Weekly Indicators for July 27 31 at XE.com

 - by New Deal democrat

My Weekly Indicator post is up at XE.com.  Several more coincident indicators have turned soft or close to negative.

International Economic Week in Review: Emerging Market Exodus, Edition

This is over at XE.com

The Q2 stall in labor costs and part-time employment

 - by New Deal democrat

The employment cost index (ECI), a median measure of employee compensation, pretty much laid an egg in the second quarter, and actually decreased slightly when deflated by personal consumption expenditures.

It is instructive to compare this with several other measures of employee compensation, first of all, another median measure of usual weekly earnings for full time employees (red):

Note that even with the 2Q small decline, the wage trend as measured by the ECI has been improving, whereas usual weekly earnings have been generally flat perhaps with slight improvement over the last several years.

Why the difference?  Most likely in the differing ways the two measures treat part time employment.  Here is a good explanation from Moody's:

There are several measures of wages and compensation, but one of the most closely watched is the employment cost index. This measure is important because it attempts to control for differences in job mix that can affect wage growth and therefore capture inflation in the true underlying cost of labor.... 

The ECI controls for job mix by measuring average compensation within specific groups of workers within the same firm... including ... part- or full-time status ....  For example, if a firm interviewed for the ECI has one worker who is a part-time nonunion cashier and another who is a full-time unionized cashier, they would not be grouped together. 

As a result, when firms increase [decrease] their share of part-time workers to save on compensation costs, it will not show up as a decline [increase] in the ECI. This is potentially problematic, as early in the recession there was a significant rise in part-time workers, and during the recovery this has fallen.

Now let's take a look at the number of workers who usually work full time (blue) vs. part time (red) over the last year:

After a year of improvement, full time employment stalled in the second quarter while part time employment grew.  It is likely that increases in hours (and so pay) explains the relative improvement in the ECI through the first quarter, and its stall in the second quarter, whereas full time employees have seen little increase in real compensation over that time period.

Another way to look at this is real aggregate compensation, which has risen stoutly during most of this expansion, but has stalled this year:

Aside from paltry nominal wage increases and the mix of part-time vs. full-time workers, the second quarter stall is probably due in part to gas prices which rose into June this year, but peaked in April last year, and part to housing costs which have in significant part been driven by foreign, especially Chinese, cash buyers (which may abruptly end now!).

International Economic Week in Review: Emerging Market Exodus, Edition

This is over at XE.com

Sorry, Doomers, there's still no sign of recession

 - by New Deal democrat

As you all probably know by now, the first estimate of 2nd quarter GDP was reported at +2.3% annualized, in line with the Atlanta Fed's GDPNow calculator (and kudos to them!). Real GDP also grew at +2.3%.  As the graph below shows, this is par for the course for the last 4 years, in which YoY real GDP has grown at +2%, +/-1%:

There have been a few diehard Doomers who have been trumpeting an alleged recession this year, based mainly on Industrial Production and related metrics, usually citing the downturn in the Oil patch (which, as I have repeatedly pointed out, has been more than outweighed by increased consumer spending).

Speaking of which, here is the YoY% change in GDP (blue) compared with the YoY% change in the price of gasoline, inverted (/10 to better scale)(red):

While the price of gas is hardly the single determinant of GDP, since consumer spending is 70% of GDP, it is an important one.  As gas prices rose YoY into 2012, downward presssure was placed on real GDP. As YoY gas prices stabilized and then declined, there has been a general upward trend in real GDP.

With today's release, and the accompanying revisions to prior quarters, Doomers will have to go back to their tinfoil hat claims that the numbers are cooked.  Because we are always DOOMED; only the rationalization changes.

Record high rents, record low vacancies continue

 -by New Deal democrat

I have a new post up at XE.com. The apartment boom is continuing, featuring record high rents, and record low vacancies.

International Preview For the Week of July 27-31

This is over at XE.com

US Equity and Economic Review: Transports Still Concerning, Edition

This is over at XE.com

Weekly Indicators for July 20 - 24 at XE.com

 - by New Deal democrat

My Weekly Indicator post is up at XE.com.  The continuing collapse in commodities is the biggest story, followed by renewed strength in the US$ and increasing weakness in temporary staffing.

