Sunday, January 31, 2010

Second Largest Equity Pullback Since the March Bottom

Vix and More details (bold mine):

With today’s (Fridays) continued drop in the SPX (low of 1073.18 with 45 minutes left in the session), the index has now fallen 75 points from peak to trough. This is the second largest pullback in terms of points and percentage retracement since the March 2009 rally began.

Friday, January 29, 2010

EconomPics of the Week (1/30/09)

Economic Data

Real (and Nominal) GDP Back to Black

The VERY low nominal growth over the past year is still worrisome, but nice to be back in black.

Source: BEA

GDP Rocks at 5.7%

Lets see how my prediction fared...

  • My Estimate = 5.3%
  • "Professional Economists" Estimate = 4.7%
  • Actual = 5.7%

My predictions as to the drivers of the print...

  • More downward revisions to past quarterly figures, thus my predicted GDP level is not in actuality 5.3% higher than the current (i.e. as of today) Q3 '09 print - WRONG
  • Stimulus induced sectors (think real estate, though autos will be interesting post CFC) making up the majority of the increase with the exception of... - MIXED (both were positive, but not huge drivers)
  • The MASSIVE impact from the inventory rebuild, which I suspect will be revised down in coming quarters as it is realized that the inventory rebuild wasn't all real - CORRECT
  • A VERY low (potentially comically low) GDP deflator, thus nominal GDP won't be nearly as impressive on a relative basis as real GDP - CORRECT, (0.6% - well below the 1.3% expectation) though possibly not "comical"

Source: BEA

Thursday, January 28, 2010

Durable Goods / GDP Expectations

Posting has been very light the past few days as "the real job beckoned", but getting pumped for tomorrow's GDP release (yes, I get "pumped" for economic releases).

Unfortunately, I haven't had the time to properly break down the components much, so this is purely going out on a limb based on how things seem to be playing out.

I expect a blowout headline figure (expectations are for 4.7%). Lets call it 5.3%.

Does that mean I believe things are improving at a level that rate would indicate? Of course not (though if that is the figure, CNBC talking heads' heads may explode).

My predictions as to the drivers of the print...

  • More downward revisions to past quarterly figures, thus my predicted GDP level is not in actuality 5.3% higher than the current (i.e. as of today) Q3 '09 print
  • Stimulus induced sectors (think real estate, though autos will be interesting post CFC) making up the majority of the increase with the exception of...
  • The MASSIVE impact from the inventory rebuild, which I suspect will be revised down in coming quarters as it is realized that the inventory rebuild wasn't all real
  • A VERY low (potentially comically low) GDP deflator, thus nominal GDP won't be nearly as impressive on a relative basis as real GDP
To shift gears from pretend (i.e. my prediction) to fact, lets take a look at today's durable goods release. Durable goods orders were improved, but below expectations and led once again by the war machine.

Month over Month Change

Putting December '09 into longer term perspective...

Unfortunately, longer term there has not been much (any?) strength outside of the war machine.

Source: Census

Wednesday, January 27, 2010

Three Decades of S&P 500 Sector Performance

The Big Picture details how the various sectors of the S&P 500 have fared over the last three decades:

Have a look at the table of S&P 500 sectors — the only one that has outperformed in each of the past three decades is health care. No, Medical and pharmacy inflation was not in your imagination.

Telecom services is the only sector to underperform in all three decades.
Below are two charts showing details of that table. The first shows the absolute performance of each sector over each decade, while the second shows the relative performance of each sector vs. the broader S&P 500 index over each decade. Please note that the order of the sectors move from best performing sector at the top (consumer staples) to worst performing sector at the bottom (telecom) over that 30 year period.

Absolute Performance

Relative Performance

No surprise with Telecom. After all it was just about 30 years ago (1984 to be exact) that AT&T lost it's monopoly power. But some may be a bit surprised by the performance of the consumer related sectors (both staples and discretionary). As reader tCA pointed out:
Somewhat surprisingly Consumer Discretionary almost did what Health Care did in terms of the outperformance in up and down markets. With the exception of 1% underperformance in the 90’s, it was right there.
tCA was surprised. I'm not. For 30 years+ consumption has driven growth within the United States (and actually outpaced economic output as detailed in the post Why Does it Feel Worse than Reported?). Combined with the rise of mega-retailers and cheap overseas manufacturing at the expense of "mom and pop" retailers and domestic produces (i.e. profit at the corporate level vs. income at the employee level), is it really a surprise these sectors were able to outperform?

But, while the turning point for the U.S. consumer may have begun in the last part of the decade, my guess is that any investor relying too much on the debt burdened U.S. consumer will be greatly disappointed in this next decade (though there may be billions of new consumers willing to take their place).

