Tuesday, February 9, 2010
Today's Market
Despite today's rally, the markets are still hanging on my a technical thread. Note where the prices are for the three main markets. Click on all charts for a larger image.
Where Will the Jobs Come From?
Now that it appears as though economic armageddon is behind us and we are flirting with a recovery (at least in terms of GDP and leading indicators at this point), the next question isn't when will we see job creation, but where will this job growth come from.
It is very likely that in the next couple of months we will see a positive establishment survey job creation number (the household survey already went positive in January), but it is also likely that those job gains will be small at first and we will need larger and more sustained job creation in order to really get the unemployment rate back down substantially. I am going to paint a somewhat gloomy picture of why we may be in a bind, as many of the jobs lost during the recession are likely not coming back and why the areas that have lead job creation in the recent past (ie services) are also unlikely to pick up the slack.
First, let's examine a leading job creator since the early 90's, construction, which nearly doubled its employment level from 1992 to the peak in 2006 (gaining around 3 million jobs). As you can see from the graphs below, construction employment tanked during this recession (right along with housing starts and commercial/industrial lending).
The interesting information we can gain from the second graph is that construction employment may follow commercial/industrial lending even more closely than housing starts (which makes sense because commercial/industrial projects typically employ exponentially more construction workers than houses). The graphs above are bad news for future job creation for two reasons: 1) it is unlikely that housing starts are going to see a v-shaped recovery due to inventory and loan standard issues and 2) commercial/industrial lending has yet to bottom and the days of huge (and expensive) office/retail centers may be numbered due to the internet. In other words, I wouldn't look to construction jobs to lead us out of this recession (or even to recover to their highs for a long time).
Next, let's look at goods producing employment. While goods producing employment wasn't really a major job creator at all during the last 15 years (actually a lot longer), it was still a major employment sector with 22+ million jobs prior to this recession. Since its peak in late 2006 though, good producing employment has shed over 4 million jobs (or about 20%), while industrial production only fell about 10% during this time frame.
This graph shows the huge decline in goods producing jobs, that is much deeper than the decline in industrial production, but this doesn't even tell the whole story, as demand had declined too, which leads us to:
This shows how dramatically the output of those goods producing employees has risen in the recent past and even continuing its rise during this recession (after a brief drop). What this shows us quite clearly is that it is not outsourcing that is taking our manufacturing jobs away, but technology increases that lead directly to productivity gains. I would estimate that the number of jobs lost in manufacturing over the last decade to outsourcing is probably less than a tenth of what has been lost to technology (remember, you read about every plant that closes and goes to China, but none about the plants that replace a few workers here and there with machines or computers). What the first graph of industrial production shows us in quite damning terms is that we are now at 2002 levels of industrial output with 4 million less employees creating that output (and production is rising again). In other words, I wouldn't look to the goods producing sector to lead us in creating jobs soon (and maybe for a very long time).
Finally, we have to look at the service sector, which had bee relatively immune (in job creation terms) to recessions in the recent past until now. During this recession services employment has lost over 4 million jobs and while it appears that the losses here have stopped, the output per hour (of the business sector) curve has steepened dramatically (ie the rate of productivity increases has increased).
This could be caused by many factors (including working current employees longer, although the hourly data doesn't back this up), but I believe the biggest reason for this increase is the acceptance/adoption and proliferation of technology to the service sector, something we really haven't seen before en mass. This again bodes poorly for a sudden burst in job creation as technological innovation again outpaces the need to hire new workers.
In conclusion, I fear that we may have reached a point where the creation of jobs in quantities large enough to get our unemployment rate back down to a full employment (say 5-6%) level may be behind us under the current economic paradigm. This would lead me to believe that a Keynesian solution is wrong for our situation (as the extra spending will not lead to job creation, but will be eaten up through productivity) and that the solution to our problem lies more on the policy side of creating a new paradigm that would provide a better safety net for those displaced by technology (ie things like single-payer health care, longer standard unemployment benefits, etc) and by enabling workers to gain the benefits of productivity through shorter work weeks and an increased emphasis on telecommuting.
