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Sunday, October 28, 2012

One Last Thing

Despite official GDP, in the third quarter the US economy really did decline from Q2. See the September ATA report:
The American Trucking Associations' For-Hire Truck Tonnage Index increased 0.4% in September after falling 0.9% in August. 

Compared with September 2011, the SA index was 2.4% higher, the smallest year-over-year increase since December 2009. Year-to-date, compared with the same period last year, tonnage was up 3.6%. 

During the third quarter, SA tonnage increased 0.4% from the previous quarter and 3.4% from the same quarter in 2011.
This is a slow but perceptible reduction in growth. There's more at the link. Rail is showing the same pattern. Inland water freight is even worse, although there may be some drought-related special drags on this one:

"We beat 2009" is not a winning motto.   

This means more than it seems - last year Q3 official GDP was 1.3% annualized, due in part to the impact of the Japanese 3/11 disaster. YoY comparisons should be increasing rather than declining.

Chinese official GDP is a flat-out farce. No way was growth anywhere near the reported. Japan is slumping. Europe - well, less said the better. Growth of US real disposable personal income slumped badly in Q3 - BEA calculates it at 0.8%, compared to Q2's 3.1%. Thus we move into 2013 in a hole, which will be somewhat concealed by the season of Bling. Tragically, that season is always followed by Ding. 

There is a real reason commodity players are getting cautious. The US remains a global bright spot, but it is apparent that our light is dimming.   

I'll Call It A Purgatory Downpayment

Unfortunately I find myself in the "Sandy" area, and I am preparing to be without power for a week. 

So blogging will resume whenever more normal life resumes. All my best and prayers to the millions who have to ride this one out.

Finally, Someone Who Speaks For Me

Friday, October 26, 2012

Bah, Humbug

This morning's GDP release appears favorable until you get into the details and realize that there was a big rise in federal spending. The private economy is flat as a pancake, exemplified by real Gross Private Domestic Investment (GPDI), which is just slightly above zero now for two quarters (3.3 billion and 2.5 billion).

If you go to Table 3, you'll see that the net real quarterly SA gain was 67.7 billion compared to Q2's 42.1 billion. Which is nice, until you slide down to the next page and find that whereas government spending decreased by 4.3 billion in Q2, it increased by 22.4 billion in Q3, for a net swing of +26.7 billion on government spending. Taking off our footwear and thus doubling our calculation power, we find that 67.7 billion - 26.7 billion = 41 billion. Thus, we have a private economy running in place at a very low level, below +1.5% annualized. This takes us to the dreaded stall zone, with some hope that Q4 will bling us up out of that zone.

Well, it is the end of the fiscal year, and government agencies do reliably spend their allocations. Still, if you want to think conspiracy theories, imagine an executive issuing orders to "spend that money now", and go to town.

2013 looks to be very difficult indeed. We really do need to increase payroll taxes, but it's obvious that this will be a drag on PCE without price drops. There's nothing favorable going on in the global economy to help us out.

Possibly a change in the administration will provide some hope for companies and inject a little more confidence into the private economy. Business spending is terribly weak.  Real nonresidential GPDI fell at a -4.7 billion pace this quarter compared to a +12.9 billion pace in Q2. 

You can't expect a huge growth in consumer spending without a tax cut or massive price decreases, because some indicators of consumer stress are already rising. For example, delinquency rates on residential mortgages have risen from a post-debacle low of 10.15% to 10.61% in Q2, and new regulations which should tighten residential mortgage lending are due to go into effect next year. Subprime auto loans are beginning to weaken. It looks like we may have reached the limits there, barring real economic improvement. Rail and inland water freight indicators show growing YoY weakness.

I always thought that as soon as autos stopped bailing us out this year we'd tip over. According to BEA, auto output accounted for a -0.47% change in Q3 real GDP. On this release, which is preliminary, I expected a slightly lower headline (1.8%) but better underlying details for the private economy, so I am disappointed.