Dear God: Powerline Still Believes in the "CRA Caused the Great Recession" Theory.

Paul Mirengoff over at Powerline still believes the CRA caused the Great Recession.  Thankfully, Barry Ritholtz did the heavy lifting on this "theory" some time ago, thoroughly debunking it.  Here's the key piece of data: the housing bubble was global.  Take a look at this chart from the article:

So, either a ton of other countries had the CRA, or there were other causes. 

Of course, economic facts and data haven't meant anything to the PL boys in decades, so this won't change their minds.  But, it is good to know the PL boys have maintained their 100% error rate on economic matters streak. 

International Economic Week in Review: IMF Lowers Growth Projections, Edition

This is over at XE.com

Initial jobless claims adjusted for population set a new all-time low

 - by New Deal democrat

This morning population adjusted initial jobless claims set a new all-time record.

On an unadjusted basis, initial jobless claims set an all-time low of 161,000 on November 30,1968, when the US population was a little over 201 million.  But US population is now over 310 million.  Here's what initial jobless claims look like (blue) compared with population (red), normed to be equal on November 1968:

Now here is a close-up of the last year:

In short, right now is the most secure US workers have been in their jobs for the last 50 years.

Sub-$2/gas this winter?

 - by New Deal democrat

I have a new post, discussing gas prices, at XE.com.

We've probably already hit our peak in gas prices this summer, and the longer-term trajectory looks like it is pointing to even cheaper gas than last winter.

The shallow industrial recession and the strong US$

 - by New Deal democrat

I have a new post up at XE.com.

The New York Fed recently released a report on the effects of an appreciation of the US$ on imports, exports, and GDP.  Recent declines in both industrial production and transportation indexes are in accord with that effect, but consumer spending is more than offsetting that decline.

Black September revisited: On planet Earth, 2008 was a credit event, not a housing event

 - by New Deal democrat

In December 2008, I wrote "Black September: Why the economy suddenly went into free fall"  a day-by-day chronology of the events of that month, intending it to be a "first draft of history," and leave a concise record of what happened, and why it happened while it was still fresh in everyone's mind.

Now in 2015, memories have already faded, and there is an internet tussle between Brad DeLong and Dean Baker about whether the Great Recession was primarily a housing event or a credit event. 

In particular, as summarized by Robert Waldmann at Angry Bear, Baker has argued that:

"the decline in construction plus the decline in consumption due to reduced housing wealth explains the decline in aggregate demand (without any need to discuss finance, underwater mortgages, or clogged credit channels...."

Waldmann is inclined to agree with Baker:

"I think his calculations make sense. He gets to his conclusion with simple estimates (no finance included) using data from before the great recession. He has a problem with the timing of the recession which was very mild until Lehman collapsed then very severe. I think he can argue that this was a short run fluctuation with effects which didn’t last ...."

This argument is a variation on the joke about economists that "it works in practice, but will it work in theory?"  Because we have the facts: the anomalous consumer decline between September 1 and October 10, 2008,  during which the shallow recession which had crippled the housing industry and Wall Street, but left Main Street virtually intact, suddenly metastasized into a collapse of the consumer economy that some were beginning to liken to the 1930s, was due to a complete drying up of credit due to a fundamental loss of faith in the financial system.

As I said at the time: 

The decline in housing values did not have a major effect on most American consumers’ behavior. The 30%+ who do not own houses, and the 20%+ who own their houses in full, were completely unaffected. Of the remaining minority, ... although their home equity position may have declined, even now [December 2008] 90% of all homeowners are “above water”, meaning they have positive equity in their houses. 

But the dramatic 45% decline in the stock market from its October 2007 highs is another matter entirely. It [ ] created perhaps the biggest single negative wealth effect ... in all of American financial history....

Below are selections from by "Black September" post.  If you don't want to read the whole edited chronology, skip to September 24 and 30, and you'll get the gist.
=====

[In August 2008,] Despite all of these things, the unfolding events ... [left] Main Street unscathed. For example, Prof. Brad DeLong, who has been an astute observer of the collapse, noted that "The Financial Economy Has Galloping Pneumonia, Influenza, *and* the Grippe, But the Real Economy Just Has a Cold."

