It Was A Good Week for Economic News

Total US GDP is roughly $14 trillion dollars in total size. Because of this size it simply won't reverse on a dime -- especially considering the length and breadth of the current recession. Instead gradual change is how to measure progress. On several fronts this week we saw the news continue to signal that the worst of the recession is probably behind us. However, that does not mean we have clear skies ahead.

Perhaps the most important news release was a continuing decline in initial unemployment claims.

In the week ending June 6, the advance figure for seasonally adjusted initial claims was 601,000, a decrease of 24,000 from the previous week's revised figure of 625,000. The 4-week moving average was 621,750, a decrease of 10,500 from the previous week's revised average of 632,250.

First, here is a chart of the more recent moves in this indicator.

Notice how the 4-week moving average (the solid line) topped out about 6 weeks ago and has since been moving lower. This is the longest period of decline in the last year and a half (the length of the chart). Combine that chart with this one:

And you see the strong possibility we have seen the worst of the job cut news. The reason why this is important is illustrated by the following chart:

In the last five recession initial unemployment claims have topped out right at or slightly before the official end of the recession.

A second piece of good news occurred on the retail sales front:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for May, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $340.0 billion, an increase of 0.5 percent (±0.5%)* from the previous month, but 9.6 percent (±0.7%) below May 2008. Total sales for the March through May 2009 period were down 9.7 percent (±0.5%) from the same period a year ago. The March to April 2009 percent change was revised from -0.4 percent (±0.5%)* to -0.2 percent (±0.2%)*.

Notice how the retail sales chart breaks down into three important points.

1.) Sales fell off a cliff at the end of last year.

2.) The last five months they have fluctuated around 0% change.

3.) The year over year number appears to be bottoming as well.

There was also good news on the consumer confidence front:

U.S. consumer confidence rose to a nine-month high in June, a survey showed on Friday, but inflation gauges showed worrisome signs of price increases that could slow any recovery from the longest recession since the Great Depression.

June's consumer confidence reading failed to surpass the level reached last September, when the spectacular failure of Lehman Brothers sent the world economy into a tailspin.

The Reuters/University of Michigan Surveys of Consumers said its preliminary index of confidence for June rose to 69.0 from May's 68.7. That was slightly below economists' expectations of a 69.5 reading, according to a Reuters poll.

For the third straight month, the overall consumer sentiment reading was at its highest since last September's 70.3.

"It's good news but not great news," Hugh Johnson, chief investment officer at Johnson Illington Advisors in Albany, New York, said of the June confidence data.

We have now had four straight months of increases in this number. The main cause for concern is we still have not gotten above the levels of last September. But we are close.

The apparent continuing indications that the worst is behind us there is little reason for celebration. As I have outlined in previous articles there is little reason to think the recovery will be robust. However, that does not mean we should lool a gift horse in the mouth.

Comments

[plebeianswillrevolt]

not really. you are graphing forests and dancing on mountains.

[Clownbaby]

Consumer confidence isn't such a great thing if the consumer SHOULDN'T be confident. Given the massive gov't spending and road to hyperinflation that we're on, I don't see how any consumer can be confident at this point. Furthermore, consumer spending is exactly what got us into this mess. What would be more encouraging would be 1) the savings rate increase 2) gold being held by more people as a hedge against inflation and 3) repealing the Federal Reserve, who has directly caused this entire mess with their low interest rates and flooding the dot-com and housing sectors just to see those bubbles burst.

Don't stick your head in the sand on inflation, bonddad.

