On the Change in Q3 GDP
Posted on Monday, December 28, 2009
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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
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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
Posted on Friday, December 18, 2009
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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
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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?
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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
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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
Posted on Thursday, December 17, 2009
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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
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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
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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
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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
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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.
Source: BEA
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Source: http://econompicdata.blogspot.com/2009/12/state-personal-income-rebound.html
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Capacity Destruction?
Posted on Wednesday, December 16, 2009
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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
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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
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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
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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
Posted on Tuesday, December 15, 2009
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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
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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
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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
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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
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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
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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
Posted on Monday, December 14, 2009
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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.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.
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.
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
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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
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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.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).
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.
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
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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
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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
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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
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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 )
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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)
Posted on Friday, December 11, 2009
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OpinionOn 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...
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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
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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
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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?
Posted on Thursday, December 10, 2009
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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.Hey, what's $4.5 trillion amongst friends?
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.
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
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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
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Reuters with the details:
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:
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
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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
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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.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.
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.
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
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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
Posted on Wednesday, December 9, 2009
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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.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).
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.
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
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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...
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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
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Source: http://econompicdata.blogspot.com/2009/12/cant-get-job-heres-why.html
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