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Friday, October 07, 2011

Next Year In Jerusalem?

Sigh. BLS employment for September is out. It's a little worse than I thought it would be, but thank heavens not much going by the Household Survey.

The good news - the employment/population is up to 58.3%. The bad news - in September of 2010 it was 58.5%. The good news - Table A shows that we added 398,000 jobs in the month. The bad news - the YoY change is 647,000 jobs, which doesn't of course keep pace with new entrants. Table A-9 reports that over the year we have added just 595,000 full-time jobs on an NSA basis (comparing Sept 10 to Sept 11).

Employed persons at work part time for economic reasons rose 444,000 in the month. Discouraged workers increased by 60,000 in September. Workers unemployed by 27 weeks and over increased by 208,000. The participation rate for older workers without a disability (over 65) increased again to 23%. That's a pretty high number!

There is a basic consistency here - we are seeing stronger job growth in smaller businesses, which was foreshadowed by NFIB surveys earlier in the summer. But some companies are slacking off in production.

I expected this to be a bit better because there was quite a bit of storm-related construction and utility work added in the heavily-populated Midlantic to NE regions.

Temporary employment increased by 19.4%, which is a better indicator (Table B-1). Local government dropped 35,000 jobs, two-thirds of which were in education.

The problem I have with this is that inflation should be tailing down somewhat, but we're in a bad income trend that employment cannot redress:

This is through August. Real disposable personal income looks a bit better, but that's only because of the surge at the beginning of the year from the discounted FICA tax rate. Disposable personal income is personal income less taxes.

So either we continue to drop further behind on funding the already-unfunded SS program, or we take another whack in personal income at the beginning of the year.

The only way to get out of this without too much more pain is for inflation to step downwards quite significantly, but it has to happen rather quickly. Realistically, interest income will continue to tail down as a result of the international angst and the Fed's efforts. Taxes need to go up.

Since the GD, we haven't had a period this long when RPI had not increased:


Right now we are moving sideways economically, but there's quite an undertow. The US economy is pretty heavily biased toward consumption and services, and the income does not seem to be there to support much in the way of growth. These periods of stagnation have not historically ended well:

When both real personal income and real GDP growth over the year drop below 2.5%, the US economy is, well, in recession.

Historically, that is. One or either can fall below that line for a bit, but if both do, it's time to turn out the lights and go light on the commodities and stay light on inventory.

This is why I was so steamed up last year over the Fed's move, because at that time we were emerging into a less-than-brilliant recovery, which is all we could ever have expected. But we still had to face the Euro crisis this year, so it wasn't a time to be getting fancy. It was a time to plod sturdily along ignoring the bear, who was gaining on the folks in our rear on the other side of the pond.

I spent a ridiculous amount of time the last three weeks walking through stores, and it certainly LOOKS like we are in recession, somewhat masked by desperate machinations.

The nice part is that we do have a lot of pent-up demand out there. We do have some rebuild of manufacturing helping. We do have a little strength in light-heavy vehicles, although I suspect that's a transitory pop. Manufacturers have not built up inventory unduly. So I can still argue for a skipping, milder recession. The US domestic situation is not going to be assisted by foreign events, although certainly the current panic is helping us with our unwieldy public debt load.

Inflation should be falling pretty hard about now on commodities, which I believe it is. But inflation in services costs is still going up, which is not good for incomes.

Anyway, here's the detail on that graph:

If you look at the longer term series above, you'll note that RPI used to be a lot more chained to GDP. The unchaining is not a good sign; it means that more of our incomes are dependent on fluffy credit.







Finally, I believe the Fed was chasing a chimerical problem. CPI-W has a long history, which is one reason I use it by preference. You take a look at tell me where the deflation was - show me the danger the Fed was averting:
Seriously, click on that graph and contemplate it in detail - sort of like your financial life depended on it.

Go back and study the pre-GD period. You can see it then. I figure that Uncle Ben has a 50-50 chance of putting us into an honest-to-God depression in the next six months. He has certainly killed off another three hundred banks with Operation Twist.

Comments:
The only way to get out of this without too much more pain is for inflation to step downwards quite significantly, but it has to happen rather quickly...Taxes need to go up.

Sounds like running in place to me. Tax inflation is still inflation.
 
I believe the Fed was chasing a chimerical problem... tell me where the deflation was

With all due respect, the deflation fight was obvious mis-direction. A fig leaf at best. They were siphoning billions to the TBTF banks.

And they still are. Sell bonds that will mature in a year (which last time I checked were yielding 0% but no word on what they are selling for), buy bonds that don't mature until 20+. So in a year's time, what are all the TBTF banks going to do with all that cash from those maturing bonds? Sounds like a recipe for more commodity inflation.
 
Allan - I prefer to believe that they aren't out-and-out liers, and that the lower GDP growth provoked them into fear of deflation.

If they really are incompetent enough to believe that they can bail out the banks this way, then G_d help us all. You have just pointed out what's going to happen to banks - as they lose higher-paying assets (loans or debt obligations), they retain losses, and their profit margins go down, their prospects worsen by the month.

Of course, from the POV of the average would-be borrower, this means ever-tightening credit standards to control losses, so the ability to fund a lot of things by borrowing is actually diminishing. That's why rates that are too low to allow for structural risks force deflation through deleveraging on a society.
 
And then, suppose you an average joe or joesephine nearing retirement? "Safe" assets are paying less by the moment - you need to save more, spend less, and probably work far longer.
 
"...And then, suppose you an average joe or joesephine nearing retirement? "Safe" assets are paying less by the moment - you need to save more, spend less, and probably work far longer."
- - - - - - -

And learn to pray mightily: that the car may keep running, that the roof shall not leak, and that your health doesn't give out...
 
Or worse yet, that you don't lose your job.
 
Charles - of course it is.
 
Allan - I prefer to believe that they aren't out-and-out liers, and that the lower GDP growth provoked them into fear of deflation.

That's nice of you, but I've yet to see any evidence of such. From what I have seen their modus operandi is entirely one of privatize profits, socialize losses.
 
We've fallen and we can't get up. Out economy is in the clapper.

39.1 Million Missing Jobs
 
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