Financial News Around The World

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2010-02-07T02:28:00.001-08:00

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Oligopolistic Banking System and Compensation

2010-01-19T05:16:00.000-08:00

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At this stage, most of us are familiar with the idea that compensation within the financial services industry has grown much faster than compensation outside the system. As can be seen below, this trend has largely gone uninterrupted throughout the crisis.

And while this level of compensation remains exorbitantly high across all of financial services, the lack of competition among the largest banks has caused compensation within the industry to become even more concentrated.

Before specifically detailing those firms, lets go to Wall Street Pit:

The Journal reported that based on its analysis — which includes banking giants J.P. Morgan, Bank of America and Citigroup, securities firms such as Goldman Sachs and Morgan Stanley, and exchange operators CME Group Inc. and NYSE Euronext Inc. — executives, traders and money managers at 38 top financial firms can expect to earn nearly 18% more than they did last year, and slightly more than they did in the record year of 2007.

While 18% seems like a massive jump (it is) from a level that was already too high (in my opinion), it ignores the broader issue of what has resulted from a government (i.e. taxpayer) guarantee on the downside risks of those banks deemed too big to fail... a MASSIVE increase in compensation (the joys of a "too big to fail" title for the select few).

The chart below details the compensation for all of those 38 firms, grouped here by JP Morgan, Morgan Stanley, Goldman Sachs, Bank of America, Citigroup, and "Other" (all others). BUT, slice off Citi and "other" and we can see that the remaining four make up more than 100% of that 18% jump (let it be known that the data below is not an apples to apples comparison - as Felix points out these charts don't account for the fact that JP Morgan and Bank of America have swallowed up smaller counterparts).

That said, my point is that the increase in compensation (and risk) is now concentrated among only these top banks. Bonuses at these "big four" banks are up a whopping 25% since 2007 (all other firms are down 18% since that time) and 40% since 2006 (whereas all other firms are down 2%).

For all the talk and supposed intervention, nothing has changed (actually, with these banks even more "too big too fail", things may actually be worse).

Source: WSJ / BLS

Jake 19 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/oligopolistic-banking-system-and.html
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J-E-T-S Jets Jets Jets

2010-01-17T18:10:00.000-08:00

In response to my post Sanchez Leads J-E-T-S Past Bengals Eric Hirschberg (a statistician) commented:

I had to laugh at a histogram with a sample size of 4 and a data range from 1 to 2! This is data that really doesn't benefit from graphic visualization. :)

Agreed.... BUT, my response:

Eric- what are you talking about... the chart is beautiful! (kidding).

That won't stop me from updating it with every J-E-T-S win.

And after an INSANE win (Chargers are [were?] the best team in the league in my opinion), here is the update....

J-E-T-S Jets Jets Jets!

Jake 18 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/j-e-t-s-jets-jets-jets_17.html
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J-E-T-S Jets Jets Jets

2010-01-17T18:06:00.000-08:00

In response to my post Sanchez Leads J-E-T-S Past Bengals Eric Hirschberg (statistician commented):

I had to laugh at a histogram with a sample size of 4 and a data range from 1 to 2! This is data that really doesn't benefit from graphic visualization. :)

My response:

Eric- what are you talking about... the chart is beautiful! (kidding).

That won't stop me from updating it with every J-E-T-S win.

And here is the update....

J-E-T-S Jets Jets Jets!

Jake 18 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/j-e-t-s-jets-jets-jets_17.html
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EconomPics of the Week (J-E-T-S Division Playoff Edition)

2010-01-15T14:00:00.000-08:00

Opinion / Analysis / Random
Pub Power Equity Signal Turns Negative
Becoming French?
The "Recession Generation"
Sanchez Leads J-E-T-S Past Bengals

Digger Deeper
An Alternative Unemployment Rate.... at 11.7%
Is 16-19 Year Old Unemployment at 37.1%?
Inflation is Not an Issue...
On the Retail Inventory "Bounce"
Breaking Down Wholesale Inventories
Production Continues to Recover

Economic Data
Unemployment to Job Opening Ratio Jumps Again
Consumer Deleveraging Continues
Retail Sales Disappoint
Is Australia in Full Recovery Mode?
U.S. Treasury Deficit More than 10% of GDP

And for your video of the week... I'd like to introduce you all to Bruce "B" Manley and his trick basketball shots. After my first viewing I believed this was as real as the [insert corny economics joke here], but apparently it is.

Jake 15 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/econompics-of-week-j-e-t-s-division.html
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Production Continues to Recover

2010-01-15T08:03:00.000-08:00

Marketwatch details:

Colder-than-usual weather contributed to the gain in December, with utility production rising a seasonally adjusted 5.9%. The output of factories dropped 0.1% in November after a 0.9% gain in November, repeating the see-saw pattern of the past four months. Output of mines rose 0.2%. Read our complete economic calendar and consensus forecast.
For all of 2009, output plunged 9.7%, the steepest yearly decline since output fell 13.7% in 1946. Output fell at a 12.5% annual pace in the first half of the year, then rose at a 9.6% annual pace in the final six months of the year. Since the recession began two years ago, industrial output dropped 10.8%. Manufacturing output fell 13.2% since the recession began.
In December, capacity utilization in industry rose to 72% from 71.5%. It's the highest in a year. For manufacturing, capacity utilization rose to 68.6% from 68.5%, also the highest since December 2008. The utilization rate in the factory sector -- a measure of slack in the economy -- is 11 percentage points below the long-term average, showing very weak inflationary pressures.

And the relationship between capacity and inflation remains strong.

Source: Federal Reserve

Jake 15 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/production-continues-to-recover.html
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Pub Power Equity Signal Turns Negative

2010-01-15T06:18:00.000-08:00

Time to revisit a catchy, data-mined, equity buy signal (with a decent explanation) that was first detailed at EconomPic back in September... the "Pub Power" equity buy signal.

What is the Pub Power signal? As detailed back then:

It is the relative strength of 'food establishment and drinking places' sales vs. grocery sales (as expressed in year over year terms). The relevance? Well, the data seems to suggest that "Pub Power" = Strength in the Dow, one year forward.

The thought was that the relative strength (i.e. demand) of restaurants relative to cooking at home shows the following characteristics:

Consumer confidence
Exuberance
Spending power
Wealth

Or something like that...

On the other hand, when times are tough, individuals are more likely to eat at home, causing year over year sales at pubs to decline relative to grocery stores. At the time the signal pointed to a further run in the Dow and here we are 10% later.

So lets take a look at what the signal is telling us now...

Beware all of you equity investors out there... the Pub Power signal has turned negative.

Why does this matter?

Well, mining the data a bit further, from December 1993 through December 2008 (the last period in which we have one year forward data on the Dow) the Dow has returned an average of -9.8% one year forward when the "Pub Power" was negative and 10.8% when the signal was positive.

Source: Census

Jake 15 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/pub-power-equity-signal-turns-negative.html
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Inflation is Not an Issue...

2010-01-15T05:50:00.000-08:00

Bloomberg details:

The consumer-price index rose 0.1 percent, less than forecast, following a 0.4 percent gain in November, Labor Department figures showed today in Washington. Excluding food and energy costs, the so-called core index also increased 0.1 percent.

Companies may have little success raising prices with unemployment projected to average 10 percent this year, the highest annual rate in seven decades. Federal Reserve policy makers have said they expect "subdued" inflation in coming months, allowing them to keep interest rates close to zero to help fuel growth.

"Consumer pricing pressures remain very subdued," said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit, who accurately forecast the rise in the core rate. "It gives the Fed further leeway to continue keeping rates where they are well through 2010."

Looking at the details, inflation is concentrated in transportation (energy). Until pricing power moves into other areas (and labor), the Fed should have no concerns over keeping rates as low as they are.

Source: BLS

Jake 15 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/inflation-is-not-issue.html
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On the Retail Inventory "Bounce"

2010-01-14T07:41:00.000-08:00

Reuters reports on the "surprise":

U.S. business inventories rose more than expected in November, according to a government report on Thursday, supporting views of a pick-up in the economic growth pace during the fourth quarter.

The Commerce Department said inventories increased 0.4 percent after gaining 0.4 percent in October, previously reported as a 0.2 percent rise.

Economists polled by Reuters had expected a 0.2 percent rise in November. The rebuilding of inventories following a period of aggressive liquidation is among the factors expected to drive the economy's growth as it recovers from the most severe downturn since the 1930s.

As can be seen below, the "rebuild" was driven completely by wholesale trade.

And as EconomPic readers know, the build in wholesale was completely built by farm products (which was not "real" growth, but instead a reflection of the spike in the price of corn and hogs).

Does anyone do actual research anymore?

Source: Census

Jake 14 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/on-retail-inventory-bounce.html
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Retail Sales Disappoint

2010-01-14T06:06:00.000-08:00

WSJ reports:

U.S. retail sales fell in December unexpectedly, signaling restraint by consumers during the holidays as the economy wrestles with high unemployment.
Retail sales declined 0.3%, the Commerce Department said Thursday. Economists surveyed by Dow Jones Newswires forecast a 0.5% increase. November sales, however, were adjusted upward, to a 1.8% increase from a previously reported 1.3% gain. October sales also rose strongly, up 1.2%.
Excluding the car sector, all other retail sales in December fell 0.2%. Economists expected a 0.3% increase. The numbers were a disappointment for the economic recovery. The retail sales data are an important indicator of consumer spending. Consumer spending makes up 70% of GDP, which is the broad measure of U.S. economic activity. Thursday's report suggests high joblessness is restraining consumers and will mute the recovery.

Forget about the overall total and look at the details. Driving more than half the contribution was an increase in the sale of gasoline (driven by the jump in the price of gasoline).

Source: Census

Jake 14 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/retail-sales-disappoint.html
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Australia in Full Recovery Mode

2010-01-13T19:30:00.000-08:00

The Australian details:

Australia's unemployment rate fell to a seasonally adjusted 5.5 per cent in December from 5.6 per cent in November.

Total employment rose by 35,200 to 10,906 million in December, the Australian Bureau of Statistics said.

Economists on average had expected an unemployment rate of 5.8 per cent in December, with the number of employed up 10,000.

The number of people in full-time work rose 7300 to 7.64 million in December, from 7.63m, while the number of people in part-time work rose 27,900 to 3.27m from 3.24m.

A commodity driven economy that has a close proximity to the world's fastest growing / largest commodity importing economy (China) is a beautiful thing...

Source: ABS

Jake 14 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/australia-in-full-recovery-mode.html
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U.S. Treasury Deficit More than 10% of GDP

2010-01-13T13:48:00.000-08:00

Bloomberg details:

The U.S. registered its largest December budget deficit on record as higher unemployment reduced revenue and the government spent money to help the economy recover.
The excess of spending over revenue rose to $91.9 billion last month, compared with a deficit of $51.8 billion in December 2008, the Treasury Department announced today in Washington in its monthly budget statement. The U.S. has posted a record 15 straight monthly deficits.
The December figure caps a calendar year in which the deficit widened to an all-time high, featuring unprecedented government spending to help engineer an economic recovery. The deepest recession in seven decades also resulted in the worst year for tax collections since 2004, according to calculations by Bloomberg News, as companies suffered and more Americans were shuffled to the unemployment line.

Please note that Q4 '09 GDP is estimated at 4% annualized.

Source: Treasury / BEA

Jake 13 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/us-treasury-deficit-more-than-10-of-gdp.html
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Becoming French?

2010-01-13T05:18:00.000-08:00

Due to the number of hours worked per person collapsing at a much faster rate than real GDP, GDP per hour worked has actually been soaring.

Work less, be more productive, and use that free time to be with your family.

While not necessarily done by choice, after reading Paul Krugman's July 2005 article titled 'French Family Values', I'm wondering if we're slowly becoming (or should become) French?

Source: BLS / BEA

Jake 13 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/becoming-french.html
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Is 16-19 Year Old Unemployment at 37.1%?

2010-01-12T12:21:00.000-08:00

In response to my post on 16-19 year old unemployment, reader MichaelGER asked:

Why not do an EconomPic unemployment rate sugestion for this figure? Might look
ugly...

He is "of course" referring to the EconomPic method (a method that accounts for the huge swings in the participation rate) of calculating unemployment. Here it is...

Nothing to add.....

Source: BLS

Jake 12 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/is-16-19-year-old-unemployment-at-371.html
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Unemployment to Job Opening Ratio Jumps Again

2010-01-12T11:20:00.000-08:00

BusinessWeek details:

Job openings in the U.S. fell in November to the lowest level in four months, a
sign employers are reluctant to expand staff even as payroll reductions waned from earlier last year.
Openings declined by 156,000 to 2.42 million, the second- lowest level since records began in 2000, the Labor Department said today in Washington. The number of unfilled positions was down 50 percent since peaking in June 2007.
"It confirms the suspicion that most of the improvement in non-farm payroll employment has been due to reduced firing and not renewed hiring," said Zach Pandl, an economist at Nomura Securities International Inc. in New York. "This is the last shoe to drop for the recovery in the labor market and we're still waiting."

Source: BLS

Jake 12 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/unemployment-to-job-opening-ratio-jumps.html
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The "Recession Generation"

2010-01-12T05:18:00.000-08:00

Newsweek details:

We all know the type of person who came of age in the Great Depression. They are the grandmothers and grandfathers who can't use a tea bag too many times, yet are enjoying comfortable retirements in warm climates. And we know what the children of the 1950s are all about. They are the optimistic boomers who embodied an age of continual upward mobility and possibility. They have often spent more than they earned, because for them it has been a truism that times can only get better. It's no accident that the psychology of entire generations is shaped by the milieu in which they grew up; economic research tells us that our lifelong behaviors are determined in large part by the seismic events—good or bad—of our youth.

