Category: employment

Economics Update

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Unemployment, SA vs NSA, h/t Brad Delong

Well, it’s Thursday, and initial unemployment claims rose for the 2nd straight week, once again worse than forecast.

What might be more significant is the significant divergence between seasonally and non-seasonably adjusted numbers, because the NSA unemployment number was 800,000 initial claims. (see graph pr0n)

The 4 week moving average continued to fall though, down 9,000 to 440,750 and the continuing claims number fell by 211 thousand to 4.596 million, though it should be noted that all these numbers are seasonally adjusted, and it appears that the adjustments are getting a big hinky.

In any case, the DoL’s numbers are here.

Retail sales also were below forecast, with the December number showing a -0.3% drop, missing analysts expectations of +0.5%.

We do have some good news though, with business inventories rising in November; it is the 2nd straight month, and the 2nd month-to-month increase in 15 months.

In real estate, foreclosures rose 14% in December, and total defaults for 2009 hit a record, 2,824,674, up 21% from 2008, and more than double the number for 2007.

In central bank land, Chilean central bank kept it’s rate at 0.5%, as the economy in the Latin American nation remains mired in recession and deflation.

In the US, the bad financial numbers had Treasurys rising as investors looked for safety.

In energy, warmer weather continued to push oil prices down, while in currency, the dollar was essentially unchanged.

Economics Update

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Decline in job openings since 2007
h/t Zero Hedge

The US trade deficit grew by 9.7% in November, largely on the recent run up in oil prices.

The National Federation of Independent Business’s small business optimism index fell for the 2nd straight month in December, indicating that the small business segment is still not ready to start hiring.

In central bank land, the yield on 30-year treasuries fell again, indicating an expectation that rates would remain low, while in China, the central bank raised the reserve requirement for banks by 50 basis points.

In energy, oil continues to fall on the promise of warmer weather.

In currency, the dollar rose, both on investor jitters, and on the Federal Reserve Bank of Philadelphia President being a complete moron and talking up rate hikes. (more on this later)

Not Enough Bullets

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This business will get out of control. It will get out of control and we’ll be lucky to live through it.

Cue Freddie Dalton Thompson from The Hunt for Red OctoberThe New York Times on banker compensation in these tough times:

Bank executives are grappling with a question that exasperates, even infuriates, many recession-weary Americans: Just how big should their paydays be? Despite calls for restraint from Washington and a chafed public, resurgent banks are preparing to pay out bonuses that rival those of the boom years. The haul, in cash and stock, will run into many billions of dollars.

Industry executives acknowledge that the numbers being tossed around — six-, seven- and even eight-figure sums for some chief executives and top producers — will probably stun the many Americans still hurting from the financial collapse and ensuing Great Recession.

It’s going to get out of control, as in some tea-bagging nut with a gun out of control, and I know that I won’t be sitting on the jury, because I could not bring myself to vote to convict.

Economics Update

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Deleveraging: The recession continues until it’s done
h/t Calculated Risk


H/t Calculated Risk

Well, the NFP came out, and the non-farm payroll fell by 85,000, and unemployment (U3) remained at 10%, which kind of gives the lie to all those forecasts that predicted an increase.

On bright spot, however, was that “November payrolls were revised to show the economy actually added 4,000 jobs rather than losing 11,000,” so the 22 month losing streak is broken….Kind of. (BLS link)

Consumer spending is not bouncing back either, as US consumer credit fell by $17.5 billion, a new record, indicating that consumers are continuing to deleverage and pay down their debts, taking us yet further into the paradox of thrift.

The fact that US office vacancies hit 17 pct, a 15-year high, reinforces the idea that things are still not turning around, though a surprise increase in wholesale inventories weighs in on the other side of the ledger.

Treasuries rose. and the dollar fell on the jobs report, as investors fled the dollar, and ran to treasuries, because of concerns about the strength of the recovery.

