Bloomberg.com reports that Initial Jobless Claims in U.S. Unexpectedly Climbed:
Initial jobless applications increased to 480,000 in the week ended Jan. 30, the most in seven weeks, from 472,000 the prior week, Labor Department figures showed today in Washington. The number of people receiving unemployment insurance was little changed and those receiving extended benefits increased. . .
“Businesses are simply postponing their hiring for as long as possible,” Richard DeKaser, chief economist at Woodley Park Research in Washington, said before the report. “The willingness to hire is not there.”
Bloomberg also reports on old-fashioned labor arbitrage between low-wage and high-wage countries in China’s Labor Edge Overpowers Obama’s ‘Green’ Jobs Initiatives:
“The cost of manufacturing here is too expensive compared to Asia,” said Guy Chaffin, chief executive officer of Elite Search International, a Roseville, California-based executive search firm that has found employees for Tempe, Arizona-based First Solar and Solar Millennium AG. “As far as a flood of good jobs coming to the U.S., we’re not seeing it.” . . .
“Can’t we all agree that these jobs shouldn’t be going to China or Germany or Spain -- they should be right here in the United States?” Obama said at a town hall meeting in New Hampshire on Feb. 1.
The above two news items obviously relate to each other. Industrialized countries are supposed to enhance their wealth when their citizens own companies that generate real additional profits via labor arbitrage, and those profits do not exceed the lost income of the home country employees who have to find lower-paid work.
So, if a business can save a million dollars by saving 2 million dollars on labor costs while expending an additional million on transportation, translation, and extra administrative cost, and those American workers who collectively lose the $2 M of income quickly find work that pays the $1.8 M, then society is $800,000 to the better, with the business owners of course being big winners and American workers being losers. (In a fair system, though, the workers would receive additional benefits so that they would become net winners as well.)
Over time, this system only works if the advanced country creates value by moving up the economic food chain via a better educational system and the network effect such as is seen in high-tech hotspots and advanced medical centers.
Instead, however, what has happened in this country is an educational system that does not prepare enough students to compete with foreign engineers and the like. What we turn out is over-educated students who know more about diversity than their parents but who know their three "R"s less well.
America should press its advantages in high-tech, medical tech, general medicine, and the like. It has lost a great deal of international competitiveness by overspending on larger and larger homes and imports to fill the larger living spaces, ranging from more clothing to more kitchen gizmos to larger televisions. One of the catastrophes of the past two years has been the emphasis on preserving the housing industry in its present form.
So far as labor goes, if America really wants to get serious about competing fairly with other countries, it will go back to the economic virtues it once had: thrift and internationally-competitive wages. If in fact the best we can do with several percent of the work force is compete directly with Chinese wages, we have to face the question of whether, as the President asked in New Hampshire, we want those jobs here. If we do, we then have to decide how much we want to subsidize them, if at all.
Not all the labor arbitrage is assembly line work. Consider Mish's post today, Student Protest Forces Yuba College Board to Rescind Chancellor's Raise; Tuition Soars Everywhere, describing a to-date successful effort to keep a chancellor's salary at $220,000 rather than the planned raise to about $250,000. Note this is only a community college. I know none of the specifics, but all throughout this society, a sense of shared sacrifice is lacking. (Thus the anger at Big Finance pay, government pensions, etc.)
To reiterate, the long-term solution is a focus on our ongoing strengths and an educational, tax and regulatory policy that avoids competing with low-wage countries on their terms by extending our lead in the high-margin industries of the future.
For now, without being overly dramatic, we do see evidence of quasi-imperial over-reach. Without its status as the world's sole superpower, the U. S. would see a yet more rapid reversion to the global mean economically. We must start weaning ourselves from economic reliance on this status, which is subject to the laws of entropy as all else is.