So, given that we have just experienced the worst economic period in 70 years, it's no surprise that people have begun to wonder what sort of consumers, investors, and citizens will be bred by the Great Recession. Will there be, in effect, a "Generation Recession" of young people whose behaviors will be permanently shaped by the downturn?

The below chart details one struggle that this "Recession Generation" is facing... employment.

This is not necessarily a surprise as there really weren't many jobs opening up when this generation was entering the workforce (20+ year olds were the one's losing jobs, this generation never got them), but 27%!?!?!

And this is an artificially reduced rate as a participation has plunged.

Source: BLS

Jake 12 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/recession-generation.html
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An Alternative Unemployment Rate.... at 11.7%

2010-01-11T06:36:00.000-08:00

The labor force has declined at the fastest pace over the last 12 months in more than 50 years.

Which causes the unemployment rate to skew too low as the labor force is the denominator in the unemployment rate.

Lets solve this problem shall we?

The chart below shows the labor participation rate and the rolling five year average of that rate. The key takeaway is that over the past 60 years there has been a huge secular shift as woman entered the workforce (more on that from Calculated Risk here), which effectively ended the "norm" of a single worker household.

As is typical with long term trends, this datapoint appears to have overshot to the upside and is now rolling over (individuals may have entered the workforce at some point that never planned to work because the economy was so good). As such, a more "fair" methodology (in my opinion) is to use the five year average participation rate to account for these ebbs and flows. This also alleviates the issue of believing that 1.8 million people "chose" to leave the work force over the past 6 months (yes, that is what the BLS methodology indicates).

EconomPic Unemployment Rate

Denominator: The methodology for the denominator (based on my logic detailed above) is to use the five year rolling participation rate multiplied by the civilian institutional population (i.e. those that can work) to determine the labor force.

Numerator: The EconomPic methodology is to use the number of employed rather than unemployed (some of those not in the labor force are not countered as unemployed). As a result, the initial equation = the "employed rate". Taking 1 less this employed rate gets us to the unemployed rate.

The result:

Unemployment is reduced at each "low" prior to the low of the late 90's and most recent 2007 period (both of these closely tie) and roughly matches each "peak". That is until the most recent period, indicating that something is just not right.

Whereas the "official" unemployment rate is 10% flat, the EconomPic unemployment rate is 11.7%.

Source: BLS

Jake 11 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/alternative-unemployment-rate.html
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An Alternative Unemployment Rate

2010-01-11T06:31:00.000-08:00

The labor force has declined at the fastest pace over the last 12 months in more than 50 years.

Which causes the unemployment rate to skew too low as the labor force is the denominator in the unemployment rate.

Lets solve this problem shall we?

The chart below shows the labor participation rate and the rolling five year average of that rate. The key takeaway is that over the past 60 years there has been a huge secular shift as woman entered the workforce (more on that from Calculated Risk here), which effectively ended the "norm" of a single worker household.

As is typically the case in long term trends, this datapoint appears to have overshot to the upside and is now rolling over (individuals may have entered the workforce at some point that never planned to work because the economy was so good). As such, a more "fair" methodology (in my opinion) is to use the five year average participation rate to account for these ebbs and flows. This also alleviates the issue of believing that 1.8 million people "chose" to leave the work force over the past 6 months (yes, that is what the BLS methodology indicates).

EconomPic Unemployment Rate

Denominator: The methodology for the denominator (based on my logic detailed above) is to use the five year rolling participation rate multiplied by the civilian institutional population (i.e. those that can work) to determine the labor force.

Numerator: The EconomPic methodology is to use the number of employed rather than unemployed (some of those not in the labor force are not countered as unemployed). As a result, the initial equation = the "employed rate". Taking 1 less this employed rate gets us to the unemployed rate.

The result:

Unemployment is reduced at each "low" prior to the low of the late 90's and most recent 2007 period and roughly matches each "peak". That is until the most recent period, indicating that something is just not right.

Whereas the "official" unemployment rate is 10% flat, the EconomPic unemployment rate is 11.7%.

Source: BLS

Jake 11 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/alternative-unemployment-rate.html
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Breaking Down Wholesale Inventories

2010-01-11T05:38:00.000-08:00

Friday's surprise 1.5% gain in Wholesale Inventories (i.e. what appeared to be an inventory rebuild) was not real, just like last month's post Wholesale Inventory Correction isn't "Real" in October. As can be seen below, the spike was entirely to Farm Products (Wholesale Inventories ex Farm Products was 0.1%) and Farm Products (both livestock and grains) rocketed in price in November.

In other words, this was a nominal gain, thus will not positively impact GDP in Q4.

Source: Census

Jake 11 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/breaking-down-wholesale-inventories.html
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Consumer Deleveraging Continues

2010-01-10T19:38:00.000-08:00

Business Week details:

Consumer credit in the U.S. dropped a record $17.5 billion in November as unemployment close to a 26- year high discouraged borrowing and banks limited access to loans.

A labor market that's shed 7.2 million jobs since the recession started in December 2007 is restraining consumer spending that accounts for about 70 percent of the economy. Fed policy makers have said tighter bank lending standards and reductions in credit lines are hampering the recovery.

The series of 10 straight declines in consumer credit was the longest since record-keeping began in 1943.

The chart below shows the change in consumer credit outstanding (year over year) as a percent of total personal consumption. In the latest period consumers have shed almost 0.82% of consumer credit outstanding as a percent of all personal consumption.

Source: Federal Reserve

Jake 11 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/consumer-deleveraging-continues.html
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Sanchez Leads J-E-T-S Past Bengals

2010-01-10T18:30:00.000-08:00

Yahoo Sports details:

One playoff game into his career, Mark Sanchez is giving a pretty good off-Broadway performance.

So are the rest of the New York Jets, who are no longer an overlooked team after dismantling the AFC North champions twice within a week.

Any more doubters?

With their rookie quarterback playing mistake-free, the Jets turned their surprising playoff appearance into a long-running production Saturday. Sanchez threw a touchdown pass, and the NFL's top running game took it from there, setting up a 24-14 victory over the Cincinnati Bengals.

Sanchez looked like a playoff pro, joining Shaun King, Joe Flacco and Ben Roethlisberger as rookie quarterbacks to win postseason starts. At times, Sanchez found himself on the sideline soaking it all in.

Jake 11 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/sanchez-leads-j-e-t-s-past-bengals.html
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EconomPics of the Week (J-E-T-S Edition)

2010-01-08T20:06:00.000-08:00

Long Term Trends
Why Does It Feel Worse than Reported?
What Happens When the Stimulus Dies?
More on Gross Purchases (and China)
Strength in U.S. Consumption... of U.S. Made Goods
Goods Producing vs. Government
Manufacturing Jobs Down 20% from 2006

Economic Data
Hours Worked per Civilian (per Week)
Men / Women Employment Results Diverge
Unemployment Drops as Workers Drop Out
ADP Jobs Down 84,000; Services Jobs Grow
Eurozone Retail Sales Show Record Decline
Same Store Sales "Surge"
Manufacturing Sector Continues to Expand
Industrial Production Declines in Eurozone for First Time Since March
Auto Sales Improved, but Still a LONG Way to Go

Asset Prices
Hedge Funds More than Fine in '09
2009 Performance Snap Shot

Other
J-E-T-S Jets Jets Jets
Avatar Rounds Out Record Year at the Box Office

Jake 09 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/econompics-of-week-j-e-t-s-edition.html
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Hours Worked per Civilian (per Week)

2010-01-08T13:28:00.000-08:00

As requested...

Employment to population ratio (i.e. percent of the population working), multiplied by the number of hours worked per week, equals the second least amount of hours worked (19.32 hours from 19.4 hours in October, but up from 19.27 in September) per population member.

Source: BLS

Jake 08 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/hours-worked-per-civilian-per-week.html
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More on Gross Purchases (and China)

2010-01-08T07:51:00.000-08:00

In response to my post Why Does it Feel Worse than Reported?, a reader asked for a follow up chart:

What would be helpful here is a NET figure (& chart, of course) showing the shift (gross & per capita) from production surplus to consumption surplus. It's a little hard to read between the lines (literally) in this graphic.

The difference between GDP (what the U.S. produces) and Gross Domestic Purchases (what the U.S. purchases) is net exports. Thus, the charting is easy, but the result of the chart is rather astounding. The net level of purchases over production peaked at more than $2500 per person (that is literally $2500+ in a single year for every man, woman, and child within the U.S.) in September '06. This has "collapsed" to "only" $1150 a head, but that $1350 less that each person is the U.S. has been able to purchase (without producing) is a real decline.

So where does that leave us? It leaves us with entire generations (starting with the baby boomers) that believe it is the norm to purchase more than one produces. And why not? We have been able to follow this path (with the exception of the Volcker induced recession in the early 1980's) going on 60+ years.

But as the chart above shows, the scale of this excess purchasing in the early part of this decade was without precedent, which results in the below chart. The below chart details the cumulative real purchases that have been made over that 60 year window above and beyond what was produced in this nation. Resulting from an easy money policy, plus China dollar recycling (they produce, we finance) this cumulative level of real purchases made since 1949 spiked from $3 trillion in the late 1990's to $9 trillion in 2005$ by early 2008 (tripled in ~10 years).

Note in the first chart that every previous peak resulted in a reversion and this latest period was no exception. As a base case I would suspect a continued reversion in the top chart (i.e. net imports moving to zero), but what happens if the below chart mean reverts (we actually begin producing more and purchasing less) as well?

For one... more pain for the U.S. consumer, but a second result was recently outlined by perma-bear James Chanos:

"The Chinese," he warned in an interview in November with Politico.com, "are in danger of producing huge quantities of goods and products that they will be unable to sell."

We shall see...

Source: BEA

Jake 08 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/more-on-gross-purchases-and-china.html
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Men / Women Employment Results Diverge

2010-01-08T05:58:00.000-08:00

The employment release showed a MASSIVE divergence between the male and female workforce. The number of unemployed males dropped significantly (ALL caused by the a dropping out of the workforce), while female unemployment rates spiked (they reentered the workforce).

My guess? Males dominate manufacturing sector, which continues to struggle. Females came back to the workforce for the holiday season, yet were unable to find jobs.

Source: BLS

Jake 08 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/men-women-employment-results-diverge.html
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Unemployment Drops as Workers Drop Out

2010-01-08T05:51:00.000-08:00

85,000 people dropped out of the work force, yet unemployment rates (both headline and broader) ticked down slightly in 2009.

Good news right about the rate right? Nope... the reason is that another 500,000+ workers dropped out of the workforce (i.e. the denominator in the unemployment rate).

That makes more than 1.6 million workers that have dropped out since August of this year.

Source: BLS

Jake 08 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/unemployment-drops-as-workers-drop-out.html
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Same Store Sales "Surge"

2010-01-07T21:18:00.000-08:00

The Washington Post called this a "surge":

Retailers pulled off a better-than-expected holiday season as rising consumer confidence -- and a last-minute shopping spree -- pushed sales higher in December, according to results released Thursday.

For about three dozen of the country's biggest chains, sales at established stores increased an average of 2.8 percent in December from a year ago, according to the International Council of Shopping Centers (ICSC), a trade group. Sales for the last two months of the year jumped 1.8 percent, compared with a record 5.6 percent drop in 2008 -- marking the strongest holiday performance in three years. The ICSC had forecast a 1 percent increase.

And the resultant two year change (December '09 vs. December '07 same store sales) to account for the massive drop from last year shows the strength remains in a tween retailer and discount stores.

An improvement? Yes, but a 1.8% rise after a 5.6% drop doesn't qualify as a surge in my book.

Source: Retail Sails

Jake 08 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/same-store-sales-surge.html
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Hedge Funds More than Fine in '09

2010-01-07T11:30:00.000-08:00

Hedge fund returns were off the charts in 2009 across strategies...

Or were they? Per the NY Times (hat tip Abnormal Returns):

Taken at face value, historic index figures suggest that even an average hedge fund manager can easily beat the stock market while taking less risk. Since 1990, a weighted index of hedge funds has returned around 12 percent annually — about four percentage points more than the returns for the Standard & Poor's 500-stock index — with just half the volatility, according to Hedge Fund Research.

On closer inspection, these claims look suspect. Research published in late 2007 by the Princeton professor Burton G. Malkiel showed that many hedge funds simply stopped reporting results after they became embarrassing. For funds that ceased reporting, the average monthly return in the six months before they did so was -0.56 percent. That contrasts with an average monthly return of 0.65 percent during their reporting lives.

My guess is yes, results were off the charts, just not as off the charts as the numbers suggest. How large a discrepency? Back to the NY Times:

For another piece of evidence, consider Hedge Fund Research's investable Global Hedge Fund Index. Because this tracks real money invested in hedge funds, reporting vagaries ought to be less of an issue. Sure enough, the index has underperformed Hedge Fund Research's broader theoretical benchmark in each of the last seven years, typically by a meaningful margin. In 2009, a recovery year for hedge funds, the investable index rose around 13 percent year compared with 19 percent for Hedge Fund Research's voluntarily reported index.

Source: Barclay Hedge

Jake 07 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/hedge-funds-more-than-fine-in-09.html
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Eurozone Retail Sales Show Record Decline

2010-01-07T06:39:00.000-08:00

WSJ details:

Retail sales volumes in the 16 countries that use the euro matched their sharpest-ever monthly drop on record in November, scotching hopes that consumer spending will help drive the currency area's fledgling recovery, official data showed Thursday.
Retail sales slumped 1.2% from October, matching the record monthly drop seen in October 2008 and 2001, the European Union's Eurostat statistics agency said Thursday.
Sales were 4% weaker than in November 2008, the sharpest annual drop for nine months and the 18th consecutive month that sales have fallen on a year-to-year basis.
The data are much weaker than expected. Economists surveyed last week expected sales to increase 0.3% from the previous month in November, leaving them 1.8% weaker than a year earlier.