Sunday, October 14, 2012

The Debate Plus The Prize

were too much. Thursday night I watched the US VP debate, and then Friday the Nobel prize committee unleashed their news. Ever since, I have been searching for a more understandable world. A world in which reason and evidence have a place.

When this happens, I tend to read a lot of science articles, and eventually the news starts to look less weird as a result, because life is definitely weird. So here are the current gleanings (sanity is still pending):

This is an extraordinarily interesting theory. It has the potential to explain some puzzling aspects of evolution of life on this planet. You have to pay to read the article, but the podcast is free. Here is a direct link to the transcript.

The prophet spider. That's my name for it. This critter was discovered in Israel not that long ago. It's considered extremely endangered because its known habitat is about 1 square mile in extent. Scientific name Cerbalus Aravensis. Digs a burrow with a door, so it's a trapdoor spider variant:

It gets to be over 5 inches long, so I am not offering a breeding pair houseroom. Usually this type of spider is quite venomous, because they jump on their prey and chomp. 

But it does need a larger habitat, so hopefully the Israelis are working on a captive breeding program. Once they get about a million of them, they can just drop them on the Iranian nuclear facilities. I do believe that the human inhabitants will get the hint and leave. Then the Nobel prize committee can give the prophet spider the Peace Prize, and peace and joy shall reign. See? Everything's getting AALLLLL better. 

In other, non-related news, there has been some interesting work done on sequencing genes in the bacteria that causes Lyme Disease in humans (and dogs). B. Burgdorferi sensu lato and stricto has now been extensively analyzed. It's old. It came from Europe (give those suckers a prize!), and it seems to have recently mutated. That mutation is found both in Europe and NA, probably spread by birds.

The reason I was taking that particular random walk is that there was a Gordon-like incident in a 40-ish male at the Superdoc's practice months ago. It does seem to have been uncomplicated Lyme disease, but it did not have the standard presentation at all - it was a very virulent onset with rapid progression aka Gordon's encounter with great woe. Superdoc sent the guy to the hospital for all sorts of screenings, because he feared encephalitis, which he did not have, nor has any evidence of coinfection emerged. So the potential exists that this thing may be mutating again to a more virulent form yet.

The OspC protein seems to be implicated in the host-jumping stage, so it is a prime candidate for mutation. Also, if the Norwegian results are correct, there may be another unknown animal vector involved which might produce selection pressures. 

In Georgia some years back, there was the sudden emergence of a B. Burgdorferi sensu lato variant that produced a literal plague in mice, and that infected cattle. These mice were staggering around in sick hordes. That was probably too virulent to be successful over the long term, but there is reason to suspect that selection pressures are still working. 

So strive not to be bitten by a tick, okay?

Why EU Got The Nobel Peace Prize

... Local celebrity refused it, saying "Awww, I don't deserve that!" Some people have standards.

Friday, October 12, 2012

For The Sake Of Europe

We can only hope that the Nobel prize committee's powers of prophecy have improved from a few years ago. 

One would absolutely hate to have a reprise.

Thursday, October 11, 2012

Fisher At His Best

His Cato Institute speech is a stunningly clear exposition of the current situation and the current stymie in which the US economy finds itself.

I have been working on a series of posts to answer Third Coast's question:

Mom, I'm feeling whipsawed by conflicting data. I read your posts regularly and it seems that based on some of your recent comments, you've been hinting that we're on the verge of a recession if not already in one. Now, happy days are here again? Could you do a post that puts recent economic data in some sort of context? 
Happy days aren't here again, but a lot of the structural OMGs have been worked out of the private sector economy, and we have reached the point at which we could start to decouple from the global economy. But we won't unless we address the real handcuffs (emphatically not golden) which Richard Fisher discusses.

Credit standards for granting new credit are not the impediment. Rates are not the impediment. Our inability to create workable governmental policy is the impediment. It's not just at the federal level, but obviously national policy can't address CA idiocy, so we just have to let reality correct that.

