The world has enough actual issues without tossing in a few contrived ones.
The fact that the ratings agencies will actually do this also testifies negatively to their state of knowledge while there is no threat of solvency, there is a threat of downgrades and secs getting cheaper by a few basis points, as happened in Japan.
And, worse, as the government has the same fears as the ratings agencies that there is risk of counter agenda policy decisions for the wrong reasons.
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| Survey | 395K |
| Actual | 346K |
| Prior | 404K |
| Revised | n/a |
| Survey | 3140K |
| Actual | 3202K |
| Prior | 3116K |
| Revised | 3111K |
Karim writes:
Initial claims down 58k to 346k; number distorted by seasonal adjustments related to expected annual maintenance at auto factories.
Claims number was adjusted to anticipate more seasonal layoffs in autos than occurred. When the expected add back doesn’t occur as expected, claims should return to prior level, all else being equal. Labor department official states the decline ‘a question of timing’,
Yes, it all comes out in the wash, but it takes a while; so, the 4 week moving average is a more useful indicator.
4wk avg drops to 380.5k from 390.5k.
Continuing claims jumps 91k to new cycle high of 3.202 million, highest since 12/03.
Higher continuing claims reflects lack of hiring and is related to longer duration of unemployment (and likely more tepid wage demands from those looking to find a job).
Also, with productivity running higher than GDP growth, by definition that means the growing real output can be accomplished with slightly fewer workers.
Twin themes remain: weakness due to lack of demand and higher prices due to higher costs of fuel/food/imports.
The numbers also show business would rather hire people already working than the unemployed, so the long term trend of more and more persistent long-term unemployment continues.
See ‘Full Employment and Price Stability‘ for ‘the answer’ and also the ‘base case’ for analysis.
| Survey | 3.3% |
| Actual | 4.3% |
| Prior | 3.0% |
| Revised | 2.9% |
Way better than expected. Hard for mainstream economists to believe fiscal policy will do much. They put their faith in interest rates, which never have done much, at least not in the intended direction.
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Small consolation – declining real terms of trade helping insurers.
Progressive Gains as Record Gasoline Curbs Driving
by Erik Holm
Americans are driving less for the first time since 1980, data compiled by the Federal Highway Administration show. The rate of accidents per insured vehicle fell 0.5 percent in the first quarter from a year earlier after increasing in 2007, according to Insurance Services Office Inc. in Jersey City, New Jersey.
“We may be at a very special point where things have changed dramatically,” Progressive Chief Executive Officer Glenn Renwick said at an investor meeting last month.
Americans drove about 20 billion fewer miles during the first four months of 2008, down 2.1 percent from a year earlier, according to the Federal Highway Administration in Washington. Progressive of Mayfield Village, Ohio, was the top performer on the 24-member KBW Insurance Index during the three months through yesterday, gaining 21 percent.
The number of drivers probably fell again in May when gas prices approached $4 a gallon, said Meyer Shields, a Baltimore- based analyst at Stifel Nicolaus & Co.
| Survey | n/a |
| Actual | 7.5% |
| Prior | 3.6% |
| Revised | n/a |
| Survey | n/a |
| Actual | 365.8 |
| Prior | 342.8 |
| Revised | n/a |
Moving back up some, still in the new lower range that used to coincide with maybe 1.5 million starts.
| Survey | n/a |
| Actual | 1379.3 |
| Prior | 1269.2 |
| Revised | n/a |
Not a lot going on here.
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| Survey | n/a |
| Actual | 2.3% |
| Prior | 2.2% |
| Revised | n/a |
Holding up with the rebate checks.
| Survey | n/a |
| Actual | 2.9% |
| Prior | 2.9%% |
| Revised | n/a |
Rebate checks doing their thing.
| Survey | -3.0% |
| Actual | -4.7% |
| Prior | 6.3% |
| Revised | 7.1% |
| Survey | n/a |
| Actual | -14.6% |
| Prior | -13.0% |
| Revised | n/a |
Still looks like they may be moving back up to me.
| Survey | 0.6% |
| Actual | 0.8% |
| Prior | 1.3% |
| Revised | 1.4% |
| Survey | n/a |
| Actual | 8.7% |
| Prior | 8.1% |
| Revised | n/a |
Moving up some but not problematic yet.
| Survey | $7.5B |
| Actual | $7.8B |
| Prior | $8.9B |
| Revised | $7.8B |
| Survey | -43 |
| Actual | -41 |
| Prior | -43 |
| Revised | n/a |
Still low but higher than expected and moving up with the rebates.