Source: Gluskin Sheff

Tuesday, January 26, 2010

Japanese Exports Expand for First Time Since Crisis

Bloomberg reports:

Japan’s exports rose for the first time since Lehman Brothers Holdings Inc. collapsed 15 months ago, adding to signs that the world’s second-largest economy is recovering from the global recession.

Shipments abroad rose 12.1 percent in December from a year earlier, the Finance Ministry said today in Tokyo. The median estimate of 19 economists surveyed by Bloomberg was for a 7.6 percent gain. Exports fell 6.3 percent in November.
There were two keys for this positive year on year increase... an Asian recovery and a comparison from an extremely depressed level.

“Shipments to Asia, especially China, have been growing a lot and these are strong results,” said Yoshiki Shinke, senior economist at Dai-Ichi Life Research Institute in Tokyo. “It’s safe to say that exports were strong” in the fourth quarter.
Depressed Level
The improvement in exports last month was partly due to a favorable year-on-year comparison. In December 2008, shipments abroad tumbled 35 percent as global trade froze in the aftermath of Lehman Brothers’ collapse in September. From a month earlier, exports rose a seasonally adjusted 2.5 percent in December, today’s report showed.

Source: Customs.Go.JP

Consumer Confidence Ticks Higher

Reuters details:

U.S. consumer confidence in January hit its highest level in nearly a year and a half, but a closely watched housing index showed an unexpected decline in November home prices, giving a mixed picture of the economic recovery.

The Conference Board, an industry group, reported on Tuesday that consumer confidence rose for the third straight month in January, driven by improved economic conditions.

Its index of consumer attitudes rose to 55.9 in January, the highest reading since September 2008 and up from an upwardly revised 53.6 in December. The index topped the median forecast from analysts polled by Reuters for a reading of 53.5.

Case Shiller: Still a Soft Housing Market

Reuters details:

U.S. home prices slipped in November and were softer than expected in the latest sign that a rebound in the U.S. housing market is tenuous, according to Standard & Poor's/Case-Shiller indexes on Tuesday.

The S&P composite index of home prices in 20 metropolitan areas slipped 0.2 percent in November after a revised 0.1 percent October dip, for a 5.3 percent annual drop. A Reuters survey had forecast a 0.1 percent November rise. Prices were originally reported as unchanged in October.

On a seasonally adjusted basis, the 20-city index rose 0.2 percent in November, S&P said, after a 0.3 percent rise the prior month.

The home price picture remains mixed despite steady annual improvement, said David M. Blitzer, Chairman of the Index Committee at Standard & Poor's. "Only five of the markets saw price increases in November versus October," he said. "What is more interesting is that four of the markets -- Charlotte, Las Vegas, Seattle and Tampa -- posted new low index levels as measured by the past four years."

Source: S&P

U.K. GDP Figure Disappoints

WSJ details:

The Office for National Statistics said Tuesday that compared with the third quarter, gross domestic product in the three months to the end of December increased 0.1%. Compared with the fourth quarter of 2008, GDP fell 3.2%. While the data showed that the U.K. officially emerged from a deep recession that began in the second quarter of 2008, the market was disappointed with the 0.1% amid consensus of a 0.3% gain.

Monday, January 25, 2010

Avatar Takes the "I'm the King of the World!" Crown

The Hollywood Reporter reports:

"Avatar" is the winner and new worldwide boxoffice champion.

After six rounds on the foreign circuit, "Avatar" is now the biggest-grossing film of all time, as earlier predicted.

Distributor 20th Century Fox said the James Cameron mega-budget blockbuster's worldwide cume -- excluding Puerto Rico -- was through the weekend just $2 million shy of "Titanic's" global boxoffice record of $1.843 billion. (Boxoffice in Puerto Rico, although generated offshore, is considered by Fox as part of its domestic total.)

The distributor confirmed that "Titanic's" historic benchmark fell as of early Monday.
The chart below shows the top ten grossing regions of the world and as can be seen, the breakdown of revenue for Avatar is much more broad and diverse than that of Titanic (take note of China and Russia).

With less dependence on a number of markets to date, this tells me that haven't seen anything yet. Boxoffice Guru projects total revenues of ~$700 million domestically and well north of $2 billion worldwide when all is done... I think that may be a low ball estimate.

Source: Box Office Mojo

Texas Factory Output Growth in January

Texas produces 8% of U.S. goods, so lets see how manufacturing in the state fared in January. BizJournals details:

Texas factory activity expanded in January, providing the Federal Reserve Bank of Dallas with a sliver of hope that the economy could be improving.

The Fed Bank of Dallas noticed that the production index in the manufacturing index rose further into positive territory during January, according to the Fed Bank’s latest Texas Manufacturing Outlook Survey.

The production index improved as more manufacturers continued to report increases in their activity levels. Others surveyed in the report said activity levels remained unchanged. The business activity and company outlook indexes also improved in January and reached their highest levels since mid-2007.

