Relevant and even prescient commentary on news, politics and the economy.

US economy in August: moving sideways

With the (roughly) 11% decline in US equities year-to-date, talk of a US recession has resurfaced. Through mid August, the high frequency economic indicators point to further weakness, rather than a double dip.

In my view, whether or not the US is IN a recession – defined as the coincident variables followed by the NBER (.xls) are turning downward – is really a moot point for a good chunk of the working-aged population. It probably ‘feels’ like the economy never exited recession to many.

As an aside, it would be difficult for the US economy to actually ENTER a contractionary phase right now, since the cyclical forces that normally drag the US into recession – inventories, auto sales, and housing – are at severely depressed levels. Confidence (or lack thereof) can reduce domestic spending and investment – it’s in this respect that the losses in equity equity markets are important. It takes time for shocks to work their way into the economic data. Nevertheless, high frequency indicators do not point to recession…for now.

Claims are elevated but ticked up last week. If claims do not fall back in coming weeks, the unemployment rate will rise again. This could indicate the outset of a contracting economy.



Weekly diesel production shows an increase in transportation activity (please see this post for an explanation of the data).



Read More After the Jump!



The demand for diesel (in real barrels per day) recovered, rising at a rate of roughly 15% annually for each of the weeks of July 29 and August 05. Annual growth declined to -3% in the week of August 12; but this series (even in annual growth rates) is highly volatile, and the 4 week moving average of annual growth decelerated only mildly, from 7% to 6%.

Finally, daily Treasury tax receipts are slowing but growth remains positive.

The chart illustrates the annual growth rate of the 30-day rolling sum of daily withholding receipts for income and employment tax payments. This series proxies the health of the labor market. Spanning the last three months, the annual growth rate decelerated to 4% (May 18 through August 18 this year compared to the same period last year) from 4.6% in the three months previous. There’s no indication of a contraction in tax receipt activity, but a further trend downward in the pace of tax receipt gains would turn some heads.

Nothing to indicate a contraction in the high-frequency data; but the deceleration is worrisome, given that consumers must ‘earn’ their consumption rather than ‘borrow’ for consumption. I don’t feel particularly positive about the state of the US economy. Neither does Mark Thoma.

Rebecca Wilder

A reminder from Obama’s February 2009 speech

By: Daniel Becker

In answer to the generic question regarding President Obama’s actions regarding the debt ceiling, I am re-posting this from 2/25/09.  In comments of the original I stated that cutting the deficit by 1/2 seemed to “optimistic” for me.
***************************

Ok, here are my basic issues with the substance of President Obama’s speech. First, may I remind everyone
that as of 11/08 I declared my divorce successful. Has it become my mission accomplish moment?

I heard this:

“And we will expand our commitment to charter schools. but as a father when I say that responsibility for our children’s education must begin at home.”

And thought: 2 tier education system/vouchers, no thank you. Education begins at home when home means one parent has the time to spend at home oppose to both working.

I heard this:

“And we must also begin a conversation on how to do the same for Social Security, while creating tax-free universal savings accounts for all Americans.”

And thought: Are you freak’n kidding me! In this time of financial collapse we’re still going to talk about turning an insurance for the masses against the follies of finance into some form to include finance? The entire reason we want to create jobs is because we have suddenly realized that the vast, vast majority do not earn their money from money. Tax free? Has he not heard of 401K, IRA and all it’s versions, HSA, higher education accounts? Italy?

I heard this:

“Yesterday, I held a fiscal summit where I pledged to cut the deficit in half by the end of my first term in office.”

And thought: Yeah, how’d that work for the last administration who made such a declaration? Did he have to say “in half”? Has his advisors not taught him about the blip during the FDR recovery? Only one way I can think of doing this: Raise taxes where the money is and whack the defense budget in half and I mean take a swipe at all moneys related to security. Are we really $1 trillion dollars worth of paranoid?

