It looks more like the February spike was more related to seasonal adjustment problems. Claims are still above the January lows, but still at a very healthy level.
Have there been changes to the methods of data collection, criteria, calculations over this time period? If so what would the graph look like (to be meaningful over the time period) if these changs were backed out.
The bottom line is that it's impossible for there to be any widespread weakness in the labor market without it showing up in the initial claims numbers.
I'm sure there are illegals who were working construction that can't find work anymore, but the labor market on the whole remains healthy.
The Conference Board's index of leading economic indicators fell 0.5 percent after a 0.3 percent drop in January that was initially reported as a gain, the New York-based group said today. The gauge points to the direction of the economy over the next three to six months.
This puts the indicator firmly in recession-is-due-soon territory. I think that soon could be now on next month.
Knowing when a recession occurs is still of no help for the markets. For instance, the markets (and ECRI WLI) peaked 10 months before the 1973 recession. And CXO has established how leading indicators such as ECRI WLI are at best coincident indicators for the market.
We're not talking about the markets; we're talking about the economy.
And saying that the ECRI WLI is a coincident indicator for the market is a rather pointless statement since it's not designed to lead the market.
Amato,
I don't care if people have their opinions, but I just don't like it when people try to make up things (i.e. the LEI says recession soon). As the saying goes, "You're entitled to your own opinion, but not your own facts."
Steve, there's a lot of "making up things" going on here. It's just far more subtle and insidious.
Economists have a terrible reputation for being wrong in their forecasts, because of what one economics blogger calls "observation-less theorizing." They download some data and draw sweeping conclusions about it without ever going out into the world to see if their theories are correct.
Quite a few posters here (CR, too, IMO, but it's nothing personal) are falling into the same trap. If conditions were as bad as the (carefully-focused) data suggested, there should be lots of "For Sale" signs and few (or no) "Now Hiring" signs. Instead, it's just the opposite.
If a person was going to do their analysis solely from their ivory tower they'd get better forecasts by taking a more-comprehensive look at a wide range of economic data instead of assuming that "as housing and all things housing-related go, so goes the economy." Which simply isn't true.
Just a freebie to let everyone know I'm a good sport, the key to Fed action is employment (weaker employment=easing) and industrial utilization (persistently high=tightening).
Sabastian, any suggestion that we are heading in the right direction is patently preposterous. Maybe you should ask all those folks who think that we are headed in the right direction to explain why household net worth makes a new all-time high each and every quarter, why do we have record high incomes, record consumer spending, record low unemployment, record high college attendance, record high home ownership, record low interest rates, record liquidity, a low p/e equities market, record longevity and record wealth and prosperity.
I had luch yesterday with the Chief Economist for a regional bank and was able to ask him a series of questions. Here is a summary of his take:
We have already absorbed the brunt of the economic impact of the housing slowdown. We are already back to building 1.4 million homes per year so that means that the residential segment of the economy is about to go to zero growth from the negative 20% growth we have been seeing.
Given 4% unemployment and job growth in other segments, coming job losses in construction can be absorbed withoutus going negative GDP
Other segments of the economy are healthy if sluggush at the moment.
Trade deficit is NOT an issue (by itself, at least not today. China is going to continue to have a huge savings rate, we won't, the Chinese economy simply isn't big enough, and won't be for a while to absorb Chinese savings. They will continue to look to the US for investment. Over time the Chinese currency must be revalued. When that happens and Chinese goods become more expensive to us, they will likely do what the Japanese Car companies did when the yen was revalued, build facotries in the US.
Budget deficit is a problem.
On balance, sluggish first half, accelerating second half, no recession.
Subprime as a big issue is overblown. As he said, when the smart guys begin putting capital into troubled companies/industries in the face of bad press? Usually means we're going to rebound.
So "household net worth makes a new all-time high each and every quarter"
as the "record liquidity" allows people who really can't afford homes to bid prices up to record high levels and so gives us "record high home ownership". And the illusions of wealth give us "record consumer spending". Usually when things are at these kind of "record" levels, the next thing we see is "reversion to the mean".
Note on the graph for weekly unemployment claims that they keep declining right up to the point where things start going to hell in a handbasket.
