Category: Economy

Economics Update

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We have a fair amount of news, most of it bad, with consumer spending and personal income flat, pending home sales falling sharply in June, and the Institute for Supply Management’s manufacturing survey falling more than expected, though the latter still indicates (rather anemic) growth.

Additionally, we have the Wells Fargo/Gallup survey of small business sentiment hitting a new low, while personal bankruptcy filings rose 9% in July.

As to the good news, we have…

We have…

We have…

We have…

Ummmm…A survey of economic mood in Europe hitting two-year high?

Wanker of the Day

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Little Timmy Geithner just penned an OP/Ed today, “Welcome to the Recovery,” which is remarkably clueless.

While he admits that there is still a tough row to how, his he characterization of the recovery is positively Hooveresque.

I am surprised that he did not announce that “Prosperity is just around the corner.”

He declares, “We are on a path back to growth,” and that “The economy on the road to recovery”.

I understand the desire to paint this rosily, but it is a political loser: Americans do not respond well to claims of a robust recovery when ⅙ of the workforce (U6) is unemployed.

I think that the problem here is that Geithner does not see this unemployment level as a problem.

Why else would he suggest that at a time when there are 5 job applicants for every job opening, a record, that the problem is just that American workers need training:

The share of workers who have been unemployed for six months or more is at its highest level since 1948, when the data was first recorded, and we must do more to ensure that they have the skills they need to re-enter the 21st-century economy.

This is offensive and wrong on so many levels.

As Atrios notes:

The sentence that should have been written is:

The share of workers who have been unemployed for six months or more is at its highest level since 1948, when the data was first recorded, and we must do more to ensure that they have jobs.

But obviously that’s not what they’re thinking. Unemployment is a skills mismatch problem, unemployed losers don’t “have the skills they need to re-enter the 21st-century economy.”

We’re screwed.

Anyone who thinks that the problem is a temporary dislocation of workers, as opposed to a period of catastrophic job loss should be considered to lack the skills necessary to be employed in the 21st century economy.

Fire Tim Geithner now.

Economics Data Points for Last Week

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So, GDP growth has fallen sharply, down to a 2.4% annual rate in the 2nd quarter, as compared to the anemic-for-a-meaningful-recovery 3.7% in the 1st quarter, which appears to indicate that the recovery is running out of steam.

What’s more, the base number is overly rosy to begin with, since it is driven by inventory restocking from industries that had drawn down to the bone, home builders rushing to beat the tax credit deadline, and a significant increase in government spending.

Consumer spending rose by only a 1.6% annual rate.

What’s more, initial unemployment claims remained above 450,000, at least 50K above a tepid recovery in employment.

I’m beginning to agree with Mohamed El-Erian of PIMCO, who says that employment has become a leading indicator, since it drives consumer spending.

Economics Update

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The obvious lede here is the fact that the Fed has released its Summary of Commentary on Current Economic Conditions, better known as the Beige Book, which was not good, weakening slightly from June’s Beige Book, but it is not downright awful.

This is the already anemic stimulus, and a mild restoration of inventories running out of steam.

If you want some more detail, you can look at the Dallas, Richmond Fed Manufacturing surveys have shown a sluggish economy, and the Chicago Fed National Activity Index has fallen.

We are also seeing that consumer confidence fell to a 6 month low in June.

Additionally real estate is really pretty pathetic, with the number of renters skyrocketing as the home ownership rate has hit an 11 year low, so much for the Bush/Greenspan real estate wealth.

Note that home sales did rise sharply in June, over an expiration-of-the-tax-credit crippled May, but it still was the worst June ever recorded.

Mortgage news was mixed though, with mortgage applications falling slightly, though the number of applications for home purchases rose slightly.

Finally, durable goods orders fell for the 2nd straight month in June.

Economics Update

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It’s jobless Thursday initial claims rose by 37,000 to a 464,000 (seasonally adjusted), worse than forecast, with the less noisy 4 week moving average rising by 1,250 to 456,000, though continuing claims fell by 223,000 to 4.49 million.

