The US economy: July’s not looking any better
Next week the Bureau of Economic Analysis will release its estimate of Q2 US GDP growth. Of 69 economists polled, the bloomberg consensus is that the US economy grew at a 1.8% annualized rate spanning the months of April to June over January to March. In all, this quarterly growth rate implies just 1.9% annualized growth during the first half of 2011. Not much of an expansion.
Economists have put their ‘hope’ into the second half of 2011. But high frequency data show that the third quarter is setting up to be a doozy as well. This is too bad because we’re talking about jobs and the welfare of American families here.
I like to follow two weekly indicators to get a feel for the labor market and the corporate trucking business. The message is clear: the economy is not improving.
READ MORE AFTER THE JUMP!
First, the bellwether of the state of the US labor market – weekly initial unemployment claims – continues to disappoint. In the week ending July 16, seasonally adjusted initial claims increased 10,000 to 408,000. The 4-week moving average was 421,250, which is just 19,000 below its May peak of 440,250. This week’s report fell on the BLS’ survey week, so the July employment report is likely to be another weak one (weak is of course a euphemism for the June report).
The chart below illustrates the annual growth rate of the non-seasonally adjusted 4-week moving average of initial unemployment claims. I use this for comparison to the second series, diesel consumption, which is not seasonally adjusted. I include the recession bars for association with the business cycle. Claims really are more of a coincident indicator – but the frequency is helpful for gauging the state of the real economy.
The weekly claims are not indicating a recession – they are contracting on an annual basis. However, the contraction in claims is slowing, -8.4% Y/Y, which is much slower than the average -13% annual drop in claims during the first quarter of 2011. Unless claims start to fall more precipitously, the labor market will continue to be stuck in neutral – not good.
Second, the US Energy Information Administration releases weekly estimates of distillate fuel oil supplied to the end user in thousands of barrels per day (real). This is important because roughly 90% of this number is comprised of diesel fuel.
Given that diesel fuel is a primary input to construction and commercial
and industrial trucking, the weekly series serves as a high-frequency
indicator of domestic demand for goods that are transported across the
country. There are seasonalities to this data , but the message is clear:
demand for diesel fuel suggests that wholesale demand is inherently weakening.
Unlike diesel prices, which can be impacted by number of factors including taxes, refining capacity, and most recently by IEA’s petroleum release, consumption measures absolute demand.
The chart below illustrates the same representation of demand for distillate fuel (primarily diesel) as the annual growth rate of the 4-week moving average. The latest data point is July 15. The annual decline was a bit less severe in the week of July 15 – but this series is quite a bit more volatile, and the downward trend in fuel consumption has been established.
As of last week, these two high frequency indicators demonstrate no marked improvement in domestic demand through July.
Rebecca Wilder
This year is starting to shape up like 1981 and 1983, which foretells a very bad situation for jobs. Most corporations will have started out the year pretty bullish, not ectstatic about prospects but feeling they would experience solid growth in revenues. Based on that belief, they will have hired at the end of 2010 and during the very earliest periods of 2011, planning on covering their increased labor costs due to higher payroll through those improved revenues (and by corollary, improved profits). Now, the corporate managements are looking at sagging prospects going into the last half of the year, realizing that they will not see increased revenues for the year despite having higher payroll expenses already sunk for the first half. What’s an executive to do when they’ve already committed to the higher profit projections to the analysts and their shareholders, especially if they expect to receive their bonuses for the year. The only recourse is to trim staff doubly to make up for the higher initial expense with flat revenues while being on the hook for that bogus profit projection. That number’s writ in stone and can’t be changed if bonuses are to handed out. So, none of us should be surprised when we start to see that new claims number begin to gain altitude, although even that’s being gamed these days through the use of “independent contractors.” Privatize profits and socialize costs under all circumstances.
I read that the % of people not planning any special vacation went from 52% to 54%.
I don’t know about where everyone else lives, but traffic is pretty light around these here parts.
“This year is starting to shape up like 1981 and 1983″
Thing is, 1981-83 were in the aftermath of Volcker declaring war on the economy:
http://research.stlouisfed.org/fred2/graph/?g=1eY
This sucker’s going down unless they turn the bubble machines back on.
