The Economic Free Fall Is Over
Gloom and doom is the way of blogs lately. Nothing is good; everything is bad. Unfortunately, lost in this translation is a set of monthly trends that shows the worst is over. Now -- this does not mean everything is roses. Far from it. As I have mentioned in the past the recovery will be weak with slow growth and high (7%-8% minimum) unemployment for the better part of a year. But the data indicates the worst is behind us.
Before I begin, let me make a few observations.
1.) There are two predominant ways to present economic data: year over year and month over month. Year over year removes seasonality. Here's an illustration. Suppose you are looking at the retail sector's employment trends starting in September and you see in increase in hiring. A logical conclusion is things are looking up because companies are hiring more. However, this excludes the possibility of a seasonal effect; namely that retail typically hires more people as the holiday season approaches. As a result, it's better to compare this September to last September -- this removes "seasonality" from the equation.
However, month over month has value as well -- especially when the economy is at a turning point. While the current year over year data is terrible, the current month to month data shows an extended (as in more than a few months) period of stabilization. This tells us the worst is over.
2.) There's been a great deal of debate about employment centered on whether or not the unemployment rate a leading or coincident indicator. As I demonstrate in this article in all expansions save one since WWII the year over year percentage change in GDP has increased before the unemployment rate has dropped. While the past is not a guarantee of future performance, that's one heck of a track record for an economic indicator. In short, the unemployment rate lags GDP growth over 80% of the time. The rate of establishment job growth is thought of as a coincident indicator -- that is the number of people on payrolls increases and decreases with overall economic growth. However, this number has developed a lagging quality over the last few expansions meaning the recession could technically end and we could still experience job losses. Take a look at this chart which shows the increasing lag time for establishment job growth:
If you want a reliable series of employment indicators, look at the 4-week moving average of initial unemployment claims which typically peaks right at or slightly before the end of a recession:
(This is another reason I believe the recession is technically nearing the end; the 4-week moving average of initial unemployment claims has been dropping for several months)
What appears to be happening overall is the following: companies are still letting people go at the "traditional" time in the cycle. However, they are waiting longer before they start to rehire people.
While we're on the topic of employment, let's take a look at the latest jobs report because an important fact was overlooked:
We'd had four straight months of better and better employment reports -- reports that showed the rate of job loss was decreasing. That makes the latest jobs report an outlier in the series. Combine that fact with the following points:
The Challenger Job Cut Survey is clearly improving and
The seasonally-adjusted number of mass lay-offs spiked, fell and moved a bit higher but is still far lower than before you get an improving jobs situation.
Let me add one more point: I am not saying it's wonderful that people are out of work, or that we shouldn't increase the length of time people are on unemployment insurance or anything remotely or even non-remotely related to that. What I am saying is the statistical series are improving.
Now, let's look at some other important numbers.
Real (inflation adjusted) retail sales have bottomed as have
Real (inflation-adjusted) personal consumption expenditures. In addition
auto sales have bottomed.
And maybe new home sales have as well.
But that's not all.
The ISM manufacturing index has been increasing in clear upward trend as has the
ISM non-manufacturing index. In addition
The Philly Fed and
New York Federal Reserve index of regional manufacturing has improved.
The bottom line is there are a ton of indicators saying the worst is over. Now -- this does not mean we have clear skies ahead because nothing could be farther from the truth. There are huge challenges. But, all signs are the worst is over.
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Mr. Stewart, you are no longer "Bondad." You are now to be known as "Happy Talk" Hale in recognition of your earnest efforts imagining a "recovery" where none is apparent.
Even Larry Summers admits that the worst is not over. I guess he isn't trying out for cheerleader.
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The airplane was in free fall, dropping at 1000 feet per second.
Now that it has hit the water, it is sinking much more slowly.
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I think Bondad is saying we are getting worse at a slower rate.
Yeah, isn't THAT something to cheer about?