It is very likely that in the next couple of months we will see a positive establishment survey job creation number (the household survey already went positive in January), but it is also likely that those job gains will be small at first and we will need larger and more sustained job creation in order to really get the unemployment rate back down substantially. I am going to paint a somewhat gloomy picture of why we may be in a bind, as many of the jobs lost during the recession are likely not coming back and why the areas that have lead job creation in the recent past (ie services) are also unlikely to pick up the slack.
First, let's examine a leading job creator since the early 90's, construction, which nearly doubled its employment level from 1992 to the peak in 2006 (gaining around 3 million jobs). As you can see from the graphs below, construction employment tanked during this recession (right along with housing starts and commercial/industrial lending).
The interesting information we can gain from the second graph is that construction employment may follow commercial/industrial lending even more closely than housing starts (which makes sense because commercial/industrial projects typically employ exponentially more construction workers than houses). The graphs above are bad news for future job creation for two reasons: 1) it is unlikely that housing starts are going to see a v-shaped recovery due to inventory and loan standard issues and 2) commercial/industrial lending has yet to bottom and the days of huge (and expensive) office/retail centers may be numbered due to the internet. In other words, I wouldn't look to construction jobs to lead us out of this recession (or even to recover to their highs for a long time).
Next, let's look at goods producing employment. While goods producing employment wasn't really a major job creator at all during the last 15 years (actually a lot longer), it was still a major employment sector with 22+ million jobs prior to this recession. Since its peak in late 2006 though, good producing employment has shed over 4 million jobs (or about 20%), while industrial production only fell about 10% during this time frame.
This graph shows the huge decline in goods producing jobs, that is much deeper than the decline in industrial production, but this doesn't even tell the whole story, as demand had declined too, which leads us to:
This shows how dramatically the output of those goods producing employees has risen in the recent past and even continuing its rise during this recession (after a brief drop). What this shows us quite clearly is that it is not outsourcing that is taking our manufacturing jobs away, but technology increases that lead directly to productivity gains. I would estimate that the number of jobs lost in manufacturing over the last decade to outsourcing is probably less than a tenth of what has been lost to technology (remember, you read about every plant that closes and goes to China, but none about the plants that replace a few workers here and there with machines or computers). What the first graph of industrial production shows us in quite damning terms is that we are now at 2002 levels of industrial output with 4 million less employees creating that output (and production is rising again). In other words, I wouldn't look to the goods producing sector to lead us in creating jobs soon (and maybe for a very long time).
Finally, we have to look at the service sector, which had bee relatively immune (in job creation terms) to recessions in the recent past until now. During this recession services employment has lost over 4 million jobs and while it appears that the losses here have stopped, the output per hour (of the business sector) curve has steepened dramatically (ie the rate of productivity increases has increased).
This could be caused by many factors (including working current employees longer, although the hourly data doesn't back this up), but I believe the biggest reason for this increase is the acceptance/adoption and proliferation of technology to the service sector, something we really haven't seen before en mass. This again bodes poorly for a sudden burst in job creation as technological innovation again outpaces the need to hire new workers.
In conclusion, I fear that we may have reached a point where the creation of jobs in quantities large enough to get our unemployment rate back down to a full employment (say 5-6%) level may be behind us under the current economic paradigm. This would lead me to believe that a Keynesian solution is wrong for our situation (as the extra spending will not lead to job creation, but will be eaten up through productivity) and that the solution to our problem lies more on the policy side of creating a new paradigm that would provide a better safety net for those displaced by technology (ie things like single-payer health care, longer standard unemployment benefits, etc) and by enabling workers to gain the benefits of productivity through shorter work weeks and an increased emphasis on telecommuting.
Why I Support A Public Health Care Plan
I originally wrote this article about two years ago. The logic is still sound.
The current debate over health care is making me sick (excuse the pun). I have never seen so many people get it so wrong. Here is the logic behind the need for public health insurance.