Source: Dallas Fed

Existing Home Sales Crash

WSJ reports:

Existing-home sales plunged in December, dropping lower than expected after three straight increases that were fed by a fat government tax credit. Home Sales Home resales fell by 16.7% to a 5.45 million annual rate from an unrevised 6.54 million in November, the National Association of Realtors said Monday.

Monday's data said inventories shrank, and prices rose year over year for the first time in more than two years. Economists surveyed by Dow Jones Newswires expected an 11.6% decrease in sales during December, to a rate of 5.78 million.

Banks are making it difficult for some people to get loans. Joblessness in the U.S. is high, muting the economy's recovery.


An Equity Correction?

Equity futures are pointing up this morning and chatter is that this is the end of the "correction". While I personally do believe a broader correction in the equity market is likely given current valuations (in my opinion 'technicals' remain strong and 'fundamentals' are okay), a market that is down 2% over a three week time frame is NOT a correction.

Yes, in the (brief) year that is 2010, asset class returns have thus far favored anything "fixed income", but after a 60%+ run up in equities (from March '09 lows), I am not sure how this 2% downturn can be considered anything, but noise.

Friday, January 22, 2010

EconomPics of the Week (J-E-T-S AFC Championship Edition)

Apologies all around for my lackluster posts this week, especially in the face of MAJOR news, including:

The Death of the Health Care Plan = Sad
The new Bank Regulations = About time
Enabling corporations to run the U.S. government = A fucking joke

But here you go...

Oligopolistic Banking System and Compensation
Leading Economic Indicators Strong Across the Board
PPI Continues to Rise Due to Energy
Eurozone Industrial Orders Shows Improvement
China GDP: Grips It and Rips It
Commercial Real Estate Price Blip or Bottom?
Housing Data Split
J-E-T-S Jets Jets Jets

Yikes... that really was a pathetic offering from EconomPic.

But lets look forward... to the J-E-T-S dismantling the Colts. Fireman Ed, please lead us the way.

Eurozone Industrial Orders Shows Improvement

This will be the one and only post today in a VERY slow week here at EconomPic (and it isn't an awfully dramatic post). Travels for the real job have defeated blogging in the battle for my time...

NY Times details:

Euro zone industrial new orders surged more than three times as much as expected in November against October, buoyed mainly by demand for intermediate and non-durable consumer goods, data showed on Friday.

Orders in the 16-country area rose 1.6 percent from October and were 1.5 percent lower than a year earlier, the European Union's statistics office said.

Economists polled by Reuters had on average expected a 0.5 percent month-on-month increase and a fall of 6.2 percent year-on-year.

Eurostat also revised upwards its October orders data to show slightly smaller declines than previously reported.
These levels are still down from November 2008 levels (a period that was already massively down due to the global slowdown).

Thus, while any improvement on the margin is positive, we still have a long way to go.

Source: Eurostat

Thursday, January 21, 2010

Leading Economic Indicators Strong Across the Board

Marketwatch reports:

Leading U.S. economic indicators increased 1.1% in December and have risen for nine straight months, suggesting "that the pace of improvement could pick up this spring," according to a report released by the Conference Board on Thursday. The rise in the leading index was stronger than the 0.7% increase expected by economists surveyed by MarketWatch. Eight of the 10 leading indicators improved in December, a broad-based gain that points to "an economy in early recovery," said Ken Goldstein, an economist for the Conference Board, a private research organization.

China GDP: Grips It and Rips It

Bloomberg reports:

China’s growth accelerated to the fastest pace since 2007 in the fourth quarter, capping Premier Wen Jiabao’s success in shielding the nation from the global recession and adding pressure to rein in a surge in credit.

Gross domestic product rose 10.7 percent from a year before, more than the median forecast of 10.5 percent in a Bloomberg News survey, a statistics bureau report showed in Beijing today. Asset-price gains, particularly in property, are creating problems for the government to guide the economy, Ma Jiantang, who heads the bureau, told reporters after the release.

Source: Haver

Wednesday, January 20, 2010

Commercial Real Estate Price Blip or Bottom?

Even after a 1% jump in the commercial real estate index in November, Calculated Risk details how far prices have fallen:

CRE prices peaked in late 2007 and have fallen 43% from the peak and are now back to September 2002 levels.
September 2002 levels in nominal terms, but pre-index (December 2000) prices in real terms (the REAL in the title is not "real").

With everything going on in the broader economy (i.e. vacancy rates), lack of financing, and new properties still coming to market, I must agree with Calculated Risk that this is just a blip.

Source: MIT

Housing Data Split

Bloomberg details:

Housing starts in the U.S. fell more than anticipated in December, while building permits unexpectedly jumped, signaling inclement weather may have kept builders away from worksites.

