This Recession Ain’t Over 68 comments
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The world is not black and white - especially economics.
With so much at stake, you will not be surprised to know that, over the years, many very smart people have applied the most sophisticated statistical and modeling tools available to try to better divine the economic future. But the results, unfortunately, have more often than not been underwhelming. Like weather forecasters, economic forecasters must deal with a system that is extraordinarily complex, that is subject to random shocks, and about which our data and understanding will always be imperfect. In some ways, predicting the economy is even more difficult than forecasting the weather, because an economy is not made up of molecules whose behavior is subject to the laws of physics, but rather of human beings who are themselves thinking about the future and whose behavior may be influenced by the forecasts that they or others make. – Fed Chairman Ben Bernanke on May 22, 2009
Yet we continue to have many intelligent people trying to analyze economic reports and indexes produced by these methods - and then try to interpret what is meant using simple and complex analytical analysis. How accurate can any analysis of reports that contain methodology / logic mistakes, imperfect extrapolations and data errors be?
Averaging Out the Speed Bumps
The Federal Reserve’s economic indicator reports generally utilize better methodology than their cousins in the Commerce and Labor Departments.
The Chicago Fed’s National Activity Index (CFNAI) is the least appreciated economic report – yet is one of the best of the bunch. For some reason, it is totally off the radar as many economic calendars do not acknowledge its existence.
It combines 85 indicators including all of the ones we know and love, weights them, and blows out a proper statistically weighted report that looks at everything at once.
This CFNAI report endeavors to deliver a bottom line conclusion on the health of economy.
We ignore this report because it is a rehash of old news – all the data has been published individually over the last 30 days. However, it is a brilliant piece of economic work which puts our economic data into perspective.
The CFNAI for August 2009 was published on 28 September 2009.
You will notice a little downward tick on the right side of the index. Our recovery hit a slight speed bump in the month of cash-for-clunkers, incentives for first-time home buyers, and stimulus.
But the Chicago Fed designed this report to trend the economy, not to watch it go up and down each month. Economic activity is not linear, and the seasonal adjustments and other “enhancements” to the data cause erratic behavior in the 85 indices.
The monthly data, above, is digested below, using a three-month moving average index (I always prefer moving average indexes because of unintended anomalies between reporting cycles).
And using three month averages, we get nice clean trend lines averaging out all the crap that crept into the 85 indices.
A CFNAI-MA3 value above +0.20 following a period of economic contraction indicates a significant likelihood that a recession has ended.
With the index reading -1.09 at the end of August, the Chicago Fed is saying that the data does not yet confirm the recession is over. With the September data even looking worse than August, it is likely this recession is not over.
Housing Situation Lacks Data for Definitive Analysis
My article last week focused on the demand for houses. Data this week focuses on prices for houses with the Case-Shiller July 2009 home price data which the headlines scream huge MoM pricing jump of 1.15% seasonally adjusted.
But as a skeptic, I ask does the MoM data compare apples to apples? I can postulate that the higher value homes were selling in disproportionate numbers as the supply of the really cheap homes has dwindled, and the more expensive homes have dropped prices significantly to make them attractive to first time buyers.
Is this true? Don’t know. and there is no data that can be accessed to answer this question. Case-Shiller data collection simply homogenizes all the homes sold – slum house with suburbs with mansions.
What we know is true is that the National Association of Realtors (NAR) said the volume of existing home sales increased in July (and fell off again in August). We know that supply and demand influences pricing. We know the government is using “first-time home buyer” incentives and low price mortgages to try to put a floor under the housing prices. We know demand is less than 80% of our pre-crisis situation. And the data suggests that the shadow inventory of homes not up for sale is growing.
So in housing we have the classic case of seeing a positive data event for the second month in a row (improvement in home prices), having possible underlying negating events (shift in value proportions), and no way to validate.
In these circumstances, you keep what you know (home prices improved) – but do not use this information in your decision processes until you can prove or disprove the potential negating theories.
BLS Employment Data Is Statistical Nonsense.
Again this week we are faced with the controversial employment data from the Bureau of Labor Statistics (BLS) for September 2009. There is a reason why it is so contentious – much of the statistics we hear is contrived through survey of 60,000 households and not based on quantitative data.
The unemployment percentages are based on a telephone survey.
There are thousands of potential error points as the BLS only has hard data for payroll employees, government workers, and unemployed receiving benefits.
They are guessing at the size of the workforce.
Look at the Venn diagram above – only the red colored parts (sets) of the universe are based on quantitative data. And statistics based on a universe you cannot even quantify is a disaster waiting to happen.
The BLS constantly changes either the definitions for inclusion in the sets or groups that are in the universe. Backwards comparison of data has built in inaccuracy.
And so that we are really confused, they change the size of the universe through birth / death adjustments that jump all over the map.
Employment is the most important economic indicator, yet any knowledgeable person realizes this data is garbage.
There is too much extrapolation from too-small samples for a reporting agency to claim unemployment changed in fractions of a percent. And the implication is that they start over every month – I am confused how they smooth the data from month-to-month unless they do not change the people in the survey sample.
The final nail in the coffin for the published unemployment data is the discrepancy between population growth and the growth of the workforce. Between 2000 and the end of 2008, the BLS expects us to believe that the workforce expanded approximately half as fast as the population.
The government's BLS employment data released Friday showed a continuing worsening employment picture.
I believe unemployment grew 0.3% last month and the true U-3 headline unemployment rate should have been 10%. In fact, I believe the real unemployment rate is between 12.9% and 16.7% depending on how you view the situation.
I base my unemployment numbers on extrapolating the knowns - based on the non-farm payrolls. No inaccurate sampling techniques required.
This graph is based on the simple premise that the potential workforce grows at the same rate as the population. It may not be exactly true, but it holds more truth than statistical sampling and quirky adjustments of the data.
I find it harder and harder to believe that the government is not manipulating the numbers to keep the headline unemployment under 10% no matter what it takes!
Statistically, data is less controversial and more accurate if it is based on provable baseline factors.
Consumer Confidence has Polling Issues
Last week’s article showed the significant difference between the ABC News Poling results and the University of Michigan results.
This week the Conference Board Consumer Confidence Index still is correlating well with the ABC consumer confidence polls.
My confusion over the whole subject of consumer confidence is that it is used as a leading indicator – when logically it is a trailing indicator. Real confidence is a function of reality.
I do realize the higher consumer confidence rises, the more willing consumers will be to spend (and credit spend).
If our economic masters pump up consumer confidence, they have to deliver a REAL growing economy. Since they do not seem to be making an effort, I would assume a REAL economic rise that the consumer can see is not on the short term cards.
There is No Bottom Line.
Precision cannot be expected in data – economic or not. There are too many points where error can be introduced from logic to methodology to mathematics.
To linger or overanalyze a single economic report offers little advantage in increasing your understanding of what is going on. Simply look at all the economic reports, and take where they agree as probably true.
You cannot say that anything is absolutely true.
But the wakeup call should have been the economic data released this week if you view it globally. It raises significant issues and leaves us with one big unanswered question.