Once more: I WANT MORE SPENDING!

by: Daniel Becker
Ok some more information to bolster my position that my flower shop being down this year another 4.5% compared to last year (at least the decline is leveling off) is not the results of government debt or too much taxation or banks not lending or unions… nope, my shop is off because of one thing: Lack of income in the hands of the many and nothing to date has been done to change that.
As noted here and here, monetary policy is not going to cut it. (Please pray for the Greeks.)
Or I should say, not cutting it for anyone who earns a penny because someone else had an extra penny to spend beyond their non-discretionary expenditures. That is, they are at the point of autonomous consumption, but not at the point of offsetting income earned from their cognitive or physical labor with that earned from money. That means we’re talking about the bottom 90% of the income earning population. (The top 10% own 82% of the stock.)


Two nice charts from the NY Fed bank

The first shows just how much of a dive spending has taken. Considering we’re a “consumption economy”, I don’t think this bodes well for us. The second shows how lacking in recovery such spending is compared to prior recession.
I don’t know about you, but I don’t care how much money we pump into the economy at the top, if it doesn’t get in the hands the bottom 90% of the income earners, there will be no recovery. It does not matter if the Fed’s are pumping it in or the Government is doing it via tax reductions because both methods are not putting the majority of the money in the hands of the many. The Fed article notes that this discretionary spending is “services”. It is 30% of all personal consumption expenditures (PCE). Non-discretionary is 34% of PCE, that leaves 36% somewhere in the middle? They state PCE is 70% of all output. So, 30% of 70% is 21% of all output? Using $14.7trillion means about 3.09 trillion has taken a 7% hit of $216 billion! ( I readily accept any math corrections in comments)
The author states:  
Because consumption accounts for about 70 percent of output, this in turn raises some concern about the future strength of the recovery.
That’s an understatement! He hedges some more: Also, households may remain wary about their employment and income prospects, suggesting that they may have lowered their future income expectations.
Really? “May” is the word one wants to use here? 
A Mr. Roche is more direct:
The real weakness in this recovery is rooted in the fact that consumer balance sheets are so mangled that they’re spending primarily on non-discretionary items and saving the rest of their incomes to pay down debts. This is important to understand because policy must be geared in such a way that it does not further hinder the household balance sheet. And therein lies the problem with a policy such as QE2. Anything that can potentially cause cost push inflation will only further weaken the household sector and detract from any possible recovery. In the case of QE2 I think we saw the increased speculation contribute directly to rising commodity prices which ultimately squeezed consumers further and led to the current soft spot in the economy.
BINGO!
Let’s not stop there. From Mr. Weisenthal Under “Scariest Job’s Chart Ever” we get this one on the duration of unemployment.

 
Which brings me to my posting from 4/2008: The longest Recession Ever
I noted in this post that it took 20 months from the Bush 2 recession for the peak of what I call Person Weeks Unemployed (a multiple of the number of people out and the number of weeks out). I also noted that Reagan with back to back recessions did not see the peak until 30 months past the first recession. Almost 3 full years! He also double the quotient.
I ended with: 
Thus, the peak of a recession is in the eye of the beholder. If you’re a person earning money from labor, a recession these days can last a very long time. This data would suggest that what we are seeing in the Spencer post is not a decreased risk but a lull before the storm. One other thing. It appears the Republicans fail again. As a group they have the longest turn-around to seeing a reduction in lost labor.
There you have it.  You want to fix the economy?  Don’t follow the conservative ideology.  The Republicans win in delaying recoveries. Yet, here we are with a “Democratic” president using the very language, words, framing of the group that is proven to not know how to create jobs and thus get money in the hands of the many in the shortest amount of time. Some say the Republicans are doing it this time with intention. I doubt that, though it is a meme that would make them seem to be the ultimate chess players.
Yes, I WANT MORE SPENDING!

Monetary Policy. I’m not only not feeling it, I’m dehydrating because of it.

by Daniel Becker

Continuing my prior post suggesting that what ever monetary policy has done, it has not reached that vast majority nor has it addressed what is the main issue, I viewed this chart by Mike Kimel and thought: Perfect!
Then comes Ken Houghton linking to this article with it’s chart.
What do they have in common? Income inequality. So let me repost this graph from my 12/2007 post.
I’m only posting the second half of the graph, as that is the one that matters.

