Still Missing the Last Green Shoot: Jobs 19 comments
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The stage is set for recovery, although the most important actor remains missing. Ongoing job losses remain a significant threat. Without an end to the job losses, household income growth will not resume, impairing the ability of consumers, the linchpin of the economy, from increasing spending. It is widely expected that this week’s employment report will reveal a more moderate, yet still sizeable, loss in jobs in July. That would qualify as another green shoot, but falls short of the budding flowers we require. For all the disagreement over last week’s GDP report, we take it as signaling a significant rebound in manufacturing, including factory jobs, as the economy needs to arrest the massive inventory liquidation underway. So while economic conditions are improving, there is more work left to be done.
The latest GDP report evoked sharply conflicting opinions on the economy’s performance. While it is now clear that the recession was far deeper than thought based on earlier GDP reports, the employment data and the freeze in the credit markets provided unambiguous messages that the economy was in distress. Therefore, I am not greatly moved by the change in the backward-looking perspective now evident. In truth, it adds little to the debate.
Parsing the data to extract its forward-looking implications is far more useful and rewarding, most especially the absolutely incredible rate of inventory liquidation. If final demand across the entire economy remains flat, then manufacturers must increase production by more than $144 billion (real dollars) just to stabilize inventories at current levels. (Final demand actually was about flat in Q2.) So, a sizeable impetus to growth will be forthcoming from this adjustment.
A second clear sector ripe for significant improvement is housing, which declined by $30 billion (at a 29.3% annual rate) in Q2, even as housing starts were about 2.5% higher than in Q1. Starts are counted when the first shovel goes into the ground, while the construction expenditures that enter GDP are spaced out over several months as the home is built. If starts continue to recover, as we expect, housing investment will become a meaningful contributor to growth by the fourth quarter. The benefits of the government’s stimulus programs also still lie ahead. Putting this all together, expect estimates of Q3 GDP to be revised up across the board, but importantly, well into positive territory. But the recovery will really be underway only when employment turns up. Until then, the debate over the economy will continue to rage.
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We are currently creating the biggest Monetary Bubble in U.S. history. The Feds admit that the debt/GDP is the greatest since WWII. They don't state the fact that after WWII we were the only country with industrial capacity that wasn't bombed and we had virtually no industrial competition. We are not in the world of 1946. Furthermore, a tyrannical dictatorship has unprecedented ability to manipulate our debt giving it unparalleled indirect political power over our nation. China is almost as influential in our politics (See Bill Clinton's political contributions and fees) than Goldman Sachs.
The "cash for clunker" programs which has the Jeff Immelt's CNBC sycophants drooling over is just smoke and mirrors. Is Larry Kudlow a closet Red or just intellectually dishonest?
To put it so that even the most ignorant of us can understand it: we are borrowing from Peter and paying Paul. As one pundit noted, the only employment improvement will come from the auto repo business when those who get the cars don't pay for them. After all, isn't a car and "entitlement"? Condoms in many high schools are.
How much of the price do you think those wise and wooly Crony Capitalistic Car Dealers pump up for Uncle Sap? Did they have to change their voter registration to participate?
The Dark Hand of the not-so-invisible government is everywhere. When the majority of people realize it doesn't pay to go to work or have a business what will the Socialists do? Call in the lawyers who are excellent at increasing productivity?
How long will this Ponzi scheme, built on sand, last? It has taken a long time, almost a century off and on, to get the collectivist government we have. We know the What just not the When and if one doesn't realize it they are in denial or spaced out.
Everyone wants to "make" money not "earn" it and have a "job" but not "work". That doesn't work for ever but as John Maynard Keynes said "In the long run we are dead" so our government must believe that we will all be dead when the debts come due. There could be some truth in that, chillingly.
Who is going to be around when the waiter brings the check?
Alwasys nice with postitive commentary and people seeing a recovery. But i think you have the equation backwards. Employment is the key,not the final missing element.....wtihout that you have no trigger for growth. It might not be negative but it'll feel like walking in the mens 100m sprint.
More importantly, I urge yo to read publicly available data and take a look at mortgages, when they were let, when they reset and the slope of their defaults. Simple math says peak mortgage resets occur in July of 2011; the same math then puts peak defaults 305 months later; peak foreclosures 3-5 months after that; and peak additions of foreclosed homes to housing inventory 3-5 months after that. Translation - no stability in home prices and therefore consumer confidence until late 2012/2013. An exaggeration? The Fed's own data shows 95% of homeowner equity was wiped out in the past 2.5 years.
Unfortunately, the published unemployment rate isn't even the real picture. It's been estimated that the real unemployment rate in the U.S. is closer to 20%. These estimates include all “underutilized” workers in the U.S. (i.e., those without jobs, as well as those individuals who only work part-time and have become discouraged and stopped looking). Prior to the early 1990's, this was the method of calculation. Now the government manipulates the number in order to suit its political aims...
I posted an article last week highlighting the scary truth that the U.S. may never see 5%-6% unemployment again:
consequencesunintended...
Also, here is another great article (from the NY Times) discussing the emergency situation that the unemployment insurance program is facing right now. How long can the government afford this prolonged high unemployment???
consequencesunintended...
