The Odd Recovery

And shouldn’t Bush’s economy be downgraded considering that the results are based on federal deficits and federal monetary policies?

Using the levers of government for this purpose is fine if you’re of the openly socialist bent, but the administration flits between photo ops, fund raisers, and Fox news shows claiming it’s all due to their wonderful ‘free market’ ideology.

‘Helicopter Ben’ couldn’t have done a better job himself.

“This isn’t a typical post WWII recession recovery — this is a post-Crash recovery.”

Barry,

I’m not sure what you mean by that. That the slow growth in jobs is due to the loss of equity in the stock market crash?

I think this situation is really unlike anything else we’ve been through. You have the weakening of an asset bubble, a jump in energy prices, a huge current account deficit plus a large budget deficit, a negative savings rate, the potential for a financial debacle due to risky mortgages and risky bonds underwriting them, wages unable to keep up with inflation…

Has there really been a comparable time?

It seems a little wrong headed to me for people to keep looking for a pattern in an incredibly brief time span, the 60 years since the Second World War. Have we really seen it all before? Seems pretty unlikely.

Reuters

Future Inflation Gauge Eases
09/01/2006
NEW YORK, Sept 1 (Reuters) – U.S. inflation pressures fell in August due to lower commodity prices, slower growth in home loans and faster vendor performance, a report showed on Friday.

The dip in inflation pressures was offset only partly by slightly higher moves in interest rates and jobs growth.

The Economic Cycle Research Institute’s U.S. Future Inflation Gauge, or USFIG, which is designed to anticipate cyclical swings in the rate of inflation, fell to 123.1 in August from 124.0 in July.

“While the USFIG is clearly below its October high, it has not dropped decisively. Thus, underlying inflation pressures have ebbed somewhat since the fall, but remain elevated,” said Lakshman Achuthan, managing director for ECRI.

The October 2005 level was 126.5, its recent peak, Achuthan said.

The index’s annualized growth rate, which smooths out monthly fluctuations, fell to negative 0.7 percent from a downwardly revised 1.1 percent in July. The growth rate was originally pegged at 1.7 percent.

Great point Jerry, and I agree. We are seeing another leg coming. Capex is picking up.

—
massive productivity-increasing tech investment
—

If I lay off American engineers and hire Asians to do the same job, do you think productivity goes up or down?

(Not arguing against outsourcing here, just saying that capex spending isn’t the only way to raise productivity.)

QUOTE: “The decline in the unemployment rate reflects the fact that fewer of those without jobs say they are looking for work, as is required to be counted as unemployed.”

I believe the headline unemployment number simply drops all workers not employed after a year, whether or not they are still looking.

Also, of course, anyone with any kind of job is counted “employed”, and any job, even if marginal part-time work, is counted as a “job”. If one person has several such “jobs”, they are each counted as a job. If all jobs were converted to equivalent FT employment, I suspect the difference in reported “jobs” would be very significant.

As an example of the chicanery which lies behind unemployment numbers, consider:

“The Clinton administration also reduced monthly household sampling from 60,000 to about 50,000, eliminating significant surveying in the inner cities. Despite claims of corrective statistical adjustments, reported unemployment among people of color declined sharply, and the piggybacked poverty survey showed a remarkable reversal in decades of worsening poverty trends.

“Somehow, the Clinton administration successfully set into motion reestablishing the full 60,000 survey for the benefit of the current Bush administration’s monthly household survey.”

http://www.shadowstats.com/cgi-bin/sgs/article/id=341

When you are in charge of manipulating the numbers however you want, you CAN put lipstick on a pig, and most economists will gladly kiss it.

The guy from Thompson Financial says different. I don’t (yet) have a link, but CNBC ran a spot featuring him and their work on that. His work said it is.

«Consumer spending is 70% of the economy; government spending must be about 15% so that puts business at 15%.»

Uhm not so fast. The government raises about 30% of GDP and spends almost 35% of it.

Business (and government) investment also has a multiplier effect…

Anyhow, one could interpret ”capex” as capital exports or capital expenditure. Perhaps capital exports are booming. :-)

«Isn’t a large part of the low job creation issue during this recovery related to the massive productivity-increasing tech investment that took place prior to the recession?»

Uhmmm, this is not something that can just be stated. There have been productivity increases, but whether they are tech related is very much an open question. Some guy estimated that 75% of productivity increases have happened in retail (that is, Wal*Mart) and this could be tech related, but it could be just economies of scale.

«If all of that past investment allows producers to expand production during the ensuing recovery, without hiring as many workers, why hire them? Just asking.»

Well, according to neoclassical Economics supply creates its own demand :-) (Say’s Law) so the savings on all those displaced workers would generate more demand and they would be hired again. Unless of course those savings are being invested abroad or in imports, in which case those jobs are gone, gone. :-)

«This recovery has created surprisingly few new jobs for workers in the US.»