Work began on 557,000 houses at an annual rate, down 4 percent from November, figures from the Commerce Department showed today in Washington. Permits, a sign of future construction, climbed to the highest level in a year.

The government’s extension and expansion of a tax credit for first-time buyers may help underpin demand in the first half of 2010, giving builders reason to ramp up new projects. The gain in permits, which are less influenced by weather, indicates an unseasonably cold and wet December probably prevented some work from getting started last month, according to economists like Maury Harris.

Source: Census

PPI Continues to Rise Due to Energy

The BLS reports:

The Producer Price Index for Finished Goods moved up 0.2 percent in December, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This rise followed a 1.8-percent advance in November and a 0.3-percent increase in October. At the earlier stages of processing, prices received by producers of intermediate goods rose 0.5 percent and the crude goods index moved up 1.0 percent. On an unadjusted basis, prices for finished goods advanced 4.4 percent in 2009, after falling 0.9 percent in 2008.
As can be seen below, the increase remains concentrated in energy.

Source: BLS

Tuesday, January 19, 2010

Oligopolistic Banking System and Compensation

At this stage, most of us are familiar with the idea that compensation within the financial services industry has grown much faster than compensation outside the system. As can be seen below, this trend has largely gone uninterrupted throughout the crisis.

And while this level of compensation remains exorbitantly high across all of financial services, the lack of competition among the largest banks has caused compensation within the industry to become even more concentrated.

Before specifically detailing those firms, lets go to Wall Street Pit:

The Journal reported that based on its analysis — which includes banking giants J.P. Morgan, Bank of America and Citigroup, securities firms such as Goldman Sachs and Morgan Stanley, and exchange operators CME Group Inc. and NYSE Euronext Inc. — executives, traders and money managers at 38 top financial firms can expect to earn nearly 18% more than they did last year, and slightly more than they did in the record year of 2007.
While 18% seems like a massive jump (it is) from a level that was already too high (in my opinion), it ignores the broader issue of what has resulted from a government (i.e. taxpayer) guarantee on the downside risks of those banks deemed too big to fail... a MASSIVE increase in compensation (the joys of a "too big to fail" title for the select few).

The chart below details the compensation for all of those 38 firms, grouped here by JP Morgan, Morgan Stanley, Goldman Sachs, Bank of America, Citigroup, and "Other" (all others). BUT, slice off Citi and "other" and we can see that the remaining four make up more than 100% of that 18% jump (let it be known that the data below is not an apples to apples comparison - as Felix points out these charts don't account for the fact that JP Morgan and Bank of America have swallowed up smaller counterparts).

That said, my point is that the increase in compensation (and risk) is now concentrated among only these top banks. Bonuses at these "big four" banks are up a whopping 25% since 2007 (all other firms are down 18% since that time) and 40% since 2006 (whereas all other firms are down 2%).

For all the talk and supposed intervention, nothing has changed (actually, with these banks even more "too big too fail", things may actually be worse).

Source: WSJ / BLS

Sunday, January 17, 2010

J-E-T-S Jets Jets Jets

In response to my post Sanchez Leads J-E-T-S Past Bengals Eric Hirschberg (a statistician) commented:

I had to laugh at a histogram with a sample size of 4 and a data range from 1 to 2! This is data that really doesn't benefit from graphic visualization. :)

Agreed... and my response:
That won't stop me from updating it with every J-E-T-S win.
And after an INSANE win (Chargers are [were?] the best team in the league in my opinion), here is the update....

J-E-T-S Jets Jets Jets!

Friday, January 15, 2010

EconomPics of the Week (J-E-T-S Division Playoff Edition)

Opinion / Analysis / Random
Pub Power Equity Signal Turns Negative
Becoming French?
The "Recession Generation"
Sanchez Leads J-E-T-S Past Bengals

Digger Deeper
An Alternative Unemployment Rate.... at 11.7%
Is 16-19 Year Old Unemployment at 37.1%?
Inflation is Not an Issue...
On the Retail Inventory "Bounce"
Breaking Down Wholesale Inventories
Production Continues to Recover

Economic Data
Unemployment to Job Opening Ratio Jumps Again
Consumer Deleveraging Continues
Retail Sales Disappoint
Is Australia in Full Recovery Mode?
U.S. Treasury Deficit More than 10% of GDP

And for your video of the week... I'd like to introduce you all to Bruce "B" Manley and his trick basketball shots. After my first viewing I believed this was as real as the [insert misleading government data joke here], but apparently it is.

Production Continues to Recover

Marketwatch details:

Colder-than-usual weather contributed to the gain in December, with utility production rising a seasonally adjusted 5.9%. The output of factories dropped 0.1% in November after a 0.9% gain in November, repeating the see-saw pattern of the past four months. Output of mines rose 0.2%. Read our complete economic calendar and consensus forecast.