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Highlights:
| Chinese entrepreneurs less confident in Q2 |
| China’s Inflation Eased to 7.1% Last Month, Reuters Reports |
| China Home Prices to Drop More as Curbs Stay, Citic Ka Wah Says |
| Trade: China’s textile export growth drops significantly |
| Investors’ confidence in stock market remain |
Perhaps coming apart with the approach of the Olympics as many have anticipated.
The crowd’s not always wrong!
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From Chairman Bernanke’s July 07 speech:
As you know, the control of inflation is central to good monetary policy. Price stability, which is one leg of the Federal Reserve’s dual mandate from the Congress, is a good thing in itself, for reasons that economists understand much better today than they did a few decades ago. Inflation injects noise into the price system, makes long-term financial planning more complex, and interacts in perverse ways with imperfectly indexed tax and accounting rules. In the short-to-medium term, the maintenance of price stability helps avoid the pattern of stop-go monetary policies that were the source of much instability in output and employment in the past. More fundamentally, experience suggests that high and persistent inflation undermines public confidence in the economy and in the management of economic policy generally, with potentially adverse effects on risk-taking, investment, and other productive activities that are sensitive to the public’s assessments of the prospects for future economic stability. In the long term, low inflation promotes growth, efficiency, and stability–which, all else being equal, support maximum sustainable employment, the other leg of the mandate given to the Federal Reserve by the Congress.
Note that the current anti-‘inflation’ argument within the FOMC is that the high prices for imports take discretionary income from consumers that reduces domestic demand and reduces the ability to service domestic debt. There was no thought or mention of that reason for ‘inflation’ being a ‘bad thing’ a year ago.
I suppose one could argue that this problem is due to there not being inflation, as with wages ‘well-anchored’ there is only a relative value story. If we did have ‘real inflation’ with rising wages, we wouldn’t have the problem of insufficient consumer income to support domestic demand, but we would have the traditional negatives from inflation.
But Bernanke’s response to Congress was that exports are replacing domestic consumption and that is a ‘good thing’ as it brings the US trade back to ‘balance’ and restores ‘national savings’ – the old mercantilist, gold standard imperatives. But it does leave weak domestic demand and rising prices. That brings us back to the tail end of Bernanke’s statement:
Admittedly, measuring the long-term relationship between growth or productivity and inflation is difficult. For example, it may be that low inflation has accompanied good economic performance in part because countries that maintain low inflation tend to pursue other sound economic policies as well. Still, I think we can agree that, at a minimum, the opposite proposition–that inflationary policies promote employment growth in the long run–has been entirely discredited and, indeed, that policies based on this proposition have led to very bad outcomes whenever they have been applied.
Seems that either way you look at it, rising prices (whether you call it inflation or not) lead to ‘bad’ outcomes.
And it sure looks to the dissenters in the FOMC that this is exactly what is happening. Only time will tell, but all Fed speakers now agree the risk of inflation is elevated substantially, and we will soon see if they still agree the cost of letting the inflation cat out of the bag is far higher than letting a near-term recession run its course and (hopefully) contain prices and keep a relative value story from turning into an inflation story.
Also, not how the Fed continues to use ‘other tools’ for market functioning as Bernanke just now indicates they will keep lending directly to their primary dealers.
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Twin themes remain – weakness and higher prices.
In Q2 2006 it seemed to me that the financial obligations ratio couldn’t get much higher which meant consumer debt could not grow at a faster pace.
With the budget deficit in decline and the trade gap still widening, it would have taken increasing rates of growth of consumer debt to sustain GDP, so my forecast was for gradually declining GDP growth rates over time.
At the same time, I was calling for ever higher crude prices as I saw the Saudis as a swing producer/price setter intent on hiking prices.
This was all temporarily derailed in Aug 2006 when Goldman changed the composition of its commodities index and liquidated substantial amounts of gasoline and crude from the basket of futures purchased and held by its fund, and another fund that followed the Goldman index also re-weighted funds and liquidated substantial numbers of futures contracts. This action pushed prices down until the liquidation was over, but then at year end Goldman and also AIG at year end changed their indexes and again drove prices down. Shortly thereafter it was announced that Goldman was turning its index over to S&P to avoid related party conflicts, or something like that, and the Saudis have resumed their clandestine price hiking.
