Category: Economy

Economic Datapoint of the Day

No Comments
Click for full size


Iceland’s falling GDP


Iceland’s low unemployment

Matthew Yglesias, as an afterthought in a post highlighting one of the truly trippiest campaign videos ever, notes that despite Iceland’s plummeting GDP, unemployment remains relatively mild compared to the other European* red-headed step children.

The difference is, of course, the fact that Iceland is not a part of the Euro zone, and as such is not locked into a monetary union with the Germans who continue to pursue an export driven beggar-thy-neighbor policy with a zeal that approaches that of the Chinese.

The real question about the Euro has always been whether it would survive bad times, but perhaps the question should be whether or not the Euro made sense in the 1st place.

*Yes, I know, Iceland is an island, and not a part of Europe proper, but the same could be said for Cyprus, and Iceland is even more tightly tied to western Europe.

Economics Update

No Comments
Click for full size


This may be the harbinger of an economic recovery


This is not a boating accident real estate recovery!

The The Chicago Fed National Activity Index [CFNAI] has risen to its highest level since March 2006 (see top pic) indicating that there might be some sort of recovery going on.

This is further reinforced by the fact that personal income, spending and savings all rose in May.

Of course on the other side the Conference Board’s Consumer Confidence index fell nearly 10 points between May and June, and first time home-buyer traffic has fallen off a cliff, indicating that the recent bump in home sales was, as the experts* noted, was merely a sale-price time shift, not a real recovery.

*And loudmouth blowhards like yours truly.

Economics Update

No Comments
Click for full size


Housing Recovery My Ass!
H/t naked capitalism

The lede has to be the the Federal Open Market Committee’s (FOMC) statement.

While the rates remained the same, no surprise, you cannot drop rates below 0%, and rates won’t go up until the Fed sends a few months of signals, what is surprising is that the statement is more pessimistic than May’s statement:

The Federal Reserve acknowledged a faltering pace of U.S. economic recovery on Wednesday as it renewed its vow to hold benchmark interest rates exceptionally low for an extended period.

In a statement at the end of a two-day meeting, the Fed scaled back its assessment of the pace of recovery, taking note of pockets of weakness, and also issued a cautionary note about volatile financial markets in light of Europe’s debt woes.

Of course, it’s more than just unemployment and consumer spending, real estate appears poised to had back down the drain, with the AIA’s Architecture Billings Index declining last month, and mortgage purchase applications fell again this week.

But the real news in real estate is the continuing collapse in home sales, and we now know that new home sales have fallen to the lowest recorded number ever, a 300,000 annual rate, and records on this have been kept since 1963. (!)

The two bright sides here are that the numbers are seasonally adjusted, and that the monthly number is volatile, and was likely impacted by the expiration of the home buyer tax credit, but it is still grim.

What Simon Says

No Comments

Specifically, Simon Johnson, former IMF chief economist, who notes that with Peter Orszag resigning as as director of the Office of Management and Budget (OMB), Paul Krugman would be the best replacement:

The president should nominate Paul Krugman to replace Peter Orszag as director of the Office of Management and Budget (OMB). (Orszag resignation details are here.)

………

But for the OMB position, the dynamic of a hearing would be terrific for the president’s specific agenda and broader messages. Krugman, of course, is the leading advocate for continued (or increased) fiscal stimulus. This is exactly President Obama’s message to the G20 this weekend.

Plus, when Republicans push back against Krugman on this issue, he will let them have it full blast on fiscal policy during the Bush administration. Krugman has, again and again, been an outspoken critic of the Bush era fiscal policy. He has precise chapter and verse on where the Bush team went off the deep fiscal edge.

………

It will not happen, of course, because Obama only tries to do the right thing when he has no other alternative, and there is simply not the pressure to have Krugman take the post.

Go read the whole thing.

Economic Quote of the Year*

No Comments

Paul Krugman finds this quote from Adam Posen of the Bank of England’s Monetary Policy Committee regarding people who think that somehow the European Central Bank is not “Chaste” enough in matters of fighting inflation because it is engaging in quantitative easing (printing money) in the form of buying bonds:

Cultures which make a public fixation of virginal maturity, of a stylized maiden’s reputation, tend to be backward superstitious cultures that impede people exercising autonomy and making responsible choices.