This is not about bonuses, this is about a hole in aggregate demand! Economists underestimate the business cycle at all points. I can’t help but think that they’re doing it now.
I wouldn’t know, I live in the middle of Boston! Where are you? But that would be consistent with the claims data that suggests nominal income growth is sluggish! Rebecca
Hi Rebecca, nice to have your old site back up & running too! I did hear an argumant about seasonals possibly assisting the July Payrolls number, but that aside (and it may not…), I struggle to see why July is any better than June, if not not outright negative. Internal labour market dynamics are not even close to improving, and July< after all, has been the month of moronic absurdity, otherwise known as Republican bl00dy-mindedness on the debt ceiling. Businesses don't hire when they have no demand to respond to, so why would they suddenly begin doing so in the month of July, a month where uncertainty increased exponentially? I can't see it...
Woonsocket, RI. Retail space rental is going to get big here with the new super walmart opening in the town next door closing it’s Woonsocket space (yep, more dead walmart owned real estate) and CVS closing 2 store combined into one new one that they now own instead of rent.
Where the Walmart is going, there is question of whether the Lowe’s is still moving to. Though no other buildings are going up in this new developement that distroyed 126 acres of beautiful land.
Interesting enough, people bitch about the cities getting the biggest bite of state revenue. In N. Smithfield they think they gained with this developement. I ask them what do they think is going to happen to their share of state money when Woonsocket has lost these 2 stores?
Idiots!
“Businesses don’t hire when they have no demand to respond to, so why would they suddenly begin doing so in the month of July,”
Because they are anticipating having more untaxed money which is used to make jobs do to their benevolence. Oh, and the belief that spending money on creating a job as a result of decreased payments will gain them more profit.
I think that is the reasoning. LOL.
Rebecca,
Your fuel supplied chart doesn’t seem very useful as an indicator of current economic activity. During the 90’s it appears to have spent about half the time in negative territory. in the oughts, between reessions, it spent maybe a third of the time below zero. So it’s not clear to me that this is a good coincident indicator. The initial unemployment claims series, by contrast, is a good coincident indicator. How about trying Treasury income tax receipts, which is also available on a weekly basis?
Rebecca,
Your fuel supplied chart doesn’t seem very useful as an indicator of current economic activity. During the 90’s it appears to have spent about half the time in negative territory. in the oughts, between reessions, it spent maybe a third of the time below zero. So it’s not clear to me that this is a good coincident indicator. The initial unemployment claims series, by contrast, is a good coincident indicator. How about trying Treasury income tax receipts, which is also available on a weekly basis?
Rebecca,
Your fuel supplied chart doesn’t seem very useful as an indicator of current economic activity. During the 90’s it appears to have spent about half the time in negative territory. in the oughts, between reessions, it spent maybe a third of the time below zero. So it’s not clear to me that this is a good coincident indicator. The initial unemployment claims series, by contrast, is a good coincident indicator. How about trying Treasury income tax receipts, which is also available on a weekly basis?
You are correct that the statistical cause is the dearth in aggregate demand, but the reason the aggregate demand is weak stems from a culture which demands the corporate executives and shareholders receive their cut first, no matter what happens to the rest of the business or the economy as a whole. We’ve seen that the far largest share of increases in GDP over the last ten years have gone to the uber-compensated and capital, operating under the principles I’ve just noted. How can aggregate demand be maintained when every time a dollar comes by, the executives and shareholders skim off another dime without ever putting anything. Investment in the US over the last twenty years has been pathetic, except for real estate and we’ve all seen where that’s gotten us. The financial engineers have finally killed the geese who laid the golden eggs.
Actually, Treasury tax receipts are available on a daily basis – I use those sometimes, too. I’ll update that chart for another post this week.
But the average through the whole of the 1990s was 2.3%, that’s very much positive. We’re in negative territory and the trend is quite robust. I agree, it’s not the ideal indicator – but diesel consumption has been contracting since May. This could pick up as the supply chain picks up – I’m skeptical, though.
Rebecca
You’re being insufficiently glum about claims. The y/y comparison involves, you know, that year-ago number. Seen on a 3-month basis, claims are up, not down. No reason to think y/y is a better indicator of economic health than q/q. If we just hold steady, the y/y comparison will get worse, while the q/q would stabilize. Period/period comparison toss out all sorts of weird impressions.