4Q GDP Up 5.7%, Wages/Benes At Record Low

by Dollars and Sense

Brad DeLong thinks that the GDP reading suggests that next week's productivity numbers will be around 7%, adding yet another astonishing number to that series. This is not good news for employment; it suggests that workers can continue to be squeezed, notwithstanding all the sweat and tears of the last year.

On the GDP numbers, here's Calculated Risk:

Any analysis of the Q4 GDP report has to start with the change in private inventories. This change contributed a majority of the increase in GDP, and annualized Q4 GDP growth would have been 2.3% without the transitory increase from inventory changes.

Unfortunately - although expected - the two leading sectors, residential investment (RI) and personal consumption expenditures (PCE), both slowed in Q4.

PCE slowed from 2.8% annualized growth in Q3 to 2.0% in Q4.

RI slowed from 18.9% in Q3 to just 5.7% in Q4.

Note: for more on leading and lagging sectors, see Business Cycle: Temporal Order and Q1 GDP Report: The Good News.

It is not a surprise that both key leading sectors are struggling. The personal saving rate increased slightly to 4.6% in Q4, and I expect the saving rate to increase over the next year or two to around 8% - as households repair their balance sheets - and that will be a constant drag on PCE.

And there is no reason to expect a sustained increase in RI until the excess housing inventory is absorbed. In fact, based on recent reports of housing starts and new home sales, there is a good chance that residential investment will be a slight drag on GDP in Q1 2010.

Read the rest of the post

The Wages/benefits story is from the Wall Street Journal
JANUARY 29, 2010, 4:16 P.M. ET

Wage and Benefit Growth Hits Historic Low

Staff Reporter of The Wall Street Journal

Wage and benefit costs, both before and after adjusting for inflation, grew more slowly in 2009 than in any year since the U.S. government began tracking data in 1982, as double-digit unemployment weakened workers' ability to command higher pay.

In the past 12 months, the cost of wages and benefits received by workers other than those employed by the federal government rose 1.5%, according to the Labor Department's employment cost index. In the same period, consumer prices rose 2.7%.

Adjusted for inflation, wages and benefits fell 1.3%, after rising by 2.8% in 2008, the first year of the recession. The inflation-adjusted cost of wages and benefits at the end of 2009 stood just 1.1% higher than at the end of the previous recession in 2001, the Labor Department said.

The Employment Cost Index measures the cost of labor independent of the influence of changes in compensation caused when high-wage sectors grow more or less rapidly than low-wage sectors. Unlike widely cited data on wages, the index includes the cost of benefits, which account for about 30% of total compensation costs.

Before adjusting for inflation, the index rose 0.5% in the fourth quarter, slightly higher than the 0.4% increase in third quarter. "The weak labor market will help keep inflationary pressures benign," said economist Anika Khan of Wells Fargo Securities. "As such, the Federal Reserve continues to have the flexibility to keep short-term interest rates at the current level."

State and local government workers' compensation in 2009 grew 2.4%, twice the pace of the 1.2% increases in the private sector. State and local government employees' compensation has outpaced private-sector increases for the past several years.

Private employers' health-insurance costs rose 4.4% in 2009, after increasing 3.5% the year before. The 2009 increase, though, was the second-lowest rate of increase in more than a decade, according to the survey. The Labor Department noted that this reflects, in part, employers' reducing their contributions to employees' health insurance or switching to lower-cost health plans. It added that the data in this part of its quarterly survey weren't as reliable as the rest of the report.

Labels: Brad DeLong, Calculated Risk, economic indicators, employment cost index, GDP, health insurance, productivity, wages and benefits

 

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1/29/2010 06:55:00 PM 0 comments

 

10% Unemployed: Change We Can Believe In?

by Dollars and Sense

Just about everyone was caught off guard by the November employment reports, which indicated that the US unemployment rate had actually declined .2% to 10.0%, and that a mere 11,000 jobs were lost during the month (forecasts had called for 130,000, and the ADP private sector report released only days earlier tipped the scales at 160,000). Moreover, the September and October readings were reduced significantly, confirming the sentiment that large-scale corporate reductions have ceased to be the major factor in the employment picture. Hence, concern shifts to whether or not the still anemic economy can actually generate any kind of jobs growth. Here, the picture is in many ways a tad more optimistic than that which followed last month's report, but with some major exceptions.

The underlying upward trend was driven by slowing declines in construction and manufacturing. In the case of the latter, the savage inventory rundown that ran from last October to late this spring ensured that a certain level of restocking was necessary, especially given the partially-restored wealth effects from surges in financial and commodity markets that resulted from unprecedented monetary laxity and financial-sector coddling. And demand for capital goods seems to be perking up, so further gains in the sector are possible in the months ahead (barring any further financial catastrophes). But in construction, the picture is blurred because of the state of the commercial real estate sector, which is currently poised to take major hits, given poor performance in the retail sector (i.e. possible bankruptcies), so it's hard to see continued strength here.

One sector in which things really picked up was in temporary work. An uptick in temp hours is a usually a good sign that overall employment demand is picking up, but it's perhaps helpful here to put the rise in context by juxtaposing it with a welcome, but ever-so-slight reversal of the drastic decline in the average workweek, which has, during the last few months, hit--and stayed at--record lows. Together, these data suggest that employers are, kicking and screaming all the way, easing up on besieged workers just enough to keep them ticking over the heroic gains in productivity by hiring a few temps, and offering just a bit of overtime. These productivity gains have, in the decided absence of revenue growth, alone accounted for a truly impressive--given the weak economic backdrop--corporate profits performance registered in the third quarter. But this activity may be of very questionable durability and quality: after all, many new hires, especially amongst newly-graduated college students (a group which has been one of the most severely affected by the crash in the labor market), are coming on as interns, or at much reduced rates of pay, and that reduction means that employment spending multiplier effects that generated further hiring (even at the dreadfully slow levels characteristic of the last two recoveries) in past cycles could be diluted still further.