Source: Eurostat

Jake 07 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/eurozone-retail-sales-show-record.html
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Why Does It Feel Worse than Reported?

2010-01-07T04:42:00.000-08:00

Gross Domestic Purchases are (per Babylon):

The market value of goods and services purchased by U.S. residents, regardless of where those goods and services were produced. It is gross domestic product (GDP) minus net exports of goods and services. Equivalently, it is the sum of personal consumption expenditures (PCE), gross private domestic investment, and government consumption expenditures and gross investment.

dblywo (with patience) detailed the divergence between GDP and Gross Domestic Purchases in recent years, commenting:

For 4-5 decades they tracked closely, especially on a YoY basis but started diverging in the last five years. I find that GDPx is much more useful right now for linking to PCE, Employment, et.al.

And here is a chart showing the five year annualized change in both GDP and Gross Domestic Purchases.

So what does this show us?

It shows that consumption over the years leading up to the crisis grew much faster than what we actually produced. This, was never sustainable. In addition, the further one moves down this path, the more difficult it becomes to grow off of this higher / boosted base. As a result, in the recent period growth in purchases has not been able to keep up with the growth seen in the headline GDP figure, even though net exports have remained negative (i.e. we still consume more than we produce, just not the larger level needed to maintain growth). Putting numbers to this, GDP has grown at a bit more than 1% annualized over the past five years, whereas growth in Gross Domestic Purchases over that period was only 0.5% annualized (low and lower).

So what does this mean?

It means that we became accustomed to living beyond our means, irrelevant of the actual production that was created within the confines of any GDP figure. This is one of the reasons that the recent GDP figures have not reflected what has actually been felt by each of us... the recent economic decline has in fact felt much worse.

The below chart makes this more clear. It is a chart similar to the one shown above, but is on a per capita basis.

As one can see, Gross Domestic Purchases per capita (i.e. GDP less net exports) is now less than it was FIVE years earlier... the first time this has happened since at least WWII.

Source: BEA

Jake 07 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/why-does-it-feel-worse-than-reported.html
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Goods Producing vs. Government

2010-01-06T12:18:00.000-08:00

Tim from The Mess that Greenspan Made blog (great blog by the way) showed a rather astounding chart showing that for the first time (ever?) the number of individuals employed by the government is larger than the number employed within the manufacturing sector.

Interesting is that we are not making more (on a relative basis) with less. As EconomPic noted back in the Fall that the 'value add' by the government to GDP was higher than the manufacturing sector.

However, in this instance, this is not a story about "bigger government". Rather, it is a story of a long in the making shift from manufacturing to servicing (as anyone who has lived or visited an old manufacturing city [think Detroit or Cleveland] can testify).

For all the hype, the number of individuals employed by the government is actually smaller as a percent of the civilian institutional population than it was in the mid-1970's (9% vs. 10%).

Source: BLS

Jake 06 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/goods-producing-vs-government.html
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Industrial Production Declines in Eurozone for First Time Since March

2010-01-06T06:18:00.000-08:00

Slightly dated (October figures) as there is a delay in the release, but this would impact Q4 GDP for the Eurozone. Reuters details:

Euro zone industrial new orders were weaker than expected in October and producer prices grew less than anticipated in November, data showed, underlining the fragility of economic recovery and weak inflationary pressures.
Industrial new orders in the 16 countries using the euro fell 2.2 percent in October against September, the European Union statistics office Eurostat said on Wednesday.
Orders were dragged lower mainly by a slump in volatile demand for ships, planes and trains, without which the monthly decline was only 0.4 percent.
October new orders, which will translate into industrial production over the following months, were 14.5 percent lower than a year earlier, although that was only half the annual decline in May.

Source: Eurostat

Jake 06 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/industrial-production-declines-in.html
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Manufacturing Jobs Down 20% from Peak

2010-01-06T05:28:00.000-08:00

This is rather remarkable. With the continued decline in "goods producing" jobs, a full 20% less people work in manufacturing (per the ADP) from the peak a bit more than two years ago.

Source: ADP

Jake 06 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/manufacturing-jobs-down-20-from-peak.html
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ADP Jobs Down 84,000; Services Jobs Grow

2010-01-06T05:22:00.000-08:00

That would be the first positive month for services since March 2008.

Source: ADP

Jake 06 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/adp-jobs-down-84000-services-jobs-grow.html
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Auto Sales Improved, but Still a LONG Way to Go

2010-01-05T19:18:00.000-08:00

Money CNN details:

The auto industry ended its worst year in memory with one of its best sales months of the year.

Overall industry-wide U.S. sales soared 15% compared to a year ago, the biggest percentage gain since July 2005. Total sales topped the 1 million mark for only the second time this year, trailing only August. Sales spiked that month thanks to the federal government's Cash for Clunkers program.

Most of the automakers posted better than expected results as five of the seven largest automakers reported increases of 18% or more from a year earlier.

But the boom in December wasn't enough to lift the industry out of its year-long slump. Last year was a tumultuous one for the industry to say the least as GM and Chrysler filed for bankruptcy and many auto plants and dealerships closed.

Full-year sales fell 21% from 2008 to 10.4 million, a 27-year low. Last year's sales are also far below the 16.7 million annual average during the 10 years before the start of the recession.

Below are sales of those "big seven". Were sales up from a year ago? They sure were, BUT that "jump" is still 27% below December 2007 figures.

An improvement, but still a long way to go.

Source: Autoblog

Jake 06 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/auto-sales-improved-but-still-long-way.html
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What Happens When the Stimulus Dies?

2010-01-05T07:48:00.000-08:00

Assets supported by that stimulus die as well. Marketwatch details:

"Pending home sales plunged a seasonally adjusted 16% in November as a highly popular tax credit for first-time buyers was set to expire on Nov. 30, the National Association of Realtors reported Tuesday.

The good news...

The pending sales index -- which measures contracts signed but not closed on previously owned homes -- was 15.5% higher than in November 2008. October's increase was revised higher to 3.9% from 3.7% previously reported.

The Bad News:

The tax credit was ultimately extended through the first half of 2010 and expanded to repeat buyers.

Why bad? Well, besides another "pulling demand forward with taxpayer money" issue, without the revival of the tax credit, things would have been a lot worse.

Source: Realtor.org

Jake 05 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/what-happens-when-stimulus-dies.html
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2009 Performance Snap Shot

2010-01-05T04:36:00.000-08:00

I think this is the chart that speaks 1000 words. To try to summarize all of it in one sentence... all ships rose with the rising tide.

Why?

Well, what was the alternative option for an investor than to dip their toe in the water? A 0.2% return on cash.

Source: Capital Spectator

Jake 05 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/2009-performance-snap-shot.html
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J-E-T-S Jets Jets Jets

2010-01-05T03:18:00.000-08:00

Will this post be relevant for 99% of you? Doubt it, but please tell me there are some Jets fans (or at least NFL fans) who read this blog...

Do the Jets deserve to be in the playoffs?

While there are plenty of critics that state no (to "sneak" into the playoffs they beat the Colts who rested their starters, followed by the Bengals who had already locked up a wild card playoff spot), I believe they do. Having ended the season winners of 5 of 6, they played the Colts tight (a one possession game when the Colts gave up) and blew the Bengals out even when their starters were playing. In addition, over the full course of the season they allowed the least number of points in the league, led the league in total rushing, AND were 7th in the league in point differential (points scored less allowed).

And that relationship (point differential) was a remarkably accurate predictor all around.

To sums things up, lets go to Av Sinesky of The Vertex who details my exact sentiments as a Jets fan:

As I walked back to the car after the game, I received an email from my dad. "Cold day in hell arrives," he wrote, ending off a regular season that I had insisted early on would be defined as distinct from those my father had endured. This team with a bold new head coach, a dazzling rookie quarterback, and a tenacious defense, were not my father's Jets. And although they spent much of the season trying to prove me wrong, in the end, they vindicated me. My father's Jets would have been a team that despite leading the league in defense and rushing, would have missed the playoffs. But these Jets made the playoffs despite having a rookie coach and a mistake-prone rookie quarterback and despite having an 0-5 record in games decided by fewer than five points. My father's Jets would have been a team that missed the playoffs despite starting out 3-0; these Jets made the playoffs despite a mediocre 4-6 record heading into the home stretch. My father's Jets would have apologized for a lucky break; these Jets realize they have nothing to be sorry for.

Source: ESPN

Jake 05 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/j-e-t-s-jets-jets-jets.html
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Manufacturing Sector Continues to Expand

2010-01-04T08:49:00.000-08:00

The WSJ reports:

The U.S. manufacturing sector finished 2009 on a high note, helped by improving production and ordering activity, according to data released Monday by the Institute for Supply Management.
Separately, U.S. construction spending tumbled in November more than expected, pulled lower by the housing and commercial sectors as the recovering economy deals with high unemployment.
The ISM's manufacturing purchasing managers' index rose to 55.9 last month, from 53.6 in November. December's reading was above the 54.0 forecasted by economists surveyed by Dow Jones Newswires. Readings above 50 indicate expanding activity.
"The manufacturing sector grew for the fifth consecutive month in December as the PMI rose to 55.9, its highest reading since April 2006 when it registered 56," said Norbert Ore, who directs the survey for the ISM.

Source: ISM

Jake 04 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/manufacturing-sector-continues-to.html
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Stength in U.S. Consumption... of U.S. Made Goods

2010-01-04T05:27:00.000-08:00

The following chart in my post On the Change in Q3 GDP shows that consumption of goods contributed about 1.7% of the third quarter's 2.2% GDP growth, BUT that the importation of goods removed more than 2% (GDP is a function of output WITHIN the United States only; if a good that was consumed here was made elsewhere, the negative value removes it from the overall GDP figure). That got me thinking... everyone is so focused on the U.S. consumer "bouncing back", but that ignores where those goods were made.

Prior to the recent "Great Recession", the marginal good consumed within the U.S. wasn't produced here. This can be seen (below) by the strong relationship between the change in goods consumed and goods imported. More interesting (to me) was the change in the relationship over the previous 12 months. Consumption of goods has indeed declined, but not nearly the level at which imported goods have declined.

Taken together, the chart below shows the difference between the two (the change in the consumption of goods subtracted by the change in the level of imported goods). This can be thought of as a quick and dirty way to estimate the marginal increase / decrease in consumption of goods made within the U.S. (i.e. consumption of goods ex. importation of those goods).

And surprisingly (to me) that level increased by more than $250 billion over the last 12 months.

Not really sure what caused this jump (trading away from expensive imports / trade barriers???), but it looks like the U.S. consumer has already been a much larger source of stability for the U.S. economy than many may have given them credit for.

The question of course remains... what happens now?

Source: BEA

Jake 04 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/stength-in-us-consumption-of-us-made.html
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Avatar Rounds Out Record Year at the Box Office

2010-01-04T03:59:00.000-08:00

NY Times details the epic run (thus far) by Avatar:

Critics may be at odds about the meaning of Fox's 3-D science-fiction epic "Avatar," but its meaning to the box office is clear: It started the new year at No. 1 in domestic ticket sales. With just over $68 million for the weekend, "Avatar," directed by James Cameron, finished its first 17 days in theaters with $352.1 million, a record for a film in its third week of release, according to Variety.

More amazing is that worldwide, Avatar is already the fourth highest grossing film of all time.

Although ticket sales did not break the all-time record, the success of Avatar (and higher ticket prices) propelled the 2009 domestic box office to the all-time record in terms of $$ grossed. Reuters details:

Sales rose more than 8% to a record $10.61 billion, while the number of tickets sold (i.e. admissions) climbed almost 4%.

Paramount's "Transformers: Revenge of the Fallen" ($402.1 million), Warner Bros.' "Harry Potter and the Half-Blood Prince" ($302 million) and 3D phenoms such as Fox's "Avatar" ($352.1 million) and Disney/Pixar's "Up" ($293 million) helped set the new box office mark.

But admissions in the United States and Canada -- at 1.41 billion, compared with 1.36 billion in 2008 -- fell a bit short of beating the all-time record of 1.60 billion set in 2002. The box office year began January 5, with tracking firm Nielsen EDI always starting its calendar on the first business day after New Year's.

Source: Box Office Mojo

Jake 04 Jan, 2010

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Source: http://econompicdata.blogspot.com/2010/01/avatar-rounds-out-record-year-at-box.html
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On the Change in Q3 GDP

2009-12-28T14:35:00.000-08:00

I hope you all are having a nice holiday season thus far. I am back in civilization, though I plan to keep posting light the remainder of the week.

I did want to touch upon the large downward revision to GDP prior to this becoming "last years news" in a week's time. The AFP reported:

The US economy limped forward at a 2.2 percent pace in the third quarter, according to government figures Tuesday that suggest a tepid recovery from recession.
The downward revision from last month's estimate of 2.8 percent growth in gross domestic product (GDP) came primarily from a weaker contribution from business investment, as well as slightly slower consumer spending growth.
The Commerce Department report confirms that the world's biggest economy swung back to growth in the July-September period after four quarters of contraction in the worst recession in decades, but with little forward momentum.
Scott Brown, chief economist at Raymond James & Associates, said the report was "a bit disappointing" and suggests "that underlying domestic demand is pretty soft."
Brown said he expects a jump in growth to at least 4.0 percent in the current fourth quarter, but says much of that will come from restocking of business inventories drawn down in the recession.

Below is a chart detailing what was revised down from the initial 3.5% release to the "final" (i.e. it can still be revised) 2.2% figure. It turns out... everything (consumption, investment, government spending, net exports).