It is called pump and dump. Green shoots, green shoots.
Oh sorry, I didn't actually read the article. As for the worst being behind us, I just can't possibly imagine.
The world recession will likely end in a few months-so yes that is improving and the worst is behind. Trade will start to help bring us out of recession IF IF IF our government can make some changes. The US is still being dragged down by structural problems-government debt, a poorly educated work force, bad immigration laws, lack of finance reform, lack of healthcare reform.
We haven't hit bottom because housing market and unemployment hasn't hit bottom. Unemployment is usually not considered so important but we will likely have around 25%-30% of the actual workforce (counting self-employed and unemployed longer that 6 months and discouraged part-time workers). That's as much as the Great Depression.
Atleast some of the structural issues need to be addressed to bring the US out of recession probably and nothing meaningful has been done yet. If they don't they will run into a huge debt snowball and will have to raise interest rates and fire government workers and throw the economy into recession again.
Household debt is still the major problem. This will need to be solved via saving, paying down debt, and debt liquidation via foreclosure and/or bankruptcies. Our workforce is not un-educated, only the urban poor. Immigration laws are not a drag on the economy. Healthcare reform "could" actually do more bad than good as it could add to future entitlement obligations, which are leading the country toward bankrupt. Putting more folks on the govt health care dole will increase demand for most health care services. Soon everyone will want cat-scans, ED drugs, anti-depressants, any medicine they demand, unnecessary tests and treatments, etc and they'll want the govt to pay for it all.
Agreed, household is the major the problem. ...of course most people's personal debt is in their mortages, but however you want to phrase it, fine...
It's also fine if you want to point fingers at the "urban poor" for causing this nation to have the some of the lowest high school graduation rates and worst test scores when compared to their peers in other developed and many developing nations. The sad fact is that kids in Kansas that graduate highschool don't learn as much as kids in almost any sort of well run country by the 6th grade. Only 25% of the population goes to a 4 year college and more and more students are forces into 2 year programs and sadled with debt because they learn nothing in high school to prepare them for a job. That is a severe economic problem!!!!
Illegal immigrants don't pay income taxes and are forced onto the fringes of society where they stay impoverished and use more government resources. H1-B visas should not be given to immigrants that are going to work in sectors of the economy where there is a glut of American talent waiting for a job. That is an economic problem!!!
The only thing you're comment about healthcare reform proves is that the government has to do things properly, my point in the first place. Thanks.
By definition, until we hit bottom, the worst is not over! But if the point is that maybe it won't get too much worse before it gets better, then that is good news.
I know you're a chart reader, and I'm surprised you're not seeing so many consistent breakages in the charts you've posted.
Non-farm payroll employment over-the month - uptrend broken.
new jobless claims - uptrend intact.
layoff events - breakout and testing the breakout.
RRSFS - uptrend broken.
real personal consumption expenditures - uptrend broken.
light weight vehicle sales - broken.
new one family houses sold - trend clearly down.
ISM trends both clearly down.
general business conditions - broken and testing breakeage.
With all this, you still think we are bottoming? there's no sign of bottoming, just waiting for the next leg(s) down. the picture is much more bleak than you present.
also unemployment numbers are not to be trusted because they keep changing the formulas. if you want the real unemployment numbers, take the same formula used from 50 years ago and apply it to today's numbers. you may see unemployment at 17-18%. then you won't be so optimistic.
What do Kevin Kline, Bill Bradley, Tom Daschle, Tom Delay, Elton John and Hilary Clinton have in common? They all become eligible to start their Social Security benefits in 2009. These three high income folks most likely won't, but millions of other Americans are also eligible and many of them will be applying for benefits. Between the people out of work, who are officially classified as unemployed, and the many more who have dropped off the government's radar screen, I'd say quite a few will be applying for benefits this year. If you didn't qualify for a 2009 Federal stimulus payment because you were not working in 2008, things will start looking up when that first benefit payment hits your bank account.
