John Lounsbury

Deflation Looms and Doubts About Growth

Gary and Robert - - -

Mike Shedlock has a very complete discussion of inflation and deflation and his view of where we are headed at Mish globaleconomicanalysis...

Deflation Looms and Doubts About Growth

Gary - - -

Amend my statement above to read -

"The flip to inflation now appears to me to be 12-18 months out at the earliest, assuming there is no double dip in the recovery,WHICH WOULD DELAY INFLATION."

Caps provided to highlight change.

Deflation Looms and Doubts About Growth

Gary - - -

I used to think (up to about six months ago) that the switch could be flipped to inflation at any time. It now seems more remote (in time) to me. The depth of credit contraction still seems to be accelerating. The flip to inflation now appears to me to be 12-18 months out at the earliest, assuming there is no double dip in the recovery. My expectations will be wrong if the recovery is booming as some very astute observers are anticipating (like Jim Grant and ECRI). I just haven't signed up for that scenario.

There are some areas where all the liquidity is creating inflation already, namely is commodities and stocks. This is produced in part by the falling dollar. If the dollar were to fall another 10% in the coming year as it has in the past months, that could put a floor under deflation we are seeing in things as home prices. If wages remain constant and unemployment tops out, then the next 10% decline in home values could occur at constant prices.

I know some very knowledgeable people who believe that the velocity data is hokum. (I'm not one of them.) They are among the imminent inflation proclaimers.

BTW, inflation was a constant fear in the 1930s, but the deflation pressures were not overcome until the 30s were over. Now we have a Fed chairman who is convinced that he will not let deflation win. If and when he succeeds, we will have inflation. The liquidity spigot will not be shut off at exactly the right moment. Bernancke will err in leaving it open too long, if everything he has said over the years is to be believed. We won't know how long is necessary until well after the fact.

So there is inflation fear because it is likley to happy sometime. That is why there is a steep yield curve. But the lower end (the next few years) is predicting an very low inflation rate.

In real estate, its all about location, location, location. With inflation and deflation, its all about timing, timing, timing. The location choice is much easier to discern.


On Nov 10 02:32 PM Gary A wrote:

> Hey John, the newest stats show the multiplier is still decreasing.
> So, why is there an inflation fear and why is the dollar falling
> in value John? research.stlouisfed.or...

Breaking News: Chinese Real Estate Crash

tripleback - - -

Well, it was news to me. You guys could have clued me in.


On Nov 09 11:38 PM John Lounsbury wrote:

> Mark Anthony - - -
>
> I guess it is a long grape vine from China.

Breaking News: Chinese Real Estate Crash

Mark Anthony - - -

I guess it is a long grape vine from China.


On Nov 09 07:14 PM Mark Anthony wrote:

> Ha so that's breaking news in MISH's time scale? That actually happened
> 3 or 4 months ago. If 3 months old news is breaking news, I don't
> know what you call news that just happened an hour ago.

The Hindenburg Omen (Extended)

Commenters - - -

I will post another extension Instablog if this comment stream goes over 50 to make things more user friendly unless readers post objections to that.

Glimmers of Hope for Employment

Maya - - -

I have some data that I'll try to get out this week, but it is very macro. I don't think I have anything that will isolate pay cuts demographically. I'll stay alert for that.

Glimmers of Hope for Employment

I am hoping to find time this week to do a series of analyses on unemployment. I hadn't considered discussion of demographics, but maybe I can get to it. I think the bottom line is that college graduate professionals are not having much of a recession, on average, and the less educated and blue collar people are having a depression.


On Nov 09 11:27 AM tripleblack wrote:

> John, I really could not make out what is going on with that analysis
> by Nathan. 4.3% average for men with college degrees aged 22-44 (sic,
> working from memory here)?
>
> This is more like a bright light chatching me unawares than a glimmer.
>
>
> Can you expand on the theme for us?

