I will post this in the morning. I just got done putting together the rough draft of my dissertation. 357 pages and I'm tired.
See you in the morning.
BD
Thursday, July 9, 2009
The Economic Free Fall is Over
Gloom and doom is the way of blogs lately. Nothing is good; everything is bad. Unfortunately, lost in this translation is a set of monthly trends that shows the worse is over. Now -- this does not mean everything is roses. Far from it. As I have mentioned in the past the recovery will be weak with slow growth and high (7%-8% minimum) unemployment for the better part of a year. But the data indicates the worse is behind us.
Before I begin, let me make a few observations.
1.) There are two predominant ways to present economic data: year over year and month over month. Year over year removes seasonality. Here's an illustration. Suppose you are looking at the retail sector's employment trends starting in September and you see in increase in hiring. A logical conclusion is things are looking up because companies are hiring more. However, this excludes the possibility of a seasonal effect; namely that retail typically hires more people as the holiday season approaches. As a result, it's better to compare this September to last September -- this removes "seasonality" from the equation.
However, month over month has value as well -- especially when the economy is at a turning point. While the current year over year data is terrible, the current month to month data shows an extended (as in more than a few months) period of stabilization. This tells us the worst is over.
2.) There's been a great deal of debate about employment centered on whether or not the unemployment rate a leading or coincident indicator. As I demonstrate in this article in all expansions save one since WWII the year over year percentage change in GDP has increased before the unemployment rate has dropped. While the past is not a guarantee of future performance, that's one heck of a track record for an economic indicator. In short, the unemployment rate lags GDP growth over 80% of the time. The rate of establishment job growth is thought of as a coincident indicator -- that is the number of people on payrolls increases and decreases with overall economic growth. However, this number has developed a lagging quality over the last few expansions meaning the recession could technically end and we could still experience job losses. Take a look at this chart which shows the increasing lag time for establishment job growth:
If you want a reliable series of employment indicators, look at the 4-week moving average of initial unemployment claims which typically peaks right at or slightly before the end of a recession:
(This is another reason I believe the recession is technically nearing the end; the 4-week moving average of initial unemployment claims has been dropping for several months)
What appears to be happening overall is the following: companies are still letting people go at the "traditional" time in the cycle. However, they are waiting longer before they start to rehire people.
While we're on the topic of employment, let's take a look at the latest jobs report because an important fact was overlooked:
We'd had four straight months of better and better employment reports -- reports that showed the rate of job loss was decreasing. That makes the latest jobs report an outlier in the series. Combine that fact with the following points:
The Challenger Job Cut Survey is clearly improving and
The seasonally-adjusted number of mass lay-offs spiked, fell and moved a bit higher but is still far lower than before you get an improving jobs situation.
Let me add one more point: I am not saying it's wonderful that people are out of work, or that we shouldn't increase the length of time people are on unemployment insurance or anything remotely or even non-remotely related to that. What I am saying is the statistical series are improving.
Now, let's look at some other important numbers.
Real (inflation adjusted) retail sales have bottomed as have
Real (inflation-adjusted) personal consumption expenditures. In addition
auto sales have bottomed.
And maybe new home sales have as well.
But that's not all.
The ISM manufacturing index has been increasing in clear upward trend as has the
ISM non-manufacturing index. In addition
The Philly Fed and
New York Federal Reserve index of regional manufacturing has improved.
The bottom line is there are a ton of indicators saying the worst is over. Now -- this does not mean we have clear skies ahead because nothing could be farther from the truth. There are huge challenges. But, all signs are the worst is over.
Before I begin, let me make a few observations.
1.) There are two predominant ways to present economic data: year over year and month over month. Year over year removes seasonality. Here's an illustration. Suppose you are looking at the retail sector's employment trends starting in September and you see in increase in hiring. A logical conclusion is things are looking up because companies are hiring more. However, this excludes the possibility of a seasonal effect; namely that retail typically hires more people as the holiday season approaches. As a result, it's better to compare this September to last September -- this removes "seasonality" from the equation.
However, month over month has value as well -- especially when the economy is at a turning point. While the current year over year data is terrible, the current month to month data shows an extended (as in more than a few months) period of stabilization. This tells us the worst is over.
