The Recovery Thread

[Toro]

Nothing but God Damned lies. Those people need to be put to death. Liars all.

No. They are trained statisticians, many who are Ph.D.s and highly intelligent who have spent their entire lives crunching numbers.

Those same experts missed the last crash, they'll miss this one too. Experts.....

What would government statisticians who assemble economic data have to do with predicting a crash? They aren't predicting anything now either. They are reporting what has recently happened.

 

[Toro]

ISM Manufacturing number came in strong, better than expected.

The reading was 55.7. A reading over 50 signals expansion. The employment number also came in above 50, and was the strongest in over two years, suggesting that manufacturers will soon start hiring again.

U.S. Economy: Factories Expand More Than Forecast (Update1) - Bloomberg.com

 

[Toro]

We are probably out of the recession.

Economist's View: Jeremy Piger's US Recession Probabilities

However, the recovery is likely to be choppy and weak.

 

[Toro]

Cisco Systems Inc. posted a 19% profit drop and a 13% revenue decline for its fiscal first quarter, but Chief Executive John Chambers issued his most forceful comments yet that the economy was improving and that businesses were ready to resume spending on technology.

In a call with analysts, Mr. Chambers said a recovery "is well underway" and added that economic improvements were "gaining momentum" world-wide. ...

Cisco predicted a slowdown in tech spending before many of its peers in late 2007 and in April was among the first to say the worst of the recession appeared over. In August, Mr. Chambers said the economy had reached a "tipping point."

This time, Mr. Chambers has more company when it comes to calling a rebound. Intel Corp., International Business Machines Corp. and Microsoft Corp. all exceeded analysts' revenue projections recently, as did smaller networking companies such as Juniper Networks Inc. and F5 Networks Inc. Some of those companies' CEOs also made bullish statements about tech spending.

Cisco's Profit Falls 19% - WSJ.com

 

[oldfart]

The Commerce Dept reported that Gross Domestic Product grew by 3.5% in the third quarter, a dramatic upturn from the first half of the year. The question is "Is this sustainable? Have we reached the bottom of the recession?"

The answer really depends on what we are talking about: Wall Street, GDP, employment, or long-term growth. First Wall Street. The Street greeted the announcement with a good day, immediately followed by a terrible day. After reaching 10,000 on the Dow, the market has been consistently slipping, and I believe that it will continue to do so for some time. The stock market is generally considered a leading indicator by about six months. Six months after the beginning of the stock market rise in March, the economy is still not all that much better. The market got ahead of the economy, acting as if this were a normal recession, and will now make an "adjustment".

In terms of GDP, there are some cautions with the numbers. About 1% of the growth was attributed to an unexpected decrease in inventories. In a normal recovery, rebuilding inventories occurs early in the recovery, especially in the third quarter as retail prepares for the major holiday sales season. This didn't happen, and most predictions are for a second backbreaker holiday season in a row. Half of the growth was in the auto sector and is attributable to the "Cash for Clunkers" program. Auto sales have returned to pre-rebate low levels and subsidies for car buyers does not seem to be in the future cards. Altogether the stimulus provided 3--4% growth in GDP, which means that without the stimulus GDP might well have been flat. This economy is not going to recover based on "market forces" unassisted.

The employment picture remains grim as the economy continues to shed jobs. The October jobs report is due soon and that will give a better picture. The stimulus package is estimated to have created 640,000 jobs, so that without it we would clearly be over 10% unemployment by now.

Finally the positioning for sustained long-term growth does not look good. There is a good chance of a second financial panic, based on three factors: the absence of any reform of financial regulation to date, the fact that large players such as JP Morgan Chase and Goldman Sachs are exhibiting behavior at least as risky as two years ago, and the possibility that a substantial decline in the stock market or a collapse of the commercial real estate market which seems immenent will trigger another wave of bank failures. I put the chances of this at about 70% over the next eighteen months if there is no effective regulatory intervention.

Also we have seen a permanent change in consumer behavior that will persist for a generation. Consumer demand backed by borrowing will not return to previous levels and the savings rate is rising. Americans are paying down debt if they can. Commercial credit for small and medium size business has essentially dried up. Banks are no longer really lending in this market. Absent direct lending programs from the government (which have been notoriously mismanaged historically and totally botched recently) small business and with them employment are going under at a record rate.