Overall contribution remained centered around the rebound of the consumer in the face of mounting debt / high unemployment, but subsidized deals (i.e. cash for clunkers) winning the battle. Growth in investment and government spending outpaced the negative impact of the rebound in imports (what... you thought we were consuming only American made items????).

Source: BEA

Jake 28 Dec, 2009

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Source: http://econompicdata.blogspot.com/2009/12/on-change-in-q3-gdp.html
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EconomPics of the Week: See You in 2010 Edition

2009-12-18T09:44:00.000-08:00

If I see something that is VERY interesting, I may post (also possibly going to post a "best of" EconomPic for 2009). If not, happy holidays to all!

Too Indebted
Treasury Debt to Receipts Spiking
Treasury Debt to Receipts over the LONG Term

Assets
On the Timing / Importance of Stock Buybacks
The Great (Two Week Glimpse of What Can Happen) Unwind

Capacity
Capacity Destruction?
Can Capacity Destruction be Good for GDP?
Capacity Utilization and Production Rebounding

Other Economic Data
Leading Economic Indicators Strong in November
State Personal Income Rebound
Consumer Price Index... Up, but (Seemingly) Contained
PPI Jumps from Energy Prices in November
Industrial Production Down in Eurozone

Jake 18 Dec, 2009

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Source: http://econompicdata.blogspot.com/2009/12/econompics-of-week-see-you-in-2010.html
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Help Jake Understand: Can Capacity Reduction be Good for GDP?

2009-12-18T05:45:00.000-08:00

Notice that I state GDP and not "the economy" in the headline (the broken window theory shows why destruction is not good, BUT it doesn't mean that it won't lead to a better GDP print down the road). As Richard Posner details, there are many issues relying too much on GDP:

But it is necessary to emphasize that it is just a starting point. I disagree with economists who say the "recession" ended in the third quarter. The depression (as I think we should call it if only because of its enormous potential political consequences) has caused massive unemployment with all the associated anxieties and hardships, has greatly reduced household wealth, has caused private investment to turn negative, has cost the government trillions of dollars in lost tax revenues and recovery expenditures (TARP, the fiscal stimulus, the mortgage-relief programs, the auto bailouts, etc.), has undermined belief in free markets and altered the line between government and business in favor government, and is threatening a future inflation while deepening our dependence on foreign lenders. To view a change in GDP from negative to positive as signifying the end of a depression (by which criterion the Great Depression ended in 1933 and again in 1938) is to misunderstand the utility of GDP as a measure of economic activity.

Historical Capacity Destruction

That said, as I initially stated in my post on capacity destruction:

Capacity utilization is utilized capacity / total capacity. This means that the change in capacity utilization may not only be due to a change in the numerator (utilized capacity), but in the denominator as well (overall capacity). And my guess is overall capacity is actually decreasing for the first time since the telecom overbuild collapse in the early 00's.

Reader Dennis Oullet pointed out that while I was correct, I went the difficult route to get to that point (full historically data is available on the Fed's website).

And here is that data showing the year over year change in total capacity going back to the early 1980's.

While the recent period has seen overall capacity removed from the system, the lack of capacity build since the telecom bust (2001) is even more striking (below is a chart showing 8 year rolling periods, which matches the time frame since that telecom bust).

Capacity Reduction --> Higher GDP Print?

Reader dblwyo made an interesting point that:

A complementary notion is that industry grossly under-invested relative to growth in the 00's and drove utilization higher, i.e. let equipment die off. That guess seems to tie a lot of things together.

So while we overbuilt toward the end of the 1990's, we have since under-invested as we outsourced production to cheap Asian labor, grew the economy via the housing / financial sectors rather than manufacturing, and ran into the worst economic slump since the Great Depression (or WWII at a minimum).

Combined with the recent capacity destruction, am I crazy to think that when businesses NEED (or want) to invest in new (or upgraded) capacity that this may drive future GDP growth higher? My thought is along similar lines of how inventory restocking may lead Q4 '09 GDP to grow as much as 5% (per David Rosenberg):

We mentioned two days ago, there is an outside chance that we could see Q4 real GDP approach a 4-5% range at an annual rate, well above current consensus expectations (currently the Bloomberg consensus is expecting a 3.0% increase in GDP). A good chunk of that is in inventories, not final demand, but so be it.

Why can't capacity replacement lead to higher GDP prints down the line as well (again, separating GDP from the actual economy)? Obviously the timing of this may be way off (i.e. I can't imagine it occuring when capacity utilization is near all time lows, unless some new technology springs to life), but as capacity continues to be taken off-line (i.e. destroyed), couldn't the eventually replacement be good for GDP?

Source: Federal Reserve

Jake 18 Dec, 2009

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Source: http://econompicdata.blogspot.com/2009/12/help-jake-understand-can-capacity.html
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The Great (Two Week Glimpse of What Can Happen) Unwind

2009-12-17T09:25:00.000-08:00

As detailed in early November in my post Did We Learn Anything: Carry Trade Edition:

The issue is that at some point the dollar will stabilize (or gain in value), increasing the "real" cost of borrowing the dollar.
BUT... if the correlation of assets purchased is near one on the way up, it is sure as hell going to be that high or higher on the way down. And what happens to all these investors that are attempting to leave the same exit door at the same time? Massive re-purchasing of the dollar and massive selling of any risk asset... joy.

While I still do not think this is the official end of the carry trade, the last two week's give a glimpse into what can happen.

Interesting (to me) is that equities have held up relatively well over this period.

Source: Yahoo

Jake 17 Dec, 2009

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Source: http://econompicdata.blogspot.com/2009/12/great-two-week-glimpse-of-what-can.html
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Leading Economic Indicators Strong in November

2009-12-17T07:18:00.001-08:00

Per the Conference Board:

The Conference Board LEI for the U.S. increased again in November. The interest rate spread, initial unemployment claims (inverted), average weekly hours and housing permits made large positive contributions to the index this month, more than offsetting negative contributions from the index of supplier deliveries and the index of consumer expectations.The six-month growth in the index has slowed somewhat in recent months -- to 4.7 percent (about a 9.6 percent annual rate) in the period through November, but it remains substantially higher than the increase of 1.2 percent (a 2.4 percent annual rate) from November 2008 to May 2009. In addition, the strengths among the leading indicators have remained widespread in recent months.

Source: Conference Board

Jake 17 Dec, 2009

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Source: http://econompicdata.blogspot.com/2009/12/leading-economic-indicators-strong-in.html
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State Personal Income Rebound

2009-12-17T06:34:00.000-08:00

BEA details:

Although third-quarter personal income growth was slower than second-quarter growth (0.8 percent), its composition improved. Net earnings accounted for most of third-quarter growth in 33 states and for the nation. In contrast, transfer receipts accounted for most second-quarter personal income growth in 41 states.
Nationally, the industries making the largest contributions to third-quarter earnings growth were finance and health care. Smaller contributions of the other private service-producing industries were offset by declines in goods-producing industries. Although mining, construction, and manufacturing continued to decline in the third quarter, they subtracted less from third-quarter earnings growth than from second quarter growth. Federal civilian and military earnings grew in the third quarter, but state and local earnings declined, so that the net contribution of the government sector was zero.

Quarter over Quarter Improvement

Year over Year Shows How Far Had Fallen

Source: BEA

Jake 17 Dec, 2009

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Source: http://econompicdata.blogspot.com/2009/12/state-personal-income-rebound.html
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Capacity Destruction?

2009-12-16T06:19:00.000-08:00

Upon further review of capacity utilization...

The chart below shows the year over year change in industrial production, capacity utilization, and the difference between the two. In a world in which productivity is booming (it is), that means people are making more... with less. Thus, productivity "should" be rising more than capacity utilization all else equal. However, as the chart below shows... it is not.

Why? Well, here's my theory... capacity utilization is utilized capacity / total capacity. This means that the change in capacity utilization may not only be due to a change in the numerator (utilized capacity), but in the denominator as well (overall capacity). And my guess is overall capacity is actually decreasing for the first time since the telecom overbuild collapse in the early 00's.

Thoughts?

Source: Federal Reserve

Jake 16 Dec, 2009

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Source: http://econompicdata.blogspot.com/2009/12/capacity-destruction.html
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Consumer Price Index... Up, but (Seemingly) Contained

2009-12-16T05:58:00.000-08:00

Bloomberg details:

The cost of living in the U.S. accelerated in November from a month earlier, led by higher prices for energy and medical care.
The 0.4 percent increase in the consumer-price index followed a 0.3 percent gain in October, figures from the Labor Department showed today in Washington. The so-called core index that excludes food and energy was unexpectedly unchanged, the first month without an increase since December 2008 and restrained by a drop in shelter costs and cheaper clothing.
Energy costs have retreated so far this month, and comments from companies such as Best Buy Co. indicate unemployment close to a 26-year high is prompting retailers to discount their merchandise. Federal Reserve policy makers have said they expect "subdued" inflation in coming months, allowing them to keep interest rates low.
The report "gives them some more room to see how the recovery unfolds," said Harm Bandholz, a U.S. economist at UniCredit Global Research in New York who correctly forecast the core rate. "The drivers are the vast underutilization of capacity, notably the high unemployment rate."

Source: BLS

Jake 16 Dec, 2009

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Source: http://econompicdata.blogspot.com/2009/12/consumer-price-index-up-but-seemingly.html
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Treasury Debt to Receipts over the LONG Term

2009-12-15T20:11:00.001-08:00

In response to my post on Treasury Debt to Receipts Spiking an anonymous reader asked for data going back further than the early 1980's. Using data from USGovernmentRevenue.com, the chart below shows debt to receipts going back to the mid 1800's.

So how does the recent spike compare?

Click for Ginormous Chart

The good: Debt levels have been higher relative to receipts
The bad: Since 1950, those levels were only higher after the Civil War and Great Depression

Jake 16 Dec, 2009

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Source: http://econompicdata.blogspot.com/2009/12/treasury-debt-to-receipts-over-long.html
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Capacity Utilization and Production on the Rise

2009-12-15T07:47:00.001-08:00

Reuters reports:

U.S. industrial output rose firmly in November as the manufacturing sector extended a recovery that economists hope will help turn around the ailing labor market.
Production climbed 0.8 percent, the Federal Reserve said on Tuesday, well above forecasts for a 0.5 percent gain. The strides were powered in part by the automotive sector, and came despite a sharp drop in utility output. Capacity utilization, the amount of the nation's industrial capacity being put to use, rose to 71.3 percent in November from a revised 70.6 in October, its highest level since last December but still well below the long-range average.

Source: Federal Reserve

Jake 15 Dec, 2009

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Source: http://econompicdata.blogspot.com/2009/12/capacity-utilization-and-production-on.html
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PPI Jumps from Energy Prices in November

2009-12-15T05:44:00.000-08:00

Marketwatch reports:

Wholesale prices rose a larger-than-expected 1.8% in November after seasonable adjustments, with energy prices accounting for about three-fourths of the increase, the Labor Department reported Tuesday. The producer price index has risen 2.4% in the past year, the government said. This is the first rise since November 2008. The core PPI - which excludes food and energy prices - rose 0.5% in November, more than expected. Leading the advance were higher truck and cigarette prices. Core prices are up 1.2% in the past year. Economists surveyed by MarketWatch expected a 1.0% rise in the November headline PPI and a 0.3% gain in the core rate. The PPI had risen 0.3% in October, while the core rate was down 0.6%.

Expect this to reverse course in December as energy prices have collapsed.

Source: BLS

Jake 15 Dec, 2009

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Source: http://econompicdata.blogspot.com/2009/12/ppi-jumps-from-energy-prices-in.html
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On the Timing / Importance of Stock Buybacks

2009-12-14T20:09:00.000-08:00

WSJ reports:

During the third-quarter, stock buybacks moved off the record low levels seen during the March-through-June period. But the total level companies spent buying back their own shares remained at depressed levels, S&P analysts reported.

Preliminary results showed that S&P 500 companies spent $34.8 billion on stock buybacks during the third quarter of 2009. That represents a 61.2% decline from the $89.7 billion spent during the third quarter of 2008, and a 79.7% decline from the record $172.0 billion spent on stock buybacks during the third quarter of 2007.

Still, stock buybacks for the third quarter of 2009 bounced back 44% to $34.8 billion from the $24.2 billion spent during the second quarter of 2009, when the expenditures hit their lowest level since the first quarter of 1998. (That's when S&P first started collecting data on buybacks.)

While buy-backs might be showing signs of recovery, ongoing corporate timidity reflects, in part, on the shut down of the borrowing markets last year during the financial crisis. Companies — those that survived — remember those days with trepidation and don't want to get caught short if a similar credit freeze strikes again.

So... are corporations bad market timers buying at highs and issuing more shares at lows? Sure seems that way looking at the chart below which compares the market cap of the S&P 500 against the level of stock buybacks.

Or... is this just a chicken or the egg issue in that buybacks were an important CAUSE of the equity rally? The chart below does show the size of the stock buybacks relative to the market cap of the S&P 500 (i.e. they were LARGE).

How large? Buybacks accounted for 4.6% of the 6.5% (i.e. 70%) of the S&P 500's total yield (as measured by dividends AND buybacks as a percent of the year end market cap) in 2007.

And now? Just 1.2% of the 3.2% total yield off of a base (the S&P 500 market cap) that is 24% below year end 2007 levels as of yesterday's close.

The key question for equity investors... will buybacks bounce back or were those levels of purchases made from 2005-2008 an extreme outlier caused by the excess liquidity?

Source: S&P / Index Arb

Jake 15 Dec, 2009

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Source: http://econompicdata.blogspot.com/2009/12/on-timing-importance-of-stock-buybacks.html
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On the Timing / Importance of Stock Buybacks

2009-12-14T20:05:00.000-08:00

WSJ reports:

During the third-quarter, stock buybacks moved off the record low levels seen during the March-through-June period. But the total level companies spent buying back their own shares remained at depressed levels, S&P analysts reported.