In general, the Valance charts show economic weakening since Q2 2006. The subprime blow up took away demand in the housing sector as fewer buyers qualified for mortgages when the number of undetected fraudulent applications was reduced, with exports first picking up the slack in 07, and government kicking in soon after in 08.
With the government deficit now proactively growing again, and the financial obligations ratios starting to relax, GDP should continue to muddle through.
“Muddling through†also means, however, that demand will be high enough to support the current level of crude/food/import prices and allow core prices to catch up with headline CPI as the rising food/crude/import prices are also factors of production that are driving up costs.
So far, GDP has muddled through as domestic demand has weakened.
All the surveys look about like these – working their way lower over time, with some turning up recently from the lowest levels.
Government spending is on the rise, as a conspicuous drop in the rate of spending in 2007 is making a comeback in 2008, along with the fiscal package now kicking in.
Housing is way down, to the point where it could recover by 50% and still be depressed.
Rising affordability and the passage of time to digest the disruption of the subprime related issues along with increased government spending and increasing exports are beginning to turn things around from the bottom that may have been reached last October/November.
The outlook for the future may have bottomed at these very low levels.
Actual inventories of unsold new homes are steadily falling and median prices are showing signs of a bottom also pointing to a possible bottom for the housing sector.
Government spending and exports have kept the economy from getting a lot worse.
No matter how you look at it, the ‘labor markets’ are on the soft side.
Productivity increases have allowed positive GDP growth with reduced labor input.
Government to the rescue! GDP will be sustained as long as this holds up.
Not terrible here either, apart from the auto industry getting caught out with too many large trucks to sell.
Inflation will only get a lot worse as crude keeps rising.
NOTE: The dip from the Goldman effect in August 2006 has been largely reversed in CPI with the others following with a lag.
And these are the wholesale prices and import prices that have also more than recovered from the Goldman effect and are in the process of getting passed through to retail prices.
Export prices are booming, expectations way too high for the Fed, the CRB back on trend after the Goldman dip, and demand for Saudi crude holding firm at current prices.
All the price surveys look about like this.
Demand looks strong here as well.
Meanwhile wages remain ‘well-anchored’ as real wages go negative after being about flat for a few decades. And even the most liberal members of Congress seem to think this is a ‘good thing’ as they congratulate the Fed Chairman for keeping wage pressures low.
We are in the process of discovering it IS possible to have inflation without wages leading the way, just like the rest of the banana republics with weak currencies, rising import prices, export led growth, and declining real terms of trade.
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Impossible – as long as wages are well anchored it’s not inflation…???!!!
Or at least not here?
Inflation surges to double-digit levels in 1 in 4 countries worldwide
by Rachel Beck
There is nowhere to hide from inflation.
Prices in one in four countries, many of them in emerging markets, are accelerating at a double-digit pace, which puts them at least two and a half times the 4 percent annual U.S. headline inflation rate, according to new research from Morgan Stanley.
That should be a wake up call for anyone counting on investments abroad to prop up their portfolios as U.S. stocks teeter on the edge of a bear market.
Sure, the “decoupling” strategy worked for investors in the recent past. Foreign holdings fared better because international economies were outperforming U.S. growth.
The U.S. economy has slowed to nearly a standstill in the last year because of the mounting inflation and the collapse in the housing and mortgage markets. Other industrialized countries have seen about a 2 percent average rate of growth while emerging economies have topped 7 percent.
That growth is now being threatened by inflation. And remember: In the developing world, a larger portion of household expenditures tends to go to the most inflationary items  food and fuel.
Food prices have jumped 39 percent from February 2007 to 2008, led by wheat, soybeans, corn and edible oils, according to the International Monetary Fund.
That hits residents of emerging markets much harder than those living in more advanced economies. People in countries like Vietnam, Russia, Egypt and India put at least 30 percent of their total spending toward food, well above the 6 percent allotment for U.S. households, according to U.S. Department of Agriculture.
That’s why Morgan Stanley economists Joachim Fels and Manoj Pradhan said they were “flabbergasted” by their findings that 50 countries had double-digit inflation rates. On that list were six of the 10 most populous countries in the world, including India, Indonesia, Pakistan, Bangladesh, Nigeria and Russia.
In total, those facing such pricing pressures accounted for 42 percent of the world population.
“In other words, close to three billion consumers are currently experiencing double-digit rates of price increases,” they wrote in a note to clients.