Of more concern is the fact that oil still rose after the abysmal NFP report, which implies that the new stable level for oil prices is above $80/bbl, which would have the effect of further crippling any recovery.

Economics Update

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first time unemployment claims rose slightly this week, up 1,000 to 434,000, down from the 490,000 at this time last year, and the 4 week average fell to 450,250.

I would note that this number needs to be below about 400K before non-farm payroll increases, and if the December numbers show an increase in NFP, it’s seasonal adjustment bull sh$#.

The numbers are better, but it’s still, “better in a not getting worse as fast,” way.

That being said, retail sales surprised on the upside, with December sales up 3% over the 2008 numbers, though still down by about 2-3% FROM 2007.

We also had some big news in central bank land, with China’s central bank raising its benchmark rate, with 3-month bills increasing to 1.3684%, up 4.04 basis points (0.0404%) from the rate that it had maintained for the past 4 months.

It indicates that they will be tightening on the money supply, which could get interesting, because much of the Chinese stock market is smoke and mirrors. Additionally, it may be a first step in allowing the Yuan to drift higher, as higher returns make the currency more attractive.

On the less surprising side of stupid central bank tricks, the Bank of England left both rates and policy unchanged, which means that they are still printing money hand over fist.

Also, Treasurys fell slightly, though I think that this is concern regarding the NFP payroll data.

Energy and currency surprised. The surprise increase in Chinese rates would normally presage an increase in oil prices, because there is the assumption that there is additional demand that is being tamped down, and the dollar down, because the Yuan becomes more attractive, but in fact, oil fell slightly, to below $ 83/bbl, though that might be profit taking, and the dollar rose fairly sharply.

A Very Good Idea

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The FDIC is looking to use a formula for its insurance fees that is driven by banker pay:

U.S. regulators are set to consider a plan that would tie the amount banks pay for deposit insurance to the riskiness of the institutions’ pay structures, a source familiar with the matter said Thursday.

Under the proposal to be considered next week by the board of the Federal Deposit Insurance Corp, banks that base compensation on solid performance metrics and include measures such as “clawbacks” would pay less for deposit insurance, the source said, speaking anonymously because the proposal has not yet been released.

Banks with riskier schemes that reward short-term gains would have to pay higher fees.

This is a good start, but it’s too easy for the bankers to game, and gaming financial contracts is what bankers do.

Set the fee based on total remuneration of the highest paid person at the bank, including bonuses.

For each multiple of the President of the United State’s salary ($400K) raise the insurance fee by 1 basis point (0.01%).

If your highest paid guy gets $4 million in a year, the surcharge is a manageable 0.1%, if he gets $40 million a year, it’s 1%, if it’s $70,324,352, which is what Lloyd Blankfein received in 2007, then it is 1¾%.

That should cut down on banker bonuses.

Hell, make it a payroll tax, and apply it to businesses across the board. It would cut down on overpaid athletes too.

Economics Update

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H/t Calculated Risk

Well, the ADP private employment survey is saying that the private sector lost 84,000 jobs in December, and the Institute for Supply Management’s non manufacturing index rose to 50.1, up from 48.7 in November, and not as good as forecast, but still showing a smidgen of growth.

Real estate was rather grim though, with mortgage applications hitting (seasonally adjusted) a 6 month low, and mortgage purchase applications (top pic) hitting a 12 year low.

Basically this means that people are not buying homes, they are just refinancing, though, with interest rates inching up, they aren’t doing that as much either.

Additionally, a feature of suburban blight, the strip mall, is taking a hit with vacancies hitting 10.6%, an 18 year high.

I keep saying it, but no one listens: we need some inflation here.

In energy, the cold weather drove both crude oil and natural gas higher, while in currency, the dollar fell slightly vs. the Euro, as traders make up their minds about whether to be optimists of pessimists.

Big Surprise

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The Conference Board’s survey of US job satisfaction hit an all time low. 45%, the lowest number since the survey began in 1987.