Indeed, and it has created a large number of middle and working class jobs in China and India, as well very affluent people in those countries and the USA itself, those that are profiting from the plummeting average cost of labour.

The level of USA capex in China is very high and has generate an export led boom so large that I am reading in Newsweek’s sep. 4th issue in “China’s Wealth Woes” that the Chinese government has been forced to sterilize part of the flow by accumulating 1 trillion dollars of reserves (much in US treasuries) and considers it a threat to economic stability:

http://WWW.MSNBC.MSN.com/id/14535192/site/newsweek/

«warned the head of the National Bureau of Statistics, Qiu Xiaohua, last week. “It is fair to say that China is actually fighting a game against worldwide speculative capital … If not handled properly, this will damage the national interest and endanger economic security.”»
«”This will be the sixth successive year in which investment rises more rapidly than the underlying economy,” says Nicholas Lardy,»

This has probably going to have profound influences on stockpicking, as I mentioned some time ago, for example:

* Companies that are going to do well are: domestic companies that sell branded products to the very affluent, domestic companies that sell generic products to the poor, foreign companies that sell anything to the rapidly growing foreign middle classes.

* Companies that are going to be squeezed: domestic companies that used to sell mass branded products to the domestic middle classes.

From ftp://ftp.bls.gov/pub/special.requests/lf/aat1.txt, growth of 18M in population has occurred over the last six years with about 1 in 2 new people entering the workforce pool (9.952M) while not quite 8 of those 9 are employed today (8.242M). Put another way, only 82% of new workers during the Bush administration have jobs, or an alternate would be that in 1999 64.3% of the eligible workforce was employed & 2005 found only 62.7%. If you consider Clinton left with what? … 4.8% – 5.2% (can’t remember this second) and add this purely population factor in, it looks like unemployment is truely running in the 6.4% to 10%. We’ll find out I guess when the next recession comes.

This doesn’t include people like me that have dropped out of the mainstream workforce, hence not counted, to work part-time contracting for cash and goods. Not a great way to get by but I’m not cut out for retail & I’m still in manufacturing. I’ll hang in there until excap or trickling down tax revenue find the margins of this economy.

Bud Hovell: The household survey feeds into several unemployment indicators, where U-3 is the “headline” number, and U-6 includes “marginally attached” and “discouraged” workers.

To some approximation, the definition of unemployment is (a) not having a job, for a quite expansive definition thereof, and (b) having made specific job-finding efforts during the 4 weeks prior to the survey (e.g. including contacting employers, but excluding merely browsing job ads). It has nothing to do with receiving benefits.

The only link to benefits I can see is that benefits recipients are or may be asked to provide plausible evidence of job search efforts compelling them to make such efforts or at least pretend so even when prospects are low. Once benefits stop, efforts to find jobs that are not there presumably stop as well.

Otherwise please explain what the link to benefits is.

…just to add: if we use the first of the reporter’s measures of a recovery’s success — the plain old unemployment number — then a reduction of say 99% unemployment to 10% unemployment would register as an utter failure. we know however, that going from 99% unemployment to 10% in a single recovery would be unanimously lauded as an economic miracle.

all this unemployment-rate-as-single-indicator stuff is really empty, knuckleheadish reporting. i’m suprised it gets published in the times.

Aren’t we about to see whether the inimitable Mr. Nenner is about to make it five in a row? September 4-5 was his call for this cycle top unless anyone has heard something different recently.

“Has there really been a comparable time?”

Yes, but not here in the U.S. ;^)

If you look back into historical times at other “empire” economies, you’ll see all these things. Check out “Rise and Fall of Great Empires”, for instance….

“And oh, so the Chinese now have production capability, a ready market, and lots of money.

What do they need us for, again? ;^)”

This is a fallacy. The foreign money you point to is central bank reserve surplus. It’s not even that much on a per-capita basis when you take that number and divide it by the number of people that live in China.

China does not have a ready market at all, if you’re referring to a self-sufficient consumer economy. Chinese domestic demand is just not there yet. China is a big country and there are some rich people, but i’ll take a stab and say that 90% of the citizens live well below what we consider to be the American standard of “the poverty line.” For example, $2000 USD a year is a great salary for high-end service-industry workers in China’s major cities. This is 1/10 -1/20 of what service workers get paid in NYC.

And China’s young workers are the same as their United States peers: they do not like to save money, instead they choose to live paycheck-to-paycheck. I just had a dicussion over dinner with a young government official about this last night.

The Chinese need us a lot more than we need them. Their manufacturing sector’s profit margins are thin. They need us to buy their goods more than we need them to produce cheap goods. The reason: someone else will make cheap good eventually…maybe India, Tanzania, Vietnam. Cheap labor is easy to get, rich trading partners much more difficult.