The Jobs Report: Solid Growth, But Does Little to Solve Our Economic Malaise

Today the Bureau of Labor Statistics issued the March jobs report.  It shows continued solid growth:  An increase of 215,000 new jobs.  The unemployment rate stayed at 5.0% as more people worked and more people reentered the labor force.  The labor force participation rate is now at 63%.  

The graph shows the percent of the adult population with jobs according to the household survey.  It shows the economic malaise the country has suffered these last seven years. Robert Bartlett tittled his history of the Reagan period The Seven Fat Years.  These have been the seven lean years.

The employment ratio plunged during the recession and continued to fall after its official end (June, 2009.) Jobs data, revised after the NBER called the trough, show that jobs continued to fall into the first few months of 2010.  Jobs growth failed to keep pace with population growth on into 2011.  We really did not see job growth fast enough to outpace population until 2013.

Wichita's Chief Industry

On a less cheerful note, aircraft employment fell by 900.

Why is Trump Triumphing In His Demographics Sweet Spot? Look at the Data

Two Federal Reserve Bank of St. Louis Economists, Michael McCracken and Joseph McGillicuddy, provide this graph.  It shows the change in employment since the recession trough in June, 2009:

Bottom line: There are even fewer jobs for those without a college degree now than at the bottom of the recession.  Guess who is bearing the brunt of the weakest economic recovery in a century? 

With income inequality on everyone's mind these days, might a key cause be the administration's economic policies that are eviscerating the working class combined with the cultural elites' war on the family?  Or is that heresy?

This Morning's Employment Report

The Bureau of Labor Statistics reported today that unemployment fell to 4.9 percent and wages rose. "In January, average hourly earnings for all employees on private nonfarm payrolls increased by 12 cents to $25.39. Over the year, average hourly earnings have risen by 2.5 percent."  Jobs rose 151,000 according to the payroll survey and 496,000 according to the household survey. The unemployment drop was dispute a jump in the labor force of 433,000, admittedly amplified by new higher population estimates.   

Housing Is Being Held Back By a Shortage of Skilled Labor: the Fruits of Malinvestment

How slack are labor markets? Looking at the overall unemployment rate, 6.1% in august according to the Bureau of Labor Statistics,  it would appear there is significant slack still justifying the Fed's draconian  war on interest rates.  Yet evidence indicates that in specific market segments, labor is short.  Here Bloomberg's Mike Mckee reports on home builder's lack of laborers since the recession in this August 19th “Market Makers” video. 



How are we to interpret this?   The huge overhang of housing stock and the mismatch of units built and units demanded depressed housing starts.  The housing bubble had drawn in workers who invested in skills that became redundant when the housing stock was overbuilt.  Their newly acquired human capital became stranded and these skills atrophied during the long resulting recession when the unsustainable levels prior to 2007 could not be maintained. Those workers have retired, gone on to other fields, or joined the ranks of the disabled.

Deleveraging: When Will They Ever Learn?

The recent recession was caused by the overexpansion of credit.  Part of the financial recovery from a bubble is the reduction of debt on a society's collective balance sheets (businesses, financial institutions, households, and governments.)  This reduction is referred to as "deleveraging."

The Economist's Buttonwood columnist worries that "the US is the only nation where it's possible to argue that any deleveraging has occurred."  For most developed countries, overall debt to GDP ratios are higher now than during the financial crisis.

Even that is not enough, he says: "Nevertheless, if you think the system was overgeared in 2007, at the height of a credit boom, then it's hard to argue it's not overgeared now. " "Gearing is British for levering.  Americans convert the noun, "leverage," into a verb for the same purpose.

What does the Jobs Report Mean: James Sherk of the Heritage Foundation

Did the Fiscal Stimulus Cause a Net Loss of Jobs?

Ohio State University economists Tim Conley and Bill Dupor have done a study of the impact of the fiscal stimulus embodied in "The American Recovery and Reinvestment Act." They concluded that the Act created or saved 450,000 state and local government jobs but destroyed or forestalled a million private sector jobs. Investors' Business Daily editorialized "That's a net loss of half a million jobs."

The working paper, "The American Recovery and Reinvestment Act: Public Sector Jobs Saved, Private Sector Jobs Forestalled",  bases its statistics analysis on a cross-sectional analysis by the state and a program.

