Category: employment

Economics Update

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As expected, today was a busy day, we had the ECB raising its benchmark interest rate 25 basis points to 4.25%, though investors were heartened that the accompanying statement appeared to make further hikes less likely.

We also had 62,000 jobs lost in the US, though the statistical witches brew known as the official unemployment rate stayed at 5.5%.

Of course, the “adjustment” for April and May added another 52K lost jobs.

Once again, I have to point you to Barry Ritholtz, who notes that the adjustments to that number are sick:

June 2008 was 177k versus June 2007 155k
Construction Gains +29k
Professional & Business Services +22k
Leisure and Hospitality +86k

Construction gained workers? Leisure and hospitality picked up 86K jobs? When the number of people traveling is dropping?

We need a truth and reconciliation commission for our economic stats generating agencies.

I would also note, as Mr. Ritholtz does, that the number of new unemployment claims jumped to 404,000, which does not include those people who will now get an additional 13 weeks.

What’s more, the SM nonmanufacturing index fell to 48.2% from 51.7%, indicating the service sector is taking it on the chin too.

It appears, however, that investors expected worse, as the dollar actually strengthened after all this.

Behold the power of low expectations.

However, despite the dollar strengthening, oil hit a new record, hitting $145.85/bbl mid day, and retail gasoline hit a new record too.

In real estate, we are seeing home mortgage rates down for the first time in 3 weeks, and we have demand for office space shrinking.

Chart pr0n:

Economics Update

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It’s a pretty slow day news wise, because everyone is waiting on the ECB’s decision on interest rates, and the latest unemployment numbers.

That being said, both Oil and gasoline hit new records, and the dollar is mixed.

Of more interest is, and some alarm, is that the the National Employment Report from Automatic Data Processing shows that 79,000 private sector jobs were lost in June, worse than the expected 40K jobs, and the worst number since 2002.

We also have factory orders rising, which sounds like good news, until you look closer and realize it’s all energy costs.

Economics Update

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Weekly Jobless claims hold steady at 384,000, though the less volatile 4 week moving average went up a bit, 2,250 to 378,250.

In energy, we have oil hitting a new record. It has broken $140/bbl.

Retail gasoline is flat today.

Existing home sales are up for 2nd time in 10 months, though I think that a lot of that may be short sales and REOs.

We have the latest figures for Q1 GDP, and they show that GDP increased at a 1% annual rate. Note that core inflation was 2.3%, and 1% minus 2.3% does not give one a positive number.

It’s more spending on food and fuel, not real growth.

All this news has the dollar down a bit, and I’m sure that European Central Bank President Jean-Claude Trichet strongly implying more rate hikes did hastened the decline.

And When We Talk About Rats Leaving a Sinking Ship

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We cannot leave out the retirement of Leonard Downie Jr. as the Washington Post’s Executive Editor, though I would argue that the WaPo is a sinking ship because of the aforementioned rat, as he not only piloted the Post into the ice berg, but has repeatedly backed up and run it into said block of ice again…and again…and again.

He will be out September 8.

As to what has happened to the Post, go to this link, and look for the phrase Washington Post Death Spiral Watch. Their OP/ED page gives the WSJ a run for its money on stupidity and lying, and their political coverage seems to have sprung full blown from Karl Rove’s wet dreams.

It may be better when he’s gone, but I doubt it. I think that Woodward and Bernstein’s Watergate coverage was the exception, and not the rule, at the post, which has had a history of sucking up to the “very serious people” inside the beltway for a very long time.

Economics Update

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Weekly unemployment claims fell 5000 to 381,000 from the week before, though predictions had been for 375,000. It’s noisy, but the number is still too damn high, even if the leading indicators are up for the 3rd straight month (though not by much).

I would be more concerned that the Philadelphia Business Outlook Survey by the Federal Reserve went down when the experts predicted an improvement. (As Philly goes, so goes the nation’s economy, at least that’s how the Fed sees it).

Energy news was generally good though. Oil dropped because the Chinese are going to stop subsidising retail gasoline and diesel purchases, which should reduce demand considerably, and retail gasoline prices fell for the 3rd day in a row to $4.073 a gallon.

For some reason, the dollar fell too, though conventional wisdom would say that it should have risen.

On a day to day basis, there is more noise than data, you get a better picture on (at least) a weekly look.

In any case, I would not be hoping for a quick real estate turn around. Mortgage rates just hit a 9 month high, and all indications are that it will go higher, particularly since Triad Guaranty’s mortgage insurance subsidiary is shutting down, which is the first time that I’ve heard about a mortgage insurer shutting down.

If this becomes more common, it will force mortgage rates up, and home sales and prices further down.

But it wouldn’t be fair for me to talk about insurers without talking about the monoline insurers, who are insolvent, but still have AAA ratings from the agencies…at least from some of the agencies.

