The Big Picture

What Are You Doing with Your Stimulus Check?

Friday, May 16, 2008 | 12:30 PM

in Consumer Spending | Economy | Taxes and Policy

Lifehacker has a poll asking people "What Are You Doing with Your Stimulus Check?"

Over 60% said they are either saving it all, or using it to pay down bills/debt:

Spending on essentials. 5.6%
Frivolous shopping spree! 12.6%
Saving it all. 23.8%
Paying bills or debt. 37.0%
A little of everything. 21.0%

Two caveats to this: As we have seen in so many surveys, what people say they plan on doing, and then what they actually do, are often two very different things.

Secondly, we don't know the demographics of Lifehacker readers -- geeks? middle class? higher educated? -- and they might skew differently than the nation as a whole.

Regardless, its an interesting data set.

~~~

Companies Cutting Hours Aggressively

Friday, May 16, 2008 | 06:27 AM

in Economy | Employment | Wages & Income

I have over the years discussed what a poor economic recovery this cycle has been in terms of job creation. Given the lack of robust job creation, its not a huge surprise that layoffs typical of most recessions have yet to appear.

Merrill Lynch's David Rosenberg notes it has become "economic myth" that the April employment report was benign. In particular, he notes that hours worked, one of the employment metrics reported by the BLS, is rapidly declining. In the April NFP release, hours worked plunged:

"Companies did not cut as many positions as expected, they cut the hours instead. The average work week plunged 0.3% (and, aggregate hours worked were down at an annual rate of 1% in the past three months), which, by the way, would be the equivalent of 400,000 job cuts.

This is a sign that labor market conditions and domestic demand are far softer than the headline suggests. What drives consumer spending inevitably is income growth. Average weekly earnings fell 0.2% sequentially in April in what was the largest decline in two years. This dragged the year-on-year rate down to 3.1% from 3.3% in March, 3.7% in February and the nearby peak of 3.8% posted last November in what is clear disinflationary trend in wages.

The rebound in the Household survey was all in part-time employment. While there was a nice rebound in the Household Survey, it was all in part-time employment – that is not the driver of confidence and spending. Growth in full-time jobs is what drives those things. And, full-time employment actually fell 375,000 in April and is down 572,000 year-to-date; of the folks who were working part-time in April, the number doing so because of “economic reasons” (mostly slack business conditions) surged 306,000 or 6.3% – again the steepest runup in two years. The diffusion indices fell through the floor to 45.4 in April from 48 in March – this measures the share of industries adding to payrolls and shows that even though the headline job loss was lower than expected, the decline was very broadly based across sectors. (emphasis added)

In case you missed the underlined text, employers cut back so many hours that it was the functional "equivalent of 400,000 job cuts."

This is not the sort of data you associate with economic recoveries.

Source:
Macro viewpoint: Debunking five myths
David A. Rosenberg, North American Economist
Merrill Lynch, 09 May 2008
http://tinyurl.com/6kjlhl

Previously:
Job Creation: Post-Recession Recovery Cycles April 05, 2008 http://bigpicture.typepad.com/comments/2008/04/job-creation-po.html

4 National GDPs as US Regions

Thursday, May 15, 2008 | 02:30 PM

in Economy

We previously looked at Countries GDP as US States.

Today, we see GDP of the top four national economies in the world (after the US), expressed as US regions by GSP.

Via World Bank.

Withholding Tax Update: 23-Month Low

Thursday, May 15, 2008 | 10:00 AM

in Economy | Taxes and Policy | Wages & Income

We have previously reviewed the Uncle Sam's withholding tax data as a read into the overall health of the economy.

The most recent data point (March 13) shows W/H tax reaching a 23 month low. But we don't like to rely on any single data point, especially one from a volatile series. Instead, look at the overall trend -- is it moving up, or is it heading down?

At times, we have been critical of the perplexing read of this data by Charles Biderman of TrimTabs. Today, few words are necessary, as the charts speak for themselves.