[DuganS1]

The savings rate has been increasing for a year now. Second, there are many other inflation hedges besides gold. Many equities, for example, are used as inflation hedges and they often have yield. TIPs can be somewhat of an inflation hedge. Oil and other commodities can be used as hedges as well. Three, the idea to repeal the Federal Reserve is ridiculous and won't happen. You'd just end up forming a new agency to control monetary policy with a different name. Also, don't forget that real interest rates were high for the most of the period from 1980 to 1995. The dot-com bubble had a lot more to do with the relative strength of the US economy compared to weak economies in Europe and Asia throughout the 1990s (vice low interest rates). The strong US economy and strengthening US dollar brought all the foreign money here, especially from mid-98 to 2000 when the Asian economies collapsed and commodity prices collapsed, and it kept all domestic money invested in the US (rather than outside the US in foreign markets). That changed beginning in 2002-2003 when money began to be invested heavily outside the US and in commodities and the dollar began to weaken.

[realpolitic]

Bonddad, I believe your last article discounted the threat of inflation on the horizon. Now it seems "inflation gauges showed worrisome signs of price increases that could slow any recovery from the longest recession since the Great Depression­." I believe you talked about a large expansion of the money supply, but consumers and businesses are not borrowing yet so inflation may not take off. Do you think inflation will rear its head and cut short a recovery? Must the Fed then raise interst rates to forestall inflation which may cause another recession? So is the cure now of a greatly expanded money supply the thing which may bring the next illness to the economy? Just asking!

[DuganS1]

What will determine inflation is the treasury market. Right now the new onslaught of supply in the treasury market to cover the huge budget deficit is one big reason that people are selling treasuries and buying other assets. It's having a cascade effect and could snowball into a total collapse if things get worse. A recovery in China, which will also hoist up the Australian, Brazilian, and Russian economies as they provide raw materials to China, is another reason for the flight from treasuries. Australia and Brazil, in particular, never saw a technical recession. So this means that foreign and domestic investors and selling US treasuries, driving up interest rates, and buying commodities because of the China-Brazil, Australia, Russia growth story because of poor fundamentals of the former and good fundamentals for the latter. The debasing of the dollar by policies of the Federal Reserve and the US govt is another reason to sell treasuries, while the inability for commodity producers (including farmers) to get loans contributing to reduced supply is another reason to buy commodities. Overall, we're seeing investors flee dollars and buying hard assets and non-dollar denominated assets. I think at some point we'll see a big move in the Chinese yuan which will put huge inflationary pressure on import prices and hurt lower income American consumers substantially.

[realpolitic]

The demand for treasuries was strong at a recent government auction and with a strong measure of foreign participation. "There was selling in shorter-term Treasuries after a government report said that the economy lost far fewer jobs than expected, pushing up yields, as some traders and investors feared the Federal Reserve might be forced to begin raising short-term interest rates this fall."

"The federal government is spending a lot these days, and going deeply in debt. Although it is easy to imagine high inflation as a consequence of excessive government spending, inflation rates and government spending are weakly correlated, if correlated at all."


"Despite the credit crunch, the banking freeze-up, and the economic recession, the money supply in the US as measured by M1 is actually rising at 14% per year. Yet consumer prices are not keeping pace. The latest report shows them actually going down slightly over the last 60 days."

With the severe recession, people will save more and thus the velocity of money slows. Also, given the extent of unemployment purchasing power is much weaker. "When consumer prices begin to rise, they’ll stop adding to the money supply. Then, they’ll withdraw liquidity, as need be, to keep it under control."

How can the Chinese Yuan skyrocket when it is not allowed to float? It is a controlled currency.

Russian economy is still too dependent on commodity prices.

[DuganS1]

Hope people don't forget that we've saw 2.8% growth one quarter during this recession (Q2 2008). So we could easily see another quarter or two of possible growth then sink to a new low late this year or early next. I'm not predicting that, just saying it's a very real possibility, especially if interest rates and commodity prices continue to rise. If the treasury market continues to collapse we should see strong inflation, as money leaves that huge market and jumps into other hard assets and other non-dollar denominated assets - this is what Bonddad missed in his anti-inflation argument in his previous column. He forgets that a collapse in the dollar will mean a massive jump in import and commodity prices. And when import prices increase, domestic producers with import competition increase their prices too, even when the volume is not there.

