Thursday, December 10, 2015
It's August, 2007. In Recession Terms, That Is
The Fed says it's going to raise rates. Maybe it is. If so, this is not going to look very brilliant six months down the line.
Rail has been saying that we were entering the recession zone since last spring. Now it says we are there. There has been a notable weakening in the last five weeks.
CMI started flagging problems last spring also. The last report showed that services had followed manufacturing into the unfavorable-sucking-down-favorables zone. It's not that the sales side is so awful yet - but it is clear that credit to some players will have to tighten, so we've passed the "Heal!" stage. If there were enough strength in the economy, I'm sure it would just heal. But it doesn't seem to be there.
JOLTS is entirely consistent with the shift into negative correlations or with the "Healing pause" theory. But it always is at this stage in the game. Continued claims, the same.
But look at the quarterly services survey. There's a high error bar on this report, which is one reason I always say that we never really know GDP within 1%. There's just no way that it is possible to do so. But it is far more possible to detect whether there are forces that are pushing economic sectors to adapt, and it's easier to get a sense of whether they will be able to do so easily or not.
If you look at the non-seasonally adjust YoY patterns, you see that there's been a significant weakening in strength. That means we can't easily get over the hump that's showing in rail and CMI.
To that I would add the reality that theoretical inflation is so low that SS and DI and so forth recipients won't get an increase next year. It's probable that very few of these households are seeing their actual inflation rate for purchases below 2-3%, so it's going to show up across the economy as additional tightness in next quarter.
There's no indication that inventory clearing is going to help us out of this tight spot. Not at wholesalers:
Manufacturing has been in recession, with no indication that cycle is at an end. Look at the last full report. There aren't any green shoots.
Technically, the Fed's move is of course going to allow rates to clump up if they want to do so. Since the Fed went on its talking jag, rates are converging a bit. Hard to know what it would mean, because the Fed had pretty much whacked the informational side of the market enough times over enough years so it learned to play dead. But one thing we can see - short rates responded; long rates are not going to be talked around at this juncture.
It appears to me that we are at the end of the credit cycle for businesses, and very near it for consumers. Consumers have been borrowing - on the low end, delinquencies are beginning to creep up. But the business problems seen last spring in business-to-business lending are now showing up in the form of rising delinquencies for leases and C&I at banks. Bank delinquencies & chargeoffs.
That's entirely what one would expect, but it is something creditors will need to control before it controls them. In particular, one sees the classic pattern. At the smaller banks, CC and ag are trouble, although in the last quarter leases and C&I jumped into the mix. At the 100 largest, CCs are still historically extremely low, but leases and C&I are beginning to show difficulties.
To that, add the retirement/government transfer constriction next year, and the unfavorables seen in business to business lending, and I don't see how we climb out. The economy has to get a little weaker, but some sectors are too weak now to be able to ride through that "little weaker" period without further negative correlations.
In the last employment report, temporary help was contracting. Over the last month or so fuel supply YoY trends have shifted from healthy expansion to considerable flatness.
While none of these factors are earthshaking in and of themselves, together they seem to be making a firm statement.
I don't believe the multi-unit housing market is going to carry through all of next year, because I think rents have close to topped out and therefore construction will slow a bit. We have plenty in the pipeline, but I think the pace is going to have to come down. Just looking at the last Census report made me think this one's at peak.
Well, you're confirming my bias anyway. My intuition has been that we're going to be in recession for real sometime in the spring.
Time to batten down the hatches.
NBER counts recessions as beginning when an impact is shown in employment, but of course the downturn has to start first.
I've been trying to avoid this conclusion for about six weeks, and I guess I decided the effort wasn't worth it any more.
Wages are rising. But it doesn't feel prosperous. I'm wondering if we're in a situation where so many have abandoned the workforce that the unemployment numbers are low simply because they're not looking.
The answer is YES.
To work overnights, you get paid a 3rd shift differential. Thanks to Obamacare, that 3rd shift job will only be part-time as the employer wouldn't give you more than 25 hours a week. If you took two overnight part-time jobs, the shift differential would price you out of your Obamacare subsidies. Having a second job is a net negative so people don't want them.
We have an odd situation in which jobs pay little enough that government subsidies control and censor individual behavior, because the added marginal income for too many from a part time job or low wage job is NEGATIVE. Few people will work if they have to pay to do it.
ACA made a bad situation worse, but it is not the only problem. With insecure employment, remaining in the bracket to get EITC, food stamps, Medicaid or SCHIP for the kids, and often rental subsidies is the way many get by.
But ACA made the entire situation much, much worse because it created an employment structure which pays employees NOT to hire people full-time and to hire illegal workers who are not eligible for ACA subsidies on the exchange.
ACA's has vicious disincentives in it. Regardless of what anyone thinks, it should be repealed.