Is this an economy in recovery, or one that is weakening?

charts courtesy of Matt Trivisonno

Sources:
Withholding Tax Haul Hits 23-Month Low
May 14th, 2008 at 3:32 pm
http://www.trivisonno.com/withholding-tax-haul-hits-23-month-low

DAILY TREASURY STATEMENT
Cash and debt operations of the United States Treasury
Tuesday, May 13, 2008
http://fms.treas.gov/webservices/show/?ciURL=/dts/08051300.pdf

Withholding Taxes Chart
http://www.trivisonno.com/investing/withholding-taxes-chart

When Should the Fed Bailout the Economy?

Sunday, May 11, 2008 | 09:27 AM

in Credit | Economy | Federal Reserve | Inflation | Politics

Peter Bernstein, author of such books as Against the Gods: The Remarkable Story of Risk, has an interesting piece in the Sunday NYT, titled, When Should the Fed Crash the Party?.

"In the darkest days of the Depression, Treasury Secretary Andrew W. Mellon, one of the richest men in the United States, opposed any government action to stem the tide of plunging business activity and soaring unemployment. Instead, he urged a policy of supreme indifference.

“Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate,” he said. “It will purge the rottenness out of the system,” he added, and values “will be adjusted, and enterprising people will pick up the wrecks from less competent people.”

John Maynard Keynes, for one, thought that prescriptions like Mellon’s were preposterous. The economist called those who held such views “austere and puritanical souls” who believed that it would “be a victory for the mammon of unrighteousness” if general prosperity were not “subsequently balanced by universal bankruptcy.” Keynes perceived too much good in prosperity to treat it as the enemy, and he revolutionized economic theory to prove his point.

Keynes won the argument, and government intervention to overcome rising unemployment and falling profits has been standard operating procedure forever after. Nevertheless, the debate over intervention is not ancient history. It replays in today’s headlines."

Its an interesting debate, but I read Bernstein as discussing the wrong debate. He is reviewing criticism of the treatment of the problem, namely, the Fed's clean up duties. But there is a debate brewing on preventative measures, also.

What makes this go round somewhat different is that the Fed's intervention was forced large numbers of people who were exceedingly reckless. Even by comparison to LTCM or the S&L crisis, the risk embracement was unusually widespread.

As we have seen, there is a cost to this.

This is more than a question of creative Federal Reserve intervention. Right now, the nation is only beginning a debate on several related issues -- including, ansd perhaps most importantly, regulation versus deregulation. If unrestrained financial engineering can lead to catastrophe requiring massive Fed intervention with great costs to the public (inflation, debt, etc.) than the "re-regulation" of the financial markets is a very likely outcome.

This is an important issue worth watching as the election season progresses . . .

Source:
When Should the Fed Crash the Party?
PETER L. BERNSTEIN
NYT May 11, 2008
http://www.nytimes.com/2008/05/11/business/11view.html

Stiglitz on the Economy

Sunday, May 11, 2008 | 03:30 AM

in Economy | Video

Click for video

Stiglitz Says Credit Woes May Get Worse Before Improving

Stiglitz Says Banks Too Optimistic About End to Rout

Sources:
Stiglitz Says Bank Executives Too Optimistic About End to Rout
Mark Deen and Paul George
Bloomberg, April 30 2008
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a68mzM58.R84

Continue reading "Stiglitz on the Economy"

Wanna Bet ?

Saturday, May 10, 2008 | 06:41 PM

in Data Analysis | Economy | Financial Press

My pal James Pethokoukis is a 2002 Jeopardy! champion -- so I don't lightly challenge his knowledge of either the esoteric trivia or data driven facts.

However, when he -- along with Messrs. Wesbury, Mankiw, & Kudlow -- declared unequivocally that, since there have been no negative quarters of GDP, there is no Recession, I picked up that challenge. As the publicly available GDP data I pulled from the Bureau of Economic Analysis and the Federal Reserve Bank of Philadelphia showed, these gentlemen were incorrect: Recessions can and do begin with positive GDP data.

