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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Hale: I can’t see your chart showing the immediate pre-t*ts up position. The one which demonstrates how graphs can reliably predict the future.
The worst is over but it is still really, really bad. Even if we create 3 million jobs in the next year and a half, there will still be a net net loss of jobs added to the people that are in the job market. It will take the entire Obama first term, maybe even more just to stop the net loss of jobs we had for the last two years.
On the assumption that this is "just another recession," the author is right.
But, we're in uncharted territory; it's indeed worrisome that Vice President Biden acknowledged just this week that the Administration "misjudged" the extent of the crisis. We have yet to experience the full impact of foreclosures, tightened credit and burgeoning consumer card defaults. The housing market has yet to stabilize and the full impact of a 40% reduction in housing values, wiping out untold individual wealth, is still being realized. If the message that the poster draws from his charts were normative, I doubt that the Market would be having trouble breaking away from 8,000, which is probably where it belongs.
But, since there are always "lies, damn lies and statistics," he might be right. I just wouldn't bet on it.
Ah, when was the last "credit crisis"? Exactly! This is all new territory we are on here so comparing labour stats etc is meaningless as we don’t yet have a completed outcome of events! This little hump you think we are now over could be in reality a step towards a much bigger slump. Much like a staircase scenario on a graph. The major factor is THIS financial collapse is "growth being founded on ridiculous levels of debt". Now that is not going to happen again in the near future without a serious deflationary cycle or more access to more debt! Neither of which is a sane answer to the fundamental problem. We lived way beyond our means and NOW must face the consequences of that for maybe decades!
I see no good news or trends AT ALL! what I see is naive optimism by those that have not yet figured out what has really happen to our financial world.
wait till those credit card defauls start piling up later this year and next.....
...Former bond broker, tax lawyer, financial blogger. apologist for capitalism.
Maybe this post was meant as a joke?
Watch the economic recover in California when they finally balance their 27 billion dollar budget defecit. Assuming each job is $50K, that is 20,000 jobs lost per billion or 540,000 more jobs lost. Now consider the ripple effect due to another 540Kpeople not spending money. Of course cities, counties and non government job losses will continue on top of these losses. 540,000 jobs lost in California is 3.3% of all employed people. California is going the way of the rust belt states ... can't compete against low priced foreign cars and electronics. California will come back when Detroit comes back
See link for official numbers
California employment from April to May dropped from 16.5 to 16.3 million
http://dat
hiring rate is falling off a cliff
http://www
TV, I've chosen to make my remarks in a reply to you because your comments seem very appropriate and thought provoking. Both you and Hale may be correct, although I suspect that unfortunately, you'll be right in the long run.
I live in Ohio (tied to Detroit in all too many ways) and it is representative of your point. We are losing population, have high taxes and nobody wants to move here.
If Hale is correct in the short term, it will only exacerbate a winner v. loser apporach in America.
I suspect that any "recovery" will be jobless, corporate earnings will still drop precipitously causing further stock market declines and still not give ALL Americans want they need most: A fully productive economy that rewards hard work and a prosperous middle class.
You can't cut your way to prosperity.
there has never been this amount of financial damage done in any prior recession --the debt load is enormous and it will weigh on recovery
yeah, sure. I believe you. i'm closing my savings account right now. I've got a house on BOARDWALK that I've had my eye on for YEARS.
Looking to GDP growth as the key indicator of the end of the recession will yield a false signal. As some know, this statistic like many others is manipulated by the inclusion of positively biased algorithms and questionable inputs. This bias is about one per cent and can be more. This is but one reason that the so called “jobless recovery” transpired and will undoubtedly reappear shortly. Thus when the figures point to positive growth but it still feels like a recession you’ll be happy to know, as you are being foreclosed on or cashing your last unemployment check, that you’re right and they’re wrong.
Excellent points, OP.
Our leaders are looking down the wrong rabbit hole for indicators. I'm still waiting for one of our economic leaders spouting the "jobless recovery" to explain what it really means, paper profits. When that DOES reappear this Fall, watch the financial clowns fall all over themselves proclaiming "See, just like we predicted.
