Thursday, February 07, 2013
Slow Is Good
The entire key to slow diffusion is little change in employment. My modeling shows me that this is possible due to the increased share of government transfers in total income. It doesn't prove that it will happen, though. One of the keys is maintaining a relatively slow decline in per capita real incomes. It is somewhat hard to see how this will happen based on the Fed's dedicated money pump. Consumers are ducking and running to get into the grocery stores unscathed by the constant bombardment of money bundles falling fromt the black helicopters.
CPI is violently constrained by circulating money, yet input costs to companies are not. I have never seen any economy in which this does not produce a business-led recession.
Unemployment claims: I am watching these with great attention because they will tell me whether I have cooked up my own hopeful fantasy model or whether I am still in the reality zone. I have no faith in models, including my own. When have models ever done much for us? Why should I believe that my lovely model is any more predictive of reality than those of anyone else?
So here is where we stand on unemployment claims this year. The running total of initial claims this year is 2,307,119 compared to last year's 2,412,173. This is sharply less favorable than the SA version, yet SA's shouldn't diverge so much from the underlying accumulated NSA trend. It is favorable, however, and it may be more favorable than it seems, because last year we were coming off a strong quarter and this year we are coming off a weak quarter.
Continuing claims are not piling up yet, although they are on a flat to increasing trend. However NSA continuings are 3,720,496 versus last year's 4,097,013, so definite rosy model hope remains.
The other thing I am watching is Other Deposits in H.8. These will tell me whether consumers and businesses are running out of money to keep this thing going. So far this year (we only have January 23) it does not look that favorable. The 2% payroll tax increase probably is responsible, but on the other hand a YoY sequence doesn't look that different:
There is a rough equivalence between the Nov end balances and the January low balances both years. The bright side is that this doesn't seem to be worse than last year. The negative side is that last year set up a weak first half, and last year was helped by a milder winter.
The idea that consumers are going to load up on credit is ludicrous. Look at that drop - consumers get their bills and they pay them off.
The other source of money flows in the economy is credit. So far this year the credit cycle on the consumer side is flat:
There was growth on the commercial side last year, but not on the consumer (as represented by CCs). Nor does it appear that consumers are contemplating charging them up this year.
I'm back trudging through supermarkets, which show the effect of diminished cash flow in January. The big consumer product companies have not reacted yet.
The bad thing about the jobs reports is that it only measures quantity, not quality of jobs. Many companies are posturing (holding part timers to below 30 hours) to prepare for Obamacare.
A friend works at a large international software company. They are not filling the vast majority of any openings that come up. When people leave, work is moved around, but the person leaving isn't going to show up as an unemployment claim.
To support this, look at IBM. Their revenue is FLAT and yet they continue to predict EPS growth. That means either the share count gets lowered or expenses continue to decline.
Another dynamic is the retired people are getting absolutely ruthless in their cuts to match their decline in investment income. They are now making their own laundry detergent in order to cut their cost in half.
The banks are buying more Treasuries than they are selling to the Fed in QE. They use them as collateral in repos for cash. A lot of that cash goes for stock market trading.
They only let the stock market decline when they position for it. They know sometimes they can't over come selling pressure. But their role is to make the market go up and the bank CEOs, the Fed, and the Treasury are all in on this. The wealth effect is really all that the Fed has going as QE isn't increasing velocity.
JC: Equity markets don't usually have a problem going up all by themselves in response to monetary easing. Everybody with cash is thinking they need to buy assets while their dollars are worth something. Or starting to think that, anyway.
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