While no one can say for sure as of May 10, 2008 we are definitely in a recession, I certainly see plenty of evidence suggesting that is a very strong possibility.

Similarly, James cannot say for sure that a +0.6% = No Recession -- though I graciously concede he also has some evidence to back up his claims. Indeed, Jimmy P. is so confident, he is now calling this The Recession That Wasn't.

Well, we will find out ~~soon enough~~ eventually. Hence I propose the following bet: If a recession is eventually declared by the NBER, and if in between the official start and finish points there is any month in the first or second quarter of 2008, I win. In other words, if any part of Q1 or Q2 2008 is part of a recession, James loses.

If there is no recession, or it there is one, but it doesn't include any month in Q1 or Q2 2008, James wins.

Loser buys dinner for 4, at the restaurant of winner's choice. Why 4? Winner's and loser's spouses are included. The wager includes dinner, wine, car valet, and tip.

James, do we have a bet?

GDP Alternate Measure

Thursday, May 08, 2008 | 01:30 PM

in Data Analysis | Economy | Inflation

I've been complaining for quite some time that the understated Inflation overstates GDP. John Williams of ShadowStats notes the same thing, and tracks it accordingly:

graphic courtesy of Shadow Government Statistics

This is why its so important to accurately report economic data for policy makers:

In theory, the Fed (looking at that blue line) could have both cut sooner where appropriate and raised rates sooner when signs of inflation became apparent. Instead, they relied on modeled data that was faulty. Hence, our current situation.

UPDATE: May 8, 2008 4:08pm

Angry bear states that SGS' GDP estimates radically understate growth, and I do not totally disagree with his assessment.

The SGS data is an extreme measure of inflation and growth, and I am not suggesting that model is perfect, or even very precise. However, we do know that BLS tends to go the opposite way, understating inflation and overstating growth. Reality likely lies somewhere in between the two -- real GDP growth in the 1980s and 90s, punctuated by the 1990 and 2001 recessions.

I have been arguing that the growth this cycle was significantly inflated. The Economy was reflated with cheap cash and plenty of credit. Hence, the overstatement of growth (and its more of a knock on the Fed Chief at the time than the President.

Thanks, Paul!

Bernanke Urges Action to Avert Further Foreclosures

Thursday, May 08, 2008 | 03:30 AM

in Economy | Real Estate | Video

Click for Video

Bernanke Urges Action to Avert Further Foreclosures

Federal Reserve Chairman Ben S. Bernanke, seeking to end the worst housing slump in 25 years, urged the government and mortgage lenders to intensify their efforts to avoid home foreclosures.

Bernanke, in a speech in New York today, also reiterated his call for lenders to forgive portions of mortgages for some struggling homeowners. He said proposals should be ``tightly targeted'' at borrowers at greatest risk of losing their properties, and avoid providing an incentive for defaults.

The Fed chief also backed the idea of having the Federal Housing Administration refinance troubled mortgages, a concept included in Democratic legislation in Congress, without explicitly endorsing the bill. His remarks indicate a gap with the Bush administration, which has preferred to rely on industry- led efforts.

"Realistic public- and private-sector policies must take into account the fact that traditional foreclosure-avoidance strategies may not always work well in the current environment,'' Bernanke said in remarks to a Columbia Business School dinner.

Source:
Bernanke Urges Action to Avert Further Foreclosures
Scott Lanman and Alison Vekshin
Bloomberg, May 5 2008
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a8EpYTgVyvcQ

CEA Chief: No Recession

Wednesday, May 07, 2008 | 10:01 PM

in Economy

Another reputation, soon to be in tatters:

The White House's top economist said he's confident the U.S. economy hasn't dipped into recession, and expressed optimism that stimulus checks could bolster growth in the current quarter, earlier than expected.

"The data are pretty clear that we are not in a recession," Council of Economic Advisers Chairman Edward Lazear told a meeting of editors and reporters from the Wall Street Journal and Dow Jones Newswires.

