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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BONDADS FAULTY ANALYSIS
Bonddads charts simply show that all the massive and mostly wasteful spending is slowing down the economic free fall. Not factored into his analysis are coming tax hikes on all Americans to pay for nationalized healthcare. This will further depress our falling economy and turn Barack Obama into the next Herbert Hoover. Prepare yourselves for the worst
Also not factored into Bonddad's analysis is, not just the tax burden, but the whole debt dimension to our present mess. The charts are insightful as far as they go, and they show that maybe we are near the end of a recession/
Please note that in our last recession cycle, 2001, the stat charts above had bottomed, the recession ended, and the real stock market damage was still over a year into the future! This stock bottom was a debt delevering thing to a large extent (margin debt and other debt). If you go back to the recessions occurring before we began building our mountain of debt, you see a different market behavior. For example, the nasty '82 recession ended in mid '82 with the stock market bottoming in August '82, not a year later. Why? There was no debt mountain to complicate things.
Now in 2009, what we have is probably a typical recession cycle near its end. But we may be facing a much worse debt-induced aftermath than what we had in 2002, when the debt mountain was a mole hill compared to now.
WHEW! I'm glad THAT'S over. That was REALLY unpleasant! Now I can go back to my spendthrift ways...Wha
Initial jobless claims fell below 600,000 this week. This is a green shoot! The topping out of unemployment claims has, in the past, signaled an end to recessions. This time I suspect it will be similar to comparing drowning in 10 feet of water rather than 12.
The figures are correct however. We are no longer going nose down in a death spiral but we are descending at a lower angle into a belly flop. Bonddad is certainly correct in his assessment that the "recovery" will be nothing to write home about. If it was a track meet our entry would be a fat, nearsighted, drunken, one legged man prone to hopping in circles.
There are lies, damn lies and statistics so who are you going to believe the statistics or your lying eyes?
It was a holiday shortened week, so I wouldn't read too much into it.
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There were far less initial unemployment claims in the same week last year too. 404k down to 348k, before going back up to 372k and 403k.
Tell that to the people on food stamps!
Sorry, Hale, but your post is not at all convincing!
The cause of our economic down turn has not been fully exposed and who was responsible has been limited, and you make a statement that the worst is over. Incredible thinking in my opinion. The worst will be over, when we completely identify the problems and FIX them. What have we fixed?
The crooks that perpetrated this financial terror are still in business. I feel that the worst is yet to come when the financial scumbags role out the next plan to fleece what's left of American's savings.
Gee, you wouldn't have a conflict of interest, would you? Perish the thought.
What is it about people where they feel it is necessary to spout green shoots and try to get people back from the brink? The brink is necessary. It realigns people's beliefs so that they move from a world of fantasy (debt, beat the jones's mentality) to one of reality where they actually live within their means.
The output gap is absolutely huge for a reason. People are broke and are going through a supreme attitude adjustment. Yes not everyone should drive a bimmer, live in a 400K house, travel 3 times a year, and have credit card debt higher than 500 dollars.
Could it be that the universe is simply righting itself? Yes I think so.
Just like in the 30's people are shunning credit as they realize it's devastating effects on their lives. Banks can't lend close tot he volume they did, not becuase they don't want to - people aren't applying for it. The full effect hit in 1931 as it will this year.
The "me" generations have had their heads handed to them and now they will suffer justly for years of greed.
It's really that simple. That my friends is the beauty of capitalism. It crushes stupid and arrogant people.
You got that right. Hale is way off base here and I hope he soon realizes that charts do not always contain the truth. It would appear at this point in time that Hale cannot get a grip on what is really happening. We are in a depression and that will come out over time. It took folks quite a while to admit we were in a recession.
Wait till the tax increases come for cap and trade, massive interest rates from Obamas spending and inflation from Obamas printing of money. Have you driven by any strip malls lately? They are 70% empty commercial real estate. I see food riots soon in California
Just because Wall Street and the banks have been giant beneficiaries of corporate welfare, it doesn't mean that the other 99% of Americans are recovering.
The long term policies of exporting jobs, while Wall Street trades pieces of paper, does nothing to help the average American. A pick up of paper trading might look good in the statistics, but if it just goes to rebuild the depleted capital at bankrupt banks, minimal new investment will occur.
