Economic Spin

[unlawflcombatnt]

ECONOMIC SPIN

Today's Economic Calendar statistics were somewhat negative, and definitely subject to a lot of spin. Of course, I have my own "spin" as well.

Payroll employment growth was 146,000, which is slightly below the break-even point of 150,000 that most economists agree upon. (150,000 jobs is the break-even point because the average growth in the number seeking work is 150,000 per month.) Today's payroll numbers were significantly less than the market forecast of 195,000 jobs.

Last month's 78,000 job growth was revised upward to 104,000. This leaves a 2-month growth in payroll employment of 250,000, or an average of 125,000 per month. This is below that needed to break even. Following a recession, job growth should be well above that needed to break even. Thus, this 2-month rate is definitely NOT a good sign.

Hourly wages increased 0.2%, which is probably below the rate of inflation. Conveniently, the June Consumer Price Index comes out much later in the month, allowing the Bush administration to gloat over an hourly wage increase that probably didn't even keep up with inflation. To put it differently, this "nominal" hourly wage increase probably represents a decrease in inflation-adjusted, or "real" hourly wages.

Manufacturing employment declined 24,000. Manufacturing employment has declined for the last 4 straight months. May's -24,000 follows -6,000 for April, -15,000 for March, and -6,000 for February. Manufacturing employment has declined 10 months out of the last 12 months.

The unemployment shows a decline, but the 17 year low in labor force participation rate in March indicates that the longer term unemployed simply haven't returned to the job hunt. Thus, part of the low unemployment rate is because many of the truly unemployed have been "re-classified" as not actively seeking employment. Therefore, they don't have to be counted as unemployed. How convenient.
These numbers can be verified at:
http://www.briefing.com/Silver/Calendars/EconomicReleases/employ.htm

The labor force participation rate affects the unemployment rate drastically.
The current reported unemployment rate of 5.0% would jump to 7.0% if the labor force participation rate used during Clinton's presidency was used here. Bush's 65.9% participation rate removes almost 2 million workers that would have been included if the participation rate used was 67.2%, which was used during the Clinton years. To me, this is simply statistical chicanery. I consider current unemployment to be 7.0%.

Regardless of my personal assessment, the release at 8:30 AM of today's statistics caused the dollar to sink like a rock. Later, at 10 AM, the wholesale inventories number was released. May's number showed a 0.1% increase, less than the 0.7% increase predicted. This was considered good news, and caused the dollar's value to shoot back up again, to where it had been before the 8:30AM releases on employment. It seems reaction to this number was excessive. Market speculators appear to overreact to anything that can be construed as positive news. (For more on the effect on the dollar, see below.)

A more in-depth look at wholesale inventories reveals a less optimistic picture. May sales increase of wholesale goods was 0.0. In addition, overall inventories have increased 10% in the last year (referred to as "yoy"). Sales growth increased 7% over the last year. Thus, inventories have grown 3% more than sales in the last year. The short term inventory-to-sales change is even more alarming. For the 5-months ending with May 2005, inventories have grown 3.0%. For the same period, sales have grown 1.3%. Thus, inventories have grown over twice as fast as sales since the beginning of this year.What does all of this mean? It means we're producing more than we consume. The link for this can be found at:
http://www.briefing.com/Silver/Calendars/EconomicReleases/whlsls.htm

How might inventories affect employment? Excess supply of goods reduces demand for production. It also reduces demand for workers to create the production. This means a reduction in demand for labor. Which will ultimately reduce the number employed, and the wages of those already employed. Again, anything that reduces demand will reduce price. In this case, the "price" is American worker wages.

Reduction in wages will reduce consumer spending, and the production demand it creates. Reduced production demand FURTHER reduces labor demand, wages, and employment.

I would consider today's report a definite negative. I'm sure the financial "experts" will espouse a different interpretation. This is no surprise, as their jobs depend on the wellbeing of our economy, or at least the appearance of wellbeing. They convinced a lot of wealthy stock market investors today. Will they convince the rest of us?