Is our Great Recession over? No.
Additional Economic Data This Week
As the amount of data released this week was extraordinarily large and significant, please refer to my other article No Chance of a “V” Recovery for a view of the economic indicators released this week but not included in this article.
The final GDP number for 2Q2009 was released this week, and was revised upward from -1.0% to -0.7%. I have nothing to add as GDP no longer is representative of the type of economy we have.
On Friday, US Census released their preliminary data for August 2009 on manufacturer’s shipments, inventory and orders. The headline says the seasonally adjusted data was down MoM. The non-seasonally adjusted data was up heavily based on cash-for-clunkers. August has really turned out to be a terrible month for data.
The rate of new mortgage applications declined this past week to a five month low. The four week moving average of all mortgage loan application volume (which includes refinancing) increased 3.9% WoW, and increased almost 44% compared with the same week one year earlier. The average interest rate for 30-year fixed-rate mortgage increased 3 basis points to 4.94%.
Treasury Yields continued to slide for the entire month of September. This has a certain deflationary aroma, but I fear danger when the Fed stops purchasing treasuries. Who will be the buyer at these low yields?
Filing for Bankruptcy: Holley Performance Products (not listed) Stamford Industrial Group (SIDG)
Economic Forecasts Published this Past Week
The Economic Cycle Research Institute (ECRI) released their Weekly Leading Index which again gained slightly on its all-time high. Lakshman Achuthan, Managing Director at ECRI added:
With WLI growth rising to yet another record high, the economic recovery is highly unlikely to falter in the next few months
Hat tip to Steve at Memetics & Marketing for editing support.
Disclosures: long MMF's, GLD, IOO, EWZ, EWY, EWA, EWC, EWM, EWS, THD, FXI, PIN, UUP, Physical Gold - as well as numerous puts and calls which comprise less than 3% of my portfolio.
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This article has 68 comments:
US Government: The Cat in the Hat
Most of us should remember the story of the Cat in the Hat. The kid (Wall Street and the banking industry) makes a mess and creates a stain and the Cat in the Hat (The US Government) tries one thing after another but can get rid of the problem. The cat simply transfers the stain from one article to another actually making it far worse in the process. Morale of the story: One can't run from or hide from problems - we have to deal with them.
*********
This describes the economic mess we are in and have been for the last two plus years. Consider the deep systemic problems we have with toxic assets, still overleveraged banks, under regulated and under restricted financial institutions, too big to fail firms, an American consumer with a disseminated balance sheet, a dysfunctional credit market, horrendous job and housing markets.
It would be nice to think we just had the worst recession in 100 years (excluding the depression) and we have quickly bounced back and will enjoy a typical "V" recovery. Only this downturn was far worse than a garden variety recession so the recovery should not be typical. We all hope for a quick recovery but it won't be.
To make matters far worse, consider what the US government has actually done to fix the underlying problems.
Nothing
In fact the government has put the same punch bowl out that got us into the mess in the first place. More debt and consumption and don't worry about paying it back.
*****
In our case the US Government has deposited the stain on the taxpayers. Some of us don't see it because we are wearing it. But it is there, just repackaged.
Problem substitution is not economic resolution.
You are right the recession is not over. But I disagree with your assertion that "...Our recovery hit a slight speed bump in the month of cash-for-clunkers, incentives for first-time home buyers, and stimulus..." We are in for a long period of zero or negative growth.
We are experiencing the failure of vulgar-Keynesian government spending and Bernanke-Greenspan currency debasement as government policies to repair a collapse driven by excessive government spending and debt.
Further, the real economy is waiting to see if our clueless politicians really mean what they say about their intent to increase taxes, including carbon taxes, repeal of the Bush tax cuts in 2011, removing the cap from Social Security taxes, VAT, etc.
“Recessions are typically characterized by inventory cycles – 80% of the decline in GDP is typically due to the de-stocking in the manufacturing sector. Traditional policy stimulus almost always works to absorb the excess by stimulating domestic demand. Depressions often are marked by balance sheet compression and deleveraging: debt elimination, asset liquidation and rising savings rates. When the credit expansion reaches bubble proportions, the distance to the mean is longer and deeper. Unfortunately, as our former investment strategist Bob Farrell’s Rule #3 points out, excesses in one direction lead to excesses in the opposite direction.”
With the above in mind, and as a working thesis, we might want to weigh economic measures according to the type of economic contraction underway; during traditional recessions we would weigh measures of manufacturing most heavily while during depressions we would pay more attention to debt, balance sheets and saving habits. All recessions are not equal in nature and if we have the ability to discern meaningful differences perhaps then a case can be made for measuring and evaluating them differently.
If we take this approach and focus upon money supply, balance sheets, savings and price changes we quickly realize we are still mired in a financial crisis with highly deflationary tendencies. The notes that follow have been collected from a variety of sources and all suggest contracting final demand, contracting credit and expanding savings; a robust recovery is simply not in the cards and it’s easy to think Japan. Remember job creation following the early 2000 recession was half of that of the two prior recoveries; we easily find ourselves amid a jobless recovery in which the new normal is 9% to 10% unemployment.
Professor Tim Congdon from International Monetary Research said US bank loans have fallen at an annual pace of almost 14pc in the three months to August (from $7,147bn to $6,886bn). "There has been nothing like this in the USA since the 1930s," he said. "The rapid destruction of money balances is madness." The M3 "broad" money supply, watched as an early warning signal for the economy a year or so later, has been falling at a 5pc annual rate.
The US Federal Reserve recently published their comprehensive flow of funds data for the US. This showed that the household sector continued to pay down debt for the fourth consecutive quarter. Corporates also started to pay down debt sharply in Q2 at a similar $200bn pace. The non-financial private sector paid down debt at a $435bn pace in Q2. This compares to a $2,116bn pace of expansion in 2007 (see chart below). Add to that the financial sector unwind and the total private sector is unwinding debt faster than the government is able to pile it up (hence the red line is still negative)! The lesson from the balance sheet recession in Japan is that the massive private sector headwind to growth has a long, long way to run
AP writes:
As in the 1980s, much of that shift will be driven by baby boomers. For the 78 million people born from 1946 through 1964, the Great Recession hit at a particularly inopportune time – during peak years of earning and saving before retirement. Boomers range from 44 to 63 today – the youngest is nearly 10 years older than the oldest was in 1982. They are running out of time and are most likely to remain cautious spenders and become aggressive savers even as the economy improves.
The housing bubble mistakenly led boomers and millions of others to believe their home was their retirement nest egg. If they left their home equity alone during the boom, they've taken a hit the last couple years but are still ahead. But many treated their home like a personal bank and spent the gains by tapping a home equity line of credit.
Alix Partners finds:
While American industry is struggling to get through what could become the worst recession since the Great Depression, Americans say that even after the recession ends, their spending will return to just 86% of pre-recession levels, which would take a trillion dollars per year out of the U.S. economy for years to come. According to this in-depth survey of more than 5,000 people, Americans plan to save (and therefore not spend) an astounding 14% of their total earnings post-recession, with the replenishment of their 401(k) and other retirement savings leading the way among their biggest long-term concern.