I do not believe Elton John is eligible to collect SS.
The worst may be over, if Obama and Congress went on vacation for two years. The problem is that all of their plans are negative growth for the economy, so in effect, we could be seeing the end of the dead cat bounce, before things get worse than they were before.
The graphs support Mr. Bonddad's argument that the worst may be over. But saying that the worst is over says nothing about the larger question, which is how long it will be before things improve enough so that people will feel and say that the economy is back to health.
What is he talking about, we lost 650,000 jobs in June, they fudged the numbers saying that it was less, more mortgages, credit cards and home equity loans are going deliquient. Once Americans figure out that there will be no new jobs being created because businesses are scared sh--less with a government that has decided that property rights no longer apply in the US, they are not going to create any new jobs, just like during the Great Depression.
Hal, did you work for Alan Greenspan (aka Maestro)? Please put a cork in your synthetic optimism. How about addressing the macro picture.
What is the competitive advantage and point of difference that will drive our economy? Is it obesity? Is it type 2 diabetes? McMansions? Walmart greeters? A health care industry that does not practice preventive care?
Are incomes going up?
Are we a nation of debt and enormous leverage?
Does a huge portion of our GDP come from money changers?
The marco trend is down, down, down. And will remain down until we fully recognize and admit our problems. You Mr. Stewart are not helping the situation by portraying a fictional picture.
One of the elements cited for declaring the recession’s end was an up tick in the leading indicators. Consumer confidence fell in early July, June job losses went up, retail sales fell YOY in June for the tenth month in a row. The stock market has also trended down so with two leading indicators reversing themselves this week will that mean the recovery is postponed? I’m watching the details on a daily basis to try and get a clue and I don’t see sunshine just yet.
The so called double dip W recession might actually look more like a staircase descending to the right and the less bad news you are touting means we’re on a step. Most respondents point to jobs as the indicator to watch for. Yes it’s supposed to be lagging or coincident but that’s where the rubber meets the road. As you pointed out, the economy is driven by consumer spending, business investment, exports and Government spending. Only Government spending and transfer payments are keeping us afloat. This is at a cost of two trillion in debt per year. When it becomes apparent that all of King O’s horses and men can’t put Humpty back together our line of credit will dry up and our floats will deflate faster than King O’s poll numbers.
End the wars, end the military empire, reverse the Bush tax cuts, tax gasoline, restore the AMT, embark on a massive alternative energy program and provide Government health care.
Well stated, OP....sure you don't want to head over to DC?
Great idea! I could join Volker, Krugman, Roubini, Born, Baird and a host of others who correctly saw the economic disaster beforehand or have since offered sage advice only to be ignored. I’ll pack my bags immediately!
There are none so blind as those who will not see.
The continuous drop in the total number of people employed will keep the economy on a downward trend, even despite momentary increases in production (GDP), and especially if wages remain flat (save govt transfer payments from stimulus) and savings rates continue to increase. The unemployment rate, however, is not as important because more people can be working yet the unemployment rate can continue going up as more people enter the workforce.
There is no middle class that went out in the late 80's there's have's and then there are have not most people that are lucky enough to have a job are trying to put enough money away and get by. The people that are living pay to pay are just lucky to get by. Then you have the rich that wouldn't spend there first dollar and expect the poor folk to put up with there snobby ways and want the Government to bail there ass out after they screw the poor people! We need to make goods in this country again ,factory's, industry, and if this means not buying imports then so be it without jobs there will be no middle class ever!
I would recommend that everyone read " In the Jaws of the Dragon " by Eamonn Fingleton. I heard him on Thomm Hartmans show and got his book. I do not think we have hit bottom and if what he says in the book is true , The US that i knew as a youth is over and done, China is and will our new master. They own us and the USA is being sold off to other countries at a rate of 200 mil a day. The world is flat theory has sent us into the abyss.
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