On Aug 03 04:22 PM concrete guy wrote:
> Export growth fueled our economy prior to the crisis and has the
> potential to help heal the economy even if consumer spending and
> unemployment lag in this recovery. A weaker dollar will increase
> foreign demand for our goods, helping to prop us up.
And yeah, unemployment is higher than 10%, and inflation will come, just give it some time.
"IF final demand ... remains flat." But if unemployment continues to increase as expected, and consumers continue to deleverage, is it possible that demand will fall? Then what happens to the inventory increase scenario. We may be on a slippery slope.
For any kind of economic recovery to occur all these four indicators should turn higher at about the same time:
1. Employment
2. Production
3. Personal income
4. Sales
We do not see this at all. What we simply see is stimulus money being spent recklessly and a lot of propoganda and hype. When this money runs out, there will be the dip,and the next round of stimulus and then anotther dip W W W. This is what happened in Japan with their stumulus programs - led to 2 lost decades now. we are headed exactly there.
stock markets are leading indicators of economic activity because large market moves stimulate consumption by the top 10% of family incomes..these families control most of the discretionary consumption..notice this works in China too..
you can easily download the historical unemployment rate and the S&P 500 index from the FRB into an excell spread sheet..then use the S&P 1yr forward, sort and you will see most of the commentators on CNBC never have looked at the data..
> Export growth fueled our economy prior to the crisis and has the
> potential to help heal the economy even if consumer spending and
> unemployment lag in this recovery. A weaker dollar will increase
> foreign demand for our goods, helping to prop us up.
Execessive borrowing and spending fueled the economy prior to, and caused the crisis. If you suppose the crisis revolves around anything other than continued insolvency, you're being distracted from the central fulcrum on which leverage and deleveraging rest.
There will be little exported besides weapon systems and software.
The days of exporting inflation and financialized things has largely ended.
Get ready for the new normal.
The “New Economy” was based on services. Its artificial life was fed by the Federal Reserve’s artificially low interest rates, which produced a real estate bubble, and by “free market” financial deregulation, which unleashed financial gangsters to new heights of debt leverage and fraudulent financial products.
The real economy was traded away for a make-believe economy. When the make-believe economy collapsed, Americans’ wealth in their real estate, pensions, and savings collapsed dramatically while their jobs disappeared.
The debt economy caused Americans to leverage their assets. They refinanced their homes and spent the equity. They maxed out numerous credit cards. They worked as many jobs as they could find. Debt expansion and multiple family incomes kept the economy going.
And now suddenly Americans can’t borrow in order to spend. They are over their heads in debt. Jobs are disappearing. America’s consumer economy, approximately 70% of GDP, is dead. Those Americans who still have jobs are saving against the prospect of job loss. Millions are homeless. Some have moved in with family and friends; others are living in tent cities.
Meanwhile the US government’s budget deficit has jumped from $455 billion in 2008 to $2,000 billion this year, with another $2,000 billion on the books for 2010. And President Obama has intensified America’s expensive war of aggression in Afghanistan and initiated a new war in Pakistan.
There is no way for these deficits to be financed except by printing money or by further collapse in stock markets that would drive people out of equity into bonds.
The US government’s budget is 50% in the red. That means half of every dollar the federal government spends must be borrowed or printed. Because of the worldwide debacle caused by Wall Street’s financial gangsterism, the world needs its own money and hasn’t $2 trillion annually to lend to Washington.
Sounds pretty Green to me.
If the government prints its butt off we have higher oil, stocks, gold, housing & more lending.
If the government doesn't print much & we have to pay back the debt & make cuts in spending then we're toast.
The government seems to have chosen lots of money spending. Whats the consequences?
Employment and recoveries have always been a matter of confidence and the many past recessions ended when a combination of metrics (see Yoda) supported the group thinking process combined with available cash to begin a growth cycle.
In the past most of our corporate leaders and governments actually promoted the truth about their current state of affairs out of integrity for their names and the jobs they where posted to. Many a leader was wrong, not from dishonesty but from external force fields that where slow to the information stream.
The ability to influence consumer confidence was quite easy with slow increment changes tied to the efficiency of news reaching the masses. Today the every second news alerts and blogs like S/A and ZH allow for rebuttal and truths to be known instantly (nanoseconds).
Most of the corporate leaders are mis informing the masses and governments have used their stimulus planning to buy stocks and real estate supporting the concentration of wealth while trying to build confidence.
Well this generational recession/depression has an entirely different response from the masses through information readiness. China, USA and most G20 countries have a concerted effort to bull shit the information to generate confidence and save the world.
I do see possibilities of Armageddon based on the evolution of our society, financial systems and the butterfly effects of globalization.
I am very long stocks until Sept 17 09 ;+) and always maintain a hedge.
We do live in extremistan!
Home sales are recovering now that the US government from Fannie Mae and freddie Mac are the ones ending up holding all the low interest rate mortgage bonds no one else wants to touch because they probably can't even cover the default and forclosure rate much less generate a profit. And now the builders have gotten into the fray.
Building more houses is just about the last thing we need to "help the economy". What we need is real demand and real assets being created by the real market. Until then, we just keep burning down our economic forest to fertilize preactically nothing. What you inevitably get is a giant swath of economic desolation otherise known as a your just deserts.