Employment Was Up in March

The Bureau of Labor Statistics (BLS) reported jobs on U.S. payrolls were up 214,000 in March and the unemployment rate fell to 8.8 percent. Particularly encouraging was a 17,000 increase in manufacturing jobs.

And What About the Aircraft Industry?

The BLS did not publish data for the aerospace industry, but it did report that jobs in transportation equipment were up 6,100. If we exclude motor vehicles and part, the rest of the sector (mostly aerospace) was up 2,900 jobs. That is good news for Wichita.

America's unemployment rate dropped from 9.8% to 9.4%.

The Bureau of Labor Statistics released its employment report for December. America's seasonally adjusted unemployment rate dropped from 9.8% to 9.4% in December. Is this proof that the household survey is inherently unreliable or that this is a reversal of trend?

Neither!

The unemployment rate has been following a slow downward trend since the fall of 2009. Now looking at the seasonally unadjusted data, we also see it has been falling for five straight months relative to the same month last year (SPLY in postalese.) This trend has been masked by the seasonal adjustment process (see the previous post.)

No doubt analysts will be disappointed by the small increase in jobs (103,000) reported by the establishment survey. Do not give it too much weight. These data will be revised, perhaps drastically in February, leading also to substantial revisions to the GDP series. This will cause the whole history of the recovery to be rewritten.

The good news is that the establishment data may become a more useful real time cyclical indicator. The BLS announced, "Effective with the release of January 2011 data on February 4, 2011, the establishment survey will begin estimating net business birth/death adjustment factors on a quarterly basis, replacing the current practice of estimating the factors annually. This will allow the establishment survey to incorporate information from the Quarterly Census of Employment and Wages into the birth/death adjustment factors as soon as it becomes available and thereby improve the factors. Additional information on this change is available at www.bls.gov/ces/ces_quarterly_birthdeath.pdf."

And that is very good news. Tracking the next cycle with the jobs data will be more accurate.

On a sour note, the BLS will update the household estimates with new population data in February. Historically the gnomes resident in the Postal Square Building have not been time series friendly in their population updates.

Business Jets and Elections

Molly Mullins reports on a talk by Michael Scheeringa of Signature Flight Support, which operates 103 fixed base operations around the world. At the today’s Wichita Aero Club meeting, Scheeringa reassured her that “It’s a very resilient industry.”  She blogs, "The good news is that the market has begun to recover, although recovery has been muted.


"But Fortune 200 companies are flying as much today as they did in 2008, he said. It’s the small business owners who are not using business aviation as much."

That sounds like good news, but we need to see the orders before we know the rebound is truely here. Wichita needs a business jet revival.

Furthermore, she relates his judgement that "The political climate has caused uncertainty in the tax structure of smaller businesses. And that leads to uncertainty about income and generates a lack of confidence." Moreover, "That lack of confidence impacts the business aviation industry in Wichita and elsewhere."

Which brings us to the mid-term elections. The pundits are predicting big Republican gains, perhaps recapturing the House, picking up a half dozen Senate seats, and assorted governorships and state ledgislative seats. The latter is especially important given the redistricting that follows the decinimal census.

The economy hit bottom in June, 2009, but the unemployment rate is actually above where it was at the trough. Economic growth ahs resumed, but Americans are still mired in misery.

Comes November 2nd, the President will be blamed.

But is it just?

President Obama campaigned on the need to fix the economy. That created expectations among the voters. Not surprisingly, the voters wanted those expectations to be met.

What happened?

The nation's economic problems were essentially long term in nature (huge and chronic trade imbalances, lack of domestic saving, misallocated resources from the credit boom.) Yet the President focused on short term solutions: fiscal stimulus. Worse, he delegated the job of designing the solution to Congress.

Then, with the economy being far from fixed, the President switched his priority to changing the health care system and its financing. Reallocating resources for a sector equivalent to 17% of the whole economy (four times the size of the auto industry) predictably set off a debilitating dog fight between the winners and the losers. To make matters worse, the President delegated the design to Congress.  Will Rodgers once predicted that "no one's wallet is safe when congress is in session."

If voters are angry with the President's economic policies, their anger is understandable.