While I will almost always advocate for a market based economic approach to allocating resources, health care is not an area where the profit motive should dominate decision making. Simply put, the end product is a patient's health. Private health insurance has a conflict of interest between the insurance company and the insured which will be resolved in favor of the insurance company a majority of the time.
Let me paint a hypothetical picture to illustrate this point. Insured makes a claim with the insurance company, which is a publicly traded company. Because the insurance company is publicly traded they must turn a profit and increase their profits to maintain their share price. In order to make a profit they have every incentive to either
1. Deny the insured's claim, or
2. Delay payment to increase the possibility the insured will drop his claim
There are numerous stories about an insured making a routine claim only to be inundated with paperwork, or being told the policy doesn't cover that procedure, or being told the insurance company has to look into the claim to see if the insurance company can make a payment. In any of these situations the central idea of insurance -- to provide some safety for the insured at a specific cost -- is compromised.
In addition, insurance companies will seek to minimize the amount of money they would have to pay to the insured. Again, remember the product here is the patient's health. Supposed the insured has a disease where the cure is expensive but a cheaper alternative exists. However, the cheaper alternative would moderately or seriously compromise the insured's quality of life. Because the insurance company is profit-driven, it will probably opt for the cheaper treatment that compromises the insured's quality of life.
Secondly, private health care is more expensive the public health care. Here are three charts compiled from the Organization for Economic Cooperation and Development. The figures are from 2004.
First, the US spends the least amount of public money on health care.
However, the US spends the most on health care as a percentage of GDP
and on a per capita basis.
Notice the partially inverse relationship between public expenditures and total amount spent on health care. In short, publicly available health care is cheaper.
Finally there is the issue of competitiveness. I'll let General Motors of Canada make the argument for me.
Health care costs are killing American business. Our international competitors don't have to deal with these costs. As a result, private health care is making US business less competitive.
So, public health eliminates a conflict of interest that compromises individual health, is cheaper and makes the US more competitive. And we don't have a public health system because?
The current debate over health care is making me sick (excuse the pun). I have never seen so many people get it so wrong. Here is the logic behind the need for public health insurance.
While I will almost always advocate for a market based economic approach to allocating resources, health care is not an area where the profit motive should dominate decision making. Simply put, the end product is a patient's health. Private health insurance has a conflict of interest between the insurance company and the insured which will be resolved in favor of the insurance company a majority of the time.
Let me paint a hypothetical picture to illustrate this point. Insured makes a claim with the insurance company, which is a publicly traded company. Because the insurance company is publicly traded they must turn a profit and increase their profits to maintain their share price. In order to make a profit they have every incentive to either
1. Deny the insured's claim, or
2. Delay payment to increase the possibility the insured will drop his claim
There are numerous stories about an insured making a routine claim only to be inundated with paperwork, or being told the policy doesn't cover that procedure, or being told the insurance company has to look into the claim to see if the insurance company can make a payment. In any of these situations the central idea of insurance -- to provide some safety for the insured at a specific cost -- is compromised.
In addition, insurance companies will seek to minimize the amount of money they would have to pay to the insured. Again, remember the product here is the patient's health. Supposed the insured has a disease where the cure is expensive but a cheaper alternative exists. However, the cheaper alternative would moderately or seriously compromise the insured's quality of life. Because the insurance company is profit-driven, it will probably opt for the cheaper treatment that compromises the insured's quality of life.
Secondly, private health care is more expensive the public health care. Here are three charts compiled from the Organization for Economic Cooperation and Development. The figures are from 2004.
First, the US spends the least amount of public money on health care.
However, the US spends the most on health care as a percentage of GDP
and on a per capita basis.
Notice the partially inverse relationship between public expenditures and total amount spent on health care. In short, publicly available health care is cheaper.
Finally there is the issue of competitiveness. I'll let General Motors of Canada make the argument for me.
"The Canadian plan has been a significant advantage for investing in Canada," says GM Canada spokesman David Patterson, noting that in the United States, GM spends $1,400 per car on health benefits. Indeed, with the provinces sharing 75 percent of the cost of Canadian healthcare, it's no surprise that GM, Ford and Chrysler have all been shifting car production across the border at such a rate that the name "Motor City" should belong to Windsor, not Detroit.