As Huffington Post notes:
"There will be a fundamental shift in the kind of cars we buy, a fundamental shift in the homes we buy, and a fundamental shift in consumption generally," says Matt Murray, an economist at the University of Tennessee. "And that is not something that took place in the 1980s."
Let's see what a 7% (say) October drop in the NYSE does to his index.
"This recession ain't over": Where's a fat lady when you need one?!?
The ordinary American applies 5 tangible and significant tests in Sept 2009:
1. Am I , my family, friends and neighbors working at least as much , part time or full time, as I and we were a year ago ; if working, is there as much job security as a year ago? If the answer is no and no, then there is a recession( or contraction or compression or whatever descriptor applies)
2. Is my household income, from all sources, lower than a year ago? If the answer is yes, then there is recession
3. Is my household net worth lower than a year ago? If the answer is yes, then there is a recession
4. Does my household have better or at least the same access to credit than a year ago? If the answer is no and no , then there is a recession
5. Is my household less fearful about our economic and financial future than a year ago? If the answer is no, then there is a recession
I share your frustration with data that can't be reasonably interpreted on a monthly basis. I agree that one has to look at moving averages as well as monthly changes and year to year changes. Many changes that I think are important (housing and employment are two of the items most fundamental to our economic direction) have turned negative again on a monthly basis and are continuing down on a longer term basis. This has to improve in the next 3-4 months or your premise for this article will be "baked in the cake".
Good job again this week in connecting a lot of dots, even though, as you indicate in the article, it is premature to connect some of them with indelible ink.
What world are people like you living in?
SHEESH
Don't you and your rabble rouser ilk realize that the jobless, homeless, consumerless, currency appreciationless, debt ridden, recoveryless recovery IS IN FULL SWING!!!
Good times are here again, boys.
Salud!!!
Do you use other economic indicators: from OECD, or IMF? It seems they provide very different conclusions regarding world wide recovery pace. OECD is more in line with CFNAI, but IMF is telling that U.S. will recover first, have a better GDP than Europe that posted in WSJ.
-Ludwig von Mises.
By the actions of the government, it looks like we're going for the gusto! The total catastrophe. All that's left is to wait.
The worst part of the decline is yet to come. Bank failures and home foreclosures have yet to peak. The commercial real estate sector bust is just starting. The US dollar crises is building, when this crises reaches the breaking point, interest rates will rise in a futile attempt to support the dollar. It won't work. The US will struggle to finance it's massive budget and trade deficit, while the rest of the world attempts to flee a rapidly depreciating dollar. This will in turn ignite the immense quantity of liquidity that has been and will be pumped into the system, in a further futile attempt to support the dollar, resulting in run away inflation.
All government or state produced economic statistics have been distorted towards the side of optimism and away from reality. Statistical manipulation is used to cloak a declining standard of living.
If the BLS unemployment numbers are based on surveys why don't they provide us error margins? Can error margins be obtained anywhere on their website?
Disclosure: long on both these countries.
Good comments...I believe you might have left out the two ongoing wars.
TK
On Oct 03 10:10 AM Trading Alpha wrote:
> Great article Steve - keep up the excellent work. Here is a companion
> piece to your views:
>
> US Government: The Cat in the Hat
>
> Most of us should remember the story of the Cat in the Hat. The
> kid (Wall Street and the banking industry) makes a mess and creates
> a stain and the Cat in the Hat (The US Government) tries one thing
> after another but can get rid of the problem. The cat simply transfers
> the stain from one article to another actually making it far worse
> in the process. Morale of the story: One can't run from or hide
> from problems - we have to deal with them.
>
> *********
> This describes the economic mess we are in and have been for the
> last two plus years. Consider the deep systemic problems we have
> with toxic assets, still overleveraged banks, under regulated and
> under restricted financial institutions, too big to fail firms, an
> American consumer with a disseminated balance sheet, a dysfunctional
> credit market, horrendous job and housing markets.
>
> It would be nice to think we just had the worst recession in 100
> years (excluding the depression) and we have quickly bounced back
> and will enjoy a typical "V" recovery. Only this downturn was far
> worse than a garden variety recession so the recovery should not
> be typical. We all hope for a quick recovery but it won't be.<br/>
>
> To make matters far worse, consider what the US government has actually
> done to fix the underlying problems.
>
> Nothing
>
> In fact the government has put the same punch bowl out that got us
> into the mess in the first place. More debt and consumption and
> don't worry about paying it back.
>
> *****
>
> In our case the US Government has deposited the stain on the taxpayers.
> Some of us don't see it because we are wearing it. But it is there,
> just repackaged.
>
> Problem substitution is not economic resolution.
www.bls.gov/news.relea...
While Steve's article is good, one thing I really disagree with is his indictment of statistical sampling to obtain data. The math behind these methods was worked out hundreds of years ago and is used reliably today during almost every measurement process used by modern technology - not just in economics but by biologists, physicists, engineers and in every other quantitative discipline. Much of modern technology relies on these methods.
Unfortunately few American schools teach the subject. The failure of Japanese quality control methods to work in the US is often blamed on the fact that the Japanese learn the subject in high school and Americans do not.
On Oct 03 02:41 PM Wildebeest wrote:
> Great article.
>
> If the BLS unemployment numbers are based on surveys why don't they
> provide us error margins? Can error margins be obtained anywhere
> on their website?e
There was a recent case where a Republican pollster "Strategic Vision" had some highly unusual patterns in their poll results indicative of fraud - I would bet that if the BLS was manipulating results the same sort of analysis would show anomalies as well.
The question is now why we haven't seen reports of these anomalies from expert sources? Is nobody looking? Hard to believe.
On Oct 03 03:15 PM Kimball Corson wrote:
> Good article Steve, especially on the employment data problems. That
> better guesstimates of unemployment are clearly possible strongly
> suggests the final numbers are being statistically massaged for political
> purposes.
the polling sample ratio is over 1:6000. who contacts the people moving to find a new job. who contacts the people who have disconnected their phone.
this recession has had a great impact on a lot of peoples lives where a good percentage of the population has been severely negatively impacted. this impact has effected their ability to communicate in traditional manner.
i don't have my statistics text book next to me, but maybe a commenter knows the error range of a 1:5000 sample.
and this was from Mish yesterday.............
"The Labor Department today also published its preliminary estimate for the annual benchmark revisions to payrolls that will be issued in February. They showed the economy may have lost an additional 824,000 jobs in the 12 months ended March 2009. The data currently show a 4.8 million drop in employment during that time."
"The projected decrease was three times larger than the historical average, the Labor Department said. Most of the drop occurred in the first quarter of this year, probably due to an increase in business closings, the government said."
it is your choice whether you want to believe the unemployment numbers produced by the government. when you accept something not true as truth, you make bad decisions.
It's much harder to to scalable telephone research these days, and you have to work out mobiles, I wonder if the pollsters doing teh job for the US Government worked that out?
On Oct 03 07:28 PM Steven Hansen wrote:
> I have never seen a poll number with a decimal point - and for good
> reason - people lie.