Take a look at 1996. That is the year that personal consumption crossed over the income level of the bottom 99%. It’s been borrowed money ever since. For an economy that runs on making money from money, that’s not a problem for those who earn their income by such a manor, is it?

Back to Mike’s chart. He noted that the change in what type of spending was associated with recessions happened around the early 70’s. That time is when another major event happened. The rise in productivity disconnected from the rise in wages. That is, any rise in productivity did not produce a corresponding rise in wages as was the historical norm. My position is that this was the start of the “new” service economy of making money from money that went into full mode with Reagan. Ok, we went from government spending to private sector spending as the fuel for the economic engine which I agree with Mike is what is the real mechanisms that is behind the results Mike notes Tyler Cowen labeled The Great Stagnation. Mr. Cowen is correct, it’s a great stagnation, but stagnation has it’s cause. Regarding both Mike and Mr. Cowen, the shift from government spending to private sector spending being considered the fuel that resulted in stagnation is not the complete answer. The change in the means of spending coincides with the ideology change. We went all Milton and Rand ideologocially. However, the act of spending dollars and the means by which dollars are spent is not the fuel of the engine, it only referrers to the distribution of the fuel. Mike is taking about the distribution system and Mr. Cowen is talking about the results of using that system.

So, what is the real culprit? What is it about the fuel that made us get to where we are today?

We started starving the engine of fuel. And we did it by using a supposedly better fuel distribution system. Instead of moving the money into the engine via the broadest distribution system, we followed an idea that suggested a more focused distribution system would work. It has not worked. It has quite literally starved the engine of fuel. I noted this here.
To quote that post using the time span of 1933 to 2005:

For the first 43 years, GDP doubling was always ahead of the income. For the next 32 years, GDP growth was always behind the income which was do to the top 1%’s share. Their’s is the only income that increased faster than the economy. In chart form it looks like this:
First 43 years doubling: GDP 8.6 yrs, 99%’ers 10.75 yrs, 1%’ers 14.3 yrs.
Next 32 years doubling: GDP 10.6 yrs, 99%’ers 11 yrs, 1%’ers 8 yrs.

The first 43 years the share of income to the top 1% was declining to a low in 1976. After that in was increasing.

Ok, now to Mike’s chart. He stated:

Basically, if you corner enough economists, you might get them to tell you recessions begin if there’s a big drop in private consumption, private investment, or gov’t spending.

Reading that statement while looking at his chart should be causing fire alarms and sirens to sound. This is because, if “private consumption” is an accepted cause of a recession, and the only time such appears to be associated is this current recession in 72 or so years of having recessions, then something has radically changed. If that chart showing that an accepted cause of recession only happened once in recent history, then honey, it’s the big one.

I think there is no way to deny it. Income inequality is the dinosaur in the room. It is the meteor that hit the earth. It is why all the past solutions theorized and used since the New Deal recovery are not working.  

They can’t work because they do not address the predicted but never before (recent history) experienced.

So, look at my chart again. It’s borrowed money that keep the consumption going since 1996 (yeah the supposedly great Clinton year). You do know that the share of income rose faster to the top 1% during his 2 terms than during Reagan, Bush 1 and Bush 2? It was debt combined with “new products” designed to pretend people could pay the debt which kept it going.

In terms of numbers: $1,400,000,000,000. That’s 1.4 trillion dollars every year, year in and year out that the original system had moving through it that is now somewhere in the new system doing nothing as it relates to building a larger, stronger, healthier economic engine. You can’t cut taxes enough to make up for this. You can’t distribute enough money via QE to make up for this mostly because QE does not address this at all as noted.
 