Word up.

*So far.

Employment/Economic Update

No Comments
Click for full size

Still grim, and grimmer still Ex-Census Hiring
H/t Calculated Risk, link has more grim graph pr0n

So, the “very serious people” in Washington and other capitals around the world have decided that we need to reduce deficits, because the financial crisis is over.

Well the employment data seems to show otherwise.

Total payrolls rose by 431,000 last month, but most of that was temporary census employment, the increase in private sector workforce was only 41,000, and you need to create some 100K-125K new jobs each month in order to keep up with natural growth in the labor force.

Add to this the fact that even with improvements, the unemployment claims numbers still suck wet farts from dead pigeons, and I am fairly certain that the “very serious people” are “very seriously wrong people”.

Economics Update

No Comments

The Institute for Supply Management’s manufacturing index fell from 60.4 in April to 59.7 in May. Note that this is still expansion, but it is a slower rate of growth.

Seeing as how the 2nd derivative is a pretty twitchy number anyway, I’d wait for the June numbers, and perhaps July, to see if there is a trend.

Meanwhile, construction rose by 2.7% from March to April, the largest one month jump in almost 10 years.

Additionally, serious mortgage delinquencies fell marginally, but since this is the first time that they have fallen since the real estate bubble started to pop in 2007.

Meanwhile, in the department of, “If you listen to the Germans when you set up a currency, you will get screwed,” unemployment in the Euro zone rose to 10.1% in April. (PDF)

Hemlines Come Way Down, Stock Market to Follow

1 Comment
The latest from the Paris fashion scene

The New York Times reports that hemlines are falling this season, by a LOT, and Calculated Risk reminds us that, “in 1926, economist George Taylor suggested the “Hemline Index”; he observed that hemlines moved with stock prices”.

We are completely screwed.

More after break:

OK, that’s not the real picture, here are some of the actual pictures:

OK, these are the real skirts, and yes, we are screwed:

And here are the models, who raise the universal question, “Who the f%$# pissed in your Cheerios to make you look so unhappy?”:

Economics Update (Friday Morning Edition)

No Comments
Click for full size

Home sales up, but prices are down


And inventory is rising again

Yes, I know, I haven’t been posting this regularly.

Yesterday’s miss was due to thunderstorms.

In any case, yesterday was jobless Thursday, and initial unemployment claims fell slightly, by 16,000 to 460,000, which was worse than expected, with the 4 week moving average rising slightly, and continuing claims fell, though, as I frequently note, people who move from continuing claims to emergency claims fall out of that number.

We also now know that mass layoffs rose in April.

additionally, we are seeing more of that whole “paradox of thrift” thing, with personal income rising, but spending remaining flat, which implies that an increase in consumers buying crap that they really don’t need won’t be our economic salvation.

Also note that the US GDP in the 1st quarter was revised downward, to an annual growth rate of 3% from 3.2%.

I think that he Obama’s already anemic stimulus package is running out of steam.

In real estate, the flight from the Euro has pushed the 30-year fixed mortgage rate to a record low, which, along with the recently expired home buyer tax credit, drove existing home sales higher, though inventories are increasing as well, and prices are falling once again, which implies that a resurgence in the housing bubble won’t be our economic salvation..

In terms of more general metrics, the consumer confidence index rose slightly, as did the Chicago Fed Activity Index, and the Chicago Fed Midwest Manufacturing Index.

I just wish that the PTB were as concerned about 9.9% unemployment as they are about a twitch in the DJIA that ran for about an hour.

Hoisted from the comments

9 Comments

In a discussion of raising marginal tax rates, reader DJ wrote:

Interestingly enough, raising taxes on the rich does not result in prosperity either, it only serves to drive the economic activity out of the country derived from the holdings of the rich. The 90% tax rate in the depression only served to drive milliona[i]res out of the country.

Note here, that on the basis of his comments, DJ knows what he’s talking about and has a good grasp of the facts.