The Great Depression was a double dipper. The 29 Crash was followed by six months of stock market recovery before the bottom fell out. By that time the underlying economy which had been in decline for a while collapsed, and with the passage of the Smoot Hawley Tariff in 1930 a devestating round of retaliation dropped world trade by over half. We have not solved any of the basic problems that caused the financial panic, the deep economic recession, and the beginning of systemic deflation. On the up side, we have not made the mistakes of the Great Depression in terms of monetary and fiscal policy and tariffs. But on balance, merely avoiding the most obvious mistakes of the past will not be enough.

Jamie

 

[oldfart]

I wrote this about three weeks ago and obviously it will need to be updated when the labor report comes out tomorrow. I edited out parts that repeated my previous post.

---


Well, the preliminary September employment report is out and it is about a year since the collapse of a large part of the financial sector, so it seems a good time to break down the employment number to see what they mean and where the economy is headed.

The economy was in serious trouble a year ago, there had been major financial failures in the spring of 08, the recession had started in December 07, and quite a few people knew at the time that we were in for something more than the usual cyclical recession. At the time a lot of people met my prediction of 6800 on the Dow and 9.5—10.5% unemployment and anemic recovery until 2011 or later with disbelief. But the numbers were there then, even though we had not see a recession that sharp in twenty years or a downturn in the economy as deep in three generations.

The stock market, the financial services industry, and regulatory reform are a good topic for another time; it is enough to say that there is still a lot of work to be done there and most of it has not, a year later, even been started. The risk of another catastrophic financial industry meltdown us substantial and increasing.

To economists, a recession generally is believed to end after two consecutive quarters of increase, quarter-over-quarter, in Gross Domestic Product (GDP). But this can be deceiving. From 1933 until mid-1937 we had quarter-to-quarter growth but GDP levels were still under those of 1929. Most people consider the Great Depression to simply have continued from 1929 through 1939—1940. By this kind of thinking, per capita GDP is not predicted to reach 2007 levels until 2013, making it a very long downturn. It’s more than a recession but perhaps less than a depression (so far).

So what about the employment numbers? First, they were disappointing. Many people believe that the stock market is a leading indicator of what the economy will be in about six months. By this measure, with a Dow bottom in March, the economy was expected to be doing better. Employment is a lagging indicator, changing direction six to nine months after the turnaround in GDP, so everyone expected there to continue to be job losses, but expected them to be growing smaller. It hasn’t happened.

All figures are from the United States Bureau of Labor Statistics, principally the Employment Situation Summary found at:

bls.gov/news.release/empsit.nr0

(Sorry you have to cut & paste, it's the 15 post rule.)

Non-farm payyroll declined in September by 263,000 driving the unemployment rate to 9.8%. The largest losses were in manufacturing, construction, retail trade, and government. Since the beginning of the recession in December 07 the number of unemployed has doubled from 7.6 million to 15.1 million, and the unemployment rate has also doubled. These increase are generally reflected across all age, gender, and ethnic groups and almost all industries. In September the number of persons losing their job or completing a part-time job rose 603,000 to a total of 10.4 million. The number of long-term unemployed (over 26 weeks) increased 450,000 to 5.4 million (this is the point at which regular unemployment benefits run out).

Now for the bad news. The civilian labor force participation rate has fallen 3.9% since the beginning of the recession to 65.2%. There is a vast reservoir of workers who should be in the labor force, but the lack of jobs has caused them to retire early, stay in school, or simply drop out of the employment market.

An additional 9.2 million worker who desire full time work have accepted part-time work, making the official underemployment rate 17.0%, up from 10.6% a year ago. Factor in a record low number of hours worked per week and slightly declining average wage rates, and the result for consumer income is grim.

One of the best indicators of where employment is headed is an arcane statistic called the “diffusion index of employment change”. It measures employment changes in 271 industries and when the index is at 50.0, as many industries are increasing employment as are losing employment. The higher the number the better the outlook for jobs and vice versa. For 12-month spans, the index remained above 50 through March 2008, but has since plummeted to 14.9. This means that for every industry increasing employment or holding its own, six are losing jobs. These are catastrophic numbers.