2.) There's been a great deal of debate about employment centered on whether or not the unemployment rate a leading or coincident indicator. As I demonstrate in this article in all expansions save one since WWII the year over year percentage change in GDP has increased before the unemployment rate has dropped. While the past is not a guarantee of future performance, that's one heck of a track record for an economic indicator. In short, the unemployment rate lags GDP growth over 80% of the time. The rate of establishment job growth is thought of as a coincident indicator -- that is the number of people on payrolls increases and decreases with overall economic growth. However, this number has developed a lagging quality over the last few expansions meaning the recession could technically end and we could still experience job losses. Take a look at this chart which shows the increasing lag time for establishment job growth:
If you want a reliable series of employment indicators, look at the 4-week moving average of initial unemployment claims which typically peaks right at or slightly before the end of a recession:
(This is another reason I believe the recession is technically nearing the end; the 4-week moving average of initial unemployment claims has been dropping for several months)
What appears to be happening overall is the following: companies are still letting people go at the "traditional" time in the cycle. However, they are waiting longer before they start to rehire people.
While we're on the topic of employment, let's take a look at the latest jobs report because an important fact was overlooked:
We'd had four straight months of better and better employment reports -- reports that showed the rate of job loss was decreasing. That makes the latest jobs report an outlier in the series. Combine that fact with the following points:
The Challenger Job Cut Survey is clearly improving and
The seasonally-adjusted number of mass lay-offs spiked, fell and moved a bit higher but is still far lower than before you get an improving jobs situation.
Let me add one more point: I am not saying it's wonderful that people are out of work, or that we shouldn't increase the length of time people are on unemployment insurance or anything remotely or even non-remotely related to that. What I am saying is the statistical series are improving.
Now, let's look at some other important numbers.
Real (inflation adjusted) retail sales have bottomed as have
Real (inflation-adjusted) personal consumption expenditures. In addition
auto sales have bottomed.
And maybe new home sales have as well.
But that's not all.
The ISM manufacturing index has been increasing in clear upward trend as has the
ISM non-manufacturing index. In addition
The Philly Fed and
New York Federal Reserve index of regional manufacturing has improved.
The bottom line is there are a ton of indicators saying the worst is over. Now -- this does not mean we have clear skies ahead because nothing could be farther from the truth. There are huge challenges. But, all signs are the worst is over.
A Jack-and-the-Beanstalk sized Green Shoot
- by New Deal democrat
The BLS reported this morning that weekly jobless claims fell a stunning 56,000 to 565,000.
At their peak in April, weekly jobless claims were 658,750. This is almost 100,000 less claims than then. Note that in previous years the July 4 holiday has not affected these seasonally adjusted numbers, so appears not to be an issue.
Even during the booming 1990s, weekly jobless claims averaged about 300,000-325,000 a week, so this week's figure represents an ~30% improvement.
This number is consistent with the bottom of the recession being called by the NBER right now.
I've been crunching numbers on this exact point, I will post more later when I get the chance (maybe tonight or tomorrow morning).
Consider this a Jack and the Beanstalk sized green shoot.
-----
Update: Peter Broekvar at The Big Picture says this number was "artificially lower" because of a lack of auto plant closures.
So, was it "artificially higher" in May and June when Chrysler and GM went down?
The BLS reported this morning that weekly jobless claims fell a stunning 56,000 to 565,000.
At their peak in April, weekly jobless claims were 658,750. This is almost 100,000 less claims than then. Note that in previous years the July 4 holiday has not affected these seasonally adjusted numbers, so appears not to be an issue.
Even during the booming 1990s, weekly jobless claims averaged about 300,000-325,000 a week, so this week's figure represents an ~30% improvement.
This number is consistent with the bottom of the recession being called by the NBER right now.
I've been crunching numbers on this exact point, I will post more later when I get the chance (maybe tonight or tomorrow morning).
Consider this a Jack and the Beanstalk sized green shoot.
-----
Update: Peter Broekvar at The Big Picture says this number was "artificially lower" because of a lack of auto plant closures.
So, was it "artificially higher" in May and June when Chrysler and GM went down?
Thursday Oil Market Round-Up
Click on all images for a larger image
On the weekly chart, notice the RSI turned negative a little bit ago and the MACD is about to give a sell signal. In addition, prices are falling through an upward sloping trendline.
This is where the real action is. Notice the MACD and RSI have been declining since early June. in addition prices have broken the uptrend very strongly. Finally, prices have fallen through the EMAs.
Bottom line -- this chart is moving lower.
On the weekly chart, notice the RSI turned negative a little bit ago and the MACD is about to give a sell signal. In addition, prices are falling through an upward sloping trendline.