There is some surprise that, even as workplace safety and things like vacation days have increased, this number had trended downward:

“[That] could spell trouble for the overall engagement of U.S. employees and ultimately employee productivity,” she [Lynn Franco, director of the Consumer Research Center of The Conference Board] added.

The report notes that job satisfaction has steadily declined over the years despite big improvements in the work environment, such as a reduction of workplace hazards and an increase in vacation days.

Simply put, we are at the point where the fetishism of management for screwing with their workers may start hitting the bottom line.

This is basic primate behavior: People know that that upper management’s wages have gone up by more than 10 times, while their wages have stagnated.

The National Geographic noted this over 15 years ago:

Monkeys Show Sense Of Fairness, Study Says
Sean Markey
National Geographic News
September 17, 2003

If you expect equal pay for equal work, you’re not the only species to have a sense of fair play. Blame evolution.

Researchers studying brown capuchin monkeys (Cebus apella) have found that the highly social, cooperative species native to South America show a sense of fairness, the first time such behavior has been documented in a species other than humans.

The question of whether human aversion to unfair treatment—now shown by other primates—is an evolved behavior or the result of the cultural influence of large social institutions like religion, governments, and schools, in the case of humans, has intrigued scientists in recent years.

The new finding suggests evolution may have something to do with it. It also highlights questions about the economic and evolutionary nature of cooperation and its relationship to a species’ sense of fairness, while adding yet another chapter to our understanding of primates.

……………

Not Enough Bullets

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AIG general counsel Anastasia Kelly is to receive millions in dollars in severance after her pay was cut by Obama’s “pay Czar”.

I would note that she is the only one of the AIG executives to go through with their threat to leave, which implies that she might have been pushed, and as general counsel, she doubtless played a central role in the creation of these severance deals.

Sorry, but I think that it is time for the DoJ and SEC to see if she was doing something illegal in the way of self dealing.

Considering her background, she was also general counsel at the MCI/Worldcom, perhaps the bar association should investigate her too, since they can take action against incompetent lawyers.

So Not a Surprise

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The New Economics Foundation has done a study on the economic impact of bankers, and claims to have shown that bankers actually destroy economic value:

Bankers should count themselves lucky they are being hit by a mere 50 per cent additional tax on bonuses, a new report argues today, because their benefit to society is negative.

The New Economics Foundation, a left-leaning think-tank, says that by contrast hospital cleaners and many other low-paid workers contribute far more to society and this should be reflected in their pay.

Although the NEF is far from an orthodox economic think-tank, its A Bit Rich report stems from standard public economics theory that the government should step in if people’s value to society is remarkably different from their private value to an employer. The government already steps in, taxing everyone to ensure many jobs with high social value happen where those services would not be provided otherwise.

………………

The authors assume the financial crisis and recession would not have happened without City bankers engaging in risky, opaque and complex transactions. Applying a guess about the cost of the recession on the rest of society, they estimate top City bankers destroy £7 of value for every £1 they are paid privately.

If the figures are accurate, a rational government should shut the City. Naturally, the City disagrees and so does the Treasury, which sees benefits in properly regulated activity in the Square Mile.

This is something that ordinary people get, which is why the AIG bonuses and their ilk so outraged them: The point is not that these people are uniquely skilled, the Alex Rodriguez’s of their craft, but rather that they are the “Marvelous” Marv Throneberry‘s of the world.

These people do not need to be retained, they need to be excised from the financial system.

Economics Update (For the Week)

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Yes, it does appear that the seasonal adjustment for the week after Christmas is whack

The lede for the week is obviously that first time unemployment claims fell to the lowest level in 17 months, down 22K to 432K, though, as Brad Delong notes, this is likely because of problems with the seasonal adjustment for this week. (See graph pr0n).