In real estate, the inventory of homes for sales has risen year over year, and existing home sales fell in June.

They will fall in July as well, since we are still seeing the tailing off of closings from contracts that were signed before the tax credit expired.

About the only thing that shows any hope in the housing market is that mortgage rates continue to fall, though they really running up against the zero bound.

Economics Update

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Well, if consumers are 70% of the economy, the fact that the Thomson Reuters/University of Michigan consumer confidence index numbers fell to a nearly 1 year low.

This, along with a falling consumer price index, which indicates that a deflationary spiral may be nearer than we would like, are not good news.

Additionally, notwithstanding heroic/stupid efforts to prop up the housing bubble, home builder confidence has hit a 15 month low.

On the brighter side, Moody’s survey of commercial real estate prices is rose in May, and the National Association for Business Economics’ latest survey of employers is showing that employers are looking to hire more than they were a year ago, though admittedly, that is not saying much.

Even a Stopped Clock…………

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And Alan Greenspan are actually correct every so often:

Former Federal Reserve chief Alan Greenspan believes Congress should let the tax cuts enacted by President George W. Bush expire for all Americans in order to address the widening deficit, according to a TV interview airing Friday.

“They should follow the law and let them lapse,” Greenspan told Bloomberg TV’s Judy Woodruff.

The 2001 and 2003 tax cuts are due to expire at the end of the year. President Obama had promised to make them permanent for families making less than $250,000.

As to Obama’s promise to people making less than 250K, it would necessarily involve deal cutting which would require some sort of very expensive sop to the rich, so just put this in the category of another Obama promise not kept, and let the rich pay more.

The amount saved by folks making less than 250K amounts to just a few bucks a week.

Of course, that is not what is going to happen. Instead, Obama will propose an extension on the lower income tax cuts, and then he will propose tax cuts for the wealthy, basically giving away the store at the start of negotiations, and then the Republicans, and Ben Nelson, and various Blue Dogs, will go and lard it up with more give aways for the rich, most likely give aways on interest, capital gains, and dividend income, and Obama will declare victory, and sign it.

My suggestion would be to make the proposal, and raise the marginal tax rate for folks over 250K, to something on the order of 85% for income over $10 million a year.

Start there, and you may actually get a good tax bill.

Seriously, soaking the rich is good policy and good politics.

Economics Update

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Well, it’s jobless Thursday, and the initial unemployment claims number have fallen to a 2 year low, 429,000, though it should be noted that these are seasonally adjusted, and so this number takes into account, for example, GM’s summer shutdown, which did not happen this year, though, as the author notes, the fact that GM is seeing that much business is a good sign in and of itself.

Unsurprisingly, the 4 week moving average fell as well, though continuing claims rose.

On the other side of the coin, we are seeing a number of non-employment metrics weakening, with falling producer prices, foreshadowing incipient deflation, while both the New York Fed and the Philadelphia Fed numbers have softened.

In real estate, home foreclosures rose 38% year over year in the 2ndquarter.

The Fed Gets Grimmer

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Well, the minutes from the Federal Reserve’s June meeting of the Federal Open Market Committee (FOMC) have been released, and the already grim predictions that they have made for GDP and employment have become even grimmer.

It’s time to crank up the helicopters, and literally begin dropping money out of them.

I’ve run the numbers for this operation, and it would require fewer than 100 of the whirlybirds to accomplish the task.

Economics Update

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If you believe that small business will be important in any recovery, then the fact that the fact that the NFIB’s index of small business optimism fell.

In employment, job turnover fell in May, indicating that this already jobless recovery might become even more jobless.

There are also signs of weakness in transportation, with the Association of American Railroads Rail Time Indicators falling.

Real estate is grim as well, with non-residential construction forecast to fall 10% in 2010, and home mortgage purchase applications fell to a 13 year low, even with rates being at historical lows.

Finally, in what makes up over 70% or so of the US economy, retail sales fell in June (see pic).

Unambiguously Good News

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For the first time since the 3rd quarter of 2008, State tax receipts rose in the 1st quarter of 2010.