After they express that anger on November 2nd, the President should address the source of that anger and ask the American people for a second chance. He should warn them that our problems are long term and there are no quick fixes. We must realistically face America's secular economic decline before it is too late and put forth the painful policies that will reverse our strategic decline. The tea party activists who are focusing on the size of the federal deficits have unwittingly brought to fore a very real problem. The U.S. can only use deficits to attack weakness of demand if the dollar remains the world's reserve currency. And the more it uses the deficits to stimulate the economy the closer we are to losing the dollar's reserve status. When foreigners stop taking our dollars, our options close and we start looking more like Greece and Spain.

Moreover, without significant policy changes there is a very real threat in the medium term. The perceived erosion of the rule of law (think of the treatment of GM's bondholders), the costs of the healthcare system reengineering, and the prospect of tax hikes if the Bush tax cuts expire have eerily recreated the conditions of 1936. These set the stage for the Roosevelt recession of 1937. We avoided the financial collapse that trasformed the recession of 1929 into the Great Depression. Now we have recreated the conditions for the 1937 recession, a recession whose severity was exceeded only by the contractions of 1929-33 and 1920.

President Obama should take advantage of his party's upcoming defeat to embark on a new program of economic leadership.

Wichita's Unemployment Rate Rises Seasonally to 8.4 Percent; GDP Grows at 2.4 Percent; and Europe's Mercedes Reves Up

The Stock Market Falls Again

Here it is Friday afternoon and the U.S. Stock Market is down some more after a 144 point plunge yesterday. The Fed of Philadelphia's activity index took a dive and new claims for unemployment jumped over a half million. That latter is one statistic economists do not want to see rise and it is one of the Conference-Board's leading indicators. Yesterday's plunge turned a nicely developing  global rally into a global route.

Markets have been particularly spooked since the Commerce Department issued its GDP report a week a go.  The economy grew at a 2.4 percent rate in the second quarter.  This was seen as lack luster growth.  However the deceleration was not due to a lack of demand but to an over appetite for imports.  Real, domestic final demand grew at a 4 percent annual rate.  More economic stimulus would further aggravate our current account balance.

Its Bureau of Economic Analysis revised the last two and a half years of national income accounts estimates showing, as I expected, that the recession was deeper and the recovery stronger than previously reported.

Good News From Germany

The global rally had been fueled by news that the Bundesbank had increased its forcast of German economic growth. Germany is the Eurozone's engine. Moreover the strength in the world economy is reflected in the new resource M&A boom according to Javier Blas and William MacNamara in the Financial Times. They report, "The rise of China and India has sparked a renewed surge in aggressive dealmaking in the resources sector, with more than $50bn in proposed take­overs this week alone wagering on continued strong commodities demand."

The American stock market is focused on the possibillity of a "double-dip recession."  As I said yesterday, "I don't see a double-dip recession, either here or nationally...It's too late for one to start. They need to happen within 12 months."  We had a  double dip recession in 1973-75.  The economy fell in response to the oil shock of the arab oil embargo.  The economy recovered in the first half of 1974, but as inflation artificially inflated manufacturing order books, firms soon found their perceived demand to be ephemeral.  Industrial activity plunged after June in the "second dip."  The recession of 1982 followed closely (fourteen months) on the heels of the 1980 reession leading some economists to argue it was really one double dip recession not two separate recessions.

There real recession threat for the U.S. is more medium term.  When tax hikes and the supply side effects of the new health care legislation hit in 2011 and 2012, we could see something like the "Roosevelt Recession" of 1937-38.

Wichita's Good Bad News.

Dan Voorhis of the Wichita Eagle reported, "The July unemployment rate in the Wichita area hit 8.4 percent — worse than June, but much better than the 10.3 percent in July 2009."   That compares with 8 percent in June.

The rise is seasonal.  As Voorhis points out, "The unemployment rate typically rises in July as thousands of students and school staff enter the work force looking for jobs."   Chris Moon in the Wichita Business Journal notes that "metro [Wichita] had 26,669 people who were out of work, up from 25,184 a month ago."

To look past the seasonal effects, compare July's unemployment rate to the same month in 2009 (10.3%.)  That is a big drop.   This is the third straight month that the unemployment rate improved compared to a year ago and that provides grounds for optimism.   The Eagle quotes this Friends University professor as seeing "encouraging economic trends that will soon translate into better employment.  'I can see the unemployment rate in the fall closer to 7 percent than where it is now.'
[and the] strength in commercial aircraft construction and a general demand for Wichita-made products in other parts of the globe.."