[grateful4thedead]

Hal...did I miss the good news about the banks' toxic/legacy assets? Have they gone away?

thanks.

[Social Construct]

All this reminds me of is that constant disconnect between two realities. The gap between the two is getting wider. Rich folks might just be less rich for awhile. Poor folks, well, there'll just be a lot more of them for a much, much longer while.
I've seen lots of great suggestions from the commenters about how to make things get better for more people than just the same old "when we get the banks and other top end economic machinery running and polished up, then, eventually, other folks will benefit, too. Not everyone, but at least some." How come our elected leaders, the people that take our ideas and hopes to government, end up always using the top down models of fixing things and dismiss most of the other ideas and suggestions that the people that sent them there in the first place gave them?

[maddocbrown]

I'm with you, buddy.

[olephart]

The rate of bad stuff happening is declining. Even the best chart, initial claims, only says we’ve gone from catastrophe to disaster. Leveling out and declining is good and must occur prior to improvement but we’re still at minus 600,000 per week. That’s everyone’s definition of horrible. Another take on last week’s reported job loss for May (other than the NY times best fiction list) was buried in the BLS average work week figures. Had the loss in hours worked been converted to job losses the figure would have be minus 927,000.

http://www.ritholtz.com/blog/2009/06/unemployment-friday/#comments


The retail sales figures are also not getting worse. The improvement however is within the statistic noise. I posted some time ago that based on the loss of MEWs and other dubious additions to disposable incomes that the economy would plateau 10% down from 2007. Retail sales appear to be following that trend. I don’t know if this is a ledge or a base.

Consumer confidence is a big plus but it has fallen numerous times without an accompanying decrease in sales.

Industrial production is not falling off a cliff but it is still contracting. The question now is what will cause growth? The Fed is out of bullets and we’re borrowing 6 billion per day to tread water. Europe and Japan rely on exports, no help and China imports raw materials, little help. I think the gift horse is a nag and the obese female has laryngitis.

[DuganS1]

The May's job report showed a smaller net decrease in jobs than expected at 345k, but the birth/death model added 220k jobs to that number. Conversely, the January jobs report showed a net loss of 745k or so jobs, but the birth/death model contributed about 250k additional job losses to that number. So if we didn't pay attention to the birth/death model at all, net job losses were about the same in May than in January, showing no improvement in the job market at all. I wonder how much political pressure influenced the model in May.? About retail sales, don't forget the number is getting a boost from the cut in the payroll tax and the stimulus checks. That extra income is only temporary. We saw a boost in retail sales in the spring/early summer of 2008 from the stimulus too, but it faded away as it always does, just leaving us with more debt. Also note that the increase in retails sales for May was almost all due to the increase in gasoline prices. As for industrial production, this number should start going up substantially by the fall as inventories will need to be replenished. But once they're replenished, it will probably dip down again, especially as the areas of the construction market continue to weaken (commercial, state+municipal spending), and particularly if interest rates continue to rise, which will cut short any recovery in housing and auto sales.

[olephart]

I agree with Bonddad in that there is a little breathing room here. If nothing else depleted inventories will need resupply. Government's deficit spending is propping some things up. The 2.8% growth you mentioned for Q2 2008 was stimulus and bogus numbers driven (inflation was fudged giving higher GDP). I look for the same funny numbers to appear "just in time" going forward.

In a few months the retail sales numbers and other data will be compared to the weak data from last fall. This will yield a false sense of improvement from YoY comparisons. Also, hundreds of thousands of the unemployed will fall off the radar as benefits run out. This may skew those numbers to more irrelevancy.

Different groups have different motivations for spinning the numbers. The politicians in control want self justifying numbers. The talking heads of the business media need similar numbers to drum up business, stock trading/ma­nipulating­. What neither can do is hide reality forever.

I remain cautious and take things slowly. I see a flat to slightly down horizon. Things need to turn upward sooner rather than later but I don't see it at this point.