But the official declaration of a recession would likely be made after the fact by the National Bureau of Economic Research. And Mr. Lazear said just two areas of the economy are showing the type of deterioration that the NBER would consider recession range: retail sales and manufacturing. NBER says a recession is marked by a significant decline in economic activity, lasting more than a few months and seen in real gross domestic product, real income, employment, industrial production and wholesale-retail sales.

I'll see if I can get the full piece posted . . .

Source:
Lazear Sees No Recession for U.S. Economy
HENRY J. PULIZZI and JOHN D. MCKINNON
WSJ May 7, 2008 8:08 p.m.
http://online.wsj.com/article/SB121019473822674751.html

Productivity

Wednesday, May 07, 2008 | 01:30 PM

in Data Analysis | Economy | Wages & Income

While I am having lunch, check out this very cool chart porn on Productivity via Brian Jacobs:

click for ginormous graphic

Recessions Often Begin With Positive GDP Data

Wednesday, May 07, 2008 | 10:45 AM

in Data Analysis | Economy

After the Advanced GDP came out last week at +0.6%, I was surprised to read a variety of commentary about the economy that was factually incorrect. Several pundits and economists had concluded that since GDP was positive, we therefore could not possibly be in a recession.

The meme "Positive GDP = No Recession!" is demonstrably false, as we show in the proceeding pages.

It took only a brief look at historical GDP data to unequivocally prove this to be the case. We used publicly available GDP data from the Bureau of Economic Analysis and from the Federal Reserve Bank of Philadelphia. The dating of recessions was as per the official tables kept by the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER).

The data so overwhelmingly proves that Recession can and often do begin with positive GDP, that one suspects the people making opposite arguments must never have actually reviewed any GDP data beyond the most recent headline. I have no other explanation for why so many people got this so wrong.

Before we go to the actual data, briefly consider just what a recession is. As formally defined by the NBER, it is the "Peak to Trough decrease in business activity" during an economic cycle. The peak marks the end of the expansion phase and the beginning of a recession. During the other phase of the cycle, between trough and peak, the economy is in an expansion. This is described as the economy's "normal state."

Given that the NBER dates the beginning of a Recession from the economic peak in business activity, one would expect that GDP during that quarter would be mostly positive -- not negative. And in fact, that is what the historical data often shows.

>
1. Many Recessions begin with a Positive GDP

Let's look at a the beginning of several post-WWII recessions:

• The 1980 contraction was officially dated from January 1980 through July 1980. GDP for the first quarter of 1980 was +1.09%. This contraction lasted only 6 months.

Note the 1980-82 period can be called a "double dip recession, with the next contraction beginning exactly 12 months later -- July 1981 -- and running another 16 months to November 1982.

• The deeper 1973 recession ran for 16 months, from November 1973 - March 1975. That first quarter GDP was a positive +1.34%.

• The 1957 recession began with a GDP reading of +1.78%. It ended 8 months later in April 1958.

• GDP in the fourth quarter of 1948 was +3.61%. That 11 month recession was dated from November 1948 to October 1949.

• Lastly, its also worth noting that the 1960 and 1969 recessions began almost flat -- they had a marginally negative GDP number of -0.05% and -0.33% respectively.

Hence, the historical data shows that recessions do not always begin with negative GDP numbers,. Of the 11 post WWII recessions, 4 started with positive numbers, two were flattish.

1980:01 1.09%
1973:04 1.34%
1957:03 1.78%
1948:04 3.61%

1969:04 -0.05%
1960:02 -0.33%

Leading Quarter of 6 Post WWII Recessions, GDP

Data source Bureau of Economic Analysis, Federal Reserve Bank of Philadelphia
>
(Note: I will update this chart with the 1969 recession)

Continue reading "Recessions Often Begin With Positive GDP Data"

Feldstein: U.S. 'Sliding' Into Recession

Wednesday, May 07, 2008 | 03:30 AM

in Data Analysis | Economy | Video

Great piece by Martin Feldstein in the FT: Misleading growth statistics give false comfort

Bloomberg:

"Harvard University economist Martin Feldstein, a member of the committee that charts the American business cycle, said the U.S. economy is ``sliding into a recession.''

