Monday, October 10, 2011

notes on the week ended Oct 8th

before we even start looking at this months unemployment report, you should review the notes i wrote with last month's report on the methodology Part Time Workersused by the BLS, so you know that any seemingly exact numbers they give us must be taken with a few grains of salt; namely: "the confidence interval for the monthly change in...employment from the establishment survey is on the order of plus or minus 100,000"; even so, with revisions & over time, we can get a picture of where we're heading...so, on the face of it, the unemployment report that came out friday wasnt all that bad, & was better than the forecasts leading up to it; in the establishment survey, BLS reported (pdf) that 103,000 jobs were added in september, arrived at by subtracting the 34,000 govt jobs lost from the 137,000 added by the private sector; the caveat is that 45,000 of those were Verizon strikers returning to work, so only 58,000 were really new jobs...but the (relatively) good news was that for once employment for july was revised up 42,000, and the change for august was revised up 57,000, the first time i recall positive revisions of that magnitude...ex the verizon strikers, which were subtracted last month, last's months dismal report of "zero jobs" was actually better than this months +103K after the revision...both the average workweek and average hourly earnings showed minor improvement...the sector gaining the most jobs was again health care workers, with 44,000 more than the last report; the sector losing the most jobs was again state & local government, down 35,000; the total decline in government payrolls in this recession is now the most since the winding down of the korean war...14 million of us are counted as unemployed by BLS definition, of those, 6 1/4 million have been without work for more than 27 weeks...in the volatile household survey, taken from a smaller sample, BLS reported the number employed rose by 398,000 and the total labor force rose by 423,000, of which 224,000 were those not counted in august who started looking for work in september; thus, with the numerator & denominator rising in tandem, the unemployment rate remained 9.1%...the household survey also showed an increase of 444,000 temporary or part time jobs, which means that full time jobs actually decreased by 46,000...this showed up in the U6 percentage, which includes those working part time who want full time work, which increased to 16.5% in september from 16.2% in august and now stands at its high for the year (see the adjacent chart from bill mcbride - other charts are indicated in the links below)...nonetheless, with more people having at least some work, the declining metrics we were concerned about earlier this year improved: the labor force participation rate increased from 64.0% to 64.2%, and the employment / population ratio also increased from 58.2% to 58.3%...

111007bas i've mentioned before, most estimates are that we need at least 125,000 jobs per month just to keep up with the increase in the number of working age teens & adults in the population; so far this year we've added a total of 1,074,000 jobs or an average of just 119,000 per month, so we're not even treading water; our difficult situation is illustrated by the adjacent chart from the Atlanta Fed's macroblog (enlarge), which compares the 158,000 rate of job recovery in the 2001-2003 recession to the rate from the bottom of this recession, and to the rate of job addition in recent months; the 158k rate of 2001 would reduce unemployment from the present rate as shown by the red line; the green horizontal line shows that unemployment would not fall at all at the rate we’ve been adding jobs since february 2010; and at the rate we’ve been adding jobs recently, the unemployment rate would gradually rise as shown by the purple line…zero hedge takes it one step further, and computes that we would need to generate 261,000 jobs per month just to return to the weak pre-recession unemployment rate by the time obama’s hypothetical second term ends in 2016…but looking forward, we see nothing but gloom; according to the employment firm Challenger, major announced layoffs more than tripled from last month's, to a level not seen since the depth of recession in april 2009; the hedge on that is that the lions's share of the increase comes from a 50,000 troop reduction announced by the Army (since we can now kill anyone anywhere in the world from a remote compound in nevada, & never have to see blood or dismembered bodies, we dont need boots on the ground), and an announced job cut of 30,000 by the insolvent Bank of America...furthermore, a PNC Financial survey of small and mid-sized businesses owners showed that only 20% planned to hire in the coming 6 months, less than the 24% who so planned in the last such survey...

as long as i'm talking unemployment reports, i should also mention the preliminary annual benchmark revisions which BLS released last week...this is the first guestimate snapshot of the benchmark revisions which will be released in february and will show up in the unemployment report that month...the revisions are taken from the full collection of the unemployment insurance data, and therefore determines the final unemployment levels...over the last two years, i've become accustomed to this showing that all the reports in the preceding year had underreported unemployment (by over 900K in 2009), and i've got a few old rants about that to prove it, but this year the revision appears to be showing that payroll employment was underreported by 192,000 jobs over the past year...this will not show up in the monthly reports, but the increase in jobs will magically appear in february as if it hadnt happened...