Another area experiencing positive movement of a sort was retail: in this sector, too, the positive development consisted of the lack of a negative one, as the pace of losses continued to slow. But holiday hiring, which had been dangerously subdued in October, picked up significantly in November. Still, many of these people will be junked after Christmas like so many of the useless gadgets and packages they had worked so hard to flog in the preceding weeks. And in restaurants and taverns, employment actually slowed.

The government continued to add jobs, but an 8,000 monthly figure seems, frankly, pathetic (if not insulting) given the enormous size of the stimulus and bailout packages. And the stimulus money is about half gone, now. It's unacceptable that an economy this devastated (and in such desperate need of public works) is being so neglected. But the folks on Wall Street are getting nervous about spending, and Friday's numbers, which foreign investors saw as positive, pushing the dollar up, were seen on the Street as evidence that the Fed might be all the quicker to raise interest rates and exit from its support programs for the banks: so US stockmarkets posted only slight gains. This illustrates that any further stimulus will be hard fought over by the corporate whores in Congress, though some Democrats are now talking about redirecting returned TARP money to a second stimulus.

One very negative development concerns the long-term unemployed: the roll of persons unemployed for longer than 26 weeks continued to expand. And though the U6 reading, which counts underemployed persons seeking full-time work also reversed its downward spiral at last, registering a 17.2% reading from November's 17.5%, the fact that so many have been out of the workplace for such extended period of time merely increases the likelihood that they will not be hired as long as the labor market is decidedly slack (an increasingly popular tenet of employer propaganda has it that such persons' *skill sets* deteriorate when they've been idle for this long, and it's better to go with someone else, especially with some 6 applicants looking for each available job--that figure is from about a month ago, I think).

So, all in all, the reversal in layoffs seems certain (for now), but any substantial uptick in hiring will have to wait for next year, at least. And, though some sectors show room for one-off or even sustainable gains, the potential levels of gains, at best, remain extremely subdued.

Labels: ADP private sector employment report, economic indicators, employment, real unemployment rate, US employment

 

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12/06/2009 04:10:00 PM 0 comments

 

Santa Needs Extended Benefits, Too

by Dollars and Sense

The October employment reports were released today, and the unemployment rate zoomed above 10%, to 10.2%, to be exact, earlier than most economists expected. The number of jobs lost in October also surprised on the negative side, at 190,000 (v. the projected 175,000). The unemployment rate is the highest it's been since the dreadful winter of 1982-83, when it hit 10.8% for two months running. The so-called "underemployment rate," which covers part-time workers looking for full-time work and suchlike, rose at an even higher clip, to 17.5% from 17.0%. The average workweek was unchanged at 33.0 hours, which matches readings in August and October for the lowest recording ever. Manufacturing production actually increased its average workweek length, to 40.0 hours (but lost net jobs for the month), but this is a small consolation given the heroic increases in GDP, and especially productivity, that have been reported in the past week. Oh, and lest we forget, the amout of workers unemployed more than 26 weeks rose to a stunning 3.6% of the entire workforce, which is the highest it's been since records began in 1948. All told, some 8.2 million jobs have been destroyed during this downturn--whatever name you want to give it--began some two years ago and change. It'll take 3 1/2 years of continuous, strong job growth to make that up, and that in an atmosphere starved of capital and averse to debt (unless you're the government or a big bank, and neither of them are going to be chalking up stellar jobs growth numbers anytime soon).

Some are arguing that the truly remarkable productivity statistics announced yesterday (an increase of over 9% annualized), most certainly presage an uptick in employment: you simply can't work the plebs much harder than this. But this comes off a series of strong performances for this year after which analysts said essentially the same thing. And there's still room to cut unit labor costs without cutting hours: by cutting or eliminating benefits. And there is anecdotal evidence to the effect that a good number of workers are actually accepting cuts in pay.

But it may not come to this: the vast inventory restocking that took place once the executive committee of the world bourgeoisie made it clear that governmets would guarantee all major financial institutions no matter what, may be overshooting future demand. You may be able to reestablish a global supply network in a relative jiffy, but recreating bloated living and investing standards may be a more arduous, or even impossible task. But stock markets, commodity markets and, strangely, bond markets (well, not so strangely: governments are buying heaps of their own bonds to keep interest rates down) are all way up since the near-death expereince of March. But one other employment indiccator shows how flimsy this tidal wave of risk-taking has been: holiday retail sales for October are languishing at last year's low levels, which were the lowest since, well, 1987: the month of the 1987 stock market crash. Santa's worried, too.

Labels: economic indicators, employment, real unemployment rate, US employment

 

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11/06/2009 02:26:00 PM 0 comments

 

Friday's Jobs Report

by Dollars and Sense

Well, the August jobs report came in, and while not a complete disaster, revealed that job losses are not declining any faster (as July's did). Meanwhile, the unemploment rate, which had shown a small reversal in July, jolted vigorously back in the wrong direction (to 9.7% from 9.4%). 15 million Americans are now out of work. And the percentage of Americans working continues to plunge precipitously (this chart--thanks to Calculated Risk--is really a shocker: it shows that the drop is the biggest and fastest during a recession since 1960, and that by rather a long shot): it's a bit above 59% now, compared with almost 63.5% in January, 2007. All told, 216,000 jobs were lost in August. June and July's losses were also revised upwards, by 49,000. The 9.7% reading is the worst since July, 1983. And the U-6 measure, which includes people working part-time who need (they say "want") full-time work, broke another record, arching to 16.8% from 16.3% in July.