Preliminary results showed that S&P 500 companies spent $34.8 billion on stock buybacks during the third quarter of 2009. That represents a 61.2% decline from the $89.7 billion spent during the third quarter of 2008, and a 79.7% decline from the record $172.0 billion spent on stock buybacks during the third quarter of 2007.

Still, stock buybacks for the third quarter of 2009 bounced back 44% to $34.8 billion from the $24.2 billion spent during the second quarter of 2009, when the expenditures hit their lowest level since the first quarter of 1998. (That's when S&P first started collecting data on buybacks.)

While buy-backs might be showing signs of recovery, ongoing corporate timidity reflects, in part, on the shut down of the borrowing markets last year during the financial crisis. Companies — those that survived — remember those days with trepidation and don't want to get caught short if a similar credit freeze strikes again.

While I understand there are multiple considerations for stock buybacks (i.e. a way to lever the business / earnings, prevent takeovers, etc...) corporations have not exactly been the best market timers. This can be seen in the chart below which compares the market cap of the S&P 500 against the level of stock buybacks. Just as important, the chart shows the size of the stock buybacks relative to the market cap of the S&P 500 (i.e. they were LARGE).

How large? Buybacks accounted for 4.6% of the 6.5% total yield of the S&P 500 (as measured by dividends AND buybacks as a percent of the year end market cap) in 2007.

And now? Just 1.2% of the 3.2% total yield off of an S&P 500 market cap that is 24% below year end 2007 levels as of yesterday's close.

The key question for equity investors... will buybacks bounce back or were those levels of purchases made from 2005-2008 outliers?

Source: S&P / Index Arb

Jake 15 Dec, 2009

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Source: http://econompicdata.blogspot.com/2009/12/on-timing-importance-of-stock-buybacks.html
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Industrial Production Down in Eurozone

2009-12-14T11:45:00.001-08:00

RTT News details:

Eurozone industrial production declined in October hurt by plunging demand for durable and non-durable consumer goods, pointing to meager support to GDP growth in the fourth quarter.
Industrial output in the 16 nation currency bloc fell by a seasonally adjusted 0.6% in October compared to the previous month, reversing the revised 0.2% rise in September, a report from Eurostat revealed Monday. Production thus declined after rising for five consecutive months.
However, the actual drop for October was slightly smaller than the 0.7% decline expected by economists. The statistical office revised the monthly growth for September from 0.3%.

Glass Half Empty

Strong improvement witnessed over recent months is losing momentum. BNP Paribas economist Clemente De Lucia noted that the impact of car incentive schemes is starting to ease and will not be felt anymore next year.

Glass Half Full

However, according to Martin van Vliet, an economist at ING, it is premature to conclude that the industrial recovery is seriously losing momentum as less volatile three-month rate of change remained firmly in positive territory. Economist forecast Eurozone GDP to expand at a fairly healthy clip in the fourth quarter.

Source: Eurostat

Jake 14 Dec, 2009

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Source: http://econompicdata.blogspot.com/2009/12/industrial-production-down-in-eurozone.html
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Treasury Debt to Receipts Spiking

2009-12-14T04:52:00.000-08:00

For those that haven't yet had the opportunity to read Steve Keen, an economist out of Australia who has had some very insightful posts in the past (February's The Roving Cavaliers of Credit is a great 'out of the box' piece that I've reread multiple times), I recommend his latest piece 4 Years Calling the GFC (i.e. the Global Financial Crisis). He noticed that Australia and the United States have been able to service a growing level of debt (which has driven a significant portion of past economic growth) due to interest rates that have moved lower and lower, resulting in servicing costs that have stayed relatively flat.

The issue is what happens when you hit the zero bound and can no longer lower rates (or when the marginal buyer is not willing to accept those lower and lower levels). The best case is lower growth as those debt levels are worked off / inflated away gradually. A worst case is when those levels reach an unsustainable level and default is brought into question (the U.S. really can't default, but bringing out the printing press just to make payments would result in a situation just as bad in my opinion).

The level Steve Keen chose to look at to see just how much debt the U.S. has piled up was debt as a level of GDP. Why?

In dynamic terms, the ratio of debt to GDP tells you how many years it would take to reduce debt to zero if all income was devoted to debt repayment. That is an extremely valid indicator of the degree of financial stress a society (or an individual) is under.

That makes sense, but I thought debt levels relative to the actual receipts brought in by the government to service that actual debt would be interesting / instructive. As a result we have the below chart, which is marked by a collapse of tax revenue at its most recent point, but the result is frightening none-the-less.

Sources: Government debt outstanding (per Treasury Direct) divided by the twelve month rolling level of receipts (per the Treasury )

Jake 14 Dec, 2009

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Source: http://econompicdata.blogspot.com/2009/12/treasury-debt-to-receipts-spiking.html
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EconomPics of the Weeks (12/11/09)

2009-12-11T19:59:00.000-08:00

Opinion
On the Value in Housing
Wealth Rebounds in Q3... Is It Sustainable?

Sustainable Rebound?
Wholesale Inventory Correction Isn't "Real" in October
Temporary Help as a Predictor of Broader Hiring
Income Disparity
Payroll and GDP
Deleveraging Consumer and Economic Growth

Economic Data
Retail Sales Strong in November
Treasury Budget: "Only" $120.3 Billion Deficit
Trade Balance Improves in October
Can't Get a Job? Here's Why...
The Real Lost Decade: Japanese GDP Edition

I figure we'll figure out shortly whether or not the recovery is sustainable. In other words... It's the Final Countdown! Da da da da... da da da da...

Jake 12 Dec, 2009

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Source: http://econompicdata.blogspot.com/2009/12/econompics-of-weeks-121109.html
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Retail Sales Strong in November

2009-12-11T05:46:00.001-08:00

ABC News:

Sales at U.S. retailers rose more than expected in November as consumers spent more on gasoline and a wide range of other goods, data showed on Friday, raising hopes of a self-sustaining economic recovery.
The Commerce Department said total retail sales increased 1.3 percent last month, the largest advance since August, after rising by a downwardly revised 1.1 percent in October. It was the second straight monthly gain. Sales in October were previously reported to have increased 1.4 percent.
Analysts polled by Reuters had forecast retail sales gaining 0.7 percent last month. Overall sales in November were boosted by strong receipts from gasoline stations, increased purchases of motor vehicles and parts, building materials and electronic goods among others. Gasoline sales surged 6 percent, the largest increase since June.
Compared to November last year, sales were up 1.9 percent, the first year-on-year gain since August 2008, a Commerce official said.

Source: Census

Jake 11 Dec, 2009

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Source: http://econompicdata.blogspot.com/2009/12/retail-sales-strong-in-november.html
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Wealth Rebounds in Q3... Is It Sustainable?

2009-12-10T20:24:00.000-08:00

The Federal Reserve released their Flow of Funds Accounts of the United States report (yes, for a data hound such as myself, I am the kid in the candy store reading through it). Bloomberg reports on one aspect, the initial rebound from the larger wealth hole that we need to dig ourselves out of:

Household wealth in the U.S. increased by $2.67 trillion in the third quarter as stock prices and home values climbed, and revised data showed Americans have a larger hurdle to overcome.

Net worth for households and non-profit groups rose to $53.4 trillion from $50.8 trillion the prior quarter, a second consecutive gain, according to the Federal Reserve's Flow of Funds report today in Washington. Revisions put the loss of wealth between the third quarter of 2007 and the first three months of this year at a record $17.5 trillion, compared with a previous estimate of $13 trillion.

Hey, what's $4.5 trillion amongst friends?

The chart below shows the rebound we have seen since year end 2008. Of interest (to me) is that liabilities have decreased slightly ($157 billion decline over the last 9 months), which show the beginning signs of much needed deleveraging. More interesting (to me) is that all household assets haven't shared equally (or at all) in the rebound. The rebound has been largely concentrated in liquid risk assets (i.e. securities) vs. illiquid risk asset (housing), which have actually continued to decline since the end of the year.

Why is this important? Because it brings up the question of why these liquid risk assets have rebounded and whether that rebound is sustainable. I personally think it was due to a combination of fundamentals (sustainable) and technicals (questionable sustainability). Fundamentals in that risk assets dislocated in 2008 (i.e. got too cheap and had fundamental value), but a bigger share is due to the technical side of things, namely lots of buying as investors were forced (yes, forced) to take risk to earn anything besides 0%. This can be seen in the shift of personal sector assets below (from table L.10 - page 63).

Note that 2008 did not see a flood of money to savings or money markets (i.e. the flight to quality we have been told occurred), thus this decline is not a reversal of any dislocation. In addition, this ignores the hundreds of billions of dollars that has been poured by taxpayers (via the Fed and Treasury) into banks which also made its way into liquid risk assets during 2009.

In other words, what happens when the technical side of things is no longer a positive? Prices eventually revert back to their fundamental value, which I personally believe are much lower.

Source: Federal Reserve

Jake 11 Dec, 2009

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Source: http://econompicdata.blogspot.com/2009/12/wealth-rebounds-in-q3-is-it-sustainable.html
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Treasury Budget: "Only" $120.3 Billion Deficit

2009-12-10T14:07:00.000-08:00

Reuters with the details:

The United States posted a smaller-than-expected $120.3 billion budget deficit in November, Treasury Department data showed on Thursday.

In November, outlays fell for the second straight month, dropping to $253.9 billion from $311.7 billion in October and compared with $270 billion in November 2008, Treasury said.

Receipts totaled $133.6 billion, down from $135.3 billion in October and the lowest for November since 2005, the department said. Receipts in November 2008 stood at $144.8 billion.

The deficit over the two months of the new fiscal year to date now stands at $296.7 billion compared with $280.7 billion for the same period a year ago and the record $1.4 trillion in the just ended 2009 fiscal year.

I am making the case that getting spending in check is not a good thing in the long run (and the reduction was marginal). However, less government spending will be another reason why the recovery may not live up to the hype priced into risk assets. Back to Reuters:

"Those who are waiting for a V-shaped rebound are probably going to be disappointed," Penrod said. "It is not going to be a one-step recovery, it is going to be more baby steps as we move through this."

Source: Treasury

Jake 10 Dec, 2009

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Source: http://econompicdata.blogspot.com/2009/12/treasury-budget-only-1203-billion.html
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Trade Balance Improves in October

2009-12-10T06:59:00.000-08:00

Marketwatch reports:

The U.S. trade deficit narrowed sharply in October as exports were powered by the weaker dollar and imports slowed to a crawl.

The nation's trade deficit shrank 7.6% in October to $32.9 billion from $35.7 billion in September, the Commerce Department said. The September trade gap had been reported at $36.5 billion.

The narrowing of the deficit was unexpected. Analysts surveyed by MarketWatch had expected the deficit to widen to $37 billion.

The lower deficit also eases fears that the trade balance would deteriorate sharply after the deficit widened sharply last month.

During this recession there has been a sharp drop in international trade that led to a substantial improvement in the U.S. trade deficit.

Good news in the short run, though the longer trend reversal since the economic recovery (i.e. going back to the "norm" of a strong imbalance of imports) remains.

It will be interesting to see what kind of results we get for November and December, but the October print is positive for Q4 GDP.

Source: Census

Jake 10 Dec, 2009

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Source: http://econompicdata.blogspot.com/2009/12/trade-balance-improves-in-october.html
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Inventory Correction Isn't "Real" in October

2009-12-09T14:37:00.000-08:00

We've been waiting (and waiting) for the "mother of all inventory corrections" to provide a boost to the economy (EconomPic reported that there was no inventory correction in September). Upon reading the initial releases it seemed like this trend finally reversed course in October. Per the WSJ:

Inventories of U.S. wholesalers unexpectedly increased in October, breaking a string of 13 declines and suggesting production will pick up.

Wholesale inventories rose 0.3%, the Commerce Department said Wednesday. The mild increase came even with strong demand, indicating optimism among distributors over the economic recovery.

Sales of U.S. wholesalers climbed in October by 1.2% to a seasonally adjusted $326.17 billion, the seventh straight increase.

The 0.3% increase in inventories was the first since a 0.7% rise in August 2008. Economists surveyed by Dow Jones Newswires expected a 0.6% drop in October wholesale inventories.

In looking at the data, it seems there was an increase, though that increase in dollar terms was extremely concentrated in farm products and petroleum (without farm products inventories were actually negative).

Of more importance is that the increase in inventory isn't "real" (literally or figuratively). The chart below shows the percent change in each inventory category. So why isn't this real? Well, during the month of October the price of both petroleum and livestock spiked (as an example the price of crude oil was up in more than 12% October, while the price of lean hogs was up more than 15%), both more than the inventory increase of each.

In other words the actual level of the drivers of this report (farm products and oil) may actually be lower and it is this "real" level that feeds into GDP.

Source: Census

Jake 09 Dec, 2009

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Source: http://econompicdata.blogspot.com/2009/12/inventory-correction-isnt-real-in.html
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Can't Get a Job? Here's Why...

2009-12-09T05:25:00.000-08:00

BLS (hat tip Calculated Risk):

There were 2.5 million job openings on the last business day of October 2009, the U.S. Bureau of Labor Statistics reported today. The job openings rate was unchanged over the month at 1.9 percent. The openings rate has held relatively steady since March 2009. The hires rate (3.0 percent) and the separations rate (3.2 percent) were essentially unchanged and remained low.

Calculated Risk with some thoughts on the release:

I'm not sure if openings are predictive of future hires (the data set is limited), but openings near a series low can't be a positive. Separations have declined sharply, with fewer quits and layoffs, but hiring has not picked up. And quits at a series low suggests those that are employed were holding on to their current jobs in October.