EDITORIAL COMMENT:
1. Despite what some revisionists are beginning to claim, it is clear that the financial system and the economy would have totally collapsed without the government intervention a year ago (as inept and wasteful as it was).
2. The economic crisis is not over and is probably getting worse. It will endure for another four or five years and will affect at least one generation.
3. Most of the fundamental changes necessary to put the economy on a sound foundation have not yet been debated, much less implemented. I don’t believe it is going to happen.

Jamie

P.S. What I will really be looking for tomorrow is the "diffusion index of employment changes". I do not believe any improvement in jobs is in the offing until this indicator turns less negative.

 

[oldfart]

Nothing but God Damned lies. Those people need to be put to death. Liars all.

Actually that has been done before. Since there had been no Soviet census since the Revolution and Civil War, Joseph Stalin commissioned one for 1936. The results were population figures several million below what was expected, due to the wars and famine associated with collectivization, etc. Stalin had the statisticians shot. The next census revealed a substantially higher population, but presumably fewer statisticians.

Jamie

 

[Valerie]

India Sells Dollars, Buys Gold, What Does it Mean?
November 5th, 2009

There has been a lot of discussion over the last year about central banks and sovereign wealth funds concerns over US dollar weakness, the possible rise in inflation and in the longer term, the US dollar losing its status as the world’s reserve currency. So far it has been mostly that, discussion. But in what is arguably the first and most public move by a central bank to diversify its foreign exchange reserves, India purchased 200 metric tons of gold from the IMF last month. The Reserve Bank of India (RBI) bought the gold between Oct. 19 and 30, an IMF statement is reported to have said in the Wall Street Journal. The $6.7 billion in proceeds from the sale indicate an average price of $1,045 a troy ounce. If so the RBI is up $250m on their investment as gold has continued to rise.

India Sells Dollars, Buys Gold, What Does it Mean?

 

[Valerie]

India Sells Dollars, Buys Gold, What Does it Mean?
November 5th, 2009

There has been a lot of discussion over the last year about central banks and sovereign wealth funds concerns over US dollar weakness, the possible rise in inflation and in the longer term, the US dollar losing its status as the world’s reserve currency. So far it has been mostly that, discussion. But in what is arguably the first and most public move by a central bank to diversify its foreign exchange reserves, India purchased 200 metric tons of gold from the IMF last month. The Reserve Bank of India (RBI) bought the gold between Oct. 19 and 30, an IMF statement is reported to have said in the Wall Street Journal. The $6.7 billion in proceeds from the sale indicate an average price of $1,045 a troy ounce. If so the RBI is up $250m on their investment as gold has continued to rise.

India Sells Dollars, Buys Gold, What Does it Mean?

>>

Does this mean we are going to see the end of the US dollar as the world’s reserve currency anytime soon? No, but it is the beginning of a trend that will build over time. The dollar will no doubt go through periods of strength and weakness over the coming years, as will just about all other national or regional currencies. The Yen has dire problems of massive, near unserviceable, debt, an aging population and stagnant economy. The Euro is currently the least bad of the major economies largely because it has not jumped on the bandwagon of massive stimuli and quantitative easing that the Anglo Saxon currencies have done. But Europe has an aging population and is a society sliding into socialist sclerosis with ever rising levels of bureaucracy and social welfare that will continue to hold the trading bloc back from dynamic growth. As a result, Europe while remaining a solid anchor in the world economy will probably gradually lose ground to emerging economies and currencies. We won’t even mention the Renminbi, until it is freely floating and freely convertible it should and will remain a side show.

So is this a return to a gold standard by central banks? No, it should be seen for what it is, a realization that we are in for a period of prolonged dollar weakness and unlike most US citizens who cannot hedge against a fall in their country’s currency, central banks can and the historic assumption that reserves will largely be held in dollars is making way for a more actively managed diversification into other currencies and commodities that may provide a degree of protection against devaluation and inflation in the future.

 

[oldfart]

ISM Manufacturing number came in strong, better than expected.

The reading was 55.7. A reading over 50 signals expansion. The employment number also came in above 50, and was the strongest in over two years, suggesting that manufacturers will soon start hiring again.