Kansas

Seasonal factors drove the state unemployment rate up for July to 6.9 percent.   Kansas Department of Labor economist Tyler Tenbrink said "Kansas continued to see steady but slow job growth in July. An increase in goods producing jobs, like construction, are very important. We are still seeing a decline in some service providing jobs, like information services and financial activities. A bright spot this month within those declining industries was administrative and support services, which includes job placement services for temporary workers. We are particularly interested in job gains in this area because employers tend to use these services before hiring permanent workers. This industry saw its first over-the-year job gain since June 2008, a positive indicator that we may continue to see growth in other industries in the coming months."

Farnborough, Jobs, and Wichita

Wichita's unemployment rate is 8.0 percent.

The national recovery is starting to come to us. Wichita's unemployment rate was 8.0 percent June, down from 9.0 percent in June, 2009. Dan Voorhis reported in this morning's Eagle.   "'Given that it's for June, that's a positive sign for Wichita,'" quoting Mammon Among Friends' own Malcolm Harris, Professor of Finance at Friends University.

Note the data is not seasonally adjusted. The national unemployment rate, which is, fell to 9.5 percent (from 9.7 percent.) The national rate fell as fewer folks were in the June labor force. That was in part because of the seasonal adjustment and in part because those census workers who took the work for a few extra dollars but were not looking for permanent work left the labor force. He also quoted "Jeremy Hill, director of the center for Economic Development and Business Research at Wichita State University, [who] said the bulk of the new jobs has come in the medical sector and professional and business services."

As I told Dan Voorhis, "We're 12 months into a national recovery and some of that is spilling into the local economy." One big area of improvement is the aircraft industry.  New aircraft orders are up for the five months through May according to Commerce Department data.   Although well below the boom years of 2007 and 2008, there is a distinct recovery showing up.  Both Boeing and Airbus have been conservative in their production planning.  Boeing is now slowly stepping up its 737 production, a sign it is growing confident.  Increased production also protects Boeing from potential cannibalization of the 737 market by its and Airbus's new planes.   Spirit Aerospace largely avoided layoffs by using a shortened workweek during the worst of it.  By thus spreading the work around, it conserved its younger workers who are the manufacturer's future.

Which brings us to Farnborough:

The Farnborough International Airshow is this week: 19-25 July 2010. The biennial show was last held at the peak of the boom in aircraft orders.  The 2008 show (pictured on the right) set a record of US$88.7 billion worth of orders announced during the show.  Note planes are priced in dollars not Euros.

Boeing's Dreamliner made a splash. The 787 flew into Farnborough Monday and returned home yesterday.  Gulliver, the Economist's Business Travel commentator blogged, "The Dreamliner is much more than just another incremental upgrade to Boeing’s fleet: its revolutionary lightweight carbon-composite wings and fuselage mean much-improved fuel efficiency (20% better than comparable planes made from aluminium, according to Boeing). This could well persuade airlines to open some direct routes around the globe that they previously deemed uneconomic."

Today's Eagle carries an AP report by Jane Wardell and Emma VanDore that orders have totaled $25 billion.

There is life among the aircraft lessors. Halleluja!

I knew the aircraft industry was in trouble when I learned AIG was Boeing's and Airbus's biggest customer.   AIG required a federal bailout, CIT entered bankruptcy and GE Financial was in trouble (the piggy bank that Jack Walsh built was broken.)  Lessors' share of aircraft orders dropped from 40 percent to 2 percent.

The Financial Times' Pilita Clark reported that "Steven Udvar-Hazy made a notable re-entry into the field.  He is one of the biggest names in aircraft financing who founded and ran ILFC, AIG’s aircraft leasing arm, until his departure earlier this year. He announced a $4bn order for 51 Airbus A320 family aircraft for his new leasing company, Air Lease Corporation."

"That news was swiftly followed by Boeing’s announcement that GE Capital Aviation Services, the aircraft leasing arm of General Electric, was ordering 40 of its best-selling 737 jets valued at around $3bn, according to the manufacturer’s published prices."

The A320s and the 737s are the workhorses of much of commercial aviation and seem to be commodity most easily leased.  Udvar-Hazy largely created the air leasing business with International Lease Finance Corporation (ILFC), now owned by AIG.  When AIG lost its AAA bond rating, ILFC got shut out of the commercial paper market and was hard pressed to buy new planes.  Udvar-Hazy's solution?  He left ILFC and started a new company and now he has ordered 40 Boeing 737-800s.  That should be good news for Spirit Aerospace here in Wichita which makes fuselages for 737s.

