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PeakTrader said...

The Bad News - Bad News on Jobs
June 1, 2010

TrimTabs Investment Research Inc. tracks the real-time jobs picture by monitoring income tax deposits at the Treasury. And these have suddenly started falling. Based on the latest data, the firm predicts the economy will actually lose up to 200,000 jobs, net, in June.

The government says the unemployment rate "edged down" to 9.7%...But that's only because about one and a half million people have just, miraculously "disappeared" from the official labor force.

Some of the new "jobs" may not even exist...adjustments may be adding as many as half a million extra "jobs" to the core figure, says independent economist John Williams at Shadow Government Statistics.

The private sector picture may still be in recession... The number employed in the private sector is still about 900,000 below where it was even a year ago...And remember, it has to keep growing just to stand still, because the population is growing.

"There's practically no growth in private sector employment," says Gluskin Sheff strategist David Rosenberg.

Average hourly earnings were up 1.9% from a year ago...The government also reported that those workers produced 2.8% more goods and services per hour. So they actually got paid about 1% less...and over the same period consumer prices rose 2.2%. So even those lucky enough to be working have gone backwards — before taxes.

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PeakTrader said...

So, there may be a slowdown this year and then we have 2011. I stated before:

Perhaps, there will be a perfect storm in 2011 when the U.S. reaches the 90% threshold of government debt to GDP, which locks in countries into slow growth and high unemployment economies, while private debt remains high, taxes increase even more, and government stimulus winds down.

The U.S. has been unable to create a virtuous cycle of consumption-employment, where consumption increases employment, and employment increases consumption, etc.

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Ron H. said...

Only true if the total 2.8% is attributable to improved worker efficiency. What part did technology, or other capital investment play?

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PeakTrader said...

Ron, real nonresidential fixed investment declined for five consecutive quarters in 2008-09, falling to about a 40% seasonally adjusted annual rate in the first quarter of 2009 and has subsequently expanded at a slow rate compared to before the recession.

http://www.bea.gov/briefrm/nonresfi.htm

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PeakTrader said...

The "original post" states:

"Our economic recovery, though relatively strong, is still tepid (U-shaped). But our rebound in corporate profits is robust (a definitive V). Corporate profits could reach a new record high in this year's third quarter."

My comment: There's an inverse relationship between wages and profits.

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Ron H. said...

Well, if the slow rate of RNFI can't account for some of the 2.8% increase in output, then I can only imagine that those workers are so thrilled to still be working, that they are working their a**es off to keep it that way.

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PeakTrader said...

Ron, it seems, the worst workers or workers with the least experience were laid off, while the remaining workers were less likely to ask for raises, in this poor economy, and are working overtime.

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Ron H. said...

"My comment: There's an inverse relationship between wages and profits."

Peak, then how do you reconcile these two statements?

"But our rebound in corporate profits is robust (a definitive V). Corporate profits could reach a new record high in this year's third quarter."

"Average hourly earnings were up 1.9% from a year ago..."

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gettingrational said...

A quote from PeakTrader: "The U.S. has been unable to create a virtuous cycle of consumption-employment, where consumption increases employment, and employment increases consumption, etc."

This is not virtuous but a vicious cycle. Consumption is 2/3 of GDP which is great if Production and Savings/Investment supports this system. But the system is now a cycle of Fed Stimulus (Rebuilding America) with consumption boosters to buy Imports.

A Virtous Cycle is more domestic Production of Goods and Services with resultant Savings and Investments and then consumption. What will lead GDP growth, as it has recently? Exports to low conumptions economies.

BTW, Bob Doll has it right if we can get the deficits (Trade & Gov't) eliminated.

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PeakTrader said...

Ron, profits may rise 6% and wages rise 3%, or profits rise 12% and wages rise 2%, etc. So, profits increase at the expense of wages and vice versa.

In the 2000s, U.S. corporations had a record 20 consecutive quarters of double-digit profit growth, while average hourly earnings most likely increased faster than 1.9% a year.

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PeakTrader said...

Gettingrational, the U.S. is a consumer-driven economy. If we were an export-led economy, we could produce more than consume. However, the rest of the world will not or cannot consume more than we produce to increase our employment (or employ our idle resources).

So, we need to increase consumption to increase employment, and continue the virtuous cycle until we reach full employment. We cannot reach full employment through saving.

Our economic growth and rising living standards will come from the inventions and innovations of the highest skilled workforce in the world. Therefore, the U.S. can consume (and save) more than it produces in the global economy.

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Ron H. said...

"A quote from PeakTrader: "The U.S. has been unable to create a virtuous cycle of consumption-employment, where consumption increases..."

GR, the term "virtuous cycle of consumption-employment" is a term often used by Keynesian economists, and has a particular meaning when used in this way.

PeakTrader uses Keynesian references frequently, but we overlook it, because he is otherwise right on the money, and an excellent source of good information.

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gettingrational said...

Peak Trader, I completely disagree with the first two paragraphs of your response. I completely agree with your last paragraph except that Intellectual Property rights will have to be enforced (especially in China where it is almost non-existent) -- for U.S. trade success.

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Ron H. said...

gettingrational, keep in mind that imports generally benefit consumers who are able to buy less costly goods and are therefore wealthier, as well as businesses that buy cheaper capital goods and materials, and are therefore more competitive. Exports generally benefit companies and perhaps "the rich" who produce goods and services for export.

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PeakTrader said...

Gettingrational states: "A (virtuous) cycle is more domestic Production of Goods and Services with resultant Savings and Investments and then Consumption."

So, you hire workers to overproduce and then what? Continue to build-up inventories? How can you save when no one is buying your goods & services?

Maybe you believe you can export your goods. Are you going to lower prices enough so that Chinese earning $0.25 an hour can afford them?

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gettingrational said...

Peak, we disagree. You are so last century and so I can imagine how U.S. success has tainted your perception. The battle lines for economic success in this new century are evident now and the U.S. cannot evade economic reality with last century's mindset.

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PeakTrader said...

Gettingrational, some things are timeless, e.g. economics and mathematics (which existed before people).

The innovations of Wall Street created and captured enormous (excess) real capital, assets, and goods for America, in the global economy. Yet, we blame Wall Street.

If Americans can't save, because they borrow and spend, through cheap capital, assets, and goods, then the government should save for them. Instead, the government went on an even bigger spending spree.

So, no matter what century you're in, when you use up and squander all your fuel, then you won't have any fuel left to get anywhere.

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PeakTrader:

Some actually believe this is a V-shaped recovery. My reply:

Thank God for the Obama V-shaped recovery. Now, we know what to do in the next recession:

A. Pay people with their own money to destroy their assets, e.g. Cash-for-Clunkers.

B. Construct a $787 billion stimulus bill to where there are $1.4 trillion annual budget deficits.

C. Cut taxes in a way that no one knows they got a tax cut and raise taxes in a way that no one knows they got a tax hike.

D. Pretend to regulate and when a mining or oil spill disaster takes place pretend you're doing something effective and then blame the ineffectiveness on someone else.

E. Ridicule "Fat Cats" for making too much money. Attack industries with "deep pockets," e.g. health care, finance, oil, etc.

F. Spend the American people's money so fast they won't know what hit them till it's too late, and spend it on the costly "pet projects" you learned this country needs as a community organizer.

G. Help the irresponsible homeowners, but not the responsible homeowners, including those without a mortgage.

H. Keep extending unemployment benefits.

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PeakTrader:

Rather than putting lipstick on this pig, let's keep in mind when you lose 50% and then gain 50%, you're still down 25%.

"Growth (real) would have to be about 5 percent for a full year just to drive the unemployment rate down 1 percentage point."

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Craig said...

Expressing confidence is easy -- when you don't have to, like, shell out any dough to back it up.

And, of course, the whole consumer confidence scam is based on the faulty premise that consumer spending drives the economy. If businesses don't spend first, consumers -- no matter how confident -- won't have jobs (i.e. they won't really be able to consume).

It's amazing to me that this index still gets so much press.

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PeakTrader said...

Craig, maybe you know if the chicken or the egg came first.

I think it doesn't matter much, except without one, you can't have the other.

United States Business Confidence

In the United States, business confidence declined to 59.70 in May of 2010 from 60.40 in April of 2010, according to the Institute of Supply Management (ISM). In the United States, the business confidence survey measures the level of optimism that people who run companies have about the performance of the economy and how they feel about their organizations’ prospects. Business confidence surveys can provide useful signs about the current condition of the economy, because companies often have information about consumer demand sooner than government statisticians do.

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PeakTrader said...

The Obama Adminstration should've found ways to promote sustainable economic growth rather than wasting time hurting the rich and helping the poor, which will eventually harm both the rich and the poor.

The OECD Leading Indicators news states:

"Tentative signs of a potential peak have appeared in Brazil with stronger evidence emerging in France, Italy, and especially China. The CLIs for Japan, the United States and Germany continue to indicate that the ongoing expansion in activity is likely to be maintained, but possibly at a slower pace."

ECRI: Expansion To Slow, A Lot
06/11/2010

The Economic Cycle Research Institute's index of leading U.S. indicators fell 0.8 point in the week ended June 4 to 123.2., the lowest since July '09...indicating a "significant slowing" in U.S. economic growth in the months ahead.

My comment: Real growth of 3% this year will barely lower the 9.7% unemployment rate by year end.

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PeakTrader said...

A real V-recovery:

"After the last severe recession in the early 1980s, real GDP grew at rates of 7 to 9 percent for five straight quarters and the unemployment rate dropped from 10.8 to 7.2 percent in 18 months."

Obama should emulate Reagan
April 26th, 2009

"When Reagan entered office the U.S. inflation rate stood at 11.83 percent compared to .01 percent today. Also, in 1982 the unemployment rate stood at 10.8 percent and today is at 7.6 percent.

Reagan would implement bold policies including large, across-the-board tax cuts, to stimulate the economy and to provide incentives for saving, investment, entrepreneurship and work. The second component of the plan was deregulation to remove unnecessary costs on the economy.

During Reagan’s presidency the federal income taxes were lowered 25 percent across the board in three years with the signing of the Economic Recovery Tax Act of 1981. The Gross Domestic Product growth recovered strongly after the 1982 recession and during Reagan’s eight years grew at a rate of 3.4 percent per year.

Another component of Reagan’s plan was the control over government spending. In 1981, Reagan forced through Congress budget cuts of 5 percent which saved $150 billion in today’s dollars. In constant dollars, the nonmilitary defense discretionary spending never returned to its normalcy of 1981.

Sixteen million new jobs were created during the Reagan presidency, while inflation decreased significantly from 13.2 percent in 1980 to 6.2 percent in 1982 and cut in half again in 1983.

Reagan was also from Illinois. But that’s the only similarity it appears between the two."

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Anonymous said...

Your facts seem misplaced by half.

http://www.capitalgainsandgames.com/blog/bruce-bartlett/1632/reagans-tax-increases

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PeakTrader said...

Anon, Reagan wanted a 30% tax cut over the first three years. However, he negotiated a 25% tax cut with the Democrat House led by Speaker Tip O'Neill (who was Speaker from 1977-87).

Reagan did raise taxes after the V-shaped recovery took hold, which is the best time to raise taxes, i.e. when an economic boom is underway.

Most economists today believe we should raise taxes and cut spending. However, that may cause a double-dip recession. To spur growth, we need to cut taxes and cut spending instead.

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PeakTrader said...

The spending spree continues:

Obama Appeals to Congress for $50 Billion in Emergency Aid
June 13, 2010

President Obama is pressing Congress to approve emergency aid money to support economic recovery and help avoid widespread layoffs of public workers, the Washington Post reported Saturday.

Congressional leaders received a letter from the president asking for almost $50 billion for distribution to state and local governments, saying that increased spending is “urgent and unavoidable,” the Post reported. The money would protect the jobs of teachers, police and firefighters.

“Because the urgency is high—many school districts, cities and states are already being forced to make these layoffs,” Obama wrote, “these provisions must be passed as quickly as possible.”

So far this fiscal year, the federal government has spent $935.61 billion more than it took in, with four months left to go. The U.S. ran a record $1.42 trillion deficit in fiscal year 2009, which began Oct. 1, 2008.

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PeakTrader said...

Obama steps up push for added economic stimulus
Jun 13, 2010

The U.S. deficit reached $1.4 trillion in 2009 and the White House projects will hit $1.6 trillion in 2010.

House of Representatives Majority Leader Steny Hoyer: "I think it's accurate that there's spending fatigue, not only on Capitol Hill, but around the country."

Obama warned that without additional aid, states could be forced to enact "massive layoffs" of teachers, firefighters and other employees.

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PeakTrader said...

Tech spending is also up, like pickup truck sales. However, is it really a boom?:

Tech Spending Set to Rebound in 2010
01/12/10

The tech recovery will be much stronger than the overall economic recovery...U.S. IT spending will grow 6.6% in 2010 to $568 billion, after declining by 8.2% in 2009.

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PeakTrader said...

Pickup truck sales:

Pickup sales shifting into a higher gear, signaling confidence in an economic recovery
June 14, 2010

Pickup sales peaked at 2.5 million in 2004, when the housing boom was in full swing and homebuilders couldn't get enough of them.

In 2009, automakers sold 1.1 million trucks, the lowest level in 18 years.

This year, pickup sales have been gaining momemtum. Through May, Americans bought 11 percent more than they did in the first five months of last year.

The outlook for the housing industry is far from clear, which means the future for pickup truck sales — not to mention the economic recovery — is far from certain.

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Industrial Production Recovery Chart:

http://4.bp.blogspot.com/_Zh1bveXc8rA/TBkWFjtuP4I/AAAAAAAABLo/JJ6W7Zfsb38/s1600/Clipboard02.bmp