Also, what "low p/e equities market"???
By historical standards, P/E ratios are quite high, and especially so because the earnings are inflated by shady accounting.
One leading indicater-the inverted yield curve was almost un-inverted between the 2 and 10 year notes. This is bullish.
The question we are asking ourselves is: will incomes that are finally increasing offset reduced mortgage equity withdrawal and keep the consumer consuming? Interestingly, significantly increased savings in the USA will be a bad thing for the global economy for another few years.
Turns out this subprimapalooza is a once-in-decade or more opportunity for the big Wall St. gangs to buy the best subprime lenders for pennies on the dollar, while simultaneously killing the rest of the competition.
What brought on this opportunity - subprime defaults going from 12.6% to 13.3%, where they have been as recently as 2003? Come now. If you had the chance to temporarily turn off the funding spigot, let the competition die and buy your clients business at fire-sale prices, wouldnt you?
Subprime lending is the one and only conduit to homeownership for a significant portion of the voting public, and both parties are acutely aware of that.
Great quote from you: As long as the only significant change regarding the company (NEW) is one of investor perception and not deteriorating company/industry fundamentals, I'm going to keep looking for optimal buy-points.
One leading indicater-the inverted yield curve was almost un-inverted between the 2 and 10 year notes. This is bullish.
In my opinion, the most dangerous time for the markets is when the curve goes from inverted to flat. Bob Hoye points out that this is when the speculative money starts looking for safety (rushes to the "liquid" short end of the curve). I tend to agree.
I agree that you have to be careful interpreting the flattening of the yield curve as bullish. As it said, I think it just means rate cuts are ahead. Rate cuts can be bullish, but not if they're accompanied by a recession.
In early 2001, it make sense that the yield curve flattened, since the Fed was cutting furiously to stave off a recession.
I strongly object to lumping Steve with Sebastian. Steve is probably more sanguine about the economy than I am, but his posts have been thoughtful, and he has contributed useful information. I appreciate this.
I agree with you as well. However, the market "might" actually be telling the Fed that they should be cutting furiously now (it if wasn't for that pesky inflation).
If we knew for sure just how bad the subprime/housing situation will become, it sure would make things a lot easier.
I lean towards worse than most people expect, maybe even a lot worse.
I know most people here disagree with me, but I hope most people don't view me as some Kudlow-vian bull who thinks the economy can do no wrong. I think I'm pretty fair. Back in Q3 when the advanced GDP printed 1.6%, I was actually pretty bummed out because I thought the economy was headed for a recession. I am open to changing my outlook depending on what I see.
If we counted unemployment in 2007 the same way we did in 1977, I think the count would be a tad higher.
A better -- no by no means good -- measure of the economy's capacity to employee is job growth (implicit in that - over-the-table job growth).
I've read that the economy has to generate 200-250K new jobs a month just to keep up with population growth. Not sure we're making it. Quality of job is important, too; if too many of the new jobs are service jobs in the discretionary portion of the economy -- baristas, "nail technicians," travel agents, car salesment, waiters and restaurant workers -- current job gains are much more likely to melt away quickly in a recession.
Subprime lending is the one and only conduit to homeownership for a significant portion of the voting public, and both parties are acutely aware of that.
The pols don't worry about voters - especially sub-primers - they don't vote. If they are worried at all its about contributions from the likes of those who would be marketing those loans (and collecting the resultant fees).
They will do their best to keep their bread buttered.
The buckets of ink that have been used to quote the pols' handwringing over the subprimers who have been preyed upon by the lenders shows enormous "lipservice" if not "caring". If, at the end of the day, they "care" about a contributing class over a non-voting class, that would bode very well for the subprime operators, i.e. Wall Street, who are in a position to write large checks.
Washington knows that Wall St. is in the process of confiscating a huge and profitable segment of the lending industry, and they want their cut.
I was just playing around with the data a bit today looking for patterns and what not.
I decided to graph (seasonally adjusted claims / seasonally adjusted continued claims). It gives you the percentage of new unemployed people compared to how many are currently unemployed.
It reminds me a bit of how a fault line works. Stress just keeps builing up until there's an earthquake.
