A reader (brodero) that pays more attention than I do to the twists and turns of data has mentioned several times that there is a nice fit between the 52-week moving average of nonseasonally-adjusted weekly claims (which obviates the need for seasonal adjustment factors), which I show in the top chart (the magenta line being the moving average), and the unemployment rate, which I show in the bottom chart. Indeed there does seem to be a nice correlation between the two. The behavior of claims to date suggests that we could see a continued, if very gradual, decline in the unemployment rate, even if nonseasonally-adjusted claims do not fall below the 400K mark for the next year. It also suggests that, as I argued in my previous post, it is premature to conclude from this week's claims data that the economy is suddenly deteriorating.
Won't we expect to see a big uptick in claims with all the reported teacher and other government employee layoffs coming this Fall?
ReplyDeleteA better measurement of unemployment is the employment to population ratio, which has been trending downwards now for a decade. More at:
ReplyDeletehttp://wjmc.blogspot.com/2010/08/us-employment-to-population-ratio.html
The unemployment problem is real, albeit a separate matter from GDP growth at least so far. Thank you for the opportunity to comment.
Hate to be the bearer of bad news, but evidently an outfit by the name of Macroeconomic Advisers produces monthly estimates of GDP. They say the last two months have been down.
ReplyDeletesee here: http://macromarketmusings.blogspot.com/
If true, our economy is already contracting.
This fits with the picture of low and falling interest rates, zero inflation, and nearly zero job growth.
Is the Fed expansionist enough? That is a relative question. If you have deflation and the economy is shrinking, then the Fed is not being expansionist enough. It doesn't matter how policy compares to past periods.
That's like saying, "We now spend too much on our military." Maybe we do, maybe we don't--it is not absolute, it is relative--relative to the threats we face. In WWII we spent far more on war as a percent of GDP. But it was not too much.
So it is with Fed policy. Is is too expansionary? When we see strong growth and rising inflation, then maybe.....
For the record, I have never known anyone capable of producing estimates of GDP growth that are reliably accurate, much less on a monthly basis. And I have seen and known plenty of forecasters in my 30 years' experience with economics.
ReplyDeleteScott-
ReplyDeleteYes, I have been in and out of financial reporting since the late 1970s, and I concede your point.
Still, there is much more info--and real time info--than ever before.
In fact, I am beginning to wonder why even officials at the Fed speak of the present tense as if they are groping in the dark--surely, with with the amount on online transactional information, trucking,even satellite imagery available we can devise more-reliable indicators of current economic activity.
One would think listening to Fed officials that it is still the 1970s, in terms of available info.
The more I think about this, surely it would behoove all of us to gin up a "real-time eco-watch system."
That said, I think the economy is stalling--but like everybody else, I am groping in the dark.
I agree that it makes much more sense to watch real time indicators of economic activity rather than try to forecast GDP. That's why I pay so much attention to commodity prices, the dollar, and the signals coming from the bond market (e.g., swap spreads, shape of the yield curve, etc.). Mark Perry has done a good job of tracking down and follwing other real time indicators such as trucking, part-time staffing, and railroad tonnage. GDP is a very complex number that takes a long time to put together with any accuracy. I don't even know how the government pretends to be able to track and measure the output of a 300 million person economy. Ditto for exports--there is no way the government can keep tabs on all the cross-border activity that is going on.
ReplyDeleteI remember many years ago dissecting the trade numbers and realizing that the "errors and omissions" category was often as big as the trade gap. That's a big clue that all government stats need to be taken with a big grain of salt.
Macroeconomic Advisers
ReplyDeleteCrème de la crème. NBER uses its data for business cycle dating purposes.
Macroadvisors data means that the second estimate of Q2.2010 GDP due to be released next Friday is 1.1%. The economy is at stall speed with headwinds from structures, government and net exports and tailwinds from consumption and equipment & software.
Everybody take deep breath on the
ReplyDelete2nd qtr numbers...it will likely come in at 1.5% but there is a huge
reduction due to net exports...meaning we imported a lot
of consumer goods...that is not a sign of weakness...in fact we increased our savings rate to 6.2%
while importing these goods.Now if you think we are going to keep up that pace of importing then you have an argument....P.S. the Macroadvisors numbers were for May and June...not July
Everybody take deep breath
ReplyDeleteHuh. The blog host is still holding his breath for a 3-4% GDP trajectory. Bring out the oxygen cannister! The price of tallow is not determinative.
Now there is some issue that a screwy seasonal adjustment may have impacted net exports via the petroleum deficit in Q2 which may be reversed in Q3.
If the household savings rate trends from the current 6% to 8% there is even more of a headwind on consumption. If so, the contribution of equipment&software (core capital goods) to GDP declines.
The contribution of inventory rebuilding to GDP growth has been high (albeit not the highest) in the prior 7 recoveries. Census data indicates that the bearing of inventory is north-east. Kasriel/Bangalore with an interesting twist corroborate same using PMI data (chart 7). IMO, private inventory will be flat to negative for GDP contribution in Q3 and Q4.
Is there any reason to think that in the context of globalization of production net exports will change? Grannis is big on fully loaded import containers being off-loaded 50 miles up the coast in Long Beach.
