The Need for Counter Cyclical Measures in a Falling Economy: Another Picture of Unemployment

Many journalists, when writing about the economy, focus on the broadest pictures:  Gross National Product, total Non-farm employment, etc.  But, sometimes the big picture needs supplementing with a narrower focus. 

In looking at employment, for example, it helps to break the total employment picture down into three primary sectors.

• Cyclical Services, which include information services, fire, professional and business services plus leisure and hospitality (sports, hotels, gambling, e.g.),  Employment in this sector follows the general business cycle.
• Acyclical Services, which include health, education, other services, and government.  These services, as the name implies, do not vary with the business cycle as much as the other sectors.
• Goods, i.e., produced goods, which are generally measured with  industrial production figures.

Below is a graph of these three sectors, measured in total payrolls for each sector as annualized six-month changes.  This chart shows how wide a path unemployment is cutting through our economy.  Most everyone is feeling it.

The see the graph and further analysis of sector analysis, follow this link.

Deflation as a Symptom: Leading Economic Indicators

Few economic events stir up fear faster than deflation.  In a technical sense, deflation is merely the opposite of inflation; overall prices drop rather than rise.  It doesn't mean that all prices drop, but the average of all prices drops during deflation.

The fear factor that deflation brings is because it is associated with bad economic times rather than good times.  The NY Times graph below does a good job of showing this association.  Note that in the shaded areas, areas when the economy is in recession, is also the time, for the most part, when price deflation occurs.  There are brief periods where year over year prices may fall for a short time without being in recession, but in all cases where falling prices lasted for a long time, a recession or depression was in

process. 

To read the balance of the article, including the analysis of the chart, and to see the latest release of leading economic indicators for November, follow this link.

Chinese Yuan To Fall in Coming Months

A report from Hong Kong states that the yuan is set to fall for about the next six months.  The Chinese monetary authorities have signaled they will allow the fall by small amounts in order to make Chinese exports more attractive to foreigners.  The China economy is heavily dependent on exports, and a strong yuan discourages sales to foreigners by making them more expensive.

China was criticized by American and European governments last year for purposely undervaluing the yuan in order to support Chinese goods over those in the western nations.  In response to this criticism the yuan was allowed to rise for some of last year and into 2008.  But, as the chart below shows the last six months the yuan  has fallen in dollar terms, as reflected by the Wisdom Tree Chinese Yuan Fund (CYB). 

To view the chart and the rest of the article, click here for rayhendon.com.

Pictures of the Real Estate Bubble Bursting

The bursting of the real estate bubble is no longer news.  We can watch it unfold before our very eyes, as if we were watching some distant star explode a billion light years away.  The three pictures shown below show a snap shot of the real estate explosion and subsequent implosion.

The first chart shows Washington DC housing prices from 2001 through part of 2008.  The dates are fixed on all charts.  Washington DC was chosen because of its similarities to the national average.  You can see the darker blue bars, which represent the national average, are fairly close to Washington D.C.'s figures. 

Overall, the nation's capital had a rather mild expansion and an equally mild crash.  Prices rose about 25% at the peak in early 2005, and down less than 20% in the middle of this year.

All charts from the NY Times

A more pronounced bubble is seen in the Los Angeles chart, below.  LA prices rose over 30% at their peak (in mid 2004), and have plunged closer to 30% since.

To read the rest of the article and see graphs of Los Angeles and Las Vegas, click Here

For a more detailed analysis of the current economic crisis, see my most recent article on Seeking Alpha.

November Job Losses Highest in 34 Years

The American economy lost 533,000 jobs in November, the most in 34 years.  The unemployment rate  shot up to 6.7 percent, the highest in 15 years.  The last time that job losses in a single month were this bad or worse was in December, 1974.

The chart below provides a picture of how the recession has deepened throughout the year.

source: Bureau of Labor Statistics

If anyone had doubts about the severity of the recession that began at this time last year, there are none left.  The current slowdown points to a more bad news for the United States and the rest of the world as the continuing economic crisis searches for a bottom that appears to be far lower yet.

