The Most Significant Green Shoot Starts to Wilt 24 comments
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By Dirk van Dijk, CFA
To my mind, the most significant “green shoot” we have seen in the economic data was the topping out of the four-week average of initial claims for unemployment insurance in early April. In this regard, I find today’s data deeply troubling.
New claims rose by 32,000 in the last week to 637,000. This caused the four-week average to rise by 6000 to 630,500. While it is still well below its peak of 658,750 this reversal of direction is distinctly unwelcome. Historically, the four-week average peaks right around the point where the National Bureau Of Economic Research (NBER) eventually gets around to dating the end of the recession. Because of this, it is important to watch the number like a hawk.
Think of initial claims as a river running into a lake. The lake is continuing claims. There are two rivers that run out of the lake, one that leads to happiness and the other to despair. The happy river is when continuing claims fall because the person got a new job, while the river of despair is when the unemployment claim simply runs out and the person is left with no income at all.
The data does not directly tell us the flow rates of either of those rivers (the monthly jobs report helps answer that question). However, in any case it looks like both rivers are partially dammed up right now. Every week the level of continuing claims rises to a new record, flooding the shores. This week it stands at 6.56 million, an increase of 202,000 in a single week.
To some extent that may be due to extensions of unemployment benefits due to the stimulus bill. That has helped to slow the flow into the river of despair. However, it also seems to be due to a lack of new jobs being created.
The river of happiness appears to be a trickle, and is not available to irrigate the green shoots of the economy. The graph below (larger version available here) shows the level of continuing claims as well as the four week average of new claims.
If you look very carefully, you can see the dip at the end of the blue line. However, note that it is possible to have false signals, for example look carefully at the way up in the 1982 recession, it was not a smooth line. I would also note that in the last two recessions, the four-week average did not move straight down the way it did in earlier recessions -- rather it moved off a peak and then sort of plateaued.
Thus even if this does not turn out to be a false peak, it does not mean that happy days are here again. I would expect a rather large mesa to form even if we have seen the actual top tick in the series.
There are a huge number of obvious sources to cause initial claims to start to rise again. The most notable of these are the effects of the Chrysler bankruptcy and the very high potential for General Motors (GM) to follow. This not only causes layoffs directly at GM, but throughout the country. Just this week, AK Steel (AKS) announced that it was closing a mill in Kentucky which will cause 750 layoffs, and ArcelorMittal (MT) will close a steel plant in Indiana causing 1,000 jobs to be lost.
Even under the out-of-court restructuring plan, GM is going to shut down over 2000 dealers. If you assume 50 people work at each dealership (salesmen, mechanics, etc.) that adds up to 100,000 jobs right there. State and local budgets are also under severe stress, and that may cause very significant layoffs of teachers, firefighters, prison guards and social workers (not to mention even longer waits at the Department of Motor Vehicles).
Yes the stimulus package helped a bit there, but it has only partially filled the hole. The four-week average is a key indicator. Watch it closely, since it could go either way at this point.
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This article has 24 comments:
GM's overhead, from incompetent, overpaid losers like Wagoner and Lutz to fat margins for bloated dealers, is their big problem; and it arose from a culture of neglect, arrogance and animosity toward the customer and their own workers.
100,000 jobs at dealers -- another way to look at this, all those guys lounging around in cowboy hats waiting for suckers to wander by and be conned into buying a gas guzzler -- means $10 BILLIION savings (at $100,000 total cost per person fired, including burden and allocation, etc.).
Lean car dealers do it with less persons, lower margins, and more cars sold per square foot of floor space. Because, unlike GM, they have cars that people want to buy, and because companies like Toyota pay attention to customer requests.
GM jailed its own customers for trying to buy the EV1 (and failure to disperse, blocking the sidewalk, and so on); think of that!! What company survives by jailing its cash customers and refusing to sell their product??
Now if they would only decrease the money wasted on big display ads, expensive real estate (someone pays the mortgage on all that prime real estate on which the GM gas-guzzlers and chrysler monster-mobiles sit!) and other waste, fraud or abuse.
They have a printing press.
On May 14 02:03 PM Matt Miller wrote:
> Ah, call it all " Better than Expected' and watch the Dow go up 150
> points. Who is buying these shares...complete fools?
>
>
Apparently, Cetin is a bigger idiot than I thought. Just like in Seinfeld: "Perhaps, there is more to Cetin than meets the eye. No, there is less".
Anyone able to make anything out of the anagram Cetin Hakimoglu?
On May 14 02:39 PM Jason722 wrote:
> I am actually starting to think Cetin is fooling us all. He is actually
> a very bored and extremely persistent satirist.
>
> Anyone able to make anything out of the anagram Cetin Hakimoglu?
This comment is good. thumbs up.
On May 14 04:00 PM Cetin Hakimoglu wrote: Most people don't understand how macro economics work.