The average work week (thanks again, Calculated Risk!) blipped upwards, though, in a surprising--well, sort of--development. Like the employment-to population ratio, it has been undergoing a dramatic decline, but this since January of '08. It fell a almost a full hour, to 33 hours, in that short amount of time. The uptick no doubt reflects the enormous productivity gains employers are squeezing out of shellshocked workers to pad up the bottom line given the fact that they're not selling much of anything to the same shellshocked workers. Squeezing them even more should be really helpful in this regard....

Calculated Risk also shows the "diffusion index"; this shows how job losses are spread amongst the industries that make up the productive--using that term loosely, of course--economy. This is what the writer of the blog has to say about that:

Before last Summer, the all industries employment diffusion index was in the 40s, suggesting that job losses were limited to a few industries. However starting in September the diffusion index plummeted. In March, the index hit 19.6, suggesting job losses were very widespread. The index has recovered since then to 35.2 in August, suggesting job losses are not as widespread across industries as early this year - but losses continue in many industries.

The manufacturing diffusion index fell even further, from 40 in May 2008 to just 6 in January 2009. The manufacturing index has rebounded to 29.5 in August, indicating improvement, but still fairly widespread job losses across manufacturing industries.

So the outlook for US workers is more of the same: private-sector employers very reluctant to hire or invest if they can get the job done (i.e. tease out any profits) with workers who fear for their jobs (and healthcare) in a way many of them have never done before, and government stimulus either held-up or not doing very much by way of jobs creation in the first place. And the consumer spending outlook, regarding that other means to increase those profits, must remain biased on the downside. With government programs set to be drawn down, the authorities cagily mentioning "exit strategies" once again, and expensive legislation and escalating wars to be paid for, it's devilishly hard to see where those profits could possibly come from.

Labels: Calculated Risk, economic indicators, employment, real unemployment rate, unemployment

 

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9/04/2009 10:42:00 AM 0 comments

 

Thursday's Indicators

by Dollars and Sense

More signs that the boost to US employment in August was merely a blip on the screen came in today, ahead of tomorrow's penultimate employment reports. Initial claims for unemployment continued to fall, but at a slower rate than anticipated. Applications fell 4,000 to 570,000 last week. Continuing claims rose by 92,000 in the week ended Aug. 22 to 6.23 million, however. In the all-important service-sector (from the point of view of employment), however, the pace of the business activity decline slowed, but remained in depressed territory. So the data remain uncomfortably mixed, with the outlook bias stuck in discernably negative territory. Tune in tomorrow at the same bat time for the big news to get a clearer picture (and even then...).

The Washington Post reports today that the US will need "massive" hiring" to fill mission-critical posts in the next three years. But the number given, 270,000, represents a little more than the offset on one GOOD month's losses during this recession, so it's not like it's going to make much of a difference, especially over three years, as unemployment is slated to persist at more than 8 percent levels beyond 2011.

Retail sales numbers came in, and confirm a contunuing trend toward success for low-end stores at the expense of those catering to fashion addicts. But the data are unusual because the important back-to-school numbers are truncated due to the lateness of the Labor Day holiday next week (which aren't included, for obvious reasons).

The Financial Times reported yesterday (I forgot to post this then, and I'm piggybacking on Morningstar--thanks--for this link) that insider selling on Wall Street soared in August, in yet another sign that the summer equity rally had little substance to it (beyond huge rises for the like of AIG, Fannie and Freddie, Citi, etc., and indications that short-sellers were engaged in panic-buying to cover bets gone bad, for starters). And it's funny: whereas, during the "green shoots" days, stocks moved up with every report that wasn't a disaster, now even better news is being greeted with frostiness from investors. But bonds continue to stay with stocks at relatively advanced levels, at least if you're not in China. And stocks rose there for the third straight day, at an impressive 4.8% clip (losses from Monday's dive were 2 percentage points more), on assurances from a Chinese regulator that markets were functioning despite all the hoopla about gazillions of yuan of loans being cut off and whatnot. In Japan, howver, the Nikkei index was down because of strength in the yen (which serves as something of a safety valve when temporary or slight weakneses in the US--like a poor jobs report--surface). Also, China is bracing for another bout of instability in the west.

Finally, the European Central Bank left its key interest rate at one percent, in a move that surprised only those who perhaps never knew that a Europen Central Bank ever existed. A far more interesting development will take place in two developed-country central banks, Norway's and Australia's, in the next few months. These countries, having chalked up impressive growth (both on rising natural resource prices, and Australia on super-stimulus enabled Chinese growth), are saying they will begin to extricate themselves from their "quantitative easing" programs in the next few months. You'd better believe that the folks at the Fed, the Banks of Japan and England, and the European Central Bank will be watching to see how messy an affair this could be.

Labels: Australia, China, corporate profits, economic indicators, economic stimulus, european central bank, insider trading, Monetary Policy, Norway, retail sales, service industries, weekly initial claims

 

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9/03/2009 09:55:00 AM 0 comments

 

Wednesday's Indicators

by Dollars and Sense

Today's important indicators focus on trends in or affecting the US labor market. The ADP US private-sector employment report, which surprised on the downside last month (i.e. its projection for job losses was for too many losses), is forecasting losses of 298,000 in August. This figure is down from the 371,000 forecasted for June, which was revised down to 360,000. Please note that this indicator, provided by the private-sector company ADP (i.e. not a government entity), excludes the government sector. On Thursday, weekly first-time and continuing unemployment claims come out, and on Friday, of course, the sacred First Friday Labor Department employment reports are to be exhibited to their countless devotees in the markets and in government (not to mention the rest of us). Bloomberg notes that the private sector losses were greater than forecast, so it'll be interesting to see if the undershoot on the downside in July's government report estimates, which was greeted with adulation (but not much of a market bounce) in early August will be matched by disappointment on the markets, if it materializes, on Friday.