The issue is simple: residential structures* (new home construction) and consumption has led every post-warII recovery. Not this time. The reason is simple.
*Actually renovations (think Home Depot, Lowe's) now exceeds new home building in dollar value.
Oops, sorry brodero. In my long windedness, I forgot to mention a Goldman Sachs note via zero hedge.
ReplyDeleteAll: Dr. Marc Faber will be on Kudlow's show on Monday. If you want to hear an original thinker who has been right on target for several years now, I highly recommend watching him on Monday.
ReplyDeleteFor what it is worth, Faber warned people of the housing bubble in advance, advised getting fully back into stocks the week of the bottom in March 09, and then recommended getting completely out in mid April of this year.
Regarding Faber's recommendation in April to get out of stocks completely, does that apply to your retirement account if you have a 15 year investment horizon or is that just if you're a trader going in and out of stocks for short term gain?
ReplyDeleteBill,
ReplyDeleteI hesitate to speak for anyone, and i don't subsribe to Faber's newsletter or follow him closely. However, I have been trying to follow him somewhat for a couple of years now, so I believe what I am about to say is accurate but am not certain:
My sense of Faber is that he is not a trader in the traditional sense. However, he follows economiesvand markets worldwide looking for opportunities which seem to rarely involve buy and hold. Furthermore, in regard to his current advice to get out of stock in April, that was for everyone no matter what time horizon. At the same time, he said that he thought the downside risk was limited to somewhere around S&P 950 because he felt the Fed would blast us with QE2 when we get to that level.
From what I can tell of Faber, his ultimate conclusion is based on near certainty that the Fed will respond with QE2 as the economy slips into another recession in the near future. That QE2, or perhaps a QE2 followed by a QE3, will only further destablize the economy and within 5 years the USA and world economy will collapse.
Based on this understanding of his forecast, I don't think Faber would suggest buying and holding stocks for 15 years. The only thing he suggests holding is gold and farm land.
I hope that helps, but it will be interesting to hear is latest views on Monday ... that is if Kudlow doesn't cut him off or dominate the converstation insiting Kudlow knows best like he so often does.
(Did anyone catch Kudlow last week when, in my opinion, he completely embarrased himself by insisting that even though Fannie and Freddie and FHA are funding something like 95% of mortgages now (with bonds now backed by the full faith and credit of the USA), that the banks initial underwriting of the mortgages is a sign of banking confidence? Even though Kudlow's guest was a banker working daily in the mortgage business who insisted mortgages wouldn't be issued by banks at the current interest rate if the bank wasn't confident they could quickly sell the paper in the secondary market, Kudlow insisted the guy was wrong and wasted several minutes doing so. I think Kudlow is a nice guy and his show is interesting, but I sure wish his guests were given more time to speak more freely with less interruption and opinion by Larry.
If everything was worthless except gold and farm land, I would expect those who held the gold and farmland would want to live in an underground shelter to avoid the angry masses. So this guy is basically saying the end of the world is coming in 5 years.
ReplyDeleteBill,
ReplyDeleteI don't think Faber is projecting everything will be worthless, just most things will be worth less.
For example, towards the end of the housing bubble (2007 to early 2008), when the S&P was trading around 1400-1500, he felt that its true value was somewhere closer to 700-800. Thus, when it breached those values, he was a buyer. Through that entire period, he also advised holding gold, while pointing out that during the panic gold around 600 offered a very good entry point for those who had not established a position already.
He may also advocate some other long term holdings besides precious metals and farmland, for example I believe he likes certain agricultural commodities, but I don't recall all the specifics. I do believe that he thinks the S&P500 will be making a new low (in real dollar terms) and the dollar will be crushed sometime in the next five years. Thus, even though he is not a long term stock bull, he acknowledges stocks as an asset class will hold their value better than dollar denominated bonds.
Mark
As some of you may know I make my home in Miramar Beach, Florida (between Panama City and Pensacola and very near the legendary fishing village of Destin. Since April we have been living with the spectre of oil washing up on our beautiful beaches, dead birds and fish covered with oil, you get the picture. To my utter amazement there has been absolutely no oil other than an occasional tarball (immediately scooped up by one of dozens of patroling county 'beachcombers'). I have seen no ill effects and the boats are bringing in red snapper, amberjack, pompano, mahi mahi, and many other succulent varieties.
ReplyDeleteI have a close friend who owns a fishing camp in the Louisiana wetlands. He tells me his camp is fine and the fishing is good. I am stunned. Although I do not know the specific location (I eat fish, I don't catch them...I would STARVE) I would have lost a bet big time on that one.
I have just finished reading an explanation of some of what happened from David Kotok's Cumberland Advisors commentary. He summarizes an 'off the record' discussion among scientists gathered at LSU (Louisiana State University) and it is fascinating. If you are an environmentalist, a capitalist, or just an interested observer I recommend you read Mr. Kotok's piece. Its a free site, no registration required. Google (or Bing or whatever) "Cumberland Advisors". From the home page find 'commentary' and click on 'oilslickonomics part 11'.
I recommend it. Highly.
John,
ReplyDeleteI hope the predictions of the coming world financial collapse do as well as the ones that predicted the end of the gulf coast after the BP oil spill (I know, some say it's still lurking beneath the sea ready to come up any day now to smother the coast).