For all of 2009, output plunged 9.7%, the steepest yearly decline since output fell 13.7% in 1946. Output fell at a 12.5% annual pace in the first half of the year, then rose at a 9.6% annual pace in the final six months of the year. Since the recession began two years ago, industrial output dropped 10.8%. Manufacturing output fell 13.2% since the recession began.

In December, capacity utilization in industry rose to 72% from 71.5%. It's the highest in a year. For manufacturing, capacity utilization rose to 68.6% from 68.5%, also the highest since December 2008. The utilization rate in the factory sector -- a measure of slack in the economy -- is 11 percentage points below the long-term average, showing very weak inflationary pressures.

And the relationship between capacity and inflation remains strong.

Source: Federal Reserve

Pub Power Equity Signal Turns Negative

Time to revisit a catchy, data-mined, equity buy signal (with a decent explanation) that was first detailed at EconomPic back in September... the "Pub Power" equity buy signal.

What is the Pub Power signal? As detailed back then:

It is the relative strength of 'food establishment and drinking places' sales vs. grocery sales (as expressed in year over year terms). The relevance? Well, the data seems to suggest that "Pub Power" = Strength in the Dow, one year forward.
The thought was that the relative strength (i.e. demand) of restaurants relative to cooking at home shows the following characteristics:
  • Consumer confidence
  • Exuberance
  • Spending power
  • Wealth
Or something like that...

On the other hand, when times are tough, individuals are more likely to eat at home, causing year over year sales at pubs to decline relative to grocery stores. At the time the signal pointed to a further run in the Dow and here we are four months and 10% later.

So lets take a look at what the signal is telling us now...

Beware all of you equity investors out there... the Pub Power signal has turned negative.

Why does this matter?

It probably doesn't, but from December 1993 through December 2008 (the last period in which we have one year forward data on the Dow) the Dow has returned an average of -9.8% one year forward when the "Pub Power" was negative and 10.8% when the signal was positive.

Source: Census

Inflation is Not an Issue...

Bloomberg details:

The consumer-price index rose 0.1 percent, less than forecast, following a 0.4 percent gain in November, Labor Department figures showed today in Washington. Excluding food and energy costs, the so-called core index also increased 0.1 percent.

Companies may have little success raising prices with unemployment projected to average 10 percent this year, the highest annual rate in seven decades. Federal Reserve policy makers have said they expect “subdued” inflation in coming months, allowing them to keep interest rates close to zero to help fuel growth.

“Consumer pricing pressures remain very subdued,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit, who accurately forecast the rise in the core rate. “It gives the Fed further leeway to continue keeping rates where they are well through 2010.”
Looking at the details, inflation is concentrated in transportation (energy). Until pricing power moves into other areas (and labor), the Fed should have no concerns over keeping rates as low as they are.

Source: BLS

Thursday, January 14, 2010

On the Retail Inventory "Bounce"

Reuters reports on the "surprise":

U.S. business inventories rose more than expected in November, according to a government report on Thursday, supporting views of a pick-up in the economic growth pace during the fourth quarter.

The Commerce Department said inventories increased 0.4 percent after gaining 0.4 percent in October, previously reported as a 0.2 percent rise.

Economists polled by Reuters had expected a 0.2 percent rise in November. The rebuilding of inventories following a period of aggressive liquidation is among the factors expected to drive the economy's growth as it recovers from the most severe downturn since the 1930s.
As can be seen below, the "rebuild" was driven completely by wholesale trade.

And as EconomPic readers know, the build in wholesale was completely built by farm products (which was not "real" growth, but instead a reflection of the spike in the price of corn and hogs).

Does anyone do actual research anymore?

Source: Census

Retail Sales Disappoint

WSJ reports:

U.S. retail sales fell in December unexpectedly, signaling restraint by consumers during the holidays as the economy wrestles with high unemployment.

Retail sales declined 0.3%, the Commerce Department said Thursday. Economists surveyed by Dow Jones Newswires forecast a 0.5% increase. November sales, however, were adjusted upward, to a 1.8% increase from a previously reported 1.3% gain. October sales also rose strongly, up 1.2%.

Excluding the car sector, all other retail sales in December fell 0.2%. Economists expected a 0.3% increase. The numbers were a disappointment for the economic recovery. The retail sales data are an important indicator of consumer spending. Consumer spending makes up 70% of GDP, which is the broad measure of U.S. economic activity. Thursday's report suggests high joblessness is restraining consumers and will mute the recovery.

Forget about the overall total and look at the details. Driving more than half the contribution was an increase in the sale of gasoline (driven by the jump in the price of gasoline).

Source: Census

Wednesday, January 13, 2010

Is Australia in Full Recovery Mode?