Factory orders were up in July, but not as much as forecast, and an outsized part of the activity was in aircraft production, which doesn't mean it's very sustainable (aircraft, as one might imagine, tends to be a one-off sort of purchase). This type of growth may look hard to square with yesterday's upturn in manufacturing (which showed strong growth for homebuilders and autos), but this is a July figure, and the manufacturing report was for August. Meanwhile, the revised 2Q productivity figure stayed at its stratospheric level of 6.6% (it was supposed to be trimmed down to 6.1% or so). Unit labor costs were revised downward (meaning workers are getting screwed more) by .1%, to 5.9% from 5.8%.

Also, US mortgage applications fell, as did loan requests (for the first time in three months).

US employment situation continues to deteriorate in fiscally-strapped urban areas to a particularly disturbing extent, as this WSJ piece documents.

Finally, in accordance with our philosophy of widening the category of "economic indicators" beyond that focused on by wilfully short-sighted investors and economists, it seems that opium production in Afghanistan is down by 20%. Opium is Afghanistan's largest export by far, and accounts for 90% of the world's refined heroin. It's not only important for this country and region, but its precedence (though down, it seems its for supply reasons, as the article states, not so much from eradication/substitution measures taken by the "authorities"--many of whom are involved in the trade)reflects that fact that the US and NATO have precious little control over the fiefdom they inherited from the Taliban in 2001. And that lack of control, combined with an almost certainly half-baked escalation strategy by the US, will quite possibly cost US taxpayers (never mind Afghan citizens, of course) increasingly over the next few--probably highly penurious already--years.

Labels: ADP private sector employment report, drug industry, economic indicators, factory orders, mortgage offers, productivity, unit labor costs, urban life

 

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9/02/2009 10:02:00 AM 0 comments

 

Tuesday's Indicators

by Dollars and Sense

Canada grew in June for the first time in a year, but 2Q GDP fell by 3.4%

In the US, manufacturing grew in August for the first time in close to 2 years: autos and homebuilders, which had vastly supported any upward momentum in this sector during the boom years, and whose job losses have accounted for half those lost since December 2007, kept things going with cash-for-clunkers and tax credits for first time homeowners. And in fact, pending sales of existing homes grew faster than expected in July.

In the Eurozone, unemployment numbers weighed on stocks, as July figures rose their highest level in ten years, reaching an expected 9.5% from 9.4% in June. Also, eurozone prices fell for the third straight month, though the pace of the drop is starting to level off.

China's manufacturing grew at its fastest pace since 2008 in August. And South Korea's exports fell for the 10th month in a row, at a 20.6% rate, in July, from a year earlier.

All in all, today's figures give a boost to the slow, weak but co-ordinated worldwide recovery scenario, with the troubling exception of the Chinese and South Korean figures. The latter attest (regading China, the key question concerns how much of the uptick in manufacturing is a result of overcapacity enabled by veritable torrents of bank lending which may be abruptly cut off, something that caused Shanghai shares to drop much deeped into bear--20% loss from height--territory on Monday) to the persistence of vast imbalances in the international economic and financial systems that could upend recovery--especially of such a uniquely fragile sort as we seem to be witnessing.

Labels: Canada, China, consumer prices, economic indicators, eurozone, GDP, manufacturing, South Korea, unemployment, United States

 

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9/01/2009 09:25:00 AM 0 comments

 

One Forgotten Indicator: Restaurant Sales

by Dollars and Sense

Calculated Risk discusses the 23rd consecutive month of depression for restaurant sales. Restaurant sales performed heroically during the bubble, and became a leading source of job-creation during that period. Both capacities have now crashed to earth, and with more and more displaced workers competing for restaurant jobs they would ordinarilly turn their noses up at, both the drag on employment and knock-on effects on consumer spending and revenues for restaurants will continue to have an outsized negative impact on the wider economy, it seems.

Monday, August 31, 2009
Restaurants in July: 23rd Consecutive Month of Declining Traffic
by CalculatedRisk on 8/31/2009 10:03:00 AMNote: Any reading below 100 shows contraction for this index.

From the National Restaurant Association (NRA): Restaurant Industry Outlook Remained Uncertain In June as Restaurant Performance Index Declined for Second Consecutive Month

The outlook for the restaurant industry improved somewhat in July, as the National Restaurant Association's comprehensive index of restaurant activity registered its first gain in three months. The Association's Restaurant Performance Index (RPI)--a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry--stood at 98.1 in July, up 0.3 percent from its June level. However, the RPI still remained below 100 for the 21st consecutive month, which signifies contraction in the index of key industry indicators.

"Although restaurant operators continue to report soft same-store sales and customer traffic levels, they are more optimistic about improving conditions in the months ahead," said Hudson Riehle, senior vice president of Research and Information Services for the Association. "Restaurant operators reported a positive six-month economic outlook, and the proportion expecting higher sales rose to its highest level in three months."

. . .