If this were done via a payroll tax, it at least would allow managers to hire good workers for the hours they need and it would remove the subsidy for hiring illegal/foreign workers which the law created.
On top of the problems with ACA, it traps people as you've described while providing little, if any, value in return!
The plans, even if you get them for free, pay for very little. The deductibles on the Bronze plans are huge, higher than most pre-ACA "catastrophic" insurance policies. You've still got to have some sort of insurance, because a lot of providers will charge full price if you don't have insurance. So you've got to keep the insurance, but health care is still going to cost more than it used to.
It's an interesting industry. The companies that hand out the work, such as Kimberly-Clark or General Mills, know not to give too much work to any one company because if something happens, well, they're screwed until another company can get up to speed. Need a job done in Walmart? Exactly how many Walmarts are there in the US?
And since these companies can't give anyone more than 29 hours, they need a bunch of people. When they can't supply enough labor, they then contact other companies to fill the holes. A job that used to be done by a store employee--resetting say, boxed dinners--is now done by third-, fourth-, and fifth-party labor. As one might imagine, this does not promote good work habits or work ethic.
A supervisor for one company I know of will book you to work three days in a store for his company, then tell 4thpartyLabor, Inc., that he wants you (by name) to work the other two days. If you're reliable, there is endless work, at least until the robots come on line. Or, they legalize all of the Mexicans.
The odd thing is, I do nearly all my work for one of those companies. That 29-hour rule went out the window sometime around June 30. Except for a week off, I haven't worked less than 40 hours since then, because they can't get anyone good to work.
MoM, do you have any idea what having worked all of these hours will do to my status? Something, I know, but I don't know what.
A lot of this used to be done by older folks, maybe just-retired. There are still a few of these but they can't find any more, and the younger folks will just walk off if they don't like the job or conditions.
I have VA benefits, so I don't have to do the insurance dance. I got to see an eye specialist yesterday, and only had to wait two months! When I needed non emergency surgery, it took nearly a year from the time I asked my primary until I went under the knife. Oh, I'm glad I've got it. Six years of my life under Uncle Sam's thumb, but nowadays it looks to have been a wise sacrifice.
I worked for one company full-time for two years, and never saw my supervisor, and spoke to him on the phone perhaps twice. The checks always cleared, which is what mattered. When I quit, I send a polite thanks-but-I-gotta-move-on email to him, the scheduler, and another supervisor I had done jobs for. I didn't expect them to come begging me to stay, but...I never heard a single word from them, voice or email. I just dropped off the schedule two weeks later.
For the employees, it is hard juggling different contractors (who give them work). Stability would mean a lot.
And as for the younger crowd, why should they have a good work ethic? They are treated like serfs and they respond with a serf mentality. But I think it blends on into real jobs later.
I have to believe that for the economy as a whole a lot of inefficiencies are built into the 29-hour rule. It's lousy for the workers.
This is the problem with half-assed schemes like PPACA, though. Can you imagine what would have happened to the US economy if they had tried to implement Social Security this way?? Instead it was a payroll tax that affected everyone, so it did not create a nightmare.
I don't know why they didn't do ACA that way. Don't give an employee insurance? 7% payroll tax, which then could be used to fund all those ACA subsidies that are going to get us in such deep trouble. It's simple, it's clean, and it doesn't make it cheaper for companies to hire illegals or temporary imports. It doesn't distort hours, and it doesn't create a disparate impact.
But there are also all those couples, many of them older these days. They are empty-nesters. If they go just above the ACA subsidy line and they have to buy private insurance, they're sunk. So that's why you have a lot of people out of the workforce. They probably do odd jobs for cash, but when earning 20K is going to cost you 5K a year, earning 8K in cash a year is an infinitely better proposition. One person earning 50K a year means the spouse can't afford to earn 20K.
Mom, I've been independent for a decade so I'm used to juggling companies. It's challengin for those used to a more sedate employment.
In Amity Schlaes' The forgotten Man, she wrote that it wasn't hoarding or lack of credit that made the depression so long. It was Roosevelt and his best and brightest, constantly changing the rules. I know businesses hate incertainty.
Because they wanted to coerce businesses into selecting the plans for them. They knew the plans on the exchanges were going to be awful, and they wanted employers to take most of the blame.
Plus, not as many opportunities for graft.
What, me? Cynical?
I don't know why they didn't do ACA that way.
Because they didn't want anyone to think it was a tax increase, or they would have lost votes. Better to let the Supreme Court break the news that, yes, it is indeed a tax since the booboisie never pays attention to the Supreme Court anyway.
Health Republic dropped out of the Oregon market so we are back to Lifewise. I went with the bronze because silver didn't give me a lot more. I'm eligible for Medicare in a few months and seriously considering Kaiser. I think the best thing I can do is stay away from all doctors. The entire system is broken and I find few doctors out there worth a damn.