Still not convinced with my graph, Mike’s chart and the chart Ken referred too? Then try this on for size: Recent Trends in Household Wealth in the United States: Rising Debt and the Middle-Class Squeeze—an Update to 2007, by Edward N. Wolff, Levy Economics Institute of Bard College

March 2010 Page 20 to 22

As noted above, the ratio of debt-to-net-worth of the middle three wealth quintiles rose from 37 percent in 1983 to 46 percent in 2001 and then jumped to 61 percent in 2007. Correspondingly, their debt-to-income rose from 67 percent in 1983 to 100 percent in 2001 and then zoomed up to 157 percent in 2007! This new debt took two major forms. First, because housing prices went up over these years, families were able to borrow against the now-enhanced value of their homes by refinancing their mortgages and by taking out home equity loans (lines of credit secured by their home)…Where did the borrowing go? Some have asserted that it went to invest in stocks. However, if this were the case, then stocks as a share of total assets would have increased over this period, which it did not (it fell from 13 to 7 percent between 2001 and 2007). Moreover, it did not go into other assets…The question remains whether the consumption financed by the new debt was simply normal consumption or was there a consumption binge (acceleration) during the 2000s emanating from the expanded debt? That is, did the enhanced debt simply sustain usual consumption or did it lead to an expansion of consumption?

The average expenditure of the median income class was virtually unchanged from 1989 to 2001 and also from 2001 to 2007. Thus, the CEX data, like the NIPA data, show no acceleration in consumer spending during the debt splurge of the 2000s. As a result, it can be concluded that the debt build-up of the 2000s went for normal consumption, not enhanced consumption.

Got that? Let’s summarize: The share of income to the 99% of people declined from 1976 onward. At the same time the means of making money changed from labor production to money manipulation (producer economy to finanicialized economy) adding to the reduction in share of income. We also changed the ideology to one from relying on the vast population (as represented by the individual and We the People) to relying on a small portion of the population to distribute what money was created. We did this for 33 years. By 1996, people were borrowing as a means to sustain their standard of living (not increase it). If the people are not spending to increase their standard of living, then is the economy really growing? By 2006 people were no longer able to make the payments and consumption was declining.  Then gas hit $4/gal and winter heating was looking like another $4000 to $6000 would be needed.

To date, nothing has been done to address this. Nothing at all. And, by “this” I mean, the income inequality that has resulted in an an economy where a very small group of people (top 1%) are taking money out of the system (that is money that would fuel the engine) faster than the engine can make it which results in an ever faster declining share to the rest of the people. Instead, we have refined new fuel and dumped it right into the top 1%’s hands and wonder why the engine is still sputtering?

One other issue I have with framing and the words used today: Under water.

People are not under water. They are not drowning in debt. On the contrary, people are dehydrating. They are starving for water. Do you know what the symptoms are of dehydration? You get thirsty and then urinate less to conserve water. (debt spending) Then you stop making tears and stop sweating. (can’t borrow) Eventually your muscles cramp, the heart palpitates and you get dizzy. (close to bankruptcy, voting against your interest) Let it go long enough and you get confused, weak and your coping mechanisms fail. (Tea Party, etc) In the end, your systems fail and you die. (recession)

People are dehydrating and Washington is doing nothing about it because they believe it is drowning.  They are throwing out life boats to people in a desert.  That is the chart Ken linked to.

Making Markets be Markets

by Daniel Becker
I came across a presentation called Make Markets be Markets sponsored by the Roosevelt Institute which is tied to New Deal 2.0.  Here is the full report here (pdf).

The following are two videos, first by Simon Johnson, second by Elizabeth Warren,  from the full presentation (see here).

I have not read the full report or watched all the event, but thought these would be of interest.

Simon Johnson on the Doom Cycle (MMBM) from Roosevelt Institute on Vimeo.

Elizabeth Warren on Consumer Protection (MMBM) from Roosevelt Institute on Vimeo.

I Got your REAL State of the Union right here

by Daniel J Becker (DOLB for the rest of you)

UPDATED BELOW.
Well, I thought being tonight is the big night for the President I would give my version of the SOU. This is an update on the flower shop. For any new readers, these are real numbers from an honest to goodness small business.

