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Thursday, August 18, 2011

Thursday, Various

I am really thinking about moneyness and deflation, but in an absentminded way, some notes on this week's releases.

Initial claims. Not much happening here. 408K is the headline. Last week's number was revised up to 399K from 395K. The constant stream of upward revisions has not stemmed, which I think is probably more significant than the actual initial claims numbers. A lot of what we are seeing is seasonal adjustments - underlying claims are remarkably steady. This series has been improving over the last six weeks, but it is likely to change significantly in about three weeks. I don't know whether that change will be in a positive or negative direction.

In other notes, boy, CA's economy is doing badly! Look at the state comments for the prior week. The basis for the the insured unemployment, which is calculated from state account reports, is a good indicator of trend. While we did finally cross over to increasing territory this year, the slackness is obvious:
Jan-March: 125,560,066
Apr-June: 125,572,661
July-cont: 125,807,389
Because of the way the figures are derived, this number normally lags the employment report by at least half a year. For example, peak employment on this series was recorded in the fourth quarter of 2008 at 133,902,387.

The last three recessions:
1991: Peak 3rd quarter at 106,333,000. Trough 4th quarter 92 at 104,563,780. From there it inched up slowly by 150-225K until the 4th quarter of 93, when suddenly it jacked up by about 440K.

2001: This was not an employment recession. The jobs base kept growing, albeit quite slowly, until the financial shock inflicted by 9/11. The peak was Q1 of 2002 at 128,673,493. The jobs base started shrinking in Q2 of 2002, and continued to decline to a trough of 126,084,041 in Q2 2004. From there there was a slow rebound until the first quarter of 2005, when we managed to add more than 350K.

2007: Peak for the jobs base was Q4 2008 at 133,902,387. Trough, as shown above, occurred in Q1 2011 at 125,560,066.

The reasons for the notable change in employment/recession patterns over the decades are primarily due to the composition of the economy. A manufacturing economy both sheds jobs more quickly in a recession and regains jobs more quickly. The more we weight our economy toward services, the more we will see of this.

CPI/PPI: You know, I am not going to bang on a drum about this. I'll just write "I told you so". As I wrote before, there was a big surge of inflation in the pipeline last year before the Fed got all adventurous with QE2. The Fed does not have room for QE3, because there is STILL a lot of inflation in the pipeline.

CPI-U 12 month is 3.6%; 0.5% on the month. Food at home is 5.4%. Gas is 33.6%. The "core" ex-food ex-energy monthly was 0.2%. Medical commodities and services are both 3.2% on the year. CPI-W is 4.1% on the year, and 0.6% on the month. C-CPI-U is 3.5%.

The net effect of these reports is that any buying fervor induced by QE3 hopes is likely to be dampened.

Philly Fed Survey: This one is going to shake up the stock and commodity markets. 3.2 in July to -30.7 in August cannot be ignored; new orders -26.8 points. Unfilled orders - 20.9 points. Shipments -13.9 points. The current employment index -5.9. Average employee workweek index -14.4. These are strikingly recessionary readings, and indeed, it is hard to imagine them getting significantly worse:

I feel no need to dwell on this, and while I am not surprised, I am doleful. I am not into recession porn. This is recession porn. If you want to know how the heck this happened, it is a pricing problem. Prices paid +12.8; prices received -9.0. This will not redress until we get a pricing correction, and unfortunately there is little precedent for a pricing correction of the magnitude required without a global downturn, nor is there time for it to happen.

Existing home sales. -3.5% seasonally adjusted on the month. Given mortgage rates, I could make a feeble argument for Next Year - Jerusalem! but employment is going to be a big factor in home sales next year, so my hopeful 2012 forecast is imperiled. Months of supply at 9.4.

There is a minor Fed rebellion taking place against QE3 and even the 2013 ZIRP statement, which is also not going to fuel stock and commodity markets.


While your thinking about moneyness and deflation keep this in mind:

In the choice between changing ones mind and proving there's no need to do so, most people get busy on the proof. - John Kenneth Galbraith
"The unemployment rate in California is climbing again, hitting 12 percent in July as the state added just 4,500 payroll jobs for the month.

Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2011/08/19/state/n092845D50.DTL#ixzz1VUeAqgF4"
The reduction in wages and benefits will further strain
Revenues and increase costs for state, local, and the Feds.
The only way to raise revenue is to go where the money
Is. Your choices are taxing the uber wealthy, taxing and
actually collecting taxes from corporations, tariffs, or raiding SS funds and retirement plans. My guess is that the SS funds and retirement plans will be raided first, then we
Print and borrow, then just print.
I read your blog consistently because I enjoy reading your analysis on leading indicators. I really wish many reports, who think they are experts on the economy (are you listening Ezra Klein and Greg Sargent!!!), would read your blog as well. It would certainly help them with their conclusions.
That said, what depresses me is the fact that this administration and the democratic party only thinks about economic policy in terms of normative economics. When you combine that with Republican's lack of economic policy besides tax cutting, you have a recipe for disaster, in the form of sluggish growth for years and years on end.
What is needed now is not just a proper fiscal policy, but for both parties to understand the burden government policies have had on entrepreneurs. We have seen a dramatic decline in start ups this recession and that trend start prior this century.
Such an wonderful topic for me.I red this article and agree with this article.Thanks to talking us about this article.
Press Release Distribution
Thucydides - The only way I see out of a long period of extremely depressed growth is to take the cap off businesses.