.... In short, the August picture of the economy as a whole showed a recession, but so far a shallow one.

[But by] December 3, John Bergstrom of Bergrstrom Automotive, a major auto dealer, appeared on CNBC and said, "on about September 10, we saw our business fall off 30-35%."

A similar sudden decline in consumer spending during September was reported by Shoppertrak:

...While the consumer has remained fairly resilient during this time [2008], two very recent events are dramatically impacting mall visits and consumer confidence.-

Once the financial crisis emerged at the beginning of September, retail traffic declined even further. Between August 31 and September 20, SRTI total U.S. traffic fell an estimated 9.2 percent per day….

- After the failure of Washington Mutual, President Bush’s address to the nation, the presidential debate and the initial rejection of the TARP bailout, traffic fell by an average of 10.5 percent (September 21 – 29).

- The day the TARP bailout package was rejected by congress (September 29) and the NYSE Dow Jones Industrial Average lost 778 points, consumers again responded negatively as shopper traffic fell 12 percent as compared to the same day in 2007

-----

• Sept 7
• Report that treasury is going to do $500Bln bailout/backstop  of Fannie/Freddie in a “conservatorship"
• Sept 8
  • Treasury officially takes control of Fannie/Freddie
  • The late Tanta, in one of her last posts, notes that US Today headline says taxpayers on hook for $5.4 trillion, says that’s what average Americans are reading
• Sept 9 
• Lehman in imminent peril per news – faills from $13 to $9 in one day – put on “credit watch” by S & P
• WaMu “cliff diving” credit outlook cut to “negative”

• Sept 15 
• Lehman fails
• AIG seeks $40 Billion bailout, is downgraded
• Prof. Paul Krugman calls allowing Lehman to fail “financial russian roulette” with entire financial system
• WaMu bonds cut to junk rating

• Sept 16 
• US considering AIG “conservatorship” agrees to inject $85 billion to AIG to avoid collapse. Breadth of AIG failure a complete surprise
• The NYT reports:
• rumor that large money market fund has halted redemptions

• Sept 19 
  • Treasury to insure money market funds possible downgrades of MBIA, Ambac
  • From the NY Times:  Congressional Leaders Stunned by Warnings 
    As the Fed chairman, Ben S. Bernanke, laid out the potentially devastating ramifications of the financial crisis before congressional leaders on Thursday night, there was a stunned silence at first. Senator Christopher J. Dodd [said] the congressional leaders were told “that we’re literally maybe days away from a complete meltdown of our financial system, with all the implications here at home and globally.”
• Sept 21
• Paulson announces $700 bln bailout plan

Sept 24 

• From the WSJ:  Bush Addresses Bailout Plan 
  President George W. Bush on Wednesday warned Americans and legislators reluctant to pass a historic financial rescue plan that failing to act fast risks wiping out retirement savings, rising foreclosures, lost jobs, closed business and “a long and painful recession.”
• From the NY Times:  President Issues Warning to Americans 
• From the WaPo: Bush:  ‘Our Entire Economy Is in Danger’ 
  Bush painted a grim picture view of the future if Congress doesn’t act, but he really didn’t address how the plan would work. Bush did comment that the plan was to buy assets “at the current low price”, seemingly contradicting the comments from Bernanke and Paulson earlier today that they would buy at above the current “fire sale” prices.
• Calculated risk observed, "I’m not sure if this speech will motivate people to call their representatives, but it might motivate people that haven’t been paying attention to say: “Wow, this is bad. Let’s make sure our money is safe, and watch our expenditures.” And that could lead to a deeper recession"
• • Sept 29 
    • House of Representatives votes down [bailout] plan
  • Sept 30
    • Christoph Rieger, a fixed- income strategist at Dresdner Kleinwort, says:
      “The money markets have completely broken down, with no trading taking place at all. There is no market any more. Central banks are the only providers of cash to the market, no-one else is lending.