Continuing claims, as well as the 4 week average fell too, but emergency claims, for people (like me shortly) who exhausted their regular benefits (i.e. out of work more than 6 months), rose sharply, by 199 thousand to 4.82 million, a 4.1% jump in one week. (!)

Earlier this week, the Institute for Supply Management released its Chicago index, aka the Purchasing Managers’ Index (PMI), and it unexpectedly jumped to 60 in December from 56.1 in November………Only they just revised it, and oops, it the PMI was only 58.7, largely on a downward revision on employment…………Happy, happy, joy, joy.

That’s not to say that the numbers aren’t better, they are better, much like the ATA Truck Tonnage Index November numbers, and the ShopperTrak year over year retail sales for last week, though the latter saw a drop in traffic.

In real estate, the 30-year fixed mortgage rate rose to a 4 month high, 5.14%, which is still at a level which is historically low, and the recent uptick in housing prices seems to have petered out, with the Case-Shiller index showing flat prices in October, following 4 straight months of price increases.

This is unsurprising, as home price subsidy new home buyer tax credit was supposed to end in November, and homes needed to close by November 30, which meant that there were a lot of sellers who knew that they had to move their houses quickly, or not at all.

Houses are still well above trend, both in terms of rent to own price to income ratio, though you still have claims that housing affordability is better than the historical numbers, because the mortgage rates are still incredibly (see above) low.

If rates return to their historical levels, about 9% for the 30-year fixed, we have a downward pressure on house prices of roughly 1/3, because people buy houses on monthly payment, not price.

We do have some good international news, with South Korean exports rising rapidly, and Chinese manufacturing growing at a 20-month high, though I wonder how much of the latter is the result of provincial bureaucrats goosing the numbers, or encouraging local industries to over produce, in order to score brownie points with Beijing.

Economic Quote of the Day

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On the subject of raising marginal rates for rich people:

Here’s why: in 2007, there were 495,000 tax returns filed for millionaires. That means a significant fraction were corporate CEOs, CFOs, finance people, and professional athletes/best-selling textbook authors/TV celebs.

Peyton Manning makes about $30 million a year — let’s explore his potential behavioral responses to changes in taxes. Let’s raise Peyton’s taxes by 10%. Under the logic of Alan Liard, Greg Mankiw’s student, and under the logic that all economists know to be the truth, people respond to incentives. Peyton Manning is a person, so he responds to this tax hike by working 6% less, and decides now he’s going to sit for the Colts playoff games since he makes less money per game, and he enjoys watching Tom Brady play in the playoffs more than being there himself. Doesn’t really sound likely, does it?

Of course, Peyton Manning is going to play 16 NFL games and the playoffs even if you raise his taxes considerably. The same is true of a wide variety of other professions — corporate execs usually have two choices, they can choose to work or not work — there are no part-time CFO jobs, and it’s probably tough to be a “part-time” hedge-fund manager as well… So, let’s say Greg the textbook publisher or Chuck the hedge-fund manager decides, due to higher taxes, that they are just going to retire. In that case, the government loses 100% of the taxes Chuck or Greg would have paid! The multiplier is -10!!!

Except, according to logic which is totally obvious to a pre-schooler, if Greg the textbook author doesn’t sell textbooks, then Thorstein the textbook publisher will. If Peyton the quarterback doesn’t play in the playoffs or appear in Gatorade commercials, then Tom the quarterback will. If the CEO of Anthem, who routinely makes $40 million, quits due to high taxes, Anthem will pay the next CEO extravagantly. If Chuck the hedgefund manager doesn’t manage Peyton’s money, then Emilio the hedgefund manager will manage Tom’s money…

—Thorstein Veblen

(emphasis mine, and I think that the hedge fund manager managing Tom’s money would be named Ashok, not Emilio, and he work out of Bangalore, not Wall Street, or at least he would in a system that was truly efficient.)

What he does not note is that the massive amounts of money received is not because they will do the “productive” “work” for only that amount of money, but because Peyton, and Tom, feel that they deserve more than the next best guy at their position.