Is the market developing according to Boeing's view of the world or Airbus's?

The first step to understanding an industry and a company's business model is asking who the customers are. On the commercial side, Airbus and Boeing (and Bombardier and Embraer) sell to commercial airlines and air freight companies. The customers' business models will drive the demand for their planes. As the busiest airports get more and more congested, the airlines will either have to fly bigger planes with more seats into those hubs or fly longer point-to-point routes to relieve pressure on the hubs. Airbus in the A380 bet on the former, while Boeing in the 787 bet on the latter.

Pilita Clark reported from Farnborough Monday that "Emirates, the Dubai-based airline, on Monday announced a $9bn order for 30 Boeing 777 passenger jets, making it the biggest deal so far at the show."

This follows the the Berlin airshow where she reported on June 8th that "the Dubai-based airline, placed one of the largest civil aircraft orders in history on Tuesday when it said it would buy 32 A380 superjumbo passenger jets from Airbus in a deal worth $11.5bn."  That Airbus claimed was the biggest commercial aircraft order by dollar value ever.

At the time the FT's Clark further reported, "Emirates already had 58 A380s on order, with Tuesday’s announcement taking that number to 90, firmly cementing its position as the largest operator of the superjumbo.


"The deal is a big boost for Airbus, which now has 234 orders from 17 buyers. The programme is far from making a profit, however, after it was affected by numerous delays and cost overruns.
In addition to its A380 orders, Emirates has 70 Airbus 350s, 18 Boeing 777-300s and seven Boeing air freighters on order, totalling 143 wide-body aircraft worth more than $48bn.

"The world’s largest passenger jet, which typically has 525 seats, costs $346.5m at list prices, although large customers receive sizeable discounts."

While the luxury airlines can offer has been much commented on in the press, Airbus is stressing that the A380 is a money maker for airlines:  "The big news for operators is that the A380 is earning hard dollars at the same time. Introducing this next-generation jetliner is saving customers millions in operating costs annually while creating thousands of extra seats on long-haul routes. With the lowest cost per seat and the lowest emissions per passenger of any large aircraft, the A380 provides a competitive edge."


Molly McMillan reports in Air Capitol Insider, Hawker Beechcraft has found some business and Bombardier brags "it has captured 50 percent of net orders in the 100- to 149-seat marekt segment over the past two years. The program is on schedule for entry into service in 2013."

In a video report, Richard Milne reports from the Farnborough Airshow on the rise of emerging market manufacturers and the challenge posed to Airbus and Boeing from the Bombardier C-Series.  (3m 5sec) 

Separately,Molly McMillan reported in the Eagle, that "Hawker Beechcraft is looking at states that might be suitable for developing facilities to build parts for the company and has narrowed the field to two — Mississippi and Louisiana" according to its CEO, Bill Boistur. Molly McMillin reports that he said, "'The market for our products has decreased dramatically over the last 18 months...Our view is that this is not a momentary decrease, and we believe strongly it's necessary to adjust the cost structure of the company to be able to be profitable in a small market.'"

BRIC Solid Growth For the P&Gs of the World

Apr 29 2010: Consumer goods companies are coming back.  Jonathan Birchall in this FT.com video, reports on solid results from Procter & Gamble, Colgate-Palmolive and Unilever, fuelled by demand in emerging markets. (1m 35sec)

The Economy Hit Bottom, But It Is Still Not Official

June, 2009?

Here at Mammon Among Friends, you have been reading for some time that the recession of 2007-2009 ended last June (i.e., June, 2009.)  The Business Cycle Dating Committee of the National Bureau of Economic Research (the NBER) ducked the issue, although it looks like a consensus agrees with me.  Their caution flows from a fear that we might have a repeat of 1980 and 1982 when we had either back to back recessions or one double dip recession.   The committee's decision was for the former.


I have no doubt we are well into a recovery and that the trough was June 2009.