It is easy, at least in hindsight, to spot the stress from...
1970 to 1975 (quake!)
1975 to 1981 (quake!)
1992 to 2001 (quake!)
Stress was being relieved from 1985 to 1987. Might explain why that "quake" didn't have many aftershocks.
2002 to ?
It looks to me like the steeper the trend, the faster things break. If you can buy that argument in what is clearly just a theory, then we are moving at a steeper rate than the 1990s but not so steep as the 1970s. We could be due for another quake soon.
Assuming I am the first to find it, it has any merit whatsoever (who knows!), I'd like it to be named "Economic Fault Lines", in honor of our faulty system.
The long-term trend appears to be down. I might argue that it takes less "stress" to cause a "quake". That would make sense if you believe we live in an ever increasingly overleveraged society where even the flapping of a butterfly's wings might have severe consequences.
I did mention I felt this was a crazy theory though. I do want to point that out. However, I've had no formal economic training, so perhaps it isn't as crazy as it could be.
Williams Sonoma sluggish --mentions housing mkt as factor:
Williams-Sonoma Profit Beats Estimates as Sales Gain (Update5) - Bloomberg.com
It is hard to file for unemployment when you aren't working legally in the first place.
It looks more like the February spike was more related to seasonal adjustment problems. Claims are still above the January lows, but still at a very healthy level.
Have there been changes to the methods of data collection, criteria, calculations over this time period? If so what would the graph look like (to be meaningful over the time period) if these changs were backed out.
rt
It is hard to file for unemployment when you aren't working legally in the first place.
Or are 1099 like me... I wouldn't show up in the statistics until I filed for Food Stamps. They still got those don't they?
The bottom line is that it's impossible for there to be any widespread weakness in the labor market without it showing up in the initial claims numbers.
I'm sure there are illegals who were working construction that can't find work anymore, but the labor market on the whole remains healthy.
--
Leading Economic Indicator
The Conference Board's index of leading economic indicators fell 0.5 percent after a 0.3 percent drop in January that was initially reported as a gain, the New York-based group said today. The gauge points to the direction of the economy over the next three to six months.
This puts the indicator firmly in recession-is-due-soon territory. I think that soon could be now on next month.
Jas
Table A-1. Employment status of the civilian population by sex and age
FWIW the seasonally adjusted data says employment went down in February.
Recession looks likely in 2011 or thereabouts.
This puts the indicator firmly in recession-is-due-soon territory.
No, it does not.
The LEI signals recession when when the cumulative 6 month decline exceeds -1% amid a string of three or more consecutive monthly declines.
Over the last six months the index is up 0.4% at an annual rate.
And if you're going to cite the Conference Board LEI, you might be interested in hearing what they think.
Whatsamatter Steve, didn't you get the latest permabear talking points memo about the buzzprase - "growth recession"?
Get with the program, sonny boy.
Knowing when a recession occurs is still of no help for the markets. For instance, the markets (and ECRI WLI) peaked 10 months before the 1973 recession. And CXO has established how leading indicators such as ECRI WLI are at best coincident indicators for the market.
BR,
We're not talking about the markets; we're talking about the economy.
And saying that the ECRI WLI is a coincident indicator for the market is a rather pointless statement since it's not designed to lead the market.
Amato,
I don't care if people have their opinions, but I just don't like it when people try to make up things (i.e. the LEI says recession soon). As the saying goes, "You're entitled to your own opinion, but not your own facts."
If you're unwilling to accept fiction as fact, or not entertained watching others do so, then this aint the place for you, pilgrim.
Steve, there's a lot of "making up things" going on here.
It's just far more subtle and insidious.
Economists have a terrible reputation for being wrong in their forecasts, because of what one economics blogger calls "observation-less theorizing." They download some data and draw sweeping conclusions about it without ever going out into the world to see if their theories are correct.
Quite a few posters here (CR, too, IMO, but it's nothing personal) are falling into the same trap. If conditions were as bad as the (carefully-focused) data suggested, there should be lots of "For Sale" signs and few (or no) "Now Hiring" signs. Instead, it's just the opposite.