In addition to sales declines, restaurant operators reported negative customer traffic levels for the 23rd consecutive month in July.
emphasis added

Read the rest of the post

Labels: Calculated Risk, economic indicators, financial crisis, National Restaurant Association, restaurant sales

 

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8/31/2009 10:38:00 AM 0 comments

 

Weekly Indicator Outlook/Monday's Indicators

by Dollars and Sense

First, setting the tone for market performance as the week starts is a Shanghai stockmarket loss of no less than 6.7% on Monday, which has led Asian and European (but not British, as of 10.30 am EST--3.30 pm GMT) stocks lower.

Japanese Industrial production rose 1.9% in July, raising the string of consecutive rises to 5. But critical export growth is lacking, and the figures, viewed from a year-to-year perspective, remain quite depressed. The fact that production continues to grow robustly, while exports and imports decline, or, at best, level off throughout the region, makes me quite concerned that the much-remarked-upon post-Lehman inventory restocking will be seen to have overshot on the upside in the next few weeks. One can only hope that the fact that the swingeing declines have led to such meager advances, viewed from a yearly perspective, will keep inventory restocking aligned to a much-reduced capacity of consumers to buy, and businesses to invest.

In the US, the Chicago Purchasing Manager's Index, which provides a snapshot of the bosses' propensity to invest, rose to a post-Lehman high in August.

Later in the week, all eyes will be on Friday's US employment reports. The nonfarm payroll figure is expected to be down by *only* 220,000 for August, a slight improvement on July's 240,000 loss, but the unemployment rate is expected to climb a notch, back up to June's 9.5%, as discouraged (and uncounted) workers re-enter (presumably encouraged by July's downward movement in unemployment) still horrific labor markets.

But other gauges of employment are also due out: on Thursday, US weekly new and existing unemployment claims figure comes in, ehile Eurozone unemployment indicators are slated for tomorrow. Unemployment there is forecast to rise .1% to 9.5%, which would, if it--and the US projection--materialize represent another noteworthy development in the crisis, when European and American unemployment rates finally converge after decades of mainly large divergence. It's a fool's errand as to which side will come off looking better....

US revised productivity and unit labor costs are due on Wednesday. Both figures are expected to be trimmed from their spectacular heights (inversely for ULCs), but the story of workers lucky enough to have steady jobs being squeezed implacably by the boss to make up for lack of sales and revenues is expected to stick.

Finally, indications on the health of the all-important US service sector will be released Thursday. This sector has contracted since September of last year, albeit at a slowing rate. Improvement is key for the US outlook, because it has such a large service sector. Regarding housing, US July pending home sales is out tomorrow. US retailers will also report comparable stores-sales on Thursday, providing a look at the increasingly important back-to-school sales in the retaiing calendar, and of the state of the US consumer.

Labels: corporate profits, economic indicators, employment, eurozone, housing market, industrial production, Japan, productivity, retail sales, service industries, stock markets, unemployment, United States

 

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8/31/2009 09:16:00 AM 0 comments

 

US Personal Consumption/GDP NOT 70% GDP

by Dollars and Sense

Or so Michael Mandel insists. From his Economics Unbound/World Economy Blog:

Economics Unbound
Get It Straight: Consumer Spending is *not* 70% of GDP
Posted by: Michael Mandel on August 29

Ok, now I'm getting aggravated. On the front page of the NYT this morning, Peter Goodman wrote

Given that consumer spending has in recent years accounted for 70 percent of the nation's economic activity, a marginal shrinking could significantly depress demand for goods and services, discouraging businesses from hiring more workers.

And Martin Crutsinger of the Associated Press wrote

Especially in the U.S., consumer spending is essential: It drives about 70 percent of economic activity--more than for most European nations and well above the rates in developing countries such as China.

Both of these fine economics writers have fallen into a subtle but very important trap. They look at the category of GDP which the BEA calls 'personal consumption expenditures' and assume that it means what it sounds like: The money that persons, like you and me, spend on consumption.

But in fact, 'personal consumption expenditures' in the U.S. is a grab-bag category which includes all sorts of money--like Medicare spending by the government--which never passes through the hands of households. PCE also includes all the consumer goods imported into the U.S.--cars, computers, clothing, and the like--which create very little economic activity in this country.

In fact, by my very rough calculations, the money that people actually pull out of their paychecks and bank accounts to pay for domestically-produced goods and services drives about 40% of economic activity in this country. That's still large--but the U.S. is nowhere near as dependent on consumer spending as people think.

Okay. Let's look under the hood...


Read the rest of the post

Labels: economic indicators, GDP, Michael Mandel, Personal consumption

 

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8/30/2009 04:00:00 PM 0 comments

 

US Second Quarter Earnings Roundup

by Dollars and Sense

From the New York Times' Site:

U.S. Second-Quarter Earnings Tough to Beat

By REUTERS
Published: August 30, 2009

NEW YORK (Reuters) For corporate America and Wall Street, the second quarter may be a tough act to follow.

Just as investors were closing the book on second-quarter earnings, Dell Inc (DELL.O) drew them back in by accidentally releasing earnings that beat expectations just minutes before Thursday's closing bell.

Despite this minor misstep by Dell, the world's No. 2 personal computer maker, investors reacted to the news the way they did to many other pleasant surprises this quarter--by hungrily snapping up Dell's stock and lifting tech shares.

This was the pattern throughout the latest earnings period, as a bevy of surprises provided the fuel to drive the benchmark Standard & Poor's 500 Index (.SPX) up 11.5 percent since July 1. The rally lifted the S&P 500 to a 10-month high this week.

Intel Corp (INTC.O), which reported quarterly results that surpassed expectations last month, surprised the Street again on Friday morning by raising its revenue outlook.