If you engage in policies that discourage extremely high income, for example, expanding the AMT to include all forms of income, and increasing the marginal tax rate for the AMT (Currently 26%, and which has little/no deductions), at $¼ million by 1%, and by an additional 1% at $250K increments, so that a income beyond $1 million is taxed at 29%, and at $5 million it is taxed at 45%, at $10 million it is taxed at 65%, and it maxes out at 85% at $15 million,* then you will find that business will be less inclined to ginormous packages,† and you would see a moderation in this trend.

*Note that these are marginal tax rates, so the 85% is the tax payed on the dollars earned beyond $15 million, the 50 thousandth dollar would still be taxed at around 20%.
†Yes, I know, “ginormous package” sounds dirty, but the executive pay levels are obscene.

Economics Update

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Well, someone sliced and diced the numbers, and the unemployment picture continues to improve, with unemployment dropping in 36 States in November, though this U3, and not the more expansive, and to my mind more accurate U6.

We are also seeing a marked improvement in German business confidence this month.

In real estate, we have another shoe dropping, with Moody’s Investors Service stating its intend to review $143 billion in residential mortgage backed securities (RMBS) with an eye toward downgrading them, because their loss rates have continued to climb.

In currency and energy, the reversed the past few days’ course, with oil rising, and the dollar weakening, but these may just be traders unwinding positions that they accumulated over the past week.

Economics Update

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h/t Calculated Risk

Yea, sure, the recession is over. That’s why initial jobless claims rose again this week, up 7000 to 480,000, and continuing claims rose as well, though the 4-week average fell.

I’m beginning to think that those “stunning” NFP payroll numbers in November were an artifact of a seasonal correction of some kind.

In any case, real estate is not looking so hot, with the 30-year fixed mortgage rate rising again, and the estimates for the “shadow inventory” in housing , basically homes that are being foreclosed on, or are being held off the market by the foreclosing institutions to keep from depressing prices too much was revised upward:

The number of homes that may be in the pipeline for a sale because of foreclosure and delinquency climbed about 55 percent to 1.7 million at the end of September, according to estimates by First American CoreLogic.

The “shadow inventory” rose from 1.1 million a year earlier. Such properties include those taken over by banks and mortgage companies and those where the loans are at least 90 days delinquent, the Santa Ana, California-based research firm said in a report today. The number of unsold homes listed for sale was 3.8 million in September, down from 4.7 million a year earlier, First American said.

So I think that any claim to a recovery in residential real estate has been, greatly exaggerated.

That being said, the Conference Board’s Index of Leading Economic Indicators, as well as the Philadelphia Federal Reserve Bank’s Business Outlook Survey both showed signs of growth, though, as Calculated Risk notes, the recovery is weaker than in earlier months, indicating, perhaps, the start of a “W” downturn.

In either case, the LEI and the Philly Fed report did not seem to have much of an effect on Treasuries, which rose, meaning that the yield dropped, largely on concerns about Greece.

This sentiment also drove the dollar up.

In energy, the strong dollar drove oil down, but natural gas rose, largely on the cold weather and smaller than expected inventory numbers.

Economics Update

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There is no wealth creation for ordinary folk, just bubble creation, h/t Calculated Risk


Crude prices, h/t OilEnergy

So, today is “Jobless Thursday, and initial unemployment claims spiked unexpectedly to 474,000.

Truth be told, it’s not a surprise. Non-farm payrolls need to rise at about 300,000 a month, so the “really good” NFP numbers in November, which had a -11,000 number indicates that things still really suck.

We have seen a drop in the U.S. trade deficit in November, which has been driven by export growth, though falling oil prices (see lower pic), and the fact that US consumers are still not in the mood to buy anything, including imports.

We have some good news on household net worth which grew by $2.7 trillion in the 3rd quarter, largely on the recent stock market bubble rally.