This is where the real action is. Notice the MACD and RSI have been declining since early June. in addition prices have broken the uptrend very strongly. Finally, prices have fallen through the EMAs.
Bottom line -- this chart is moving lower.
Wednesday, July 8, 2009
Today's Markets
Prices continue to fall. In addition, note the 10 day EMA is about to move through the 50 day EMA. Also note the volume increase in today's trading.
As with the SPYs, note the 10 day EMA is approaching a move through the 50 day EMA. Also note the volume increase in today's trading.
This is still the hold-up that prevents a big move lower. Prices are still right at the 200 day EMA. When they fall, watch out.
On Unemployment Exhaustion
Several people have commented that unemployment data should be coordinated with unemployment exhaustion rates. Fair enough.
The information is from the department of labor. Unfortunately, they use a flashbook format which I can't copy. So here is the link:
http://www.doleta.gov/unemploy/chartbook/chartrpt.cfm
Use data batch number 7.
The information is important for several reason:
1.) Unemployment exhaustion is currently at an all-time high. This is the point people think is important (which it is).
BUT
Coordinate the DOL data with NBER business cycle data found here:
http://wwwdev.nber.org/cycles/cyclesmain.html
Notice that spike in exhaustion rates typically happen at the end of recessions.
That jibes with information found in this post where I note the 4-week moving average is moving lower, the Challenger job cuts report is dropping and the seasonally adjusted mass lay-offs are dropping.
Let me add this: I am not saying it's good that unemployment benefits are ending, nor am I saying anyone who has lost benefits can go to hell. I am not saying that in any way, shape, or form. These people need an extension of benefits.
However what I am saying is this is another data point that indicates we're probably near the end of a recession.
The information is from the department of labor. Unfortunately, they use a flashbook format which I can't copy. So here is the link:
http://www.doleta.gov/unemploy/chartbook/chartrpt.cfm
Use data batch number 7.
The information is important for several reason:
1.) Unemployment exhaustion is currently at an all-time high. This is the point people think is important (which it is).
BUT
Coordinate the DOL data with NBER business cycle data found here:
http://wwwdev.nber.org/cycles/cyclesmain.html
Notice that spike in exhaustion rates typically happen at the end of recessions.
That jibes with information found in this post where I note the 4-week moving average is moving lower, the Challenger job cuts report is dropping and the seasonally adjusted mass lay-offs are dropping.
Let me add this: I am not saying it's good that unemployment benefits are ending, nor am I saying anyone who has lost benefits can go to hell. I am not saying that in any way, shape, or form. These people need an extension of benefits.
However what I am saying is this is another data point that indicates we're probably near the end of a recession.
Wednesday Commodities Round-Up
Click for a larger image
Industrial metals are still rising. The MACD and RSI are still increasing. However, prices are getting caught between the 10 and 20 day EMA on the lower side and the 50 day EMA on the upper side. In addition ---
This chart better shows the triangle consolidation pattern that is forming at the top of the rally. Also note that prices are barely hanging on to the upward sloping trend line. In addition, on the daily chart notice the MACD and RSI are moving lower. This chart tells us prices are really thinking about moving lower.
On agricultural prices, notice the chart has taken a big move lower. This is confirmed by the RSI and MACD making big moves lower.
The daily chart better shows the move lower. Notice the MACD and RSI have taken big moves lower. Prices have broken the upward sloping trendline. And the EMA are moving lower as well -- the 10 and 20 day EMA have crossed below teh 50 day EMA and are looking to make lower lows.
With agricultural and oil prices moving lower it's highly probably industrial metals will follow suit.
Industrial metals are still rising. The MACD and RSI are still increasing. However, prices are getting caught between the 10 and 20 day EMA on the lower side and the 50 day EMA on the upper side. In addition ---
This chart better shows the triangle consolidation pattern that is forming at the top of the rally. Also note that prices are barely hanging on to the upward sloping trend line. In addition, on the daily chart notice the MACD and RSI are moving lower. This chart tells us prices are really thinking about moving lower. 
On agricultural prices, notice the chart has taken a big move lower. This is confirmed by the RSI and MACD making big moves lower.
The daily chart better shows the move lower. Notice the MACD and RSI have taken big moves lower. Prices have broken the upward sloping trendline. And the EMA are moving lower as well -- the 10 and 20 day EMA have crossed below teh 50 day EMA and are looking to make lower lows.
With agricultural and oil prices moving lower it's highly probably industrial metals will follow suit.
Subscribe to:
Posts (Atom)
