It Was a Good Week in Economic News
This week we saw more evidence that the worst of the recession is behind us.
ISM Manufacturing
The march to 50 is almost complete. July's ISM manufacturing index jumped a very big 4.1 points to 48.9, pointing to a 50 reading for the August report which would mark no-change from July and the bottom of the manufacturing recession. Strength is all over the place in July: new orders 55.3 vs. July's 49.2, production 57.9 vs. 52.5, backlogs 50.0 vs. 47.5, employment 45.6 vs. 40.7. Inventories also added to the headline index, at 33.5 for a 2.7 point improvement from June. Inventories are very likely to continue to rise in the coming months, indicated not only by the gain in new orders but also by customer inventories which continue to fall, down a point to 42.5 and indicating that firms believe inventories at their customers are too low. Prices paid also rose, up 5 points to 55.0 to hint at the beginning of pricing power.
The main point with this data is the 7 months of increases we've seen:
That shows that the manufacturing sector is clearly moving in the right direction.
ISM Non-manufacturing
In July, the NMI registered 46.4 percent, indicating contraction in the non-manufacturing sector at a faster rate compared to June's reading of 47 percent. A reading above 50 percent indicates the non-manufacturing sector economy is generally expanding; below 50 percent indicates the non-manufacturing sector is generally contracting.
While the index dropped, the drop was small -- .6 on their scale. In addition, as the chart indicates the overall trend is still positive:
Pending Home Sales
Boosted by low interest rates and bargain home prices, pending sales of existing homes rose in June for the fifth straight month, the longest streak of gains since 2003, a real estate trade group reported Tuesday.
The pending home sales index rose 3.6% in June after an upwardly revised gain of 0.8% in May, the National Association of Realtors said. The overall index is 6.7% above June 2008's level......
Pending homes sales in June rose in all regions: up 7.1% in the South, 2.9% in the West, 0.8% in the Midwest and 0.4% in the Northeast.
This number will probably drop over the next few months as the spring is usually when people move. However, five months of increases is a good sign. Recently, I argued that we've seen a bottom in housing sales. This adds further evidence to that theory.
Employment
Nonfarm payroll employment continued to decline in July (-247,000), and the unemployment rate was little changed at 9.4 percent, the U.S. Bureau of Labor Statistics reported today. The average monthly job loss for May through July (-331,000) was about half the average decline for November through April (-645,000). In July, job losses continued in many of the major industry sectors.
In looking at the report, first note the unemployment rate has been steady now for three months:
In an of itself, that is an encouraging; it indicates there is a possibility the unemployment rate is topping. Adding further evidence the that theory is the general trend of overall job losses:
Note there are two areas. The first shows that maximum job losses occurred in the fourth quarter of last year and the first quarter of this year. However the trend since the beginning of this year is for a continuing decline in the number of job losses per month. As the chart above shows that trend has now been in place for six months, indicating we have a firm trend in place.
But there are other reasons indicating things are improving:
The number of persons working part time for economic reasons (sometimes referred to as involuntary part-time workers) was little changed in July at 8.8 million. The number of such workers rose sharply in the fall and winter but has been little changed for 4 consecutive months.
This is good news as it indicates the level of people who are forced to work part time not because they want to but because they have to has been level for the last 4 months.
Let's combine this information with the initial unemployment claims information from yesterday:
Note that the four week moving average of initial claims continues to move lower. Also note that according to the Department of Labor the unadjusted (non-seasonally adjusted) numbers fell by 48,000 last week. This is on top of a loss of 90,000 two weeks age and 60,00 next week. In short -- the unadjusted number of initial unemployment claims has dropped by over 200,000 in the last three weeks.
Personal Income
Personal income decreased $159.8 billion, or 1.3 percent, and disposable personal income (DPI) decreased $143.8 billion, or 1.3 percent, in June, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $41.4 billion, or 0.4 percent. In May, personal income increased $155.1 billion, or 1.3 percent, DPI increased $168.7 billion, or 1.6percent, and PCE increased $9.0 billion, or 0.1 percent, based on revised estimates.
This release presents revised estimates of personal income and its disposition that reflect the comprehensive revision of the national income and product accounts released on July 31. Tables containing historical data will be posted when they become available on BEA's Web site. For more information on the revision, see the text and box on pages 5 and 6. Real disposable income decreased 1.8 percent in June, in contrast to an increase of 1.5 percent in May. Real PCE decreased 0.1 percent, in contrast to an increase of less than 0.1 percent.