>
> the polling sample ratio is over 1:6000. who contacts the people
> moving to find a new job. who contacts the people who have disconnected
> their phone.
>
> this recession has had a great impact on a lot of peoples lives where
> a good percentage of the population has been severely negatively
> impacted. this impact has effected their ability to communicate
> in traditional manner.
>
> i don't have my statistics text book next to me, but maybe a commenter
> knows the error range of a 1:5000 sample.
>
> and this was from Mish yesterday.............
> "The Labor Department today also published its preliminary estimate
> for the annual benchmark revisions to payrolls that will be issued
> in February. They showed the economy may have lost an additional
> 824,000 jobs in the 12 months ended March 2009. The data currently
> show a 4.8 million drop in employment during that time."
>
> "The projected decrease was three times larger than the historical
> average, the Labor Department said. Most of the drop occurred in
> the first quarter of this year, probably due to an increase in business
> closings, the government said."
>
> it is your choice whether you want to believe the unemployment numbers
> produced by the government. when you accept something not true as
> truth, you make bad decisions.
Interesting point there easy to miss, the Fed buying Treasuries pushes yields down (presumably) but longer term risks inflation presumably pushing yields up?
My concern is that yields on longer-term debt are being somehow (not quite sure how) manipulated down, which could be potentially unstable
On Oct 03 07:28 PM Steven Hansen wrote:
> I have never seen a poll number with a decimal point - and for good
> reason - people lie.
>
> the polling sample ratio is over 1:6000. who contacts the people
> moving to find a new job. who contacts the people who have disconnected
> their phone.
>
> this recession has had a great impact on a lot of peoples lives where
> a good percentage of the population has been severely negatively
> impacted. this impact has effected their ability to communicate
> in traditional manner.
>
> i don't have my statistics text book next to me, but maybe a commenter
> knows the error range of a 1:5000 sample.
>
> and this was from Mish yesterday.............
> "The Labor Department today also published its preliminary estimate
> for the annual benchmark revisions to payrolls that will be issued
> in February. They showed the economy may have lost an additional
> 824,000 jobs in the 12 months ended March 2009. The data currently
> show a 4.8 million drop in employment during that time."
>
> "The projected decrease was three times larger than the historical
> average, the Labor Department said. Most of the drop occurred in
> the first quarter of this year, probably due to an increase in business
> closings, the government said."
>
> it is your choice whether you want to believe the unemployment numbers
> produced by the government. when you accept something not true as
> truth, you make bad decisions.
The principle is known as the Law of Large Numbers and is one of the most important theorems in all of mathematics. It has immense practical consequences.
It was first stated by the Indian mathematician Brahmagupta some 1,400 years ago. Formal proof was by Bernoulli in 1713.
Brahmagupta's writings also include the first documented use of zero as a number in it's own right, not just as a place holder.
On Oct 03 08:05 PM EEB wrote:
> I don't think that the sampling ratio matters.
On Oct 03 07:54 PM Andrew Butter wrote:
> Reading this it occurred to me that something I noticed buying telephone
> research is that these days you don't get a representative sample
> in fixed lines anymore, a lot of people don't even have fixed lines,
> they have mobiles, and when the dial-up phone rings they quite often
> don't answer it
>
> It's much harder to to scalable telephone research these days, and
> you have to work out mobiles, I wonder if the pollsters doing teh
> job for the US Government worked that out?
This is a paragraph from the BLS on their methodology. you can read their entire defense of their approach.
www.bls.gov/cps/cps_ht...
read it critically, and decide for yourself how much the data needs to be manipulated before it is presented to the public. decide for yourself whether this economic event is so severe that their methodology may be in question.
and finally, ask yourself why the population growth and the growth of the workforce is not matching. this is the key point as it removes several percent from the unemployment levels.
You raise a good point (your last comment) about the growth of the labor force and the growth of the population heading in different directions. This has not happened to the extent we are seeing it this year since World War II. I have been discussing what it means in other comments and posts. Without age demographics for those the DOL puts in the the "not in the labor force" group, it is hard to speculate.
If the age group with the largest increase is 55 and over, many of these leaving the labor force because they have given up looking for work may never come back. Call it forced early retirement.
However, if large numbers of people leaving the labor force are under 40, many will probably return to the labor force when times are better.
With regard to the uncertainty, you mention +/-290,000. Many months ago, I found two different DOL references that gave +/-300,000 and +/-320,000. The uncertainty is apparently somewhere around +/- 300,000, and may change somewhat from month to month.
The +/-300,000 number is for the household (population) survey results. I believe the unceratinty in the establishment survey data is about +/-110,000 (DOL estimate).
You are correct in stating that these uncertainties are in the noise level. A bigger measurment problem is, in my opinion, lack of understanding the composition of the group not in the labor force. How many of these will return to the labor force when things improve? If we understood that, we would have a much better measurement of the true rate of unemployment.
Let me give a hypothetical example. Let's say that we have a labor force of 2000 and the group not in the labor force numbers 1000. Assume the current number of unemployed is 200, so the unemployment rate is 10% (200/2000).
Now, what if 250 of those not in the labor force are merely discouraged and will return to the labor force and look for work when the economy improves. That would mean we could define the potential labor force as 2250 (250 + 2000), and the number of unemployed as 450 (250 + 200). Now the unemployment rate is 20% (450/2250).
This is what Steve means when he says this "not in the labor force" question can change the unemployment rate by several percent.
On Oct 03 10:49 AM CautiousInvestor wrote:
> Edward Harrison published an article earlier this week and in it
> there was an interesting paragraph that bears repeating:
>
> “Recessions are typically characterized by inventory cycles – 80%
> of the decline in GDP is typically due to the de-stocking in the
> manufacturing sector. Traditional policy stimulus almost always works
> to absorb the excess by stimulating domestic demand. Depressions
> often are marked by balance sheet compression and deleveraging: debt
> elimination, asset liquidation and rising savings rates. When the
> credit expansion reaches bubble proportions, the distance to the
> mean is longer and deeper. Unfortunately, as our former investment
> strategist Bob Farrell’s Rule #3 points out, excesses in one direction
> lead to excesses in the opposite direction.”
>
> With the above in mind, and as a working thesis, we might want to
> weigh economic measures according to the type of economic contraction
> underway; during traditional recessions we would weigh measures of
> manufacturing most heavily while during depressions we would pay
> more attention to debt, balance sheets and saving habits. All recessions
> are not equal in nature and if we have the ability to discern meaningful
> differences perhaps then a case can be made for measuring and evaluating
> them differently.
>
> If we take this approach and focus upon money supply, balance sheets,
> savings and price changes we quickly realize we are still mired in
> a financial crisis with highly deflationary tendencies. The notes
> that follow have been collected from a variety of sources and all
> suggest contracting final demand, contracting credit and expanding
> savings; a robust recovery is simply not in the cards and it’s easy
> to think Japan. Remember job creation following the early 2000 recession
> was half of that of the two prior recoveries; we easily find ourselves
> amid a jobless recovery in which the new normal is 9% to 10% unemployment.