The obvious bit of good news here is that increasing tax revenues means that there is more hiring (income tax) and buying (sales tax), but there is another significant effect.

49 states, all of them but Vermont, are required by their constitution to run balanced budgets, and what this has meant is that the state governments have had to act like 49 little Hoovers, cutting budgets and staffing in the midst of the worst downturn since the great depression.

The turnaround in tax revenue means that the spending cuts can stop, which removes a drag to those state’s economies created by budgetary retrenchment as well.

Quote of the Day

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It is remarkable. I had expected that we economists would have to fight Democratic political advisors who would be pushing for policies that were bad in the long run but that gained votes in the short run. I had never expected to be fighting Democratic political advisors who are pushing policies that are:

  • bad in the long run.
  • bad in the short run.
  • lose votes too.

—-J. Bradford Delong, Deputy Assistant Secretary of the United States Department of the Treasury in the Clinton Administration

<Tinfoil Hat>I’m beginning to wonder if Obama isn’t some sort of Republican Manchurian Candidate</Tinfoil Hat>

I don’t really believe this, but his policy of cozying up to bankers, BP, and other corrupt centers of power in our society while cock punching the DFH’s* that are his base seems to be a pretty good job of sabotaging his party.

*Dirty F%$#ing Hippies.

Economics Update

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It’s jobless Thurdsay, and initial claims fell by 21,00 to 454000, which is still at least 100,000 too high for anything approaching a realistic recovery.

The less volatile 4-week moving average fell by 1250, and continuing claims fell by 224,000 to 4.41 million, though I am not sure if the latter might have been caused by the Senate delaying extended benefits.

Additionally, it looks like what Paul Krugman calls the “Invisible Bond Vigilantes,” still appear not to exist, because the 30-year fixed mortgage rate has fallen to 4.57%, the lowest mortgage rate since Freddie Mac started keeping track of the data in 1971.

Note that even with the banks giving away money, people are still not buying houses now that the tax credit is basically done.

Hoocoocanode?

In other less than surprising news, the Bank of England has kept its benchmark rate at ½%, basically zero, so apparently they don’t believe in the bond vigilante fairy either.

Economics Update

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Temp hiring surges

It looks like temporary hiring is very strong, up 19.6% year over year, which, in addition to contributing to my finding employment, should be a leading indicator for direct employment, though private “permanent” employment is still down 0.7% YoY, which runs counter to earlier data. (see chart pr0n)

We are also seeing falling rates of credit card delinquencies, which are down to an 8 year low, which could be seen as either a glass half full, that people are getting a handle on their finances, or glass half empty, with people continuing to deleverage, and flying into the “paradox of thrift.”

Finally, in an update from yesterday, when I discussed office vacancies, today, we see that vacancy rates in shopping centers increased in the 2nd quarter.

Why We are a Sick Nation

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I don’t mean mentally ill, I mean generally unhealthy.

A study has been done, and it shows that countries with more equitable wealth distribution are healthier, even amongst the wealthiest in society:

……

Links between bodily and economic well-being are far from straightforward. In the related area of socioeconomic inequality we’ve already become aware of unexpected influences through the work of Professor Richard Wilkinson of the University of Nottingham.

In his 2009 book The Spirit Level, co-authored with Kate Pickett, he summarised a raft of research all pointing in more or less the same direction. In countries where there is a big earnings gap between rich and poor, life expectancy is lower while mental illness, obesity and drug and alcohol abuse are all more common.

The real surprise is that it’s not only the poor who suffer. The population as a whole do less well if the gap is wider. The nations with the smallest wealth gap and the lowest incidence of health and social problems are the Japanese and the Scandinavians. The countries with, respectively, the greatest and highest are America, Portugal and Britain. The biological explanation for this is uncertain, but possibly mediated by the hormonal effects of perpetual anxiety about status and position, or loss of them. Economics affects health but not always as you might expect.

In our accommodating the insatiable desire of the people at the top for, “Another yacht to water ski behind,” we are shortening, and worsening, the lives of everyone in our society, both among the haves and have nots.