As the report indicates, the drop was largely caused by a decrease if government transfer payments. Here is the chart:
There were increases the last two months followed by a drop this month. However, the increases were caused by transfer payments, not increases in wages. It's important to remember that we're not going to see wage increases for a bit, largely because we're in the middle of high unemployment. During a slack labor market, wages stagnate. However, at least the year over year personal consumption expenditures are still moving sideways:
On balance, that's about the best we can hope for with that statistic for now.
Simply put, the evidence is mounting that the economy is moving in the right direction. We've seen 7 consecutive months of increases in the ISM Manufacturing index. The services index is still in an uptrend. Pending housing sales have increased for the last 5 months and the pace of sales has stabilized at low levels. The employment statistics are moving in the right direction.
Bottom line: the evidence that the worse is behind us continues to mount.
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The only good news would be hiring and work week with 40 hrs any thing else to the middle class is BS!
Wait till the credit card defaults skyrocket and the CDS problem pops its ugly head. Those should be here in about 6 months.
OK, your an economist, Mr. Stewart; here's a question:
What happens when the government money runs out?
We aren't building new factories, we're shutting down old ones.
We aren't fully employing our populace.
We are currently living on government debt and older pension plans, plans which will probably go the way of the dinosaur on the "new economy".
So, one the money runs out, what happens? My guess is things get a lot worse, real fast.
Getting better for who? No one that I know that's for sure, but then I don't work in "financial services" and I don't have enough money to speculate either...
itolduso has made many brilliant points that illustrates the overall web:
capitalism refuses to care beyond the bottom line practise of generating a profit at ALL COST.
people talk about the 'economy' like the economy existed as some entity outside of individuals. far from being true BUT people take the economy of being a deity that demands greed and blind greed to be worshipped properly and understood. the economy only measures a vague outline of what shall become the prevailing trend but at the eye's centre, we individuals define this 'deity' at all turns. as long as we offer our 'humble devotion' to the economy, we will continue to stumble and suffer.
once we determine ourselves as individuals aware of what goes on with 'the economy' then we shall find the changes will truly benefit the many and not the glided few.
Hale, a couple of months ago you refered to the Baltic Dry Index's increase as a sign things were possibly getting better.
Have you seen it recently? http://www
For the record, I hope you're correct.
Regarding home sales, it just shows that basic economic theory works. It's all supply and demand. Demand goes down, supply is stable, prices have to come down, which they have.
The economy is self healing in a lot of respects if the gov't would let it work on it's own. The more they interfere, the longer it takes to recover.
Take a closer look at the 'home' sales..... they are being bought up by speculators- the same industry insiders, agents, appraisers, banksters, & 'investment' groups - that fraudulantly ran up values, created 'toxic' loans, skimmed millions in fees on each phoney 'sale' back & forth between each other, 'packaged' the toxic papers for retirement accounts on wall street -then dumped the whole stinking mess on taxpayers when the bubble burst. Now that we've picked up the tab....the
The view from someone without a 'chart'...
Why doesn't this website put THIS article in their headlines rather than their other negative and inflamatory story lines?
We could use a little good news right now.
BTW -- Great Piece, Mr. Stewart! :-)
Many people seem to think this depression is over, but I don't. I'm only a historian, though. I'm not a Republican who's just trying to knock Obama and I know deficit spending and easy money can end a depression, but still...
I just have a sense that there are more shocks to the capitalist system yet to come, and there is no more money for bailouts.
Too many people on Wall Street seem to acting like it's business as usual, like this thing was just some kind of momentary blip instead of a total meltdown. I'm not sure if people have learned any real lessons here. Time will tell....
Yes, Bonda it was a good week in the news. Of course the news is all bullshit based on bullshit stats that people want you to see so that we all don't panic. Yes, what good news. Do you believe everyithing people hand to you or are you being in one of those airy fairy positive mood things that is good for the soul but does not produce real results.
I totally agree. How many people know that in calculating GDP our government estimates and adds to the GDP how much homeowners would have paid in rent if they paid rent for the house they actually own? It's called "imputations" and is about 1 trillion dollars of GDP. During the housing bubble our GDP was artificially inflated because this fictitious "rent" skyrocketed as housing prices went through the roof.
Sadly, it is getting harder and harder these days to trust any numbers the government puts out.
I fail to see how this would skew the comparisons now. If it was added before and is added now it would only result in a higher baseline for comparison, not higher numbers now. Higher numbers before as well.
of course, the bond market bubble is popping and that means nothing. lol
Your statement that the economy is getting better is a meaningless statement. It is as meaningless as saying the USA is getting better.