Home Purchase Tax Credit Extended: Is This Wise?

smalltownbanker - - -

You wrote:

"The tax credit may in some cases increase the buyers willingness to bid but I have seen no cases where it has led them to bid up a price and I do mortgages for a living. My market is primarily move up buyers and lots of them are coming our way now since the credit has led to the sale of their previous residence."

Nice to have a comment from someone who is involved in the home sale process. Your market may not be typical of what I was discussing in that the you are dealing with the folks that sold their homes to first time home buyers rather than the people actually getting the tax credit.

I attempted to cover the situation you discussed regarding a seller with equity recovered from the sale in the second comment I made following the article.

If you have any other thoughts, I would welcome them.

Deconstructing Unemployment

Mark - - -

You should run a caption contest. My entry would be:

"Nice wolfie - didn't we just bail you out?"

Economic Recovery Continues to Stall

bbro - - -

You correctly quote the sector payroll loss numbers but the rest of your comment about employment is misleading. The employment loss in the past three months is 1.766 million. The number of non-farm payroll jobs lost in the past three months is 591 thousand. Almost 1.2 million jobs have been lost among the self-employed, 1099 sub-contractors, and full and part-timers working at the margins of the economy. Here are the numbers from the DOL, with the data series IDs:

Total employment (LNS12000000):
Oct 2008 144,657,000
Jul 2009 140,041,000
Aug 2009 139,649,000
Sep 2009 138,864,000
Oct 2009 138,275,000

Employment loss Oct 2008 to Oct 2009 = 6,4000,000
Employment loss for last 3 months = 1,766,000

Non-farms payroll (CES0000000001)

Oct 2008 136,352,000
Jul 2009 131,439,000
Aug 2009 131,223,000
Sep 2009 131,038,000
Oct 2009 130,848,000

Non-farm payroll loss Oct 2008 to Oct 2009 = 5,504,000
Non-farm payroll loss last three months = 591,000

You are correct that only 10% of the payroll losses of the past year have occurred in the most recent three months. But non-payroll job loss has accelerated. There is more uncertainty in the total employment number than in the non-farm payroll number, which I have discussed in another comment (John Mauldin's article today seekingalpha.com/artic... ). However, the differences between the non-farm payroll numbers and the total employment numbers are much larger than the uncertainties involved.

If you look at all the data I suggest that you will be less optimistic.

BTW, I do see some reasons to look for better employment numbers in 2010, as will be published in an article scheduled to be published at TheStreet.com tomorrow. (See comment above replying to lower98th for title.)

On Nov 08 05:00 AM bbro wrote:

> A very impressive analysis but It seems you have a pre ordained view
>
> of the first ...that the economy is weak. I see many things in the
> numbers that portend better times. here is one:
> We have lost 5.5 million jobs in the last
> year of which the last three months we have lost 576,000.In other
> words
> the last three months (25% of the time) has constituted only 10%
> of the payroll jobs lost.If you look
> at Table B-1 of the Establishment Data the the job losses in the
> last
> three months are concentrated in basically four industries Construction,Durable
> Goods,Retail Trade,Leisure and Hospitality.These
> industries make up 31% of the workforce but now constitute 86% of
> the joblosses in the last three
> months.In other words 69% of the workforce is now experiencing virtually
> no job loss in the last three months.
> There are many...here is another one Did you know the inventory to
> sales ratio is distorted due to the drop in gas prices over the last
> year a non petroleum based inventory to sales ratio shows much<br/>leaner
> inventories to sales.....
>
> Another is the increase in temporary help services....a leading<br/>indi...
> for future job growth...there are many more....

Economic Recovery Continues to Stall

lower98th - - -

I don't think the repatriated undocumented worker will be counted in the "not in the labor force" number. That is determined from the household survey. In order to be counted, someone has to answer a telephone (land line I believe). So, if someone has left the country they can not report that they are no longer looking for work. Someone who is "not in the labor force" is someone who:

1. Is in the 16-65 age group.
2. Is not employed.
3. Is not disabled.
4. Does not declare themselves to be temporarily laid off.
5. Has not looked for work in the past four weeks.