Robert Gordon agrees: "It is obvious that the recession is over. Real GDP has recovered strongly from a trough in 2009:Q2 and by 2010:Q2 (the current quarter) will have reached (or be very close to) its value reached in the peak NBER quarter of 2007:Q4...The traditional measure of production used by the committee is the Federal Reserve Board Index of Industrial Production (IIP), which reached a well-defined trough in June 2009. For those who object that the IIP refers only to about 15 percent of the economy, the broader monthly measure real manufacturing and trade sales also reached its trough in June 2009. The private firm Macro Advisers has constructed a measure of monthly GDP that is available back to 1992, and this also indicates a cyclical trough in June 2009. While real GDI is flat across 2009:Q2 and 2009:Q3, quarterly real GDP reaches its trough in 2009:Q2, as does the average of quarterly real GDP and real GDI. Thus we have three monthly measures that reach a trough in June, the average of two measures of aggregate economic activity which reach their trough in 2009:Q2, and no clearly defined troughs occurring later than that in any series other than the traditional lagging data on aggregate hours of work and total employment."


Gordon is the senior guy on the committee now that Victor Zarnowitz is dead.   I'm in good company!

Jeffrey Frankel seems to be in the same camp. On April 5th, he blogged, "The recession is over."

What is a Recession?

A recession is a broad, sustained decline in a wide range of economic indicators. The committee has put increasing stress on GDP over the years , although not as much as they did in 1966. Still the monthly indicators are decisive and most of the coincident indicators are measures of private activity: e.g., real retail sales, industrial production, personal income minus transfer payments.


The committee's actual statement was:

"The Business Cycle Dating Committee of the National Bureau of Economic Research met at the organization’s headquarters in Cambridge, Massachusetts, on April 8, 2010. The committee reviewed the most recent data for all indicators relevant to the determination of a possible date of the trough in economic activity marking the end of the recession that began in December 2007. The trough date would identify the end of contraction and the beginning of expansion. Although most indicators have turned up, the committee decided that the determination of the trough date on the basis of current data would be premature. Many indicators are quite preliminary at this time and will be revised in coming months. The committee acts only on the basis of actual indicators and does not rely on forecasts in making its determination of the dates of peaks and troughs in economic activity. The committee did review data relating to the date of the peak, previously determined to have occurred in December 2007, marking the onset of the recent recession. The committee reaffirmed that peak date."

Where Are We At?  Where Are We Going?

We certainly should have a strong recovery given how far the economy fell. The first part of a recovery is when things are at their worst. Places where the housing bubble was the worst will recover more slowly.

My greater concern is that the administration's health care payment "reform" and taxing will create a second recession much like the very severe Roosevelt recession of 1937-8.  That would not be pretty.

Three Imbalances Threaten Long-Term Economic Stability

 You can may have read the following commentary in the Wichita Eagle(3/25/2010):

The Economic Recovery

We are emerging from a financial and economic crisis of historic dimensions. Unemployment reached levels not seen since 1982. America suffered the largest falls in industrial output and housing starts since the "Roosevelt Recession" of 1937-38


However deep the recession, the recovery is well under way. A long list of indicators hit bottom last year and are rising: auto sales (February), durable goods orders (March), real retail sales (April), housing starts (April), and industrial production (June). The fall in global industrial production ended in March as did world trade's in May.

Most economists are sanguine about the long term but judge the current recovery to be fragile and weak. The consensus is wrong. This recovery is solid and broad-based.

Emerging economies (particularly Brazil, China and India) are leading a worldwide expansion. America's longer-term prospects are the real worry.

The Reckoning

Three major imbalances threaten the country's long-run economic stability and prosperity. We went into this crisis with a trade deficit equal to 5 percent of GDP and savings rates near zero. Government deficits equaled 1.2 percent of GDP when unemployment was still only at 4.6 percent. We could finance these imbalances only because the rest of the world was willing to lend us trillions of dollars. That dependence is neither in our long-term economic nor geopolitical interests.


This overdependence on foreign credit led to massive misallocations of America's resources. The housing bubble grew from 2003 and peaked in August 2006. Over that time period, home-building sucked an extra $900 billion in real resources away from the rest of the economy.


Finance and real estate grew to over 20 percent of the economy. Our brightest young graduates found it more attractive to become financial engineers rather than build planes and invent new products. We will be paying for this deadweight loss in higher unemployment and lower economic growth for many years.

The Future

Correcting the imbalances means we must save more and use less of what we produce for ourselves. In other words, Americans face lower living standards


Lower standards of living and a falling dollar will translate into higher domestic prices. If policymakers misinterpret those rising prices and continue to fight structural change with the wrong tools, they will start a vicious policy cycle culminating in the loss of the dollar as the world's reserve currency and unpredictable turmoil.