But the broader market's initial euphoric response to the news soon fizzled. That left participants wondering: In the dearth of earnings, what will push stocks higher from here?

"This market has about as much good news baked into it as it can take," said Angel Mata, managing director of listed equity trading at Stifel Nicolaus Capital Markets in Baltimore.

"We're at that point now where there is no more good news that could come out that can really juice this market."

For the past week, the S&P 500 rose 0.3 percent, while the blue-chip Dow Jones industrial average (.DJI) gained 0.4 percent. The Nasdaq Composite Index (.IXIC) also finished the week up 0.4 percent.

MORE REALISTIC MOOD

With just a handful of companies left to report, the S&P 500's second-quarter earnings are projected to decline 27.3 percent from a year ago, according to Thomson Reuters data. That compares with a forecast for a 36 percent decline from the year-earlier quarter at the start of the earnings period, and a 35.5 percent drop in the year's first quarter from the same period in 2008.

Some 73 percent of the companies that reported results beat estimates, well above the 61 percent average for a typical quarter, Thomson Reuters data showed.

Wall Street used the abundance of positive surprises as the catalyst to keep the stock market's rally going.

But it remains to be seen whether the broad market's buoyant reaction can be repeated in coming weeks.

Intel shares rose sharply, and boosted semiconductors, but the market itself struggled on Friday.

And even glittering results from jeweler Tiffany & Co , which reported a higher quarterly profit on Friday in tandem with cost cutting, could not get the market excited.

Analysts say expectations are not as dire as they were when headed into the second quarter. Estimates are for third-quarter earnings to decline 20.8 percent from a year ago. The change in expectations may reduce the impact of positive earnings guidance, which will start to trickle out in a few weeks' time.

"I don't think we will get surprises of the magnitude we got in the second quarter," said Hugh Johnson, chief investment officer of Johnson Illington Advisors, in Albany, New York.

Read the rest of the article

Labels: corporate profits, economic indicators, financial crisis

 

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8/30/2009 03:21:00 PM 0 comments

 

Indicators That Fell Through The Cracks...

by Dollars and Sense

...this week (sorry about that!):

UK business investment falls at fastest rate since records began in 1966, despite rock-bottom interest rates (well, not quite at US levels, but...). Once again, super-lavish quantitative easing proceeds are being hoarded by banks.

The number of Americans working part-time for lack of full-time work has, in an astonishing development, almost doubled since the beginning of last year. Thanks to Calculated Risk.

According to Commerzbank economists, the economic crisis has cost the world $10 trillion so far (or, more specifically, will do so by the end of this year). This article, from Die Zeit, is in German (note: in German, like in British English, a billion is a trillion, while a 1,000 million is a billion). The researchers, who assumed that world growth would have been the same as in previous years without the crisis, claim that losses in the US and UK from real-estate amounted to $4.65 trillion, while measures to save the banking system and whatnot have added on another $4.2 billion.

Labels: business investment, Calculated Risk, economic indicators, real unemployment rate, United Kingdom

 

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8/29/2009 10:44:00 AM 0 comments

 

Friday's Indicators

by Dollars and Sense

US personal income was .1% lower in July, reflecting continued weakness in the job market, but private sector wages were actually up $6.7 billion after a big decrease of $24.5 billion in June. July consumer spending rose .2%, powered by cash-for-clunkers, and the June figure was revised upwards to an increase of .6%. For the second quarter, spending fell at a 1% annualized rate. Savings fell as incomes were squeezed, to 4.2% from 4.5% in June.

The fact that the private sector is starting to put some money on the table is good news, but one has to wonder how much of it is being confined to top earners. The fact that savings fell so much may be a consequence of such skewed distribution. And if that is the case, the implications for a relatively quick economic recovery must remain in doubt.

On Wall Street, positive statements by Dell (despite a steep drop in 2Q earnings) and Intel (on the basis of a more optimistic sales forecast) have failed to energize the stalled tech sector at the time of writing, at about 11.00 am EST.

The UK, unlike its continental counterparts France and Germany, saw negative second-quarter growth of .7%, according to the Swiss newspaper Neue Zuercher Zeitung (for some reason I couln't find this story in the headlines of the UK dailies). But UK house prices rose in July for the third straight month, and at the highest rate in five years.

In Japan, which will hold a general election on Sunday, unemployment hit a record high of 5.7% in July, while deflation of 2.2% continued to ravage the positive growth figure announced a fortnight ago. This will no doubt contribute to the widely anticipated big defeat for the ruling Liberal Democratic Party. Ambrose Evans-Pritchard noted yesterday that Japanese exports fell yet again in July, with big declines in exports to its major partners China and the US. And the Baltic Dry Index, a key barometer of international trade, has been falling for 11 weeks, as Evans-Pritchard says.

Finally, LIBOR, a key set of interest rates for banks lending to each other, continued a dramatic recovery since the collapse of Lehman Brothers saw them rise to unheard-of levels last September and October. Still, however, smaller banks are finding it difficult to borrow at low rates.

All in all, the data remain disturbingly mixed. Signs of strength are offset by continuing imbalances and unwindings across the board. And there's no way economies can stand on their own feet without historic levels of government support.

Labels: Ambrose Evans-Pritchard, consumption, corporate earnings, Dell, economic indicators, intel, Japan, LIBOR, personal income, Trade, United Kingdom

 

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8/28/2009 09:20:00 AM 0 comments

 

Thursday's Indicators

by Dollars and Sense

Weekly new jobless claims in the US fell 15,000 to 565,000, and continuing claims dropped by 80,000 to finish the week ending 15 August at 6.133 million. How many unemployed workers exhausting benefits, thereby contributing to the fall in existing claims, must be considered here, however.