If a person was going to do their analysis solely from their ivory tower they'd get better forecasts by taking a more-comprehensive look at a wide range of economic data instead of assuming that "as housing and all things housing-related go, so goes the economy." Which simply isn't true.
Just a freebie to let everyone know I'm a good sport, the key to Fed action is employment (weaker employment=easing) and industrial utilization (persistently high=tightening).
Sebastia
Sabastian, any suggestion that we are heading in the right direction is patently preposterous. Maybe you should ask all those folks who think that we are headed in the right direction to explain why household net worth makes a new all-time high each and every quarter, why do we have record high incomes, record consumer spending, record low unemployment, record high college attendance, record high home ownership, record low interest rates, record liquidity, a low p/e equities market, record longevity and record wealth and prosperity.
That's the right direction?
Get a grip.
CR,
Another anecdote for ya!
I had luch yesterday with the Chief Economist for a regional bank and was able to ask him a series of questions. Here is a summary of his take:
Ooops,
Sorry, he said one more thing.
Subprime as a big issue is overblown. As he said, when the smart guys begin putting capital into troubled companies/industries in the face of bad press? Usually means we're going to rebound.
So "household net worth makes a new all-time high each and every quarter"
as the "record liquidity" allows people who really can't afford homes to bid prices up to record high levels and so gives us "record high home ownership". And the illusions of wealth give us "record consumer spending". Usually when things are at these kind of "record" levels, the next thing we see is "reversion to the mean".
Note on the graph for weekly unemployment claims that they keep declining right up to the point where things start going to hell in a handbasket.
Also, what "low p/e equities market"???
By historical standards, P/E ratios are quite high, and especially so because the earnings are inflated by shady accounting.
One leading indicater-the inverted yield curve was almost un-inverted between the 2 and 10 year notes. This is bullish.
The question we are asking ourselves is: will incomes that are finally increasing offset reduced mortgage equity withdrawal and keep the consumer consuming? Interestingly, significantly increased savings in the USA will be a bad thing for the global economy for another few years.
Turns out this subprimapalooza is a once-in-decade or more opportunity for the big Wall St. gangs to buy the best subprime lenders for pennies on the dollar, while simultaneously killing the rest of the competition.
What brought on this opportunity - subprime defaults going from 12.6% to 13.3%, where they have been as recently as 2003? Come now. If you had the chance to temporarily turn off the funding spigot, let the competition die and buy your clients business at fire-sale prices, wouldnt you?
Subprime lending is the one and only conduit to homeownership for a significant portion of the voting public, and both parties are acutely aware of that.
Sebastian,
Weren't you here 3 weeks ago promoting NEW as a great buying opportunity? Weren't you gloating how you got in at 16 and were certain of untold riches?
Yes, you were:
Yeah, okay, Sebastian
Great quote from you: As long as the only significant change regarding the company (NEW) is one of investor perception and not deteriorating company/industry fundamentals, I'm going to keep looking for optimal buy-points.
[Can I sign up for your newsletter, please?]
until lama nailed your ass, that is:
Bravo, lama!
Sebastian and Steve, together again, oh boy!
Where is ol' Doomster, anyway?
(Maybe he's testifying in front of Congress...)
One leading indicater-the inverted yield curve was almost un-inverted between the 2 and 10 year notes. This is bullish.
The yield curve taking on a more "normal" shape is a sign the market sees rate cuts in the future--either from a hard landing or slower inflation.
One leading indicater-the inverted yield curve was almost un-inverted between the 2 and 10 year notes. This is bullish.
The yield curve taking on a more "normal" shape is a sign the market sees rate cuts in the future--either from a hard landing or slower inflation.
One leading indicater-the inverted yield curve was almost un-inverted between the 2 and 10 year notes. This is bullish.
In my opinion, the most dangerous time for the markets is when the curve goes from inverted to flat. Bob Hoye points out that this is when the speculative money starts looking for safety (rushes to the "liquid" short end of the curve). I tend to agree.
Just watch it flatten in early 2001.
StockCharts.com - Dynamic Yield Curve
Mark,
I agree that you have to be careful interpreting the flattening of the yield curve as bullish. As it said, I think it just means rate cuts are ahead. Rate cuts can be bullish, but not if they're accompanied by a recession.