I concluded:

American consumers sustained two massive shocks as a result of Black September. First, their confidence was shattered ... mo[st] importantly by the magnification of those collapses by the public figures (the President, the Treasury Secretary, the Chairman of the Federal Reserve, Senator and Members of Congress) in statements that quite plainly advised Americans that imminent panic over the fate of the entire economy was a proper reaction. And panic American consumers did, as millions of households listened to a President’s speech telling them that the End was Imminent, and then had sober discussions over the kitchen table in which they decided to drastically pull back on discretionary spending, literally overnight.

The bottom line is that, while economic theory may be able to generate equations which can generally shoehorn the huge decline of the Great Recession into a "decline in housing wealth" story, what factually happened was an abrupt and discontinuous decline in consumer spending and business hiring due to a nearly complete loss of faith in the fundamental financial system.

[Note: updated to better reflect chronology]

US Economic and Equity Week in Review

This is over at XE.com

The Niagara Frontier

 - by New Deal democrat

Just got back from the area where I grew up: the Niagara Frontier of NY and Canada. Normally you only hear of this area in winter when someone from the Weather Channel is standing out in a blizzard with a yardstick, but in the summer it is pretty awesome.  Typically the daytime highs from June through August are 70-85 F and lows in the 50s and 60s with lowish humidity.  Perfect vacation weather.

On the Canadian side there is a beautiful small town at the mouth of the river called Niagara On The Lake:

A nice few hours on a rainy afternoon were spent on this veranda sipping red wine:

On the American side there is the similar smaller town of Lewiston, NY.  Drank a toast there too.

And of course there is the falls:

and the gorge:

and the rapids just above the falls:

There is also a huge, ferocious whirlpool downstream where the river narrows to about 200 feet wide and makes a dogleg.

Riding the "Maid of the Mist" boat to the inside of the horseshoe-shaped Canadian Falls is awesome, leaving me and most of the other adults giggling and repeating "Wow!" just like little kids.

Then there's the local food.  Of course, there are chicken wings, reputedly invented at the (still-open) Anchor Bar in Buffalo, but the best are reputedly served at Duff's, and incongruous Mexian adobe style former cocktail lounge located in an affluent suburb.  Here it is as it looked in the 1950's:

I grew up a mile from this place and had never set foot inside until this past week!

Then there's Beef on Weck, a roast beef sandwich on a hard, salty Kimmelweck roll that stands up to au jus sauce and  isn't made anywhere else. And Ted's charcoal grilled hot dogs:

Nathan's, eat your heart out.  Not even close.

Here is a photo taken at the waterfront looking east to the downtown skyline of the much-maligned Buffalo:

And here is the west view from the same location:

Not too shabby, right? On the left side of the photo you can just barely see the NY shoreline stretching southwest.  On the far right is the shoreline of Ontario, Canada, where there are a bunch of nice sandy beaches only about 15 minutes from downtown. Since Lake Erie is shallow, in summer the water warms up to about 70 - 75 F, so it's great for swimming. On a typical summer afternoon there are dozens of sailboats out on the lake.

In wintertime, during those huge snow events, typically everywhere north of that lake shore - which is everywhere north of downtown Buffalo - sees bright sunshine and bright blue skies, while across the entire southern horizon from west to east is the snowstorm.

All in all, a great short summertime vacation.

Weekly Indicators for July 13 - 17 at XE.com

 -by New Deal democrat

My Weekly Indicator post is up at XE.com.  The recent trends all continued this past week.

International Economic Week in Review

This is over at XE.com

It's Another Policy Fail From Ed Morrissey of Hot Air

     In several recent articles, Ed Morrissey of Hot Air has argued against the ACA in quite vociferous terms.  Unfortunately, his articles not only misdiagnose the basic problems that led to passage of the ACA, but offer completely unworkable solutions.

     Let’s begin with his mis-diagnosis, beginning with this:

Before we get to ObamaCare, let’s recall the rationales for government imposing top-down control over one-sixth of the nation’s economy. First, we had to end the issue of the uninsured, which had spiked as a percentage of the population after the Great Recession, mainly from unemployment.

