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Unemployment claims appear to still be rising. To keep things in perspective, the second chart shows claims divided by total payrolls. Even though claims today are much higher than they were at the peak of the 1990-91 recession, the workforce is much larger, with the result that the percentage of the workforce that is being laid off today is about the same as it was in the 1990-91 recession, and much less than in earlier recessions. This is more than a mild recession, but so far it is still much less painful than many other recessions. (I've estimated the size of the workforce in January, so the last datapoint on the second chart is subject to change after tomorrow's number.)
10 comments:
Some what off topic but I read in the Financial Times that the US Treasury is planning a record debt sale for next week. In another article I read that last weeks sale garnered almost no interest at all and that it was saved by an "indirect bid": followed by an immediate sell-off in treasuries.
Is this a sign that we are seeing a return to risk taking in equities, the bursting of the bubble in treasuries or concern as to whether the US, with its gigantic obligations, will default? What kind of odds would you put on the probability of a default by the US in the future?
Chris,
Excellent question. I've been wondering the same thing myself. Who will buy all this debt Obama wants to bury us under?
Seems to be a half painted picture.
If you look at the financial position of people now versus 90s, the picture appears much bleaker.
Home owners during the 90s had more home equity and less invested in 401ks and IRAs. Both have been wiped out. And the scary mix of mortgages today, many that will reset, it couldn't be any different 30 yr fixed of old. Furthermore, the savings rate was higher and people had less credit card debt.
My belief is, people will be much more sensitive to the jobs picture so using relative numbers, although correct, do not tell the underlying story of stress out there.
In addition, some are predicting another massive down leg in the housing sector and I can see why.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a8mdg7z0u7Dw
Does it make sense to keep paying a $500K mortgage on a 250-300K home that will not breakeven for another 20-30 years? Not really.
Scott, you work is awesome btw. I am not discounting it at all...
Chris/Paul: I wouldn't buy a Treasury bond at these levels to save my life, but yields are still so incredibly low that I have to assume the world is desperate to buy whatever the Treasury wants to sell. They will be able to finance a huge stimulus bill with the lowest interest rates in generations. The demand for Treasuries will collapse once its clear the economy is growing again.
Bernard: what you say is true, the question is whether the market knows about these problems. I think it does. As for the savings rate, I don't pay any attention to it. It is miscalculated to begin with, since it doesn't count unrealized capital gains but it does count realized gains and losses.
Scott, what do you think the chances are that the US could find itself in a position where it will/have to default on its debt?
Chris: I would have to put the chance of the US defaulting on its debt as very close to zero.
Scott,
As always, many thanks for taking the time post your excellent economic observations.
I worry that oil and interest rates will advance with any type of recovery, effectively acting as a throttle. In effect, they will supplement, enhance or replace monetary policy's effect on markets.
Your thoughts on this? The questions above, along with this concern, might be fodder for a completely new post on your blog?
Cabodog (I could use some Cabo right now...)
Higher oil prices and higher interest rates should go hand in hand with stronger activity here. Higher prices are something we should dearly wish for. Prices would have to skyrocket before they became a drag on growth. My rule of thumb is that as gasoline goes over $4, then growth starts to weaken. We're a long way from there.
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