Friday, July 08, 2011
She Wrote Bitterly
Look, I've written in some detail about employment over years. There is no need to now repeat all that. Household Survey. Establishment Survey. If you look at the YoY, there is not that much difference between establishment and household. And unfortunately, in the near-term, the Household Survey is going to be more accurate over two months than the Establishment Survey.
So what we have is an unemployment rate that has risen about 0.4% over a few months, and dropping employment. Since April we have lost at least 300-340K in the way of jobs. Retirements are the ONLY thing keeping the unemployment number below 10%. This is about as bad as it gets two years out from the end of a recession, and I rest my case that the Great Recession was not structurally a recession, but a depression modified by Keynesian policies. Unfortunately we have now run out of money for Keynesian policies, and we are left with the result.
The "Core" unemployment rate (25 & older) is now 8%. It was only 8.2% when the recession "ended". The core rate rose 0.2% last month. The only hope we have left is NFIB's survey which predicted a better outlook for employment in small businesses over the summer, but I think not much of that will materialize. The reason, IMO, is collapsing incomes in consumer-oriented service businesses, which over a few months transmit to business-oriented service businesses and trade goods.
You will note that there was a marginal drop in average weekly hours and in average weekly earnings last month showing up in the Establishment Survey. This is not at all surprising; it is almost certainly due to lighter staffing in many establishments as businesses struggle with margins, costs and a public that is income-constrained. There was also a drop in temp employment of 12K, which augers poorly for the months ahead.
So the brief disparity between Establishment and Household surveys has begun to collapse. We are now left with the continuation of the consistent-but-intimidating meme, which we do not like. But it is always better to live in the world of reality rather than fantasy.
Most of what you now read in official economic circles is pure nonsense. If you look at Table A-8 you will see that March appeared to be the peak for non-ag employment, that government jobs in June did not fall (government jobs are mostly falling because of retirements, and a considerable number of these positions will be replaced), and that non-ag wage and salary workers are down about 400K since March/April. A 2-3 month change is always a lot more reliable than the one-month!
The above is rather consistent with the Treasury data - I will be interested indeed to see June Treasury receipts.
But, the bottom line is that real income effects have put us into another economic decline cycle. Unfortunately the day of reckoning is rather global and the financial instability in Europe has some major implications. The income cycle now cannot possibly redress for another three months in the US. Thus we are not going to escape the sucking sound of an economy going down the tubes. The problem is complicated by the FICA payroll tax rebate, which must end, but which will inflict a second round of income cuts on the US economy just when it should be cycling out of the income decline cycle.
Now, I will stop writing because I am in a flipping rage, and I just want to cuss out the Fed, whose grubby fingerprints are all over this.
You will note that my analysis is generally pretty accurate. My analysis is based strongly on income effects and money circulation patterns, which do drive the economy. However there is nothing in what I do that is beyond the capabilities of an average person, so what is driving me into red-eyed rage is bitterness over the fact that TPTB aren't doing this basic analysis, and are therefore driving a stake through the heart of economic recovery.
God save us from the experts - they know not what they do. We must get rid of our mandarins.
To put the icing on the cake, July 2nd weekly rail now shows carload YTD only up 2.7% YoY. We had been solidly in the fives in the first quarter. That puts an outside limit on how far we can expect industrials to help us this summer. (In the current downturn, we are still gaining a bit from production industries - the collapse is taking place in services and the consumer economy.) I had been hoping for a skipping downturn, but unless we can turn in a tremendous July, that hope may be busted by oil prices alone. July should be better on autos than normally because of changed production schedules related to the Japanese supply problems, so the July figures will look better than anyone now expects. But it is not a structural change for the better, but a rebound effect which will be overcome by the income problems.
So we have stupid traders, a stupid Fed, a marked-on-the-curve special ed president, and a Congress that even Mark Twain could not describe with enough vituperation. There are some good people in Congress now fighting to haul this out, but they are vastly outnumbered by the career idiots. An awful lot of Congress will have to turn over before it can feel and react to the country's desperation.
I am very busy, but I would like to post an example of what the proposed change from CPI-W to C-CPI-U would do to Social Security benefits. You are not going to improve the economy by beating the peasants further. The reason we are now in this impossible second downturn (btw, characteristic for panics) is that the Fed and Treasury have followed policies that destroy real incomes for the majority of the economic entities in the country. Doing the same thing over and over again isn't going to help us out of this hole.