You need to define your terms. Until you define your terms your economic theories do not have much value.
I think the "terms" are fairly well "defined".
How about the manufacturing index is improving? The new inventories and new orders are up? The pending home sales are up? The personal consumption rate is up?
Maybe you need help in reading and retaining what is written?
This author's basic theme here is that the economy is getting "better."
What does a better economy mean? If a higher stock market means a better economy than the economy is getting better.
Do high housing prices mean the economy is "better." Well then the economy was the picture of health right before it collapsed.
What does a better economy mean? What does a worse economy mean?
Here is a wacky idea. Try reading his article and not just the heading. It even includes easy to understand graphics. Next, try comprehending all the 'terms' he lays out to support his "meaningless statement"
These "terms" are all based on real data. So it's not actually a "theory" as much as it is a fact filled state of the economy.
The unemployment rate slid to 9.4%, but that is a seasonally adjusted number. The non-seasonally adjusted unemployment rate held at 9.7%. The numbers have diverged because auto-workers typically have July and August off, but they're working this year. The birth/death adjustment also added 32k workers to the July numbers. The adjustment also added 185k workers to the numbers in June, which is laughable to say the least. There is also an upside bias to the ISM-manufacturing numbers because of the seasonal factors of the auto industry. All in all, we should probably see a couple quarters of positive GDP because of a small inventory rebuild and some more stimulus spending, but it is unlikely that there will be much or any employment growth because capacity utilization is so extremely low. The upside bias will be with the Fed continuing to keep mortgage rates very low and that many companies are very lean and will be highly profitable on any uptick in the economy. Downside pressure will come from everywhere: banks maintain higher than normal lending standards, no to little employment or wage growth, savings rate remains at current levels or goes up, stimulus spending runs out, higher bond yields, commodity prices increase, tax increases on consumers, corporations, or investors, better investment opportunities abroad than the US, etc. etc.
The economy was propped up for the last several years by the housing bubble. House flipping and cash out withdrawals made up for the stagnation of real wages. Government’s ruinous policies included massive deficit spending to finance non productive militarism and non productive tax cuts, a trade policy that was designed to maximize corporate profits at the expense of working Americans and the non enforcement of immigration laws to further depress wages. This was a witch’s brew that put us into an economic death spiral.
What we have seen over the past 6 months is large scale Government intervention. However, most of this is purely anesthetic in nature. Personal incomes were buoyed by transfer payments while real incomes continue to sink. Personal consumption has stabilized about 10% lower. Likewise, home sales have stabilized at about one quarter of their peak sales rate and prices continue to fall. Manufacturing has risen from the depths and will probably improve further just to refill inventories.
We are much improved from 6 months ago. The rate of job losses is bad but was worse. All of this improvement is based on the Government propping everything up with borrowed money. There has been no substantive change in our economic framework and none of the ruinous policies that caused this have been reversed. Morphine does not cure cancer and Government largess will not solve our problems. If the Federal Debt bubble breaks our current problems will pale in comparison to its aftermath.
Home construction topped out in Q4 2005 and Q1 2006. Home prices stopped going up after Q1 2006. Real disposable income went up dramatically from mid-2003 to early 2005, then from early 2006 until October 2007, when oil prices starting shooting through the roof.
http://www
Real median household income per household income (taking into account that family's are having less kids) has gone up dramatically over the past 25 years. Real wages isn't a very telling measurement but it doesn't take into account fringe benefits, which have gone up dramatically since the 1970s and make up a larger percentage of total compensation now than at any time ever. About deficit spending, the budget deficits of 2005, 2006, and 2007 were actually smaller than average, on a revenue to outlay basis, since the early 1970s. The deficit have yet to affect the economy negatively up to this point as interest rates continue to remain very low. Immigration policy has not affected the economy negatively. It's just redistributed a little bit of wealth from some white folks to hispanic folks.
You continue to use the happy talk deficit numbers. Go to the debt clock and check the fiscal years, they average about $500 billion until 2008 which was $1 trillion. On a revenue outlay basis by not paying my mortage and credit cards I'd be rich! Immigration cut construction wages in half and sent $25 billion a year to Mexico that was earned here.
What would have happened to the economy if the deficits had not occurred and spending had been cut to reflect the Reagan/Bush tax cuts? I'm bettin' the 9 trillion dollars taken out of the economy would have had a serious negative impact on domestic incomes and the stock market.
Also, you sort of neglect the fact that we are in hock up to our ears to allies like China. There's a rather big negative there that you apologist for the Reagan/Bush deficits don't like to talk about much
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