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Thursday, November 15, 2012

Regarding Initial Claims

The release is here. NSA claims increased over 100K to 466K. The SA headline is 439K, with a four-week moving average of 383,750. I am a bit skeptical over the attribution of all of this rise to Sandy. The prior week claims (headline 361K) were probably depressed because many state offices were closed, and so they showed up this week. But many of those were not hurricane-related, because of filing requirements. Figure a non-hurricane moving average of around 373K, and you are probably pretty close.

Also, the 11/3 total of continuing claims has risen noticeably to 3.3 million. We'll have to wait a bit to see what this all means - much of hurricane-related disturbances will wash out in the next month. In the heavily affected states, there will be some hiring related to the storm. Several of these states now have large swaths of blue tarp country.

I remain comfortable with my recession call based on freight and producer prices etc. Grocery pricing has been in the recession zone for months. There is very obviously extreme price sensitivity in food and even more so on ancillary products, indicating that consumers are pressed and stretching budget dollars. There is an income gap - look at the negatives on real average hourly earnings over the last three months. Now that is not all bad news - some new jobs are being created, but at low wage levels so real average hourly earnings tend to be a bit suppressed. However not enough jobs are being created to account for all this - over the year real average weekly earnings fell 0.6% after the prior year's drop of 1.1%. Over time this adds up, as the release indicates:
Since reaching a peak in October 2010, real average weekly earnings for production and nonsupervisory employees has fallen 2.9 percent.

Will we start restoring FICA payroll taxes? If so, it's going to add to this trend, won't it? If not, how can we claim with a straight face that we are committed to the SS system? But do we want to begin next year by knocking another 1 or 2% off take home pay? Yikes.

We are helped by the season of Bling which moves product, but the season of Ding is right behind:
I am skeptical of the theory that most of the retail sales drop in October was due to Sandy. Sandy probably had a negative contribution, but a small one only. There were indications of weakness earlier in the month. 

Empire State Manufacturing Survey was mostly negative in employment, with sharp declines in the work week and a negative number of workers over -14. Nah. The future indices for employment seem to indicate that most of this is expected to continue, and therefore it can't be attributed to Sandy. Philadelphia Fed was negative also, which fits in with the prior months of diminishing future expectations.

Now, even if nothing else were changing in 2013, we'd still have a relative problem because of two quarters of low business investment and the draw forward on defense spending by the federal government in Q3.

What I have now is that we entered a very mild recession in July of this year. By August the diffusion was obvious to me. This now gets accentuated by two things - the impossibility of continuing the car financing and the need for the federal government to begin to get serious. 

I have no idea what the federal government will do, and thus, like Neil, I find myself in a state of puzzled suspense.

PS: I am also a little bit wary of the attribution of lower auto sales to Sandy. It's possible, but the auto advertising I heard earlier in the month indicated levels of desperation to move product that are usual in a recession. It's spotty across the country, but MV inventories are rising and sooner or later auto production will correct somewhat as a result of the financing problem and the inventory numbers. That won't help the economy. 

FICA taxes need to be restored. As you imply a commitment to the SS system is mandatory.
Sandy is forcing me to buy a new furnace and I live in the midwest. I need parts for the existing one and they are on back order - factory in NJ and asking for a rush right now is an extreme price premium.

Bye bye xmas.
I'm trying to picture the household living paycheck to paycheck who just lost their one older used car due to Hurricane Sandy.

That particular example sure isn't going to boost new car sales much, even if it was fully insured.

Mark and Charles - I have NEVER subscribed to the "broken window" theory of economic stimulus.

Right now even used cars are very expensive, so a good older car could mean that the family is out a net 10-15K.

Not to mention all the people who are just "getting by", and suddenly have all these extra repair bills even for relatively minor damage.

Sorry Charles.

Scott - I never liked the payroll tax cut because I don't think we can abandon SS/Medicare, and the space for making meaningful SS changes is very little. Most people receive such moderate amounts that cutting won't save you any money - it will just raise the amount of money spent on other federal subsidies. It's costing us over 100 billion a year.

In my opinion, we should end the payroll tax cut and substitute a lower income MWP type rebate, which would cost much less and do more good.

It does not make sense to be cutting taxes 2K for a 100K a year worker at this point.

I have a feeling that my POV won't prevail, though. Nor is there much time to legislate that and get it in place before the end of the year. There's all this lala stuff going on, and no time for the IRS to publish tables or whatever.
I saw something on CBS news this morning about these systems that automatically stop the car to keep from running into something in front of it. The Federal Safety agency wants to make it mandatory for manufacturers to put them on new cars. Auto manufacturers say they would cost close to $4000. It's very similar to the push for unreasonable fuel efficiency standards.

I believe this is deliberate of course. They do not want people to have cars, with the exception of the rich. The rest are to use mass transit or ride a bicycle. It's much better to mandate something to stop a car automatically than to expect the driver to be competent enough to stop on his own.
Teri - yeah. Out of touch with the reality of most person's lives, right?

It's quite infuriating.
Next question, given the range of policy options on offer, how much does it matter what government does?

They'll do something that penalizes cash flow of businesses that are not GE. They'll do something that decreases the equity value of publicly-held companies. They'll do something that confiscates savings. They'll do something that reduces SS benefits. They'll do something that taxes earnings more broadly.

How much do the policy details matter?
My point is that things like Sandy are not only NOT economic stimulus, they aren't even economic hardships (in macro terms). Things like Sandy happen often enough that (some) people actually do tings like "save for a rainy day".

So yeah, my furnace job is coming out of my rainy day funds, but I have to start replenishing those funds so Xmas spending gets cut, next year's vacation gets cut even more, etc. My HVAC guy can probably get another day's vacation next year now...

Macro-wise, things like Sandy are just long-term normal for most people. But when one thinks of governments and their borrowing trends...well, let's just say they're more like the household living paycheck to paycheck.
Neil - you may well be correct given past performance and in view of the fact that on the federal level, the vote was really for "more of the same". Still, at some point Congress has to get serious.

FHA bailout coming up! The bills keep coming due.
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