As you can see from the chart below, or maybe not, I don’t need a loan. I don’t need a tax break. I could use a real national health plan as the medical for this year again, including premiums hit $15K (16.5 and 17.7 prior 2 years). I have a high deductible plan that increased from $6471 in ’06 to $7195 in 2009, 11% up.

No, even if you did the cash for clunkers again, I don’t have the extra cash flow to take a loan. Though the delivery van has 235K miles on it. It’s a 2002 Caravan.

All my loans are fixed, so I’m not worried about deficit fueled inflation as it relates to my monthly payments. My property, even with the 15% loss in the last 2 years based on tax evals is still 1.69 times more than my mortgages and I only have 15 or less years to go.

We’re working with less people at the shop and have layed off our manager/worker (he’s fast, a good designer and can carry the load when we’re not there) to 1/2 time. We’re watching every penny as to inventory, utilities, insurances (I’m getting money back on the WC because payroll is down).

What I’m worried about is this:
Keep in mind, that we were considered a larger than normal shop. If we’re doing this bad, imagine how the wholesalers and everyone else down line are doing. That’s the real trickle down folks!

There is only one thing that will fix it: CUSTOMERS!

It’s not that people are not trying to spend, it’s that they really have run out of money. Note that the credit card sales continued to rise for a year after the account and cash sales started to decline.
The people tried to spend. Now they can’t.

So, let me be clear to the Congress and the President: I NEED CUSTOMERS…WITH MONEY!

Update:  A commentor asked for some more data. 
Ins, Maintenance, Rent, Utilities, and Property/inventory taxes are 13% of gross. Payroll is 25% Payroll is down 14%, but gross is down 16%. We can cut payroll more, but the issue becomes my sweety having some down time. (please no lectures). Payroll was 25% of gross last year. 

Supplies (what we sell) were 48% of last years gross, this year 47%.

Seasonal Posting: NYTFail, Part 2

First, David Leonhardt argued that this recession was good for workers.

Now, Floyd Norris apparently has decided to mix and match data. (I wonder if the fact many NYT employees who are looking at their 45-day severance offers is having an effect on its economic coverage.)

One of the standard “economist jokes” is about the one who died because he forgot to “seasonally adjust” his pool. In that tradition, Norris declares:

The adjustments are for seasonality. For some reason, October is the month with the largest seasonal adjustment down in jobs. So the increase in the unemployment rate does not reflect people actually losing jobs. It reflects the belief that seasonal factors should have added more jobs than they did.

All this may be very reasonable, and there is no way I can think of to test whether the seasonal adjustments are reliable. [emphases mine]

Gosh, I wonder why October would have a larger seasonal adjustment, and whether there is any BLS data to support that adjustment?

Apparently, employers traditionally hire a lot of people in October for “the Holiday Season.” And while it’s possible that they will be doing all that hiring in November this year, it hasn’t been the way to bet during this millennium.

Norris continues:

But I suspect seasonal factors are less important this year, when the economy may be changing directions, than they normally are.

It was with such optimism that Napoleon went to Russia, people bought VA Linux at $100 a share, and the Bush/Cheney/Rumsfeld axis decided to run a two-front war in Afghanistan and Iraq. With statements similar to Norris’s:

In reality, the government report says unemployment rates remained steady at 9.5 percent. And the number of jobs actually rose, by 80,000. And the number of jobs for college-educated Americans rose more than in any month in the last six years.

Well, the number of jobs rose (as one would expect, given the Holiday Sales push) but Table B-1 is closer to 40,000 than 80,000:

Where we do see an 80,000 job increase is in the private sector, which is more than 500,000 workers lower than it was in August. If you want to play a non-seasonally adjusted, private-sector only game with the data, you should at least be honest about it.

More vitriol and data below the break.