The Australian details:

Australia's unemployment rate fell to a seasonally adjusted 5.5 per cent in December from 5.6 per cent in November.

Total employment rose by 35,200 to 10,906 million in December, the Australian Bureau of Statistics said.

Economists on average had expected an unemployment rate of 5.8 per cent in December, with the number of employed up 10,000.

The number of people in full-time work rose 7300 to 7.64 million in December, from 7.63m, while the number of people in part-time work rose 27,900 to 3.27m from 3.24m.

A commodity driven economy that has a close proximity to one of the world's fastest growing / largest commodity importing economy (China). A beautiful thing...

Source: ABS

U.S. Treasury Deficit More than 10% of GDP

Bloomberg details:

The U.S. registered its largest December budget deficit on record as higher unemployment reduced revenue and the government spent money to help the economy recover.

The excess of spending over revenue rose to $91.9 billion last month, compared with a deficit of $51.8 billion in December 2008, the Treasury Department announced today in Washington in its monthly budget statement. The U.S. has posted a record 15 straight monthly deficits.

The December figure caps a calendar year in which the deficit widened to an all-time high, featuring unprecedented government spending to help engineer an economic recovery. The deepest recession in seven decades also resulted in the worst year for tax collections since 2004, according to calculations by Bloomberg News, as companies suffered and more Americans were shuffled to the unemployment line.

Rolling 12 Month Receipts - Outlays - Surplus/Deficit as a Percent of GDP

Please note that Q4 '09 GDP is estimated at 4% annualized.

Source: Treasury / BEA

Becoming French?

Due to the number of hours worked per person collapsing at a much faster rate than real GDP, GDP per hour worked has actually been soaring.

Work less, be more productive, and use that free time to be with your family.

While not necessarily done by choice, after reading Paul Krugman's July 2005 article titled 'French Family Values', I'm wondering if we're slowly becoming (or should become) French?

Source: BLS / BEA

Tuesday, January 12, 2010

Is 16-19 Year Old Unemployment at 37.1%?

In response to my post on 16-19 year old unemployment, reader MichaelGER asked:

Why not do an EconomPic unemployment rate sugestion for this figure? Might look ugly...
He is "of course" referring to the EconomPic method (a method that accounts for the huge swings in the participation rate) of calculating unemployment. Here it is...

Nothing to add.....

Source: BLS

Unemployment to Job Opening Ratio Jumps Again

BusinessWeek details:

Job openings in the U.S. fell in November to the lowest level in four months, a
sign employers are reluctant to expand staff even as payroll reductions waned from earlier last year.

Openings declined by 156,000 to 2.42 million, the second- lowest level since records began in 2000, the Labor Department said today in Washington. The number of unfilled positions was down 50 percent since peaking in June 2007.

“It confirms the suspicion that most of the improvement in non-farm payroll employment has been due to reduced firing and not renewed hiring,” said Zach Pandl, an economist at Nomura Securities International Inc. in New York. “This is the last shoe to drop for the recovery in the labor market and we’re still waiting.”

Source: BLS

The "Recession Generation"

Newsweek details:

We all know the type of person who came of age in the Great Depression. They are the grandmothers and grandfathers who can't use a tea bag too many times, yet are enjoying comfortable retirements in warm climates. And we know what the children of the 1950s are all about. They are the optimistic boomers who embodied an age of continual upward mobility and possibility. They have often spent more than they earned, because for them it has been a truism that times can only get better. It's no accident that the psychology of entire generations is shaped by the milieu in which they grew up; economic research tells us that our lifelong behaviors are determined in large part by the seismic events—good or bad—of our youth.

So, given that we have just experienced the worst economic period in 70 years, it's no surprise that people have begun to wonder what sort of consumers, investors, and citizens will be bred by the Great Recession. Will there be, in effect, a "Generation Recession" of young people whose behaviors will be permanently shaped by the downturn?
The below chart details one struggle that this "Recession Generation" is facing... employment.

This is not necessarily a surprise as there really weren't many jobs opening up when this generation was entering the workforce (20+ year olds were the one's losing jobs, this generation never got them), but 27%!?!?!

And this is an artificially reduced rate as a participation has plunged.

Source: BLS

Monday, January 11, 2010

An Alternative Unemployment Rate.... at 11.7%

The labor force has declined at the fastest pace over the last 12 months in more than 50 years.

Which causes the unemployment rate to skew too low as the labor force is the denominator in the unemployment rate.

Lets solve this problem shall we?

The chart below shows the labor participation rate and the rolling five year average of that rate. The key takeaway is that over the past 60 years there has been a huge secular shift as woman entered the workforce (more on that from Calculated Risk here), which effectively ended the "norm" of a single worker household.