Almost no sector in the economy was spared.  Cutbacks hit factories, often the highest paying jobs, construction companies, financial firms, retailers, leisure and hospitality, and others. Government and health services were two of the few who did not post job losses.

The forecast for losses in November had been 320,000, so economists were show to have missed the mark by more than 66%, a sure sign that the severity of the recession far exceeds general expectations. 

Job losses in September and October also turned out to be much worse. Employers cut 403,000 jobs in September, versus 284,000 previously estimated. Another 320,000 were chopped in October, compared with an initial estimate of 240,000.

The recession is going to be the Grinch who stole Christmas, deepening as the holiday season nears.  With high unemployment, gift giving is likely to be pared back by many consumers. 

Investor sentiment will also reflect this reality, and further pressure will be placed on the stock markets around the world.  Within five minutes after the opening bell on Friday, the Dow Jones Industrial Average was down over 100 points.  

My fear of unemployment as high as 10% was buttressed by today's news.  A bottom for this recession seems much deeper than it is now. 

34 Year High in Job Losses for November

The American economy lost 533,000 jobs in November, the most in 34 years.  The unemployment rate shot up to 6.7 percent, the highest in 15 years.  The last time that job losses in a single month were this bad or worse was in December, 1974.

The chart below provides a picture of how the recession has deepened throughout the year.

source: Bureau of Labor Statistics

If anyone had doubts about the severity of the recession that began at this time last year, there are none left.  The current slowdown points to a more bad news for the United States and the rest of the world as the continuing economic crisis searches for a bottom that appears to be far lower yet.

Almost no sector in the economy was spared.  Cutbacks hit factories, often the highest paying jobs, construction companies, financial firms, retailers, leisure and hospitality, and others. Government and health services were two of the few who did not post job losses.

The forecast for losses in November had been 320,000, so economists were show to have missed the mark by more than 66%, a sure sign that the severity of the recession far exceeds general expectations. 

Job losses in September and October also turned out to be much worse. Employers cut 403,000 jobs in September, versus 284,000 previously estimated. Another 320,000 were chopped in October, compared with an initial estimate of 240,000.

The recession is going to be the Grinch who stole Christmas, deepening as the holiday season nears.  With high unemployment, gift giving is likely to be pared back by many consumers. 

Investor sentiment will also reflect this reality, and further pressure will be placed on the stock markets around the world.  Within five minutes after the opening bell on Friday, the Dow Jones Industrial Average was down over 100 points.  

My fear of unemployment as high as 10% was buttressed by today's news.  A bottom of for this recession seems far away. 

China Turns Inward

Speaking at the Clinton Global Initiative conference in Hong Kong, the chairman of China’s sovereign wealth fund , Mr. Lou Jiwei, said on Wednesday that China had no plans for further investments in Western financial institutions. “Right now we do not have the courage to invest in financial institutions because we do not know what problems they may have,”

The sovereign wealth fund had invested heavily in Barclays and Morgan Stanley, only to see the value of its investments plummet as the American and U.K. financial sector crashed. 

Follow this link to read the full article: Link to full article.

U.S. and World Economies--Slow, Slower, Slowest

There is no good news today for the world’s economies, including America. In the United States, the monthly survey of business by The Institute for Supply Management showed that manufacturing activity fell to 36.2 from October's 38.9. A figure below 50 indicates the sector is contracting. The Associated Press reports: “The November reading is the lowest since May 1982. . ., when the economy was in the midst of a painful recession. Economists said the report indicates that the economy is likely in a steep recession and times will remain tough for manufacturing companies in the coming months.”

This kind of drop in manufacturing is also shown in American automobile sales, which have put the three domestic automobile manufacturers at the doorway of bankruptcy. Of course, a slowdown of the auto industry also spills over into steel and many other members of the manufacturing sector.

Below is a video presentation by Mark Vitner on Bloomberg TV about the U.S. ISM index (to see the video and read the rest of the article about the world wide slowdown, click here).