QUESTION: What employment number came in at "above 50?" The Bloomburg article quoted only a sampling of economists' predictions of what tomorrow's BLS number will be, and that was for job losses of 175,000 and a rate of 9.9%. Is this "strongest over two years" for manufacturing or employment? The only index from BLS that I know of dealing with a baseline of 50.0 is the "diffusion index of employment changes" and it is at an astoundingly bad 4.9.

Jamie

 

[froggy]

It is likely that the bottom in the economy was either in the second or third quarter. This thread is for evidence that the economy is recovering.

I believe that the economy is going to rebound, albeit it is going to be choppy, and there is a high probability of a double dip.

Having said that, there is evidence that the economy will soon start growing if it is not already.

First piece of evidence presented: Yesterday on their conference call, the CEO of Google said that the worst of the recession is behind us and that the businesses they serve - which is a wide swath of the economy - appear to be picking up.

Second piece of evidence: Many semiconductor companies in their quarterly earnings releases have said they are seeing an increase in shipments, and that end demand for computers and electronics appears to be rising.

Recovery is still months away. The unemployment rate is still riseing

 

[Neubarth]

Recovery is still months away. The unemployment rate is still rising

Sadly, it is rising faster now than it was a year ago. Of course, if you listened to the news release this morning on Unemployment, you would never know that. More Obamafication on the numbers.

 

[Neubarth]

Now, look at the government news release"

First-time jobless claims drop more than expected to 512,000, lowest since early January!


Do you see how they have lied to try to convince people that things are getting better?

They have now claimed that Unemployment Claims have gone down 20 of the past 24 weeks.

The fact is that Unemployment has gone up over the past year and unemployment claims are two million a month, just about where they were a year ago.


If unemployment claims have actually gone down like the Government says, why are the people filing going up and up?

Here read the actual numbers as they came in from the states from last week:

The advance number of actual initial claims under state programs, unadjusted, totaled 480,178 in the week ending Oct. 31, a decrease of 14,216 from the previous week. There were 466,341 initial claims in the comparable week in 2008.

Note that unemployment claims have actually gone up from last year to last week. 466K to 480K

This has been happening all the time the Government has been claiming new lows for unemployment claims. Lie after lie after lie after lie after lie after lie.

 

[Toro]

ISM Manufacturing number came in strong, better than expected.

The reading was 55.7. A reading over 50 signals expansion. The employment number also came in above 50, and was the strongest in over two years, suggesting that manufacturers will soon start hiring again.


QUESTION: What employment number came in at "above 50?" The Bloomburg article quoted only a sampling of economists' predictions of what tomorrow's BLS number will be, and that was for job losses of 175,000 and a rate of 9.9%. Is this "strongest over two years" for manufacturing or employment? The only index from BLS that I know of dealing with a baseline of 50.0 is the "diffusion index of employment changes" and it is at an astoundingly bad 4.9.

Jamie

The ISM is a survey of managers, and they ask a variety of questions regarding current and future business conditions. One question that is asked is whether or not they expect to increase hiring in the near future. A reading above 50 indicates that managers expect to hire more people than they fire. The reading this month was, if I recall correctly, 62. That does not indicate the percentage that will hire. It is instead a reading of intensity of hiring, and that is fairly strong.

Corporations have, surprisingly, managed through the recession extremely well. I checked this the other day - operating cash flow for large companies in the US has been trending higher. That shocked me when I discovered this. The reason why they have done so is because they have fired people quickly. That is why productivity has grown at the fastest rate over the last two quarters in 50 years. It also implies that when sales pick up, hiring could pick up faster than people expect.

Now, the ISM survey is not foolproof. It was above 50 in 2001 just before the economy went into recession, but it is positive nonetheless.

 

[oldfart]

QUESTION: What employment number came in at "above 50?"

The ISM is a survey of managers, and they ask a variety of questions regarding current and future business conditions. One question that is asked is whether or not they expect to increase hiring in the near future. A reading above 50 indicates that managers expect to hire more people than they fire. The reading this month was, if I recall correctly, 62. That does not indicate the percentage that will hire. It is instead a reading of intensity of hiring, and that is fairly strong.