The fact that he made this comment is an indication of the truth of the old Mark Twain quote, “A lie can travel half way around the world while the truth is putting on its shoes.“

DJ has assumed that self serving statements from people who don’t want their taxes raised actually have a basis in reality.

The myth that rich people did, and will again, “go Gault,” is just that, a myth.

First, and most importantly, the 90+% tax rate was not implemented until 1944-1945 (and then again in 1951-63, not times of slow GDP growth).

Second, there is no evidence that millionaire’s fled the country during the depression. The case is generally made that the recession of 1937 was caused by this, but only by people like Amity Shlaes (who is not to be trusted, see below) in her execrable book The Forgotten Man.

They suggest that because Roosevelt pursued tax evaders, it triggered the recession of 1937, because they went “Gault” and withdrew their money from the economy and put it in their mattresses.

Of course, the fact that neither Keynes, who blamed the tightening of fiscal policy by the government (which did include a tax hike) nor Friedman who blamed the tightening of monetary policy by the Fed, viewed this argument with anything but scorn, and this is the alpha to omega of honest economic thought.

Additionally, in order for people to flee the US income tax (after the first $91,400) you have to renounce your citizenship, which also precludes the ability to make campaign donations, which makes the regulatory arbitrage that generates this income, particularly in finance, which is where most of the tax rates increase would fall.

Essentially, if they leave the country and renounce their citizenship, the government guaranteed infinite ATM that they have goes away, because the Congress will no longer feel compelled to do their bidding.

I would also note that while the top 1% of earners account for 23.5% of income (2007), they account for less than 20% of spending (2008, they do quintiles, so it’s an approximation, and I don’t want to tease it out any further), so a dollar going to a rich pig™ is much less stimulative than a dollar going to a dollar going to someone in the bottom 4/5 of the population.

There is a legitimate question as to whether or not we should raise taxes on the rich today because we are still in a depressed economy, though I favor it.

That being said, many of our long-term structural problems come from the fact that income distribution is increasingly unequal, and the the use of high marginal tax rates is one of the best ways to change this.

I would also note that if the “geniuses” at Lehman, Bear Stearns, and Citi withhold their ideas for “financial innovation” as a result, we are all the better for that.

As to Amity Shlaes, who is typical of the people supporting the “going Gault” hypothesis, and arguably one of the most prominent proponents:

  • She has no background in economics (degree in English)
  • She is in idiot who lets her ideology dictate the facts (she was fired by the Financial Times for repeatedly submitting stories about the heroism and competence of Bush and His Evil Minions™ during Katrina).
  • In order for her to justify her conclusions about 1937, she states as fact things that are unequivocally false.

Lies Conservatives Give Us

6 Comments

Like the one that higher marginal tax rates stunts the economy and hurt the ordinary people.

Paul Krugman looks at the data, and notices that median family income stalled out once we started cutting the top tax rate:

You can see why: the facts are embarrassing. Here’s a rough-cut version. The blue line, left scale, shows median family income in 2008 dollars; the red line, right scale, shows the top marginal tax rate, a rough indicator of the overall stance of policy. Basically, US postwar economic history falls into two parts: an era of high taxes on the rich and extensive regulation, during which living standards experienced extraordinary growth; and an era of low taxes on the rich and deregulation, during which living standards for most Americans rose fitfully at best.

I would also add that the flattening of income growth also happened as more and more of these families became two earner families.

So the addition of the 2nd earner also masked a very real drop in wages of ordinary people.

We want the marginal rate back above 75, and we want the lower taxes on unearned income, capital gains and dividends, to be reversed.

Money does not trickle down, it bubbles up, and money that goes to paying billions to hedge fund managers and other criminals is money that is taken from ordinary families who play by the rules and work for a living.

Economics Update

No Comments
Click for full size

This is not an expanding home market
H/t Calculated Risk

Well, so much for green shoots, it’s jobless Thursday, and new claims rose by 25K this week to 471,000, with the 4 week moving average rising by 3K to 453,500, though the continuing claims number fell by 40K to 4,630,000.

It should be noted that the continuing claims number does not count those on emergency UI, like yours truly.

Additionally, it should be noted that the Conference Board’s Index of Leading Economic Indicators posted its 1st drop since March 2009. It should be noted that this is a volatile metric, and a folks who know economics generally want at least 3 months up or down before they declare a trend.