>
>
> Professor Tim Congdon from International Monetary Research said US
> bank loans have fallen at an annual pace of almost 14pc in the three
> months to August (from $7,147bn to $6,886bn). "There has been nothing
> like this in the USA since the 1930s," he said. "The rapid destruction
> of money balances is madness." The M3 "broad" money supply, watched
> as an early warning signal for the economy a year or so later, has
> been falling at a 5pc annual rate.
>
> The US Federal Reserve recently published their comprehensive flow
> of funds data for the US. This showed that the household sector continued
> to pay down debt for the fourth consecutive quarter. Corporates also
> started to pay down debt sharply in Q2 at a similar $200bn pace.
> The non-financial private sector paid down debt at a $435bn pace
> in Q2. This compares to a $2,116bn pace of expansion in 2007 (see
> chart below). Add to that the financial sector unwind and the total
> private sector is unwinding debt faster than the government is able
> to pile it up (hence the red line is still negative)! The lesson
> from the balance sheet recession in Japan is that the massive private
> sector headwind to growth has a long, long way to run
>
> AP writes:
> As in the 1980s, much of that shift will be driven by baby boomers.
> For the 78 million people born from 1946 through 1964, the Great
> Recession hit at a particularly inopportune time – during peak years
> of earning and saving before retirement. Boomers range from 44 to
> 63 today – the youngest is nearly 10 years older than the oldest
> was in 1982. They are running out of time and are most likely to
> remain cautious spenders and become aggressive savers even as the
> economy improves.
> The housing bubble mistakenly led boomers and millions of others
> to believe their home was their retirement nest egg. If they left
> their home equity alone during the boom, they've taken a hit the
> last couple years but are still ahead. But many treated their home
> like a personal bank and spent the gains by tapping a home equity
> line of credit.
>
> Alix Partners finds:
> While American industry is struggling to get through what could become
> the worst recession since the Great Depression, Americans say that
> even after the recession ends, their spending will return to just
> 86% of pre-recession levels, which would take a trillion dollars
> per year out of the U.S. economy for years to come. According to
> this in-depth survey of more than 5,000 people, Americans plan to
> save (and therefore not spend) an astounding 14% of their total earnings
> post-recession, with the replenishment of their 401(k) and other
> retirement savings leading the way among their biggest long-term
> concern.
>
> As Huffington Post notes:
> "There will be a fundamental shift in the kind of cars we buy, a
> fundamental shift in the homes we buy, and a fundamental shift in
> consumption generally," says Matt Murray, an economist at the University
> of Tennessee. "And that is not something that took place in the 1980s."
:)
Why aren't people like you, John Lounsbury, and others in this forum sitting in Washington sharing your views?
Because nobody wants to acknowledge that the emperor has no clothes.
To redistribute wealth and power away from the man on the street to big companies.
Trillions of dollars of support into the financial sector was the last phase they successfully executed. The next will be tax rises on the public whilst S&P 500 earnings continue to recovery sharply.
Surely in a fair economy you would not have sharply rising equity prices and a strong bounce-back in corporate earnings - whilst unemployment is still rising sharply - unless of course you don't give a damn about the little guy.
future possibilties.....
And then there is the grey (cash) economy - home repairs, car repairs, etc.
16.7% Unemployment Rate sounds about right.
The Spruce Goose of all stimulus plans doesn't seem to be "jump starting" anything. Sorry, forgot the new non-statistic-statistic: Jobs Saved. Right.
We are mired in a sea of denial. Our government has a policy to duct, avoid and deny the depth of this recession.
Until the President and our Congress are willing to take the steps necessary to reset the clock, Wall St., the bankers and insurance companies, who financially support this two headed financial monster from both sides of the aisle in D.C., all will thrive, survive and prosper.
Take the Health Care Reform debate. In it's present and likely form, this package only benefits the insurers, not the Joe or Jane Doe on the street and it penalizes real small businesses who refuse to comply, because the recession has taken away any chance of Joe Six Pack's business from affording and being able to meet the financial standards proposed in the final form of this bill.
In the end, we need reform, regulation and resolve (RRR), none of which our state Senators, Congressman or President have to make the necessary changes in our economic system. Each of these three headed monsters have a selfish goal of re-election, hence, a propogation of this political and economic mess. Each of the three headed monsters need pack money, money from Wall St. and insurers and the likes of them, to support their re-election bids.
It does not matter whether the President is a Republican or Democrat as the likes of Goldman, JP Morgan, Merrill, BAC and the rest shall financially support both sides of the aisle to keep Wall street intact without substantial reform. Neither side of the aisle, or our President, will have the RRR to make the changes on Wall St. or in Government which are necessary to truly save our country.
It is a dire forecast, but unfortunately, one which is a reality. Sooner or later China will be dictating our economic future because we have no "cahoonas" to take the necessary steps and execute real plan and to take the necessary measures to clean up Wall St. and to bite the bullet with tough economic policies.
Obama's change was nothing more than political rhetoric. In Washington, there truly has been no change, just more spending, more deficits and pushing the onus of this mess off to the generations of our children to deal with. Both Republicans and Democrats ride the same agenda and plans. They each package and label it differently but the net effect is the same- that is- secure the financial support of Wall St., insurers and financials and in turn Uncle Sam will look the other way. After all, look who Obama picked to run his cabinet and our finances...Wall st. folks.
To saddle my kids with this mess is simply abhorrent to being a good parent.
My sentiments are for my kids and their kids and thankfully we should have enough to help them, but the rest of the country's standard of living is sure to suffer in generations to come because no one is willing to take the necessary steps to effectuate the change we need to make as a country (RRR).
The fact that the DOL/BLS has announced that it miscounted the labor force last year by some 824,000 points out the numerous erroneous assumptions and sloppy methodologies for counting who's working and who's been laid off or can't get into the workforce.
I'll really be interested to see how the 2010 census affects these counts. I expect the results will be even more discouraging than the results we've seen so far.
Thanks for this excellent piece.
I find it hard to believe that ANYONE believes ANYONE at ALL anymore!
The powers that be know things mere mortals do NOT and make money whether stocks go up or stocks go down.
HOW could they NOT? THey are privy to EVERY little thing and OF COURSE they use every bit of information to profit!!!
Once youo have a huge amount of money you can't HELP making more UNLESS other powers that be want you to FALL.
People can ride the coattails of these INSANELY RICH INSIDERS but these insiders DON'T care a WHIT for anyone except their OWN.
THAT'S just the way things are and how you get to be when you're IN THE KNOW and basically, own the world.
We are all... pwned.
I'm just a student... and i don't see very much hope. Okay, ANY hope.
The idea that we can continue growing the gross domestic product is insane to me. We live in a finite world - hellooo-oh!
The ONLY hope is that we change our ways and support companies that are HONEST, that stop CRAPPING on the world and on the great unwashed (that's all us little folks), that have MORALS, ETHICS, INTEGRITY (Hah. what the heck is that? Never heard of these three values in business) and that we DON'T BUY all the garbage that's killing us, killing the world, killing every vestige of human decency with giant ponzi mad profiteering.