Copyright (C) Long Lake LLC 2010
Showing posts with label unemployment claims. Show all posts
Showing posts with label unemployment claims. Show all posts
Thursday, February 4, 2010
Thursday, July 16, 2009
Misleading Headlines Make Today's Move Up in the Stock Market More Suspect than Usual
Bloomberg.com has what sounds like a good Roubini reversal to help stocks in U.S. Stocks Rise as Roubini Predicts Recession to End This Year . Today at an investors' conference in New York, Dr. Roubini said that the economy's freefall is over and was quoted in a different Bloomberg article as follows: “We should continue with fiscal stimulus and we might need a second one,” Roubini said. While the worst of the crisis is over, there’s still a “meaningful amount of weakness” in labor markets, industrial production and housing, he said. . He has said this sort of thing many times. Here is what he wrote what some on the Street think may be an eternity ago, though it was actually only two days ago: Mounting Job Losses Will Hurt Consumption, Housing, Banks’ Balance Sheets, Public Finances and Lead to Protectionist Pressures. The Roubini article begins as follows:
Recent data suggest that job market conditions are not improving in the United States and other advanced economies. In the U.S., the unemployment rate, currently at 9.5%, is poised to rise above 10% by the fall. It should peak at 11% some time in 2010 and remain well above 10% for a long time. The unemployment rate will peak above 10% in most other advanced economies (especially Europe and Japan), too, where social safety nets are broader and thus leading to less short term job losses and pain, but where the effects of the crisis on growth have been even more severe than the U.S.
Here is the conclusion of Roubini's post:
Little wonder, then, that we are now witnessing a significant correction in equity, credit, and commodities markets. The irrational exuberance that drove a three-month bear-market rally in the spring is now giving way to a more sober realization among investors that the global recession will not be over until year end, that the recovery will be weak and well below trend, and that the risks of a double-dip W-shaped recession are rising. The alleged green shoots turned to be yellow weeds and – unless policy makers figure out a sensible medium term exit strategy for monetary and fiscal policy – they may turn into brown manure.
The Bloomberg headline completely misrepresents Roubini's current views.
The second topic today relates to the unemployment numbers. Supposedly these were good, with seasonally adjusted claims dropping a lot. The problem is that the raw data show a substantial worsening of these claims, consistent with both anecdotal and data-driven evidence that the economy is at best stalling and at worst is dipping downward again. Here is the data (compliments of Credit Writedowns for the circles:
Anyone can easily see that the NSA initial claims have risen from 559,857 on Jun 27 to 667, 534 on July 11.
Insured unemployment rose apace. The entire release can be found by clicking HERE.
The seasonal adjustments are off primarily due to the extraordinarily early cutbacks at the auto manufacturers, and potentially at some early hiring there as well.
Here are some other headlines from Bloomberg.com today:
Commercial Paper Falls Most Ever as ConEd Sells Bonds (Update1) The U.S. commercial paper market, the cheapest source of corporate cash, is shrinking at a record pace, raising the cost of capital for borrowers from Consolidated Edison Inc. to Kellogg Co.
Schumer Fees on Insurers May Deplete Profit, Push Up Premiums A Senate demand for at least $75 billion in fees on U.S. health insurers over a decade may raise premiums for people who have insurance while erasing much of the $13 billion in annual profit earned by the industry.
Credit-Card Defaults May Rise as Tax Refunds Wane, Analyst Says Bank of America Corp., American Express Co. and JPMorgan Chase & Co. may face further credit- card defaults as benefits from income-tax refunds wane and unemployment rises, analysts said.
Accounting changes at the consolidating Big Finance subsidiaries of the Federal Government mean as much as the intergovernment bonds transfers that supposedly are going to finance Social Security payments for future retirees. Facts are stubborn things and don't look so hot.
If the stock market has definitively ended in the first week of March, it means that the worst economic and financial crisis since the Great Depression ended with a stock market downturn roughly half as long as the duration between the March 2000 peak and the winter 2003 true stock market bottom, which was associated with the mildest possible recession.
Econblog Review's viewpoint is that the ongoing worst post-Great Depression fall in profits and dividends, and the first fall in total nominal wages since then as well, along with an increasingly less pessimistic Fed still predicting that the economy needs ultra-low interest rates for an extraordinarily long time, argues for caution amongst investors.