In early 2001, it make sense that the yield curve flattened, since the Fed was cutting furiously to stave off a recession.
dotcommunist,
I strongly object to lumping Steve with Sebastian. Steve is probably more sanguine about the economy than I am, but his posts have been thoughtful, and he has contributed useful information. I appreciate this.
Steve,
I agree with you as well. However, the market "might" actually be telling the Fed that they should be cutting furiously now (it if wasn't for that pesky inflation).
If we knew for sure just how bad the subprime/housing situation will become, it sure would make things a lot easier.
I lean towards worse than most people expect, maybe even a lot worse.
I appreciate that, AJH.
I know most people here disagree with me, but I hope most people don't view me as some Kudlow-vian bull who thinks the economy can do no wrong. I think I'm pretty fair. Back in Q3 when the advanced GDP printed 1.6%, I was actually pretty bummed out because I thought the economy was headed for a recession. I am open to changing my outlook depending on what I see.
By the way, I hope that didn't sound like I was calling Sebastian a Kudlow-vian bull. Sorry if it sounded like that.
If we counted unemployment in 2007 the same way we did in 1977, I think the count would be a tad higher.
A better -- no by no means good -- measure of the economy's capacity to employee is job growth (implicit in that - over-the-table job growth).
I've read that the economy has to generate 200-250K new jobs a month just to keep up with population growth. Not sure we're making it. Quality of job is important, too; if too many of the new jobs are service jobs in the discretionary portion of the economy -- baristas, "nail technicians," travel agents, car salesment, waiters and restaurant workers -- current job gains are much more likely to melt away quickly in a recession.
Subprime lending is the one and only conduit to homeownership for a significant portion of the voting public, and both parties are acutely aware of that.
The pols don't worry about voters - especially sub-primers - they don't vote. If they are worried at all its about contributions from the likes of those who would be marketing those loans (and collecting the resultant fees).
They will do their best to keep their bread buttered.
The buckets of ink that have been used to quote the pols' handwringing over the subprimers who have been preyed upon by the lenders shows enormous "lipservice" if not "caring". If, at the end of the day, they "care" about a contributing class over a non-voting class, that would bode very well for the subprime operators, i.e. Wall Street, who are in a position to write large checks.
Washington knows that Wall St. is in the process of confiscating a huge and profitable segment of the lending industry, and they want their cut.
Steve, I appreciate your comments and viewpoint as well. I may not always agree, but I think you are intelligent and data focused.
Washington knows that Wall St. is in the process of confiscating a huge and profitable segment of the lending industry, and they want their cut.
And no doubt they will get it. Give unto Caesar that which is Caesar's...
CR,
Crazy theory time, for what it is worth.
I was just playing around with the data a bit today looking for patterns and what not.
I decided to graph (seasonally adjusted claims / seasonally adjusted continued claims). It gives you the percentage of new unemployed people compared to how many are currently unemployed.
http://i5.tinypic.com/43r7ngk.jpg
It reminds me a bit of how a fault line works. Stress just keeps builing up until there's an earthquake.
It is easy, at least in hindsight, to spot the stress from...
1970 to 1975 (quake!)
1975 to 1981 (quake!)
1992 to 2001 (quake!)
Stress was being relieved from 1985 to 1987. Might explain why that "quake" didn't have many aftershocks.
2002 to ?
It looks to me like the steeper the trend, the faster things break. If you can buy that argument in what is clearly just a theory, then we are moving at a steeper rate than the 1990s but not so steep as the 1970s. We could be due for another quake soon.
Assuming I am the first to find it, it has any merit whatsoever (who knows!), I'd like it to be named "Economic Fault Lines", in honor of our faulty system.
I meant to say (seaonally adjusted initial claims / seasonally adjusted continued claims).
One more thought.
The long-term trend appears to be down. I might argue that it takes less "stress" to cause a "quake". That would make sense if you believe we live in an ever increasingly overleveraged society where even the flapping of a butterfly's wings might have severe consequences.
I did mention I felt this was a crazy theory though. I do want to point that out. However, I've had no formal economic training, so perhaps it isn't as crazy as it could be.