[Birthmark]

1. Outstanding post.

I especially agree with your conclusions about employment. I have looked into the unemployment numbers myself, going back as far as 1968. The situation is atrocious. The games being played cover up the true depth and breadth of the problem.

I feel as though our economy is walking a very fine line between the status quo and utter disaster. In adddition to the material you present, there are other disquieting factors:

- The housing bubble (or "foam" if you are Alan Greenspan)

- The increase in minimum payment for credit cards

- The bankruptcy reform

- Massive debt; personal, corporate, government

- And, of course, the ubiquitous deficits, current accounts AND budget.

Things could get very interesting, very soon.

[unlawflcombatnt]

3. Employment & Credit Card Payments & Housing Bubble

Birthmark,

I completely agree with you. I've written quite a bit about how the unemployment rate numbers are fudged. (You might find it entertaining to read the point-counterpoint discussion I've been having with a right-winger at by blogsite, in the section "Economic Update." It's about the "labor force participation rate.")

I just commented myself on another post about the increased interest rates people will probably be paying on credit cards. The increase in minimum payment is another idea I had not thought about.

The housing bubble will definitely deflate, if not outright explode in the future. Residential-only buyers simply don't have enough money to buy up all of the homes that speculators have bought. Those homes ultimately have to be sold to residential buyers. And those residential buyers are becoming less able to afford homes as time goes on. Housing prices will definitely come down. When, how fast, and how much remain to be seen.

[Birthmark]

6. Sorry, about the delayed response.

We've had a spot of bad weather here in FL, though. :D (It missed me by a large margin, but it did pretty much kill my Saturday.)

Anyway, in addition to the excellent points about people not having enough money to buy houses, there is the fact that there just isn't anyone left to buy new houses. The last I heard, something like 69% of Americans owned homes. If true, (and that's becoming an increasingly large caveat in all matters economic) then we simply have few, if any, qualified people left to buy houses. Demand is compelled to come down...unless those who already own homes buy second or third homes. That's probably not possible on the scale needed to keep the bubble inflated.

[unlawflcombatnt]

7. You're absolutely right

You are right on all points. There simply aren't enough people left with enough income to purchase homes. Home prices are rising much faster than median incomes. This is actually one of the so-called "fundamental" problems with the housing market. Home prices are rising much faster than inflation. Washington Post writer Robert J. Samuelson states home values have increased 55% since 2000. The link for that is:
http://www.washingtonpost.com/wp-dyn/content/article/2005/06/21/AR2005062101363.html

Meanwhile, average inflation adjusted wages have been declining. This is one of the so-called flaws in the fundamentals of the housing price increase. According to economist Dean Baker: "The increase in house prices is not being driven by fundamental factors in the housing market, such as income and population growth." The link for Baker's article can be found at:
http://www.cepr.net/publications/housing_fact_2005_07.pdf

You're very right about the housing speculators. Another poster submitted some good links to articles on the San Diego housing market. In the San Diego Union Tribune article, titled "Signs of Slowing," the San Diego housing market bubble is discussed in detail. Speculator (or "investment" or "non-residential") buyers own 15% of homes in San Diego County. Among the signs mentioned of an impending fall in real estate values are that more homes are on the market and on the market longer before selling. The number of San Diego homes and condos changing hands dropped 8.5% from a year earlier. The link for this article is at:
http://www.signonsandiego.com/news/metro/20050710-9999-lz1n10signs.html

[PsycheCC]

2. Another Winner! Recommended.

Great post! This business of manipulating and revising numbers to suit the Bush Administration is really underhanded. Can't something be done to stop this?

On a related note, I've been watching the BRAC hearings on base closures. It's clear from the testimonies that there were a lot of fuzzy numbers in that process. Senator Biden came right out and said that in a period of 10 months, important numbers were just plain changed without any explanation.