Soaring inflation is not easy to tame. Some countries, such as India where inflation is running at around 11 percent, may have no choice but to boost interest rates.
The Reserve Bank of India earlier this month announced an inter-meeting rate hike. It said in a statement accompanying the move that the “overriding priority for monetary policy is to eschew any further intensification of inflationary pressures and to firmly anchor inflation expectations.”
Others, however, will balk at tightening monetary policy because they don’t want their currencies to surge, which would then raise the price of their exports.
Many emerging-market economies also link their currencies to the dollar, and because of the U.S. Federal Reserve’s loose monetary policy stance right now  the central bank has aggressively cut interest rates in response to the credit crisis  that has helped feed inflationary pressures.
The longer inflation remains elevated, the more damage it will do to long-term economic growth.
“There is plenty of reason to worry about the continuation of the bull story for emerging markets, especially in those countries that have seen a sharp acceleration in inflation, are unable or unwilling to tighten policy sufficiently, and are commodity consumers rather than producers,” the Morgan Stanley economists wrote in their report.
But even as prices surge, earnings forecasts aren’t coming down in many global markets. That may give investors false hope that many countries will bypass the inflation storm.
For instance, in Asian countries outside Japan, earnings forecasts are still for 11.6 percent growth over the next 12 months and 15.1 percent growth in calendar year 2009, according to Barclays Capital.
Those estimates “are implicitly assuming that inflation will either miraculously disappear on its own accord or that central banks are not going to bother doing anything about it neither is particularly believable,” wrote Tim Bond, head of global asset allocation at Barclays.
Barclays is recommending that investors either avoid owning stocks in that region or that they short shares, meaning bet they will decline.
“Although the area is currently outperforming in terms of economic growth, the inflationary environment is not far short of disastrous,” Bond said.
Clearly, the inflation bogeyman is haunting all corners of the world.
by Sara Hennessey
Despite the weak state of the economy and the large number of businesses being forced to make cuts and lay off employees, it seems recent hires can expect to maintain competitive starting salaries, according to a recent 2008 undergraduate study.
The latest quarterly report of salary offers to grads, released by the National Association of Colleges & Employers (NACE) on July 2, shows an overall increase of 7.1% in starting salaries in all majors, compared to a year ago. Increases for business students lagged the overall market, however, posting only a 4% increase.
NACE National Employment Manager Andrea Koncz says the results were surprising because the group’s spring report (BusinessWeek.com, 4/17/08) seemed to hint salary increases would be flattening out due to the economic slowdown. “However, the current report shows that salaries are in fact still rising,” Koncz says.
For business grads, the average salary offers varied by specialty. Business administration and management grads fared especially well, posting a 5.1% increase over the previous year. Marketing grads saw an equally strong increase — 4.7% over last year. Economics majors saw a 4.2% increase, according to the survey, and finance grads saw a 2.8% increase. While accounting grads reported a modest 2.9% increase in their average offer, it’s a gain compared with NACE’s spring report, which found no year-over-year salary increase for accounting majors.
Hiring Down?
As for the hiring outlook, college employment experts remained cautious that the economic downturn will reduce the number of job offers for undergrads. NACE’s Koncz says her organization will begin asking companies about their hiring plans in late summer. In the meantime, she says initial indications are that companies may be cutting back on new hires. “Whereas last year (companies) were saying they would be hiring 16% more graduates, this year they’re anticipating hiring only 8% more,” Koncz says.
Linda Scales, director of career services at the University of San Diego, says that while alums have reported declining job offers, she hasn’t noticed the same trend for recent grads. Scales calls herself “cautiously optimistic” and says she hasn’t noticed companies holding back in offering jobs to recent grads.
“So far, there’s been no downturn,” she says, “and we keep wondering if it’s coming.” Scales adds that companies may have learned from the last recession and recognize that “there’s a continued need for new blood and new hires.”
Tammie King, director of the career management center at Texas Tech University’s Rawls College of Business, agrees that companies are going to continue to hire, albeit cautiously. “Companies that would normally hire, say, eight entry-level employees are hiring only four,” she says.
Whatever the hiring levels, Jeannette Frett, assistant dean and director of career management for the MBA program at Georgetown’s McDonough School of Business, says starting salaries are likely to continue to rise. “It’s really about supply and demand,” Frett says. “Companies are looking to do more with less, and those with the right talent and the right skills will be able to maintain a competitive salary.”