Looks like we'll need a third stimulus when the unemployment checks run out. And after that....
Hal, the parameters a tad different this time around. In recent "business cycles", we didn't have variables like the government nationalizing health care, nationalizing banks, automatic increases in the minimum wage, nationalizing the auto industry, massively taxing existing energy sources, massive increases in taxes for medicare, Social Security, etc. Usually, you'll see tax cuts to stimulate growth, but not with this president. He's making sure this recession will be deep and long.
I see Jane running ... off at the mouth about Fibs she learned from the Republican h.ate radio media. The republicans forced the 780 billion stimulous bill to be gutted of effectiveness by turning about a third of it into a tax cut for the rich. Olimpia Snow (repub) took credit for this. The roll back of the alternative minimum tax allows the rich with their accountants to legally get out of paying their fair share of tax though excessive use of loop holes. Research has shown the tax breaks for the rich are the least effective method to stimulate the economy.
Republicans are trying to make Obama fail and this is only one example. Recently one loud mouth Repub was calling for the Taliban to attack America and stated he wanted an attack with major impact like 911.
I'd try to correct your ig.norance
How can anyone of sound mind think the Repubs MADE the Dems do something they didnt want to do in Congress How naive and delusiional can this line of thought possibly be
Republicans want Obama to fail so bad, they complain that Obama did not force the liquidation of the American auto manufacturers. Republicans are dangerous and can not be trusted.
The only thing Obama did wrong was continue Bush's policies to back Wall Street crooks at the expense of Main Street and at the cost of a serious dollar devaluation next year.
Bush/Obama sacrificd half of America's auto industry by listening to the Wall Street Gordon Gekko (Rattner) he made car czar. Bush oil/Wall Street speculator friends ran gas up to $5 a gallon and thereby wiped out the cash reserves of GM, Ford and Chrysler when the car market suddenly changed accordingly. Although Obama is trying to rein in the oil speculators, he still is allowing the Wall Street crooks to call the shots.
The economic revcovery will not be televised because there won't be one. However they will televise a lot of propaganda to make it look like a recovery.
"In recent 'business cycles', we didn't have variables like the government nationalizing health care…"
Nobody has proposed nationalizing healthcare.
"nationalizing banks"
None of the major banks have been nationalized.
We SHOULD have temporarily nationalized the banks, cleaned them out, and put them back on the market. The FDIC does this every weekend. They just nationalized nine banks over the Independence Day weekend, cleaned them out and sold them, and they reopened again on Monday morning.
"automatic increases in the minimum wage"
Every time we have increased the Federal Minimum Wage, employment has increased, except the one time when we were already in a recession, naturally. Therefore, automatic increases in the Federal Minimum Wage is a positive for the national economy.
"Usually, you'll see tax cuts to stimulate growth"
Tax cuts have NEVER stimulated "growth", the national economy, jobs, or income tax revenue.
Yea, the Bush tax cuts did a great deal of good. By the way, how do you plan to, pay back the $6 trillion of new Bush debt?
Hale, your entire story depends upon past chart movements. In the real world ot the employed and unemployed, the declining manufacturing and the accelerating decline in commerce, there is another story to be told. The glorious economic past is no reliable reference for an economic system that has been submerged by debt, bad loans, fraud and dishonor. Your dedicated readers may be forgiven for perceiving reality of a different sort from driving through their own communities.
Another employed economist that believes in the totally riduculous oxymoron: jobless recovery.
For the millions that are jobless or employed in drastically reduced circumstances there is no recovery.
The ONLY thing accomplished so far is full employment of banksters, insurance and, apparently, economists.
When the economy returns those individuals to full employment, that is a recovery. Until then, what is going on is a cynical scam - bankers and big companies get money, average taxpayer gets the bill.
Beltway statisticians are getting wet as millions give up chasing nonexistent jobs of nonliving wages:
"unemployment is stabilizing"
Then there's the roaring engine of our economy - "financial services". As bank card rates and insurance premiums slam us again:
"GDP is showing some spark"
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