Just two years ago, GM Canada's CEO Michael Grimaldi sent a letter co-signed by Canadian Autoworkers Union president Buzz Hargrave to a Crown Commission considering reforms of Canada's 35-year-old national health program that said, "The public healthcare system significantly reduces total labour costs for automobile manufacturing firms, compared to their cost of equivalent private insurance services purchased by U.S.-based automakers." That letter also said it was "vitally important that the publicly funded healthcare system be preserved and renewed, on the existing principles of universality, accessibility, portability, comprehensiveness and public administration," and went on to call not just for preservation but for an "updated range of services." CEOs of the Canadian units of Ford and DaimlerChrysler wrote similar encomiums endorsing the national health system.
Health care costs are killing American business. Our international competitors don't have to deal with these costs. As a result, private health care is making US business less competitive.
So, public health eliminates a conflict of interest that compromises individual health, is cheaper and makes the US more competitive. And we don't have a public health system because?
SEC Tries to Regroup
From the NY Times:
In the headquarters of the Securities and Exchange Commission, Mr. Madoff’s name is rarely spoken. More than seven months after he was sentenced to prison for orchestrating a global Ponzi scheme, shaken S.E.C. employees are still struggling to come to grips with how they failed to catch him before it was too late.Many here refer to the scandal — a $65 billion fraud that, despite several red flags, went undetected by the S.E.C. for more than two decades — as “the event” or “the incident.”
It is the job of Robert S. Khuzami, the S.E.C. head of enforcement, to unmask the next Madoff — and, equally daunting, to convince skeptics that the commission can reassert itself and adequately police Wall Street.
Since arriving at the S.E.C. a year ago this month, just as the Madoff scandal was grabbing headlines, Mr. Khuzami has cut red tape, created specialized teams to plumb hedge funds and other worrisome areas and tried to make the S.E.C. quicker and more nimble.
Unlike some at the commission, Mr. Khuzami, 53, talks openly about the Madoff fiasco. “For a group of people committed to investor protection and prevention, the tragedy of investors’ losses are not lost on anyone,” he said in an interview in his bright, corner office in Washington.
While Mary L. Schapiro, the chairwoman, is the public face of the commission, Mr. Khuzami and his lieutenants are the officers on the beat. Their first challenge is to shake off the psychic blow of the Madoff affair. Not since the 1950s, when budget cuts and deregulation defanged the commission, have its stature and influence sunk so low. Mr. Khuzami, a straight-talking former federal prosecutor and Wall Street executive, says he wants to infuse the S.E.C. with the ethos of a start-up company, making it faster, more proactive and even a bit entrepreneurial.
The jury is still out on how the SEC will perform. However, let's hope they get their act together.
Treasury Tuesdays
A.) Prices moved through the downward sloping trend line and begin moving higher.
B.) Prices run into resistance at the 50% Fibonacci retracement level
C.) Note the EMA orientation. The shorter EMAs (10, 20 and 50) are all moving higher; the 10 has crossed the 50 and the 20 is about to do so; and prices are above all the EMAs.
D.) The stock has plenty of upward momentum, but
E.) Note we haven't seen a big influx into the IEFs. In fact, at one point during the rally we see a drop off.
Monday, February 8, 2010
Click for all images for a larger image
A.) Prices hit resistance in the late morning.
A.) Prices rose for the morning. Note how they rose and then fell into the EMAs for technical support.
B.) In the afternoon, prices fell through the EMAs and then
C.) Ran into upside resistance at the EMAs
D.) Volume spiked at the end of the day.
A.) Prices hit resistance in the late morning.
A.) Prices rose for the morning. Note how they rose and then fell into the EMAs for technical support.
B.) In the afternoon, prices fell through the EMAs and then
C.) Ran into upside resistance at the EMAs
D.) Volume spiked at the end of the day.