Corporations have, surprisingly, managed through the recession extremely well. I checked this the other day - operating cash flow for large companies in the US has been trending higher. That shocked me when I discovered this. The reason why they have done so is because they have fired people quickly. That is why productivity has grown at the fastest rate over the last two quarters in 50 years. It also implies that when sales pick up, hiring could pick up faster than people expect.

Now, the ISM survey is not foolproof. It was above 50 in 2001 just before the economy went into recession, but it is positive nonetheless.

Thanks for the clarification that it was the ISM survey of employment intentions. This is the same methodology developed by the BLS in the "diffusion index of employment changes". The BLS actually uses the diffusion index method for a number of statisitics, but the one I referenced is the most common. Historically it is a pretty good indicator (3 months or so lead) of where employment is headed, and at the record low it is at now (14.9 for 271 industries; 4.9 for manufacturing) I would be suspicious of the ISM index until the BLS index begins to move (it can't get much lower).

Jamie

 

[garyd]

And the housing market still has its feet firmly planted on sand. And non one with any clout is even bothering to ask the right questions to find a way to a solution. The most obvious question is:
In a country with a median income currently hovering around 40k a year for a family of four why are all the new homes priced somewhere between 4 and 10 times that?

 

[Toro]

QUESTION: What employment number came in at "above 50?"

The ISM is a survey of managers, and they ask a variety of questions regarding current and future business conditions. One question that is asked is whether or not they expect to increase hiring in the near future. A reading above 50 indicates that managers expect to hire more people than they fire. The reading this month was, if I recall correctly, 62. That does not indicate the percentage that will hire. It is instead a reading of intensity of hiring, and that is fairly strong.

Corporations have, surprisingly, managed through the recession extremely well. I checked this the other day - operating cash flow for large companies in the US has been trending higher. That shocked me when I discovered this. The reason why they have done so is because they have fired people quickly. That is why productivity has grown at the fastest rate over the last two quarters in 50 years. It also implies that when sales pick up, hiring could pick up faster than people expect.

Now, the ISM survey is not foolproof. It was above 50 in 2001 just before the economy went into recession, but it is positive nonetheless.

Thanks for the clarification that it was the ISM survey of employment intentions. This is the same methodology developed by the BLS in the "diffusion index of employment changes". The BLS actually uses the diffusion index method for a number of statisitics, but the one I referenced is the most common. Historically it is a pretty good indicator (3 months or so lead) of where employment is headed, and at the record low it is at now (14.9 for 271 industries; 4.9 for manufacturing) I would be suspicious of the ISM index until the BLS index begins to move (it can't get much lower).

Jamie

The ISM index in itself is not an index of employment. Within the ISM index, employment is a sub-component. So this month, the ISM index came in at 55 and the employment sub-index was 62.

 

[Neubarth]

Now, the ISM survey is not foolproof. It was above 50 in 2001 just before the economy went into recession, but it is positive nonetheless.

It is just an index of how much the manufacturers and the general public have been fooled by government propaganda. When the government has been doing a good job of deluding the people it will show in a rising stock market and increases to ISM and other popularity polls.

The fact remains that Geitner and Bernanke have been working to solve the GDP problem and not the economy problem. Perhaps, as I have posted before if you can fix GDP with a rising stock market, you can then get the population to believe that everything is improving and thus it will...... Voila!, Just like Magic!!!

 

[Neubarth]

They are not invalid, Neubarth. I've spoken to some of the people who have worked on collecting the data. They are professional statisticians.

I have pointed out that once the economy is on the bottom, minor fluctuations in the data have no significance. Minor percent increases happen all the time. They happened in Japan in the 90's and they are happening here.

Have you noted that the Gov constantly says Unemployment claims are going DOWN, when they are going up? Yet, if you look at year over year numbers, UI claims are going UP not down.

Minor fluctuations do not REALITY make there dude. All they are are data that people worship as I have assiduously pointed out.

 

[Toro]

It is just an index of how much the manufacturers and the general public have been fooled by government propaganda. When the government has been doing a good job of deluding the people it will show in a rising stock market and increases to ISM and other popularity polls.

That is simply not correct. It is a real-time survey of managers at large corporations on their current business conditions. It is not a reaction towards any data released by the government. The managers are telling the survey-takers what they are seeing in their business and what they intend to do. The ISM index was signaling recession in 2007/08 before the recession and the financial crisis hit.