Where are our policies now? This recession was global and induced a global response. Many nations including America have disinterred the theories of John Maynard Keynes to justify massive government spending programs ("fiscal stimulus") to fight the recent economic recession. Central banks have used the ideas of Keynes' nemesis, Milton Friedman, to justify vanishingly low interest rates ("monetary stimulus") and unprecedented financial market interventions ("quantitative easing") toward the same end. This focus on the short term is crowding out the need for correcting the economy's imbalances. I doubt either Keynes or Friedman would wholly approve of the sins being committed in their names.

And in the Long Run...

What makes a great statesman? Historian J. Rufus Fears found three essential elements. A great statesman clearheadedly identifies and analyzes a major problem. Then he implements a solution that works both in the short run and in the long run. Focusing on the immediate problems of the 1930s, Keynes dismissed "the long run, (when) we are all dead."

Yet in the 1940s, Keynes turned around and engineered a remarkably resilient postwar monetary system. That act of statesmanship produced peace and prosperity for generations. Contrast that with current economic policy, where "in the long run, we are all in the soup."

Read more: http://www.kansas.com/2010/03/25/1240330/three-imbalances-threaten-long.html#ixzz0k344RWCK

You Doubted that We Are in a Recovery? Jobs Up by 162,000 Confirming the Household Uptrend

Confirmation for the Recovery

Mammon Among Friends has been dating the cyclical trough at June, 20010. Skeptics can now finally find confirmation that there is indeed a recovery in the jobs data announced this morning.

The Bureau of Labor Statistics announced, "Nonfarm payroll employment increased by 162,000 in March, and the unemployment rate held at 9.7 percent. Temporary help services and health care continued to add jobs over the month. Employment in federal government also rose, reflecting the hiring of temporary workers for Census 2010. Employment continued to decline in financial activities and in information."

The Household Survey of Employment

I have been following the household data very closely.  While noisy and trend distorted by the Census Bureau's insensitivity to the need for useful time series, the household data do not suffer from the cyclical biases of the payrolls data.

The unemployment rate remained at 9.7 percent in March, below its cyclical high of 10.1 percent in October.  For three months, households have reported large increases in employment after a huge drop in December (During Christmas, retailers did not hire as many workers as the seasonal adjustment process projected.)  Labor force growth has been strong.

Employment increased faster than population again in March.  Common sense dictates that the employment ratio, which hit bottom in December,  should be a long lagging indicator.  Bottoming out six months after the cyclical peak would be consistent with that characterization.

The unemployment rate is now five months past its cyclical high and the employment ratio is three months past its cyclical low.  This reflects the global recovery.

The Economic Recovery

We are emerging from a financial and economic crisis of historic dimensions.  Unemployment reached levels not seen since 1982.  America suffered the largest falls in industrial output and housing starts since the “Roosevelt Recession” of 1937-8.  

However deep the recession, the recovery is well underway.  A long list of indicators hit bottom last year and are rising: auto sales (February), durable goods orders (March), real retail sales (April), housing starts (April), and industrial production (June.)  The fall in global industrial production ended in March as did world trade’s in May.

Wichita

Aircraft orders were up sharply in February according the the Census Bureau for the second straight month.  The BLS payroll data indicated aerospace employment was level for March (it does not break out the detail in its monthly reports.)

The Recovery: Write Less Off, Mail More Offers

Good News For Banks; Good News For the Postal Service

Credit card losses are down for major issuers. This bodes well for postal volumes and, as a lagging indicator, it is further confirmation that the economic recovery is well under way.  The U.S. Postal Service could use some good news with postal volumes and revenues falling at terrifying rates.

December Was Six Months Past the Bottom

My estimate is that the business cycle trough was last June.

Credit card solicitations have been a significant use of the mail over the years.  Losses reduce the ability and willingness of credit card issuers to solicit the more profitable lower credit customers , although it increases their need for higher quality customers: a plus for First-Class mail and thus USPS itself.  Higher losses mean greater capital is needed: a scarce and expensive requirement for the nations' banks. While they can borrow at virtually no cost, equity capital costs are punitive.  Think of Citi's recent dilutive offering.

Aparajita Saha-Bubna (with a little help from Joe Bel Bruno and Tess Stynes),  reported in Saturday's Wall Street Journal that delinquency rates fell off "for most credit-card issuers in December, but losses stemming from souring credit-card loans remain elevated."