Blue Collar Jobs Are Disproportionately Lost In This Recession
The Bureau of Labor Statistics released the current employment situation report on Friday. As such, it seems appropriate to take an in-depth look at the overall employment situation in the U.S. Most of the information contained herein on the methods of collecting employment statistics is found here.
First, there are two employment surveys -- the household and the establishment survey:
The household survey provides information on the unemployment number, which decreased from 10% to 9.7%. This was a very good number because of the following computation issues. The civilian labor force increased from 153,059,000 to 153,170,000 (or an increase of 111,000). This number is the denominator of the unemployment percentage calculation. The number of unemployed decreased from 15,267,000 to 14,837,000 (a decrease of 430,000). This means the unemployment rate actually decreased because the number of people unemployed actually decreased; in other words, the drop in the unemployment rate was not caused by computational issues. This is obviously a very good development.
Additionally, consider this chart of the unemployment rate from the report:
Since mid-Spring the unemployment rate has fluctuated between ~9.5% and 10.1%. While the overall level is not good, it does indicate the overall unemployment rate may be topping out.
The household survey also provides information about the amount of time people have been unemployed. Consider the following charts as a time series. First, people are laid-off. Then they are unemployed for a certain amount of time.
Let's start with the 4-week moving average of initial unemployment claims (this number is not from the household survey). This number has been dropping for most of the year. However, it rose to a very high level and is currently above levels associated with an expanding economy. In other words, the number of people entering the ranks of the unemployed is decreasing, but it is still at high levels.
The number of people unemployed for 5 weeks or less is decreasing, and has been for about half the last year. Also note this number is starting to approach the levels associated with an expanding economy (the levels seen between 2002-2008).
Once someone is unemployed for 5 weeks or longer, the odds are they will remain unemployed for a longer period of time. While this chart of the number of people unemployed for 5-14 weeks appears to be topping out it is still at high levels. Also note this number is far above levels associated with an expanding economy (by about 1 million to 1.2 million), indicating it will take some time to bring it back to healthy/normal levels.
While the number of people unemployed between 15 - 26 weeks appears to be topping out, it is also at high levels that will take some time (as in years) to bring back to normal levels.
And regrettably, the number of people unemployed for over 27 weeks is still increasing.
There are a few other data points from the household survey to highlight. First, consider the following unemployment rates by educational level achieved. The first number is for January 2009 and the second is for January 2010:
Less than high school diploma: 12.4%/15.2%
High School Graduates, no college: 8.1%/10.1%
Some college or associate degree: 6.4%/8.5%
Bachelor's degree or higher: 3.9%/4.9%
These unemployment figures paint a very interesting picture that has profound policy implications. Either the economy needs to start creating jobs for those with less than a college education (a highly unlikely development as will be explained below) or the workforce needs to increase the number of people with higher education.
Here are the same percentages (the unemployment rate for January 2009 and January 2010) of various age groups.
16 to 19: 20.9%/36.4%
20 to 24: 12.4%/15.8%
25 to 34: 8.1%/9.9%
35 to 44: 6.6%/8.5%
45 to 54: 5.9%/7.6%
55+: 5.3%/6.8%
Should the increase in the the unemployment rate for teenagers be a concern? I would argue no, largely because the primary "job" of a teenager is to be a student. The same argument could be made of the 20-24 crowd as they should also be in some type of educational situation. The increase to 9.9% in the 25 to 34 age group is disturbing, as is the increase to 8.5% in the 35 to 44 age group.
Finally, the number of people who were employed "part time for economic reasons" decreased from 9,165,000 to 8,316,000. This is another healthy development.
Let's turn our attention to the establishment survey.
Let's start with the total number of establishment jobs in the US (seasonally adjusted). The above graph illustrates two important and disturbing points. First, the US now has fewer jobs than the lowest point of the previous expansion. All the jobs gained during the last expansion have been wiped out. Secondly, the current total number of seasonally adjusted establishment jobs in the US is lower than the beginning of the decade.
Simply "eyeballing" the chart, we can see the US has lost over 8.2 million jobs in this recession (roughly 138,000,o00 to a little below 130,000,000).