Yes, Ed, it did spike after the recession.  But the rate of uninsured was a 20+ year problem in the making:

During 1968–1980, the percentage of persons under age 65 years who had private coverage remained stable at about 79%, while the number with private coverage increased from 140.5 million to 154.1 million persons (Tables 1 and 2). During 1980–2007, the percentage with private coverage declined steadily, except during 1996–1999. From 1999 to 2007, the percentage of persons under age 65 with any private coverage declined at an average rate of more than 1% per year, to 67% in 2007; the number of persons with private coverage remained at about 174 million during this period. The downward trend in private coverage was driven in large part by a decline in employer-sponsored coverage. In 2007, 62% of persons reported employer-sponsored coverage, down from 71% in 1980.

From The National Health Statistics Reports of July 1, 2009:

Here’s a chart of the data:

In short, Ed, the uninsured was a growing problem for decades.

And the quality of the insurance was decreasing.  Most of the people who previously filed for bankruptcy did due to medical costs, and a majority of those individuals had insurance:

Bankruptcies resulting from unpaid medical bills will affect nearly 2 million people this year—making health care the No. 1 cause of such filings, and outpacing bankruptcies due to credit-card bills or unpaid mortgages, according to new data. And even having health insurance doesn't buffer consumers against financial hardship. 

The findings are from NerdWallet Health, a division of the price-comparison website. It analyzed data from the U.S. Census, Centers for Disease Control, the federal court system and the Commonwealth Fund, a private foundation that promotes access, quality and efficiency in the health-care system.

…..

Even outside of bankruptcy, about 56 million adults—more than 20 percent of the population between the ages of 19 and 64—will still struggle with health-care-related bills this year, according to NerdWallet Health.

And then there’s the fact that insurance companies continued to whittle down the risks they covered, largely by denying coverage to people with pre-existing conditions.  So, the only people that were covered were those who really didn’t need it.

So, to sum up, the health insurance marketplace didn’t cover an increasing number of people for an extended period of time.  Insurers were legally allowed to discriminate against people with pre-existing conditions.  These two factors meant a large number of people didn’t get medical care they needed.  So, when they were finally able to get that care, they had a lot of problems that built-up over a period of time.  This is called pent-up demand, which isexactly how an insurance executive describes the current situation:

By contrast, Marinan R. Williams, chief executive of the Scott & White Health Plan in Texas, which is seeking a 32 percent rate increase, said the requests showed that “there was a real need for the Affordable Care Act.”

“People are getting services they needed for a very long time,” Ms. Williams said. “There was a pent-up demand. Over the next three years, I hope, rates will start to stabilize.”

Now, let’s look at Ed’s proposal for health care:

The only option is to repeal it and introduce market-based reforms that eliminate price-signal opacity, especially in routine care.

I love this option.  For non-emergency care, consumers are going to start calling around to doctors to compare prices.  Really Ed?  Let me use a routine physical as an example.  First of all, what is supposed to happen at a routine physical?  What tests should be done?  What types of analysis should occur?  I honestly don’t know.  And, neither do most people.  This alone gives dishonest doctors and advantage: they can advertise the lowest price, do minimal work, and tell the consumer that, “you don’t need all that other stuff.”  Unless the consumer also happens to be a doctor, he’ll most likely listen to the “learned professional” on this matter, pay little money and receive sub-standard service.  And, what about the idea of having a doctor who actually knows you and your family history?  Doesn’t that provide an asset to the patient that Ed’s system would completely obliterate?  And just how will be learn about prices, Ed?  Wouldn't an exchange (like what we currently have and that was originally proposed by Republicans in response to Hillarycare in the mid-1990s) be the best place to accomplish that?

     And then there’s the huge glaring problem of when most people access medical care: when they need it, and so are therefore at an extreme negotiating disadvantage.  Let’s say you break your arm.  Under Ed’s scenario, this might not be considered a catastrophe, and so would fall out of coverage.  Are you going to call around to every doctor to get a price quote on that?

    Dear Ed: take it from someone who not only knows economics but also designs insurance programs for a living: you don't know what you're talking about.