And why should they quit? The level of openings as compared to the number of unemployed is at a series high (data only goes back to 2000) with once again more than 6 unemployed individuals per job opening.

Source: BLS

Jake 09 Dec, 2009

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Source: http://econompicdata.blogspot.com/2009/12/cant-get-job-heres-why.html
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The Real Lost Decade: Japanese GDP Edition

2009-12-08T20:55:00.000-08:00

I found the following piece from Martin Gremm (fourth hit on a random Google search) which details how Japan reacted to the bubble popping in their economy in the early 1990's and the pain it caused not then (important), but 10 years later (i.e. the beginning of the most recent 10 year period).

The government's response to the financial crisis inflated the national debt from 65% of GDP in 1992 to 180% in 2005. The Debt to GDP ratio has held steady near these levels since then.

Currently, Japan spends about 24% of their annual budget on interest payments. Any significant increase in interest rates would push this expense into crippling territory, but so far rates have shown little inclination to rise.

A decade of long-term interest rates in the low single digits should lead to inflation, but in Japan inflation has been very tame. We can understand why this is the case by looking at how money flows through the Japanese economy.

The first major difference between the US and Japan is that the savings rate in Japan is very high and many Japanese invest their savings into government debt. Ninety-three percent of the Japanese national debt is held internally. This would be unthinkable in the US because consumers are themselves over-leveraged and can't lend much to their government.

Japanese banks tend to use deposits to buy government bonds rather than lending them out to consumers. Presumably this reflects a reluctance of individuals and businesses to borrow, and a reluctance of banks to lend to any but the most credit-worthy borrowers.

In effect, the Japanese population lends its savings to the government, either directly or by keeping its savings in a bank, which uses the deposits to buy bonds. Interest payments are usually reinvested back into government bonds.

This process creates significant demand for Japanese government debt, which keeps bond prices high and interest rates low. It also prevents inflation, because a lot of bank deposits are used to fund the budget deficit rather than consumer and business spending, which could drive up prices.

This unusual arrangement enabled Japan to sustain an inherently unstable situation for the last decade. If the Japanese population decides to spend money instead of saving it, or the banks decide to look for higher returns by lending to individuals and businesses, inflation and interest rates will rise and Japan will have to address its debt burden.

With that as a backround, Bloomberg reports:

Japan's economy expanded less than a third of the pace initially reported in the three months to September as companies slashed spending.

Gross domestic product rose at an annual 1.3 percent rate, slower than the 4.8 percent reported in preliminary figures last month, the Cabinet Office said today in Tokyo. The revision was deeper than the predictions of all but one of the 17 economists surveyed by Bloomberg News.

Stocks fell after the report underscored concern about the sustainability of a recovery that is under threat from deflation and a rising yen. Prime Minister Yukio Hatoyama unveiled a 7.2 trillion yen ($81 billion) stimulus package yesterday to ensure the economy avoids another recession next year.

"These numbers were weak," said Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo. "The stimulus will have a positive effect on the economy. But it's not, in any way, enough to offset how steeply third-quarter GDP was revised."

While EconomPic had stated that each of the last two quarter's figures looked "odd" (see Q2 and Q3 posts), there was NO idea that it was due to massive errors in their estimates. The broader issue is what this all means with regards to the Japanese economy. Even with massive stimulus, the country can not "eek" out a positive nominal GDP print and is becoming closer and closer to the brink every month. How bad? Over the last ten years, the Japanese economy has SHRUNK in nominal terms... that is in Yen, the Japanese economy produces less now than it did 10 years ago.

A smaller economy means they have less of an ability to service any level of nominal debt, all else equal. Yet as the first paragraph of this post indicated, Japan has taken the opposite path which I feel is HIGHLY instructive for a potential "slog through" period within the United States should we continue to move down the path of ever increasing debt loads within the household and public sectors, without corresponding economic growth.

The question I keep asking myself with regards to the United States and Japan... where will this growth come from?

Source: ESRI

Jake 09 Dec, 2009

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Source: http://econompicdata.blogspot.com/2009/12/real-lost-decade-japanese-gdp-edition.html
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Temporary Help as a Predictor of Broader Hiring

2009-12-08T06:03:00.001-08:00

Bloomberg reported:

The worst U.S. employment slump in the post-World War II era may be about to end as companies hasten to hire temporary workers and boost hours, according to economists such as John Ryding and Zach Pandl.
Employers took on 52,000 temporary workers in November, the largest increase since October 2004 and the fourth consecutive gain, the Labor Department said today. The average workweek climbed by 12 minutes, the most since March 2003.
"It is beginning to look like December could be the first month to show a positive payroll print," Ryding, chief economist at RDQ Economics LLC in New York, said in a telephone interview. "Companies are running out of labor."
Jumps in temporary help and working hours often presage the addition of permanent, full-time staff as companies grow more confident sales will be sustained. Job growth would help lift consumer spending, the biggest part of the economy, and aid the recovery from the worst recession since the 1930s.

This cycle may be slightly different as employers delay the full-time hiring due to uncertainty and quite frankly an ability to get top talent "on the cheap" on a temporary basis.

Source: BLS

Jake 08 Dec, 2009

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Source: http://econompicdata.blogspot.com/2009/12/temporary-help-as-predictor-of-broader.html
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Deleveraging Consumer and Economic Growth

2009-12-07T20:03:00.000-08:00

Consumer credit continues to decrease. WSJ reports:

Consumer lending shrank 1.7% in October, the ninth consecutive drop, extending the dramatic decline of financing available to help fuel the U.S. economy.

The $3.5 billion decline, calculated by the Federal Reserve, caps a 4% drop in consumer lending from its July 2008 peak. Before then, borrowing by U.S. consumers -- including credit-card debt and auto loans, but excluding mortgages -- had been growing for more than a half-century.

Consumer activity accounts for about two-thirds of U.S. economic growth. Curtailed lending to consumers could hurt the chances for a strong recovery.

Consumer credit has exploded, now accounting for ~17% of nominal GDP, about twice the level from 50 years ago. All in, household debt is now more than 120% of GDP, twice the the level of just 25 years ago.

At some point this trend NEEDS to reverse course. Can it grow again before doing so? Sure, but that would push the level to a level even more unsustainable (and painful to correct).

So... if it were to change course, there are two ways this can happen:

Option 1a: Decrease the numerator (consumer credit outstanding) via reduced borrowing
Option 1b: Decrease the numerator (consumer credit outstanding) via default
Option 2a: Increase the denominator (nominal GDP) via true growth (i.e. real GDP)
Option 2b: Increase the denominator (nominal GDP) via inflation

Option #2a is unlikely. The reason? Consumer credit drives real GDP growth.

Long Term Trend

Relationship

So deleveraging or inflation? I know the preference by policy makers, but it is awfully hard to get inflation in the face of a deleveraging consumer.

Source: Federal Reserve / BEA

Jake 08 Dec, 2009

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Source: http://econompicdata.blogspot.com/2009/12/deleveraging-consumer-and-economic.html
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On the Value in Housing

2009-12-07T08:02:00.000-08:00

Felix Salmon recently made the case in his post Against Liquidity:

Investing shouldn't be about safety: it should be about calculated risk.

and...

Liquidity is not ever and always a good thing.

And I completely agree. But both of those points seem to be in conflict with a more recent post of his The Housing Speculators Return. I don't always agree with Felix Salmon, but I typically understand his thought process. That is not necessarily the case in this post. Per Felix:

It bears repeating: homes aren't investments, they're places to live. If you can buy a nice house for less than you'd otherwise pay in rent, then go ahead and buy — no matter what the market looks like, or where mortgage rates are. On the other hand, if you're looking for an "investment", stick to securities. You can sell those much more easily when you need some money, and they won't drive you into possible bankruptcy and homelessness if they go down rather than up.

Let me go through my grievances with that one paragraph, then I'll detail my personal thoughts on housing more broadly.

Homes Are "Only" Places to Live
In addition to living in a home, a house can serve as a long term investment that produces income (i.e. he makes just that point with his alternative to owning... RENTING, which is just paying another homeowner for the right to live in that home).

Rent Must Be More than a Mortgage Payment to Justify Owning
This ignores the fact that rents rise, while a fixed rate mortgage payment doesn't. BLS data shows that the cost of renting typically rises by the rate of inflation over the long run.

Thus, if you plan to live in that home for a long period of time (there were previous generations who bought to live in home the rest of one's life), then as long as rent moves higher than a mortgage at some point in time, you may be better off (not to mention the tax benefits of writing off interest). That includes after 30 years when a homeowner no longer has a mortgage, but renters are still paying rent.

Stick to Securities When Investing
The below chart is from another post from June shows that it wasn't just homes that fell dramatically in value in 2008 (equities, high yield credit, ABS, etc... all fell as much or more than housing in that time frame).

Leverage is Only Done in the Housing Market
Felix stated that securities "won't drive you into possible bankruptcy and homelessness if they go down rather than up". I believe this is just an argument against an irresponsible investment in housing, as an "investor" could just as easily take on significant leverage investing in securities (think the futures market) or in taking out a loan for one's personal business.

My Thoughts on Housing

So, with that all as a background, do I think now is a time to buy? Depends. I must say that I agree with the post that Felix' was responding to. More specific, Daniel Indiviglio's post up on The Atlantic titled A Great Time to Buy a Home? in which he states:

30-year mortgage rates have dropped back down to their record low mark. There are generous government tax credits in place for virtually all Americans to buy a home. Foreclosures also remain high, meaning that there's significant pressure on prices -- it remains a buyer's market in most areas. Those factors combined sound like a good recipe that should result in a great time to buy a home.

And...

Despite all those good reasons to do so, it depends. I think short-term real estate speculation is probably still ill-advised. Even if home prices have hit the bottom, I don't think they're likely to increase quickly over the next several years. So if you're hoping to get in and get out, you might be in for a rude awakening.

But if you're in the market for a home as a long-term investment, say at least 10-15 years, it's pretty hard to make an argument against buying now. Even if we aren't at the precise bottom, it's hard to believe that home prices could plummet much further in most areas. And even if they did continue to decline a little, the tax credit might make up for most or all of that decline anyway. For anyone who can find an especially good deal on a foreclosure or short-sale property, I find it even more difficult to argue against buying.

In other words, "shake hands with the government"... sounds like risk, but a calculated risk to me. While I personally do not own a home nor plan to do so in the near future (my investment horizon is too short as I am not sure where I will be living longer term), I couldn't disagree more that a home is not an investment, let alone a potentially good one in today's environment of subsidized financing where there is considerable potential for increased inflation. The key that Daniel points out is that housing is and should be always considered a long term investment by investors seeking an alternative to renting.

There are times when any asset class becomes overbought or oversold. This can be clearly seen below when viewing the recent performance of equities (in this case the DJIA) or housing (the Case Shiller Index) over the past 20 years.

The chart above tracks equities and housing price levels against their "fair value" based on an assumption that home prices should rise by inflation and stock indices by nominal GDP (quick and dirty) starting in 1989 (as far back as I could easily get home price info). Regardless of whether this is the best approach, we can see how much the actual price fluctuates around these trends for each (actually equities never retreated below the initial starting trend over this 20 year cycle even with the poor performance over the last decade).

So, do I find value in housing? For the millions of unemployed or underemployed? No. For those that want to buy a home outside their price range? No. For those that want to sell within a short time frame? No.

But, for those with the wealth to make the long-term plunge, are willing to accept the risks of home ownership, and can take advantage of subsidized taxpayer money keeping rates artificially low, while the government throws in a sizable refund to boot? Heck yeah.

Jake 07 Dec, 2009

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Source: http://econompicdata.blogspot.com/2009/12/on-value-in-housing.html
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Income Disparity

2009-12-07T05:57:00.000-08:00

Forbes (hat tip The Reformed Broker) with just how large the income gap has grown in the United States:

We based our list on the U.S. Census Bureau's Gini Index, which ranks income inequality in cities on a scale of 0 to 100. Imagine two islands, each with only five people, and a total income of $100,000. On one island, each person earns $20,000. This island has total income equality, and a Gini score of 0. On the other island, one person earns $100,000 and the other four people earn nothing. This island has total inequality, and a Gini score of 100.

The United States as a whole had a Gini score of 46.9 in 2008. By comparison, incomes are more equal in Europe (the E.U. has a score of 31), and less equal in South America (Brazil has 56.7; Bolivia has 59.2).

For what it's worth, no U.S. city has income equality that's close to the levels of Europe. Only seven of the 250 largest American metro areas have Gini scores below 40.

And the top 10 most unequal cities per Forbes:

The Reformed Broker notes that this trend is likely to reverse in coming years.

Income disparity in America is the one enduring thing George W actually can take credit for. Unfortunately for those on top, Obama's on a mission to tax this disparity back to the Stone Age. The pendulum always swings too far in both directions, this time, it's heading hard left.

Jake 07 Dec, 2009

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Source: http://econompicdata.blogspot.com/2009/12/income-disparity.html
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Payroll and GDP

2009-12-07T03:32:00.000-08:00

Calculated Risk looks at the strong relationship between Employment and Real GDP:

This shows that real GDP has to grow at a sustained rate of about 1% just to keep the net change in payroll jobs at zero.

A 3% increase in real GDP (over a year) would lead to about a 1.5% increase in payroll employment. With approximately 131 million payroll jobs, a 1.5% increase in payroll employment would be just under 2 million jobs over the next year - and the unemployment rate would probably remain close to 10%.

The following chart summarizes a table presented in the post, which is a quick and dirty way to estimate real GDP growth rates over the next 12 months time under a variety of employment scenarios (and what the unemployment rate would be at those levels).

Source: Calculated Risk

Jake 07 Dec, 2009

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Source: http://econompicdata.blogspot.com/2009/12/payroll-and-gdp.html
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EconomPics of the Week: Recovery Edition?