The stock market really does not know a lot about the future. Consider: 10 months ago, AIG sold for 40 times what it sells for now. CIT and Fannie Mae sold for 30 times their current prices. In fact, CIT sold for 10 times its current stock price within the past 3 months, losses and current conditions notwithstanding.
Recent data suggest that job market conditions are not improving in the United States and other advanced economies. In the U.S., the unemployment rate, currently at 9.5%, is poised to rise above 10% by the fall. It should peak at 11% some time in 2010 and remain well above 10% for a long time. The unemployment rate will peak above 10% in most other advanced economies (especially Europe and Japan), too, where social safety nets are broader and thus leading to less short term job losses and pain, but where the effects of the crisis on growth have been even more severe than the U.S.
Here is the conclusion of Roubini's post:
Little wonder, then, that we are now witnessing a significant correction in equity, credit, and commodities markets. The irrational exuberance that drove a three-month bear-market rally in the spring is now giving way to a more sober realization among investors that the global recession will not be over until year end, that the recovery will be weak and well below trend, and that the risks of a double-dip W-shaped recession are rising. The alleged green shoots turned to be yellow weeds and – unless policy makers figure out a sensible medium term exit strategy for monetary and fiscal policy – they may turn into brown manure.
The Bloomberg headline completely misrepresents Roubini's current views.
The second topic today relates to the unemployment numbers. Supposedly these were good, with seasonally adjusted claims dropping a lot. The problem is that the raw data show a substantial worsening of these claims, consistent with both anecdotal and data-driven evidence that the economy is at best stalling and at worst is dipping downward again. Here is the data (compliments of Credit Writedowns for the circles:
Anyone can easily see that the NSA initial claims have risen from 559,857 on Jun 27 to 667, 534 on July 11.
Insured unemployment rose apace. The entire release can be found by clicking HERE.
The seasonal adjustments are off primarily due to the extraordinarily early cutbacks at the auto manufacturers, and potentially at some early hiring there as well.
Here are some other headlines from Bloomberg.com today:
Commercial Paper Falls Most Ever as ConEd Sells Bonds (Update1) The U.S. commercial paper market, the cheapest source of corporate cash, is shrinking at a record pace, raising the cost of capital for borrowers from Consolidated Edison Inc. to Kellogg Co.
Schumer Fees on Insurers May Deplete Profit, Push Up Premiums A Senate demand for at least $75 billion in fees on U.S. health insurers over a decade may raise premiums for people who have insurance while erasing much of the $13 billion in annual profit earned by the industry.
Credit-Card Defaults May Rise as Tax Refunds Wane, Analyst Says Bank of America Corp., American Express Co. and JPMorgan Chase & Co. may face further credit- card defaults as benefits from income-tax refunds wane and unemployment rises, analysts said.
Accounting changes at the consolidating Big Finance subsidiaries of the Federal Government mean as much as the intergovernment bonds transfers that supposedly are going to finance Social Security payments for future retirees. Facts are stubborn things and don't look so hot.
If the stock market has definitively ended in the first week of March, it means that the worst economic and financial crisis since the Great Depression ended with a stock market downturn roughly half as long as the duration between the March 2000 peak and the winter 2003 true stock market bottom, which was associated with the mildest possible recession.
Econblog Review's viewpoint is that the ongoing worst post-Great Depression fall in profits and dividends, and the first fall in total nominal wages since then as well, along with an increasingly less pessimistic Fed still predicting that the economy needs ultra-low interest rates for an extraordinarily long time, argues for caution amongst investors.
The stock market really does not know a lot about the future. Consider: 10 months ago, AIG sold for 40 times what it sells for now. CIT and Fannie Mae sold for 30 times their current prices. In fact, CIT sold for 10 times its current stock price within the past 3 months, losses and current conditions notwithstanding.
In the meantime, breaking news is that IBM has just issued its quarterly report. Sales missed lowered estimates by $300 M and were 13% or so below 2008 sales. Earnings were up due to cost-cutting. This is the same old story. In a bear market with truly excessive pessimism, the same IBM report would be taken negatively and the brave ones would be the buyers. Now, the stock is up post-market on the news and the braver ones are the sellers (if they are long the stock) or the short sellers.