What they cannot manage is the mordant fiscal predicament hanging over their heads. A feckless American government—specifically, a Congress that hasn’t created a budget for more than three years—is poised to drive us off the so-called fiscal cliff. It has contrived a tax code and regulatory structure that would baffle a financial Houdini, has compounded the uncertainty facing businesses to a stifling degree. At present, no business—big or small, public or private—knows what its tax rates will be going forward. No business knows the social overhead needed to cover their employees. No business knows the degree to which federal spending programs will be changed or truncated, and how that will impact it or its customer base. 

Without some certainty about your cost factors or reasonable understanding of the prospects for demand for your products, you go into a defensive crouch. You can’t budget; you can’t plan. You can’t run the risk of hiring and expanding beyond your replacement needs. Uncertainty of the kind I have just described cripples job creation, capital investment and the ability of businesses to realize their potential.
In The Poker Rules for Businesses, I tried to address this problem. That was written in early 2011. Since then the situation for 2013 has only gotten worse and the uncertainties have multiplied. 

Wednesday, October 10, 2012


She's baaaaack.

Naomi deserves the drubbing. If you haven't read the Salon interview, you should. I do want the book.

Camille also delivers a face-slashing, tooth-bashing attack on the "intellectuals" of the Democratic party:
This is why the Republican Party has gained and why the Democratic Party is in disarray — because the Democrats have lost one of their key signature issues from 1960s leftism. Why has the GOP become the freedom party? ... 

It’s like the movie of H.G. Wells’ “The Time Machine” — Democrats have turned into the Eloi; they’re like sheep. They hear a signal, and it’s like pre-programmed spin in their heads — they just trot like sheep in one direction. I am voting Green in protest against the systemic corruption of my party. ... 

If Democrats and their cohorts in the mainstream media had listened to me and begun criticizing the administration early on, there would have been ample time for a course correction and Obama would now be sailing into reelection. ... 

But liberals have now been trained to be docile and obedient. Last month, I was the featured speaker in a debate about gender roles at the Yale Political Union. At the dinner at Mory’s beforehand, the very bright and talented student organizers were telling me about how every academic year begins with a counseling session where they are instructed about the nature of sexual “consent.” So I said to them, do you understand that there is a level here of surveillance and control of your private lives that at the University of Paris would be considered grotesque? Why should the administration of any college be telling young people the way they should be interacting with each other? But these very able and promising students have been brought up in a culture of smothering paternalistic observation and control. It’s so authoritarian!
Drones, endless bombing campaigns, an utter disrespect for individual rights, a creeping culture of Big Brotherism and a drive for economic and cultural suicide - I don't recognize my country. And the modern Democratic party only will squeak about this when they are OUT of power.

To me it feels as if the culture war is between adults and adolescents. I think the fault lies in my generation (roughly). The slightly older ones started out in a tempestuous explosion of drugs, sex and narcissism in their teens and early twenties, and just never grew up for the most part. Some did - see Assistant Village Idiot.

My cohort was always out of sync with this - that's because we were the children of the bad times of the 70s and early 80s. By the time we hit our early twenties, we were just focused on making it. There was a huge social divergence, and the chattering, nattering potheads never got any serious challenge from my group. We looked at them with absolute contempt and a total lack of sympathy, and they looked at us with absolute contempt and a total lack of empathy (they were always terrible at empathy), and we never have learned to talk to each other. My group did not want to go in with the potheads in academia. If we did do it, we tended to go into the "hard", quantitative fields. They took over the field in all the "weak" disciplines, and after a while they got strong enough to start taking over control of what you could say in the "hard" disciplines.

What they have made of academia is utterly frightening. There is nothing left of liberalism but the Triumph of the Will to Crush All Dissent. That's the ugly truth. Scientific integrity is about gone.

The younger people see it. I was reading Bad Data, Bad! this weekend. She recently had her first child, and she wrote about a talk she was giving:
Also, you'd like my talk. I use the sentence "so this is a little kumbaya, why should [you] care in the real world?". 

