Killing Abu Mahdi Al-Muhandis

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Initial jobless claims still negative, but no recession signal

As you know, I’ve been monitoring initial jobless claims closely for the past several months, to see if there are any signs of a slowdown turning into something worse. Simply put, if businesses aren’t laying employees off, those same people are consumers who are going to continue to spend, which is 70% of the total economy. So the lack of any such increase has been the best argument that no recession is imminent.

Yesterday morning’s report of 222,000 initial claims continues the string of numbers above the 2018-19 average. Superficially the four week average of 233,250 is also enough for a recession flag, but as we will see below this is really an artifact of seasonality.

To reiterate, my two thresholds for initial claims are:

1. If the four week average on claims is more than 10% above its expansion low.

2. If the YoY% change in the monthly average turns higher.

I’ve also added a threshold for the less leading, but also much less volatile 4 week average of continuing claims at 5% higher YoY.

As indicated above, the 4 week moving average of claims has risen to 233,250, which  is 15.8% above the lowest reading of this expansion, which occurred back in April

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Forward Creeping Excessmass Wins The War On Christmas

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The chart of the decade

Today doesn’t just mark the end of 2019, but the end of the 2010’s as well. So it’s only suitable that I post the one chart that I think most explains the economy over the past 10 years.

In terms of public policy, that chart would be of the continual explosion of income and wealth inequality, particularly at the very top 0.1% or 0.01% of the distribution.

But in terms of explaining why the economy has chugged along at roughly 2% GDP growth every year for 10 years, with no recession, the below graph, that was part of my year-end review last week, sums it up nicely. Here it is again, the YoY changes in the Fed funds rate and the YoY% change in the price of gas:

What generally kills economic growth is either a sharp change in the cost of financing and/or a sharp increase in the costs of inputs. In the 2010’s we never had either. In 2018 we came close, particularly in a YoY change in gas prices, but it was an increase from a very low level, and it didn’t last that long.

This very long moderation in both interest rates and important commodity prices is the most basic explanation for the fact that the expansion that started in 2009 is still going on as we begin 2020.

See you on the other side. In the meantime, Happy New Year!

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Thiessen Balances His Policy Defense Of Trump

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To steal from Sandwichman’s excellent commentary on 2020 Hindsight and use a quotation from it which does give the magnitude of the last 10 years in financial terms;

“A fourth wave of debt began in 2010 and debt has reached $55 trillion in 2018, making it the largest, broadest and fastest growing of the four” (since 1970). There is a cost to this and one which can be seen in the US as this debt formation is not going to “meet urgent development needs such as basic infrastructure, as much of the current debt wave is taking riskier forms”

akin to what we began to see in 2000 and culminating in 2007/8 with a disastrous economic collapse.

The Atlantic’s Anne Lowry also writes about the last decade. Perhaps, she is the wrong author to pick upon and use to summarize the impact of the economy on the nation’s population. And again others may disagree with my choice; however in this case, I appreciate her summation on what she notes in passing; The Decade in Which Everything Was Great But Felt Terrible.

Picking the best story encapsulating the economy of the last decade she chose CamperForce: depicting elderly nomads living in vans and RVs and spending their twilight years temping at Amazon fulfillment centers, other places, setting up temp businesses, etc. after losing savings, homes, and belongings in the 2008 crash.

If there was a positive spin to this recital it would be of people wanting the structure and community work can provide well into retirement age, the freedom and mobility associated with a RV life, the flexibility of temp gigs, or not being nailed down to place, job, etc. The story is not of a newly realized freedom in retirement; CamperForce consisted of grandparents who had been evicted from their homes during the housing collapse and were struggling to stay out of poverty. It’s a modern-day, AARP twist on The Grapes of Wrath.

To use Anne’s words; perhaps the most representative story is that of the former graduate student who ended up as a warehouse janitor or the thousands of people who have gone online to beg for money to help them stay afloat through a life-threatening illness.

In finality these stories cast a reality in the names and faces depicting today’s economic impact; the real, urgent, and indelible marks of this past decade’s failings. The ten years without a single month of serious recession with the United States growing to its wealthiest point ever and still longevity fell, and it became clear that a whole generation was losing its place in the hierarchy.

The central economic message given to us from the 2010s? No matter how well the market was doing, how long the expansion lasted, and how much the economy grew; families still struggled and lost ground in the economic hierarchy. Because the decade did so little for so many, it strained America’s idea of what economic growth could and should do.

The rest of Anne Lowry’s story can be found here; “The Decade in Which Everything Was Great But Felt Terrible,” The Atlantic, December 31, 2019.

It is a good read.

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According to a report, Global Waves of Debt, pre-published by the International Bank for Reconstruction and Development:

Waves of debt accumulation have been a recurrent feature of the global economy over the past fifty years. In emerging and developing countries, there have been four major debt waves since 1970. The first three waves ended in financial crises—the Latin American debt crisis of the 1980s, the Asia financial crisis of the late 1990s, and the global financial crisis of 2007-2009.

A fourth wave of debt began in 2010 and debt has reached $55 trillion in 2018, making it the largest, broadest and fastest growing of the four. While debt financing can help meet urgent development needs such as basic infrastructure, much of the current debt wave is taking riskier forms. Low-income countries are increasingly borrowing from creditors outside the traditional Paris Club lenders, notably from China. Some of these lenders impose non-disclosure clauses and collateral requirements that obscure the scale and nature of debt loads. There are concerns that governments are not as effective as they need to be in investing the loans in physical and human capital. In fact, in many developing countries, public investment has been falling even as debt burdens rise.

At any given time there exists an inventory of undiscovered embezzlement in—or more precisely not in—the country’s business and banks. This inventory – it should perhaps be called the bezzle – amounts at any moment to many millions of dollars. It also varies in size with the business cycle.

Any large quantity of debt includes an inventory of embezzlement. A certain amount of it will never be paid back. Some was never intended to be repaid. As the debt increases relative to income, the proportion of prospective embezzlement also increases.

Happy New Year!

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A response to Kevin Drum: for wages and inflation, it’s all about the price of gas

Last week Kevin Drum had the following inquiry:

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by New Deal democrat

Weekly Indicators for December 23 – 27 at Seeking Alpha

My last Weekly Indicators post of the year is up at Seeking Alpha.

The producer side of the economy seems to be worsening, while initial jobless claims suggest some weakness is spreading over to the consumer side.

As usual, clicking over and reading helps reward me a little bit for the effort I put in.

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The Unreasonableness Of The Policy Defense Of Trump

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