US 2Q GDP was revised upwards to minus one percent. In the longest recession since 1947, real GDP has fallen for four straight quarters. Corporate profits, though, rose 2.9 percent in 2Q, following a return to positive territory in 1Q of 1.3 per cent. Inventories were cut by more than anticipated during the quarter, but this was offset somewhat by stronger consumer spending (a part of that as a result of higher gas prices and the now-expired cash-for-clunkers--After posting this I remembered that the program didn't go into effect until July, so this had no impact on second-quarter purchases; sorry for the mistake). Tomorrow's personal income number will no doubt add definitively to the picture of the consumer's health.

Wall Street opened by shrugging off these data, which seem to confirm long-awaited indications that consumer spending has at least some legs to stand on. Some may be puzzled by this--it wasn't too long ago that negative readings were routinely ignored by the Street. And there are some mighty strange things happening on the markets. Today's FT noted that AIG, Fannie Mae and Freddie Mac put in the most improved performance on the New York Stock Exchange since early August. All three have vaulted more than 150%, with the terrible government-sponsored entity twins posting gains of 250%. And there's more at work here than positive news on the homebuilding front: it seems short sellers have been betting against the trio, and have been caughtm, well, short: so some of the buying was of the panic sort, to buy back shares of the three that speculators had shorted which gained in price.

Also, readers may recall a post from last week in which Arindrajit Dube showed how the shares of big insurers reacted to the demise of the public option in July. I don't follow individual stocks or sectors that much, so I'm guessing here, but I imagine that insurers are still racking up gains. To see so such upward activity suppported by such movements, which can only be regarded as neutral or harmful in an economic sense, would mitigate against the simple recovery story. And retail investors remain close to the sidelines.

The FT also had a longer piece on the very weird upward movement of stocks, bonds and commodities recently (usually bonds move opposite to stocks, and commodities, especially oil, are used as a hedge against inflation--and hence, often-times, stock performance). Add in currencies, in which a movement away from the dollar as a safe haven has been proposed (and the dollar usually moves counter to commodity prices), and you have a very confusing situation, indeed.

Labels: bond market, commodity prices, corporate profits, dollar, economic indicators, GDP, stock market, weekly initial claims

 

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8/27/2009 08:37:00 AM 0 comments

 

Today's Indicators

by Dollars and Sense

US new home sales increased almost 10% more than forecasted in July, and, perhaps more important, unsold inventories dropped to 7.5 months worth of supply, the lowest that number has registered since April. 2007. There was a huge 32% increase over June in the Northeast. Too bad most of the troubled properties are in the West. Still, even the South registered a 16% monthly rise (don't know how benighted Florida performed v. other states in the region).

This big number, taken in tandem with yesterday's Consumer Confidence figure, provides a much-needed boost to the notion that the US consumer sector is finally starting to respond to the electroshock therapy provided by the monetary and fiscal dollops thrown at it (very indirectly regarding monetary policy: banks still aren't lending). Friday's personal income reading will be decisive in gauging whether or not this view is really robustly supported. Pesonal incomes have been on life support all year, with gains coming only from government transfers, which are now thinning out.

Interestingly, builders are beginning to buy land again, after a three-year hiatus. Housebuilder stocks are boooming on Wall Street these days.

US durable goods orders also surged in July, led by purchases of aircraft. Capital goods orders increased by a quite-respectable 9.5%, consituting the best performance in this area since December, 2007. This is important, because business investment, like consumer spending, really needs a vigorous push if this recovery is to become at all sustaining. But even here, caution is in order:

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, slipped 0.3 percent in July, the Commerce Department said.

Analysts polled by Reuters had expected core capital goods to increase 1 percent. The prior month was revised to show a 3.6 percent rise, previously reported as a 2.6 percent increase.

Durable goods orders are a leading indicator of activity in manufacturing, which in turn provides a good barometer for overall business health.

Durable goods inventories fell 0.8 percent in July, after declining 1.5 percent the prior month..

Germany, with its big capital goods exporters, also saw a bigger rise in business sentiment in July than forecast.

In addition, as cannot be emphasized enough, the process of deleveraging the vastly bloated debt of the US consumer and corporate sectors has scarcely begun. It is very difficult, indeed, to see how sustainble upticks in either is possible given this constraint, especially with prospects for employment, wages, corporate defaults, less government largesse and the possibility of higher taxes all added into the mix.

Finally, the death of Senator Kennedy may resuscitate the public option in some sort of form. God knows what that means for the bond vigilantes and exit-strategists....

Labels: business confidence, deficit, durable goods, economic indicators, Edward Kennedy, Germany, health care reform, new home sales

 

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8/26/2009 09:23:00 AM 0 comments

 

Today's Indicators

by Dollars and Sense

US Consumer Confidence surges above 50 in August; considerably fewer say jobs "hard to get." Go figure.

In a closely-watched non-indicator reading, the June Case-Shiller index of single-family home purchases in selected cities (chosen to be nationally-representative) rose to a level three times May's reading. The fact that prime mortgage foreclosures are displacing subprime as a percentage of homes foreclosed upon, and that continued high joblessness may mean that a rising percentage of these new sales may end up in foreclosure, must be taken into consideration when viewing this number.