Meanwhile, Wal-Mart and McDonald's cannot get out of their own way. These stocks reflect the average U. S. consumer's buying power (WMT) and the U. S. and global consumer's buying/eating power. Should Wal-Mart break to a new low if stocks mosey downward this summer, that could be a very bad sign.
Copyright (C) Long Lake LLC 2009
Thursday, June 18, 2009
Stock Market Update: The Good, the Bad and the Ugly
GOOD: Here is a summary of the good news, from the fine economist Edward Harrison, who blogs at Credit Writedowns, responding to the employment report from today:
The unemployment insurance weekly claims report revealed that the number of persons filing an initial claim rose 3,000 this past week to 608,000. While these are still very high numbers, they are the lowest since January, suggesting that claims have peaked in this cycle. Nevertheless, jobless claims are not falling back nearly as quickly as they have done in previous business cycles, making it likely that a lack of employment gains will be a drag on growth for months to come. . .
Conclusion? The job market is still weak. The unemployment rate will easily hit 10% in the coming months. As a result, expect consumer demand to be weak. Nevertheless, the job market is marginally improved and most indication suggest this is likely a permanent but slow trend.
In addition, the Conference Board's leading economic indicators both ticked up and had an upward revision for the prior month. Net production is scheduled to hit bottom and turn upward, and one of these days is even likely to grow faster than population.
BAD: Here's some bad news. Following the Peter Lynch approach of relying on what you know, I am increasingly contrarily bearish. To wit:
In the fall of 2007, with the Dow around 14,000, I had dinner with some longtime friends and stock market investors. They asked what I thought of the market. I responded that I had gotten out of stocks in late summer around Dow 13,000, was surprised that prices were higher, and I strongly made the case that they should sell everything. They listened politely.
In the winter of 2009, my friend called me. They had finally sold everything around Dow 7500. They were eager to get back in at Dow 7100; what did I think? (They took my advice and edged in.) So there's leading indicator #1 of a possible major bottom.
A few days ago, I received an Email from someone for whom I manage money as a favor (I am neither a registered money manager nor investment adviser). She is very conservative re stocks, loves residential real estate as an investment, and is happy if I stay out of the market; though over the years I have made her lots and lots of money in stocks.
What did she do? A friend had tipped her that the friend made 5X her money buying AIG at the bottom; and my "client" went ahead and made the first self-directed "buy" in her account, buying AIG and the "new" GM.
Two contrary indicators: one signaled the bull move off the panic bottom. Does the other signal that the likely end of the recession is more than priced in, allowing a rerun of the 2001-3 economic/stock cycle?
The above is consistent with analysts such as Robert Prechter, who called the March bottom and is now calling for another major decline. Too many people munching on the green shoots?
UGLY: I ignore manipulated GSEs or related entities such as JPM or BAC as predictors of the real economy or markets. Much more realistic are real companies that are far away from these games. Some of the mainstays are Wal-Mart, Costco, and P&G. These are all well-run companies. All charts show the 50-day average below the 200-day average, the stock below both averages, and general ugliness. Forthermore, among non-manipulated financial companies, consider Northern Trust (NTRS) and UMB Financial (UMBF), a well-regarded Midwest regional. NTRS just now has returnd the TARP money that was forced upon it; it was not even a stress-tested company.
Conclusion: Perhaps too many small investors know that the economy is turning for at least the short-term health of the stock market.
Instantaneously, consumer prices are dropping but could be rising sharply in 2 years. Cash therefore provides a positive real return after deflation while eliminating the chance of capital loss should rates rise a lot in the short-to-intermediate term. As the economy shows more contemporaneous signs of stabilizing while inflation fails to erupt as the weeks go by, it is easy to see gold prices erode, as well. There is just too much slack and too much New Frugality for prices to explode upwards "tomorrow".