On May 14 04:00 PM Cetin Hakimoglu wrote:
> What's wrong with presenting an alternative viewpoint? There is too
> much negativity about the stock market. Most people don't understand
> how macro economics work.
I ofcourse recognize the fact that the auto industry's business model doesn't produce a profit. The idiots at GM sold most of GMAC Financing to Cerberus when GMAC was the only thing that made any money. Inspite of the companies losing money, the UAW seemed to always get their raises. Well the UAW's gravy train is over...they're getting common shares...LOL. What they don't seem to realize is that they have to sell those shares to pay the benefits to retired workers.
These guys should have been in real bankruptcy back in November. Now they are in Obama's Twisted Bankruptcy. It's twisted because Obama is twisting arms, so that the outcome is exactly the way he wants it, and the bankruptcy judge, and the law are both irrelevant.
On May 14 02:52 PM Donkey Kong wrote:
> The market only cares that you don't have a job....
I love buying gas guzzlers and if I can afford it - why not! That's freedom, that's apple pie, that's the American way.
On May 14 01:05 PM Douglas Korthof wrote:
> 100,000 jobs lost at dealers -- well, those are not value-added,
> are they?
>
> GM's overhead, from incompetent, overpaid losers like Wagoner and
> Lutz to fat margins for bloated dealers, is their big problem; and
> it arose from a culture of neglect, arrogance and animosity toward
> the customer and their own workers.
>
> 100,000 jobs at dealers -- another way to look at this, all those
> guys lounging around in cowboy hats waiting for suckers to wander
> by and be conned into buying a gas guzzler -- means $10 BILLIION
> savings (at $100,000 total cost per person fired, including burden
> and allocation, etc.).
>
> Lean car dealers do it with less persons, lower margins, and more
> cars sold per square foot of floor space. Because, unlike GM, they
> have cars that people want to buy, and because companies like Toyota
> pay attention to customer requests.
>
> GM jailed its own customers for trying to buy the EV1 (and failure
> to disperse, blocking the sidewalk, and so on); think of that!! What
> company survives by jailing its cash customers and refusing to sell
> their product??
>
> Now if they would only decrease the money wasted on big display ads,
> expensive real estate (someone pays the mortgage on all that prime
> real estate on which the GM gas-guzzlers and chrysler monster-mobiles
> sit!) and other waste, fraud or abuse.
On May 14 05:21 PM Donkey Kong wrote:
> Including you. I will send you a text book to your crib on Garber
> Street....
On May 14 05:21 PM Donkey Kong wrote:
> Including you. I will send you a text book to your crib on Garber
> Street....
As far as your EV1 fantasy, it never was a viable vehicle, GM's biggest mistake was ever offering it at all. It was a technological dinosaur (and still is).
And if you think Toyota and others in your circle of "good caring car companies" does not have problems, then you have not checked their sales results or earnings for the past year.
And you obviously do not realize that those jobs at dealers were paid for by local dealers - NOT GM. The cost to GM for those jobs was almost nothing and had little, if any, effect on GM's bottom line.
On May 14 01:05 PM Douglas Korthof wrote:
> 100,000 jobs lost at dealers -- well, those are not value-added,
> are they?
>
> GM's overhead, from incompetent, overpaid losers like Wagoner and
> Lutz to fat margins for bloated dealers, is their big problem; and
> it arose from a culture of neglect, arrogance and animosity toward
> the customer and their own workers.
>
> 100,000 jobs at dealers -- another way to look at this, all those
> guys lounging around in cowboy hats waiting for suckers to wander
> by and be conned into buying a gas guzzler -- means $10 BILLIION
> savings (at $100,000 total cost per person fired, including burden
> and allocation, etc.)....
On May 14 02:39 PM Jason722 wrote:
> I am actually starting to think Cetin is fooling us all. He is actually
> a very bored and extremely persistent satirist.
>
> Anyone able to make anything out of the anagram Cetin Hakimoglu?
> What's wrong with presenting an alternative viewpoint? There is too
> much negativity about the stock market. Most people don't understand
> how macro economics work.
So you're changing your name to "Most People"?
If you do understand macro economics, Cetin, what's the P/E of the S&P 500 using the historically relevant "as-reported" earnings? What is the estimate for future earnings and P/E ratios as provided by S&P? This is absolutely basic data that any investor or macro economist must know.
Explain why we should be using "as reported" earnings instead of operating earnings?
Given the current rate of unemployment growth, what can we expect the unemployment rate to be by the end of 2009?
What is the trend average of the DJIA at this time and what data would you use to determine it?
Explain why consumption is declining at this time and how long you expect this trend to continue?
Explain how the national savings rate affects the economy and stock market as it rises quickly and why it might rise rapidy. Show the trend for the past few decades and provide insight into what the trend going forward might be based on historic data.
On May 15 11:42 PM Northstar10000 wrote:
> Stop addressing Cetin. It makes him feel important.