Eyeballing this chart we have see the number of construction employees has dropped by about 2 million (approximately 7.6 to 5.6 million).
The manufacturing picture is very interesting. Notice that a large number of manufacturing jobs lost in the first recession of the decade were never replaced. Next, note manufacturers started to shed jobs in early/mid 2006. From this level manufacturing has lost about 4 million jobs (approximately 22 to 18 million).
Totaling construction and manufacturing jobs we get ~6 million. In other words, about 73% of the jobs lost during this recession came from two economic sectors -- construction and manufacturing.
Let's focus on manufacturing for just a moment. Manufacturing job losses account for a little under 50% of the total job losses (approximately 4 million of the 8.2 million jobs lost). Also note that after the first recession of the decade manufacturing jobs did not meaningfully increase. This is largely because of automation and technology replacing people. The same is true today -- perhaps more so. Assuming increased automation continues, the possibility of a large percentage of manufacturing jobs lost during the recession coming back is slim at best.
Combine the construction and manufacturing jobs lost data with the unemployment rate by educational achievement data from the household survey and you get a very interesting picture.
The great recession wiped out lower education/manual labor jobs. And the experience of the manufacturing sector after the last expansion indicates those jobs aren't coming back.
First, there are two employment surveys -- the household and the establishment survey:
Data based on household interviews are obtained from the Current Population Survey (CPS), a sample survey of the population 16 years of age and over. The survey is conducted each month by the Bureau of the Census for the Bureau of Labor Statistics and provides comprehensive data on the labor force, the employed, and the unemployed, classified by such characteristics as age, sex, race, family relationship, marital status, occupation, and industry attachment. The survey also provides data on the characteristics and past work experience of those not in the labor force. The information is collected by trained interviewers from a sample of about 50,000 households located in 792 sample areas. These areas are chosen to represent all counties and independent cities in the U.S., with coverage in 50 States and the District of Columbia. The data collected are based on the activity or status reported for the calendar week including the 12th of the month.
Data based on establishment records are complied each month from mail questionnaires and telephone interviews by the Bureau of Labor Statistics, in cooperation with State agencies. The Current Employment Statistics (CES) survey is designed to provide industry information on nonfarm wage and salary employment, average weekly hours, average hourly earnings, and average weekly earnings for the Nation, States, and metropolitan areas. The employment, hours, and earnings data are based on payroll reports from a sample of over 390,000 establishments employing over 47 million nonfarm wage and salary workers, full or part time, who receive pay during the payroll period which includes the 12th of the month. The household and establishment data complement one another, each providing significant types of information that the other cannot suitably supply. Population characteristics, for example, are obtained only from the household survey, whereas detailed industrial classifications are much more reliably derived from establishment reports
The household survey provides information on the unemployment number, which decreased from 10% to 9.7%. This was a very good number because of the following computation issues. The civilian labor force increased from 153,059,000 to 153,170,000 (or an increase of 111,000). This number is the denominator of the unemployment percentage calculation. The number of unemployed decreased from 15,267,000 to 14,837,000 (a decrease of 430,000). This means the unemployment rate actually decreased because the number of people unemployed actually decreased; in other words, the drop in the unemployment rate was not caused by computational issues. This is obviously a very good development.
Additionally, consider this chart of the unemployment rate from the report:
Since mid-Spring the unemployment rate has fluctuated between ~9.5% and 10.1%. While the overall level is not good, it does indicate the overall unemployment rate may be topping out.
The household survey also provides information about the amount of time people have been unemployed. Consider the following charts as a time series. First, people are laid-off. Then they are unemployed for a certain amount of time.
Let's start with the 4-week moving average of initial unemployment claims (this number is not from the household survey). This number has been dropping for most of the year. However, it rose to a very high level and is currently above levels associated with an expanding economy. In other words, the number of people entering the ranks of the unemployed is decreasing, but it is still at high levels.
The number of people unemployed for 5 weeks or less is decreasing, and has been for about half the last year. Also note this number is starting to approach the levels associated with an expanding economy (the levels seen between 2002-2008).