As is typical with long term trends, this datapoint appears to have overshot to the upside and is now rolling over (individuals may have entered the workforce at some point that never planned to work because the economy was so good). As such, a more "fair" methodology (in my opinion) is to use the five year average participation rate to account for these ebbs and flows. This also alleviates the issue of believing that 1.8 million people "chose" to leave the work force over the past 6 months (yes, that is what the BLS methodology indicates).

EconomPic Unemployment Rate

Denominator: The methodology for the denominator (based on my logic detailed above) is to use the five year rolling participation rate multiplied by the civilian institutional population (i.e. those that can work) to determine the labor force.

Numerator: The EconomPic methodology is to use the number of employed rather than unemployed (some of those not in the labor force are not countered as unemployed). As a result, the initial equation = the "employed rate". Taking 1 less this employed rate gets us to the unemployed rate.

The result:

Unemployment is reduced at each "low" prior to the low of the late 90's and most recent 2007 period (both of these closely tie) and roughly matches each "peak". That is until the most recent period, indicating that something is just not right.

Whereas the "official" unemployment rate is 10% flat, the EconomPic unemployment rate is 11.7%.

Source: BLS

Breaking Down Wholesale Inventories

Friday's surprise 1.5% gain in Wholesale Inventories (i.e. what appeared to be an inventory rebuild) was not real, just like last month's post Wholesale Inventory Correction isn't "Real" in October. As can be seen below, the spike was entirely to Farm Products (Wholesale Inventories ex Farm Products was 0.1%) and Farm Products (both livestock and grains) rocketed in price in November.

In other words, this was a nominal gain, thus will not positively impact GDP in Q4.

Source: Census

Sunday, January 10, 2010

Consumer Deleveraging Continues

Business Week details:

Consumer credit in the U.S. dropped a record $17.5 billion in November as unemployment close to a 26- year high discouraged borrowing and banks limited access to loans.

A labor market that’s shed 7.2 million jobs since the recession started in December 2007 is restraining consumer spending that accounts for about 70 percent of the economy. Fed policy makers have said tighter bank lending standards and reductions in credit lines are hampering the recovery.

The series of 10 straight declines in consumer credit was the longest since record-keeping began in 1943.
The chart below shows the change in consumer credit outstanding (year over year) as a percent of total personal consumption. In the latest period consumers have shed almost 0.82% of consumer credit outstanding as a percent of all personal consumption.

Source: Federal Reserve

Sanchez Leads J-E-T-S Past Bengals

Yahoo Sports details:

One playoff game into his career, Mark Sanchez is giving a pretty good off-Broadway performance.

So are the rest of the New York Jets, who are no longer an overlooked team after dismantling the AFC North champions twice within a week.

Any more doubters?

With their rookie quarterback playing mistake-free, the Jets turned their surprising playoff appearance into a long-running production Saturday. Sanchez threw a touchdown pass, and the NFL’s top running game took it from there, setting up a 24-14 victory over the Cincinnati Bengals.

Sanchez looked like a playoff pro, joining Shaun King, Joe Flacco and Ben Roethlisberger as rookie quarterbacks to win postseason starts. At times, Sanchez found himself on the sideline soaking it all in.

Friday, January 8, 2010

EconomPics of the Week (J-E-T-S Edition)

Long Term Trends
Why Does It Feel Worse than Reported?
What Happens When the Stimulus Dies?
More on Gross Purchases (and China)
Strength in U.S. Consumption... of U.S. Made Goods
Goods Producing vs. Government
Manufacturing Jobs Down 20% from 2006

Economic Data
Hours Worked per Civilian (per Week)
Men / Women Employment Results Diverge
Unemployment Drops as Workers Drop Out
ADP Jobs Down 84,000; Services Jobs Grow
Eurozone Retail Sales Show Record Decline
Same Store Sales "Surge"
Manufacturing Sector Continues to Expand
Industrial Production Declines in Eurozone for First Time Since March
Auto Sales Improved, but Still a LONG Way to Go

Asset Prices
Hedge Funds More than Fine in '09
2009 Performance Snap Shot

J-E-T-S Jets Jets Jets
Avatar Rounds Out Record Year at the Box Office

And to get pumped up for this afternoon's Jets victory over the Bengals, here's Pennywise's Bro Hymn:

Hours Worked per Civilian (per Week)

As requested...

Employment to population ratio (i.e. percent of the population working), multiplied by the number of hours worked per week, equals the second least amount of hours worked (19.32 hours from 19.4 hours in November, but up from 19.27 in October) per population member.

