Category: Economy

Economics Update

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It’s jobless Thursday, and unemployment rose, but it remains below the 450,000 range that I have been harping on,with new claims rising by 26,000 to 436,000, the 4-week moving average falling by 5,750 to 431,000, continuing claims rising by 53,000 4.27 million, and extended benefits rising by 377,000 to 8,91 million.

Truth be told, since this is reporting from a short week because of the Thanksgiving holiday, I’m not sure if it means much.

In real estate, pending sales for existing homes jumped by 10% in October, which is surprisingly good news, though it may not translate in to quite so many closing, since mortgage rates are rising, which may complicate the life of your average home buyer.

Economics Update

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We get the official numbers on Friday, but ADP’s private employment survey shows a 93,000 increase in private employment in November, which is the best number in about 3 years, though this alone is still a bit smaller than the natural growth in the labor market.

Also on the plus side, we have the Federal Reserve Board’s  Beige Book showing mild expansion, construction spending rising in October, and car sales for GM, Ford, and Chrysler up significantly in November.

On the so level, we have the Institute for Supply Management’s manufacturing index falling, but still showing slow growth.

On the minus side, we saw mortgage applications falling sharply last week.

The Root of the Irish Economic Problem

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So, they have cut a deal for the Irish to cut their own economic throats, but I think that all the commentary misses the big picture on the Republic of Ireland.

Before the boom, Ireland was a 3rd world country that happened to be a part of the EU.

At the height of the bubble, Ireland was a 3rd world nation that was part of the EU, and part of the Euro zone, which drove a speculative frenzy being driven by massive foreign cash flows.

It was still, and remains, a 3rd world nation that was a part of the EU.

To be fair, it might better be called a 2-¾ world nation, but still…..

I’m Beginning to Think That I am Too Reflexively Pessimistic On the Economy

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Admittedly, it is only one week, but this week’s jobless claims numbers are very good, 407,000 initial claims, the lowest in almost 2½ years, the 4 week moving average fell to 436,000, continuing claims fell by 142K to 4.18 million, and emergency claims fell by 262,000 to 4.66 million.

This is getting close to the level where we can actually start seeing some real recovery in the job market.

I still think that we will see a double dip as what remains of the stimulus runs out, but I am less confident of that than I was, for example, a few months agol.

Economics Update

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It’s jobless Thursday, and initial claims rose slightly last week, up by 2000 to 439K, beating expectations, and remaining below the 450-485K range where the number has meandered much of this year, so this is good news.

Additionally, the 4-week moving average dropped to a 2 year low of 443,000 and continuing claims fell fell by 43K to 4.3 million, though extended emergency claims rose by 12K to 4.93 million.

Good news though, the extended claims number drops to 0 on November 30, thanks to the ineptitude of Congressional Democrats.

We also have Philadelphia Bank of the Federal Reserve, where its general economic index exceeded forecasts by a factor of 4, jumping to 22.5.

On the down side, as always, is real estate, where foreclosures are ramping up again, as banks tweak their fraud and corruption fine tune their foreclosure programs and documentation.

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And the Award for Lame Losers Goes to ……

You know that recovery that we seem to be having, well expect it to stop, suddenly, in just a few weeks.

Why, because somehow or other the House Democrats managed to lose a vote on extending unemployment benefits extension, meaning that roughly 5 million Americans will lose their unemployment benefits on November 30.

That’s 5 million Americans who will be unable to make car or house payments of buy much of anything at all.

Figure about $1.5 billion pulled out of the economy a week, or a little bit over ½% of GDP that would just go away.

Not only did they not manage to pass the bill, but it was only a 3 month extension that they managed not to pass, so they failed on a lame half measure.

For some reason known only to God, they tried to pass it under a “suspension of the rules” requiring a ⅔ vote, which it failed, by 258 to 154.

OK, I do know the reason why the Democrats tried to pass this under a procedure requiring a 2/3 vote: If it passes by a simple majority, then people can make a “motion to recommit”, which could kill the bill, and would not pass, or a “motion to recommit with instructions”, where it is sent back to committee with instructions to make amendments, which doesn’t kill the bill.

The problem is that the Democratic Caucus discipline is so lax that if the Republicans try to attach something that Democrats fear might be used in a campaign, like, for example, banning felons from getting UI benefits, then many of the Democrats, fearful for being cast as soft on crime in the next election, will vote for the measure and against the party, and the country, because they have no damn guts.

Of course, the reason that the Dems lost on November 2 was because they have no damn guts, so their solution is even more gutlessness.

Cthulhu on a cruller, it’s lame.

Economics Update

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Well, if you think that the run up to the Federal Reserve’s quantitative easing (printing money) might lead to inflation, you thought wrong, with inflation at 0.2% in October, and the core rate at 0% for the 3rd straight month, and the year over year change was an anemic 0.6%.

The problem is that there isn’t enough inflation.