The decline in the labor force in this recession is unprecedented since the end of the Great Depression. It is related to the historic high percentage of jobs terminated that employers say will never be refilled. That is at 56% right now and has never been as high as 45% previously.

I have written about these unprecedented problems in several articles here at SA and at TheStreet.com. We are in a deeper hole than bbro is recognizing.

By the way, I am not blind to possible bright spots. I have an article scheduled to be published tomorrow morning at TheStreet.com, entitled "Glimmers of Hope for Employment" (unless the editors change the title).

On Nov 08 12:54 PM lower98th wrote:

> John, regarding:
>
> "Normally, the labor force ......If the labor force had remained
> unchanged over the last twelve months, the U-3 unemployment rate
> would now be 11% (not the 10.2% reported). If the labor force had
> grown by the normal 1% over the past year, the unemployment rate
> would now be 11.9%."
>
> What are the primary components of the reduction of the labor force?
> Are undocumented worker repatriations adequately represented? What
> else?

Consumer Credit Down - But Does It Show Deleveraging?

How do credit defaults affect outstanding credit? It seems to me that they should reduce it. If that is the case, then no change in Household debt levels means that defaults are being offset by others adding more debt.

We are, therefore, deleveraging very selectively, through credit defaults. It is tough to get ahead when the "savings rate" is substantially composed of credit defaults.

The Glide Path Option

I should have concluded my previous comment with the following statement:

It is highly probable that significantly more jobs were lost in October from employment that is not included in the payroll category than from non-farms payroll jobs.

The Glide Path Option

Alpha - - -

You make very good points.

Your last comment (almost an aside) doesn't recognize that there are two unemployment numbers. Non-farm payrolls lost 190,000. Total employment lost 558,000. There are two reasons for this difference:

1. Some employment is not payroll employment. All self-employed are not included. All 1099 sub-contractors are not included. Some very small businesses, particularly those that are nominally sole proprietorships that sometimes hire full- or part-time help are not included.

2. There are big differences in the measurement error uncertainties. The non-farm payroll numbers are determined from the establishment survey and have an uncertainty of about +/- 100,000. The total employment numbers are from the household survey and have an uncertainty greater than +/- 300,000. This means the non-farm payroll loss was somewhere between 90,000 and 290,000. The total employment loss was somewhere between 250,000 and 890,000 (using +/- 310,000). There is a small overlap of the two uncertainty bands. Any statistician will tell you that, in spite of the overlap, the two numbers are significantly different. That difference is accounted for by the jobs that were lost that were not payroll jobs. However, because of the data uncertainty intervals, it is not appropriate to say that 368,000 "non-payroll" jobs were lost. It could have been 400,000, 300,000 or 200,000. There is even a very small probability that no "non-payroll" jobs were lost.

It is highly likely that more jobs were lost in October that were not from payrolls than were from the non-farms payrolls. There is uncertainty just what the approximate number was.


On Nov 08 10:01 AM Alphameister wrote:

> A superb overview of our troubling situation, John, and the painful
> choices before us. I agree with you that we seem to be following
> the Japanese in our approach to resolving the problems resulting
> from the bursting of economic bubbles.
>
> I agree with you that we are likely to get a value-added tax here,
> but I can't imagine it being accompanied by a reduction in business
> taxes generally that would more than offset the negative effects
> of the VAT on our global competitiveness. More likely, companies
> will shift even more of their operations oversees, leading presumably
> to new restraints on their ability to do so.
>
> With a younger generation that has a sense of entitlement increasingly
> divorced from any commitment to excellence of performance, I cannot
> imagine them accepting graciously the burdens foisted upon them by
> older profligate generations.
>
> (In your first paragraph about unemployment, I believe you intended
> to say that employment was reported down by 190,000 instead of unemployment
> being down by that amount.)