Source: BLS

More on Gross Purchases (and China)

In response to my post Why Does it Feel Worse than Reported?, a reader asked for a follow up chart:

What would be helpful here is a NET figure (& chart, of course) showing the shift (gross & per capita) from production surplus to consumption surplus. It's a little hard to read between the lines (literally) in this graphic.
The difference between GDP (what the U.S. produces) and Gross Domestic Purchases (what the U.S. purchases) is net exports. Thus, the charting is easy, but the result of the chart is rather astounding. The net level of purchases over production peaked at more than $2500 per person (that is literally $2500+ in a single year for every man, woman, and child within the U.S.) in September '06. This has "collapsed" to "only" $1150 a head, but that $1350 less that each person in the U.S. has been able to purchase (without producing) is a real decline.

So where does that leave us? It leaves us with entire generations (starting with the baby boomers) that believe it is the norm to purchase more than one produces. And why not? We have been able to follow this path (with the exception of the Volcker induced recession in the early 1980's) going on 60+ years.

But as the chart above shows, the scale of this excess purchasing in the early part of this decade was without precedent, which results in the below chart. The below chart details the cumulative real purchases that have been made over that 60 year window above and beyond what was produced in this nation. Resulting from an easy money policy, plus China dollar recycling (they produce, we finance) this cumulative level of real purchases made since 1949 spiked from $3 trillion in the late 1990's to $9 trillion in 2005$ by early 2008 (tripled in ~10 years).

Note in the first chart that every previous peak resulted in a reversion and this latest period was no exception. As a base case I would suspect a continued reversion in the top chart (i.e. net imports moving to zero), but what happens if the below chart mean reverts (we actually begin producing more and purchasing less) as well?

For one... more pain for the U.S. consumer, but a second result was recently outlined by perma-bear James Chanos:
“The Chinese,” he warned in an interview in November with, “are in danger of producing huge quantities of goods and products that they will be unable to sell.”
We shall see...

Source: BEA

Men / Women Employment Results Diverge

The employment release showed a MASSIVE divergence between the male and female workforce. The number of unemployed males dropped significantly (ALL caused by a dropping out of the workforce), while female unemployment rates spiked (they reentered the workforce).

My guess?

Males make up the bulk of the manufacturing sector, which continues to struggle, while females came back to the workforce for the holiday season, yet were unable to find jobs.

Looks like I was close.... Barry points out:
Job gains are nurses and teachers -- losses are construction and factory. Probably skews that way in each sectors demographics
Source: BLS

Unemployment Drops as Workers Drop Out

85,000 people dropped out of the nonfarm payroll, yet unemployment rates (both headline and broader) ticked down slightly in December.

Good news about the rate right? Nope... the reason is that another 500,000+ workers dropped out of the workforce (i.e. the denominator in the unemployment rate).

That makes more than 1.6 million workers that have dropped out since August of this year.

Source: BLS

Thursday, January 7, 2010

Same Store Sales "Surge"

The Washington Post called this a "surge":

Retailers pulled off a better-than-expected holiday season as rising consumer confidence -- and a last-minute shopping spree -- pushed sales higher in December, according to results released Thursday.

For about three dozen of the country's biggest chains, sales at established stores increased an average of 2.8 percent in December from a year ago, according to the International Council of Shopping Centers (ICSC), a trade group. Sales for the last two months of the year jumped 1.8 percent, compared with a record 5.6 percent drop in 2008 -- marking the strongest holiday performance in three years. The ICSC had forecast a 1 percent increase.
And the resultant two year change (two years takes in account the massive drop from last year) shows the strength remains in a tween retailer and discount stores.

An improvement? Yes, but a 1.8% rise after a 5.6% drop doesn't qualify as a surge in my book.

Source: Retail Sails

Hedge Funds More than Fine in '09

Hedge fund returns were off the charts in 2009 across strategies...

Or were they? Per the NY Times (hat tip Abnormal Returns):
Taken at face value, historic index figures suggest that even an average hedge fund manager can easily beat the stock market while taking less risk. Since 1990, a weighted index of hedge funds has returned around 12 percent annually — about four percentage points more than the returns for the Standard & Poor’s 500-stock index — with just half the volatility, according to Hedge Fund Research.

On closer inspection, these claims look suspect. Research published in late 2007 by the Princeton professor Burton G. Malkiel showed that many hedge funds simply stopped reporting results after they became embarrassing. For funds that ceased reporting, the average monthly return in the six months before they did so was -0.56 percent. That contrasts with an average monthly return of 0.65 percent during their reporting lives.
My guess is yes, results were off the charts, just not as off the charts as the numbers suggest. How large a discrepency? Back to the NY Times:
For another piece of evidence, consider Hedge Fund Research’s investable Global Hedge Fund Index. Because this tracks real money invested in hedge funds, reporting vagaries ought to be less of an issue. Sure enough, the index has underperformed Hedge Fund Research’s broader theoretical benchmark in each of the last seven years, typically by a meaningful margin. In 2009, a recovery year for hedge funds, the investable index rose around 13 percent year compared with 19 percent for Hedge Fund Research’s voluntarily reported index.