Friday, May 03, 2013
Some Relationship Graphs
This is a long-term series showing the relationship between YoY changes in employment as measured by the Household and Establishment series, plus the relationship between the two.
Short version of the same:
I've been agonizing over the seeming correlation of the green and the red/blue. Yikes! However recently this has looked a bit more favorable, esp. considering the low initial claims.
The above graph is really a proxy for real disposable income changes (which is where the M_O_M fudge factor comes in):
The orange is annual real disposable income change, and the purple is the quarterly. Both show YoY changes. Obviously the quarterly is more sensitive.
As you can see, last year was harrowingly close. The big rise at the end of the year was really due to incomes being brought forward, which will have a natural giveback this year, compounded by the FICA tax increase. Against that we have only two real growth factors - increased incomes from employment and increased incomes from retirements. The government retirement bonus per retiree is very BIG! So the M_O_M fudge factor implies that government retirees will have a net add (in the short term).
Also, the fact that we did have a contraction last year by some measures helps us now. But yet - throughout this entire recovery sequence, we have never returned to a non-recessionary real disposable income trend. We are solidly in recession territory and apparently will remain in recession territory, which is why I cannot see the Fed's actions as getting us into long-term stability. Despite the Fed's best pumping efforts, the only thing they seem to be able to achieve is prevention of collapse, and this year, it's very fragile.
The best possible future trajectory would be emergence into 70s type inflation. Not a very lovely prospect, but.... Otherwise, Japan.
Is the M_O_M fudge factor debunked? Manufacturing seems to say so. YoY drops in new orders plus unfilled orders have never been a good sign. This, btw, doesn't even have much of a relationship to sequesters yet. When YoY YTD shipments for ag-chem. paper, and pharmaceuticals are all down 3% or more, you have a completely different problem. YoY YTD unfilled orders for motor vehicles are down 4.7%.
I feel like a fool for insisting that the US economy doesn't fall out this year, but I still think it will see-saw. I won't give up until unfilled orders for fabricated metals totally collapses. This does mean that Canada's in trouble, though. We have gained MV production at their expense!
Check this out, but fix yourself a stiff drink first:
In the US, we have had some underlying improvement based purely on fracking, which has genuinely changed the mfrg equation in some areas.
Ever hear of the law of receding horizons? The cost of petroleum alternatives continue to rise simply because those alternatives are themselves so dependent upon petroleum-based energy -- for exploration, construction, extraction, transportation, etc.
Make your case.
More on the "flash in the pan" that is shale:
John Mauldin reprints an interesting viewpoint this week. The idea is that we could actually get wage inflation accompanied by high unemployment, due to structural skill issues in the job market. Apparently, the tech companies are correct--there's not enough Americans trained in high-demand skills, and unfilled openings are rising.
Leaving aside policy debates over why this is happening and why companies can't just train people up, the hypothesis is high-skill employees will have enough leverage to jack their pay rates up. Jack them up enough to cause wage-spiral inflation.
Me, I don't see it. It makes sense that housing in Austin and Raleigh might stay expensive, maybe there will be a shortage of Fiat 500's, but I don't see that bleeding over into hamburger and minivans.
At any rate, not until the point where we're trading 5 rounds of 9mm for a carton of eggs.
Neil, I still think that's garbage. If there were a true shortage of qualified tech people then there would be wage pressures that simply aren't there. H1B's are being used precisely to stop that from happening.
The stark question that any society has to have an answer to is, "what do the simple people do?" -- ie., what productive role can ordinary people have. If the ordinary folk can't earn a living and aspire to a bit more, sooner or later society will come unglued; rather sooner if they get the notion that the elites are strip-mining them of everything of value in the process. That is what is supremely dangerous about the current situation - the destruction of hope produced by the prolonged high unemployment and the poisonous drip of our current political discourse. This way lies Greece and Spain.
I agree with you on that. It's the Achilles heel of Objectivism.
However, the argument that Mauldin reprinted was concerned with "skills" jobs in general. I was being rather flip about Austin hipsters, but there are plenty of people who could learn welding and plumbing. They just don't.
My own reformulation of the argument is that Boomers retiring from skilled positions are not easily replaced. The following two generations would have had to generate a higher percentage of skilled workers in order to do so, and we didn't. No surprise, but it's making life difficult for employers.
This may be very good for some individuals, but I would have to be convinced that it adds up to a great enough flow of money to cause a wage-price spiral.