We are careening towards a major downfall because our financial "leaders" are from the OLD SCHOOL where you Lie Lie Lie to manipulate the Stupid Masses and you just sit around smoking cigars twiddling with perfectly smooth barrel of your mahogany handled shotgun guzzling your 1000 year old scotch whilst your 18 year old (or younger) honeys hover like bees.
Don't our LEADERS have any kids??? Don't they see their kids are gonna have a messed up world with messed up rich and poor and no middle class?
Do they care? Or are they BLIND? They must be blinded by their own power, wealth, prestige. You know what? I'm beginning to think it's inevitable. Once you start having infinite control, infinite dollars, and you're one of the privileged few, YOU CAN'T HELP but be who and what you are and LOOK DOWN on the struggling masses buying paltry amounts of manipulated stocks as basically, less human than you.
AND THAT'S why someone said, either love and do for your neighbor as yourself be he rich or poor, or be damned and crushed by the weight of your own ponderous pompass ass.
I don't even know WHY i bother studying. Or working towards ANY financial goal. WHAT? So I can become like the rich? So I could be one of the rarefied few who get to live in those luxury underground bunkers while nukes light up the surface?
Egads.
And, is it true that the ONLY WAY OUT OF THIS MESS is to go to WAR?????
Who's it gonna be? Iran? WHAT?
Are we bad or what?
Yes, of course. You can delete this rant. I just don't really see any hope unless we all follow Biblical principles or something WHICH WE AREN'T going to do.
The glow of money and gold is TOO overwhelming and the seeking of fortunes and riches TOO overpowering.
That said, I'm going to go do what I always do and NOT CHANGE A WHIT.
Craps.
I do believe your analysis of what is taking place between our government and the financial oligarchy is correct, but the problem does finally lie with the citizens that maintain our representatives in power. If we do not take responsibility for the government we have, then we can only expect that most people in office will act in their own self interest. I certainly would.
On Oct 04 09:58 AM hummer wrote:
> Unfortunately your prognosis for our next 5 years is spot on.<br/>
>
> We are mired in a sea of denial. Our government has a policy to duct,
> avoid and deny the depth of this recession.
>
> Until the President and our Congress are willing to take the steps
> necessary to reset the clock, Wall St., the bankers and insurance
> companies, who financially support this two headed financial monster
> from both sides of the aisle in D.C., all will thrive, survive and
> prosper.
>
> Take the Health Care Reform debate. In it's present and likely form,
> this package only benefits the insurers, not the Joe or Jane Doe
> on the street and it penalizes real small businesses who refuse to
> comply, because the recession has taken away any chance of Joe Six
> Pack's business from affording and being able to meet the financial
> standards proposed in the final form of this bill.
>
> In the end, we need reform, regulation and resolve (seekingalpha.com/symbo...),
> none of which our state Senators, Congressman or President have to
> make the necessary changes in our economic system. Each of these
> three headed monsters have a selfish goal of re-election, hence,
> a propogation of this political and economic mess. Each of the three
> headed monsters need pack money, money from Wall St. and insurers
> and the likes of them, to support their re-election bids.
>
> It does not matter whether the President is a Republican or Democrat
> as the likes of Goldman, JP Morgan, Merrill, BAC and the rest shall
> financially support both sides of the aisle to keep Wall street intact
> without substantial reform. Neither side of the aisle, or our President,
> will have the RRR to make the changes on Wall St. or in Government
> which are necessary to truly save our country.
>
> It is a dire forecast, but unfortunately, one which is a reality.
> Sooner or later China will be dictating our economic future because
> we have no "cahoonas" to take the necessary steps and execute real
> plan and to take the necessary measures to clean up Wall St. and
> to bite the bullet with tough economic policies.
>
> Obama's change was nothing more than political rhetoric. In Washington,
> there truly has been no change, just more spending, more deficits
> and pushing the onus of this mess off to the generations of our children
> to deal with. Both Republicans and Democrats ride the same agenda
> and plans. They each package and label it differently but the net
> effect is the same- that is- secure the financial support of Wall
> St., insurers and financials and in turn Uncle Sam will look the
> other way. After all, look who Obama picked to run his cabinet and
> our finances...Wall st. folks.
>
> To saddle my kids with this mess is simply abhorrent to being a good
> parent.
>
> My sentiments are for my kids and their kids and thankfully we should
> have enough to help them, but the rest of the country's standard
> of living is sure to suffer in generations to come because no one
> is willing to take the necessary steps to effectuate the change we
> need to make as a country (seekingalpha.com/symbo...).
lots of great comments on your article. the consumer bankruptcy rate must be leading the commercial ones. i don't think it matters much what side you're on - it seems high bankruptcy rates and high employment i.e. low to no job creation indicates we are in non- productive land.
i.e. a sample size of 1,000 at the 95% confidence level produces a MOE of about 4% (roughly).
Doesn't matter much if the population is 1 million or 100 million.
"My question regarding your analysis and other technical analyses of the NUMBERS involved in technical's is this: how do you reconcile the equations with the shifting makeup of the underlying reality?
The market indices are stocks which are tied, in one way or another, to the realities of life.
If there is a disconnect from reality in the factors that underlie stocks and markets, is there any validity to numerical projections utilizing past data?
For example: the housing bubble, and securitization bubbles, have been based on leveraging debt. The debts could not be paid when the over-leveraged value of homes collapsed. This leverage and these bubbles did not exist in previous years or decades that comprise large chunks of data from which analysts use to construct current assumptions and future predictions.
Therefore, future predictions are distorted by fundamental changes in the reality underlying stock prices and market indices. Unless you have a metric to adjust for the this reality, the numbers and the predictions for the future become increasingly unreliable and simply speculative.
An analogy would be trying to predict my future performance running the mile based upon my previous performance, and without the knowledge that I have an endocrine disorder and a brain tumor.
If the past ten years of the markets were based on a debt bubble, and the moves in the market in the past six months based on deficit spending and FED liquidity and monetization of debt; of what value is the data in making any predictions of the future?"
Just one nit: you argue that consumer confidence is a lagging indicator, not a leading one. It seems doubtful that polls regarding confidence ask participants if they feel confident about the past. That would be strange.
Surely, confidence relates to the present and future, as high or low confidence implies degrees of trust and conviction - states of being based on expectations of conditions changing in future.
Last year a friend asked me when will the financial crisis be over. I told him that it will end when they get rid of M2M, but more importantly when cable TV takes off asinine reporters that keep calling for the 'N' word. Some of you may have noticed that most banks have healed themselves since March when M2M was rescinded and they took off the air one especially obnoxious reporter on CNBS - Dylan Rattigan. No coincidence here either.
Now many ask when will the recession be over. Well, it will be over (if it hasn't really ended already) when all the pundits shut up and let the business community get back to some sense or normalcy. We will have that normalcy as soon as we stop asking when will that normalcy return. Get the message!
Unfortunately few American schools teach the subject. The failure of Japanese quality control methods to work in the US is often blamed on the fact that the Japanese learn the subject in high school and Americans do not.