Labels: Case-Shiller Index, consumer confidence, economic indicators, housing market

 

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8/25/2009 09:19:00 AM 0 comments

 

This Week's Economic Indicators

by Dollars and Sense

Before we get to the recognized indicators, some non-indicator news worthy on note (i.e. these things will probably affect indicator performance). First, the cash for clunkers program in the US ends today. This will surely dent demand somewhat in the months ahead. Second, Dell and Sun Microsystems announce results this week, events which will surely affect the current stock market rallies going on everywhere, and determine whether or not the tech sector will resume a leading position in the rally (it led gainers from March until last month, and has lagges somewhat since). Also, oil is trading yet higher, maintaining it's highest levels for the year.

Japan holds a general election on Sunday, in which the Democratic Party of Japan is expected to defeat the Liberal Democratic Party, which has ruled virtually without interruption since the end of World War II. The turn against the LDP is richly deserved, given the levels of sleaze, incompetence and lack of coherence the party has represented for years, but the New Democrats, who favor some new economic liberalization measures, some new social protection measures, and a more independent (of Washington) foreing policy, will be challenged to get very much of their agenda enacted.

Tomorrow, US consumer confidence is gauged, while July durable goods orders and new home sales readings come in on Wednesday. The weekly initial jobless claims report is due, as always, on Thursday, and income indicators come in on Friday: personal income and consumption readings are forecasted to show an uptick; if they don't concerns about the jobless recovery, foreclosures and the reduced workweek will surely put a big dent in the stock market rally, if it persists until then.

Labels: consumer confidence, consumption, corporate profits, Dell, economic indicators, Japan, oil prices, personal income, Sun Microsystems, weekly initial claims

 

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8/24/2009 10:24:00 AM 0 comments

 

One More for The Road: Global Stimulus

by Dollars and Sense

On the plus side, German business sentiment and Eurozone purchasing managers' index readings expanded at unexpectedly rapid rates according to the FT.


On the negative side, the Asahi Shimbun says Japan's stimulus program has wastefully overestimated the demand for homebuilding program it's poured 350 billion yen (about $3.5 bn) into. Japan is facing an election in a few weeks, and the powerful building lobby certainly has something to do with that.

Labels: economic indicators, eurozone, Germany, housing market, Japan, purchasing manager's index

 

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8/21/2009 01:41:00 PM 0 comments

 

Today's Indicators

by Dollars and Sense

U.S. July existing home sales pace fastest in two years. But, as this Bloomberg article says, "The number of previously-owned unsold homes on the market jumped 7.3 percent to 4.09 million in July, a "notable" increase, according to Lawrence Yun, the Realtors' chief economist. At the current sales pace, it would take 9.4 months to sell those houses, the same as in June." And much of this is foreclosure-driven.

Also, oil prices have reached their higheest leevels this year. As more and more people argue that the old relationship between risk and the US dollar (more risky investing means a lower dollar) is breaking down, it's interesting to see some commodities (which gain on dollar weakness) maintaining this movement.

Meanwhile, more worries (courtesy of Economist's View) on commercial property. This, as well as the fact that prime lending is now failing at a greater rate than subprime, and will continue to do so as unemployment remains very high, must be considered when evaluating the state of the property market. There's a real chance that a dive in prime home lending or commercial property lending--or both--may take the whole sector back down, and with it, prospects for economic recovery.

Labels: commercial property, consumer prices, economic indicators, Economist's View, existing home sales, Inflation, oil prices

 

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8/21/2009 09:21:00 AM 0 comments

 

Economists' Poll: US 3Q GDP To Rise 2.4%

by Dollars and Sense

That's a big number, and these people are also predicting a 2.2% uptick in the fourth-quarter. It's all due to the unprecedented stimulus and bank recapitalization programs: consumer consumption is very weak, as is business investment. With continuned deleveraging dampening both, and the government spigot starting to close (under the watchful eye of Congressional masochists), it will be a fragile recovery, indeed. Across the Curve has some interesting observations on the outlook today, particluarly as it affects sentiment in the bond market

From Reuters:

U.S. starts long, gradual and fragile recovery

Thu Aug 20, 2009 3:18pm EDT
By Burton Frierson
NEW YORK (Reuters) The U.S. economy is recovering more strongly than expected from its worst recession in decades, but next year will be lackluster and risks of a double-dip downturn remain, economists said in a Reuters poll.

After shrinking by 1.0 percent in the second quarter on an annualized basis, U.S. gross domestic product will grow 2.4 percent in the current quarter and 2.2 percent in the final three months of the year, according to a sample of around 70 economists.

This would make the recession that many say ended in the second quarter the longest since World War Two.

The recovery is now expected to be more robust than economists predicted last month, when they saw growth of 0.8 and 1.8 percent in the third and fourth quarters, respectively. The broad U.S. stock market is up 50 percent from March lows.

High unemployment, which the poll showed topping out at 10 percent, and a massive debt load on the shoulders of consumers will hamstring the economy after the initial rebound.

This will keep inflation largely in check and official interest rates low, while economists still see a 25 percent chance of a double-dip recession.

"Recent data suggest that the economy is near a bottom, but the recovery is likely to prove to be lengthy, gradual, and fragile," said Scott Brown, chief economist with Raymond James & Associates in St Petersburg, Florida.

"Fiscal stimulus should provide support through the end of the year and in 2010. Fed policy will remain supportive."

The government and Fed have pumped trillions of dollars into the economy in economic stimulus spending and intensive care measures meant to revive the moribund financial system, which appeared on the verge of collapse late last year.

The consensus prediction of a peak unemployment rate of 10 percent compares with 10.2 percent in the July poll.

A government report earlier this month showed the U.S. unemployment rate fell in July for the first time in 15 months as employers cut far fewer jobs than expected.

Read the rest of the article

Labels: Across the Curve, bailout, economic indicators, financial crisis, GDP

 

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8/20/2009 03:10:00 PM 0 comments