2009-12-05T10:32:00.001-08:00

The unemployment figure is the first true upside "surprise" that actually "surprised" me. While there are still enormous structural problems remaining in the global and U.S. economies, my thought has been that employment will be a leading (vs. its typical lagging) indicator this cycle. Thus, my hope that this will be an improving trend....

Economic Data
Unemployment Drops to 10%
Chicago PMI: Strength, but No Jobs
Still Shedding Jobs
European Unemployment Remains at 11 Year High
Random Blip or Double Dip?
Autos and Emerging Markets
Private Construction Slump Continues
Manufacturing Continues to Expand, but at Slower Pace
Durable Goods Down, But Out?
Japanese Industrial Production Up, but Disappoints

Asset Prices
Thanks to the Fed, We Have Narrow Spread
Equities Lost Decade
1.2% over 10 Years?
The Scale of Hedge Fund Gold Purchases

And to celebrate the economy's potential "waking up", your video of the week... Arcade Fire's 'Wake Up' in a live post concert stairway acoustic performance (you may have heard the album version from a commercial for 'Where the Wild Things Are'). For those looking for an album to buy, their first album 'Funeral' is absolutely amazing.

Jake 05 Dec, 2009

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Source: http://econompicdata.blogspot.com/2009/12/econompics-of-week-recovery-edition.html
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2009-12-04T06:34:18.690-08:00

2009-12-04T06:33:00.000-08:00

I wish I had some more time to break this down (traveling), but the headline AND details do look strong at first glance. The WSJ agrees:

The top-line numbers in Friday's big jobs looked pretty good. So do the details. Temporary help services rose 52,000. The average workweek ticked up from 33.0 to 33.2. Average hourly earnings edged up 0.1%. And the U6, the broadest measure of unemployment dropped from 17.5% to 17.2%. All forward leaning signs of improvement.

Source: BLS

Jake 04 Dec, 2009

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Source: http://econompicdata.blogspot.com/2009/12/i-wish-i-had-some-more-time-to-break.html
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Random Blip or Double Dip?

2009-12-03T07:18:00.001-08:00

The ISM Non-Manufacturing Index registered a 48.7 in November, lower than the 50.6 percent registered in October, indicating contraction in the non-manufacturing sector after two straight months of expansion.

What Respondents are Saying per ISM:

"Capital markets remain very tight; lenders are not releasing funds for development projects, limiting expansion." (Accommodation & Food Services)
"Fourth quarter still looking grim, but potential upturn for Q1 2010." (Professional, Scientific & Technical Services)
"No one trusts that the recovery is real. Seems everything and everyone is in a holding pattern." (Public Administration)
"Business is still flat." (Wholesale Trade)
"U.S. business remains better than 2007 levels, although it's been through personnel and cost reductions that we are now profitable. Business continues to be about 8 percent below 2008 levels." (Real Estate, Rental & Leasing)

Source: ISM

Jake 03 Dec, 2009

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Source: http://econompicdata.blogspot.com/2009/12/random-blip-or-double-dip.html
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Historical Spreads

2009-12-02T22:42:00.001-08:00

With Agency MBS trading at Treasury levels and Investment Grade Credit spread at narrower levels than in June '08 (i.e. pre "system might crash"), I think the statement "we've come a long way in 12 months" is probably too much of an understatement.

Source: Barclay

Jake 03 Dec, 2009

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Source: http://econompicdata.blogspot.com/2009/12/historical-spreads.html
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Still Shedding Jobs

2009-12-02T05:44:00.000-08:00

Bloomberg reports:

Companies in the U.S. cut an estimated 169,000 jobs in November, according to a private report based on payroll data.
The drop, the smallest since July 2008, compares with a revised 195,000 decline the prior month, data from ADP Employer Services showed today. The figures were forecast to show a decline of 150,000 jobs, according to the median estimate of 32 economists in a Bloomberg survey.
The report signals the job market is still deteriorating and unemployment will probably climb further even as the economy is emerging from the worst recession since the 1930s. After overestimating payroll losses by 103,000 on average in the five months to September, ADP's initial estimate for October was in line with the government's payroll figures.
"Our economy is still a long way from adding jobs," Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, said before the report. "Labor markets remain the one area where significant improvement in economic conditions has yet to manifest."
ADP includes only private employment and doesn't take into account hiring by government agencies.

Optimists will say this report shows "The Bleeding is Slowing', but the fact is that after shedding THIS many jobs, the fact that we are still losing 150k jobs per month is simply stunning.

Source: ADP

Jake 02 Dec, 2009

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Source: http://econompicdata.blogspot.com/2009/12/still-shedding-jobs.html
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Autos and Emerging Markets

2009-12-02T03:47:00.000-08:00

The AP details:

U.S. auto sales struggled to gain ground in November and big improvements aren't expected until people stop worrying about losing their jobs.
Sales were flat compared to last November, according to Autodata Corp. Even higher incentives couldn't push the needle much beyond the dismal lows seen a year ago, when a credit freeze and the financial meltdown kept car buyers at
home.
Fuel-efficient cars showed continued strength, as did crossovers, which are as roomy as SUVs but are built on lower car frames, bolstering fuel economy. Truck sales were again weak.
Last month's big winner was South Korea's Hyundai, which posted double-digit sales growth. Sales at the top three sellers in the U.S. — General Motors, Ford and Toyota — held steady, while Chrysler struggled for yet another month.
Sales were down 11 percent from October. But Jeff Schuster, executive director of automotive forecasting for J.D. Power and Associates, said the industry is encouraged by the seasonally adjusted sales rate, which takes into account perennial factors like higher sales in the spring and summer. That rate has been climbing each month since Cash for Clunkers ended in August, he said.
The adjusted rate was 10.9 million in November compared with 10.5 million in October.

So is the market stabilizing? In aggregate, yes. But, as can be seen with November sales it is divergent among the haves (Hyundai) and have-nots (Chrysler).

But, it has stabilized at a MUCH lower base (this will not help with all the excess capacity).

So is the auto industry dead? Not by a long shot. It just doesn't happen to necessarily be "driven" by those that aren't in need of a new car (U.S. drivers SHOULDN'T be swapping in their "old" wheels every three years), but those that are demanding vehicles (i.e. those that don't have a car / NEED an upgrade). One easy example is China, which not only is growing, but is now LARGER than the U.S. market. Per the WSJ:

China accounted for a quarter of the global automotive industry sales in November, the highest-ever proportion, as manufacturers intensified their marketing in that country while shifting away from slower growing markets.
General Motors Co.'s top sales analyst Mike DiGiovanni said Tuesday that industry auto sales in China rose 93% in November compared with the same period last year.

And India per Livemint:

Driven by the buoyancy in the economy, coupled with demand because of the festive and marriage season, auto sales in India, Asia's third largest market after China and Japan, continued to race ahead for the 11th month in a row. The high double-digit growth registered by most auto makers in November mirrored growth in the nation's economy. In the three months to September, India's gross domestic product grew a better-than-expected 7.9% from a year earlier, the government announced on Monday.
Maruti Suzuki India Ltd, India's biggest car maker, which saw sales jump 60%, said some of the growth was on account of the base effect. "People should not be misled by this," said Shashank Srivastava, chief general manager (sales and marketing) at the firm, adding that the growth was also a function of the weak sales base of last
November.

Maybe this whole "Emerging Markets will drive the global economy going forward" isn't so improbable this time around.

Source: Autoblog

Jake 02 Dec, 2009

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Source: http://econompicdata.blogspot.com/2009/12/autos-and-emerging-markets.html
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Equities Lost Decade

2009-12-01T20:45:00.001-08:00

BusinessWeek with the details:

With the '00s about to flip the odometer to the '10s, there has been a raft of commentary about how lousy a decade this has been. Stock investors can vouch for that: The ten years since Y2K are on track to produce the worst total returns for investors since the 1930s. And, after the roaring '80s and '90s, the disappointment of the last decade is all the more galling.

Indeed, it will be hard for investors to wash the taste of trillions of dollars of losses from their mouths.

In both the 1980s and the 1990s, the broad S&P 500-stock index index provided a total return (which includes dividends) of more than 400%, according to Capital IQ, a Standard & Poor's business. The total return for the S&P 500 since New Years 2000 has been negative 10.8%.

And here it is...

In looking at the chart, it appears the 80's and 90's were just as much outliers (and the reason for the RICH valuation at the beginning of the decade) as the 00's?

Source: ICMARC

Jake 02 Dec, 2009

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Source: http://econompicdata.blogspot.com/2009/12/equities-lost-decade.html
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Private Construction Slump Continues

2009-12-01T10:03:00.000-08:00

Marketwatch details:

Spending on U.S. construction projects was flat in October and revised data now indicate that spending has not risen since April, the government reported Tuesday.
Overall, spending on construction projects barely changed in October, following a revised fall of 1.6% in September, the Commerce Department said. This was the biggest drop since January.
The revision was startling because September was previously estimated to be a gain of 0.8%. Year over year, construction spending is down by 14.4%.
One bright note was that spending on private housing projects rose 4.4% in October. This marked the largest gain in the sector since March 1998.

Not sure how good the news is that the level of private housing construction has increased in a period marked by a glut of homes for sale (the power of subsidies), but it does feed into short term GDP none-the-less.

Outside of this (non-needed?) residential construction, private construction continues to deteriorate (well, except schools). In the most recent three month period, the level of construction has decreased an amazing non-annualized 9% from already low levels.

Source: Census

Jake 01 Dec, 2009

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Source: http://econompicdata.blogspot.com/2009/12/private-construction-slump-continues.html
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Manufacturing Continues to Expand, but at Slower Pace

2009-12-01T07:45:00.000-08:00

Marketwatch details:

U.S. manufacturing firms said business improved in November for the fourth straight month, but at a slower pace than in October, the Institute for Supply Management reported Tuesday.
The ISM manufacturing index fell to 53.6% from 55.7% in October. Readings over 50% indicate more firms said they were growing than said they were contracting.
In November, 12 of 18 industries were expanding. Economists surveyed by MarketWatch were looking for the index to pull back to 55% in November. See our complete economic forecast and calendar of events.
"While the rate of growth slowed when compared to October, the signs are still encouraging for continuing growth as both new orders and production are still at very positive levels, and the prices index fell 10 points, signaling less inflationary pressure on manufacturers' costs," said Norbert Ore, head of the ISM's survey committee.
"Overall, the recovery in manufacturing is continuing, but many are still struggling based on their comments."

Continued growth is the good news, but concerns for me are the slower pace of the employment rebound and continued slump with inventories (i.e. no inventory rebound as of yet).

Source: ISM

Jake 01 Dec, 2009

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Source: http://econompicdata.blogspot.com/2009/12/manufacturing-continues-to-expand-but.html
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European Unemployment Remains at 11 Year High

2009-12-01T04:34:00.001-08:00

NY Times details:

Euro zone unemployment remained stable at an 11-year high in October but September jobless numbers were higher than previously reported, showing the labour market has yet to feel the effects of nascent economic recovery.

Unemployment in the 16-country area totalled 9.8 percent of the workforce, unchanged from September's upwardly revised reading, the European Union statistics agency said.

"In addition to the euro zone's return to growth in the third quarter and improved business confidence, the rise in unemployment is currently being limited to some extent by government jobs support ... most notably in Germany," said Howard Archer, economist at IHS Global Insight.

It was still the highest unemployment rate since the 9.9 percent registered in October 1998, Eurostat said.

Economists polled by Reuters had on average expected a 9.8 percent rate in October against 9.7 percent for September.

A total of 15.567 million people were unemployed in the euro area in October, up by 134,000 against September.

In the whole European Union of 27 member states, the unemployment rate rose to 9.3 percent from 9.2 percent in September. This meant 22.510 million people were out of a job, 258,000 more than in September.

Source: Eurostat

Jake 01 Dec, 2009

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Source: http://econompicdata.blogspot.com/2009/12/european-unemployment-remains-at-11.html
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1.2% over 10 Years?

2009-11-30T19:52:00.001-08:00

Per Bloomberg:

Japanese bonds rose, following their best monthly performance this year, after the Bank of Japan said it will hold an emergency policy meeting today in Tokyo.

Ten-year yields dropped to the lowest level since January on optimism policy makers will expand extraordinary measures to increase liquidity in the financial system. The central bank may consider increasing monthly debt buying from the current 1.8 trillion yen ($20.7 billion), said Christian Carrillo, a senior interest-rate strategist at Societe Generale SA in Tokyo.

"They cannot come out of that meeting without doing anything and my guess is that it will be more purchases of long- term JGBs," Carrillo said. The BOJ may boost monthly buying of government bonds to 2.1 trillion yen, he said.

The yield on the 1.4 percent bond due September 2019 fell 3.5 basis points to 1.225 percent at the 11:05 a.m. morning close in Tokyo at Japan Bond Trading Co., the nation's largest interdealer debt broker.

While the chart below is the 7-10 year Japanese Government Bond Index (rather than just the 10 year yield, which I was unable to find), it does show how low yields are, BUT more amazing, how much lower they can potentially go (think 2002).

This almost makes that 3.2% U.S. Treasury yield seem attractive huh?

Source: Barclays

Jake 01 Dec, 2009

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Source: http://econompicdata.blogspot.com/2009/11/12-over-10-years.html
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Chicago PMI: Strength, but No Jobs

2009-11-30T10:55:00.001-08:00

Details of this morning's Chicago PMI release per Briefing.com:

The Chicago PMI, which is compiled by the Institute of Supply Management - Chicago and Kingsbury International, Ltd., jumped to 56.1 from 54.2. The consensus expected the Chicago PMI to decline slightly to 53.3.
At 56.1, the index is at its highest point since August 2008 and showed an expansion in manufacturing for the second consecutive month.
The production rating, while still expanding at a strong rate, slowed as the index dropped from 63.9 to 57.6.
Beyond production, employment is still under heavy contraction but the rate slowed slightly as the index rose from 38.3 to 41.9.
Firms will also have to settle for lower profits as prices paid for supplies entered an expansion phase as the index rose from 48.6 to 52.6. Due to extreme slack in the labor market, firms will have a tough time passing the higher prices to the consumer.

