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Friday, February 01, 2013


I am very busy today, and won't get time for a detailed post until this weekend at the earliest. 

Ed Koch is gone. That's the end of an era. I don't think Nanny Bloomberg is fit to kiss Ed's feet. Somebody bombed the US embassy in Ankara. I am waiting to find out how this is Romney's fault. 

US employment. This report has the updated population controls for the Household Survey and the annual benchmark adjustment for the Establishment Survey. So month to month figures are not that comparable. 

Highlights: Headline is 7.9% unemployment (increase), 157K nonfarm jobs. A YoY comparison (to Jan 2012) is warranted. Unemployment was 8.3% last January, and we had created 311K nonfarm jobs. There is an obvious difference in impetus. 

More subtle - I have written that the initial claims seasonal adjustment was clearly off, but I have been watching the continuing claims in that report, which have not been rising. The worrisome stat in the Household Survey is that under 5 week unemployment has been increasing for three months. Last January there were 2,495K persons unemployed for less than 5 weeks. This January the number is 2,766K. The 5 to 14 week unemployment rate has also been rising for three months. Last January it was 2,874K. This January it is 3,028K. The reason continuing claims are declining may be just retirements and not hiring. I do not like the look of this at all, because the Main Street growth rate isn't going to pick up this year. GDP will bend up in the first quarter due to the defense games played last year. Probably. The money was blown out in the late second and third quarters in order to crank GDP, and over this year, there will be a significant decline in defense spending.

YoY on wages: Average weekly earnings for January 2012 were $803.16. Average weekly earnings this January are $818.03. However FICA is increasing by 2% and a 1.8% CPI (understated for most workers) means that worker paychecks are decreasing by an uncomfortable margin.

Employment indicators for the Household Survey show that the employment situation has worsened slightly since October. This is entirely consistent with the GDP report, so I would take off the rosy glasses on that one.

I would still be somewhat optimistic, except that Q4 consumer credit indicators showed a marked degeneration, and I have never seen that not cause a problem. When you see your delinquencies start rising like that, you have to react. And everyone was blindsided - credit policies were still widely loosening in Q3 of last year. So you are going to see the yank. It's a tiny pull on the reins compared to what we saw in 2007 and 2008, but it's there.

Also, the Fed's asset buying program is going to crank commodities and contract the take-home pay checks of most workers. 

The Fed may be committing a massive blunder which will turn a moderate decline into a steep decline. A declining dollar can't help US manufacturers that much, and it is definitely going to cut consumer wages. If investors respond by moving out of the dollar, the Fed may be collapsing the US money supply at a time when consumer credit wants to contract. This could be a very vicious set of interactions - consumer credit was bad across the board in Q4, consumers are going to have less nominal money this year, and therefore the consumer credit trend is going to worsen, and consumers are also going to get hit in their pocketbooks again by Fedflation. 

Regarding comments:

Coming soon to a vendor near you, $6.00/gal gasoline and $10.00/lb ground beef. No job, no money and run away inflation in necessities..
This ends well.......
You can't fight velocity with volume.

That's what I think, too. $6 in 2014, if not sooner. Followed by price controls, and you know what that means...

If you want to see inflation look at the soaring cost of guns and ammunition.
What is bad for the economy is good for the stock market. Or so it seems.
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