However the changes needed would be massive and I don't think either party gets it.

Our current policies work to suppress growth, and the latest round of EPA actions and regulatory actions are going to make the trend considerably worse.

But the current round of politicians doesn't even know how the government works. We might want to consider ejecting the lawyers and injecting businessmen; the productive side of our economy is no longer represented at all in government policy circles.
the productive side of our economy is no longer represented at all in government policy circles.

Not sure I agree with this. Certainly agencies like the EPA and DEA are running rampant with little help from lobbyists, but big business and big labor are well represented via lobbying and I think they are partly responsible for the suppression of growth for organizations smaller than they are.
Charles - don't get me wrong. There is no reason that large businesses can't be productive.

However, the fact that they are so well represented tends to make them parasites rather than productive. It is so much easier to get the federal government to do your work for you....

I realize you are reading "productive" as "involved in the business of production", but I was using the word in the sense of "builds assets in the long term".

DC is a toxic culture. It literally is involved in destructive creation.
"The only way I see out of a long period of extremely depressed growth is to take the cap off businesses."

That is certainly one thing that needs to be done (though I think I might describe it more as a giant boulder on their head rather than a "cap"). But there are a lot of other steps that would also help greatly (such as restoring property rights, sound money, rule of law, etc.).

"Our current policies work to suppress growth, and the latest round of EPA actions and regulatory actions are going to make the trend considerably worse."

I have been reading up more on CO2, and the whole situation is scary -- but not in the way the global warmers want you to be scared. There's of course the part that's obviously scary to most readers here (essentially the declaration of "total war" against the economy). But there's also some research indicating that man-made CO2 (not starting with the industrial revolution, but going back 8000 years to things like slash-n-burn practices) is the only reason the ice age (which we are still in -- we are currently just in a temporary warm-spell they call an "interglacial") hasn't reasserted itself. (See "The Anthropogenic Greenhouse Era began thousands of years ago." by William F. Ruddiman.) Then there is the whole "problem" for the global warmers that just about every time a trained statistician gets hold of their work they find it's just insanely unsound. (E.g., see the scathing paper "A Statistcal Analysis of Multiple Temperature Proxies: Are Reconstructions of Surface Temperatures Over the Last 1000 Years Reliable?" by Blakeley B. McShane, Abraham J. Wyner, published in the Annals of Applied Statistics, Vol. 5, No. 1, 5-44.) All of the bad statistics (and unproven proxies that don't work for the past several decades, but the warmers say "just trust us, they're perfectly good predictors before that") combined with too many indications of fraud and "science" that would make Feynman scream "cargo cult" until his lungs blew out is used to *deny* (yes, the warmers are the deniers) warmer than present periods and historical records that those were actually very good times to live. And then you've got the POTUS taking anti-CO2 science advice from the likes of John Holdren, who back in the 70s was talking about how forced abortions and mass sterilization were needed to save the planet and saying things like "if the population control measures are not initiated immediately, and effectively, all the technology man can bring to bear will not fend off the misery to come".
"But the current round of politicians doesn't even know how the government works."

I'm guessing you were just talking in general. I will none-the-less take this as an opportunity to insert a plug for one of the few that gets it:

Dangerous Allies: Big Business and Big Government

A business that achieves regulatory capture is also able to write and implement laws and regulations that they can deal with but its competitors cannot. The eventual outcome is that companies use regulation to drive everyone else out of business until a monopoly is achieved, putting consumers at its mercy. Meanwhile, the people develop a false sense of security, assuming that the many regulatory bodies in place are protecting them. Without respect for the rule of law, however, those bodies and their regulations are more likely protecting and enabling big business at the expense of small business and the consumer. We see this not only with big oil, but big banking, big defense contractors, you name it.

He also makes a good point that government kind of pushed at least some businesses into the lobbying business in the first place with their crazy approach to regulation: The only way to get the government's craziness under control was to take control of the government. Once you do that, the advantages of using that control for one's own gain are all too obvious.

Just google for "ron paul big business" and you'll find lots more. BTW, vote early, vote often. You can cast up to 2500 "votes" here.

"We might want to consider ejecting the lawyers and injecting businessmen"

The first half of that would be taken care of by Constitutional Amendment foo7:

Any person who has ever been employed as a lawyer or a judge at any level of government is ineligible to serve in the House, Senate or in the Office of the President or Vice President.

"the productive side of our economy is no longer represented at all in government policy circles."

It's worth noting that regulatory capture isn't the only thing that contributes to this. A combination of apathetic, misinformed and parasitic voters also does a number on the representation of the productive side of our economy.
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