 I think that sentence should be used in all talks about how to get along in the workplace. 

I also raise the idea that diversity of thought is an incredibly under recognized aspect of diversity, and that's not a good thing. I think that idea should come up in every talk where the word "diversity" is mentioned.
In the end, our inner children won out, and now our children have to learn how to be adults without any good examples.To help, we are bequeathing them a crushing weight of trouble and an extremely dangerous international system. That's our new motto - Build Your Own Character, Baby, and Pay Our Debts.

Somehow, I think they may decline to pay our debts. They have no alternative but to develop character.

Tuesday, October 09, 2012


I refuse to read it. It's not good. You can if you want to suffer. I checked three things. Sales, earnings and employment. They were all quite bad. 

Employment is not surprising, although it is degenerating, given the changes in sales and earnings. Over the last two months, actual sales changes have been significantly worse than last year and significantly worse than 2008. I don't expect the same type of dive we had in October 2008, but the trend change is rather blatant.

This is not all that different from large companies - see this Bloomberg video. Or you can see this Political Calculations link left by a helpful Anon. This is a pretty classic business cycle recession.  

Monday, October 08, 2012

I Figured The Employment Report Out

This took some doing, btw. I had to spend days in a near-autistic state. Also I scrubbed things. Many innocent bleach molecules met their doom before I got a grip on this employment report.

The results of the employment report on Friday were quite schizophrenic, and I do understand why so many assumed they were the result of a BLS conspiracy. However it was not the BLS, but a confluence of factors.

Before I get into the main point of the post, I want to address Neil's quarrel with the idea that the unemployment rate has to drop. Neil is wrong, because:
This is a graph of the primary ratios produced in the Household survey. They are civilian participation in the workforce and the employment/population ratio. 

The employment/population ratio has refused to move in this recovery, and that is historically aberrant. It is also the source of Snarky Mark's dire employment trend graphs. So we don't have jobs.But we do have a falling unemployment rate, because of the collapse of the civilian participation rate, due to slack employment, high travel costs, and low wages (it doesn't pay some people to work), plus retirements/disability (which are solely due to demographic effects, but exaggerated by the poor economy). 

Fiscally this is a disaster, that is true. But nonetheless, unemployment rates will keep falling. Unfortunately, a falling unemployment rate no longer means that the economy is improving. One of the big factors controlling retirements is Medicare eligibility, and if you were born in 1946 you turned 65 last year, and if you were born in 1947 you turned 65 this year. So there had to be a flood of retirements at this time, and there is. 

Now on to the main issue. This employment reports showed a huge gain in jobs from the Household Survey, and a very lackluster gain in the Establishment Survey. It is quite hard to figure out how you can report a real gain of 873K jobs in one survey (historically utterly massive) and a 114K gain of non-farm jobs in another survey. Further, there was no trend change shown for private jobs in the second survey, and many indicators are decisively bad. This could only occur if suddenly there was a huge explosion in new company startups in the private sector. I find this implausible - it is not supported by any other data, including gas consumption, which is pretty strong proof to the contrary. A four-week -2.5% YoY says that it didn't happen. Also temporary employment stalled in the prior month and dropped a little in this month. That also is strong proof that the economy just didn't start generating a lot of jobs.

However it does not seem to have been a BLS conspiracy. Let us at least concede to the BLS workers the intelligence to realize that they would have to FUBAR both surveys if they were to successfully conspire to get the president reelected. Nor is it that unprecedented - during times of slackness or rapid change in the economy the Household survey does show these swings:
In thousands of persons, the red line is the month-to-month change reported on the Establishment survey; the blue line is the month-to-month change reported on the Household survey. Remember that the red line is extensively revised after the fact, so that initial results wouldn't look quite like this graph. Over time, the general curves do correspond. In any given month they can be quite disparate. 

You tend to get a whole lot of spikiness in the blue line either coming into a downturn or coming out of it. Over time this effect seems to have increased.