The details of that 80,000 look even worse: declines in all Goods-producing areas (except about 200 new jobs in primary metals, 300 in “miscellaneous manufacturing,” and 1,100 in motor vehicles and parts; cash for clunkers, anyone?) which are balanced by the Service sector, most notably the 63,500 new Retail jobs. Can you say “seasonal employment”? Floyd Norris apparently cannot.

The rest of the Non-Seasonally Adjusted figures are even less encouraging. Table A-8 of the report shows more than 100,000 people added to “not on temporary layoff”:

while Table A-9 is depressing: a larger number of unemployed at all durations, with the median duration of unemployment increased by more than one month (in a month):

And while the BLS has not updated their Job Openings data for October, the graphic through September isn’t exactly pointing to a decline in that median (or a robust recovery):

Is there a recovery in process? Maybe, though I’m not convinced, since most of the positive data seems, as Paul Krugman noted, “unrepresentative.”

But things are not so good as Floyd Norris wants to pretend, even (or especially) using the data he chooses to highlight.

That 3.5% rise in GDP

UPDATED

Divorced one like Bush wants to know how accurate the polling was that came up with a consensous that the GDP rose 3.5% in the third quarter. I did my own poll last night at band practice and 100% of the self employed band members (only one for an employer and that’s the public school system) said they did not see it in their business.

I think this GDP rise, “we’re out of the recession” was just more of the inside the beltway pundit MSM happy talk. How else can you explain a 200 point rise in the Dow?

UPDATE:
I took another poll today. It’s of retail. It’s a poll of 1, but I think it’s significant. The results are good. Retail sales were up 5.3% for the 3rd quarter over the same time last year. WOW! I think I’ll buy stock in this company. Here’s how it broke out:
July up 19.4%,
August down 14.2%,
September up 12.2%.
Six out of the last nine months were negative as compared to last year.

Here’s how the money flowed:
Account sales down 11.8%,
American Express up 78.4%,
Cash down 3.2%,
Discover down 39%,
Visa/Master Card up 24.6%.

Here’s the Advanced Retail Sale report from October 14, 2009

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for September, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $344.7 billion, a decrease of 1.5 percent (±0.5%) from the previous month and 5.7 percent (±0.7%) below September 2008. Total sales for the July through September 2009 period were down 6.6 percent (±0.3%) from the same period a year ago. The July to August 2009 percent change was revised from +2.7 percent (±0.5%) to +2.2 percent (±0.2%).

Retail trade sales were down 1.7 percent (±0.7%) from August 2009 and 6.4 percent (±0.7%) below last year. Gasoline stations sales were down 25.3 percent (±1.3%) from September 2008 and building material and garden equipment and supplies dealers were down 13.0 percent (±2.0%) from last year.

And the Dow came back to reality today. At least for the moment.

Texas is Not in a Recession, but it’s Bottoming Out

Rick Perry famously declared that there was no recession in Texas, even though the only way they balanced the budget was through emergency funding.

Rick Perry and the Federal Reserve Bank of Dallas appear not to talk with each other:

Texas factory activity showed the first signs of bottoming out in September, according to the business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key indicator of current manufacturing activity, came in close to zero as the number of companies seeing increases and decreases was nearly equal….

Employment indicators suggest manufacturers are still trimming payrolls, but the key indexes are becoming less negative. The average work week index rose for the second consecutive month, and about 17 percent of manufacturers noted increases in work hours. The employment index also improved as

the share of firms reporting job cuts fell

, while those reporting new hires rose from last month. Wage pressures remained minimal, with 92 percent of producers noting no change in compensation.

Yep. Just what we expect to see in a “normal” economy.

The Plural of Datum is Foreboding

Via Dr. Black, CR describes Washington, D.C. real estate as “the commercial version of the subprime situation.”

Two points:

  1. CR knows better, most of the time, than to believe that there was a “subprime situation” in any sense other than “We Are All Subprime Now.” [edited for tone]
  2. Possibly more importantly, Washington, D.C., is one of the few areas that has, relatively speaking, maintained employment levels during the current recession.

If D.C. is having CRE problems, is it any wonder the rest of the country is in a jobless “recovery” at best?