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Thursday, September 29, 2011

At This Point We're Just Looking To Slow The Bleeding

Markit Retail PMIs. Italy's still in deep, France is doing better, Germany's not really, Europe as a whole is falling more slowly. Because inflation is the problem, a slower pace of fall gives a chance for prices to come down. But Europe seems to be seeing increasing inflation rather than the alternative.

US initial claims are lower this week. Four-week average at 417K, but that isn't very encouraging for employment.

GDP Q2 reported at 1.3%. GDP Q3 ought to be at least 1.7-1.8%. We'll see. The US seems to be entering another few hard months based on the early store/services data I'm getting - but maybe this is just temporary based on BTS spending. A lot of households might be tight this month.

I think the US restructuring will take quite some time. It's focused on the states and localities at this point, but that will surely take another five-six years?

Census publishes estimates of state and local tax revenues. The numbers are not necessarily directly reflective of the economy, because tax increases abound, and on occasion in good times sales taxes and so forth will be cut. In particular, looking at the data through Q2, it's remarkable how much Q2 property tax revenue has risen in a few years. Needless to say it is not because of massive building or value increases; it's because of higher millage rates. In most states, when the value of the property goes down, the locality just increases property tax rates. Home values are reported by Case-Shiller to be back at 2003/2004 levels. In Q2 2004, property tax receipts were 61,509. In Q2 2011, property tax receipts were 88,518. In Q2 2001, property tax receipts were 51,249. Call me Ishmael, but I don't see how this is not creating a further impact for would-be homebuyers in some areas.

I was flipping through Zillow looking at their estimates, and in some of the high-tax areas, you get properties with an estimated total housing payment composed 70% of property taxes. This is reaching the breaking point, surely?

MOM: "I was flipping through Zillow looking at their estimates, and in some of the high-tax areas, you get properties with an estimated total housing payment composed 70% of property taxes. This is reaching the breaking point, surely?"

Yep, in Washinton state where there is no income tax, property taxes are very high. In the very, very liberal King County such tax rates are in effect. In my rural Skagit County property taxes are way too high all thinmgs considered. They have not gone down during the real estate collapse - an indictment of the appraisal techniques they use. Many are complaining, but the county avers they cannot live with less revenue. An example of government not grasping the fact that the bigger their share of the pie the worse it is for the economy. There will be some changes made come election time.
I think, among other things, we're going to see a lot of this sort of policy as part of the general restructuring. Retirees are relatively healthy, and many (if not most) wouldn't mind working or could really use the income. They just need reduced hours and greater flexibility. Employers can get high-value labor, perhaps at a discount, and pensions aren't just a dead weight if the pensioners still work.

Honestly, that type of work output might be shockingly productive. My experience is that most of the actual value-add in a week is done in a surprisingly small number of hours. The rest is just looking busy for management.
Neil - I think that transition is well along, really. If you walk into retail stores of various types and various offices, you see older individuals.

Especially for training functions and some admin/supervisory, I think it's a great idea. We shouldn't be sending the average 72 year old up the utility pole or out driving a truck, but older workers are frequently very productive and knowledgeable.

And yes, people are generally healthier now at older ages. Everybody's complaining about the cost of healthcare, but I remember what it was like when I was a kid. Aside from the heavy and clumsy stone tools we used, people died much earlier and wore out much earlier. Especially arthritis - I used to see a lot of grandpas and grandmas just hobbling along. What I chiefly notice is that older people tend to be thinner now and move much better, and don't try to convince me that this doesn't indicate much better health!
Jimmy - two things are likely to determine our economic trajectory next year (aside from government spending), so what was on my mind on that score was whether the root causes are being addressed.

And I don't think they are. I think that markets without relatively high property taxes will begin rebounding next year, but that states and areas with high property taxes will have a difficult time escaping.

A 30 year mortgage at 4% (true, you need a good downpayment and good credit and verifiable income) would seem to enhance affordability, but when you look at overall housing payments, it becomes clear that hard-pressed markets may be seeing far less relative boost from Fed actions.
Hi MOM, hope all's well. I've been seeing a pretty broad based pick up in activity, surprising actually. I know you survey a lot, are you hearing or seeing anything? I'm trying to figure if this is for real or just some pent up demand released when the payroll tax extension were announced. It seemed to coincide with that (and the Fed not QE-ing again, but that seems a bit of a stretch). I've seen this before where we "pop" and then six weeks later it's like a light switch got turned off. Just very curious...
Thanks and hang in there....
Anon PA

"Even at face value the reported 1.34% growth rate is either sluggish or pathetic, depending on your chosen inclination to spin. When a more reasonable "deflater" is used to calculate the "real" numbers, the second quarter is actually shown to be in contraction. And when using such alternative BLS inflation data the most recent past quarter is the 2nd consecutive "real" quarter to have such negative growth -- meeting one of the common definitions of a new recession.

The restive public clearly understands this -- even if the academicians at the BEA don't. The public has been seeing their (per-capita) "slice of the pie" contract now for six months, and no amount of well spun "sluggish growth" can alter their view of a shrinking reality"

Ron - consumer sentiment indices would seem to support that contention.

Still, it's better than -2%, isn't it? Don't forget that these numbers get revised for YEARS.
" Working backwards from the data tables, the effective "deflater" used by the BEA to offset the impact of inflation was 2.58% -- still substantially below the rates reported by their sister agencies. Substituting the line-item appropriate (CPI or PPI) current inflation rate published by the Bureau of Labor Statistics (BLS) causes the "real" GDP to be contracting at a -0.73% annualized rate.

-- And using the same alternate BLS "deflaters" the real per-capita GDP can be shown to be contracting at a -1.45% annualized rate. Similarly, per-capita disposable income was contracting at a -0.92% annualized rate. These per-capita numbers are what impacts individual Americans and it is the real source of the frustration within the populace."

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