Instead of slandering BLS statisticians, it is logical to look at the two different surveys for the source of the difference. The Household survey is generated by using a Census sample which is supposed to be representative of the general population. Therefore, you can get flyers on this survey if there is a very strong effect on some segment of the population. But it cannot be that much of a "real" effect, because we know from the Establishment survey that not that much employment action was going on.

After considerable concentration on the Household survey stats, I came up with the Hispanic effect combined with the SA education effect. Here's how this goes: earlier this year, the Obama administration made the executive decision to grant work permits to a huge batch of young immigrants. Obviously this takes time to make its way through the system, but it did. Economists did think it would have an effect on unemployment rates. It did.

Here's some suggestive info. First, there was a very large and very huge pop in SA young adult employment in September:
The little blue pop in rates turns into 400K by the magic of SA. There's nothing wrong with the SA, but this is historically odd to say the least. Now some of this ought to have been young teachers/school emps replacing older teachers/school emps who are retiring in droves in some places. Despite all the yakyak over government jobs, in September government jobs racked up a 10K increase, concentrated in state education but also with a minor component in local ed. Due to oddities in school calendars, it does seem like some of the normal spread in school gains shifted from August to September this year. 

But there's another piece of the pie which does seem to be related to a change in status. That's harder to pin down, but one clue is that you have this huge pop in 20-24 employment. That is the age level where one would expect newly-legalized Hispanics to show up.

This graph shows some apparently unrelated stats that tend to suggest a high correlation. The thin red line is the 20-24 employment level. The thin blue line is the African-American men level. Note that decline. The heavy yellow/umber line is self-employment, which shows a very interesting pattern. It rose very strongly earlier, and then stalled out. The green line is total Hispanic employment adjusted by dividing it by 1.8 to get it inline with the other demographic segments. 

There is and has been a replacement effect going on between a group of black males and Hispanics. Further, what seems to be a mysterious trend in self-employed workers is probably not. There has been an odd gap in reported construction employment over the summer, and it is beginning to unbend. We are probably seeing the effect of more legal workers shifting onto the books - before they were probably being paid as contractors.

Lastly, the Household survey never asks about legal status and is supposed to be immune to that variable. That is not true. I know this for a fact, because I use a lot of Census data at the county level, and I've seen very big disparities between reported employment and actual employment among Hispanics. Very clearly a lot of people are working illegally and lying about it. The gray economy is pretty large, and as numbers of persons who can't work legally rise, you have to expect it to get larger.

What I believe happened is that first a number of newly-legal persons did pick up part-time jobs in retail, restaurants and seasonally-associated jobs such as warehousing. Before they weren't eligible to go on the books and now they are. Then there was a reporting effect, with more people reporting that they were working because they were now doing so legally. Finally, the seasonal adjustment happened to pick this up and magnify it. 

I can't quantify the effect. Because jobs didn't show up in the August survey, I expected a big pick-up in the September survey. The official Household data is that we lost over 100K SA jobs from July to August. That didn't really happen. So I was expecting around 300K jobs to pop in there.

How are we really doing? Well, if you look at Table A-8, which splits Household survey data out in another way, you see something really interesting. Private industry SA wage and salary workers are below the numbers reported in May and June! Government workers are up over 500K since May. We have somehow mislaid around 400K private workers since the spring. 

So you ardent critics who commented that these numbers weren't true based on what you could see are not wrong. The private employment picture is not improving - it is getting worse. Government employment is growing, and it is growing in relation to private employment. This brings me back to my appalled disgust at our president's spring gaffe claiming that the private economy was doing fine. It isn't.

Your skepticism is justified. Blaming it on a BLS conspiracy is not.

Friday, October 05, 2012


A very good employment report. Last month I was expecting much better, but the survey week timing probably pushed all this into September. 

The reason I expected much better last month was due to school reopenings. Due to seasonal adjustments, the Household survey has picked all that up and magnified it, so reporting a massive employment gain of 873K this month. That is really spread between September and August. 