The debt situation is scary. Things that have to do with currencies happen quickly. If the Fed loses control of the markets everyone will head for the exits at once. This will throw us over the ledge that we're on now for phase 4 of the recession.

[tompoe]

Stewart needs to post to Fox News, not HuffPost. Apply unemployment criteria used in 1940, we would be higher, rather than the 25 year record Stewart seems to favor (along with corporate media). We're sitting with unemployment greater than that of the end of the depression, and heading to break all-time record in a matter of weeks. Stewart wants us to believe it makes sense to rely on gas prices to reflect economic health. Stewart wants us to believe that dairy farmers are delighted they now get less than half what they got for their milk 6 months ago. Have you checked milk prices this week?

[FogBelter]

Milk is a very good point. I was talking to a Dairy Farmer from Northern California not too long ago who said this is some of the worst times her family's farm has seen.

[twofish]

Are people drinking less milk to save money?

[ejhickey]

"Total US GDP is roughly $14 trillion dollars in total size." Our national debt is slighly more than $11 trillion dollars or almost 80% of GDP. Is this a cause for concern?

[bushflipflops]

It was over 100% after WWII.

[swift goat pet for truth]

When the US was a creditor nation, not a debtor nation.

[William1950]

where is the chart showing the unemployed who are uncounted because their unemployment benefits have expired... they are no longer counted, that doesn't mean they have jobs, or that they have something other than working fast food or delivering pizzas.
where is the chart showing the health of the manufacturing industry?
someday we will have utopia right? that is the dream.. no one will have to work and all our needs will be met by replicators, automatons, we will live lives of study and leisure... we will all have everything we need and it will just be there... magic.
until then we need to keep manufacturing stuff here.. we can't all work driving school busses and handing out french fries.

[DuganS1]

The unemployment rate already counts folks who are unemployed and have had their benefits run out. About manufacturing employment, it has progressively gone down as a percentage of the total job market since the mid-1950s. It has plummeted as a percentage of the job market since the mid-1970s.

[peterg76]

Encouraging, but the dysfunctional financial sector is still sucking wealth out of the productive sectors of the economy.

[flatus]

isn't measuring peak unemployment a bit like measuring the water pressure behind a dam after the lake has been substantially drained?

[TheFriendlyAtheist]

Retail sales figures were not adjusted for rising prices? How stupid is that? Yeah, things are looking great; and did you know that now that the banks don't have to worry about mark to market on all their worthless paper some of them are showing profits. I thought such accounting tricks were against the law; oh yeah, they changed the law.

[masher]

If you throw trillions into a market you can prop it up. But the rot is still there. And Obama isn't doing anything about it.

We still have no bank regulations and we still have regulations on workers (H-1B). Anyone who says Obama is moving fast enough then ask them why Obama still supports H-1B?

It would be easy to end H-1B and wages would immediately increase. But he won't do it.

[Dunque]

I have a hard time believing that "Decreases in the growth rate of job losses" would have been heralded under the Bush administration.

This guy's been in the tank so long he doesn't want to admit that not only does the emperor have no clothes but that the emperor is stealing yours too.

I prefer to believe what Bill Gross, one of the largest bond fund managers in the world - so you kind of sort of have to figure he kind of sort of knows what he's talking about - says and that is, inflation is on the way. It's not so much that I prefer it, actually, it's that I believe it.

[bushflipflops]

You can't go from a loss of 600,000 jobs one week to a gain of 600,000 jobs the next week. It's not realistic. What you will see is the amount of losses will decrease each week until it finally goes positive, and that is what's happening. Just because you don't like the President, doesn't mean you are entitled to make up your own facts.

As for inflation, I'd rather have 10% annual inflation for a few years than go through another great depression. And so far, there is no evidence that inflation will be that bad. You are clueless, and I'm glad people who think like you aren't in control of government right now.