______________________...
Come on. Talk about making blanket statements, how did you conclude that "Japanese" quality initiatives have never worked in America?? And where is YOUR empirical proof?
First of all, the vast majority of "Japanese Quality Control initiatives" have their roots in America from two Western Electric statisticians Joseph Juran and Dr. W. Edwards Deming who both went to post-war Japan and instituted quality initiatives within the manufacturing areas of Post-War Japan.
The idea that "Japanese Quality Control" originated in Japan is a common fallacy. It is a common misnomer by those that have never studied where many manufacturing quality initiatives originated. The truth is that these two were not recognized for what they knew until they left the country only to come back being heralded for their concepts.
On your other point: There are many reasons that any quality methodology fails, succeeds or is a non-impact to an organization including cultural differences.
To clarify - what works in one culture may not transfer well into another and vice-versa. The courses that are in short supply at most American schools are those that teach how to work in an International atmosphere where you have a multi-cultural team trying to solve a problem.
Not everything is numbers or getting solutions out of a chart. Some solutions require working in an international atmosphere where you have to understand AND respect people on the team that have a different culture. Most Americans fail to do that.
If anything, the realities of failure to adopt quality measures or anything else hinge more on not being able to communicate effectively in a multi-cultural environment where the first thing to
do is to insure good communications.
If you want to blame the schools, blame them on not teaching a global approach to problem-solving. With a global economy you have to teach a global perspective and understand that others have different cultural norms.
The first step in understanding - AND respectiing the others involved in the global economy - is to teach that there ARE differences. Maybe that should be added to what is required in Highschool?
I also believe there is too much emphasis on unemployment numbers when underemployment numbers have skyrocketed in the last 6-7 years. It is not being tracked and that number would be a much better indicator as to where the economy really is at.
The real acid test is whether or not people are spending money and based on retail merchants, the recovery hasn't started yet.
Sorry to being so wordy but let's get facts straight as to quality intitiatives.
Secret, roundabout, "deniable" discounts or concessions or favors to Asian and Arabian buyers?
",,, which could be potentially unstable."
And how.
reveigel wrote: "This report is confusing to me. Starts out saying recession is not over and provides much data to substantiate this. Then at the end says it is highly unlikely that the recovery will falter in the next few months. Am I missing something?"
That last statement was a quotation from someone else.
However the stock market is relatively cheap and where else you going to put money?
Buy the large caps that have not had their basic businesses changed by this crisis and benefit from the weaker dollar which is inevitable
Thank you for answering and responding to each others questions and comments - and doing so in a constructive and positive way. There were just a loose ends I would like to comment...
Alan - The CFNAI graphs they presented in 2007 were as they were presented above (no revisions). access to past reports www.chicagofed.org/eco... .
Alan - I do not try to reconcile what I am saying to ECRI. ECRI is the experts in forward indicators. i am really good at dissecting coincident indicators, and trying to project what i find into the future. ECRI and I are approaching the future on two separate paths. I have the greatest respect for ECRI. I am not trying to sell you my vision - an am trying to show you the CREDIBLE visions possible. If i were convinced ECRI's vision was wrong, I would not present their work. If we could really quantify the economy there would be only one vision.
Phil Trupp - "We can't continue to quantify an improperly perceived world. " the problem is less the economic tools, but the fools which use them. okay, there are issues with the economic tools. So you use them in a way to compensate for their weaknesses. accepting flawed data without due diligence is the problem. this is not 1990. if you really want to investigate an economic report, not only do you have access to the raw data - but you have access to a lot of analysis in and out of the mainstream.
James Carlini - I would like to add to your point. Education in American is a big problem. our methodology does produce the brightest minds, but does a terrible job for the average joe (this is why our average test scores keep dropping). The problem of not understanding global difference is pervasive - We typically believe the world wants what we want and acts like we act. I have spent my career adapting American methodology to offshore projects. And you are correct on your comments concerning Deming and quality control (I was educated as an Industrial Engineer). I would like to also point out that the way the Japanese have adapted Deming's work, makes several of their non-manufacturing sectors less efficient than their USA counterparts.
You have awesome ideas ... but ... So long as Obama and the Democrat are in charge of Washington DC, their approach will be the opposite of that. They are about to destroy healthcare innovation for the next generation *AND* tee us up for massive new taxes and the destruction of state budgets, all in one fell swoop.
So proposing doing that is a bit like trying to round up virgins in a whorehouse. It might be fun, but it's an exercise unlikely to succeed.
Why do writers seldom talk about what it would take to get this economy back on a healthy road? They have and they do - and there is nothing to add to what you wrote. You cannot keep saying the same thing week after week.
Most authors on seeking alpha have thrown in many suggestions for change - many are conflicting but that is what debate and forums are all about.
Go through my past articles and you will see methods for jobs creation, recommendations for changes in import regulations, etc (including a complete method for restructuring the federal reserve and banking system).
Every article has a purpose. the intent of this article was to review the indicators which were published this week, and try to put them into perspective.
I'm Old a few years ago Id think boy to be young again , lol this last year most a the time im glad im old id hate to have to try to rebuild my savings to have to last me another 15 or 20 years . Good luck to You folks that do .
Check out how many changes has been made to the CPI over the years. For instance, how can one measure the substitution effect, which is now a factor, to produce inflation numbers anyone would believe? All these "political changes" are screwing up what was once a great tool of measuring inflation. But changes also take place on the collection end of this data.
It's all way too complex for any reasonable person to collect. It's easy enough to collect data in a grocery. But try collecting price data from hospitals, repair shops, lawyers, and car dealerships, for example, and you run into a less than honest respondent on top of very complex data. Think about that real hard my gentle reader.
Add to this the way that government promotes people and you end up with management that wants everything perfect, but doesn't want to hear about how the data might not be correct. Do not ask and do not tell. Just like the teachers unions, they have to protect their secure income flow environment. And like our nation's policies, "leave it to the next generation to figure out."
Can not trust a damn thing anymore! Welcome to the new normal.
thanks for making my day. I, John Lounsbury, Edward Harrison and many others believe we are in a depression. I believe we have been there since 2000.
that does not mean the economy may not cycle up briefly, or that the bottom will fall out - but we are definitely in a period of very weak and scary fundamentals.
the real problem is that there is no good definition of a depression. i believe calling this a depression will put more pressure on the government to stop screwing around and focus on creating jobs.
Regrettably, we are only at the start of a long period, where the US & Global economy will break with the tradition of Boom/Bust economic cycles.
This is more of a cycle busting break with tradition, as 2 of the major economic drivers of the modern era are Peaking at the same time, Energy (Oil) & Population.
The Aging Population has been referred to here, but you should take great care to include the total effects on the economy, as even those who wait until 65 to retire, start changing their consumer habits some 5-10 years before retirement.
In addition, there will be many like myself(retired at 58), who may not be taken into account! Why retired? I could & I wanted to enjoy some time, before times got more difficult!