In real estate, the 30-year fixed mortgage rate rose this week, and
foreclosures fell in November, though, as the article notes, this may be a a pause more than anything else:

“They’re artificially low because of underlying causes,” said Rick Sharga, vice president of RealtyTrac.

He cites three reasons why foreclosures have dropped in certain states: The holiday season, when foreclosures typically slow down; the government’s mortgage modification program, which has created a slowdown in delinquent loans; and mandatory mediation in more states between homeowners and lenders before going into foreclosure.

In the world of central banks, the Bank of England left its benchmark rate unchanged at ½%, while maintaining its asset purchase (printing money) program.

Something interesting occurring in the world of US Treasurys though, the yield curve is the steepest since 1980.

The nickel tour is that when you buy a 2-year bond, you get less interest than if you buy a 30-year bond, because the risks of a 30-year bond are higher, not in terms of default, but because your money is locked up, and interest rates can go up, or you can need the money in a hurry, etc.

The difference is now 373 basis points (3.73%), with average over the past 5 years being 132 basis points.

It may be a market burp, or it may be inflationary concerns.

In currency, the dollar was essentially unchanged, while in energy, oil fell for the 7th day in a row on economic concerns.

Supreme Court Appears Hostile to Theft of Honest Services Law

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One of the ways that federal prosecutors have gone after corruption recently has been with the theft of honest services law enacted in 1988.

The theory behind the law is that if people are taking bribes, they are depriving the taxpayer of their honest services, and so can be prosecuted.

Well, the initial reports from oral arguments indicate that the Supreme Court is not inclined to support the law in its current form:

Justices across the court’s ideological spectrum took turns on Tuesday attacking the law as hopelessly broad and vague.

Justice Steven G. Breyer estimated that there are 150 million workers in the United States and that perhaps 140 million of them could be prosecuted under the government’s interpretation of the law.

Complimenting the boss’s hat “so the boss will leave the room so that the worker can continue to read The Racing Form,” Justice Breyer said, could amount to a federal crime.

I tend to agree, you saw this law being used by Bush and His Evil Minions™ to go after political rivals, on the theory that they were stealing their full performance from their state jobs, because they spent a lot of time serving as state legislators …… Funny how everyone prosecuted was a Democrat, and most of them were black.

The downside is that one of the plaintiffs are crooks and corrupt.

The first plaintiff is Conrad Black, the former Hollinger International CEO, who stole from his company and shareholders to finance a lavish lifestyle, and the other plaintiff, Alaska legislator Bruce Weyhrauch, soliciting lucrative employment from VECO at the same time that he was shepherding their requests from the legislator for taxpayer money.*

Still, seeing how the law has been abused, killing it would be a very good thing.

*A word about Alaska: The taxpayers in Alaska are basically the oil companies, as Alaska relies on oil revenues, and does not collect state income or sales taxes.

I Spoke Too Soon

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It looks like Barack Obama’s pay Czar will back down on pay restrictions:

Kenneth Feinberg, the U.S. paymaster for rescued companies, will exempt some executives at American International Group Inc. from a $500,000 salary cap after at least five employees threatened to quit because of the limits, people familiar with the matter said.

Feinberg may issue a ruling as early as next week on pay limits for 75 of the bailed-out insurer’s executives, the people said. Last week, five executives said they were prepared to resign if their compensation was significantly cut, according to the people, who declined to be named because the talks are ongoing. Two have since retracted the threat, the people said.

I kind of expected it from “Status Quo O”, change you can’t believe in.

Don’t Let the Door Hit Your Ass on the Way Out

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Senior executives at AIG are threatening to quit if the pay Czar cuts their salaries.

The appropriate response here is, “Fine …… Go …… But we will scrupulously enforce your non-compete contracts, so if you go to a competitor who has had dealings with AIG, or with a firm that would benefit from your knowledge of AIG we will go after you.”

Note that this means pretty much everyone in high finance world wide.