Sunday, May 8, 2011

notes on the week ending May 7th

as is always the case, the focus of the first friday of the month in the econosphere is the unemployment report...this week's report seemed to even out some of the discrepancies between the two BLS surveys which we've noted in the previous reports, wherein the unemployment rate from the household survey went down in the face of anemic job creation reported by the establishment survey...this week the latter reported an addition of 286,000 private jobs, which, less the cutbacks in govt employment, resulted in a non-farms payroll increase of 244,000...and except for government & construction, all sectors added jobs...yet the headline unemployed number taken from the household survey increased from 8.8% to 9%, showing a drop of 190,000...adding those working part time who want full time work to that, the U-6 number increased to 15.9%...using the establishment survey as a more reliable indicator, as i have in previous months, we've now added 768,000 jobs year to date, or about 168K over what we need to accommodate net working age population increases...considering that there were over 7 million jobs lost since the beginning of the recession, and the size of the working age population has grown another 4 million, we would have to add over 11 million jobs just to get back to the "normal" we experienced last decade..

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<<< employment-population ratio for Americans aged 25-54 (graphic from BLS)

other employment numbers werent so good; the weekly new claims, which i highlighted with a chart last week, jumped to 474,000, an 8 month high, raising the 4 week moving average over 431,000, convincingly reversing the improving series of sub 400K reports we were seeing in february & march...although the labor force participation rate remained flat, the absolute number of persons not in the labor force hit a new all time record of 86,248,000...and according to research by the WSJ, the number of those who are unemployed and have exhausted their benefits will soon hit 5 1/2 million; & as if to add insult to injury, a bill proposed by the house GOP would allow states to use the unemployment funds extension received from the Federal government (as part of the mcconnell-obama tax cuts for the rich deal worked out late last year) for other purposes as to be determined by the state legislatures...

since the debate over the deficit is still ongoing & the debt ceiling is already starting to affect borrowing by state & local governments thru the treasury, i also want to use the chart i've included to illustrate the origin of the cyclical portion of our current deficit problem; according to the recent BLS release, the average income is over $800 a week, or over $40,000 a year...the question i want to ask is how much tax revenue would we generate if the employment ratio were brought back to 80% with median wage jobs? & how much less would the safety net payouts be if that were true? its obvious that just adding 10 million more taxpayers would go a long way towards closing the budget gap...we were in balance before 2000, before the wars in the middle east and before the tax cuts for the rich; there's no reason we cant approach that again if we had full employment, let the tax cuts expire, & bring the troops home...

i found it pretty hard to believe how much the alleged killing of osama bin laden dominated the news this week; i had assumed he was already dead or at least rendered harmless anyway, and hadnt seen his name mentioned in relationship to our involvement in the middle east recently either (there's even some who believe al qaeda is a bogeyman created by our government to keep the game going)...but assuming we buy into what we've been told, it's clear who won; the total cost of the trade center bombing was 12 boxcutters (their airline tickets were charged & never paid for) and we've been paying for it from the first day we started slamming million dollar tomahawk missles into mountains in afghanistan...ezra klein at the WaPo has attempted to quantify our total costs; by some accounting, even the depth and severity of our financial crisis can be connected to our response to that original provocation...

if you were anywhere near financial news, you couldnt have hardly missed the crash in commodity prices that occurred midweek...im not going to pretend i have a special insight into the causes, but the way i saw it start was with the COMEX increasing margin requirements for trading silver futures contracts a few days earlier...silver slipped substantially first, then, almost coinciding with the release of the surprising weekly claims report, following on the heels of poor showings ISM the selling spread first to those commodities associated with a strong economy, notably oil & industrial metals, and then agricultural as well...at the end of the week, WTI was down around $15 at $97, and Brent rebounded to near $112 after falling $10 on thursday & testing $108...even with oil prices down, however, gas prices continued to rise at retail, apparently due to production problems at two midwestern refineries and tornado-driven power outages at seven other southern refineries...

since im still stuck in the mud here, i've continued to follow the rainfall totals and forecasts in the midwest, and the attendant flooding on the ohio & mississippi rivers; although cairo illlinois was inadvisedly saved by blowing up a levee south of the town, it now appears that stations south of those two river's junction are facing flooding which will top the record floods of the 1930s, in some cases in mississippi by as much as 6 feet; moreover, with runoff from the arkansas contributing (parts of that basin recently had a 7 inch rain), the flooding is expected to continue all the way thru drought stricken areas of loiusiana and threaten new orleans levees later this month...the flooding on these rivers has also curtailed barge traffic, which contributed to record gasoline prices of well over $4 in ohio, indiana, illinois, & michigan this week...

following up on the muddy corn planting conditions i dug into last week, as of the most recent USDA report (monday), only 13% of the intended acreage was planted, vs. 66% the same date in 2010...all that progress seemed to be in iowa & nebraska; planting in indiana & ohio was negligible; to reiterate: corn planted after the first week in may is likely to yield less than the optimum, & "mudding the seed in” too early is even worse...and, during the same time the midwest has been getting too much rain, wheat growing regions of kansas and points south continue to suffer from crop damaging drought, with one station in oklahoma not having seen a soaking rain for over 222 days; in addition to these US crop difficulties, the la nina is expected to keep rain from reaching the drought stricken chinese wheat growing regions, & the european wheat harvest is also expected to fall this year as drought cuts yields in france, england & poland...

it was an interesting week in the eurozone economic news as well...after sunday started with major worker demonstrations in portugal against the expected imposed social program cuts, the portuguese prime minister Socrates went on a PR offensive, bragging that he got a better deal than greece & ireland; surprisingly, most of the media took him at his word and duly reported his spinning of the deal as fact...but as more details of the $115 bailout package were released, it became obvious that the austerity imposed by the IMF & EU was just as tough if not worse than that imposed on the greeks & irish; pay freezes, pension cuts, tax increases, and divestiture of national assets, including the electrical grid, the state airline & their biggest oil company, et al; the portuguese economy is now expected to contract at least 2% under the terms...then, midweek, details of the earlier negotiations between the IMF & ireland were leaked in ireland; instead of a full bailout & attendant austerity, it was first agreed that the unguaranteed bank bonds would take a hit; but in a G7 meeting to ratify the deal, it was vetoed by geithner, and the pain was ultimately shifted from the banks to the irish taxpayers...finally, at the end of the week, the german paper Der Spiegel broke the story that greece would abandon the euro and introduce its own currency; although the story was quickly denied, european commission crisis meetings were still ongoing on saturday, & most pundits seem to think where there's smoke, there's fire...

an afterthought; since i mentioned geithner intervening in ireland on behalf of the banks, i ought to at least point out that he was also active on their behalf in the US as well...geither exempted foreign exchange swaps and forwards from regulation as specified under the dodd-frank financial reform; FX forwards and swaps represent an unregulated market with about $50 trillion in nominal value; part of that derivative market that as i've noted previously, is nominally 57 times the size of the main street economy; in writing about the deal, even paul krugman was rather blunt, titling his article money talks, regulation walks...

the above is my weekly commentary that accompanied my sunday morning links mailing, which in turn was selected from my weekly blog post on the global glass onion…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me...

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