Once someone is unemployed for 5 weeks or longer, the odds are they will remain unemployed for a longer period of time. While this chart of the number of people unemployed for 5-14 weeks appears to be topping out it is still at high levels. Also note this number is far above levels associated with an expanding economy (by about 1 million to 1.2 million), indicating it will take some time to bring it back to healthy/normal levels.
While the number of people unemployed between 15 - 26 weeks appears to be topping out, it is also at high levels that will take some time (as in years) to bring back to normal levels.
And regrettably, the number of people unemployed for over 27 weeks is still increasing.
There are a few other data points from the household survey to highlight. First, consider the following unemployment rates by educational level achieved. The first number is for January 2009 and the second is for January 2010:
Less than high school diploma: 12.4%/15.2%
High School Graduates, no college: 8.1%/10.1%
Some college or associate degree: 6.4%/8.5%
Bachelor's degree or higher: 3.9%/4.9%
These unemployment figures paint a very interesting picture that has profound policy implications. Either the economy needs to start creating jobs for those with less than a college education (a highly unlikely development as will be explained below) or the workforce needs to increase the number of people with higher education.
Here are the same percentages (the unemployment rate for January 2009 and January 2010) of various age groups.
16 to 19: 20.9%/36.4%
20 to 24: 12.4%/15.8%
25 to 34: 8.1%/9.9%
35 to 44: 6.6%/8.5%
45 to 54: 5.9%/7.6%
55+: 5.3%/6.8%
Should the increase in the the unemployment rate for teenagers be a concern? I would argue no, largely because the primary "job" of a teenager is to be a student. The same argument could be made of the 20-24 crowd as they should also be in some type of educational situation. The increase to 9.9% in the 25 to 34 age group is disturbing, as is the increase to 8.5% in the 35 to 44 age group.
Finally, the number of people who were employed "part time for economic reasons" decreased from 9,165,000 to 8,316,000. This is another healthy development.
Let's turn our attention to the establishment survey.
Let's start with the total number of establishment jobs in the US (seasonally adjusted). The above graph illustrates two important and disturbing points. First, the US now has fewer jobs than the lowest point of the previous expansion. All the jobs gained during the last expansion have been wiped out. Secondly, the current total number of seasonally adjusted establishment jobs in the US is lower than the beginning of the decade.
Simply "eyeballing" the chart, we can see the US has lost over 8.2 million jobs in this recession (roughly 138,000,o00 to a little below 130,000,000).
Eyeballing this chart we have see the number of construction employees has dropped by about 2 million (approximately 7.6 to 5.6 million).
The manufacturing picture is very interesting. Notice that a large number of manufacturing jobs lost in the first recession of the decade were never replaced. Next, note manufacturers started to shed jobs in early/mid 2006. From this level manufacturing has lost about 4 million jobs (approximately 22 to 18 million).
Totaling construction and manufacturing jobs we get ~6 million. In other words, about 73% of the jobs lost during this recession came from two economic sectors -- construction and manufacturing.
Let's focus on manufacturing for just a moment. Manufacturing job losses account for a little under 50% of the total job losses (approximately 4 million of the 8.2 million jobs lost). Also note that after the first recession of the decade manufacturing jobs did not meaningfully increase. This is largely because of automation and technology replacing people. The same is true today -- perhaps more so. Assuming increased automation continues, the possibility of a large percentage of manufacturing jobs lost during the recession coming back is slim at best.
Combine the construction and manufacturing jobs lost data with the unemployment rate by educational achievement data from the household survey and you get a very interesting picture.
The great recession wiped out lower education/manual labor jobs. And the experience of the manufacturing sector after the last expansion indicates those jobs aren't coming back.