"This is a weakening economy,'' Feldstein, president of the National Bureau of Economic Research, said in a Bloomberg Television interview in New York. ``If you compare where the economy is now, with where it began at the beginning of the year, just about every indicator is down.''

The comments by Feldstein, a Republican, go farther than anyone in the Bush administration has gone in publicly characterizing the severity of the U.S. slowdown. Treasury Secretary Henry Paulson in an interview last week said the economy is ``still growing, albeit modestly.''

Sources:

Misleading growth statistics give false comfort
Martin Feldstein
FT, May 7 2008 18:54
http://www.ft.com/cms/s/0/4ae9ee60-1c36-11dd-8bfc-000077b07658.html

Feldstein Says U.S. Economy `Sliding' Into Recession
Anthony Massucci and Kathleen Hays
Bloomberg, May 6 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=aLkqZ.fSIOdY&

Recession Probabilities for the United States

Tuesday, May 06, 2008 | 11:30 AM

in Data Analysis | Economy | Employment | Technical Analysis

Jeremy Piger is an Assistant Professor of Economics at the University of Oregon. He has put together a model that presents recession probabilities for the United States "obtained from a dynamic-factor markov-switching model applied to four monthly coincident variables: non-farm payroll employment, the index of industrial production, real personal income (excluding transfer payments), and real manufacturing & trade sales.

It is a simple but robust model with a good track record of providing a modest advanced warning of recessions. Its updated quarterly.

Here is the prior Recession Probabilities for the United States. Note that this model gave a short warning prior to actual recessions beginning:

Historical U.S. Recession Probabilities June 1967 – February 2008

Graph courtesy of Jeremy Piger

>

Note: The main weakness in the model is the reliance on government data (which tends to be revised downwards eventually. See this chart of NFP vs B/D as an example.

Challenge for Economists: Positive GDP Recessions

Tuesday, May 06, 2008 | 10:01 AM

in Data Analysis | Economy | Financial Press

Several economists and pundits have unequivocally stated that, since there have been no negative quarters of GDP, there is no Recession.

This group of economic observers include former CEA Chair and current Harvard Prof Greg Mankiw, economist Brian Wesbury, economist/media pundit Larry Kudlow, and USNews reporter James Pethokoukis -- amongst a few others.

Here's my challenge for both BP readers and these economic observers:

Has there ever been a recession declared by the NBER, even where there was not 2 consecutive quarters of negative GDP?

Have there been past recessions where GDP was originally reported as a positive number?

>

Readers can post their answers below.

I will post the definitive answer to this in 24 hours.

Raiding the 401(k)

Monday, May 05, 2008 | 05:30 PM

in Economy | Investing | Markets | Psychology/Sentiment

Wow, I found this shocking:

"Borrowing from retirement plans is surging.

At the end of last year, 18% of workers had loans outstanding from their plans, up from 11% in 2006, according to a survey of 2,011 full-time employees released in February by the Transamerica Center for Retirement Studies, a nonprofit corporation funded by Aegon NV's Transamerica Life Insurance Co.

With home prices falling nationwide, the loans may be a sign that cash-strapped consumers are raiding their nest eggs to stay afloat, no longer able to tap their houses for cash and up against their credit-card limits . . .

Last year, 52% of workers with annual incomes of $50,000 to $100,000 said they planned to rely primarily on 401(k) plans and IRAs to pay for living expenses in retirement, up from 46% in 2006, according to the Transamerica survey. The percentage counting on Social Security also increased, to 19% from 13%, while those counting on a company-funded pension plan dropped to 11% from 18%."

Sounds bullish to me . . .

