us that second half push we need. If not....

Data from G.17.

So this economy is really separating the haves and
have nots. If cutting the payroll tax was a good idea,
and I think it was, why not eliminate the payroll tax
and replace it with tariffs and a higher top rate tax
on the very wealthy? That should increase disposable income while closing the trade deficit. Instead this
administration want another free trade deal that will
benefit corporations at the expense American labor.

Spork - a great deal of our imports are direct consumer products. Another large chunk are inputs for our manufacturers.

Your proposal would crush the lower-income group worse than the current situation.

There are not enough wealthy people out there to make up in their taxes for cutting SS/Medicare taxes. So it's just fiscal disaster cubed, which translates in a decade to massive cuts in SS/Medicare/Medicaid/food stamps, etc.
1. Overtax the wealthy and they will leave. See: Detroit.

2. Tax the wealthy and that's less money that have to contribute to campaign coffers. Logically, politicians will tax non-contributors first.
I'm thinking that we're heading for a second dip due to high gas prices. Either that or, if the Bernank keeps on with the QE, a painful stagflation with the middle and lower classes getting hit the hardest.

I don't want that, but such a scenario might lead to a new, business friendly President and Senate come 2012. And that woulld be a good thing. A ten year secular bull market would cure a lot of problems with pensions and even tax receipts.
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