Additionally, real estate is looking dicey.

We have, “One in 7 US homeowners late paying or in foreclosure,” actually 14.01%, in the 1st quarter of the year, with 10% of home owners late 90+ days, and the AIA’s Architecture Billings Index shows continued contraction in April, though this indicator for future commercial construction is did improve in comparison to March.

Additionally, mortgage purchase applications fell to a 13 year low, even as low rates kick-started the demand for refinancing.

Note that this is despite near record low mortgage rates.

We are also seeing continuing erosion in the prices of commercial property.

On the plus side, the Philadelphia Bank of the Federal Reserve’s Manufacturing Activity Index rose in May, and Japan’s economy grew faster than expected.

On the inflation side, the CPI fell by 0.1% in April, and the core rate, which excludes food and energy, has risen .9% over the past 12 months, which is actually worrying, as it indicates a risk of a deflationary spiral/lost decade.

Economics Update

No Comments

Well, over the past few days, we’ve had a spate of good news, with the New York Bank of the Federal Reserve’s Empire State index showing continued growth, though that growth is slowing, with the index dropping from 31.9 in April to 19.1 in May.

Additionally, credit card issuers are reporting reduced delinquencies for April.

In real estate, we have the National Association of Home Builders confidence index rising to a 2½ year high in May, as well as an increase in housing starts, though housing permits have fallen, which indicates that the builders are expecting the euphoria to be short lived.

Finally, concerns about the Euro zone, and a related return to recession (we’re out of recession?) have pushed both oil and the Euro down.

Read the Shrill One

2 Comments

He comments on the IMF’s latest report on the fiscal situation worldwide, and notices something buried in the footnotes, that the large structural deficits currently forecast are due to depressed demand and economic activity causing deflation, not government spending.

The solution is therefore for governments to engage in stimulus activities of the sort that put an end to the great depression, while (hopefully) avoiding that whole “World War” thing:

It takes careful reading to discover what’s really going on:

The persistence of deficits reflects permanent revenue losses, primarily from a steep decline in potential GDP during the crisis, but also due to the impact of lower asset prices and financial sector profits.

(emphasis mine)

Aha. Most people who look at the IMF report will, I suspect, read it as telling a tale of government profligacy getting us into a hole. But what the report actually says is quite different: it says that the financial crisis has made us permanently poorer, which among other things reduces revenue, and governments have to tighten their belts to make up for that loss.

He is correct when he says that the IMF’s burying the lede means that , “[T]he report isn’t literally misinformation, but in practice it’s likely have that effect.”

Economics Update (Early Afternoon, 1st Time This Week Edition)

No Comments

It’s jobless Thursday, and initial jobless claims fell from 448,000 to 444,000, though it should be noted that last week’s number of 448,000 was actually revised up from 444,000, meaning that the number is even flatter than the 4K change indicates.

That being said, the 4 week moving average fell by 9,000, which might indicate a slight trend downward in claims, if not for the fact that continuing claims rose, indicating that this may be less a matter of the economy picking up than it is a matter of employers simply running out of people to let go.

In terms of other metrics for the economy:

Consumer confidence, at least as surveyed by Investor’s Business Daily and TechnoMetrica Market Intelligence, has risen in May, from 48.7 from 48.4, though numbers below 50 indicate pessimism.

The National Federation of Independent Business’ optimism index rose to 90.6 in April from 86.8 in March, which is firmly in the class of, “better, but still pretty weak tea.”

In transport and trade, we have the trade deficit hitting a 15-month high, which, while normally not a good thing, is right now, because we are well into “paradox of thrift” territory.

Additionally, we have the always worthwhile Calculated risk reporting that Diesel fuel consumption fell slightly, and rail traffic rose slightly, in April.

In real estate, mortgage applications are up, but only because refinance is up, purchase applications are down, indicating that we are seeing people who are trying to lock in low rates on homes that they already own.

Finally, the Bank of England has decided to maintain its monetary policies, keeping its benchmark rate at ½% (effectively zero), and maintaining its quantitative easing via asset purchases.