Source:
Raiding the 401(k) Nest Egg
JENNIFER LEVITZ
WSJ, May 5, 2008; Page R1
http://online.wsj.com/article/SB120994246231866045.html

Roach Sees Negative Growth in U.S. for Q2

Monday, May 05, 2008 | 03:30 AM

in Economy | Video

-- Stephen Roach, chairman of Morgan Stanley's Asia division, talks with Bloomberg's Deirdre Bolton about today's report on U.S. economic growth, the implications of a weaker U.S. dollar and the outlook for economies in Asia and a recovery in the U.S. The Commerce Department said the U.S. economy expanded at a 0.6 percent annual pace in the first quarter, reflecting an increase in inventories as consumers retrenched and companies cut investment. (Source: Bloomberg)

Source:
Roach Sees Negative Growth in U.S. for Second Quarter
Shobhana Chandra
Bloomberg, April 30 2008
http://tinyurl.com/4s7vjn

Abelson Awards Pulitzer Prize for Fiction to BLS

Saturday, May 03, 2008 | 11:30 AM

in Data Analysis | Economy | Employment

In Barron's this week, Alan Abelson laces into BLS on the NFP data:

"We're talking instead about something much more important, namely, who'll get the Pulitzer Prize for Fiction. The winner hands down, we fearlessly forecast, will be that brilliant narrative confected by, of all people, the Bureau of Labor Statistics, and published just last Friday under the deceptively bland title "The Employment Situation: April 2008." Although we're loath to deprive you of even a modicum of the thrill of devouring this marvelous work of magic realism by revealing too much of its contents, rest assured it's carefully designed to leave you with a comfy feeling in these rather trying times.

No doubt you've already gleaned the beaming news that instead of the 75,000-80,000 or even greater job losses and higher unemployment rate that the soothsayers were prognosticating, payrolls last month were trimmed by a much more modest 20,000, and the unemployment rate dipped to 5%, from 5.1%. Hallelujah! It's such a happy contrast to those nasty expectations and to the 81,000 jobs that vanished in March.

What makes the report all the more extraordinary is that it comes in the face of otherwise dismal dispatches from the employment front. Layoffs last month, according to Challenger Gray & Christmas, the placement firm, tallied 90,015, a hefty 68% greater than in March. New claims for unemployment insurance in the last full week in April rose to 380,000, from 345,000 the week before, while continuing claims topped the three million mark. Monster, the online want-ad outfit, reported a 6% drop in its April index compared with the same month a year ago, and the Conference Board's help-wanted index sagged to a new low while its measure of employment opportunities showed, not surprisingly, jobs are ever-harder to come by.

The BLS report, then, was like a burst of sunshine dispelling the gloom. So we take this occasion to tip our hat to the bureau's artistry in being able to fashion a comparatively heartening picture of the job market out of some very unpromising raw material. The populace, as recent soundings make clear, is plenty uneasy and disgruntled about the stumbling economy, feeling the pinch and worried about a paycheck; so anything that can provide a lift to sagging spirits is more than welcome.

Actually, the praise really belongs to the unknown (at least to us) and certainly unsung numbers-bender who crafted the so-called birth/death adjustment, supposedly created to capture the additional jobs of firms too new to be captured by the survey. As it has demonstrated time and again, it's much more a product of the imagination than of dull data, as, of course, any worthwhile work of fiction is.

We have on occasion pointed out the contribution the birth/death adjustment has made to the payroll total, but we have trouble remembering when the additional slots it conjured up were anywhere near as massive as they were in the April reckoning, when it "generated" 267,000 jobs. Put another way, ex the adjustment, last month's job loss would have ballooned to 287,000. Bit of a difference, eh?

Just one illustration points up the, shall we say, peculiarity of what the BLS adjustment has wrought. According to the birth/death model, 8,000 jobs were added in April -- are you sitting down? -- in the financial sector. Which, we assume, will come as a stunning surprise to the gosh knows how many poor souls who have been laid off by the banks, the brokerage houses and the rest of the not-very-robust financial fraternity. Must be something really wrong with our vision, moreover, since new firms in that sector appear to be conspicuous by their absence.