Ambac Financial, the second largest of the monoline insurers, is terminating its contract with Fitch Ratings, because Fitch dropped their ratings.

They are the 4th monoliner to drop a ratings agency because they don’t like the truth, and it screams out for meaningful regulation.

Economics Update

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Well, I’d be worried if I had to job search, because about 1/3 of employers surveyed by the Business Roundtable expect layoffs in the next 6 months.

Needless to say oil heading back up, and the dollar heading down would indicate that those 1/3 of executives surveyed are being prudent, even if retail gasoline prices fell for the 2nd day in a row, which hasn’t happened in quite a long time.

Currency gets even more interesting when one realizes that the Chinese Yuan has gained 20% vs the dollar since it’s been allowed to “kind of sort of float” against the dollar by pegging to a basket of currency, it’s gone from 1 Yuan= $0.1208 to 1 Yuan=$0.1453.

What’s more, it looks like a strong Yuan may be the only way for the Chinese to keep their inflation down, by cooling off exports and lowering the cost of imports, particularly food and fuel, so they may continue to take actions to strengthen their currency, essentially exporting their inflation to us.

Real estate continues to suck too, with mortgage application volume falling last week and the Architecture Billings Index dropping two points.

Patti Solis Doyle Hired by Barack Obama

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She was Hillary Clinton’s campaign manager until she was let go after February. In hindsight, Mark Penn should have been fired well before her.

In any case, she has now been hired by Barack Obama as the chief of staff for whoever his VP choice will be.

According to the cognoscenti in Washington, or at least one Hillary supporter, this is the, “biggest ‘f$#@ you’ I have ever seen in politics,” because she was rather unceremoniously dropped by Clinton, and they allegedly have not talked since then.

I really don’t know what is going on, though the Clinton Campaign has said the right thing:

Patti will be an asset and good addition to the Obama campaign. After nearly two decades in political life, she brings with her the ability to tap an extensive network that will be a huge asset to Senator Obama. As Senator Clinton has said, we’re all going to do our part to help elect Senator Obama as the next President of the United States.

I’m not sure what is going on, but I don’t see this as being a f$#@ you, it simply makes no sense to do so for that reason, particularly after Hillary’s speech endorsing Obama.

I don’t know what is going on, but either the hiring, or the reaction to the hiring, or (more likely) the press reaction to the hiring appears to be something out of high school.

Economics Update

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Well, retail sales increased by 1% last month, about twice as much as expected. When gas if figured out, it drops to 0.8%, and then there is the question of how much food contributed.

Additionally, we have businesses expanding their inventories, though one has to wonder if this because they are hedging against inflation, or if they are expecting an uptick in business?

I tend to go with a bearish, and it appears that the outgoing head of the National Bureau of Economic Research (NBER) thinks so too.

He sees the economy slipping into recession, and possibly stagflation.

Certainly, inflation concerns are rising world wide, with the South African central bank raising rates, ½% to 12%. (Ouch)

Employment is not looking good either, with initial jobless claims rising to 384,000 last week, though one always the caveat that week to week changes can just be noise, as opposed to signal.

Then again, with mortgage rates rising, they are now at an 8 month high, I don’t see construction leading any recovery.

In energy, we had oil down as the dollar strengthened, though retail gasoline hit a new high…again.

The Real Misery Index

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The inestimable Barry Ritholtz notes that the Hedonically-Adjusted, Well-Spun, Nominal Misery Index, the sum of unemployment and inflation, is really 6 pounds of fertilizer in a 5 pound bag, and that if we used the same standards, because both numbers have been massaged into irrelevancy, and that if you used the metrics in place in 1980 or so, we would be at about the same number:

That’s right, we would be looking at 12% inflation and 9% unemployment under some measures.

Economics Update

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After 5 straight months of non-farm payroll job cuts, we are finally seeing an increase in the unemployment rate, ½% to 5.5%. It’s the biggest rise in 22 years, and it appears that the we’ve run out of discouraged workers, who are not counted as unemployed, to keep the rates low.

Oil, which had been trending down since May 22, reversed itself and hit a new record, peaking at $138.36/bbl. Retail gasoline, however, finally fell a bit (scroll down), down to $3.986 yesterday’s record of $3.989.

That’s the first time that gasoline prices have fallen in nearly a month.

Not surprisingly, all this has pummeled the dollar which has weakened to $1.5751 from $1.5592 yesterday to the Euro.

BTW, it’s not just monoliner insurers that are hurting, Fitch has downgraded mortgage insurers MGIC and PMI ratings, two of the larger mortgage insurers to to BBB+ from A.

If they go under, millions of people will technically be in default on their mortgage until they find another insurer.

Given all this, it’s no surprise that Federal Deposit Insurance Corp Chairman Sheila Bair is saying that we may see some failures of larger banks.

