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Monday, February 11, 2013

Tomorrow, NFIB

It's going to be interesting, because we get a read on profits. If they don't go up now, what's the chance later?

This is the December graph:
These, um, big falls in earnings for small businesses tend to coincide with recessions. 

I am very curious to see what tomorrow's report looks like. Based on rail, it seems there is restocking going on. 

NACM was quite interesting. It looks like the next significant report might be April's. January's YoY's were significantly worse on the favorables and somewhat better on the unfavorables, meaning businesses have been struggling to adapt to a bit of a leaner environment. 

There's a rocker effect going on which implies credit adjustments in NACM. The long decline went from February through July, arced back up for two months and then slumped to a new low in October, and then arced up and slumped again in January, but NOT TO A NEW LOW. That's for favorables combined.

Well, we are rolling quite a few economic balls down the domestic economic bowling lane this year, and we will have to see whether businesses can keep jumping. New credit apps show a meaningful degradation in new business activity, which is one of my forward jobs indicators. 

It's interesting to compare NACMs from beginning of the Late Great Unpleasantness (which had nothing to do with easy money) to the current period. July of 2012 was much worse than July of 2007, but you can see the huge difference in trajectory at the end of the year. Of course, in July of 2007 the great wave of housing money was just breaking, whereas over the last six months the Fed has staggered out with the fire hoses and pump trucks. 

I don't think the Fed had to do it at all. I think there was a natural bend up this year that certainly did not exist in 2008. But if the Fed were going to do it, they should have done it last spring at the 35-40bil/month MBS level, and terminated it this last fall. 

Now they don't realize that those pump trucks inadvertently hit a gas pocket, and that things are about to get very interesting. Someone's going to do something to throw a spark. 

I'm sitting here laughing very hard as I write this, which doesn't make for coherence. And it's not funny, except, darn it all, it is. 

The thing is that at any given time the economy can only hold so much money, and when you hit natural slacks, the ability of the economy to hold extra money is minimal. That's why you have to jump in before the contraction sets in. So when you start pumping money in at this pace while the economy's ability to hold the money is minimal, it doesn't work the same way. The pressure builds up and unexpected whacky things happen - sparks fly, gears start stripping, leaks appear,


A thought:

How much of this is just churn in small businesses? One set dying off to be replaced by others.

I'm probably getting a skewed view of things from my worm's-eye vantage, but it seems like there's an awful lot of activity among a new set of small businesses. There's an awful lot of people learning how to invent a product, get it produced, and market it using social media and internet advertising. A good deal of these folks I've seen are refugees from the housing bubble, too, former contractors or speculators. Five years later they're getting their feet back on the ground.

Neil, that's the normal course for small businesses. But what's going on in small business always has a lot to do with our economy.

The recovery we have seen has mostly been in larger businesses, esp. manufacturing. Until it moves a little further down the food chain, it will never be strong.

If you look at that graph, there is a very great discontinuity. We kind of recovered to normal recession levels, then we had one brief soar out of the abyss, and now it is quite ugly looking.

Without earnings, these businesses are not going to grow.
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