We also have real estate news, all bad, with housing starts falling, house prices in the US falling 2.8% in September (down 0.8% in the UK), mortgage applications falling, and the AIA’s: Architecture Billings Index, an indicator of future commercial construction, falling in October.

Economic Quote of the Year*

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Final thoughts from an economist on Armistice Day:

There are plenty people out there (I’ve just seen a documentary on Channel 4 presented by one) who don’t believe in Keynesian economics, but who think that the Great Depression was ended by the Second World War. In other words, paying men to dig holes and fill them in again is a ridiculous policy, compared to the sensible and effective course of action of paying men to dig holes and die in them.

H/t Mithras.

Economics Update

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The good news is that foreclosures fell in October, the bad news is that this was just temporary, as the banks paper over their fraudulent, and likely criminal, behavior.

An better indicator of the indicator of the health of the housing market right now is house prices, which fell 5% in the three months ending in October.

Outside of real estate though, the numbers look better, with retail sales rising significantly and credit card card defaults falling, though one month does not a trend make, particularly with sales numbers being driven by volatile auto, food, and fuel sales.

On the other side of the Pacific though, things are looking up as the South Korean central bank boosted its benchmark rate by 25 Basis Points (¼%), implying that they are now more worried about their economy overheating than about a double dip recession.

A Very Nice Take-Down of Treasury View Economic Blather

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The Numbers Do Not lie


But David Henderson Does

Economist Mike Kimel does a masterful job of taking down another right wing economist, one David Henderson, who asserts that the government spending actually suppressed economic activity during WW II, and when reduced, we experienced an unprecedented boom in GDP.

Only we didn’t.

Henderson also claims that the relaxation of economic controls under Truman lead to a much larger increase in private investment.

Only it didn’t.

The giveaway that Henderson is writing to reflect his opinions, rather than the facts is that he published his article at the Geroge Mason University Mercatus Center, which is another one of those right wing “think” tanks.

In any case, both of Kimels articles are worth a good read.

It is a very well done, and very well deserved, “Fisking” of a charlatan.

H/t Angry Bear.

Economics Update

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Generally, this has not been a good day for economic news.

We have seen a a spike in inventories, they rose 1.5% in September, following a 1.2% increase in August, which indicates that recent increases in manufacturing activity, which were largely driven by businesses rebuilding inventories, may now be running to the wall of weak consumer demand.

The fact that job openings fell again in September, indicating that there is simply not a an opportunity for people to find their way back into the job market, might be a part of this, as would the continued increase in personal bankruptcies.

On the brighter side, the National Federation of Independent Business’s optimism index rose to a 5 month high in October.

Economics Update

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We have two different data points, first mortgage delinquencies were up in the 3rd quarter, but we also saw that U.S. household debt shrunk by 0.9% over the same period.

So, are people paying down their debts, or are they having their debts written down by banks that realize that they will never get the money?

Coupled with this, crude oil is getting close to $90/bbl again, which may put another crimp in the economy.

Finally, the other shoe has dropped for monoliner bond insurer Ambac, and it has filed for bankruptcy, chapter 11 reorg, not chapter 7 liquidation.

So, the NFP Numbers Came Out Yesterday

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The Non-Farm Payroll report for October came out Friday, and it was much better than expected, growing by 151,000 jobs, much better than the forecast of 70,000 with unemployment (U-3) remaining at 9.6%, while the broader U-6* fell by 1⁄10 of a percent to 17%.

Even more significantly, it is more than the 125-150 thousand required to meet the natural increase in the workforce, meaning that at current rates, using the lower growth number, it would only take 26⅔ years for us to recover our job losses since Wall Street imploded.

By my math, this still qualifies as a jobless recovery, particularly since the total labor force has been shrinking as workers have become discouraged or otherwise left.

* “Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force.”

It’s Jobless Thursday

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And initial unemployment claims are back up to 457,000, with the 4-week moving average rising slightly to 566,000, continuing claims fell by 42K to 4.34 million, and emergency claims, which, by the way expire on November 30, rose by 357.7K to 5.01 million.

Total up those numbers and things are getting worse, and come November 30 they expire.

Extended unemployment insurance will likely not be renewed, because the threat of electoral punishment is gone from the Republicans, and over 5 million people lose UI benefits, which will crush consumer demand in the middle of the all-important holiday season.

So we have a cohort of 99ers who would be losing their unemployment benefits anyway, along with millions of people who will be abruptly cut off.

This is going to get very ugly very fast.

Economics Update

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The lede here is that the Federal Reserved has announced another round of quantitative easing (printing money), $600 billion over the next 9 months, more than the the widely forecast $½ trillion, which pushed the US dollar down in currency markets.

Accompanying the statement was a mild, to my mind too mild, statement about how the recovery is not progressing as rapidly as planned.

With the Michigan Consumer Sentiment Index falling, and US GDP growing at a truly anemic 2% rate, I think that they are being too timid, though there is good news with the Chicago Purchasing Managers Index, the Institute for Supply Management’s manufacturing index and non-manufacturing index, and ADP’s private employment survey: all show an increase.

