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Monday, March 19, 2012

Optimistic Economic Recovery Headline Of The Day?

By BLS, of course:
Real average hourly earnings for all employees fell 0.3 percent from January 2012 to February 2012, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. A 0.1 percent increase in the average hourly earnings was more than offset by a 0.4 percent increase in the Consumer Price Index for All Urban Consumers (CPI-U).

Real average weekly earnings fell 0.3 percent over the month due to the decline in the real average hourly earnings combined with an unchanged workweek. Since reaching a peak in October 2010, real average weekly earnings has fallen 1.2 percent.
Oops. Gee, I wonder what happened in November 2010? The bright side is that more people are working. This appears to be achieved by wage deflation, which is not necessarily putting the average worker in a good mood.

Of course, the expansion in high-end wages versus low-end wages I was looking at in last month's Treasury receipts causes average weekly earnings for most to be overstated. Fortunately, BLS has that covered:
Real average hourly earnings for production and nonsupervisory employees fell 0.3 percent from January 2012 to February 2012, seasonally adjusted. A 0.2 percent increase in the average hourly earnings was more than offset by a 0.5 percent increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

Real average weekly earnings was unchanged over the month due to a 0.3 percent increase in the average workweek and the decrease in real average hourly earnings. Since reaching a peak in October 2010, real average weekly earnings for production and nonsupervisory employees has fallen 1.7 percent.
This is why wages are tending to rise for some median-wage workers. The workweek rose, so real weekly earnings were unchanged last month for most workers. . The 2% payroll tax cut has about compensated the median worker. But that is only for official inflation - many workers are experiencing much higher actual cuts in real incomes.

This explains why I am seeing what I'm seeing in supermarkets, but it does not suggest much margin left in the consumer economy. In February 2011 we were still at +0.9% over the year. The relative effect of the payroll tax cut is now fading out. What to do, what to do?


Official graph, this is for full-time workers only, usual weekly earnings in constant dollars.


If you're wondering if this means that most workers have not seen a real increase in usual weekly earnings since, say, 1979 or 2001, yes, it does.

But actually it is worse because we have so many less full-time workers adjusted by population.


This is the level of full-time workers, same series:


I'm sure QE3 will fix all this, huh?

What the heck, why not belabor the point?

If you open up the constant earnings graph, you see that average weekly wages have fallen to close to the levels that we saw as we were coming into the first (2006) decline. No one noticed it at the time, because of course we were all borrowing money and spending it, so the economy was expanding and we were adding more low-wage workers.

That escape valve is over. By now, what seems to be keeping us afloat are enhanced government benefits (and lower taxes). Sooooo, our fiscal position is quite rough.

If you lower the aggregate amount of money flowing through the economy (which seems doomed to happen), you get an economic decline. Barring a very significant expansion in the number of workers (ain't gonna happen), or a vast expansion in hours worked (doesn't seem like it's gonna happen), any attempt to adjust our fiscal imbalance is going to put us under, isn't it?

Personally, I suspect that we are already under and that we entered the last stage of the recession-prelude, based on wandering through stores since through the beginning of February. Stocks are light, prices are looking very dicey (little pricing power, but no give-backs), spending is concentrated on basics, and staffing levels look "constrained". Usually you see it first in staffing levels - that's the first sign of the diffusion. It starts so small that it's not even perceptible in the stats. I don't expect fuel give-backs to come quickly enough to divert this.

This should be an extremely interesting election season. If March construction doesn't look any better, then I'm guessing things will be ugly this fall, as in tar-and-feathers ugly.

There's a rebellion in the ranks on Treasury yields, so I doubt the Fed can sit long. Maybe - it's just a thought - maybe the FRB shouldn't have FUBAR the last round of bank stress tests. In March of 2008, when we were almost this inflexible, the all-grades price of gas was $3.33 in the third week. This week, it's $3.92.

Unlike the 2007-2009 sequence, when a collapse in lending caused great weakness (because it caused a collapse in building), this should be a slower adjustment. However this time the Fed has already blown all the whistles and honked all the horns, so what happens, happens.

When I look at commercial paper outstanding, domestic, nonfinancial, I see the first signs of weakness. When I look at H.8, I see that C&I growth is starting to slow. Consumer lending is flat-out declining, except for RE. When you adjust those for price changes, RE looks a bit better but C&I looks worse.

It's early to call, but this expansion may be over. My hunch is that January or February was peak. Maybe something will happen to jolt us out of this, but what? Lightning bolts? Manna? The Second Coming? Solar panels? My imagination is failing me.

This is a pretty strong hunch. The economic journalist nuttiness index has reached a new all-time high, and it looks like structural expansion in large companies is mostly over. When I looked at NFIB this month I decided that they'd run it out (look particularly at planned vs actual inventories), and from here little positive jolt was left. I have covered my concerns over autos in nauseating detail. Rail just sucks. NACM looks a lot like NFIB on the YoY. About the same to marginally negative, except when you look at manufacturing you see some payment troubles popping up, I suppose due to margin compression. None of the above would matter if we were really getting much of a pop on incomes, but we aren't.

If inflation were to really fall out, we'd probably pull right out of this. But I do not believe that the ECB can throw so much money into the market without causing a much longer sweep in the inflation stakes.

I do so hope I'm wrong.

Comments:
The Fed doesn't have to do a thing to screw this up; the ECB is already doing QE3 for them by bailing out the European banks with boatloads of Euros (the helicopters can't carry enough cash). Happy, happy joy.
 
Just remember, the phrase tar and feathers came about when "tar" meant "pine tar", not petroleum tar. Any modern manifestation should probably be something like "liquid nails and glitter".

More seriously, there's nothing technological that's going to pull us out of the current down cycle. We're five years out from anything I know of in energy, biotech looks about the same, and 3-D printing and nanotech look more like 10 years. And these numbers are somewhat optimistic, because I'm assuming the property rights environment improves somewhat in the next five years. I know for a fact that risk investors have been sitting on their hands for anything that doesn't have a stamp of approval from Washington....
 
Yeah, I spent a lot of time reading through NREL and Sandia stuff on solar. The price drops are one thing, the actual integration steps and costs quite another.

We have not yet gotten to an energy breakthrough and it looks increasingly like we will not.

Current regulatory constrictions are such that they are blocking efficiency moves for both electricity and vehicles rather than forwarding them.

So I don't see a huge tech expansion.

We are in a commodities bubble, but the underlying structural cost in energy is still there. It's true that you can now heat a small apartment by playing games on your new iPad in a moderate climate, but I'm not sure that really helps.

I suppose we'll fall rapidly back to a 50's consumer economy. From there it depends on whether we can get our deficits under control, which will require tearing down a number of Ivory Towers.
 
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