PS: The B/D model for June (Establishment Survey) was 131K versus May's 206K, which has a lot to do with the relative numbers for the two months. Also, unemployed under five weeks is up by 412K in June, which has a lot to do with both the initial claims series and general weakness in job creation (graduates). Unemployment dropped by 0.4% for those with less than a high school degree, which is a very interesting stat probably related to the drop in Hispanic unemployment. Teenage unemployment is reported at 24.5%.
All the institutional problems you cite are valid, and are a consequence of the irresponsibility of the electorate.
The economy needs to generate not just jobs but highly paid jobs with good security if the middle class is expected to purchase on credit housing,auto and education at the current price points.
The above is the only part of your essay that I disagree with. Here is why:
"the inventory to sales ratio for the car industry, which just surged to 1.62, or a level not seen since the summer of 2009. This is a 16.55% rise in the ratio or the biggest ever relative jump in the auto inventory/sales ratio in history. "
Gasoline here in Louisiana has gone from $3.37 to $3.53. Combine declining hours worked and declining wage rate (from today's job report) with the inflation in food, clothing, and energy, and a 2% tax increase scheduled, one can conclude there is absolutely no fuel for this economy to lift off with.
Thanks again for all your postings.
Thanks for taking the time to sort through all the data for us. I wish I were better at it.
What more is there to say?
Well, there's that whole thing where the government doesn't count lots of unemployed people as unemployed. (If you're not on the government's teat, you don't count.)
"However there is nothing in what I do that is beyond the capabilities of an average person"
I'm not sure I would agree with that given the current state of education -- but I might buy that as probably becoming true *if* we had a better education industry that actually taught people truths about economies (or if people had the time and inclination to learn it on their own). Unfortunately, if the public education system tried to teach economics to every student, you know they're going to teach them a bunch of Keynesian and politically correct garbage. You already get some of that in history class when they cover the Great Depression. I was taught in public school that Hoover was a laissez faire president and because of that the depression didn't get better during his term, and that FDR's New Deal was largely responsible for ending the depression, both of which are untrue. There are also some pretty big lies taught with regard to the motives and outcome of the civil war. And my "education" was decades ago -- from what I've read the "reality distortion field" in schools has gotten much worse since then.
"so what is driving me into red-eyed rage is bitterness over the fact that TPTB aren't doing this basic analysis"
I've wondered how presidents can spend so much time doing "nothing" (vacationing, playing golf, clearing brush, whatever non-presidential activity they want to do). Personally I would feel obligated to focus on the nation's problems -- hire experts to make sure I sleep well and get stress relief if need be, but get both in the smallest amount of time possible so I can spend the rest doing what needs to get done. I think I'd also be on a crash education course so I could know what I was doing was right rather than just blindly following the advice of others. (I might also moderate debates between contradictory experts as means to get to the truth.) It seems that in many ways, in work done and in power exercised and how time is spent, we no longer have a president -- we have a king. And I don't suppose the story is much better for most congress critters. I suspect the cause here is that they just don't really care -- they are getting what they want out of the deal (power), and that's what really matters to them.
"What we need in this republic is a virtuous citizenry."
Agreed. There was a comment on smallestminority recently that collected a bunch of very good quotes to that effect: http://smallestminority.blogspot.com/2011/07/tldr.html#comment-242241494
(The main article there also makes this point.)
All of the above points to an anti-virtuous cycle: People would not be so inclined to steal other people's money if they thought what they were doing was really theft. Politicians who want to buy votes (and get/hold power) know this and therefore aren't inclined to tell people they are helping them to steal money in exchange for their vote. Instead the politicians willfully lie (using Keynesianism as one of their many tools of deception) to convince people the theft isn't really theft but is instead "helping the economy" or "charity" or some other bit of nonsense, and therefore completely virtuous. And their deceptions don't work on an educated society, so having everyone get a good education is counter to their interests, and they will never work to fix it. (I'm wondering if they will somehow manage to take away the free-speech Internet from us, because it threatens to destroy this cycle and therefore their grip on power. BTW, a lot of my posts have been getting eaten recently...)
Thus, while I am alert enough to read your comments and realize that there is a lot in them, I am too comatose to remember all the interesting parts and write replies. I have another busy day tomorrow, but hopefully by tomorrow evening I'll be back.
This is a decidedly evil cycle - the worse things get the faster everyone runs from reality.
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