Even more significantly, it appears that retail sales are beating expectations, which may bode well for the all-important holiday shopping season.

Still, real estate looks dead, with mortgage applications remaining flat despite historically low rates.

BTW, here is a blast from the past, monoliner bond insurer Ambac is warning that it might go bankrupt this year.

I’m wondering if this will put a whole raft of municipal bonds in technical default, since if Ambac goes BK, then it no longer has an obligation to fulfill its insurance contracts.

I really don’t know. Does anyone else know?

Full Fed Statement after break:

Press Release

Release Date: November 3, 2010

For immediate release

Information received since the Federal Open Market Committee met in September confirms that the pace of recovery in output and employment continues to be slow. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls. Housing starts continue to be depressed. Longer-term inflation expectations have remained stable, but measures of underlying inflation have trended lower in recent quarters.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow.

To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its holdings of securities. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.

The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Sandra Pianalto; Sarah Bloom Raskin; Eric S. Rosengren; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

Voting against the policy was Thomas M. Hoenig. Mr. Hoenig believed the risks of additional securities purchases outweighed the benefits. Mr. Hoenig also was concerned that this continued high level of monetary accommodation increased the risks of future financial imbalances and, over time, would cause an increase in long-term inflation expectations that could destabilize the economy.

Statement from Federal Reserve Bank of New York Leaving the Board

This is Unambiguously Good News

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It’s “Jobless Thursday,” and the numbers are good, with initial claims falling by 21K to 434,000, the less volatile 4-week moving average fell by 5,500 to 453,250, continuing claims fell by 122K to 4.36million, and emergency claims (those extended past 26 weeks) fell by 414K to 4.36 million.

It’s still to high for a job recovery, it needs to be somewhere south of 400K for an extended period for jobs to recover, but this is only the 2nd time in months that it was below 450,000, so perhaps we are beginning to see the beginning of a trend.

Economics Update

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H/t Calculated Risk for the September Philly Fed chart Pr0n

Since the tech bubble burst, the economy has been running on the consumer and on home sales, and both consumer confidence and home prices continue to disappoint.

Additionally, new home sales remain at pathetic levels, and mortgage applications increased, largely in response to lower rates.

Also, we did see the Philadelphia Bank of the Federal Released its State Coincident Indexes for September, and more states were up than down, though those advances were, once again, anemic.

The British Attempt at Slow Seppuku

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The British are engaging in truly draconian spending cuts in the face of a recession to the tune of £156 billion (roughly 20% of the current budget) and 490,000 employees.

By way of perspective, the UK Budget in 2-7-2008 was about £520 billion, and the job losses would be equivalent to the loss of over 2½ million jobs in the US, and that is just the direct losses, when one considers the follow on effects, essentially the jobs that are held by people who provide goods and services to these public employees, are likely to be even larger.

If one assumes that the total job losses will be roughly double the civil service cuts, and this is a conservative estimate, with the UK’s workforce size of roughly 30 million, we would see at least a 3% increase in unemployment.

On the bright side, unlike their fellow wingnuts on this side of the Atlantic, they are also applying the cuts to their Defen(c)se establishment as well (more in a later post).

I think that Paul Krugman has a wonderful bit of snark on this, where he calls the people who will be hurt by this British Fashion Victims:

In the spring of 2010, fiscal austerity became fashionable. I use the term advisedly: the sudden consensus among Very Serious People that everyone must balance budgets now now now wasn’t based on any kind of careful analysis. It was more like a fad, something everyone professed to believe because that was what the in-crowd was saying.

And it’s a fad that has been fading lately, as evidence has accumulated that the lessons of the past remain relevant, that trying to balance budgets in the face of high unemployment and falling inflation is still a really bad idea. Most notably, the confidence fairy has been exposed as a myth. There have been widespread claims that deficit-cutting actually reduces unemployment because it reassures consumers and businesses; but multiple studies of historical record, including one by the International Monetary Fund, have shown that this claim has no basis in reality.

No widespread fad ever passes, however, without leaving some fashion victims in its wake. In this case, the victims are the people of Britain, who have the misfortune to be ruled by a government that took office at the height of the austerity fad and won’t admit that it was wrong.

…………

It would be funny if it were not tragic.

Economics Update

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Catching up on the economic number dump, first we have the Federal Reserve’s so-called Beige Book, which shows that growth has continued, but it is very sluggish.

This is reinforced by the fact that consumer confidence fell in October, factory production and capacity utilization fell in September, for the first time in a year, though home builder confidence rose (to a truly pathetic 16 where 50 is neutral), and housing starts rose.

We also have some importing news out of China, with their central bank making a surprise increase in its benchmark rate, and Chinese government published new statistics showing that its growth slowed and inflation edged up.

Certainly, it looks like the Central bank is concerned about inflation, and the statistics, even considering the general unreliability of official government statistics, indicate a problem.

One interesting effect of the rate hike is that it should place additional upward pressure on the Yuan.