But, whilst the Aging of the Population will have many other major effects on Social Security & Health costs, the shrinking Population Growth, will also shrink consumer Demand, for many years.
That this Aging of the Population is ocurring at the same time that Oil Production Peaks is either an extremely unfortunate freak of chance or simply the dynamics of the final complex society? Take your pick?
That said, these two factors co-inciding will create a once in history set of circumstances, which will take an enormous amount of extraordinary planning and plain old good luck, if we are to avert circumstances from getting away from us!
On Oct 05 01:54 AM Steven Hansen wrote:
> 75 year old....
> thanks for making my day. I, John Lounsbury, Edward Harrison and
> many others believe we are in a depression. I believe we have been
> there since 2000.
>
> that does not mean the economy may not cycle up briefly, or that
> the bottom will fall out - but we are definitely in a period of very
> weak and scary fundamentals.
>
> the real problem is that there is no good definition of a depression.
> i believe calling this a depression will put more pressure on the
> government to stop screwing around and focus on creating jobs.
What the writers here lack is the know-how to get our leaders to listen and do the right thing. Until someone figures that out, it's all hot air.
On Oct 04 09:01 PM Steven Hansen wrote:
> reveigel@msn.com...
>
> Why do writers seldom talk about what it would take to get this economy
> back on a healthy road? They have and they do - and there is nothing
> to add to what you wrote. You cannot keep saying the same thing week
> after week.
>
> Most authors on seeking alpha have thrown in many suggestions for
> change - many are conflicting but that is what debate and forums
> are all about.
>
> Go through my past articles and you will see methods for jobs creation,
> recommendations for changes in import regulations, etc (including
> a complete method for restructuring the federal reserve and banking
> system).
>
> Every article has a purpose. the intent of this article was to review
> the indicators which were published this week, and try to put them
> into perspective.
I agree,Mr. Hansen, on your comment on Education.
The problem with public education is that they are still teaching the Three Rs when the skill sets needed for today's jobs are well beyond them.
There is a disconnect between what HS graduates walk out with and what is needed for new generation jobs. (We are past the Information Age and are now in what I call the Mobile Internet Age)
FACT-based education is needed where the skill sets focused on are Flexibility, Adaptability, Creativity and Technology skills.
Manufacturing has experienced year over year shrinkage, which means it has, and continues, to be in a depression. A completely ignored, overlooked and/or covered up, depressionary spiral.
As to our savings rates and plugging money into the 401k as recovery occurs, good luck with that. Healthcare alone is going to suck close to 10% of our "income" to WDC for forced insurance, then if only 1 of the other pending spending plans is passed, we can kiss another 10-20% goodbye. Now realize that prices will have to rise as business cannot compete with the third world and pay for a bunch of new Congressional mandates.
Recovery is a crock, especially considering that things are just getting worse in WDC, no improvements on the horizon.
On Oct 03 10:49 AM CautiousInvestor wrote:
> Edward Harrison published an article earlier this week and in it
> there was an interesting paragraph that bears repeating:
>
> “Recessions are typically characterized by inventory cycles – 80%
> of the decline in GDP is typically due to the de-stocking in the
> manufacturing sector. Traditional policy stimulus almost always works
> to absorb the excess by stimulating domestic demand. Depressions
> often are marked by balance sheet compression and deleveraging: debt
> elimination, asset liquidation and rising savings rates. When the
> credit expansion reaches bubble proportions, the distance to the
> mean is longer and deeper. Unfortunately, as our former investment
> strategist Bob Farrell’s Rule #3 points out, excesses in one direction
> lead to excesses in the opposite direction.”
>
> With the above in mind, and as a working thesis, we might want to
> weigh economic measures according to the type of economic contraction
> underway; during traditional recessions we would weigh measures of
> manufacturing most heavily while during depressions we would pay
> more attention to debt, balance sheets and saving habits. All recessions
> are not equal in nature and if we have the ability to discern meaningful
> differences perhaps then a case can be made for measuring and evaluating
> them differently.
>
> If we take this approach and focus upon money supply, balance sheets,
> savings and price changes we quickly realize we are still mired in
> a financial crisis with highly deflationary tendencies. The notes
> that follow have been collected from a variety of sources and all
> suggest contracting final demand, contracting credit and expanding
> savings; a robust recovery is simply not in the cards and it’s easy
> to think Japan. Remember job creation following the early 2000 recession
> was half of that of the two prior recoveries; we easily find ourselves
> amid a jobless recovery in which the new normal is 9% to 10% unemployment.
>
>
> Professor Tim Congdon from International Monetary Research said US
> bank loans have fallen at an annual pace of almost 14pc in the three
> months to August (from $7,147bn to $6,886bn). "There has been nothing
> like this in the USA since the 1930s," he said. "The rapid destruction
> of money balances is madness." The M3 "broad" money supply, watched
> as an early warning signal for the economy a year or so later, has
> been falling at a 5pc annual rate.
>
> The US Federal Reserve recently published their comprehensive flow
> of funds data for the US. This showed that the household sector continued
> to pay down debt for the fourth consecutive quarter. Corporates also
> started to pay down debt sharply in Q2 at a similar $200bn pace.
> The non-financial private sector paid down debt at a $435bn pace
> in Q2. This compares to a $2,116bn pace of expansion in 2007 (see
> chart below). Add to that the financial sector unwind and the total
> private sector is unwinding debt faster than the government is able
> to pile it up (hence the red line is still negative)! The lesson
> from the balance sheet recession in Japan is that the massive private
> sector headwind to growth has a long, long way to run
>
> AP writes:
> As in the 1980s, much of that shift will be driven by baby boomers.
> For the 78 million people born from 1946 through 1964, the Great
> Recession hit at a particularly inopportune time – during peak years
> of earning and saving before retirement. Boomers range from 44 to
> 63 today – the youngest is nearly 10 years older than the oldest
> was in 1982. They are running out of time and are most likely to
> remain cautious spenders and become aggressive savers even as the
> economy improves.
> The housing bubble mistakenly led boomers and millions of others
> to believe their home was their retirement nest egg. If they left
> their home equity alone during the boom, they've taken a hit the
> last couple years but are still ahead. But many treated their home
> like a personal bank and spent the gains by tapping a home equity
> line of credit.
>
> Alix Partners finds:
> While American industry is struggling to get through what could become
> the worst recession since the Great Depression, Americans say that
> even after the recession ends, their spending will return to just
> 86% of pre-recession levels, which would take a trillion dollars
> per year out of the U.S. economy for years to come. According to
> this in-depth survey of more than 5,000 people, Americans plan to
> save (and therefore not spend) an astounding 14% of their total earnings
> post-recession, with the replenishment of their 401(k) and other
> retirement savings leading the way among their biggest long-term
> concern.
>
> As Huffington Post notes:
> "There will be a fundamental shift in the kind of cars we buy, a
> fundamental shift in the homes we buy, and a fundamental shift in
> consumption generally," says Matt Murray, an economist at the University
> of Tennessee. "And that is not something that took place in the 1980s."
Government focus on creating jobs? I suppose it could happen. In an alternate universe where theft = production.