Isn't the GAO supposed to keep government honest? Even if you couldn't prove intent to defraud, at least they could put the Bushies on notice that these numbers are being investigated.

[unlawflcombatnt]

4. Dollar-Value Assessment of July 8th Economy

My initial post starting this thread included a part on dollar valuation and measurement. I ultimately excluded it from my revised post because it muddled the meaning of what I had originally posted. I'm going to re-introduce that part of my post here.


Euro vs. Dollar

http://quote2.fxtrek.com/misc/fxcm2.asp



GoldPrice: Euro vs. Dollar



The point of showing the Gold and Dollar values is to show the effect Friday's Economic Calendar releases on the dollar. In other words, whether the results were considered positive or negative. From these charts, the exact time of the changes can actually be seen. Negative results cause the dollar to decline in value. That causes an upshoot on both the dollar vs. Euro chart and the gold price on the gold chart. (If the dollar goes down in value, it takes more dollars to buy gold, and more dollars to buy Euros.)

It's quite obvious from the charts that dollar value declined sharply after 8:30 AM, which is when the 1st set of Economic calendar numbers were released. (nonfarm payroll employment, hourly wages, average workweek, and unemployment rate.) This was denoted by the sharp "upshoot" in both gold price and the price of Euros in US dollars. Thus, the news was interpreted as negative by currency traders.

The statistics for "wholesale inventories" were released at 10:00 AM. The dollar shot back up in value, denoted by a sharp downward movement on both the gold and dollar charts. Inventory statistics were considered a positive by currency traders.

The part of the chart that shows this is the period between 8:00 AM and 11:00 AM. There is a sharp spike during that time. It's also worth noting that dollar-value started drifting back "down" later in the day, denoted by a "rise" in both the price against the Euro and gold prices. (If this doesn't confuse you some, nothing will. I still have trouble keeping it straight.)

The "dollar-value" effect is worth pointing out because it helps separate the media spin interpretation from the actual market reaction to the results. The old adages: "money talks" and "actions speak louder than words" apply here. The "actions" and the "money" indicate the 8:30 AM results were considered negative, regardless of what was said by talking heads financial experts
(such as Larry "I-lost-my-straightjacket" Kudlow.)

[PsycheCC]

5. Worthwhile Reading

:kick:

[PsycheCC]

8. So Let Me See if I Have This Right

We have too much inventory because we produce more than we consume. We produce more than we consume because nobody has the money to buy the product. Nobody has the money to buy the product because wages are down. Wages are down because of outsourcing and more competition for the fewer remaining jobs. Wages are also down because corporations refuse to share their record profits (largely from outsourcing) with their remaining American workers.

So....what will they do with all that inventory that we would have bought if they had paid a decent wage? Seems a no win for EVERYBODY.

Did I get that right?

And how do they manage to positively spin such a horrible situation?

[unlawflcombatnt]

9. Great Summation

PsycheCC,

You've summed it up perfectly.

"What will they do with all that inventory..?" They'll reduce production. They'll lay off workers, since they already have too much product, and they don't need more workers to create products. Of course, laying off workers will reduce aggregate consumer income, making it even harder to sell their surplus production.

[PsycheCC]

11. And if corporations had only been willing to share the wealth with

their workers, then they still would have a market for their products, right? CEO's must realize these facts, so why do they continue to gut their companies in favor of record profits? Is it because they want to prop up stock prices? or....? Are they just all planning to take their golden parachutes and run when everything finally collapses? Why do they seem to cut their own throats?

[Delphinus]

10. You are GOOD!

Wow - this is a keeper!

[unlawflcombatnt]

12. Thank you

I appreciate the compliment.
:)

[PsycheCC]

13. Just FYI Delphinus,this thread is the continuation of another great

thread called ECONOMIC PROPAGANDA on this board. (I'm tooting Unlawful's horn since he won't do it himself.:applause:) Anyway, you might like that one too.:-)