This is the ultimate result of the class war of the past 30 years of big corporations vs. the bottom 98% of Americans. There is no question who won the war. Until the employment AND compensation policies of big corporations start to change, there will be little growth for working Americans.
well...., here's my prediction
for what it's worth.....
the economy is still getting worse, but it's getting worse much more slowly then b4
gas prices have been fluctuating alot lately and will continue to fluctuate because world oil production has been on a plateau since 2005
my prediction is that the economy will continue to struggle
in the short term, one of two things will happen
the price of gas will go up or down
if it goes up, there will be less discretionary spending and the economy will take another hit
if it goes down, then discretionary spending will increase and things will ease up a bit
but in the long run..., this is it...., the economy will not get better
could get worse, much worse..., but the 90s are over forever
i predict this is our new reality
The graphs do show some improvement or at least a slowing of the hemorrhaging. Obama is talking about a second stimulus package at the moment. Many of the infrastructure projects budgeted for in the first has not gotten under way. It seems another stimulus package is needed, although perhaps not likely to pass. I wonder if another stimulus is necessary?
It is absolutely necessary. The one we used already was much too small and resembled stimulus packages from Japan's "Lost Decade." Our stimulus needs to be between 12-20 percent of GDP, however this will never pass through congress or the senate because the bill would be too big. So instead, we will crash...
I agree! The time was right after the election and we should have pursued a stimulus then much heavier on infrastructure development and lower on tax cuts!
We can only hope that the worst is over. My wife is still unemployed, and I'm working harder than ever on the same salary (no raises at our company this year, rumor of pay cuts still looming). I have become an extreme miser over the last year, and have cut my 401k contribution down to near nothing and stashing cash in my savings account to build up our safety money. I'm planning for the worst and hoping for the best.
It is hard to imagine that foreclosures and credit card defaults will not increase dramatically in the near future. Where are the charts and graphs on this data?
Again, a jobless recovery is anything but a recovery. Outsourcing is destroying America.
Where is your graph that indicates lending. The lifeblood of business in this country. Right now commercial and residential construction is dead because there is no credit flowing. Credit not only affects the ability of an owner to finance a project it also affects the ability of a contractor to make money on a government project. Government projects require bonding and banks are issuing terrible terms for performance bonds right now which is keeping small business contractors away from federal stimulus projects.
None of your charts are showing signs of future economic growth. They are showing a band aid on a major wound.
We should have taken the trillions of dollars and capitalized smaller banks with good balance sheets. If we allowed the large institutions to fail it would have been a short hectic correction that would have redistributed land and money based on capitalist principles. Instead we are now a fascist nation where large corporations and the government are interlaced in setting monetary and national policy to benefit one another.
Credit is evil not the lifeblood. You have been duped. It is the true sucker of life. Get used to it and live within your means
Credit is not inherently evil, it's how it is distributed and how collections are made that determine the morality of it. I do agree with you that credit is used too loosely in America these days, however it is necessary for small businesses to survive through seasonal adjustments and the regular boom/bust business cycle.
Also, a little mind game I like to play that helps me "wake up a bit" is replacing the word CREDIT with DEBT in any government issued statement. They, technically, are the same thing, however one word has very different connotations.
There is no getting better. There is only time, time for us to see this escalating debt explode before our eyes. It may take a few more years, but phoney fiat currency cannot inflate forever. Can you borrow money to infinity? No! Without debt our money supply evaporates. Almost no one understands that every dollar in their pocket represents a dollars worth of debt. Debt can never be paid off under fractional/fiat banking. What does anyone think inflation is? It's the Fed and all their rich friends sucking off the top. They get ultra rich and we get THE GREATER DEPRESSION!
I hope he is correct
but I don't think he will be
most important statistic in my opnion is our debt to gdp ratio
total debt corporate, government, individual
and that is somewhere around 3/1, debt to/gdp
we have run this country at a ratio of 1/1, it did get out of whack once before in 1929 got to be around 2/1
debt strangles growth
Hale you are so wrong you have no idea.
I really like your detailed in-depth analysis which refutes hale. It was a tad too verbose it though.
That's a very helpful observation.
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