Steven Hansen's  Instablog

When Fed Chairman Ben Bernanke speaks, I listen. The Federal Reserve oversees the American economy, and it is insightful on how the Fed views our economic conditions.

It’s popular to pick a letter of the alphabet to describe the likely course of the economy. The letter I would choose doesn’t exist in our alphabet, but if I were to describe it, it would look something like an “L” with a gradual upward tilt of the base. With such a slow rebound, unemployment could well stay high for several years to come. In other words, our recovery is likely to feel like something well short of good times. - San Francisco Fed President Janet Yellen 10 November 2009

I am enjoying the last week of my holiday aboard Princess Cruises Tahitian Princess where I have been lecturing. This past week while in India, I was able to spend a day with UTVi / Bloomberg kicking around economic conditions. Also, I am surrounded by former heads of industry who can now have the time to take a month for a holiday.

I am truly on a bus driver's holiday. Hat tip to Princess Cruises for the internet time required for research and posting articles.

This was a slow week for economic releases.

Retail Sales Comparison to Past Recessions

With a hat tip to The Big Picture, a simple graphic was presented which puts into perspective the Great Recession retail sales compared to the recessions of 1973, 1980, 1990, and 2001.

The coincident economic data definitely is indicating the recession is over – the economy is no longer contracting. On the other hand - as the American economy is driven by retail sales, there is no evidence of real expansion yet.

Jobs are the Key to Recovery

The slow road to economic expansion is still running through employment which is acting as the barometer of economic health. Painfully slowly, the quantity of initial unemployment claims reduces week by week.

The rate of initial unemployment claims when adjusted for population differences shows the Great Recession's initial unemployment claims were fairly mild when compared to the recessions of the 70's and 80's.

The problem is not the amount of people who have lost their jobs, but the inability of the economy to replace the lost jobs. The chart below which has been kicking around the internet for some time shows the obvious – America has added no jobs for the last 10 years. This is an unbelievable statistic for a country which considers itself a world economic power.

The above graph is a 10 year moving average of jobs growth in America. We are in a negative job's growth cycle over the last 10 years while the population has grown 10%.

The sad reality is that most of those losing a job right now do not have a big chance of finding another. And I will ignore the current 10.2% headline unemployment rate, which is an affront to my intelligence.

This week the Conference Board released their Employment Trends Index (ETI) for October 2009. This index aggregates 8 labor related indices.

Historically, the ETI is an imperfect leading indicator for non-farm employment – once the ETI changes direction so does non-farm payroll several months later. Gad Levanon, Senior Economist at The Conference Board said:

The Employment Trends Index has likely turned a corner in September, and the historical relationship between the index and employment suggests that job losses will end in early 2010. While layoffs have certainly declined in recent months, we still expect to see employers adding hours to their existing workforce before hiring will strongly increase.

Even if The Conference Board's ETI is correct, we are so deep in the hole right now in terms of job-growth that employment issues are finally gaining political center-stage.

Obama now wants to have a jobs summit in December as jobs are a problem..... duh. The Fed has been unable to create jobs for the last 10 years. Economists recommendations from the left and the right have a similar track record.

I have had the opportunity to kick around solutions using the former captains of industry who are on the Tahitian Princess. Here are our solutions:

The policy decisions of the USA government run contrary to the recommendations. I expect the government to put forth a set of stimulus packages to create jobs in green industries. If it is good for the environment, it must be good for the economy.

The road to hell is paved with good intentions.

Additional Economic Data this Week

The trade balance worsened in September 2009 with half of the widening gap due to crude oil. Both exports and imports expanded on a wide basis.

The Exim price index for October 2009 continued its trend towards YoY price increases. This BLS index tracks export and import prices, and until mid-2009 have been contracting YoY.

The Department of the Treasury released their monthly statement for the period ending October 2009.

The weekly Mortgage Bankers Association mortgage application data continues to show a downward trend in new mortgage applications and further declined from last week's lowest level since April 2009. And, just to demonstrate the effect of the government and the Fed's interference in the mortgage market, the 30 year fixed mortgage rate decreased 7 basis points to 4.90% while the 30 year treasury sits at 4.4%.

This decline in new mortgage originations is significant and will reflect in home sales volumes in 4Q2009.

Bankruptcies this week: Advanta, Teton Energy, Temecula Valley Bancorp, NutraCea, Altus Pharmaceuticals

Failed Banks This Week:

Economic Forecasts Published this Past Week

The Economic Cycle Research Institute (ECRI) released their Weekly Leading Index which slipped to a short term low. Lakshman Achuthan, Managing Director at ECRI added:

For four straight weeks WLI growth has eased from a record high, but still remains consistent with a further near-term acceleration in U.S. economic growth

Hat tip to Steve at MEMETICS & MARKETING™ for editing support.

Data are what they are. I do not cherry-pick economic releases – I try to analyze all released reports that were issued during the week.

The September 2009 Chicago Fed National Activity Index (three month average) rose again last month but remains below the historical marker which confirms a recession is over. In my opinion, this is the best indicator in economics land.

I came across a definition this week from Bank of Tokyo Mitsubishi concerning recovery.

Pick the correct answer from the list of true facts: