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Friday, January 08, 2010


changes in employment

some excellent twitter comments of late from deepfoo analytics regarding perceptions and reality regarding unemployment.

combined EUC and NSA continuing claims higher now than it has been for most of the year. SA's assuming people got seasonal work

People who are using the SA continuing claims numbers only are fooling themselves. EUC program over last year, up +2.88 million

EUC/CC data issue less a markets one & more a risk that admin will do nothing based on imprving #s, when they are getting worse

to be sure, the unemployment situation is far from the accelerating freefall of a year ago -- there is a technical recovery underway resulting from the combination of significant government stimulus, a monster inventory correction cycle following a "full-stop" in production in 4q2008, and what trader mark of fund my mutual fund cannily noted as

1 in 7 Americans not bothering to make a home payment anymore, the "self stimulus" plan should help spending incl retail

investors and financial media do not mention this stimulus period. Many Americans sit in homes without making mortgage.

what this is perhaps not, however, is a durable credit expansion and self-sustaining recovery. there is obviously a cycle afoot whereby job cuts reduce nominal incomes, incomes then reduce asset prices, which thereby make loans riskier and fuels credit contraction, which leads then to more job cuts, lower incomes and lower asset prices and so forth.

perhaps the best hope for breaking this cycle from here is a business-led investment recovery, as viewed by accrued interest.

Its not impossible. Business spending can and does occur in the absence of strong consumer demand. We know that businesses have spent very little on capital replenishment.

[T]he drop off [in non-residential investment] is much more severe this recession than in 2001 or 1991. In fact, fixed investment as a percentage of GDP (9.5%) is at its lowest point since the early 1960s (although about the same as the 1990-1991 recession.) Since 1960, the average capital spending level as percentage of GDP is 11%. In order to get capital spending up to 11%, businesses would have to increase capex by 16%! Again, this could add considerably to GDP without a serious ramp-up in consumer spending. In fact, I'm modeling that fixed investment adds something like 1.1% to GDP in 2010.

Bottom line: I think GDP grows above 4% on average in 1Q and 2Q 2010, then drops off a bit into the mid 3's for the second half.

this (or any) kind of expansion has to translate at some point into job recoveries if incomes (and not just profits) are going to be bolstered and the housing market slowly recover -- and that is the key operation, as without a housing market recovery (or at least stabilization) of some kind loan performance at banks will continue to deteriorate and send hundreds if not thousands more banks to the FDIC. moreover disposable incomes will continue to erode and final end-user demand -- to which the corporate sector is mostly a leveraged passthrough -- will decline, undermining any recovery effort.

in short, if we're going to avoid a double dip that will remove all doubt that we are in a depression, this business-led recovery that creates household income has to come off in spite of massive excess capacity. (and probably more, such as principal reductions for underwater debtors handcuffed to further government recapitalization of banks damaged thereby.) wall street is clearly pricing in not only that recovery but (to judge by the stock market, if it is in any way linked to the fundamental economic backdrop at all) that the profits of the recovery will be retained for the benefit of the capital structure and therefore shareholders. that likely won't suffice for a durable recovery.

so if employment growth is key to stabilizing and repairing the economy, getting the proper picture of employment is critical. zero hedge and paper economy both take up the issue of the unemployed falling off continuing claims rolls as their benefits expire. much has been made of the slow improvement in initial jobless claims, but that is still quite far from improving employment. adding unadjusted (so as to nullify the seasonal adjustments which, as deepfoo notes, are very likely inappropriate under these circumstances) continuing claims with extended claims we can see that the ranks of the unemployed receiving benefits are near all-time highs, over 10.6mm in december.

and that isn't the total. there's a difficult-to-assess number who have fallen outside the boundaries of these benefit programs as well, whose incomes have gone missing. henry blodget relays the new york times:

About six million Americans receiving food stamps report they have no other income, according to an analysis of state data collected by The New York Times. In declarations that states verify and the federal government audits, they described themselves as unemployed and receiving no cash aid — no welfare, no unemployment insurance, and no pensions, child support or disability pay.

Their numbers were rising before the recession as tougher welfare laws made it harder for poor people to get cash aid, but they have soared by about 50 percent over the past two years. About one in 50 Americans now lives in a household with a reported income that consists of nothing but a food-stamp card.

that's a further two million people who have been pushed outside the margin by the depression. and there's more. many older workers have been pushed into retirement sooner than they would have expected or liked, and are taking a hand in bringing forward by several years the inflection point whereupon social security has become a cash flow drag upon the federal government finances. there are also legions of newly-minted workers fresh from school with very few job prospects and no claim on any benefit.

i've tended to look at EMRATIO (which is seasonally adjusted, bear in mind) to get a better picture of the problem than tracking the unemployment rate. as a ratio of total employment to total population, it isn't perfect -- but it does avoid some of the sampling pitfalls that come with trying to count what isn't there. EMRATIO is still collapsing hard, returning to levels not seen since before women really started to enter the workforce, and shows that some 5% of the population which was working in 2007 today is not. in a country of 310mm people, that's 15.5 million. and still growing rapidly.

and that's still not all. as calculated risk highlights again this month, employed part time for economic reasons is at stunning highs of over 9.2mm. there are some 5mm people here who have had their wages and hours cut, in most cases severely, from two years ago which the economy would have to re-employ to bring incomes back to former levels.

others have also commented on the immensity of this problem for a society that hasn't sustained growth of 3mm jobs in a year for over a generation. even in the unsustainable bubble economy of the 1990s -- the fastest payroll growth rate period in living memory -- the united states averaged about 2.8mm. indeed its questionable as to whether a new layer of structural, or permanent, unemployment has been created. and i myself (with apologies to accrued interest) am doubtful that the inventory correction cycle will extend into a lengthy business-led recovery with the kind of damage being wrought to the job-creating small business engine of this country by the contraction of the banks. ed harrison helpfully points out that recalculation may mean persistent unemployment as malinvestment is unwound and the labor force retrained, but of course that creative reorganization of resources can trigger deep depressions following massive misallocations such as we saw over the last several years.

fearsome as it is, at least having a robust picture of changes in employment beyond the headline unemployment rate reported by the BLS will help discern whether job growth is helping to get us out of the trap.



the US is looking at permanently higher levels of unemployment (structural) with China being the 'factory floor' of the world,supported by the artifically low renmibi ie they export THEIR unemployment

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Another data point is the latest CBO deficit report, which estimates that payroll taxes are down 1.9% compared to the first three months of FY 2009. (Withholding is off 8.5%, but it is complicated by Making Work Pay and other factors--primarily the lack of capital gains and the dimunition of dividend and interest income. Payroll taxes are a pretty steady percentage of income (and until last year had never fallen in nominal terms). So the employment situation is very bad if this number is still going down.

You make a good point about all of the hidden stimulus occurring right now--people not paying their mortgages, people refinancing at sub-5% rates. But the government stimulus is not really very effective because so much of it is directed towards simply maintaining the status quo--like extending unemployment benefits or Medicaid payments to the states. These two items have skyrocketed, but all they really do is keep people where they are. (Not saying they should cease, I'm just saying they're not very stimulative.) That's right, the federal government can run a $1.6 trillion deficit and it's not really stimulative because it's not new money.

The situation is analogous to a college student with limited income who receives $100 unexpectedly from a favorite uncle--that's stimulative . . . But the money mom and dad give him every month for rent and food--that's not.

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I work in a very small, very odd corner of the world, but I see something that I haven't seen yet work its way into the conversation. If "employment" means a full-time job and a W2(which is how most econ dev efforts are judged), then we are certainly headed for prolonged, structural unemployment.

But the world of getting paid money for the provision of services is rapidly leaving that definition behind. 2009 is the first year since 2000 that I've filed a W2. Everything else has been 1099s. And I'm far from alone in this work-style, to coin a phrase.

Then you have to consider the "corporate diaspora" - laid-off white collar workers who will never have a "job" again. These folks are now consultants filing (what?) 1099s.

Lastly, in this day of ubiquitous, immediate data, for the love of Pete, can't we find a better way to measure employment than calling a microscopic sample of people and asking them a set of narrowly defined questions?

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OH just keep the checks comming .The gov. cause this problem they can live with it.
Please have my check in my account by Wednesday
Thank you

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Wednesday, January 06, 2010


iraqi oil production plans

via clusterstock and the oil drum:

There is a great deal of controversy about the potential of Iraq's western desert, which is largely unexplored. IHS has claimed that there might be as much as 100Gb there in addition to the known reserves, but since none of this has been confirmed with drilling, it remains speculative (and Laharrere for example doesn't accept this estimate). Big Gav had an Oil Drum post Iraq's Oil: The Greatest Prize Of All? some time back with more background.

However for my purposes today it's enough to note that even if there is only 90Gb, with an initial 5% depletion rate (in line with industry practice) that could support a rate of 12 million barrels/day (the depletion rate is what fraction of the known reserves are produced in a year). So the announced Iraqi plans would not seem to be precluded by lack of reserves. As we will see below, the field by field reserve estimates and production plans that have been made public also seem generally consistent with the plan.

again, this is why the united states got into, is in and will never leave iraq, which will remain an imperial protectorate of the united states until or unless someone dislodges it by force or the oil is gone. iraq was invaded using terrorism as a very flimsy pretext in order to take the high ground in a resource war which the plateauing of global oil production has made inevitable. setting aside all other arguments, saddam hussein proved to be a terrible developer of what are probably the world's last underutilized easily accessible large oil resources -- and primarily for that reason in the context of the production plateau was removed and put to death.

This next graph shows annual average Iraqi oil production over the long term - since the beginning (with a gap for 1956-1964 which falls between my two data sources). I deliberately made the y-axis scale run from zero to 12 mbd to emphasize that Iraq has never produced anywhere close to its potential.

Production was increasing rapidly and roughly exponentially until 1979 when Saddam Hussein took power. Since then, it's been one war or crisis after another, and production has never even reached the 1979 level again, let alone continued up close to the now proposed 12mbd.

god knows if ethnically-divided iraq is capable of staying out of civil war in order to make the announced production plans workable. i would expect the united states to step into iraqi affairs whenever necessary from its entrenched military base set within the country to make it possible for the oil majors to do their stuff. but the political divisions within the country haven't gone away. the mahdi army remains there. and one should expect that western confrontation with iran could result in a rapid destabilization of iraq.

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"iraq was invaded using terrorism as a very flimsy pretext in order to take the high ground in a resource war which the plateauing of global oil production has made inevitable. "

I thought it was WMD... as in the WMD that virtually every politician in washington believed were there.

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lots of folks have WMD, anon. they were dangerous in iraq because saddam hussein was a state sponsor of terrorism -- with direct responsibility for 9/11, no less. or so we were asked to believe. many did, and many still do.

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"they were dangerous in iraq because saddam hussein was a state sponsor of terrorism -- with direct responsibility for 9/11, no less. or so we were asked to believe."

A source would be helpful.

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^ Are you kidding?

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Tuesday, January 05, 2010


what does negative net national savings mean?

mike mandel published this disconcerting blog post recently which includes a depressing chart of net national savings -- that is, the aggregate of private and public sector savings as a percentage of GDP.

what does this mean?

it's often stated, particularly loudly by keynesians wary of debt deflationary spirals, that the net fiscal surplus (deficit) of a currency union (such as the united states) must be zero. for example, ed harrison:

Simply put, if you look at all of the households and businesses that make up the private sector and aggregate them together, you can determine if the private sector has a net surplus or a net deficit in any individual time period. And if the private sector has a net surplus, the combined foreign sector and public sector must have a deficit for that time period. The sector financial balances move in concert.

harrison cites scott fullwiler.

Most importantly, the economy’s financial flows are a closed system, so one sector’s deficit is another’s surplus, and vice versa. There is no way around it, just as it is impossible for every country in the world to have a trade surplus—at least one country must have a trade deficit for the others to have surpluses. Thus, “national saving” as defined in the textbooks (private saving + government surplus + foreign saving) is a misleading concept in our monetary system, since if the government is “saving” some other sector (or combination of them) must not be, by definition.

Private Sector Surplus or Net Saving = Government Deficit + Current Account Balance

The trade balance (exports – imports) is not the precise term to use when considering all financial flows, the current account balance is. For the US, the two very close in magnitude. We’ll call equation 3 the Sector Financial Balances (SFB) equation. Again, this is an accounting identity, not theory. Disagreeing with it is akin to believing the earth is flat. For examples of this framework directly in use on this blog, see here and here.

which is, to paraphrase fullwiler, that mandel in taking the sum of public and private savings to mean something is engaging in a mistake of neoclassical economics by conflating the two -- when in fact public saving is essentially the identical opposite of its private counterpart (less the current account balance). as such, the only meaningful measure of net national savings is the current account balance.

as mandel is trying to sum public and private sector savings, those being equal but opposite net of the current account balance, his result should then resemble the current account balance. the two graphs resemble one another broadly, but with some outstanding differences. recent months show a large contraction in the current account deficit with further "dissavings" in mandel's data. and there's also a bulge in mandel's net savings graph during the late 1990s that is not reflected in the current account balance, as well as another one between 2004-7. why?

i suspect on cursory inspection financial sector leverage. without having seen his data, mandel is aggregating government, household and corporate savings data -- but doesn't explicitly mention the financial sector, which is often separated. mandel's measure of savings is higher across the board for the period -- one of continuous financial sector expansion -- and particularly at odds with the current account balance during periods of extensive financial balance sheet growth. as such financial liability expansion also creates assets and income in a stock-flow model, which would then show up in savings, it would go a long way toward explaining the difference had mandel overlooked financial sector balances, both on- and off-balance sheet. it would further explain the lack of any "net savings" improvement since the start of the crisis -- as the financial sector was suddenly and rapidly thrown into delevering, assets were being destroyed and money disappearing from the system. the resultant loss of savings in spite of the government's best efforts could explain how the current account deficit suddenly improved while "net savings" actually declined.

fullwiler goes on to construct an sector financial balance (SFB) model of aggregate demand in figure 6 which he then applies to the leverage-based economic expansion of the 1990s.

First, the economy starts the mid-1990s at point A. The effects of previous and then new agreements between Congress and the President to reduce deficits shifts the Gov Def + Curr Acct line down, as do the financial crises in Asia that lead weakened those nations’ economies and currencies to thereby substantially lower the trade balance. However, instead of GDP falling as a result of these two leakages from aggregate demand, a number of factors including the massive rise in the stock market and “new economy” expectations leads to a historically large increase in the private sector’s willingness to leverage (which continued in the 2000s during the real estate boom after a short recession in 2001-2). This willingness to leverage shifted the PSFB (private sector financial balance) line down markedly, raising real GDP growth and lowering unemployment. The economy ends the decade at a point like B, with a government budget surplus and current account deficit combining to equal a negative private sector balance.


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