even though it's clear that we have a crisis in which millions of americans are looking for work, having their skills erode, or working at a job below their capability, congress remains gridlocked on even the lame jobs act that obama proposed, and this report didnt produce headlines that would encourage urgency; it wasnt unexpected that eric cantor would declare the bill dead in the house, but even the democrats in the senate had been using it as leverage so they can get an ill-advised bill passed to crack down on what they contend is china’s policy of manipulating their currency, which they believe is the reason multinationals are outsourcing manufacturing jobs; again, this is a purely political ploy, as they want to use their support for it to run against china in the 2012 elections...late in the week harry reid did float a modification of the obama jobs bill, with the offsets in the president's proposals replaced by a 5% surtax on those with incomes over a million that would raise about $445 million; but as ive complained time & time again, there is not even a need to attempt to "pay for" any fiscal initiatives with offsetting spending cuts or tax increases at this time…a few weeks back, goldman sachs produced the adjacent chart, which shows the effect of fiscal policy since the beginning of 2009; you see the obvious boost to GDP from the first stimulus, but as that wound down state & local government cutbacks have been a drag on the economy, and even if the Obama jobs plan (the blue line) were to be enacted in full, it would only be enough to neutralize the effects of the other programs winding down…

among other economic reports out this week included both of the ISM (Institute for Supply Management) purchasing managers indexes; the manufacturing PMI was at 51.6% in september, up from 50.6% in august, with a solid uptick in the employment component of that index to 53.8%; the ISM non-manufacturing index, on the other hand, was at 53.0%, down from 53.3% in august, and the employment component of that was 48.7%, down from 51.6% in august; readings over 50% in both these indexes indicate expansion; in a separate report, orders for capital equipment rose 0.9%, the most in 3 months…the Fed reported that consumer credit contracted $9.5 billion to $2.44 trillion in august, the largest decline in 16 months; (those who worry about the Fed “printing money” seldom look at the similar effect of consumer credit) – last friday, the BEA reported that personal incomes fell for the first time in 2 years in august, and although spending increased 0.2%, in real inflation adjusted dollars it was zip…the best coverage of that Personal Income and Outlays report i’ve ever seen came from the economic populist this week, complete with 10 charts, if you want a detailed analysis…

this was also the week of the monthly report that has become the most interesting to me, the LPS Mortgage Monitor; i've covered it before; it quantifies delinquent mortgages & homes in foreclosure; in august, foreclosure starts were up 20% over july (you may recall reports BofA stepping up their activity in non-judicial states), although the total 2.15 million homes in the process was down 12% from last year...there were also a total of 4.25 million homeowners who had missed at least one housepayment; 2.38 million of those were less than 90 days delinquent, and 1.87 million loans were over 90 days delinquent...a total of 12.24% of mortgages were in trouble, & those in foreclosure numbered 4.11% of all mortgages...with banks in many cases unable to prove the right to foreclose, the length of time homes are in foreclosure continues to increase, with the average loan in foreclosure now having not paid on their loan for a record 611 days...

in other real estate news, corelogic released it's home price index for august, which is the not-seasonably-adjusted weighted index of the 3 preceding months used by the Fed; it showed home prices in the U.S. decreased 0.4 percent over the july report, the first monthly decline in four months; typically; home price reports going forward will trend downward as the prime summer home sales season ends; the weekly report from Freddie Mac had 30 year mortgages below 4% for the first time in history at 3.94%; 15 year fixed mortgages were also at a record low of 3.26%...the real estate firm Reis also reported on vacancy rates for three classes of commercial real estate for the 3rd quarter; the apartment vacancy rate fell to 5.6% from 6.0% in the second quarter and effective apartment rents were up 2.4% from a year ago; office vacancy rates declined slightly to 17.4%, with average office rents up 13 cents to $27.85 a square foot, still well below the average of 29.37/sq.ft prior to the recession, and the vacancy rate for large shopping malls reached its highest level in 11 years at 11%, only a tenth of a percent off the all time high vacancy rate for mall space...

the situation in europe continues to threaten to explode into another major worldwide financial crisis that could put us into a deeper depression; i’ve got links to what i feel were the several dozen most important stories at the end of this week's blogpost, if you want to read everything on it that i've collected...

you may have noticed that the MSM is now reporting on the occupy wall street & other demonstrations going on in major cities around the country; they also have become a hot topic in the econoblogosphere, with considerable discussion of what changes or policy might come out of them; they've also garnered support from two nobel prize economists, with Joe Stiglitz at the NY site speaking with the protesters; accordingly, i've added that coverage to my blog, & have even more links in the miscellaneous section at the end of my emailed package...i also posted occupy wall street / occupy together - livestream video & info here on MW666 this week; i dont have to know what they're for...i know what they're against, & thats enough for me to support them...

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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