Economics Update

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Weekly initial unemployment claims were less than expected, though the 4 week moving average of people receiving unemployment benefits was up.

If there is a “wealth effect”, then this might be the side effect of the not wealth effect, as household net worth dropped by $1.7 trillion in 2Q of 2008.

A lot of this drop is due to the real estate market, where there were over a million homes in foreclosure in Q1 of 2008, 2.5% (one in 40 for the mathematically challenged) of all loans being serviced by the Mortgage Bankers Association, which explains why Federal Reserve Vice Chairman Donald Kohn expects to see more write-downs and losses for banks.

Another day, another record for retail gasoline, $3.989/gal, and oil rose to $125.05/bbl, largely on the European Central Bank holding its interest rate at 4%, and it’s president publicly worrying about inflation, which implies rate hikes and a weaker dollar, which tends to push oil prices up.

Finally, monoline insurers MBIA and Ambac are delaying attempts to try and raise capital because of the prospect of a rate cut by Moody’s.

Economics Update

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ADP’s private report suggests 40,000 new jobs, though it should be noted that , “U.S. companies’ planned layoffs rose 15 percent in May from April to the highest monthly total since December 2005” it has been noted that, “ADP has been inaccurate of late, overpredicting payrolls,” so I would wait for the government figures.

On the other hand, productivity rose more than predicted in Q1 of 2008, though all indications is that this was not more stuff to do, but simply less stuff doing it, “Aggressive cuts in worker hours will help shield corporate profits and keep wage-related cost pressures under control, helping to reassure the Fed.”

Personally, I’m inclined to take the pessimistic assessment of this, because the Institute for Supply Management’s (ISM) non-manufacturing index fell to 51.7, indicating a softness in the service sector.

Additionally, we have the forecasting a world wide growth rate of only 1.8% this year, and weekly mortgage applications fell to a 6-year low.

Inflation worries are now weighing down the dollar, though oil prices are down a bit more to $122.48/bbl, but retail gas prices rose to a new high again, $3.983/gal.

Lastly, we have a visit from our old friends, the monoline insurers, with Ambac and MBIA getting hammered because Moody’s is finally considering a downgrade on their debt.

The New York Times Does Not Get It, Employment Edition

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The New York Times notes that there is a labor shortage in Iowa, and says that, Remedies are not simple. Companies want to be in Iowa because wages are lower than elsewhere in the nation or region, except South Dakota. But low wages also drive young college graduates out of the state, especially as student debt loads have risen, and they discourage workers from other states from moving to Iowa.”

The remedy is tough to find, and in the very next sentences the source of the problem is found: there is a worker shortage in Iowa because wages are too low.

Employers are subject to the same laws of supply and demand as everywhere else.

If they want wages to be more competitive, then they need to tighten up their minimum wage laws ($300K turnover and 90 days without a minimum wage don’t help), and revoke the state’s right to work laws so that unions can organize more efficiently.

H/T Dean Baker‘s Beat the Press.

Economics Update

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The current estimates for may have payrolls dropping by somewhere around 60,000. This number is rather more indicative than the unemployment rate, since those who have given up are not counted for the latter.

To my mind, the percentage of the population working is probably the best number, at least when compared to the BLS which increasingly appears to employ Tinkerbell as their chief statistician.

It’s been a busy time for real estate. We have The Economist noting that house prices are falling even faster than during the great depression, which is worse than it sounds, because we had deflation during the depression, which means that houses are falling even faster in real terms, see the pretty picture:

We are alsoseeing prices fall for houses above $5 million, the NY Daily News is declaring New York to be a renters’ market, and foreclosures in Boston 45% of all housing transactions are foreclosures.

What’s more, the popping of the real estate bubble is now now hitting property taxes, as counties raise rates to account for falling property values and foreclosures.

It’s no wonder that mortgage defaults are surging.

In energy, oil is still below the record, but oil increased to $128.25/bbl, though, for the first time in 25 days, gas did not hit a new record.

Gas didn’t fall either though, it stayed at Sunday’s level.

The dollar has strengthened somewhat, because the markets are expecting a Fed rate hike, which I doubt, given that the election is 6 months away.

In the real economy, the ISM manufacturing index increased to 49.6, the consensus was that it would fall to 48.0, but this is not good news, just less bad news, since any number under 50 is still a contraction.

In banking, S&P have noticed that some of the major investment banks are using funny accounting on their assets, and so they have cut the ratings or outlooks on Lehman Brothers, Merrill Lynch, Morgan Stanley, Bank of America, Citi, and JPMorgan Chase.

It’s no wonder bank losses are expanding, and you have the Financial Times wondering how much bank failures are likely to increase as more debt goes bad.

On the good news side of the equation, it appears that Wachovia has had a case of temporary sanity, and they fired CEO Kennedy Thompson after hemorrhaging profits and stock price over the last year.

Hopefully, there will be no golden parachute for him.