Household. Establishment. Table A-10

This is a good employment report, and if you average the three months on the Household you'll get closer to reality. Over the course of the last few years, education has assumed a much larger role relative role in the economy, so you see it show up disproportionately in these reports.

Over on the establishment side, one gets a much less vivacious picture, although we got an upward revision in August numbers. Yet I believe there is real underlying improvement in money flows and thus employment.

I don't have time to do this thoroughly today, and it will probably be Sunday before I get to it. 

The forces driving down the unemployment rate are dual. Over the last year according to the population survey, the non-in-labor-force number grew by over 2.6 million. We also added over 2.5 million jobs. The emp-pop ratio rose to 58.7% this month. It is probably 5.6, but that is still a real improvement. Over the course of the year, labor force participation dropped by another half a percent (64.1 -> 63.6), and that reflects retirements. 

The women-who-maintain-families unemployment rate dropped to 11.3%, after having risen since the spring. 

Most of the net new jobs "found" in the Household survey were part-time - part-time workers for economic reasons rose by 582K. Most of that was due to slack work conditions. So paradoxically, we are seeing both a worsening employment environment and an improving employment environment. 

In general, the take-up for part-time jobs improves, thus improving the employment numbers, in the early stages of a recession. You see the increase in part-time jobs numbers. You also see the drop in temp workers, which we are seeing now.

However, during most periods of economic slack we simply do not have the tremendous demographic forces at work that we do now. These demographic forces literally HAVE to drive unemployment down.

Thursday, October 04, 2012

Remarkable How Little Movement

In the US, that is. Externally things are moving, for the most part down.

Initial claims are just one example. We've had this, that and the other, but the four week moving average is still 375K.  

This is really good news for the US, because it tends to draw in external money, which also helps to cushion external negatives. 

One remarkable feature of the current US economic environment is that credit is just not a constraint even you are even remotely creditworthy. NACM, NFIB, banking data. Everything seems to show that the general caution has protected us against the immediate cyclic effects of the slowdown.

There is extensive tightness on the consumer side of the economy, but what can anyone do about that? People have to tighten their belts and the economy as a whole has to work through it. Inventory cycle recessions are pretty mild as a rule, and don't last that long. 

Maybe we'll have a post-election bounce. The fiscal "cliff" is just something we have to deal with as well, but it sure would be nice to get most of the inventory cycle thing out of the way this year so that we can work on the fiscal disaster next year.

The Debate

Well, the press buzz is that Romney won. I don't think Romney won it as decisively as their open-jawed shock would indicate, but I do think he won. CNN showed the best win ever in their poll.

Of course, Clint Eastwood could have won. Bugs Bunny could have won. The press has done this to a weak president because for years they have not asked him much in the way of tough questions, so now he is hitting finals having not even done the reading.  Let's face it - Univision wiped the floor with Obama. He literally does not know what to do as soon as anyone stops cheering his talking points.

If Hillary Clinton had been debating Romney, she would have slaughtered him. The country is really old-fashioned Dem at this point. Over and over again in the past few years I have heard individuals who normally vote Republican express sincere and growing concern over the economic plight of the average person, worries over retirements, etc. 

The problem is that Obama has shown no leadership whatsoever for three and a half years. This is a man who gets his budgets voted down by the Senate, without even one of the 60 Democratic senators casting an "Aye" vote. And then he does not go back and try to work something out. This has been the vacuous presidency. 

Luntz conducted a focus group of undecided voters. Link here. To understand just how badly many reacted to the president's performance, read this DU thread.  One person suggests that he was drugged, and another suggests altitude sickness. Another explains that Obama has to avoid the "angry black man" stereotype. 

I did not enjoy watching Obama standing there taking the punches, and I quit not too long after Romney kicked him in the 'nads with the energy subsidy comparison (50 years of oil tax breaks dumped into the likes of Solyndra). It was devastating, and Obama did not have an answer because you could tell that he didn't even know the numbers.

The bottom line is that younger voters and independents are going to switch sides in this election, and that puts Obama under. 

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