Source: Briefing

Jake 30 Nov, 2009

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Source: http://econompicdata.blogspot.com/2009/11/chicago-pmi-strength-but-no-jobs.html
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Durable Goods Down, But Out?

2009-11-30T04:28:00.000-08:00

Catching up on some Thanksgiving week releases and saw that durable goods "surprised" to the downside following the upside spike in September. Per MarketWatch:

Orders for U.S.-made durable goods fell in October, declining 0.6% on weaker demand for machinery and defense goods, the Commerce Department reported Wednesday.

Excluding transportation goods, orders fell 1.3%. Economists surveyed by MarketWatch had expected a gain of 0.5% for durable-goods orders, and a gain of 0.4% for orders excluding transportation.

Overall, the report was "disappointing," wrote Millan Mulraine, an economics strategist with TD Securities, in a research note.

However, better times could be coming, according to Mulraine: "Despite the disappointing October print, we continue to maintain our bias for U.S. capital-goods orders to be fairly robust in the coming months as the combination of the U.S. economic recovery and weak dollar bolsters orders."

The reason why this (and other non-spiking economic indicators) are disappointing is that overall levels are still SIGNIFICANTLY below longer term trends (thus STRONG growth is needed just to make up lost ground). The chart below shows just that; while October durable goods new orders were weak, we see the massive drop YTD October vs. a similar period in 2008, thus plenty of room for a strong rebound if / when the economic recovery truly takes hold.

Not a surprise then that those areas showing relative strength were broadly the same areas that have fallen the furthest.

Source: Census

Jake 30 Nov, 2009

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Source: http://econompicdata.blogspot.com/2009/11/durable-goods-down-but-out.html
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The Scale of Hedge Fund Gold Purchases

2009-11-30T03:26:00.000-08:00

In case you missed it... early last week The Reformed Broker detailed the incredible amount of gold that hedge funds (in this case Paulson & Co.) have accumulated in a very short period of time:

John Paulson of Paulson & Co, the legendary hedge fund manager who made tens of billions betting on the mortgage crisis between 2007 to 2009, likes gold. He really likes it. He likes gold more than a friend.

To most market participants, this is not news, but here's something you probably didn't know: Paulson owns more gold than several major countries! Combined!

Retail investor (and more recently this hedge fund) support has made gold a one way bet for much of the past 6+ years. Thanksgiving's Dubai debacle however provided a glimpse into how quickly this may potentially all come to an end. Per the FT Alphaville:

Gold had at one stage dropped as much as 5 per cent as it responded to safe haven flows into the dollar. The precious metal has since recovered to trade about 3 per cent lower at $1,155.80.

Commenting on the sell-off, Davies — who had moved his fund to its maximum 50 per cent under weight gold position:
"It happened so quickly, I've never seen a quicker paper liquidation in gold ever."

Don't fret... gold has snapped back and now looks poised to make new highs (chart below per Kitco).

Regardless of what is or is not a justified price for gold, the only thing that matters is the next price that a buyer or seller is willing to transact. And while I continue to expect to see a one-sided trade, when that one sided trade ends, it has the potential to get real ugly, real fast (though I think we are still a long ways away) as this "tonnage" hits the market.

Jake 30 Nov, 2009

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Source: http://econompicdata.blogspot.com/2009/11/scale-of-hedge-fund-gold-purchases.html
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Japanese Industrial Production Up, but Disappoints

2009-11-29T20:48:00.001-08:00

Bloomberg reports:

Japan's industrial production rose less than economists estimated in October, undermining the nation's recovery from its deepest postwar recession.

Factory output increased 0.5 percent last month from September, the slowest pace in eight months, the Trade Ministry said today in Tokyo. The median estimate of 27 economists surveyed by Bloomberg News was for a 2.5 percent gain.

The decline, led by automakers and electronics parts companies, adds to concern that the economy may slow once global stimulus spending wanes. Bank of Japan Governor Masaaki Shirakawa and Prime Minister Yukio Hatoyama will meet "soon" to discuss how to address a surging yen and slumping stock market, Chief Cabinet Secretary Hirofumi Hirano said today.

"These are weak numbers," said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo. "We've been seeing a V-shaped recovery so far, but the pace is starting to moderate."

Below we see the speed and size of the recovery. While the six month change is still up ~15%, the size of this change has begun to reverse course. While not only indicating that we should not be looking for a "V" shaped recovery, it also puts how large the decline in output really was last Fall.

Source: METI

Jake 30 Nov, 2009

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Source: http://econompicdata.blogspot.com/2009/11/japanese-industrial-production-up-but.html
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EconomPics in Brief (Tryptophan Edition)

2009-11-27T09:00:00.001-08:00

Can't really call this EconomPics of the Week as there were only 6 posts and I'm too Turkey hungover to post anything today... I'll be back in force Monday.

Why the U.S. is Broke... Personal Current Tax Edition
Recovery in Perspective: Nominal GDP Edition
Q3 GDP Revised Down to 2.8%
Existing Home Sales Jump
Agency Mortgage Bonds are RICH
The New Moon... The Power of the Women Filmgoer

Jake 27 Nov, 2009

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Source: http://econompicdata.blogspot.com/2009/11/econompics-in-brief-tryptophan-edition.html
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Why the U.S. is Broke... Personal Current Tax Edition

2009-11-25T09:32:00.001-08:00

Always lots of interesting information within the Personal Income and Outlays release. Here is one such area... personal current taxes, which are:

Includes taxes paid by persons on income, including realized net capital gains, and on personal property.

For all we complain about taxes, our current rate as a percent of personal income is a measly 8.8% down a whopping 60% from 2000 levels.

In real per capita space, while our economy has grown 62% per capita since 1979, personal current taxes paid (again in real per capita terms) is only up 13%.

And we wonder why our country is so indebted?

Source: BEA

Jake 25 Nov, 2009

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Source: http://econompicdata.blogspot.com/2009/11/why-us-is-broke-personal-current-tax.html
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Recovery in Perspective: Nominal GDP Edition

2009-11-24T07:42:00.001-08:00

Remember that "recovery" we experienced in the third quarter? Turns out nominal GDP bounced a "whopping" 3.2% (down 1% from the initial release). Or to put this figure in perspective, the 42nd highest quarter out of the last 251 or one of the lowest 17% quarters over the last 50+ years.

And while real GDP is the real production of the economy, nominal GDP is important for a debt burdened economy as debt is in nominal terms. Since the recession started in December 2007 nominal GDP is cumulatively negative (over 7 quarters), something that has not happened since WWII.

Some recovery.

Source: BEA

Jake 24 Nov, 2009

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Source: http://econompicdata.blogspot.com/2009/11/recovery-in-perspective-nominal-gdp.html
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Q3 GDP Revised Down to 2.8%

2009-11-24T05:46:00.001-08:00

WSJ reports:

The U.S. economy's recovery wasn't as strong as earlier believed, the government said Tuesday, revising its third-quarter numbers to show a wider trade deficit and lower consumer spending than previously estimated.
Gross domestic product rose at a 2.8% annual rate July through September after falling by 0.7% in the second quarter, the Commerce Department reported. A month ago, the department first estimated that GDP rose by an annual 3.5% in the third quarter.
Although the data confirmed that the economy expanded for the first time in more than a year as the government's stimulus boosted consumer spending, the latest report showed that motor vehicles spending in September was lower than had been estimated.
Overall consumer spending rose a quarterly 2.9% in the third quarter and contributed 2.1 percentage points to GDP at annual rates, the new figures show. That compares to earlier estimates that spending had risen a quarterly 3.4% and contributed 2.4 percentage points to GDP.

Source: BEA

Jake 24 Nov, 2009

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Source: http://econompicdata.blogspot.com/2009/11/q3-gdp-revised-down-to-28.html
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Existing Home Sales Jump

2009-11-23T20:09:00.001-08:00

Washington Post details:

The National Association of Realtors reported that sales of existing single-family homes, townhomes and condominiums in October surged to a seasonally adjusted annual rate of 6.1 million units from 5.54 million in September -- making last month the strongest since February 2007. Sales were up 23.5 percent from last October.

Every piece of housing data is scrutinized these days because it was primarily the housing market that derailed the U.S. economy, and its recovery is key to restoring economic vitality.

Low home prices, federal programs that helped push down interest rates and a temporary $8,000 federal tax credit mostly for first-time buyers have all played a role in boosting home sales in recent months. As sales picked up, the excess supply of homes started shrinking and prices began stabilizing.

Below is the non-seasonally adjusted October '09 figures vs those from October '08 (for some reason the seasonal adjustment multiplier was higher this October than last, resulted in an out-sized gain in the seasonally adjusted figure of 23.5% vs. 20.8% for the non-adjusted data). In looking deeper, we see the struggle the west coast continues to live through as the housing bubble continues to unwind.

The issue is the question of sustainability. Back to the Washington Post:

But real doubts linger about whether these gains can be maintained, especially if unemployment continues to rise and government intervention is curtailed. The federal "cash for clunkers" program boosted auto sales, for instance, but only temporarily. And many economists forecast weak growth once the government's broader economic stimulus spending winds down.

Source: Realtor.org

Jake 24 Nov, 2009

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Source: http://econompicdata.blogspot.com/2009/11/existing-home-sales-jump.html
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Agency Mortgage Bonds are RICH

2009-11-23T04:46:00.000-08:00

Bloomberg (via Calculated Risk) details Meredith Whitney's latest concern:

The Federal Reserve has begun slowing purchases in the $5 trillion market for so-called agency mortgage-backed securities after announcing in September that it would extend the timeline for its $1.25 trillion program to March 31 from year-end. Whitney said that banks are only originating home loans that they can sell to Fannie Mae and Freddie Mac.
"If Fannie and Freddie can't sell to an end buyer, i.e. the U.S. government steps back, the mortgage market at minimum contracts, rates go higher, and banks are poised with more writedowns," said Whitney, founder of Meredith Whitney Advisory Group. "This is probably the issue that scares me most across the board."

The chart below shows the option adjust spread "OAS" of Agency Mortgages to Treasuries. This is model driven (the below utilizes Barclays model) to estimate for pre-payments by borrowers and a number of alternative models suggest the OAS is now NEGATIVE to Treasuries (the power of subsidies!).

The question is who is buying mortgages at these levels besides the Fed? Easy... any investor in the Barclays Aggregate index (think pension plans, 401k participants, etc...) .

Source: Barclays Capital

Jake 23 Nov, 2009

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Source: http://econompicdata.blogspot.com/2009/11/agency-mortgage-bonds-are-rich.html
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The New Moon... Women LOVED It... Men... Not So Much

2009-11-22T20:49:00.000-08:00

"Monster" weekend for The Twilight Saga: New Moon. Per the AP:

The vampire romance "The Twilight Saga: New Moon" sucked up $140.7 million in its first three days and pulled in a total of $258.8 million worldwide, according to studio estimates Sunday.

The No. 1 domestic debut for Summit Entertainment's "New Moon" was more than twice the $69.6 million haul over the same weekend last year for "Twilight," the first in the franchise based on Stephenie Meyer's novels.

"New Moon" placed third on the all-time domestic chart behind last year's $158.4 million opening weekend for the Batman blockbuster "The Dark Knight" and 2007's $151.1 million haul for "Spider-Man 3."

Among the top-10 all-time openings, "New Moon" is the only one that came outside of Hollywood's busiest time, the summer season. The movie adaptation of Meyer's next "Twilight" chapter, "Eclipse," arrives in the heart of summer, next June 30.

On Friday, "New Moon" set an all-time domestic high for opening day with $72.7 million, topping the previous record of $67.2 million by last year's "The Dark Knight.

And the devoted (teen / tween / female skewed) fans could not wait until Saturday to see the film. As detailed above, the film broke the record for the largest grossing Friday of all time and while Saturday was nothing to sneeze at, the drop from Friday was the 6th largest of all time (in percent... in $$ it was by far and away the largest).

So what kind of business can we expect from the New Moon going forward? Well, the next stage is typically driven by word of mouth based on the quality of review. And the viewers were split by just about as much as I've ever seen. Well, not viewers... just the sexes. Females LOVED the film for its ~~Abercrombie'ish models~~ acting. Men... not so much.

So my guess... females will continue to come out in droves. Men... not so much.

Source: Box Office Mojo / IMDB

Jake 23 Nov, 2009

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Source: http://econompicdata.blogspot.com/2009/11/new-moon-women-loved-it-men-not-so-much.html
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EconomPics of the Week (11/20/09)

2009-11-20T19:19:00.001-08:00

Breakin' Down the Growth
Leading Economic Indicators Losing Strength
No Inventory Correction in September
Retail Sales Upside Suprise... Still Weak Longer Term
Japanese GDP... 4.8% Growth, but Ugly?

Assets
Selecting a Domestic Fixed Income Benchmark
Housing Starts and Permits Down.... GOOD

Inflation / Deflation
Auto Prices and CFC; CPI and Capacity
Has Euro CPI Seen Its Lows?
What Stinkin' Inflation? PPI Edition

Struggles
1 in 7 Americans Affected by Food Insecurity

And your video of the week... rookie Brandon Jennings drops a double-nickel (and yes, the Knicks passed on him in the draft):

Jake 21 Nov, 2009

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Source: http://econompicdata.blogspot.com/2009/11/econompics-of-week-112009.html
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