Treasuries: The prior recession ended in fall, 2001; rates hit their first bottom a year later and 50 basis points lower, in fall 2002; and then rates had an even lower bottom in June 2003. (And obviously rates went lower in 2008!) Probably the single best way to play overenthusiasm about the end of the economic downturn amongst stock buyers is exposure to Treasurys of long enough duration to allow price upside should rates drop a good deal.
Copyright (C) Long Lake LLC 2009
The unemployment insurance weekly claims report revealed that the number of persons filing an initial claim rose 3,000 this past week to 608,000. While these are still very high numbers, they are the lowest since January, suggesting that claims have peaked in this cycle. Nevertheless, jobless claims are not falling back nearly as quickly as they have done in previous business cycles, making it likely that a lack of employment gains will be a drag on growth for months to come. . .
Conclusion? The job market is still weak. The unemployment rate will easily hit 10% in the coming months. As a result, expect consumer demand to be weak. Nevertheless, the job market is marginally improved and most indication suggest this is likely a permanent but slow trend.
In addition, the Conference Board's leading economic indicators both ticked up and had an upward revision for the prior month. Net production is scheduled to hit bottom and turn upward, and one of these days is even likely to grow faster than population.
BAD: Here's some bad news. Following the Peter Lynch approach of relying on what you know, I am increasingly contrarily bearish. To wit:
In the fall of 2007, with the Dow around 14,000, I had dinner with some longtime friends and stock market investors. They asked what I thought of the market. I responded that I had gotten out of stocks in late summer around Dow 13,000, was surprised that prices were higher, and I strongly made the case that they should sell everything. They listened politely.
In the winter of 2009, my friend called me. They had finally sold everything around Dow 7500. They were eager to get back in at Dow 7100; what did I think? (They took my advice and edged in.) So there's leading indicator #1 of a possible major bottom.
A few days ago, I received an Email from someone for whom I manage money as a favor (I am neither a registered money manager nor investment adviser). She is very conservative re stocks, loves residential real estate as an investment, and is happy if I stay out of the market; though over the years I have made her lots and lots of money in stocks.
What did she do? A friend had tipped her that the friend made 5X her money buying AIG at the bottom; and my "client" went ahead and made the first self-directed "buy" in her account, buying AIG and the "new" GM.
Two contrary indicators: one signaled the bull move off the panic bottom. Does the other signal that the likely end of the recession is more than priced in, allowing a rerun of the 2001-3 economic/stock cycle?
The above is consistent with analysts such as Robert Prechter, who called the March bottom and is now calling for another major decline. Too many people munching on the green shoots?
UGLY: I ignore manipulated GSEs or related entities such as JPM or BAC as predictors of the real economy or markets. Much more realistic are real companies that are far away from these games. Some of the mainstays are Wal-Mart, Costco, and P&G. These are all well-run companies. All charts show the 50-day average below the 200-day average, the stock below both averages, and general ugliness. Forthermore, among non-manipulated financial companies, consider Northern Trust (NTRS) and UMB Financial (UMBF), a well-regarded Midwest regional. NTRS just now has returnd the TARP money that was forced upon it; it was not even a stress-tested company.
Conclusion: Perhaps too many small investors know that the economy is turning for at least the short-term health of the stock market.
Instantaneously, consumer prices are dropping but could be rising sharply in 2 years. Cash therefore provides a positive real return after deflation while eliminating the chance of capital loss should rates rise a lot in the short-to-intermediate term. As the economy shows more contemporaneous signs of stabilizing while inflation fails to erupt as the weeks go by, it is easy to see gold prices erode, as well. There is just too much slack and too much New Frugality for prices to explode upwards "tomorrow".
Treasuries: The prior recession ended in fall, 2001; rates hit their first bottom a year later and 50 basis points lower, in fall 2002; and then rates had an even lower bottom in June 2003. (And obviously rates went lower in 2008!) Probably the single best way to play overenthusiasm about the end of the economic downturn amongst stock buyers is exposure to Treasurys of long enough duration to allow price upside should rates drop a good deal.
Copyright (C) Long Lake LLC 2009
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