January 2010 Leading Economic Indicators
- by New Deal democrat
We have enough information now to estimate the Index of Leading Economic Indicators for January 2010. Just to referesh your memory, the LEI has a 5 decade history, and was formerly kept by the Commerce Department until its computation and makeup was outsourced to the Conference Board about a decade ago. The 10 indicators, with the weights given each indicator, are as follows:
- real money supply (35%)
- average weekly manufacturing hours (25%)
- interest rate spread (10%)
- manufacturers' new orders for consumer goods (8%)
- supplier deliveries (7%)
- stock prices (4%)
- consumer expectations (3%)
- building permits (3%)
- average weekly initial claims for unemployment insurance (inverted) (3%)
- manufacturers' new orders for durable goods (2%)
Here's my estimate of how the Leading Economic Indicators fared in January. Despite the increase in initial jobless claims and the shallow correction in the stock market, most were positive:
Real M2 remains slightly positive, so +0.02
Aggregate hours in manufacturing were up +0.14
The yield curve is still positive +0.30
ISM deliveries up strongly +.10
Consumer sentiment up, +.05
Building permits were strongly positive +.15
Durable goods' grew +.02
Stocks' 1 months vs. 3 month performance 0.0*
Consumer nondurables even in December, 0.0
Jobless claims turned negative, -0.15
*I believe the index is measured over 3 months, but I am being conservative given the correction in January.
Bottom line: it looks like January Leading Economic Indicators will net about +0.6, the ninth positive reading in a row. YoY the LEI will be up over 8%. With the exception of a few months in 2004, this will be the strongest performance in nearly two decades.
As an addendum, I read over at Barry Ritholtz' place the pundits' opinions that the LEI is "the most useless indicator." This is generally because all of its components are known before it is released. Too bad most pundits don't pay attention, since the LEI has outperformed many if not most of them in the last year. Before you go examining the minutiae of tree bark, maybe you ought to notice at the forest first.
We have enough information now to estimate the Index of Leading Economic Indicators for January 2010. Just to referesh your memory, the LEI has a 5 decade history, and was formerly kept by the Commerce Department until its computation and makeup was outsourced to the Conference Board about a decade ago. The 10 indicators, with the weights given each indicator, are as follows:
- real money supply (35%)
- average weekly manufacturing hours (25%)
- interest rate spread (10%)
- manufacturers' new orders for consumer goods (8%)
- supplier deliveries (7%)
- stock prices (4%)
- consumer expectations (3%)
- building permits (3%)
- average weekly initial claims for unemployment insurance (inverted) (3%)
- manufacturers' new orders for durable goods (2%)
Here's my estimate of how the Leading Economic Indicators fared in January. Despite the increase in initial jobless claims and the shallow correction in the stock market, most were positive:
Real M2 remains slightly positive, so +0.02
Aggregate hours in manufacturing were up +0.14
The yield curve is still positive +0.30
ISM deliveries up strongly +.10
Consumer sentiment up, +.05
Building permits were strongly positive +.15
Durable goods' grew +.02
Stocks' 1 months vs. 3 month performance 0.0*
Consumer nondurables even in December, 0.0
Jobless claims turned negative, -0.15
*I believe the index is measured over 3 months, but I am being conservative given the correction in January.
Bottom line: it looks like January Leading Economic Indicators will net about +0.6, the ninth positive reading in a row. YoY the LEI will be up over 8%. With the exception of a few months in 2004, this will be the strongest performance in nearly two decades.
As an addendum, I read over at Barry Ritholtz' place the pundits' opinions that the LEI is "the most useless indicator." This is generally because all of its components are known before it is released. Too bad most pundits don't pay attention, since the LEI has outperformed many if not most of them in the last year. Before you go examining the minutiae of tree bark, maybe you ought to notice at the forest first.
Market Mondays
A.) Prices are right below one key support line and right above another.
B.) Note that volume has been high over the last two weeks.
A.) The EMAs are in a bearish configuration. The shorter EMAs are below the longer EMAs, all three are moving lower and prices are below all three.
B.) After moving through all the EMAs, prices
C.) attempted a rally but hit resistance at the EMAs.
D.) The last two days prices have formed a hanging man candle pattern. This can mean a reversal is coming, but statistically this is not the best pattern to trade.
A.) Momentum is clearly negative and
B.) Some volume has moved out of the stock, but we have not seen a mass exodus.
Subscribe to:
Posts (Atom)