Capital One:  delinquencies  5.78% down from 5.87% in November

                      write-offs       10.1% up from 9.6% in November

Discover:      delinquencies  5.49% down from 5.65% in November

                      write-offs        8.68% down from 8.98% in November (securitized assets)

American Express:  delinquencies  3.7% down from 4.1% in November

                                write-offs         7.1% down from 7.6% in November

For the quarter:       delinquencies  3.7% down from 3.9% in the third quarter

                                write-offs        7.5% down from 8.9% in the third quarter

Bank of America:  charge-offs       13.5% up from 13% in November

Chase:                write-offs  7.1% down from 8.8% in November

For the quarter:  write-offs  9.3% down from10.3% in the third quarter

Chase is a unit of J.P. Morgan Chase Co

According to the same article, JPMorgan's "Chief Financial Officer Mike Cavanagh said the recent improvement in credit-card losses mightn't continue as the U.S. economy continues to claw its way out of the financial crisis.

"Mr. Cavanagh, speaking to the media after the bank reported fourth-quarter earnings, expects a $1 billion loss for credit cards in the first and second quarters."

Good News (Or Less Bad Bad News) From Labor Markets

The Bureau of Labor Statistics issued its employment report this morning. The unemployment rate fell from 9.5 percent to 9.4 percent. While the fall is not significant–month the month sampling variation can move it that much–it is a far cry from the large increases we have grown accustomed.

Jobs fell by 237,000 according to the payroll survey. This was less than half the monthly decline earlier this year and over 200,000 less than the average monthly job loss over the last twelve months.

A seeming bright note for Wichita: a first look at the payroll data indicates that jobs in the aerospace industry stopped their declines and may actually have risen. But I do not trust it. To get a rough estimate of what happened in the aerospace industry, you have to back into a number by subtracting out motor vehicles employment from transportation equipment employment. The bulk, but not all, of the rest is our own dear industry. For July when you make that estimate it shows a small increase in jobs on a seasonally adjusted basis. However, when I cross checked it against the unadjusted data, there was a 12,000+ decline. Unfortunately for us, the "good news" is simply an artifact of the seasonal adjustment process. Expect Wichita's unemployment rate in July to rise, not fall.

The decline in the Euro-zone's output is close to an end.

Why the Euro-zone's industrial output looks like it may decline for the fourteenth month, it looks like it is hitting bottom. Paul Hannon and Nicholas Winning at the Wall street Journal report "Markit Economics said Wednesday that its final euro-zone composite output index - a key gauge of private sector activity based on a survey of some 4,500 manufacturing and services firms - rose to 47.0 in July from 44.6 in June."

Japan's industrial output is up for four straight months in the biggest four month sure in fifty years.

Unemployment Jumps to 9.4%; Job Losses "Down" to 345,000

My first quick thoughts:

The May establishment survey shows 345,000 fewer jobs than in April. That is bad and makes my assertion that March was the recession trough look a little shakier. Still after the massive losses we saw over the last few months, it looks like an improvement.

The Bureau of Labor Statistics also surveys households. This survey shows an even bigger drop in the number of Americans who say they have jobs: 437,000. Remember that the household survey actually showed an employment increase (yes, I said an increase) in April and that this survey is subject to greater month to month sampling variation than the establishment survey. It also does not have the contemporaneous biases caused by the firms births/deaths adjustment process.

The headline news is the jump in the unemployment rate from 8.9 percent (compared to Wichita's 7.1 percent) in April to 9.4 percent in May. This is the worst since the early 1980s. (Unemployment hit a peak of 10.8 percent in November and December, 1982.)

How did the unemployment rate go from 8.5 percent two months ago to 9.4 percent?

The biggest driver is an increase in the work force of over a million in those two months. More people are looking for jobs.

Why? Hard times force more people into the work force. Most of the increase is among men and teenagers. This increase might reflect high school students and graduates looking for jobs sooner than the BLS's statistical adjustment assumes they do. There was a 536,000 increase in the workforce among those with no or only high schooling. The minimum wage increased last July and is slated to do so again next month. As often happens when the minimum wage goes up, the unemployment rate rises among minority teenages. It is now close to 40 percent for Black teenagers.

Wichita

It looks like employment fell another 7,000 jobs in the aircraft industry. Still now there may be more jobs in aerospace than in the automotive manufacturing.