The economists or social scientists might have a more complex explanation for this phenomenon, but as for me, I will keep the lesson simple, “Evil is bad for you.”

Economics Update

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CRE is not a pretty picture
H/t Calculated Risk

Not a good day for real estate.

We have an increase in the rate of mortgage delinquencies, as well as decrease in delinquent mortgages becoming current.

Additionally, in the world of non-residential real estate, office vacancy rates have hit a 17 year high. (See graph pr0n)

Outside of real estate, the Institute for Supply Management’s (ISM) non manufacturing index fell in June, though the number is still above 50, it’s 53.8 down from May’s 55.4, so it is showing slower expansion, not contraction.

On the brighter side, the bankruptcy filing rate in June fell from May’s level.

Well, sort of anyway. You see, June actually had about the same number of filings, but because June had 22 business days, and May, because of where weekends fell and the Memorial Day holiday, only had 20 business days, the rate for filing days was down by 10%.

I call bullsh%$ on that one.

People don’t file on a per business day basis, they do so over a period of time that is largely unaffected by holidays, and June has 1 fewer days that May.

Yes, the Shrill One Is Shrill

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Paul Krugman compares the justification behind European austerity programs to the infamous French strategy in World War I.

He’s right, of course.

The statements by ECB President Jean-Claude Trichet that austerity in the face of a depression will win through the creation of confidence is much like the infamous Plan XVII envisioned by the French to win the war through the confidence and fighting spirit of the French citizen (élan), as described by Baraba Tuchman in her book The Guns of August:

Entirely offensive in nature, Plan XVII made extensive use of the belief in the mystical élan vital assumed to be instilled within every Frenchman – a fighting spirit capable of turning back any enemy by its sheer power.

Needless to say, Plan XVII was as meaningful an idea as the statement by a British General during the same period of something to the effect of, “A machine gun bullet cannot stop a horse.”

So, Are We Going to Repeat 1937?

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Why this picture does not scare the powers that be defies understanding
H/t Calculated Risk

Well, a quick rundown of this week’s data seems to indicate that if we listen to the austerity fetishists, we are.

In employment, the Thursday unemployment claims data indicates a continued weakening of the employment picture, with initial claims rising 13K to 472K, at least 100K more than what we need to see for meaningful job growth, and both the 4-week moving average and the continuing claims numbers went in the wrong direction too.

Additionally, the official job numbers for June came out, and the non-Farm payroll fell by 125,000, though the drop was because of the US Census winding down its temporary positions.

Private employment rose by an anemic 83,000, and the unemployment rate fell from 9.7% to 9.5%, though the latter was largely from people leaving the rolls because they had given up looking, and the hourly workweek fell.

Additionally, the Institute for Supply Management’s Manufacturing Index fell from 59.7 to 56.2, a 6-month low, though any number over 50 still shows expansion, and the Chicago Purchasing Managers’ index fell slightly as well.

Also, in yet another indication that the economy is running out of steam because the stimulus is running out, small business lending from the SBA has cratered following the expiration of its bonus program to lending banks.

Of course, the inflation hysterics hawks are saying that the bond markets are mad as hell, and that they are not going to take it any more, but if this were true, mortgage rates would not have fallen to their lowest rates in 50 years.

I would note that we are seeing the same thing in real estate, with 31% of all home sales being foreclosure or short sales, up from 1% at the height of the bubble, and these foreclosures are selling for a 27% discount relative to regular sales, which indicates that a recovery, either in price or in volume is still far away.

A Marxist Analysis of the Financial Meltdown

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It’s kind of like watching a dinosaur walking down main street

There is some things here that are right, and some that are wrong, and the hard part is determining which is which, but the white-board cartoons make it entertaining. (11:10)

To be true, I’m not sure just how “Marxist” the lecturer, David Harvey is.

I really don’t know him, and this lecture really sounds a bit more Fabian Socialist than full blown Marxist, but in any case it is a new way to look at what happened, and heterodoxy is what is needed here.

H/t Felix Salmon.