As Philippa Dunne and Doug Henwood, the very bright bulbs who run The Liscio Report, point out -- though they usually view the birth/death model more kindly than we do -- among the stranger additions made via its agency in the April report was the 45,000 to construction jobs. (In case you've been vacationing on the moon, construction is not exactly booming.)

They also suggest that the 83,000 new slots supposedly created in the leisure and hospitality field is definitely suspect. "With vacation plans at near-record lows and restaurants reporting reduced traffic," they feel many of these supposed job gains could simply disappear come the next benchmark revision.

After reviewing the defects in the household version of last month's employment trends, Philippa and Doug warn, "given all its internal blemishes," it would be wrong to conclude from the April report that the economy and the job market are stabilizing. And they caution, "An economy providing lots of part-time jobs to the young and few full-time jobs to the prime-aged" is an economy that could have a tough time "sustaining life."

That's longer than I usually like to excerpt -- and we've hit on many of the same themes -- but it is simply too perfect not to reproduce all of the relevant sections.

Source:
Work of Art
Alan Abelson
Barron's May 5, 2008
UP AND DOWN WALL STREET
http://online.barrons.com/article/SB120976876451563873.html

WTF Headline of the Day: "Jobs Data Show Hopeful Sign"

Saturday, May 03, 2008 | 09:22 AM

in Economy | Employment

Today's WTF headline is courtesy of the WSJ: Jobs Data Show Hopeful Sign, Though Economy Still Ails:

Employers cut jobs in April for the fourth month in a row, but the small size of the drop -- 20,000 jobs -- and a dip in the unemployment rate offered a tentative sign that the U.S. economy might be escaping a deep recession.

Despite the better-than-expected news, the economy is not healthy. Car sales hit their lowest level in nearly a decade in April, while the fall in home prices is accelerating and consumers are feeling the pain of higher food and energy bills. The decline in the unemployment rate to 5% from 5.1% reflects an increase in part-time jobs. The number of workers with full-time jobs declined.

The U.S. economy needs to add 100,000 jobs a month to keep up with population growth. "You can't lose jobs on a continual basis and have the kind of growth in the economy that you want," said Lehman Brothers economist Drew Matus. He predicted shrinking payrolls for the rest of this year.

Here's the accompanying video:

"I am impressed that the economy is improving overall"

I disagree with everything Tig Gilliam sez, except for his comments about high skilled technical workers. I don't want to tell you what we just paid to hire a very good software architect (big number). And, I consider us lucky to have found him . . .

Source:
Jobs Data Show Hopeful Sign, Though Economy Still Ails
Employment Falls, But Not as Quickly; Mr. Crooks's Hunt
SUDEEP REDDY and KRIS MAHER
WSJ, May 3, 2008; Page A1
http://online.wsj.com/article/SB120973101930762571.html

Re: WSJ -- Thanks for the updates

Stimulus Check

Friday, May 02, 2008 | 03:30 PM

in Economy | Taxes and Policy

Bracing for NFP Day

Friday, May 02, 2008 | 07:23 AM

in Data Analysis | Economy | Employment | Wages & Income

Once more unto the breach, dear friends, once more:

The monthly NonFarm Payroll report rolls out today, and the consensus is none too cheerful: Median estimates of 82 economists surveyed by Bloomberg for April 2008 is for a job loss of -75,000 (Dow Jones had -85,000). Estimates ranged from -150,000 to -18,000. None of the economists surveyed had a positive estimate.

Imagine that: +5,000 is a huge upside surprise.

Let's review the data points leading to NFP, starting with the positive arguments:

• According to Greg Mankiw there is no recession. Brian Wesbury agrees.

• James Pethokoukis went even further: "Out: Recession. In: Expansion."

• Today's WSJ notes: "In the past 10 business cycles, year-over-year growth in payrolls has averaged 3% in the 12 months leading up to a recession. Twelve months before payrolls peaked this time around, job growth averaged just 1.5%. That could mean there's not a lot of payroll fat to be trimmed in this downturn. It could explain why weekly claims for unemployment benefits still haven't climbed to 400,000, the level associated with recessions."

• ADP employment report shows addition of 10,000 jobs in April.

Hey, that's not too awful sounding -- why are the economists so negative? Let's consider a few reasons:

• ADP forecast a gain of 10,000 this month. How is that a negative? ADP has significantly understated job losses over the past 5 months. Their overestimates of private payrolls averaged +117,000. So if ADP remains consistent, a triple digit loss is a distinct possibility.

• Jobless claims data were 380,000 (April 26th week) -- these are levels consistent with large payroll losses. Also, continuing claims backlog surged 74,000 to new highs (3.019 million). I expect we will see 5.5% unemployment rate by Labor Day.

• BLS has been adding Business Birth/Death estimate jobs at a rate equal to or greater than 2007 rates -- a worrisome sign.

• Recent sentiment surveys -- University of Michigan sentiment index surrounding the job market outlook was at the worst level since January 1991. The Conference Board perceptions over the labor market deteriorated markedly in April; their ‘jobs-are-plentiful’ index printed its lowest level in nearly three years.

• Challenger layoffs were 90,015 in April -- a 68% increase from March, and up 27% Year over year, toa 19 month high.

• Manpower hiring index sank in 2Q to 14 from 17 in the first quarter and 18 a year ago. This was the softest result in four years. Merrill Lynch's David Rosenberg points out that "a 14-ish number in the past has often coincided with recession and deepening job losses – 2001Q3, 1990Q3, 1981Q1 just to name a few."

Bottom line: A positive number would be a huge surprise; a 6 figure loss is a small but distinct possibility . . .

Sources:
Job Cuts May Not Get Too Deep
MARK GONGLOFF
WSJ, May 2, 2008
http://online.wsj.com/article/SB120968657093061245.html

The ADP National Employment Report
April, 2008
http://www.adpemploymentreport.com/pdf/FINAL_Report_Apr_08.pdf

Manpower Employment Outlook Survey
Q2 2008, United States
http://tinyurl.com/6nzemt

Snow, Bies, Poole, Mobius, Faber Discuss U.S. Economy

Friday, May 02, 2008 | 03:30 AM

in Credit | Economy | Federal Reserve | Inflation | Video

click for Video:

Bloomberg:

Former Federal Reserve officials William Poole and Susan Bies said it wouldn't be wise for policy makers to cut the benchmark U.S. interest rate below the current 2 percent. "We have an adjustment in housing that has to take place,'' Poole, former president of the St. Louis Fed, said during a one- hour Bloomberg Television special, "Surviving the Slowdown,'' yesterday. "I do not think rate cuts are going to solve the basic problem.''

The former Fed officials' remarks underscore the risk that more rate reductions may fan inflation, which is accelerating because of rising prices of food, energy and other commodities. The Fed said "uncertainty about the inflation outlook remains high'' and indicated it's ready to pause its rate cuts by dropping a reference to "downside'' risks to growth.

Source:
Poole, Bies Say More Fed Rate Cuts Wouldn't Stem Slowdown Much
Vivien Lou Chen and Kathleen Hays
Bloomberg May 1 2008
http://www.bloomberg.com/apps/news?pid=20601068&sid=aWAYs4brrVwM&

GDP Charts

Thursday, May 01, 2008 | 08:45 AM

in Data Analysis | Economy

Brian Jacobs sends us these great GDP charts (below), along with this overview:

What was Up in the GDP data:

• Imports (oil)

• Exports (worth less to be worthless dollar)

• Government spending (national defense up 6% - Iraq war?)

What was Down in the GDP data:

• Personal consumption (besides services which are likely required - i.e. day care)

• Private investment down BIG across the board

And this cool GDP chart porn:

Great charts -- thanks Brian!